Market focus: Global trade flows Sabah International...

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Market focus: Global trade flows Sabah International Biomass Forum 2019

Claire Pickard-Cambridge Argus Asia solid fuels editorial manager 14 October 2019

Copyright © 2019 Argus Media group. All rights reserved.

• The Argus Media group (referred to herein as “Argus”) makes no representations or warranties or other assurance, express or implied, about the accuracy or suitability of any information in this presentation and related materials (such as handouts, other presentation documents and recordings and any other materials or information distributed at or in connection with this presentation).

• The information or opinions contained in this presentation are provided on an “as is” basis without any warranty, condition or other representation as to its accuracy, completeness, or suitability for any particular purpose and shall not confer rights or remedies upon the recipients of this presentation or any other person. Data and information contained in the presentation come from a variety of sources, some of which are third parties outside Argus’ control and some of which may not have been verified.

• All analysis and opinions, data, projections and forecasts provided may be based on assumptions that are not correct or which change, being dependent upon fundamentals and other factors and events subject to change and uncertainty; future results or values could be materially different from any forecast or estimates described in the presentation.

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Argus Media group notices


• About Argus

• New price indexes to underpin physical markets

• Global market trends and key price drivers

• Japanese demand gathers steam, volatile year ahead

• Policy and certification challenges in Asian markets

• Concluding thoughts

Agenda

• One of the world’s leading PRAs, Argus is a team of nearly 1,000 staff members in 22 global offices

• Publishing more than 21,000 daily spot and forward price assessments, plus market intelligence for world commodities markets

• Coverage includes: ◦ Energy

◦ Fertilizers

◦ Petrochemicals

◦ Metals

• Services ◦ Price reporting and indexation

◦ Consulting

◦ Conferences

• Indexation examples ◦ US crude oil

◦ European gasoline

◦ Asia-Pacific LPG

◦ Coal

◦ US and European environmental markets

The Argus view


Argus Biomass Markets

Copyright © 2019 Argus Media Ltd. All rights reserved.

• Launched in 2009

• Weekly price assessments for North America, Europe and Asia, news and analysis

• First Asian assessment: end 2015 – fob Vietnam wood pellet index

• Fob Indonesia PKS assessment launched in 2017 and starting to be used in long-term indexation

• Launched a set of delivered South Korean wood pellet assessments in 2018

Latest Argus wood pellet spot prices at a glance


Source: Argus 9 October 2019

Tighter focus on South Korean market:

◦ Cfr South Korea wood pellets

◦ Delivery, duty paid (DDP) prices for S Korean wood pellets delivered to Daejong + Gunsan (already used in a contract)

◦ Fob Indonesia PKS index gaining traction in Asian contracts

Launch of new price indexes



Top wood pellet net importers 2018

UK 7.8mn t +15pc

Italy* 2.2mn t +22pc

Belgium 826,000t

-5pc

Denmark 3.1mn t +19pc

South Korea

3.5mn t +46pc

*mainly residential

Japan

1.1mn t + 109pc

EU-28 net imports rose 27pc y-o-y to 9.5mn t

Market Reporting

Consulting

Events

Asian wood pellet markets

Adjusting to policy changes


70

80

90

100

110

120

130

140

150

160

170

fob Vietnam Wood pellets cfr Gwangyang Wood pellets

ddp Gunsan Wood pellets ddp Daejeon Wood pellets

REC oversupply develops in 2019,

discouraging S Korean IPP buyers

N American + Asian supply

(Vietnam, Malaysia, Indonesia

and Thailand) rises in 2019

Argus wood pellet spot market trends ($/t)


50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

70

80

90

100

110

120

130

140

150

REC s

pot

pri

ce (

Kore

an w

on/REC)

Fob V

ietn

am

wood p

ellets

($/t)

Fob Vietnam wood pellets ($/t) REC spot price (Korean won/REC)

WP monthly average pricing

REC spot price halves amid REC oversupply

Fob Vietnam wood pellet price vs S Korea REC price

REC price fall discourages IPP buying of wood pellets from 2018


Japan and South Korea wood pellet imports (‘000t)

2019 imports expected to be 4.4mn t

Japan’s growth faster than S Korea’s in first 8 months


S Korea wood pellet monthly imports (‘000t)

0

50

100

150

200

250

300

350

400

Jan Feb Mar Apr May Jun Jul Aug

Vietnam Malaysia Indonesia Thailand Russia Canada Other

Source: customs data


• Imports expected to be as low as 3mn t in 2019

• Seoul encouraging use of unused forest biomass

• Fall in REC price led to drop in imports by IPPs

• Return of nuclear, more renewables this year

South Korea’s wood pellet annual imports (‘000t)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012 2013 2014 2015 2016 2017 2018 Jan-Aug2019

Vietnam Malaysia Indonesia Thailand Russia Canada Other

Expected imports as low as 3mn t

Expected biomass projects in South Korea 2020-2022

Company Plant Capacity (MW) Start-up Wood pellet (t/yr) Wood chip (t/yr)

Korea South East

Power (Koen) Yeongdong Unit 2 200 June 2020 900,000

CGN Daesan Power CGN Daesan Power 109 December 2020 500,000

GS EPS Biomass #2 105 December 2020 300,000 200,000

SMG Energy SMG Biomass Power

Plant 100 December 2020 430,000

Gwangyang Green

Energy

Gwangyang Biomass

Power Plant 220 July 2022 480,000 528,000

Korea Midland

Power Gunsan Bio 200 December 2022 800,000

Total 3,410,000 728,000


• Complex new REC system, but existing dedicated power projects using imported wood pellets retain 1.5REC/MWh. Use of wood pellets for co-firing lost REC support, thus encouraging dedicated biomass power

• Firing with unused domestic forest biomass (cannot be used in other industrial functions) earns lot of RECs and is displacing some imports

• Many policy changes and wood pellet quality is becoming stricter. But Malaysian and Indonesian suppliers should meet quality changes with ease – these are mainly aimed at stopping use of rice husks in pellets

Project challenges in South Korea



S Korea to raise NCV for imported wood pellets Current standard National Institute of Forest Science (NIFoS) final Proposal

Grade 1 Grade 2 Grade 3 Grade 4 Industrial I1 I2 I3

Diameter (mm) 6-8 6-8 6-8 6-25 Dimension (mm) 6-8 6-10 6-12

Length (mm) ≤ 32 ≤ 32 ≤ 32 ≤ 32 Length (mm) ≤ 40 ≤ 40 ≤ 40

Moisture (%) ≤ 10 ≤ 10 ≤ 15 ≤ 15 Moisture (As Received Basis %) ≤ 10 ≤ 10 ≤ 10

Ash (%) ≤ 0.7 ≤ 1.5 ≤ 3.0 ≤ 6.0 Ash (Air Dried Basis %) ≤ 1.5 ≤ 3.0 ≤ 5.0

Durability (%) ≥ 97.5 ≥ 97.5 ≥ 95.0 ≥ 95.0 Durability (As Received Basis %) ≥ 97.5 ≥ 96.5 ≥ 95.0

Fine (%) < 1 < 1 < 2 < 2 Fine (As Received Basis %) ≤ 4 ≤ 5 ≤ 6

Other additives (%) < 2 < 2 < 2 < 2 Other additives (As Received Basis %) < 3 < 3 < 3

Gross calorific Value (kcal/kg) Gross calorific Value (MJ/kg)

≥ 4,300 ≥ 18.0

≥ 4,300 ≥ 18.0

≥ 4,040 ≥ 16.9

≥ 4,040 ≥ 16.9

Net calorific Value (As Received Basis MJ/kg) ≥ 16.5 ≥ 16.5 ≥ 16.5

Density (kg/m3) ≥ 640 ≥ 600 ≥ 550 ≥ 500 Bulk density (As Received Basis kg/m3) ≥ 600 ≥ 550 ≥ 500

Nitrogen (%) ≤ 0.3 ≤ 0.5 ≤ 0.7 ≤ 1.0 Nitrogen (As Received Basis %) ≤ 0.5 ≤ 0.7 ≤ 0.7

Pellet particle size distribution (%) N/A N/A N/A N/A Pellet particle size distribution (As Received Basis %) N/A N/A N/A

Sulphur (%) ≤ 0.05 ≤ 0.05 ≤ 0.05 ≤ 0.05 Sulphur (Air Dried Basis %) ≤ 0.05 ≤ 0.05 ≤ 0.05

Chlorine (%) ≤ 0.05 ≤ 0.05 ≤ 0.05 ≤ 0.05 Chlorine (Air Dried Basis mg/kg) ≤ 0.03 ≤ 0.05 ≤ 0.1

Arsenic (Air Dried Basis mg/kg) ≤ 1 ≤ 1 ≤ 1 ≤ 1 Arsenic (Air Dried Basis mg/kg) ≤ 1 ≤ 1 ≤ 1

Cadmium (Air Dried Basis mg/kg) ≤ 0.5 ≤ 0.5 ≤ 0.5 ≤ 0.5 Cadmium (Air Dried Basis mg/kg) ≤ 0.5 ≤ 0.5 ≤ 0.5

Chromium (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10 ≤ 10 Chromium (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10

Copper (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10 ≤ 10 Copper (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10

Lead (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10 ≤ 10 Lead (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10

Mercury (Air Dried Basis mg/kg) ≤ 0.05 ≤ 0.05 ≤ 0.05 ≤ 0.05 Mercury (Air Dried Basis mg/kg) ≤ 0.1 ≤ 0.1 ≤ 0.1

Nickel (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10 ≤ 10 Nickel (Air Dried Basis mg/kg) ≤ 10 ≤ 10 ≤ 10

Zinc (Air Dried Basis mg/kg) ≤ 100 ≤ 100 ≤ 100 ≤ 100 Zinc (Air Dried Basis mg/kg) ≤ 100 ≤ 100 ≤ 100


Japan wood pellet monthly imports 2019 (‘000t)


• Imports expected to climb to 1.4mn t in 2019 with new biomass plants online

• Feed-in tariff still applies at old rate of 24 Y/kWh for those with financing/long-term contracts in place by September 2019

• Japan wants 22-24pc of its output from renewables by 2030 (16pc 2017/18)

Japan’s annual wood pellet imports (‘000t)

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017 2018 Jan-Aug2019Vietnam Canada

Indonesia, Malaysia, Thailand Australia

Other

Expected imports up to 1.4mn t

• 448MW of biomass power capacity added in 2019 fiscal year to March under FiT system (up from 409MW added previous year)

• But forecasting new Japanese power capacity very hard – no one is sure how many planned projects will survive lower feed-in-tariff (FiT). Some think 80pc of approved projects will not be built

• Nearly half of planned biomass power projects declared void when FiT law changed in 2017. FiT was so oversubscribed that incentive was cut to 21 Y/kWh from 24 Y/kWh

New project challenges ahead in Japan



Japan’s biomass power capacity (MW)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Japan 2030 target: 6,020-7,280MW

Source: Meti

Renova 75MW 2022

Air Water 75MW 2020

Kyushu 2022 75MW

Air Water 50MW 2023

Sumitomo 112MW 2023

63 new projects came online in 2018-19 so total of 358 working projects now

E-Rex Buzen 75MW 4Q2019


Malaysia, Indonesia, Thailand wood pellet exports

149

296

527

703

355

64 85

135

276

133

25 22

130

289

136

0

100

200

300

400

500

600

700

800

2015 2016 2017 2018 Jan-Jul 2019

Malaysia Indonesia Thailand

‘000t

Market Reporting

Consulting

Events

European wood pellet developments

Supply starts to outweigh demand


Spot wood pellet price drivers in Europe

• Demand: European wood pellet demand grew significantly on the year throughout 2018

• EU-28 net imports rose by 27pc on the year to 9.5mn t

• Supply: Production facilities delayed, supply disruptions in 2018. This year supply normalized and prices fell. But a cold winter will quickly create shortages given limited storage

• Buyers were more reliant on the spot market

Cif NWE wood pellets price trend 2015-Oct 2019


Rising power capacity, hurricanes, fires, flooding contributed to 2018 price peak earlier this year

Delays in some large demand projects

Some recent Drax outages contributed to latest price drop


European wood pellet power plant capacity growth

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Start 2016 2016 2017 2018* 2019* 2020*

UK Belgium Netherlands Denmark

Orsted’s Studstrup 3

EPH’s Lynemouth

RWE’s Amer 9

Orsted’s Avedore 1

Drax unit 1

Uniper’s MPP3

RWE’s Eemshaven

MGT’s Teesside

*Expected

MW

Short-term outlook: Planned wood pellet-fired capacity


Utility Plant Capacity Co-firing? Status Consumption*

EPH Lynemouth 396 MW Dedicated Commissioning 1.6 mn t/yr

MGT Teesside 299 MW Dedicated Expected 1Q20 1mn – 1.2mn t/yr

RWE Amer 9 600MW 80pc by 2020 Co-firing at 50pc 1.7-1.8mn t/yr

RWE Eemshaven 2 x 777MW 15pc 3Q19 (B) and 4Q19 (A) start

800,000-830,000 t/yr

Uniper Maasvlakte 1.1GW 15pc Oct 2019 start 200,000-250,000t/yr

Engie Rotterdam 713MW 10pc July 2019 start 500,000-550,000t/yr

*Argus estimates – up to 6mn t demand addition


European wood pellet outlook 2019-2020

• Demand will continue to grow along with production capacity – 6-7 large European biomass facilities coming on line in 2019/early 2020

• Long-term contract performance is key – disruptions to supply have resulted in more spot market activity

• Supply disruptions to Europe 2018/early 2019 included sawmill closures and forest fires in Canada, which upset rail, and hurricanes in US which caused operational and shipping delays

• Demand for SBP-compliant pellets will continue to increase

US planned production 2019


Country Company Plant Capacity Planned start

up Status

US Enviva Hamlet 600,000t/yr June 2019 Operating

US Blue Sky Biomass

Adel 340,000t/yr 1Q2018? In development

US Highland Pellets Enterprise 600,000t/yr 2020 Plans pending

offtake agreements

US Highland Pellets Stevens 600,000t/yr 2020 Plans pending offtake

agreements

US Oregon

Torrefaction John Day

91,000t/yr torrefied pellets

2019? Planned


• Rising European, Nordic capacity fuelling exports, but sellers also target Asia

• US exports Jan-Aug up 20pc vs 2018 to 4.36mn t

• Canada exports Jan-Aug up 5pc to 1.64mn t

• But sawmill cutbacks in BC curb Canadian export growth – pine beetle

Strong growth in North American wood pellet exports

0

1

2

3

4

5

6

7

8

9

10

2012 2013 2014 2015 2016 2017 2018 Jan-Aug2019

North American wood pellet exports (mn mt)

North American wood pellet exports (mn mt)

mn t

Market Reporting

Consulting

Events

Palm kernel shells

Market gains traction but supply tightening

32

Argus fob Indonesia PKS price ($/t)


67.00

69.00

71.00

73.00

75.00

77.00

79.00

81.00

83.00

85.00

10 May 2017 10 Aug 2017 10 Nov 2017 10 Feb 2018 10 May 2018 10 Aug 2018 10 Nov 2018 10 Feb 2019 10 May 2019 10 Aug 2019

Prices near $80/t now on PKS supply shortage, which grew from mid- year

Export tax package drops by $10/t in late Nov 2018 as CPO payment system changes

◦

◦

Japanese imports of PKS gather steam


0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017 2018 2019 Jan-Aug

Indonesia Malaysia Thailand

‘000 t

Imports expected to top 2mn t in 2019

◦

◦

Japanese imports of PKS pro-rated for 2019


0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017 2018 2019 Prorate fullyear

Indonesia Malaysia Thailand

‘000 t

• Japan’s METI committee been meeting this year to discuss how to certify PKS for sustainability and legality

• Proving hard to find best system of certification. But they have drawn up standards on environmental issues, how forests are managed, social issues and governance issues as basics that should be met

• Social standards - includes no child labour, no forced labour and right of

labour unions to organize

• Governance – must observe local law and international law on treaties, with power plants providing transparency on origins of their PKS supply

PKS sustainability certification challenge looms



Indonesian PKS annual exports (‘000t)

999 1,104 774

325 380

411

312

353

194

0

500

1,000

1,500

2,000

2,500

2017 2018 Jan-Jul 2019

Japan Thailand South Korea Singapore


Malaysia’s PKS exports on growth trend (‘000t)

240

305 256

21

51

12

0

50

100

150

200

250

300

350

400

2017 2018 Jan-Jun 2019

Japan Thailand Taiwan Singapore Other


Fob Indonesia PKS monthly averages ($/t)

450

500

550

600

650

700

750

800

70

72

74

76

78

80

82

Indonesi

a m

onth

ly C

PO

benchm

ark

Fob Indonesi

a P

KS m

onth

ly a

vera

ge

Fob Indonesia PKS price vs. Indonesia CPO benchmark

fob Indonesia PKS monthly average Indonesia monthly CPO benchmark

CPO price can be at big premium to PKS

PKS and palm oil driven by different market fundamentals


Indonesia total PKS export tax package ($/t)

0

5

10

15

20

25

30

35

40

350

400

450

500

550

600

650

700

750

800

Indonesi

a t

ota

l PKS e

xport

tax

Indonesi

a m

onth

ly C

PO

benchm

ark

Indonesia monthly CPO benchmark Indonesia total PKS export tax

$12/t

$17/t tax

$7/t

Indonesia monthly CPO benchmark

falls by over $100/t since 2017


• Sales from Asia to Europe: If prices are firm, bigger vessels may be viable but utilities often seek SBP certification

• In Japan, full impact of reduced FiT still unclear as projects are re-assessed and PKS certification is under discussion

• In South Korea there is reduced support for co-firing and tighter quality standards for pellets will come in next year

• Global wood pellet supply still plentiful but situation can change fast in Europe, where storage is limited, and plenty of new biomass capacity coming online in Asia + Europe

Concluding thoughts

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Copyright notice Copyright © 2019 Argus Media group. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, the ARGUS logo, Argus publication titles, and Argus index names are trademarks of Argus Media Limited. For additional information, including details of our other trademarks, visit argusmedia.com/trademarks.

Claire Pickard-Cambridge Argus Asia solid fuels editorial manager

[email protected]

+65 6496 9994

Singapore

www.argusmedia.com

http://blog.argusmedia.com

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