-Supply concers over biomass expected in 2024-

In 2023, the market for imported biomass fuel wood pellet and Palm Kernel Shell (PKS) started at high price levels amid perceptions of tight supply/demand in the high demand winter season for power. But the market gradually declined in line with a decrease in demand.

Meanwhile, in 2024, with supply concerns over wood pellet and PKS growing, supply/demand is expected to be slightly tight.

Market soft amid low demand in 2023

In 2023, wood pellet and PKS softened by about 30% and 20% from the beginning of the year respectively.

With supply of Russian wood pellet stopping and North American pellet production costs rising, demand for Southeast Asian pellet for supply to Europe was earlier forecast to strengthen. But fuel demand did not rise amid mild winter in Europe, and several troubles and fires occurred at existing biomass power stations in Japan. As a result, power companies had less room for spot procurement.

In South Korea, while buying interest from state-owned power companies was sluggish, a major Vietnamese supplier, whose certification was blocked by Forest Stewardship Council (FSC), moved on sales in Korea. Therefore, supply/demand slackened.

In Malaysia and Indonesia exporting PKS, a rainy season ended later than usual and yield amount of oil palm decreased. Because of this, procurement costs for PKS from mills by local suppliers did not fall, which kept the market high until around June.

After that, supply of PKS feedstock increased in a dry season but buying inquiries from Japanese power companies was weak. Power companies operating based on the feed-in tariff (FIT) system was required to use only PKS certified by a third party and refrained from building stocks. In addition, start-up of several biomass power stations was delayed, which also loosened supply/demand fundamentals.

Supply concerns growing in 2024

On the other hand, supply concerns are expected to grow both in the wood pellet and PKS market. A major wood pellet supplier in the US sees its management deteriorating and is considering revising contracts with existing customers. Some Vietnamese suppliers anticipated demand for Southeast Asian wood pellet to increase and raised offers.

For PKS, moratorium to obtain third-party certifications would end at the end of March 2024 and only PKS with third-party certifications can be used from April. Supply of certified PKS is expected to be well below total demand in Japan and some power companies have yet to secure supply for the year. Market players expected that supply to local companies in nations where sales can be carried out without the certifications and export to countries other than Japan might increase.

In Japan, several biomass power stations would start up in 2024. Biomass fuel consumption volumes are estimated at 2.50-3.00 mil mt a year at large power stations that would begin operations in 2024. If some biomass power stations, whose start-up was delayed in 2023, begin operations, demand would further grow. Supply/demand is expected to be tighter than ever in 2024 and market players are trying to determine the timing.