Wood Pellet Industry and Market in Vietnam

In the past years, Vietnam wood pellet export grows from zero to around 2.75 million tons every year, with most to Korea and Japan. But as the price advantage diminish, What’s the trend of Vietnam wood pellet industry?

Vietnam wood pellet production benefits from low cost

Wood pellets in Vietnam are mainly made of the by-products of furniture manufacturing. Vietnam has large furniture manufacturing industry producers. Therefore it benefits from the plentiful wood waste thus enabling the lowest production costs in the Asian region. These sawdust has low moisture content and small size. So many early wood pellet factories don’t need drying or crushing machines. With low labor cost, they can save a great deal of production cost.

Vietnam is the main exporter dominating 70% of South Korean market, it also offers a competitive wood pellet price at about 90 €/t  to Japanese and South Korean markets. Vietnamese producers also low shipping cost(0.9€/t).

For a long time, there are a large number of container cargos shipped from Korea to Vietnam and only small quantities from Vietnam to Korea. Wood pellet manufacturers can make use of the excess empty container for shipment at low cost. The transportation cost is lower than $10 per ton.

Vietnam wood pellet production cost will rise

The shipping cost is going to rise. The rapid growth of cargos from Vietnam to Korea reduce the excess containers. The shipping cost will rise to $20/ton from Vietnam to Japan.

The raw material cost is going to rise. The furniture manufacture in Vietnam increase from 2.1 million tons to 7.2 million tons in the past 10 years, with the annual growth rate of 13%. By contrast, the wood pellet export increases from 160,000 to 2.46 million tons, with the annual growth rate of 61%. So the demand for furniture processing waste growth much higher than the supply.

To expand production, Vietnam manufacturers will increasingly rely on forest residuals and logs. These materials cost higher and need peeling, chipping, crushing and drying for making pellets. So the cost will rise up.

Vietnam wood pellet export price will increase

In the chart below, the green line shows the weighted price of the top 6 wood pellet suppliers to Korea, and the red line shows the price of Vietnam wood pellets. As Vietnam domains the Korea wood pellet market, other 5 suppliers only take up less than 20% market share. We can find that the growth of Vietnam wood pellet price pushes up the average weighted price.

Japan wood pellet market also reflect the rise of Vietnam wood pellet price. Most of Japan’s wood pellets are imported from Canada and Vietnam, with Canada taking up 65%-70%. The green line shows the weighted price of Canada and Vietnam wood pellet export. The red line shows Vietnam’s wood pellet export price rebound.

What's the future of wood pellet export in Vietnam

With more wood pellet plants are built in Vietnam, their competition on raw materials will increase. With the increase of production cost, the wood pellet price will grow and approach the global market equilibrium price. At that time, the size of the Vietnam pellet export sector will stabilize.

There will be consolidation in Vietnam wood pellet industry. Preponderant manufacturers will acquire well-built and well-located plants, and the less competitive plants will close.

The capacity of Vietnam wood pellet producers is going to match with long-term agreements. More producers will export wood pellets to Japan according to long-term supply agreements, and Korea policy will evolve to support long-term supply agreements.