Start-up of power stations drawing attention in 2025

The imported biomass fuels wood pellet and Palm Kernel Shell (PKS) markets were dragged down by a surplus in supply in summer 2024 but have been gradually recovering as buying interest has been rising since autumn. In 2025, major biomass power stations are going to start up and demand for both fuels is expected to grow further. But factors other than bullish ones are also observed.

Buying interest low in Japan in 2024

Regarding wood pellet, a series of biomass power stations were suspended due to a fire and surplus cargoes emerged in 2024. These cargoes were supplied to players that had room for spot procurement and spot demand was covered.

In the meantime, North America supplier ENVIVA filed for Chapter 11 petitions in the United States Bankruptcy Court in March 2024 and started its legal construction. After that, US pellet continues flowing into Japan while Japanese trading houses moved to secure supply of pellet from Vietnam.

As for PKS in 2024, biomass power stations operating under the feed-in tariff (FIT) experienced to operate only with fuels with a third-party certification for the first time. A lack of supply was previously expected but supply of certified cargoes was smooth in April onward.

On the other hand, many operators of power stations were worried about supply and did not have room to buy spot cargoes at the beginning of FY 2024. As a result, demand was sluggish. In this situation, an Indonesian major supplier had stocks and sharply lowered offers for spot cargoes, which considerably dragged down the market. At the end of September 2024, FOB Indonesia and FOB Malaysia prices hit the lowest level at $76/mt and $77/mt, respectively, since the Rim biomass report was first published.

Demand expected to rise in 2025

In FY 2025, several major biomass power stations would start up. These power stations would mainly use wood pellet as fuels. The operators had buying interest and were already moving to procure fuels for trial runs and spot cargoes in FY 2024.

However, supply is not lacking. In Vietnam and Indonesia, new pellet production plants are being constructed. In addition, operation rates at existing pellet production plants do not reach 100% of capacity. Thus, production countries seem to have room to expand supply.

With respect to PKS, buying inquiries are heightening in term discussions for 2025 on an FOB Indonesia basis while many suppliers almost finished sales of cargoes in their stocks and raised offers. But as the spot market plunged in 2024, buying ideas of operators of power stations remain low. It would be difficult for deals to be done at target prices of Japanese trading houses.

For both pellet and PKS, start-up of power stations is not necessarily a bullish factor for the market. Some market players are concerned that if these power stations do not start up as scheduled, a lot of surplus cargoes would emerge and this might weigh down the spot market. In 2025, players should pay attention to whether new biomass power stations would start up as scheduled.