Europe’s winter at risk with wood pellet price hikes

About 20km east of the Dong Nai River, Le Vinh Tam, deputy head of the agricultural department at La Nga Forestry Co., Ltd., took a break after three hours of patrolling. His and his team’s job is to manage and protect 7,000 hectares of forest – a vast area for this team that is covered with FSC-certified acacia. “Our forests would be better protected if drones were used to control them from above,” said Tam.

His wish reflects the concern that La Nga’s plantations may be compromised as pellet prices increase.

Europe’s winter at risk with wood pellet price hikes, Illustration. (Photo: VNA)

Last month, in a document sent to the Ministry of Finance, the Vietnam Chamber of Commerce and Industry did not agree to adjust the export tax rate for wood pellets as mentioned in the draft decree on preferential import and export rates.

The chamber is concerned that the application of an export tax rate of 5 or 10 per cent for wood pellets would cause adverse impacts on domestic production.

Meanwhile, wood pellets are one of the gas alternatives that European countries are hoarding for this winter because the amount of gas supplied by Russia to this market has decreased significantly. According to a report published in early October by the International Energy Agency (IEA), gas exports from Russia to the EU have decreased by nearly half compared to the same period in 2021.

The current price of wood pellets has nearly doubled to around $200 a tonne in Vietnam – a very high increase compared to the beginning of the year, said Ngo Sy Hoai, vice chairman of the Association of Vietnam Timber and Forest Products.

“Despite this, wood pellets became more attractive thanks to good prices. In the first half of 2022, the export of wood pellets reached nearly 2.4 million tonnes and a value of $354 million, while these figures for the whole 2021 were only 3.5 million tonnes and $413 million,” Hoai explained.

“Nevertheless, the sudden price rise for export wood pellets has created some concerns, even leading to conflicts of interest between product groups. Exporting wood enterprises are now worried that farmers will harvest wood soon, which could lead to a shortage of raw materials,” Hoai said.

Vietnam is currently not a large supplier of wood pellets to the EU, but the high demand and price of wood pellets in the international market creates opportunities for the Vietnamese wood industry to expand production and export. Thus, Vietnam’s pellet export turnover in 2022 could reach $700 million.

Hoai also mentioned that the lack of experience is visible at in many wood pellet manufacturers. “The European Commission may lower the standards for wood pellets temporarily to make up for the shortage of gas this winter. But next time, the commission will definitely come to Vietnam to directly inspect enterprises producing and exporting wood pellets to the EU market. For this, the working environment is one of the mandatory conditions that Vietnamese enterprises must improve if they want to bring wood pellets into the EU,” he warned.

For many businesses, the main concern now is to increase export volume to receive greater value added in the coming months. This is driven by the possibility that Europe will reduce wood pellet imports after stocking up on enough gas for this winter. The IEA stated that nearly 90 per cent of Europe’s gas storage is full.

Smart Wood Vietnam JSC plans to export pellets to Europe, instead of Japan and South Korea – two markets that accounted for over 90 per cent of the country’s export volume in 2021. However, Nguyen Ba Duy, deputy director of Smart Wood, remains concerned about meeting the quality standards. “Most Vietnamese enterprises have not met the standards for exporting wood pellets to this market,” he summarised his worries. “Input materials play an important role in the growth of the wood pellet industry. Only businesses that can ensure the source of raw materials can benefit when the selling price is better.”

Vietnam has over 300 wood pellet production facilities, but to take advantage of raw materials, about 70-80 per cent are concentrated in the southern and south-central provinces, where most export wood processing centres are.

The shortage of production materials slowly becomes more common as more businesses are investing in wood pellets for export. Currently, several firms in the south-central province of Quang Nam have expanded their purchase network. “However, the development of raw material sources remains difficult due to financial issues and the forest and land policy,” Duy said.

While the demand for imported wood pellets in the world is more than usual, Duy also remarked that input materials for their production were mainly branches and by-products, such as sawdust, shavings, and wood chips. However, he forecast that the main import markets, including the EU, could apply regulations that require input materials for wood pellets to have FSC certificates. “This could be possibly in winter 2023 already,” he said.

20 billion USD goal set for wood export in 2025 Vietnam’s exports of wood and wooden products are expected to rake in 20 billion USD in 2025 and 20.4 billion USD in 2030, per a project freshly approved by Deputy Prime Minister Le Van Thanh.

Vietnam to grant FLEGT licence to wood exports in 2025 Vietnam is set to grant a licence under the Voluntary Partnership Agreement/FAO-EU Forest Law Enforcement, Governance and Trade (FLEGT) Programme to wood exports in 2025, after it completes preparing necessary conditions, reported a government official familiar with the sector.

Wood exports reach $12.4 billion in first nine months Vietnam exported about $12.4 billion of wood and wood products in the first nine months of 2022, an increase of 7 per cent over the same period in 2021, according to the Ho Chi Minh City Handicraft and Woodworking Association.