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Biomass producers expect supplier consolidation

07 Apr 2016 12:18 (+01:00 GMT)
Biomass producers expect supplier consolidation

London, 7 April (Argus) — Producers expect further consolidation across Europe's wood pellet supply chain, a panel told delegates at the Argus biomass conference in London today.

Portuguese output is forecast at just 500,000t this year, domestic producer Enerpar's chief executive, Joao Rocha Paris, said. Portugal exported 694,000t of wood pellets last year, down from 724,000t in 2014. Installed production capacity is around 1mn-1.2mn t/yr.

The strength of the euro against currencies in competing supplier markets, including Canada, Russia and Poland, is putting pressure on producers in the eurozone, Rocha Paris said. Portugal in particular has higher energy costs than most EU countries, and feedstocks are more expensive than in other regions, he said.

Production capacity will shut down in the next 12-18 months, which "may lead to some bankruptcies in the sector", Rocha Paris said, adding that more consolidation is expected as a result.

And Estonian producer Graanul Invest's chief executive, Raul Kirjanen, expects consolidation among suppliers, which will provide economies of scale and increase cost competitiveness.

Supplier consolidation is necessary for the health of the industry, US firm Fram Renewables Fuels' president, Harold Arnold, said. "The cure for overproduction is overproduction. It drives people out of the industry, mothballs capacity and makes a change."

"There will be companies that get pushed out, and new ones will come in that have a different kind of economics," Canadian wood pellet producer Pinnacle Renewable Energy's vice-president for sales and logistics, Vaughan Bassett, said.

But producers must raise efficiency, notwithstanding supplier consolidation, he said, citing Pinnacle's use of Panamax vessels — rather than the more usual Handysizes — to save on transport costs.

Biomass must track other renewables lower every year to remain competitive in terms of cost, Kirjanen said.

But the expected shake-out of wood pellet producers could benefit the market in the longer term. "As installed capacity disappears, the remaining producers will be in a very strong position," Rocha Paris said.

Oversupply is expected to persist for the next 1-2 years, but there could be a supply shortfall as soon as 2019-20, Arnold said, given planned new demand capacity and the potential for colder European winters compared with the most recent three.