Page 10 - FDMASIA JanFeb 2023

8 Market Beats Jan/Feb 2023 FDM AsiA | www.fdmasia.com

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to the total international trade in wood pellets in 2021. in 2022 prior to the sanctions. The sudden and unexpected
The majority of that trade went into Western Europe. drop of supply made the aggregate global markets for pellets
Many of the pellet producers in Western Russia are certifed over two million tonnes per year short in 2022, assuming that
under both SBP and Enplus, thus allowing their use in the nearly one million tonnes per year of sanctioned pellets are
European and UK industrial and heating markets. As a result still entering the markets.
of the Russian aggression in Ukraine, those certifcations have Much of the 2023 shortfall is due to growth in the heating

been suspended indefnitely. Subsequently, direct imports markets. Many small domestic heating pellet plants in Europe
into western Europe from Russian and Belarus have almost are not tracked and thus their plans for expansion are unknown.
gone to zero. However, Europe’s production growth has traditionally kept
The impacts from this sudden shortage have been dramatic. up with demand growth.
Both the industrial and heating pellet sectors have experienced The markets, particularly in Western Europe, will still be
unprecedented price spikes. signifcantly short at least into 2023. new pellet production
Several factors have mitigated the initial impacts; allowing or expanded production that requires new equipment cannot
spot prices to fall from their record highs. happen quickly. A new pellet factory, from concept to full
While Russian pellets are not being shipped directly into production, usually takes at least two years or longer.

major EU markets, some Russian pellets may be ‘leaking’ There is an added complication to having supply catch
into some European countries. One possible pathway is via up to demand in the EU heating pellet markets. The heating
Turkey. Turkish exports to EU countries increased signifcantly markets are essentially spot markets. There are no seven- or
as the sanctions kicked in. 10-year offtake agreements to support the construction of
Without the exports from Russia and Belarus (and Ukraine), a new pellet factory. There is the potential that millions of
even considering some leakage, the global supply of pellets is tonnes of Russian supply could re-enter Europe at some point
signifcantly short of demand. The markets were already tight and compete for market share. This uncertainty may hinder