« Markets pellet market may be disintermediation. As market participants note, more and more contracts are being executed directly between producers and consumers, which helps reduce the final price. One of the limiting factors for such transactions, however, is that companies only have operational warehouses for receiving and shipping cargo, which are not intended for long-term storage of goods. To be successful, companies need to improve the efficiency and flexibility of wood pellet production and logistics, build a buffer warehouse for raw materials and finished products, and comply with increasingly stringent European certification requirements. Despite the near-absence of demand from European consumers, the market is witnessing the commissioning of new production facilities and expansion of wood pellet lines. Facilitating that is the growing rubleto-euro exchange rate, making it possible for companies to gradually reach positive
profitability values. One of the enterprises, which reduced output by three times during the pandemic (from 3,000 to 1,000 tons), increased it to 1,400 tons in September and was planning to reach 2,000 tons in October. Another producer plans to put into operation a pellet wood line that will increase capacity by 1.5 times. Amid developments like these, other companies are continuing to operate and sell products at a loss since the complete suspension of production will lead to even greater losses. Prices: Short-term Expectations According to WhatWood's estimates, spot prices for Russian industrial wood pellets will soon range between 65 and 80 euros per ton. The lowest possible price for this type of wood pellets can reach 50 euros per ton. Prices may increase slightly in Q1 2021 to average 75 euros per ton. Remarkably, a large volume of Russian
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22 PELLET MILL MAGAZINE | ISSUE 1 2021
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premium quality wood pellets (with ENplus A1 quality certificates, relevant confirmation from Incolab and SGS, as well as with Sustainable Biomass Partnership/Forest Stewardship Council/Programme for the Endorsement of Forest Certification) are sold in Europe in the segment of industrial consumption. That is, they are bought and consumed by energy corporations such as Ørsted, Stockholm Exergi, Fortum and Drax at 70 euros per ton (on FCA St. Petersburg terms). These same wood pellets could be sold by Russian producers in the private consumption segment of European retail at a price of 200–250 euros per ton since they conform to the required quality and specifications. More and more producers are offering 15- to 20-kilogram (33- to 44-pound) packages. Not all large Russian wood pellet suppliers are ready to lengthen the sales channel, develop logistics in target markets, rent warehouses and offices, invest in branding and packaging, etc. to transition sales from industrial to private consumption. Based on WhatWood's estimates, changes in prices, as well as significant changes in demand, are not likely in the near future. Spot prices will depend on weather conditions and how quickly the current surplus of wood pellets will be consumed by customers. Moreover, lack of demand leading to lower production profitability, as well as the potential for no positive price dynamics but increasing competition from Russian producers and European, American and Canadian industries, may force small-scale wood pellet enterprises that cannot afford to produce products at a loss to suspend and completely cease operations in the near future. Notably, prices for long-term contracts will also decline in 2021. One of the major producers has announced a cutdown of its November/December 2020 price starting in January, by 5-10 euros. Additionally, there were reductions in volumes or complete terminations of purchases under long-term contracts (when allowed), as well as a downward revision of price conditions in the autumn and winter of 2020.
