Vietnam’s exports of wood pellets

1. Exports have boomed since 2017:

On average over the past three years, Vietnam has exported about 3 million tons of wood pellets on an annual basis, valued at nearly US$350 million (Figure 1). Export volumes are expected to reach record highs in 2021, with 2.4 million tons, equivalent to US$273 million, already reported in the fi rst 8 months of 2021 alone. In general, export has been on the rise.

2. Impact of COVID 19 on exports:

While a recent surge of COVID-19 cases in Vietnam beginning in April 2021 has had a signifi cant impact on Vietnam’s export of wood products to major markets like the U.S. and EU, it has had a much lesser impact on Vietnam’s wood pellets export (Figure 2), primarily because the surge took place mostly in the country’s southern provinces where furniture processing clusters are located, while wood pellet manufacturing takes place primarily in northern provinces.

Figure 1. Vietnam’s export volume and value of pellets, 2013 – August 2021

Figure 2. Vietnam wood pellets export, January – August 2021

3. Export Markets:

South Korea and Japan are Vietnam’s two largest markets for wood pellet exports, accounting for over 90% of total export volume each year. South Korea is by far the main destination for pellets in Asia, although Japan has been rapidly increasing its demand over the past three years. In both countries, government programs (subsidies as well as regulations) have incentivized an increase in the use of wood pellets for renewable energy. The South Korean market for wood pellets has historically been nearly twice as large as Japan’s; however, the stability of Japanese imports is higher and growing more consistently. The South Korean market contains some uncertainty, particularly price volatility.

The world is in the middle of its first truly global energy crisis. The answer is not additional fossil fuels, but instead putting efforts into the energy transition, according to the Executive Director of the International Energy Agency.

Fatih Birol told the Energy Outlook: Overcoming the Crisis panel on the opening morning of Davos 2022, that the world needs to make energy investments that look beyond the immediate term and are viable for the future.

The global energy landscape has been radically reshaped since the Russian invasion of Ukraine on 24 February, prompting governments, businesses and other organizations to reduce their dependence on Russian energy. Now they need to prioritize bringing to a halt the energy crisis and provide greater energy security and sustainability.

“We are in the middle of the first global energy crisis. In the Seventies, it was the oil crisis and now we have an oil crisis, a natural gas crisis, a coal crisis – all prices are skyrocketing and energy security is a priority for many governments, if not all,” Birol told the panel.

“Of course, we are not living in a dream world. The world has to replace the oil and gas from Russia with first oil and gas and then other technologies. I completely agree that the immediate response should include bringing additional oil and gas into the markets. But I would prefer that our immediate response does not look into our energy infrastructure for fossil fuels for many years to come.”

Key to alleviating the current energy crisis, he said, is to make the most out of the existing oil and gas fields, plus using shale oil and gas because it’s quick to come to market, as well as reducing the amount of methane emissions from fossil fuel operations and ensuring that liquefied natural gas terminals are built to store ammonia or hydrogen in the future.

“But, in my view, the biggest part of the response comes from putting emphasis on clean energy, renewables, energy efficiency and, in the countries where they have nuclear capacity, increasing nuclear production there,” he added.

“We don’t need to choose between an energy crisis and a climate crisis – we can solve both of them with the right investment.”

Germany is one of the countries which had been badly hit by a dependence on Russian gas. Robert Haback, Federal Minister for Economic Affairs and Climate Action, acknowledged that this had been a strategic error and told the panel that the country is ready to fight the energy crisis and is now looking to diversify its fossil fuel imports at incredible speed – with processes that once took decades now taking months.

“We are really improving our ability to get things done, which hasn’t been done so good in the past. We are building up energy infrastructure and trying to get new suppliers for oil and coal,” said Haback.

“But this is only short term, of course. It is only one step in the direction to become not only independent of Russian fossil fuels, but of fossil fuels. From my point of view, caring about a new security of energy supply is not a contradiction to the greater goal of getting independent from fossil fuels at all.”

Haback added that global security has been rocked by at least four interwoven crises – high inflation, the energy crisis, food poverty and the climate crisis. “And we can’t solve the problems if we only focus on one,” he warned.

The panel concluded that collaboration and tackling the energy crisis needed to be done alongside action on issues such as the rising cost of living. “All stakeholders in the global system need to do some serious introspection and subject whatever they’ve been saying and doing to a reality check,” said Puri in his closing remarks.

“We need to deal with all these crises simultaneously, without allowing the solution of one crisis to exacerbate the other crisis. You’ve got to navigate your way out of the high-cost situation – this is not sustainable – at the same time you have accelerate the green energy transition.

“Taken together, yes, we will come out of it. The cost will be there, there will be pain. But at the end of the day, we’ll be working towards a better energy world.”

With the demand in markets like Japan expected to rise, the wood pellets industry has much room for sustainable development, which can be boosted by increasing the proportion of Forest Stewardship Council (FSC)-certified products.

Statistics from the Ministry of Agriculture and Rural Development show that in 2019 there were about 80 wood pellet factories in the country. However, other sources claim that there might be up to 300 pellet processing establishments, far more than the official statistics.

According to these sources, in Vietnam’s southeastern region alone, where wood processing facilities are concentrated, the number of pellet producers had reached about 200. The main reason for this strong concentration would be that wood by-products from other processing facilities are brought in as input material to produce pellets.

Such input sources include sawdust, shavings, twigs, and tops of planted wood with a diameter of about two centimetres or less. The pellet producers do not require large and complex investments in management technology, which enables them to easily participate in the production.

In addition, Vietnam has a geographical advantage when it comes to these raw materials as exports seaports are nearby, enabling convenient transportation.

The demand for wood pellets is forecast to expand three times by 2024-2025 compared to today. However, a significant supply-demand imbalance, together with issues in quality and legal conditions, affect large-scale exporters and the sustainable development of the pellet industry. Up to now, most of the involved enterprises act rather spontaneous, without much institutional support to regulate the development of the industry.

Therefore, there are several limitations within the industry. Firstly, input materials lack quality control, and some processing facilities use mixed materials, affecting the end product’s quality.

The input supply with FSC certified wood is also limited, while the export markets demand these certified products increasingly. There have also been some indications of fraud when it comes to FSC-certified products, with more claims than the actual supply. Even if these indicators turn out to be false, such information harms the industry.

Next, the industry is faced with greater supply than demand, leading to fierce competition among businesses and including unfair aspects such as price manipulation. While many enterprises are involved in processing, only a few exporters exist. With this current situation, the industry remains unsustainable at large.

Nevertheless, wood pellets are an important export item of Vietnam. In recent years, around three million tonnes, equivalent to $350 million, had been exported. South Korea and Japan are the most important markets of Vietnam, with the volume of these two markets accounting for over 90 per cent of the total annual export volume.

In the first eight months of 2021, the export volume reached 2.4 million tonnes, equivalent to $273 million in turnover. In general, exports are on a growth track and increased sharply in the 2018-2020 period.

The pandemic has had an impact on all socioeconomic aspects, especially on production and exports. Like other industries, Vietnam’s wood pellet industry has also been negatively impacted, with exports and volumes falling sharply in recent months.

Markets by volume and value

Between South Korea and Japan, the former is larger than the latter. However, the level of stability in the Japanese market is higher, as South Korea contains some uncertainties.

Like the export volume, the export turnover from the Japanese market is smaller than that of South Korea but has greater stability. The South Korean market had a very strong decline in 2019 and since then there has been no sign of growth again. The average export price to the Japanese market is currently higher than the one to South Korea, about $20-30 per tonne on average.

Information from some exporters shows that the current low export price to the South Korean market comes as this market applies an auction mechanism when buying products, with businesses offering low prices.

After receiving these contracts, the businesses return to manufacturers in Vietnam and push product prices down to meet the contracts they have signed with buyers.

Meanwhile, the purchasing mechanism in the Japanese market does not follow the auction model but depends directly on the agreements between buyers and sellers and consequently does not push down prices.

Enterprises by market and size

Statistical data on the export of wood pellets shows that on average, over 70 enterprises are involved in exporting each year. The number of businesses participating in this stage has not changed much, at least between 2019 and 2020. However, this went down in the first eight months of 2021 to only 59, much smaller than in 2020 and likely due to the pandemic.

The number of exporting enterprises to South Korea was much larger than those exporting to Japan, which corresponds to the volume of exports to these two markets.

The average export price per unit to Japan is always higher than to South Korea. This may cause exporters to move from the South Korean market to the Japanese market, or at least try to enter both markets. However, businesses participating in both markets at the same time are rare. For example, in 2020 only 10 enterprises were participating in both markets, but it remains unclear why.

One of the main characteristics of exporters is that there is a great deal of differentiation, with a small number of very large export companies and many smaller companies.

In that year, there were six very large enterprises, equivalent to 8 per cent of the total number of exporters. These six exported about 1.96 million tonnes of wood pellets, accounting for 61 per cent of total exports. In the same year, 40 enterprises accounting for 54 per cent of the total had a very small export volume, with less than 10,000 tonnes per company and a export share of a mere 2 per cent.

In the next 2-3 years, if Vietnam’s production capacity is kept at the current level, the supply and demand for wood pellets will be balanced. However, to do so, it is necessary to form an organisation representing the industry because this would directly contribute to the regulation of production and export activities. Such an organisation would take the role of connecting manufacturing and exporting enterprises and regulating output market.

The organisation could then act as a focal point, providing members with information on the output markets, including on-demand and legal and sustainable requirements. Moreover, the organisation could convey recommendations to management agencies to form policy mechanisms close to reality, promoting the sustainable development of the industry in Vietnam.

The cost of wood pellets in the UK is rising, as pellets are no longer being sourced from Russia.

UK Pellet Council chair, Mark Lebus, said the organisation is working with overseas partners to help ensure a continuous supply of biomass wood pellets for UK customers, as wood pellets will no longer be sourced from Russia or imported from Russian producers.

“Given the previous levels of Russian exports, this will, of course, have an impact on supply worldwide, not just to the UK but for other countries too who are all now competing for the same premium product from similar suppliers,” commented Lebus.

“With UK and international sanctions in place, we estimate that total European production may be reduced by some 12-15%, so there may be some short-term price rises due to the ongoing situation and heightened competitiveness between countries.

“UK customers may have experienced the price per tonne rising by approximately 25-40% (cost average £360-385 [€428-458]), although most accept that this is still much lower than consumers using oil or gas-fuelled systems. Current wood pellet costs are also in line with prices across Europe.”

Lebus emphasised that price increases are only expected to be a short-term problem while new supply chains and arrangements are put in place.
“This will be mostly over the next six weeks and with heating demand from customers naturally falling as we head into the spring and warmer months, new imports coming into the UK, for instance from the Iberian peninsula, should ensure most end-users see minimal disruption.”

While the UK biomass heat industry is a small and niche market, primarily servicing rural and off-grid, domestic and commercial users, it operates in a global industry. Lebus noted the market going into the winter season was tight due to an increased roll-out of biomass boiler installations in Europe, and new renewable energy programmes being delivered across EU Member States, and this was further amplified by a sharp rise in shipping and container costs.

“These external factors also pushed other industries, such as the power stations and larger utility companies totally separate to the biomass heat sector, to purchase and opt for bigger bulk shipments, buying a much greater quantity of and higher quality of premium wood pellets, in addition to their usual lower, industrial-grade stock requirement,” he said.

“However, what we must seriously look at and the UK Government must seriously consider going forward is that we have a very real opportunity here and now to better support, strengthen and heavily invest in a home-grown wood pellet production market which would not only see the UK becoming mostly self-sufficient for biomass wood fuel, and, therefore, less reliant on imports and energy price hikes, but also attract greater inward investment for new manufacturing plants, creating thousands of green jobs for rural areas.”

The UK Pellet Council believes that by growing and fortifying a domestic production in line with sustainable forestry management and DEFRA’s tree planting and new woodland creation ambitions, the UK could take “huge strides” in achieving its net-zero goals.

“Long-term policy direction, signalled by government, could strongly encourage and deliver the kind of investment needed to develop strategic autonomy from world markets by quite literally, growing our own wood fuel supply,” said Lebus.

“At present, the UK cannot provide the required volumes and, therefore, we import on a considerable scale and have become drawn into a growing energy crisis.

“Biomass for heating creates more jobs than any other renewable technology, especially for rural communities with hard-to-heat or off-grid homes, and with the boiler replacement scheme offering £5,000 (€5,900) grants for new biomass installations from 1 April, the opportunity is right there in front of us, so these conversations must be had.”

The global wood pellets market is forecasted to reach $15.63 billion by 2026. Vietnam is currently the world’s second largest supplier of wood pellets. With the existing strengths and increasing demand for this product, Vietnamese businesses are looking for directions to develop in this market.

The market still has a lot of room:

With the current situation of fuel sources such as coal, gasoline, oil … are increasingly exhausted, the need to find alternative materials becomes urgent in any country. In particular, wood pellets are considered as an alternative material with many advantages as raw materials are readily available, abundant and cheap. In particular, with scientific advances in the production of thermally upgraded wood pellets, making it a very promising alternative to traditional coal fuel in energy production.

At the United Nations Climate Change Summit in 2021 (COP26), the majority of countries pledged to cut, even bring greenhouse gas emissions to “zero”. To do this, low-carbon energy economic development is a must.

The Asian markets (Japan, Korea) and Europe are currently experiencing high demand for wood pellets in clean energy production. The Asia-Pacific market, which has the largest number of coal-fired power plants in the world, is forecasted to grow rapidly in the near future and is an opportunity for Vietnamese wood pellet manufacturers. The World Bioenergy Association forecasts the global wood pellets market is expected to reach $15.63 billion by 2026, with a compound annual growth rate of 7.28% between 2021-2026.

According to the Vietnam Wood and Forest Products Association, pellets are in the group of 5 items with the highest export value of the wood industry. Vietnam is currently the second largest tablet exporter in the world.

During the past seven years, the production, export and value of finished products of wood pellets have been increasing day by day. Specifically, the volume of exported pellets increased by over 18.28 times, from 175 thousand tons in 2013 to about 3.2 million tons in 2020. The export value of tablets increased 15.3 times, from nearly 23 million USD in 2013. , to 351 million USD in 2020.

Japan and South Korea are the two main export markets of Vietnam’s tablets, accounting for 99.8% of total export turnover in 2021. The demand is especially high after natural disasters such as earthquakes and tsunamis, to development of bioelectricity.

In 2021, South Korea imported 1.96 million tons of tablets from Vietnam, equivalent to $212.04 million, down 0.9% in volume but up 9.6% in value compared to 2020. Japan imported 1. .53 million tons in 2021, equivalent to USD 200.11 million, up 26.1% in volume and 27% in value compared to 2020.

In Japan alone, pellets are expected to meet 38% of total energy demand by 2030. Some exporters said that the volume of pellets exported to this market could expand 3 times by 2020. 2024 – 2025 compared to today.

Suitable for small and medium businesses:

Wood pellets are considered a perfect alternative to fossil fuels not only because of their low emission advantages, renewable ability but also because of their low cost.

From an economic perspective, wood pellets have a cheap source of raw materials with readily available inputs, not picky. While finished tablets have stable export value, even increase. The price of tablets exported to the Japanese market ranges from 127-139 USD/ton of tablets. In the second main export market, Korea, recorded a significant increase in the last six months of 2021 from 97-134 USD/ton.

Normally, in order to produce wood pellets, production facilities make use of all their “waste products”, such as sawdust, wood chips, wood chips, etc., even taking advantage of other industry wastes such as rice husk, straw, bagasse, stalks, seed pods… In this way, businesses can “double” their revenue. Previously, the business mainly only made profits from processing and exporting woodworking products such as furniture and raw wood furniture. It can be said that the opening of the wood pellet market has helped businesses quickly increase the value of their products, and at the same time treat a large part of the waste arising from the production process.

Another advantage of the production of tablets is that the process is simple and does not require high technology. If in the furniture processing industry, a process requires many steps and steps, requiring workers to be meticulous and highly aesthetic, on the contrary, the production of wood pellets is simpler. This wood pellet production process consists of 5 steps of crushing, drying, pressing, cooling and packing, and is mainly operated by machines. Thus, production facilities can save time and labor in the production of wood pellets.

Improve the value of wood pellets:

The wood pellet industry is having a very good stepping stone for future development, but to go further, there are still some points that need to be overcome. According to Dr. To Xuan Phuc, an expert at Forest Trends, this “half-billion dollar” manufacturing and exporting industry has some limitations.

Due to the simple manufacturing process, wood pellets are a product that can be easily processed in small to large establishments. However, this source of raw materials is sometimes not strictly controlled in terms of quality and legality.

In terms of quality, there are many establishments that use mixed materials, creating poor quality products and losing credibility with customers. Therefore, a prerequisite to be able to go far in this potential market is that enterprises must proactively screen more carefully the source of input materials, not using raw materials, impurities, and poor quality.

Another difficulty that businesses are facing is the procedures related to bidding and exporting in some markets. For example, selling goods to a Korean thermal power plant must go through a commercial intermediary, making small and medium-sized enterprises highly dependent on third parties. This also makes the cost of products delivered to customers significantly increase.

This fact requires support to create links through organizations and representative agencies in order to reduce barriers and help businesses access more widely to international markets.

Another factor that makes the export value of pellets not high, or difficult to break into difficult markets such as Europe and Japan, is the lack of sustainable forest management certificates (FSCs). In this regard, the forestry sector has plans to accelerate the issuance of FSC certification, with the goal of reaching 10 million hectares by 2030.

According to the General Department of Forestry, the source of wood materials in Vietnam has been improved quite well through the development of plantation forests, so far 75% of the annual demand for raw materials has been proactive. In recent years, the annual export volume of tablets has reached about 3 million tons, equivalent to 350 million USD in turnover. This number can completely increase if Vietnamese enterprises solve their problems and have appropriate production plans and business strategies.

The global wood pellets market was already facing supply issues and price increases issues before Russia’s invasion of Ukraine. Following the sanctions imposed on Russia and Belarus, we now face a worldwide shortage in wood pellet.

We spoke to Bruno Berardelli, AMP Clean Energy’s Head of Asset Services, to find out more about the global wood pellet crisis, his views on the future of the wood pellet market, and what he is doing to secure supplies for AMP Clean Energy’s customers.

How is the situation in Ukraine affecting global wood pellet supply?

The UK market is not self-sufficient in the supply of wood pellet, and as with most commodities, we have relied on a certain level of imports for many years. In recent years 12-15% of global supply has historically come from Russia and Belarus.

The global market for wood pellet was already extremely stretched before the Russian invasion of Ukraine. Several factors, including recent bad weather, container shortages and rising shipping costs, led to wood pellet prices increasing significantly in the last 12 months.

On top of this we have recently seen international sanctions on trade with Russia and Belarus, which is now leading to a shortage of wood pellet in the coming weeks and months.  Of course, where you have high demand, you see prices rise, which is exactly what is happening in the pellet market.

How has the biomass industry reacted to the Ukraine situation and what is it doing to secure future wood pellet supply chains and sources?

The biomass industry faces a similar dilemma to that of the oil and gas market in terms of needing to diversify its global supply chains.

The European Pellet Council (EPC) has suspended all ENplus® certified producers, traders, and service providers based in Russia and Belarus as of 15 April 2022.

The UK Pellet Council, its members and the UK heat biomass industry has, like many other sectors, took immediate and alternative measures to restructure its global supply chain, working with overseas partners to help ensure a continuous supply of biomass wood pellets for UK customers.  The UK Pellet Council has also said the UK Government has a very real opportunity to better, support, strengthen and heavily invest in a home-grown wood pellets market.

At AMP Clean Energy we support the actions of the European Pellet Council and the UK Pellet Council. We are working very hard to secure enough wood pellet for the assets we manage and own and for our contract wood pellet customers.

What is AMP Clean Energy doing to secure wood pellet supply for its customers?

Given the previous levels of Russian exports, the Ukraine situation is having an impact on supply worldwide, so we are now all competing for the same premium product from similar suppliers.

At AMP Clean Energy, we have been working hard in recent weeks to secure the future volumes required to meet the heating needs of our customers. Whilst the traditional winter heating season is coming to a close, many of our customers are schools, care homes, hospitals, food production and factories that rely on heat all year round. Fortunately, we have long standing relationships in the market and have been able to negotiate contracts with both our existing suppliers and some new suppliers to help us continue to meet customer demand.

When can we expect the wood pellet price to stabilise? At this point in time is biomass still economical in comparison to gas?

Whilst we expect this to be a temporary situation, we do not know how long it is likely to last. At AMP Clean Energy we have absorbed much of the price rises in wood pellet to date. However, given the volatility of the current market, we have unfortunately had no choice but to pass on some of those costs to our customers. However, we are committed to reducing our prices for our contract customers as soon as we can.

Biomass still represents value for money as a heating source. The cost per kWh is still very competitive against oil, natural gas and electricity, which are all seeing potentially even more significant cost rises.

When can we expect the situation to improve for biomass heat users?

There are several factors affecting this situation, and the immediate outlook is very uncertain. However, biomass fuel, and wood pellet, has proven to be a low cost and relatively stable priced heating fuel over the long term, and we fully expect that this stability will return in due course. We want to reassure our customers that we have done all that we can to shore up wood pellet supplies for them and that we will reduce prices as soon as that becomes a viable economic option