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Supply tightness in the industrial wood pellet market may continue throughout 2023, but will depend on the outcome of European power price caps and supply-side factors.<\/p>\n
Expected high forward power prices for 2023 could hold spot wood pellet prices well above their 2021 average, but eventual volatility will depend on how well stocked utilities are going into 2023, as well as final decisions on the proposed EU and UK on power price caps.<\/p>\n
Russian gas flows into Europe expected to be significantly lower in 2023, with LNG likely unable to fully offset the drop in pipeline gas supplies, suggests other generating fuels \u2013 including biomass \u2013 will be able to make it into the continent's generation mix. Which could bolster power sector demand, offering support to prices.<\/p>\n
The carryout of inventories at northwest biomass-fired utilities at the start of the summer 2023 season will also be a key determinant for pellet prices next year.<\/p>\n
A slowdown in sawmilling in Europe, the Baltics and the US - linked to inflationary pressures on other industries - could reduce sawdust availability for pellet producers.<\/p>\n
The US could be less impacted by any slowdowns, although some sawmills were expecting to cut production by 20pc for the remainder of 2022 and into next year.<\/p>\n
Most of the panel, made up of leading utilities and producers from Europe and the US, expected prices to fluctuate into next year but high prices would cure high prices. Wood pellet prices would eventually fall closer to long term averages again at some point, but this is unlikely in the near term.<\/p>\n
That said, despite volatility, consumption of pellets in the heating sector could be much lower than expected - particularly in the event of milder weather in the winter season - reducing competition from the residential and commercial sectors. And further downward pressure on prices could come from firms with less cash reserves, meaning we will not see people stocking up in the same way.<\/p>\n
Production challenges<\/strong><\/p>\n The market is seeking new ways to address the current supply deficit, with current high prices likely to bring some new investment in.<\/p>\n Producers were more likely to focus on improving efficiency at their existing plants than invest in new projects due to longer lead times for such projects to be completed \u2013 currently between two and five years.<\/p>\n Uncertainty over whether subsidies for biomass-fired power and heat generation will be extended beyond 2026-2027, when most European utilities' state support ends, was dampening interest in longer-term infrastructure investments.<\/p>\n In the shorter term, producers have also been hit this by a longer lead time on new parts and maintenance since the covid pandemic, with some equipment taking 18 months to arrive compared with the usual 2.<\/p>\n Also, utilities will look to take control over their supply chains to secure material.<\/p>\n UK utility Drax's acquisition of Canadian producer Pinnacle in 2021 was one example of this, and has given the utility scope to secure long term deals past the 2027 subsidy cut-off.<\/p>","protected":false},"excerpt":{"rendered":" Supply tightness in the industrial wood pellet market may continue throughout 2023, but will depend on the outcome of European power price caps and supply-side factors. Expected high forward power prices for 2023 could hold spot wood pellet prices well … Continue reading