Industrial Wood Pellet Markets
The industrial wood pellet market is expected to grow significantly. The chart below shows the historical actual demand and forecast potential demand for the industrial wood pellet markets. Current (2016) aggregate demand for industrial pellets is estimated to be about 13.8 million metrics tonnes per year. That is the equivalent of a large bulk carrier ship carrying 40,000 tonnes about every day.
Future demand in the U.K. and E.U. is expected to plateau by 2020. However major growth is expected in Japan, and Korea in the 2020s. Canada has the potential to experience increasing demand for industrial pellets. That is due to decarbonisation policies from the Canadian federal government and specific policies in provinces such as Alberta.
Over the 15 years from 2010 to 2025, the average annual increase in demand for industrial wood pellets is expected to be about 2.7 million metric tonnes per year.
Presently, there are too many pellets chasing too few buyers. The build-up of production capacity based on demand forecasts from a few years ago has resulted in a current state of excess supply in the industrial wood pellet sector. As a result, spot market prices for industrial wood pellets have hit historical lows.
There is major uncertainty regarding the Chinese markets for pellet fuel both in terms of potential demand and in terms of how much pellet fuel could be produced domestically.
The 2016 to 2020 five-year plan has explicit support for pellets. If China were to embrace co-firing of wood pellets, even at modest ratios, the internal demand would be very large.
At a five per cent co-firing rate, in 2020 if only 16 percent of China’s coal power plants are co-firing, demand would be almost 40 million tonnes per year.
Heating Wood Pellet Markets
The heating pellet sector has grown steadily in the past decade. Unlike the industrial pellet sector which is policy driven, the heating pellet markets are primarily driven by the comparative costs of heating fuels. Pellets have historically been the lowest cost fuel for heating in most regions. Low crude oil prices and therefore low heating oil and propane prices have recently challenged pellets’ position as the lowest cost heating fuel.
If recent trends in crude oil prices continue, pellets will soon again be the lowest cost heating fuel.
Based on expected petroleum prices from 2018 onwards it is likely that the heating pellet markets will resume their traditional growth. The heating markets are forecast to have an increase in demand of about 9.5 million metric tonnes per year from current levels by 2025.