Predicting the future of pellet trade

May 13, 2010, London, UK – Wood pellets are underpinning the emergence of a new
commodities business in biomass. The key driver is bioenergy, and Pöyry Forest
Industry Consulting expects double-digit growth in pellet markets over the next
five years. These are the main findings of the study Wood Pellets – The
Bioenergy Feedstock Solution? Global market, players and trade to 2015, published by Pöyry, a
global firm providing bioenergy and biomass procurement strategies.

The
wood pellet market is immature, and the reliability of data on trade, prices,
production capacity, and actual production varies considerably among countries.
Pöyry hopes to establish an authoritative base of reliable data and analysis
that can be used for strategic decision making by existing or prospective
market participants.

Marek
Guizot, UK head of forest and wood supply strategies, says, “Wood pellets have
been identified as one of the fastest growing bioenergy feedstock markets and
also one where it is challenging to obtain reliable information. Pöyry has
therefore decided to provide what is probably the first comprehensive strategic
review of the global wood pellet sector.”

The
global wood pellet market is and will continue to be a growth area. The current
and future demand for wood pellets is strongly driven by the world’s need to
develop renewable forms of energy and reduce greenhouse gas emissions. Global
demand for wood pellets reached nearly 12 million tonnes in 2008 and is worth
approximately EUR 2 billion. Europe and North America accounted for 97% of
global demand. The market has grown rapidly, with a compound annual growth rate
(CAGR) of 27% in Europe and 17% in North America from 2005 to 2008. However,
these growth rates will slow as markets mature. Pöyry predicts that by 2015,
global pellet demand will almost double, reaching approximately 24 million
tonnes, a CAGR of 10.5%.

Development
of the European wood pellet market has been largely driven by political targets
to increase renewable energy usage. Such policy will continue to play a
critical role in the development of pellet markets in EU countries and is
expected to become a similarly important driver in North America.

There
are two main end-use segments: residential and industrial. The residential
pellet business is local, with regional trade, whereas industrial pellets are
traded globally. Future trade flows will include industrial pellet shipments
from Australia, South America, and South Africa.

Increasing
demand for pellets in Europe and the decrease in ocean freight costs in 2009
created new opportunities for producers to export pellets from the southeastern
United States and, recently, Australia. However, prices for industrial pellets
(which are considerably lower than those for residential pellets) have not
risen greatly, and margins for many producers are under pressure because costs
have risen for raw materials such as sawdust, woodchips, or in some cases,
logs. Logistical costs remain a threat and are one reason for the recent
closure of Dixie Pellets in the United States (550,000 tonnes/year capacity).
An interesting development to watch will be torrefied pellets, which deliver
significant logistical benefits compared to conventional wood pellets.

“Compared
to other forms of biomass such as woodchips, the main advantage that wood
pellets offer is the significantly higher energy content per unit of volume,”
says Hannes Lechner, UK head of bioenergy. “This allows for greater transport
efficiency over longer shipping distances, an advantage which could increase in
importance as the sustainability or carbon footprint of such long distance
trade routes comes under the spotlight.”

Another
key advantage is the ease with which pellets can be incorporated into the
existing coal-based power generation infrastructure. Pellets typically can be
burned alongside coal with relatively minor modifications and capital outlay.

Pöyry
has carried out extensive primary and secondary research into the wood pellet
sector. The primary research consisted of numerous discussions with key
industry players and participants along the whole global supply chain and
various industry sources. As well as a review of the current and future global
wood pellet business, the study also provides detailed country profiles for 27
major and emerging markets.

For
further information about the study and business opportunities in the wood
pellet market, contact: Marek Guizot, marek.guizot@poyry.com, +44 20 8770 3218;
or Ania Krolak, ania.krolak@poyry.com, +44 20 8770 3215; www.poyry.com.