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In January – June 2023, the total export of pellets from Russia fell by 61% year-on-year to 450,000 tons. After the introduction of  EU sanctions against Russian pellets (fuel pellets from wood processing waste), most of them (about 90%) are redirected to South Korea, following the data of the industry agency WhatWood. Turkey accounted for about 10% of deliveries.

In the first six months of 2023, the export of pellets from Russia to South Korea amounted to more than 405,000 tons. But now in this country, WhatWood analysts explain, there is an excess of pellets and prices are falling. For example, in June 2023, the export price of Russian pellets when shipped to Korea on the basis of CFR ("cost and freight") decreased by 9.4% compared to May of this year to $115/ton. In July, according to the agency, the cost dropped to about $110/ton.

In the first half of 2022, only 14% of the total export of pellets from Russia went to South Korea, a representative of WhatWood told Vedomosti. In June last year, 1 ton of pellets in Europe cost $95, and in South Korea – $ 120.

In January – June 2023, the total export of pellets from Russia fell by 61% year-on-year to 450,000 tons, the agency notes. In June, shipments abroad halved compared to June 2022 and by 12.5% compared to May 2023 to 83,200 tons. Most likely, by the end of 2023, the rate of reduction will be slightly lower – 40-50% year-on-year, and exports will amount to 1 million tons, WhatWood analysts say.

A sharp drop in exports had a negative impact on the production of pellets in the Russian Federation. In the first half of the year, it almost halved in annual terms to 646,000 tons, according to Rosstat data.

The decline in export volumes is due to the strengthening of anti-Russian sanctions in 2022 after the start of the SVO (Special military operation)  in Ukraine. The EU, which was the main export market for Russian pellet producers, banned the import of not only fuel pellets but also wood, plywood, and slabs from Russia in April. The embargo came into force on July 10 last year. In October, the EU imposed restrictions on the import of pulp and certain types of paper and cardboard from Russia. At the same time, China, which in 2022 became one of the largest markets for Russian timber exporters, has been banned since 2020. import of pellets in principle (this is presented as a concern for the environment).

Production of pellets in Russia in the first half of 2023 in thousand tons

 

Month	January	February	March	April	May	June
Volume of production	106,8	103,5	109,8	110,1	103,9	110,5

Source: Rosstat of Russia  

A representative of Roslesinforg told Vedomosti that before the sanctions were imposed, Russian timber producers produced 2.6–2.8 million tons of fuel pellets annually. Up to 90% of the products were exported, mainly to Europe (Denmark, Belgium, the Baltic States and Scandinavia), as well as to South Korea.

After the closure of these areas, according to Rosstat, in 2022, the production of pellets in Russia decreased by 19.6% to 2.07 million tons (Vedomosti wrote about this on February 2, 2023). The largest drop, according to the Union of Timber Producers and Timber Exporters, was in the North-Western Federal District, which produced pellets mainly for export to Europe. Here the drop was 32% to 789,100 tons.

The greatest demand in Asia was registered from South Korea and Japan, the representative of Roslesinforg notes. The supply of pellets to South Korea increased almost 4 fold in 2022 to 560,000 tons. 100,000 tons were exported to Japan last year, although earlier the figure was "at times less," the source added. Russian consumers have not shown interest in fuel pellets, he stated. As a result, the production of pellets in Russia in 2023 will amount to about 1.4–1.6 million tons (68-77% of production in 2022), Roslesinforg predicts.

There are three key markets for pellets in the world: Europe, South Korea, and Japan lists Strategy Partners partner Pavel Bilibin. According to him, the EU states have already noticed the dropped Russian volumes of supplies from other countries, and South Korea has become the most popular market for domestic producers. Japan has not formally imposed strict bans on the import of pellets from Russia. But access to it this year is significantly limited due to the unwillingness of Japanese companies to work with imports from Russia, so it is impossible to supply large quantities there, explains Bilibin.

According to WhatWood, in the six months of 2023, about 10% of pellets from Russia were exported to Turkey. But the hopes placed on this country "did not come true," analysts say. In the first half of 2023, only a little more than 40,000 tons were delivered to Turkey. At the same time, analysts observe a gradual decline in exports: in May, deliveries amounted to 1,000 tons, and in June – 547 tons.

Against the background of problems with the export of pellets, the Russian authorities decided to stimulate their consumption in the domestic market. Following a meeting with timber producers on February 10, Russian President Vladimir Putin instructed to allocate an additional at least 15 billion rubles in 2023-2024 for the conversion of existing and construction of new pellet boilers. Priority will be given to the Far East and the North-Western Federal District.

A representative of the Ministry of Industry and Trade told Vedomosti that the transition to eco-fuel is being actively worked out together with the Ministry of Construction. "Conceptually, the situation regarding exports will not change until the end of the year, but pellets will win back the share of the domestic market and increase consumption volumes at a small pace. Production is expected to increase by 4-5% by the end of the year," the source added. It is also important to popularize the use of alternative fuels, equip villages under construction with pellet boilers, and focus on the domestic market, he noted.

The largest producers of pellets in Russia, according to the Union of Timber Producers and Timber Exporters, are Segezha Group, GC ULK, Lesozavod 25 (part of GC Titan), woodworking company Yenisei, New Forest Pro, Lesresurs-Rusforest, GC Vologda Timber Producers and RFP. Vedomosti sent requests to the listed companies.

Production and export of pellets "New Forest pro" in the first half of 2023 " has not changed significantly" compared to the first half of 2022, Director of Customer Relations of the company Yuri Shalaginov told Vedomosti. According to him, due to the cancellation of certification to Japan, exports were redirected to South Korea, where the company supplies fuel under long-term contracts.

Shalaginov notes that the Korean market is now "oversaturated with offers from Russia," so there are few prospects for new players in it. "The situation with the ban on the supply of pellets to China is unlikely to change in the foreseeable future. China protects its manufacturer," he adds.

A representative of the Lumber Sales Directorate of Vologda Timber Producers (VLP) also told Vedomosti that the company had redirected the export of pellets from Europe to South Korea. The company considers Turkey as a potential buyer, but this country is not a consumer but supplies pellets in transit to Europe, the source added. He also noted that VLP doubled its pellet production capacity in 2023 to 5,000 tons per month after the purchase of Hasslaherles. Sales of pellets of the company in the first half of 2023 decreased by 16.6% to 12,100 tons.

Bilibin expects a decrease in pellet production in 2023 by 35-40% compared to 2022, and exports by 45-50%. In the second half of the year, there is a seasonal increase in demand for pellets, which, in his opinion, can lead to an increase in supplies in kind. Also, increasing the marginality of exports may cause the ruble to fall against the dollar, Bilibin adds.

If South Korea bans the import of biofuels from Russia, domestic timber producers will be forced to further reduce production volumes, Bilibin believes. Andrey Frolov, Vice-President of the Union of Timber Producers and Timber Exporters of Russia, believes that Russia needs to enter the Chinese market to replace the EU, which consumes 30 million tons of pellets annually. 

 

Source: https://www.vedomosti.ru/business/articles/2023/08/22/991248-rossiiskoe-biotoplivo-iz-opilok-otpravilos-v-yuzhnuyu-koreyu?utm_campaign=newspaper_22_8_2023&utm_medium=email&utm_source=vedomosti