Asian Market Reboot

Last year's Asian production and consumption themed issue zeroed in on the excitement surrounding potential South Korean pellet demand, now Japan's wood pellet appetite has the potential to rapidly expand, making it this year's focus.
By Tim Portz | November 16, 2016

Last year, our team at Pellet Mill Magazine produced its first issue dedicated to Asian pellet consumption and production. Nearly a year before that, we dedicated nearly the entire issue to South Korea and its rapidly expanding appetite for wood pellets. In the 12 months between, the excitement surrounding South Korea as a beachhead for North American pellet producers in Asia has waned. Through our interviews and research, we discovered that South Korea relied on a system of traders and tender offers to buy pellets instead of the long-term offtake agreements North American producers rely upon to finance new facilities or the expansion of existing production assets. Additionally, virtually all of South Korea’s demand was being met by ultralow-cost pellets produced in Vietnam with prices rumored to hover just above the $100-per-ton mark. North American producers were left to watch as demand grew inside of this once-promising market without positively impacting their operations at all.

This year, we turned our attention to Japan. The mood surrounding this Asian market newcomer lies in stark contrast to where the collective industry mood ended up regarding South Korea. The industry observers our team spoke to while producing this issue all pointed to a handful of the same key differentiators between the South Korean and Japanese pellet markets and why they generated so much optimism from North American producers. Underpinning the optimism is a feed-in tariff for biomass power that has been described as “very generous” more than once. These feed-in tariffs offer independent power producers 10- or 20-year guarantees, and in turn, they’ve sought to lock up supply with similar long-term deals.

Between 2014 and 2015, pellet volumes imported by Japan doubled to over 200,000 tons and analysts expect 2016 to finish between 350,000 and 400,000 tons, nearly doubling again. In July, Japan imported over 50,000 tons, a new high-water mark and an indicator our sources think is a sure sign that the Japanese market is on its way to 1 million-ton-per-year volumes. 

The buzz surrounding Japan is not limited to North American producers, however, and both Katie Fletcher’s and Ron Kotrba’s stories make it clear that the race to capture market share in Japan is very much global. Current trade figures show the Japanese market is dominated by Canadian producers, but production is ramping up in Brazil and throughout Southeast Asia, all being driven by potent optimism that real, near-term market expansion in Japan is upon us.

Tim Portz
Vice President of Content & Executive Editor
tportz@bbiinternational.com