Report explores future of Vietnam pellet industry

By Erin Voegele | July 19, 2018

Pellet exports from Vietnam grew from nearly zero to approximately 2.75 million metric tons per year over the past seven years, according to FutureMetrics. The organization has published a new white paper exploring the country’s pellet export sector.  

The paper explains that the Vietnam pellet industry has traditionally used future manufacturing byproducts as feedstock. The saw and milling dust from these furniture factories is already dry and is often in small enough particle size not to require hammermilling. Many of the older Vietnamese pellet mills do not have dryers or equipment to reduce particle sizes. As a result, they have lower capital and operating costs.

According to FutureMetrics, high volumes of incoming container shipments from South Korea and low volumes of container cargo from Vietnam to South Korea has allowed pellet producers to take advantage of empty containers with shipping rates of less than $10 per ton.

The report, however, predicts shipping costs will continue to increase for pellets delivered to South Korea and Japan from Vietnam because the rapid increase in demand for containers for pellet shipments has lowered the imbalance between incoming and outbound freight. FutureMetrics said it expects freight rates to increase to more than $20 per ton.

FutureMetrics also said the conditions that allow for low-cost production in Vietnam are also changing. The availability of low-cost feedstock from furniture factories is nearing its limit, which is causing competition among pellet producers. “As pellet production levels increase, Vietnam producers will increasingly depend upon forest residuals, forest thinnings, and other roundwood,” the report states. “Those sources of pellet feedstock are costlier to procure and require debarking, chipping, drying, and hammermilling prior to being densified into pellets.”

The report describes three trends FutureMetrics expects to see in the Vietnam pellet industry in the future. First, FutureMetrics expects to see consolidation. Second, the group expects new plants to be world-class in terms of design, equipment and operations and to produce high-quality pellets from feedstocks with strong sustainability credentials. Third, FutureMetrics expects Vietnam pellet producers to begin matching capacity with long-term offtake agreements.

A full copy of the report, which is authored by William Strauss, can be downloaded from the FutureMetrics website.