Pellet export market is in for a 'wild ride'

By Lisa Gibson | July 26, 2011

The pellet export market is in for a wild ride in the next 10 years and Harold Arnold, president and CEO of Georgia-based Fram Renewable Fuels LLC, recommends industry stakeholders hold on to their hats.

“The industry will see wild growth over the next few years,” he said. “Expect the unexpected. For some, these changes will be good; for some, they’ll be bad, but either way, we’re in for a wild ride.”

Arnold spoke on a pellet export trends panel at the Pellet Fuels Institute Annual Conference July 24-26 in Ponte Verda Beach, Fla. Fram Renewable Fuels operates a 230,000-metric ton (254,000 tons) pellet mill that uses about 460,000 metric tons of raw material. Drawing from his export experience and observations, Arnold told attendees that the 2011 export market has been stronger than usual. That strength could be influenced by extreme cold in the Baltics and resulting difficulties in exporting from Estonia. Spot sales, however, are a different story and pricing is an ongoing struggle, he said.

Arnold referred to a Poyry study that estimates worldwide demand for pellets at 16 million metric tons, but he added that the number is one of the more conservative. Not surprisingly, Western Europe dominates current demand, but markets are growing in Asia. That doesn’t necessarily mean, though, that all Asian countries will begin to import massive amounts of pellets. Instead, it is likely that some will use their own materials. “We expect China to import a small amount of pellets from coastal plants,” Arnold said.

Global capacity is around 32 million metric tons, and both global production and demand are expected to grow. Still, that doesn’t mean all pellet mills will enter the export sector. “Many facilities may never get into exporting because of logistics,” Arnold said. He refers to logistics as “the great equalizer,” citing problems encountered in the U.S., such as a lack of discounts, few suitable ports, and limited port storage.

Currently, North American trade flows show the Northeast U.S. and Northeast Canada exporting pellets to Western Europe, with Western Canada shipping to Asia. An important new market development Arnold emphasized is the European standards expected to come out within the next year, new specifications will add certainty to the market. As sustainability is a growing concern for European Union utilities, a buyers group is currently working to develop a sustainability certification program. Arnold recommends that pellet manufacturers looking to export should plan how they source, track and certify their pellet fuel.

Europe is a policy-driven market, fellow speaker Seth Walker, bioenergy analyst for RISI, told attendees, and 75 percent of demand could come from the U.K. alone in the next few years. The growing European market opens up an enormous window of opportunity for pellet producers in the Southern U.S. That region is the largest timber producer in the world, Walker said, and also has port availability and a close proximity to Europe, relative to other regions of the world.

The final speaker on the panel, Joanne Littlefair, international trade specialist with the U.S. Department of Commerce, discussed three main goals of the department relating to exporting: trade advocacy and promotion; access to financing; and reducing trade barriers and enforcing trade laws.

The department has 107 locations with U.S. Export Assistance centers to promote trade and answer questions producers may have, Littlefair said. Reducing trade barriers and enforcing trade laws is crucial, she emphasized, to ensure that global export market participants are “playing by the rules.”

And as always, financing is a vital aspect of exporting and Littlefair named a few helpful programs the Department of Commerce operates, including Export Express loans, the Export Working Capital Program, and the International Trade Loan Platform, all accessible at Littlefair also mentioned the Export-Import Bank and the financial assistance it can offer. To reach Littlefair with questions about exporting, call (202) 482-4855, or email her at [email protected].