Export Wood Pellet: To Japan or Korea?

Market aspect is an important factor for a production, including wood pellets. The understanding of market characteristics will also determine the success of marketing these products. Korea and Japan are the two largest wood pellet markets today in Asia, so a number of export-oriented producers are trying to fill the market. The wood pellet market for Europe has generally not been a priority, this is because large capacity is needed for shipping there, for example 40,000 - 60,000 tons / shipment, which this wood pellet producer in Indonesia cannot meet the quantity because its production capacity is still small. Delivery of wood pellets to Korea and Japan from Indonesia, almost all of them still use containers, because the volume is not large.

What is the difference between the wood pellet market between Japan and Korea? Then, why do Indonesian pellet wood producers need to consider this? The use of wood pellets for power plants both Japan and Korea is policy driven, namely Renewable Portfolio Standard (RPS) in Korea and Feed in Tariff (FIT) in Japan. But also how the mechanism of supplying wood pellets in the two countries is different. Japanese buyers prefer long-term contracts with fixed prices, wood pellet producers also enter sustainability criteria (for example proven by FSC), good forest management practices and stable macroeconomic conditions. While Korean buyers prefer the price of cheap wood pellets in "open markets" with short-term contracts.

Facing the above market conditions is certainly also different in reacting. The Korean market is perceived to be easier and always prices follow the market, but with this condition wood pellet producers are competing to improve their efficiency so that the selling price of their pellets can be cheap and accepted by the Korean market. This is evident from wood pellet producers in Vietnam, namely the low-price strategy proved to be the main supplier of wood pellets in Korea. But along with the limitations of raw materials and rising oil prices, the price will be corrected by these conditions. As for the Japanese market, it requires a deep study and very carefully calculation, so that only large producers can do it. Fixed prices, long contracts and large volumes are also at risk of causing losses to producers, if inflation occurs in producer countries because the feed in tariff policy (FIT) is set for a period of 20 years. This also needs to be anticipated by wood pellet producers if they want to enter the Japan market.

Biomass fuels get a 4.3% share in Japan in their 2030 energy projections. This means biomass accounts for 4.3% of 245 million MW per year with renewable energy or around 6,000 MW of biomass. To achieve this capacity, approximately 22.2 million tons of wood pellets are needed per year. At present most of the wood pellets imported by Japan come from Canada. Of the 374,000 tons of wood pellets imported by Japan in 2016, around 75% came from Canada. Whereas in 2017, wood pellets imported from Canada dropped to around 65%, then Vietnam filled quite a lot in that year, followed by China. Canada tries to continue to maintain its market share in Japan because they feel able to fulfill its requirements. The 20-year long contract in the FIT mechanism is also considered more attractive than the Canadian medium-sized supply contracts to Europe, such as with Drax in the UK for 11 years, for example in 2020 they began the contract so in 2040 the new contract ended or Japan become the wood pellet offtaker for that 20 years. In addition, the long-standing factors of the wood and its processed products business from Canada were also used to strengthen the market share of wood pellets in Japan. On the other hand, Indonesian export of wood pellets to Japan is still very small.

Most of Indonesia's wood pellets are exported to Korea, which is estimated according to the Global Trade Atlas Data of 63,000 tons in 2014 and fell slightly to 61,500 tons in 2015. Since implementing RPS (Renewable Portfolio Standard) in 2012 Korea is committed to increasing use of renewable energy, especially biomass and more specifically wood pellets in the energy sector. Based on the RPS, Korea requires a coal power plant to use a minimum of 2% renewable energy in 2012, with an increase of 0.5% / year to 2020. By 2020 they will need a minimum of 10% renewable energy with a composition of 60% renewable energy coming from wood biomass , while the remaining 40% from other sources and estimated wood pellets will be more than 10 million tons. Why are most of Indonesia's wood pellets exported to Korea? There are several factors that influence this, namely the requirements for export wood pellets to Korea are not as strict as Japan, most Indonesian wood pellet producers have small capacity with limited raw materials, making them more suitable for short-term contracts and prices offered by Indonesian wood pellet producers can compete with other producers such as Vietnam, Thailand and Malaysia. Wood pellet is basically a new product for the energy sector, so that the issue of dynamic prices in the "open market" or international market, besides the supply-demand factor, world energy prices in general are very influential, especially petroleum oil.

Indonesia, although currently still does not have large market share or still not calculated in the sector but its potential is very large. Factor of tropical climate, large and fertile land is an extraordinary basic capital to become a biomass producer. Besides that, with a location closer to the market or user country than Canada, namely Japan and Korea, it is also an advantage. If the Indonesian deposit interest rate is eliminated or minimally reduced, then the level of passion for business is also an extraordinary driving force. Do not let the high deposit interest rate backfire, which is a disaster, one of which is late in innovating in the era of bioeconomy, even though resources are abundant. Some Indonesian wood pellet producers such as South Pacific in Jepara, Central Java and Singpellet in West Sumatra also have the concept of an energy plantation for the production of wood pellets with Short Rotation Coppice / SRC. The production of wood pellets from the energy plantation is the best scenario for the market penetration of Japanese and Korean wood pellets. To design a large capacity wood pellet production from the energy plantation, you can read here. Muslim bioeconomy models with the integration of wood pellet production from energy plantations, sheep farms which are the best assets of Muslims and honey bee farms, will excel and become the main players in the bioeconomy era. InshaAllah. China is predicted to also become a big market for wood pellets, reviews of which we will write later. Insha Allah

Wood Pellet Certificate Standards

As a trading commodity that is becoming a world trend, many wood pellet standards are implemented. Basically the wood pellet standard covers only two things, namely quality and sustainability which are mostly related to environmental aspects. Many aspects of quality are related to the technical aspects of the production of wood pellets and also the raw materials used. A number of countries or certain institutions apply the quality aspects that they can receive for these wood pellet products. The application of wood pellet quality standards is also related to the use of wood pellets or more specifically technology or equipment to consume or use wood pellets as fuel. Based on this, usually the market segments are also differentiated, namely for industries and households. The industry segment has its own specifications which are slightly different from households. Some quality standards are widely used today: ENplus, DINplus, PFI, ITEBE, Onorm and CANplus. Following are the quality tables:

The second type of standard is about sustainability and now it has also begun to be widely applied, especially for the trade in large quantities of wood pellets. Sustainability standards include the practice of cultivating trees whose wood is a source of wood pellets. In terms of its implementation there are a number of countries that buy wood pellets that are very concerned about this sustainability standard, but there are also those who do not pay much attention to it. Japan is an example of one of the countries in Asia that is very concerned about the issue of sustainability standards. Some sustainability standards that are widely used today: FSC, PEFC and so on.

Prospective wood pellet producers must pay attention to the problem above, because it is closely related to the market or trade in wood pellets. Without being able to map the market comprehensively, it is very possible that the production of wood pellets will be constrained. For example wood pellet producers will target their markets in Asia, especially in Japan and Korea, even though the market characteristics of wood pellets in Japan and Korea are different.

Korea's Choice Gricidae Energy Plantation?

There are many similarities between calliandra and gliricidae namely, the leguminoceae group, the wood has a high calorific value, easy to grow, suitable for cultivated energy plantation with fast growing capability after harvesting the wood, and can be integrated with the livestock business by utilizing the green leaves. But gliricidae sepium is easier and more common in many places. This is because gamal has several advantages over calliandra ie as shade trees, fences plants and simple building poles. Gliricidae can also grow in various places and types of soil, evident from the sea to the high mountains. As for the energy sector, calliandra wood has an advantage with faster dry so it can be exploited or easier to process further.

As a group of leguminoceae both gliricidae and calliandra are able to fertilize the soil because its roots are able to bind nitrogen from the atmosphere, increase soil organic matter, improve physical characteristics of soil, aeration and drainage, reduce soil erosion, lower soil temperature and reduce ground water evaporation. Critical land, marginal and unused land will be repaired with the leguminoceae. Human essential matter issues such as water, energy and food can also be fulfilled by the plantation. As with calliandra, for optimization of gliricidae can also be integrated in 5F projects for the world!.

Since implementing the RPS (Renewable Portfolio Standard) in 2012 Korea committed to increase the use of renewable energy, especially biomass and more specifically wood pellets in its energy sector. Based on the RPS, Korea requires a coal-fired power plant to use a minimum 2% of renewable energy by 2012, with  0.5% per year increase until 2020. By 2020 they will need a minimum of 10% renewable energy with 60% renewable energy composition coming from wood biomass , while the remaining 40% from other sources. Palm kernel shells also become short and medium term solutions, and wood pellets for the long term. Since a few years ago some gliricidae energy plantations have been created by cooperating with Korea. Although until now the commercial production of gliricidae wood pellets not yet realized, but it seems in the near future will be realized. Some of the driving forces include the limited availability of palm kernel shells, wood pellets from raw materials of wood wastes are also limited, and biomass pellets from various agricultural wastes are of low quality and often require various treatments before they are pelleted. It seems that gliricidae will soon be massively cultivated to meet renewable energy in Korea. 

Looking Wood Pellet Market In Asia

Wood pellet market growth projections indicate Europe as the main market with a consumption of 25-30 million tons in 2020, about 2.5 times more than the consumption in 2010 of 12 million tonnes. The  countries main producing wood pellet currently are Canada, USA, Sweden and Germany. The United States is the largest producer of wood pellets, but the majority of its production for domestic consumption for space heating (home heating), while Canada as the largest manufacturer of wood pellets after the United States, approximately 80% of production is for export. The big market changes that occurred in the Asian markets of less than 1 million tons in 2010 to about 15 million tonnes in 2020. Global wood pellet production also increased which grow up to 300% from 2012 to 2020, from 16 million tons to 40-50 million tons.

Global Energy Production by Source
Source: EIA 2008

Areas that are able to produce wood pellets with low prices would be a major exporter of wood pellets. Two components that are very influential in the production of wood pellets is the price of raw materials to factories and transportation costs to market. The position of Indonesia is located in the Asian region with a tropical climate so the potential to becomethe largest producer of biomass has a strategic role of being a manufacturer of wood pellets for the Asian market. Below are three major countries in Asia as market for wood pellets:

South Korea’s energy consumption by type. Source: Economic Intelligence Unit 2009

South Korea Market Development

Although South Korea is a small country, but a country 10th in the world with the energy user fifth oil importer and second importer of coal. Currently produces about 65% of the electrical of fossil fuels. South Korea seriously to reduce greenhouse gas emissions to 30% reduction in CO2 emissions from 2010 levels by 2020. South Korea has also issued a RenewablePortfolio Standard (RPS) which requires a minimum power plant to use the 2% renewable energy by 2012, with an increase of 0.5% / year until 2020. In 2020 they will need a minimum of 10% renewable energy with the expected composition of 60% of renewable energy derived from wood biomass, while the remaining 40% from other sources.

Japan’s energy portfolio. Source: U.S. Energy Information Administration 2010

Japanese Market Development

Japan has almost no natural resources, so that imports nearly all of almost all the coal, oil and gas. Japan is the largest importer of natural gas and petroleum ranked second in the world. Since the accident or the explosion of Fukushima nuclear power plant in 2011, the Japanese government review of national energy policy and resource development. The policy indicates that for the next 10 to 20 years for renewable energy, the increased use of non-fossil energy to 50% and greenhouse gas reductions in electricity generation from 34% to 70% in 2030.

China’s energy consumption by type. Source: Economic Intelligence Unit 2009

China Market Development

China is currently the second largest energy user after the United States. Energy is the foundation of economic growth in China. Coal is the main energy in China that make this country the largest user of coal in the world. Although very little renewable energy policy announced by the Chinese government, China in its five-year plan to allocate $ 750 million in direct subsidies, incentives and tax exemptions for building 200 green energy demonstration project in 2015 or at least 15% of its energy needs from renewable energy. China has also set up a biomass energy production with a target of 50 million tonnes of coal equivalent by 2012. Although the 5-year plan does not indicate specific green energy projects to be addressed, a number of assumptions stated China will produce wood pellets to replace coal. The majority of the production of wood pellets also comes from domestic production so that its import was minimal.