Vietnam: Asia’s Rising Wood Pellet Exporter

Vietnam has rapidly emerged as a major force in the global wood pellet market, fueled by its expanding wood processing industry and strategic proximity to key Asian importers.

Notably, Vietnam overtook the US as the top exporter of wood pellets to Japan in 2022 and is a significant supplier to South Korea. Let’s dive into the factors driving Vietnam’s growth and explore considerations for exporters working with the country.

Drivers of Vietnam’s Wood Pellet Boom

• Abundant Raw Materials: Vietnam’s expansive wood processing and furniture manufacturing industries generate significant quantities of residues (sawdust, wood chips), providing ample feedstock for pellet production.
• Rapidly Growing Pellet Industry: Investments in pellet mills, particularly in recent years, have significantly increased Vietnam’s production capacity.
• Geographic Advantage: Close proximity to major Asian importers like Japan and South Korea offers logistical advantages and reduced shipping costs.
• Government Support: Vietnamese policies encourage the use of biomass for energy and provide some support to the wood pellet industry.

Vietnam’s Wood Pellet Exports Surge

Since 2017, Vietnam’s wood pellet exports have experienced rapid growth. Over the past three years, the country has exported an average of 3 million tons annually, valued at around US$350 million. This upward trend continues, with 2021 on track for record export volumes – 2.4 million tons (US$273 million) were exported in the first 8 months alone.

Vietnam’s wood pellet exports then totaled $597 million in the first eleven months of 2023, down 14% year-on-year, with November exports reaching $58 million.

South Korea received nearly 1.3 million tons, while Japan imported 2 million tons, meeting 80% of its demand. Despite the decline in exports to South Korea due to Russian imports, Vietnam remains the world’s second-largest wood pellet exporter.

In 2023, it’s projected to earn $665 million from exports, following a 30% increase in quantity and 67% in revenue in the previous year.

COVID-19 Impact: Limited Disruption for Pellets

While the recent COVID-19 surge in Vietnam (April 2021 onwards) significantly impacted the export of wood products to markets like the US and EU, the wood pellet sector was less affected.

This is primarily due to the concentration of wood pellet manufacturing in Vietnam’s northern provinces, while the surge largely impacted furniture processing clusters in the south.

Understanding Vietnam’s Wood Pellet Landscape

• Supply Sources: Vietnam utilizes a mix of rubberwood residues, acacia residues,and other wood sources for pellet production.
• Sustainability Scrutiny: The industry faces growing pressure to demonstrate sustainable sourcing. Some suppliers hold certifications, but practices vary – this is a crucial area for exporters to focus on.
• Production Regions: Pellet mills are concentrated in key wood processing hubs in southern and central Vietnam.

Export Markets and Trends

• Japan: Vietnam’s largest wood pellet export market. Japanese buyers prioritize reliable, sustainable supplies.
• South Korea: Another major importer. Cost and sustainability are both key factors for Korean buyers.
• Emerging Markets: Vietnam is exploring opportunities in other Asian countries with growing renewable energy goals.

South Korea and Japan: Vietnam’s Dominant Wood Pellet Markets

Japan and South Korea are the driving forces behind Vietnam’s wood pellet exports, together accounting for over 90% of its export volume annually. While South Korea remains the larger market overall, Japan’s demand has surged in recent years. Both countries offer incentives for renewable energy, including wood pellets, fueling this demand.

Market Dynamics: Stability vs. Volatility

Historically, South Korea’s wood pellet market has been nearly double the size of Japan’s. However, Japan demonstrates greater import stability and consistent growth. South Korea’s market, on the other hand, can be subject to more price volatility.

Japanese Market Offers Growth Despite Lower Value

While South Korea generates higher overall export value for Vietnam, the Japanese market has exhibited steady growth since 2018. Conversely, the South Korean market experienced a significant decline in 2019 and has yet to fully recover.

Market Dynamics: Price Differences and Export Strategies

Vietnamese exporters typically achieve higher prices in the Japanese market compared to South Korea, with a difference of around US$20-30 per ton. This can be attributed to South Korea’s preference for auctions, while Japan often utilizes direct agreements with set prices.

Vietnam boasts over 70 wood pellet export companies, a number that remained fairly stable in 2019 and 2020. Of these, 61 export to South Korea, and 41 export to Japan, with 10 companies serving both markets.

Given the more attractive prices in Japan, it’s likely that Vietnamese exporters will increasingly shift their focus towards the Japanese market or strive to establish a presence in both markets.

Tips for Importers to Work with Vietnamese wood pellet exporters

1. Sustainability as a Core Value:

   • Due Diligence is Essential: Thoroughly vet potential Vietnamese suppliers to ensure they have responsible sourcing practices and can meet your market’s sustainability requirements.
   • Certification is Key: Prioritize suppliers who hold FSC, PEFC, or SBP certifications, as these are increasingly in demand.
   • Long-Term Sustainability Focus: Support Vietnamese suppliers in their efforts to enhance sustainability throughout their supply chains.

2. Quality and Consistency

   • Know Your Requirements: Clearly define your pellet specifications (size,moisture content, energy density, ash content) and ensure potential suppliers can consistently meet them.
   • Quality Control: Consider implementing independent quality checks at production sites or during loading for additional assurance.

3. Logistics and Infrastructure

   • Port Capacity: Be aware of potential bottlenecks at Vietnamese ports,especially during periods of high demand.
   • Shipping Partners: Work with reliable freight forwarders experienced in shipping from Vietnam to your market.
   • Bulk Shipments: For large volumes, aim for bulk shipments to optimize shipping costs.

4. Building Partnerships and Market Knowledge

   • Vietnamese Business Culture: Familiarize yourself with business practices in Vietnam. Building relationships (quanxi) is often important for long-term success.
   • Local Expertise: Consider partnering with a Vietnamese agent or consultant to navigate the market and facilitate communication. This can be especially valuable early on.
   • Market Intelligence: Stay informed about industry developments, policy changes, and potential disruptions within Vietnam’s wood pellet sector.

Outlook for Vietnam’s Export Market

Vietnam is well-positioned to maintain its role as a major wood pellet exporter. However, its long-term success hinges on:

• Sustainability: Meeting the ever-increasing sustainability demands of importers will be crucial for maintaining market share.
• Competition: Other Southeast Asian exporters (Malaysia, Indonesia) are emerging and could pose future competition.
• Domestic Policies: Vietnamese policies could evolve, potentially impacting the export market.

Vietnam’s Wood Pellet Industry: A Tale of Two Tiers

Vietnam’s wood pellet industry exhibits a marked imbalance. A few large exporters dominate the market, while a significant number of companies operate on a much smaller scale.

In 2020, nearly 62% of wood pellet exporting companies (47 in total) moved less than 10,000 tons each. Collectively, this large group accounted for only 3.8% of Vietnam’s total export volume. In stark contrast, just six companies (8% of exporters) each exported over 100,000 tons, accounting for a massive 67% of the country’s total export volume.

Vietnam’s Potential: Sustainable Growth for a Global Market

Vietnam’s wood pellet industry holds significant promise as a sustainable contributor to the growing demand for renewable energy, while offering opportunities for countless smallholders and businesses. Here’s why:

• Surging Demand: Industry insights suggest that Japan’s demand for wood pellets could triple by 2024-2025. This growth would offset the current supply surplus and offer Vietnam tremendous export potential.
• The Sustainability Imperative: By partnering with afforestation households to produce FSC-certified timber, Vietnam can secure a market advantage. Forward-thinking companies are already leading the way by collaborating with smallholders to expand FSC-certified areas.
• Path to Global Trust: By prioritizing quality control and legal verification,Vietnam’s wood pellet sector can overcome reputational concerns and solidify its position as a reliable and sustainable supplier in the global market.

Conclusion

Vietnam offers significant potential for wood pellet exporters. Its abundant resources, growing production capabilities, and proximity to Asian markets make it an attractive option.

A proactive focus on sustainability, ensuring quality, strategic logistics, and building strong relationships within the industry will be crucial for success.

Originally posted 2024-02-22 09:26:49.