Russian Forestry and Wood Supply Operations Analysis
A COMPLEX VIEW
Fig. 13: Existing and planned pellet capacity,
targeting the European market - Top-15
players
Enviva (US)
German Pellets (US)
Pinnacle Pellet (Canada)
Drax (US & UK)
Biomass Secure Power (US)
EcoFuels (US)
Enova (US)
VLK (NW Russia)
Keystone (US)
RWE Georgia Biomass (US)
Rentech (Canada & US)
Fram (US)
Gulf Coast Renewable Energy (US)
Graanul Invest (Baltics)
E-Pellets (US)
0
1 500
3 000
■ Existing Planned
Overall, the main investment activity is drifting from the Russian North-
West toward Siberia.
In addition, there is drift in the key markets. Domestic consumption
grows, however the volumes are not yet large enough to compete with
exports. Europe remains the Number 1 export market for Russian mills,
and specifically two countries in Europe: Sweden and Denmark. Sales to
those countries accounted for two-thirds of total Russian pellet exports
in 2014 (75 per cent in 2013; 74 per cent in 2012). In the mid-term, Asian
countries like South Korea, Japan and China are expected to grow for the
Russian suppliers both in volumes and in importance. However, deliveries
to the largest Asian market for Russian mills so far - South Korea - were
below 50,000 t in 2014 out of total export of nearly a million t/a (73,000 t
in 2013; 47,000 t in 2012).
Alexey BESCHASTNOV,
Senior Consultant at Pöyry Management Consulting
Advising
sharper
decisions
16
Total Production Capacity ('000 tp
Source: Pöyry Management Consulting
its development is largely dependent on subsidies. Specifically, those risks
might hit Russian exporters in some way or other as Europe is currently
subsidizing pellet production development abroad: in the US South and
in Russia in the first place - which might be not a good selling point for
a politician. Apart from that, the sector is booming and the prospects are
bright. In 2014, the only large cloud on the horizon was the decline in oil
prices - which made the dependence on subsidies even larger. The fastest
growth in production volume was seen on the eastern seaboard of North
America, while the fastest consumption growth (by volume) was seen in
Europe.
The list of Top-15 pellet producers is changing quickly, with large capacities
in the pipeline (fig. 13). The planned new capacity for the Top-15 companies
on the chart is over 10 million t/a - and those are only plans/shares which
target the European market, i.e. excluding the pellets which are likely to be
sold outside of Europe. And, of course, the Top-15 players and plans are only
the top of the long list of manufacturers. The next 15 largest producers-and-
plans include over 3 million t/a of additional planned volumes (by far the
most of them from the US) and about the same volume of already installed
capacity (with over a half of it in the US). Needless to say that there is
a risk of oversupply if those plans are developed quickly. The key buying
criteria in the industrial pellet market are: security of supply, volume (as a
rule of thumb, the larger the volume the higher the price) and price. In all
of these criteria most Russian mills are not in the best position - which
should be taken into account while planning new investments, at least in
the industrial pellets sector.
RUB devaluation (and the devaluation of EUR against USD), as well as the
overall important problem of wood residues and low grade wood utilization,
has resulted in numerous plans in Russia recently: Rusforest installed a
100,000 t/a pellet mill in Arkhangelsk (prior to selling the mill) and plan to
install 30,000 t/a mill in Magistralny (Irkutsk region); Lesresurs commissioned
a 30,000 t/a pellet mill in Novaya Igirma (Irkutsk region). In 2013-2014,
there were several other starts as well.
In the list of projects there is no lack of mills with capacity of "about
and over" 100,000 t/a: Lesozavod-25 (in the Arkhangelsk region, with trial
production scheduled for March 2015), TSLK and Russian Timber Group
(both in the Irkutsk region), Asia Les (Khabarovsk Krai), GS Group (Pskov
region), Bionet (Arkhangelsk region), GK Sintez (Bryansk region) and so on.
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