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RISI: Woodchip and Biomass Shipments Continue to Smash Records

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There are very few commodities setting new records for trade volumes these days, but both woodchips (for pulp and wood panel production) and wood pellets (for energy) are enjoying strong growth. While lower costs of ocean freight have certainly helped this trade, the real drivers have been strong demand for both products in the importing countries.
 
In the Asia-Pacific region, the volume of woodchips imported from overseas sources reached new record volumes in 2007 and 2008, before tumbling about 20% during the financial crisis of 2009. In 2007, Japan accounted for nearly 92% of all woodchip imports in the region, but after 2009 demand in China began growing very rapidly. The surge in woodchip imports in China propelled the market to record volumes in 2010, and new records have been set in every year since through 2014. And based on first quarter results, we can be quite confident that 2015 will see yet another new record volume, the eighth in the last nine years. Japan was still the largest market in 2014, accounting for 53% of total imports in Asia-Pacific, but China now absorbs 40% of the trade, with the balance spread evenly between Korea, Taiwan and India. Japan has been importing woodchips in bulk cargoes since the mid-1960s, while China began importing at the end of 2002. But India has only been importing woodchips since mid-2013. There is a much smaller trade in woodchips in the Atlantic region, to Turkey and Portugal from the USA, Canada, Brazil, and Uruguay. This market is only about 8% of the volume traded in the Asia-Pacific region.
 
There are 11 countries that supply woodchips to the Asian markets. The largest share of supply (55-60%) is from Southeast Asia, primarily Vietnam, the largest single over-all woodchip supplier, Thailand, and Indonesia. However, Australia, which was the top woodchip supplier for many years, has had a strong resurgence in woodchip exports to Asian markets in the past two years. This shift in the trade flows has been driven by several factors, including a sharp weakening of the Australian dollar and the announced policy of the Vietnamese government to reduce woodchip exports in favor of more "value-added" domestic processing. But a key driver of the change in woodchip supply sources to countries like Australia has been developments in the woodchip carrier fleet.
 
As of the beginning of 2011, there were 168 active woodchip carriers in the fleet, with a total capacity of 595 million ft3. (Woodchip carriers are specialized vessels with a much higher ratio of cubic storage volume to dead weight (dwt) capacity than normal bulk carriers. For example, a woodchip carrier that is around 64,000 dwt will have a cubic capacity of 4.3 million ft3, while a Panamax vessel of 77,000 dwt will have a cubic capacity of only 3.2 million ft3 and a Handymax vessel of 57,000 dwt will have a cubic capacity of only 2.3 million ft3.) This was the largest the fleet had ever been, and followed one of the fastest expansions in the history of the woodchip carrier fleet during 2007 and 2008. But by early 2013, there were only 149 still active woodchip carriers, with total capacity reduced to 536 million ft3. 
 
The number of active vessels reduced further to 145 in early 2015, but due to the larger size of many of the new vessels, the total fleet capacity increased slightly to 538 million ft3. The woodchip carrier fleet has traditionally been dominated by two very large players: Nippon Yusen Kaisha (NYK) and Mitsui OSK Lines (MOL). In early 2015, MOL owned 30% of the woodchip carrier fleet capacity and NYK had 28%. This is lower than in 2008 when the two combined accounted for 65% of woodchip carrier fleet capacity.The third-largest owner of woodchip carriers is now Nova Shipping, which currently owns 11% of the fleet capacity.
 
Historically, all of the woodchip carriers had been built in Japan, mostly at the Sanoyas and Oshima shipyards. However, Nova Shipping ordered 12 new vessels (10 have been commissioned to date) from two Chinese shipyards, Nantong Mingde and Jiangsu Yangzijiang. Nova chose a new design, requesting vessels larger than any previously built. The new vessels are about 70,000 dwt and 4.7 million ft3 capacity, compared with the largest woodchip carriers built in Japan which are 4.3 million ft3. In addition, these new vessels are more fuel efficient than older vessels, making them highly competitive to use on longer trade routes, such as from Australia, South Africa, Chile, and Brazil to China. The giant pulp producer APRIL uses these large vessels from Nova Shipping, and has been shifting its demand for woodchips away from Southeast Asia to more distant sources. In fourth quarter 2014, Nova Shipping loaded 40,425 bone dry metric tons of wattle woodchips from the Brazilian supplier Tanac, at the Port of Rio Grande, for APRIL’s pulp mill in Rizhao, China. This was the single largest shipment of woodchips ever made in the history of the trade.
 
While growth in the woodchip trade has been impressive, the rapid increase in overseas shipments of wood pellets has been astounding. Europe has been the main importing region for wood pellets, with demand driven by countries’ efforts to increase production of energy from renewable resources. Almost all of the wood pellets imported into Europe from overseas have come from North America. Pellet producers in Western Canada began exporting to Europe in bulk shipments in the mid-1990s, and producers in the U.S. South began shipping to Europe in 2007. Since 2007, exports of wood pellets from North America, more than 95% of which have gone to Europe, have surged from 645,000 metric tons to nearly 5.7 million metric tons in 2014. This is an annual growth rate of more than 36%. About two-thirds of wood pellet exports have been from the USA, and almost all those from the U.S. South, and one-third from Canada. Through the first quarter of 2015, wood pellet exports from North America declined about 2.8%, but the trade is expected to expand again in the second half of the year. By 2018, RISI projects that overseas exports of wood pellets from North America will reach 13 million metric tons.
 
While Europe is by far the biggest market for wood pellet imports, the demand for biomass has more recently been accelerating in northern Asia as well. In particular, the South Korean market for wood pellet imports has expanded rapidly, with volumes jumping from only 30,000 metric tons in 2011 to 1.85 million metric tons in 2014. Growth in demand for wood pellet imports in Japan has been much slower than expected to date, but more than 60 wood biomass energy plants are scheduled to start operations in Japan in 2015 and 2016 due to the feed-in tariff which was introduced in the country in 2012. While most of these plants are planned to operate on thinnings from domestic forests and waste wood, most industry observers expect this new biomass demand to lead to increased demand for imports of either woodchips or wood pellets. To date, most of the wood pellets imported in Korea and Japan have been from Southeast Asia, especially Vietnam. A Vietnamese company recently purchased the closed Biowood Norway pellet plant (capacity of around 400,000 metric tons/year) and is relocating the factory to Dung Quat port in central Vietnam.
 
International trade in woodchips and biomass will be the focus of the 8th International Woodfiber Resource and Trade Conference, which RISI is hosting in Savannah, Ga., USA on November 2-4. Both woodchips and wood pellets are exported from Savannah, with the woodchips going to producers of wood-based panels in Turkey. This conference typically attracts 220-250 delegates from 30 different countries, and has become a very popular business networking meeting for those involved in the woodchip and wood pellet markets. 
 
More information on this meeting and its program is available online.
 
Bob Flynn is director, international timber, RISI.
 

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