Key Takeaways from the Argus Biomass Conference

Hannah: From Argus Media, this is The Biomass Beat podcast, focusing on all discussions that affect the biomass industry. I'm your host, Hannah Adler, a senior reporter on the biomass desk for Argus Media. And today, I'm joined by my team, Marta Imarisio, a senior market reporter, and Jeff Kuntz, the editor, to discuss the Argus Biomass Conference, which we just had last week, the 21st to the 23rd of April, which is our flagship conference for the industry. And there are a whole range of offtakers and sellers and traders who attended, as well as different industry associations and policymakers. And all three of us attended the same event. But today, we're going to discuss our different takeaways. So thanks for joining, Jeff and Marta. 

Marta: Hi. Thank you for having us. 

Jeff: Yeah, thank you. 

Hannah: So I thought we could just start by discussing, how did the industry feel at the conference? When you walked in, was it confident? Was it cautious? How was everyone feeling? 

Jeff: I think I'll go first here. I think it was an interesting vibe. This was my first one as editor. It was an exciting time. I think I got the feeling like there were a few different vibes, depending on what part of the supply chain or what part of the value chain a certain company would be in. So, like, you know, there were the world's biggest producers on the one hand. There were, you know, Europe's biggest consumers on the other hand. Technology companies in the middle. And I think, I mean, I'll just comment on one part, and then I'll let you guys kind of take it from there. 

But, like, something that we'd seen in the report just in terms of the price was Argus's European industrial spot pellet benchmark, the CIF NWE, Northwest Europe. Spot price had hit a three-year high the week before the conference, and they've been building for...you know, the price had been ticking higher for months and months, for over a year really, and then kind of reaching this three-year high the week before the conference. And then, during the conference, it hit another three-year high at, like, $235 per ton. Premium pellets had sort of hit a three-year high a few weeks before that. And Asian industrial pellets were still at a big discount, and Asian palm kernel shells, PKS, were at an even bigger discount to those. 

So there were these price spreads. So I think, just thinking for producers, I think they went into this kind of looking at those spreads and thinking about, you know, who can they sell to at the best price and what's in it for them. And I think the Argus conference is usually a good place for suppliers to find buyers, right? So there was definitely a lot to talk about just purely based on prices. 

Marta: Just following up from that, I guess, also, from a buyer's perspective, chatting with a number of participants and producers on the sidelines of the conference, they did also have a feeling that there was way more optimism than they thought. So, obviously, as we all know, the current subsidies for biomass firing in the UK and the Netherlands will expire next year. And probably the expectations were for kind of a gloomy environment, considering they were only one year away from the cliff edge. But the vibe was slightly different. I think there's quite a lot of expectations that a number of utilities will continue generating on a merchant basis. It's probably because of the high power and gas price environment that we are currently in that is kind of instilling a bit more confidence in biomass power generators. But yeah, that was kind of the vibe that I grasped. 

And also, all the new industries that we've been talking about for a number of years that might become pellet consumers, they seem to be moving on slightly at a quicker pace now. All the conversations around torrefied pellets and biocarbons seem to be moving a little bit, perhaps as spinoffs of the expectations of lower demand from subsidized power generators. So the mood was quite positive despite it not being the brightest time in the energy mix, in the energy environment. 

Hannah: I definitely saw similar. I remember when I walked in, it was a lot more positive than previous years. I know, in previous years, like, for instance, last year, the heating season was quite mild. So there were lots of excess stocks, like, throughout the supply chain from suppliers who weren't able to shift as many as they thought they would to buyers who still had many, you know, pellets in stock. And so, yeah, I think the producers that I spoke to are a lot happier because they had offtakers who were actually looking to refill stocks ahead of the next heating season. So that was definitely a more, as you said, optimistic and happy tone. 

I guess you've kind of covered this a little bit, but I just wanted to go a little bit more into what topics you found dominated the side conversations and the coffee break chats. And I know, obviously, we've discussed a little bit about the torrefied pellets and the generation. Were there any other topics that dominated the side conversations, or was it mainly this? 

Marta: Just following up from what you were mentioning, Hannah, on the stronger heating season that we just had and lowering stocks, I do personally cover the residential market myself. And whilst in the winter 2024-25, we had seen quite a mild heating season and plenty of stocks and producers looking to discount volumes as the summer approached to incentivize buying interest, we are seeing the opposite way around...the other way around this time, where we had an extended heating period up until the end of March, if not longer, in some geographies. And now producers are unwilling to let volumes go cheaper than in winter. We are seeing limited stocks available. 

And on the buy side, strong demand because there are some concerns that we might see another spike in prices as the next winter approaches, which is what we had recorded in 2022 when Russia invaded Ukraine. So people are kind of trying to get ahead of the curve, stock up now if they had storage capacity, and kind of hope that prices will not drop later as we get closer to September, October, which is usually when the winter season starts in Europe. 

Hannah: From my perspective, the side conversations were...I know we've already touched on this, but what Drax is going to be doing next year and who they're going to be getting their supply from. That was a real topic of discussion. They obviously are huge, huge offtakers in the industry. So, where are they going to get their supply from? But also, there was a lot of chatter I found about how real the conversations around torrefied pellets are, not how real, but sort of, how advanced are these conversations? Because all these conferences we've been going to for years now, we've always been talking about torrefied pellets, and it's a new industry that the biomass players are getting into. But we've been having these conversations for so long that I think a lot of the sort of sideline chats I had with people really asking, you know, "Are we really going to see it pick up this year?" And maybe with the subsidies changing next year, the current subsidies expiring and the new ones coming into play, will that sort of incentivize the industry to look more seriously at torrefied pellets? 

Jeff: I think I totally agree with all that. Yeah, I definitely heard a lot of that. Something else...I mean, we mentioned this earlier on in the podcast, but about what's happening in the Middle East and the ramifications there. I think that was another theme, of course, that came up because we're going through this right now in the world. The Strait of Hormuz is still effectively blocked, so there's no oil and LNG leaving the Middle East through the Strait of Hormuz to global markets. So fuel prices are going up, and for producers, that means higher production costs, higher transport costs, just getting biomass from A to B in whatever form it is along the supply chain. 

Yeah, from sort of, like, you know, trucking stuff around to, like, sea freight, you know, bunker fuels, bunker fuel prices increasing, and then freight rates increasing. And I think, especially with, like...maybe I'm sort of obsessed with price spreads, but thinking about Asian, if Asian biomass... The thing that makes Asian biomass attractive potentially in Europe is because of, you know, this sort of how relatively inexpensive it is. But the higher the shipping cost, the lower the profit margin for that. So, yeah, impacts of, like, higher fuel prices. 

Hannah: On that, I think that actually leads us really well into what we could discuss next, which is, how are the rising energy prices? So we've seen oil and diesel and all these other, you know, energy fuels are changing and increasing, following, as you said, the situation in the Middle East escalating at the end of February. When you were at the conference, how much did you guys see these discussions manifesting? And how are they impacting discussions for the next heating season? So I think, if we... I mean, we could even cover it by the sectors we cover. So, Marta, I don't know if you've had any discussions about in the premium market, for instance, in regards to these rising prices. 

Marta: One main concern is that prices for residential pellets might increase quite exponentially as we approach winter, so the 2026-27 winter period. What I was mentioning earlier is that we did record all-time highs in October 2022, and there are concerns amongst some residential pellet players that that might happen again. So they're trying to get ahead of the game and kind of restock some volumes right now if they had storage capacity. The issue is for smaller players in the residential market, which make the vast majority of that segment. And in that case, yeah, they wouldn't really want to pay for stocking all those pellets up until the time for selling to the end users will come. And end users, on the other hand, don't really feel the need to start purchasing right now to then sell to the final consumers, perhaps in October, November. So there is a bit of a spread between those larger players with CapEx available and all the logistics available to store up, etc., and the smaller players in that segment. 

Obviously, Poland plays a big part in all of this. One of the biggest Polish generators that consumes pellets had taken the vast majority of the domestic supply last year, which left a number of the Polish residential consumers without supply available. They had to take it from somewhere else. Hence, we are seeing more attraction into the Polish market. But just following from what Jeff was mentioning earlier, whilst Polish end users might have lower paying capabilities and being more attractive to Asian biomass supply, especially for industrial pellet users, the rising freight cost is impacting and reducing the spread with European and U.S. volumes. So I think freight from Southeast Asia to Poland used to be $45 per ton. Now it's way closer to $60, and that's been over the past couple of months. 

Hannah: I think we're definitely seeing similar in the wood chip markets, which is the market that I cover. You've got producers who are saying...I mean, they are faced with these increased costs following the increase in diesel, which is what they use in their transport and their logistics and in their harvesting machines in the forest. And they're really seeing their contractors pushing up the price. So they're now asking their buyers if they can transfer that to the contracts. Some of them...a lot of them have said yes for now, but some of them are quite hesitant to accept it further out, because you don't know what's going to happen further out, and they don't want to agree to maybe, like, a couple of euro increase if the price doesn't actually increase to the amount that they think it will. 

So what we have seen is that some of the producers are looking to do, like, some sort of diesel index in their contracts. So they're going to index it to the price of gasoline or diesel, and then it's almost like comparing the percentage increase from the start of the year to where it currently is and then add that to the contract. That's what I was talking to some participants about at the conference. Because even though diesel costs...these costs are not much of a producer cost. I mean, I've heard, it's about 2%, 3%, and feedstock costs obviously make up the most of their production costs. But if you've got contractors who are providing the feedstock asking for more money, then that's going to feed into feedstock costs. So, yeah, it's definitely something that the wood chip market is assessing at the moment, and they're just trying to figure out how best to include it in contracts for the next heating season. 

Jeff: On the industrial pellet side, like, everything you two, Marta and Hannah, everything you've said so far applies as well. So I think there's a lot of crossover, and fundamentally, the same issues are affecting the premium and the wood chip and the industrial pellet market. Production costs and transport costs are rising. So, yeah, I think something that we're seeing is, I'm going to say, exactly what Hannah did, that buyers are looking to minimize. They don't want to have to pay more if the transport costs go up. Like, they want to protect their margins. 

On the other side, the producer, whether the seller's a producer or not, sellers want to protect theirs, buyers want to protect theirs. So there's back-and-forth about what to do about these higher production and transport costs. And I think, yeah, I think we've seen, even, like, in last week's report, some Asian buyers are negotiating quite hard to get the sort of FOB price down to then offset the effect of increased freight costs. So the buyer obviously wants to avoid paying more, and so they're putting pressure on the seller to lower the price of the product and then sort of keep the final delivered price the same, incorporating that higher freight cost. 

Hannah: Apart from this then, were there any other main concerns on supply for the next heating season that came up in conversations? 

Jeff: Supply, The biggest question was about supply. This is more a demand thing. So I think that there are certainly questions by suppliers about how much will be needed. That was the main concern. It was, like, "Okay, well, what does demand in Europe look like, you know, post-April 2027?" And then, if you really kind of go forward at the end of the Drax Power Station's upcoming new CfD that ends in the 31st of March 2031, so what does that look like? If European demand from the power sector, specifically UK demand from the power sector, steps down markedly in the second quarter of 2027, what does that mean for the industrial pellet market? Like, are there too many pellets? Does stuff get shut in? Is production capacity getting shut in? Is it going to be...? 

If the only game in town, not the only game, but if merchant power generation, so if biomass-fired plants, you know, need to make or are aiming to make more money by selling electricity just in the liberalized market outside of subsidies, are pellets going to be cheap enough to compete with gas and coal in the European power markets? So, again, these are, like, demand side. These are more demand side concerns, but it directly will relate to, you know, how easy suppliers find sort of contracting, and especially selling spot. 

Marta: And just to follow up from that and touching upon the residential market again, it's a very seasonal market usually and not one that really drags too much interest from larger players because the volumes that are traded are considerably smaller, for a number of reasons, including what I mentioned earlier, like lower CapEx from a number of buyers, as well as a bit more tricky logistics. Not a lot of ports can accommodate larger vessels to offload. But during the conference, I heard more and more interest from a number of industrial pellet producers to tackle the residential market and perhaps to diversify their consumer base. And that included some U.S. producers, which would usually sell into the industrial markets because of economy of scale. The transport costs are quite high, shipping transatlantic, and they could just rather sell Handys or Supras or Ultramax-size vessels. 

In this case, when it comes to premium, probably some of the largest volumes we've seen going into Italy were around 18,000 tons. And from what I heard, it had to be offloaded at three different ports. So it's quite significantly lower shipments, smaller shipments, but the fact that more and more producers are interested in looking into that market or selling into that market is quite telling in terms of the concerns regarding, as Jeff was saying, more like the demand side rather than supply. I don't think we are particularly short in terms of supply in the longer term. So that was definitely one big topic of conversation. 

A number of Asian players I chatted with, as I had also mentioned, potentially wanted to look into the European residential markets, yeah, as some alternative segment, and especially because they expect Japanese power demand for pellets to have reached quite a high level and not really increased that much more in the shorter term. 

Hannah: To be honest, in the wood chip market, it was a little bit more disrupted last year, I'd say, supply. There was lots of very wet, which really disrupted harvesting operations, and machinery weren't able to enter the forest. And what you had is all the supply was stored at different ports as well. And what would happen is all the end users were sourcing their supply from maybe the ports with cheaper freight to get to them. But then by the time they went to the other ports, that had actually been iced over because it was so far into winter, and it was inaccessible. So you had an inability to enter the forest to get the feedstock and the wood chips, married with this disruption to getting to where the available stocks were, which really weighed on availability in the wood chip market last year. 

Actually, what we've heard and seen, I was chatting to a few people, and they were saying that some of the buyers were actually less likely to agree to pre-financing structures. So that's when they would maybe pay for the product before it's delivered to sort of help the producers and give them some upfront money. But because some end users didn't actually receive volumes last year, because some producers were just unable to source the material, a lot of the end users this year have actually been less keen to do such pre-financing structures. So that's something that I think next year and coming into this heating season is kind of at the front of people's minds. 

And some of the offtakers as well are maybe looking, we've heard, more to Spain and Iberia as the supply. But again, the wood chips from those regions are still priced out by freight. It's still much cheaper to get, especially, like, the end users in Northern Europe. It's still much cheaper to get from the Baltics. So that's another aspect of end users potentially looking to diversify supply next year, but still hearing that it's mostly going to be from the Baltics, as usual, because it's just cheaper to get to. 

Hannah: I think this has been such a great discussion. I think, just to bring it to a close, I'm going to ask each of you what your one takeaway. So, what was your main insight or something that you gleaned from the conference, whether it's an idea or a feeling or just an interesting thing for the next heating season maybe or beyond? 

Jeff: I can jump in there. I hope this doesn't sound too pessimistic, but as a 46-year-old cynical journalist, I will say that my takeaway was about something that wasn't said. And I'm not saying this is an easy thing to specify or something that the company would usually just come out and say, but there was a lot of discussion of new technology that can convert woody biomass into lots of other things. And we talked about... Hannah hosted a panel on biochemicals. People were talking about... You can buy stuff now. You can buy the magical box that turns woody biomass into SAF and biochar and syngas and all these other things. There are all these potential revenue streams, but my takeaway was no one's putting a price tag on this yet. 

And I'm certainly not saying I know everything about the industry and how negotiations work. I'm not saying it's an easy thing to do or a smart thing to do. But if no one knows how much the technology costs, how easy, like, how readily sourceable the hardware is, how easily it can sort of be connected to whatever other infrastructure it needs, it's sort of difficult to imagine the technology rolling out quickly. So my takeaway is there are a lot of questions about how the technology will actually work, how much it costs, and how quickly it will sort of proliferate or spread. 

Marta: Following up from that, I moderated a panel on data center and the power demand that is expected to come from AI developers over the coming years. And we're already seeing it at the moment. And I guess the panelists on my session were mentioning how around 5 million tons of wood pellets coming from the U.S. will have no home after the new Drax CfD will come up on the 1st of April next year and how those could be repurposed to generate electricity for those data centers. I guess the development in the U.S. might be happening way quicker than in Europe, but yeah, that was something I looked at more closely. We've been talking about it for quite a bit sometimes. I had been at other events where it was a big topic of conversation. 

But perhaps something interesting would be to bring on stage a data center developer and perhaps asking them what they look for and if biomass is green enough for them, if they would need carbon capture and storage attached to the technology. That was one question to my panelists, and they didn't think that that was required because it would extend the ramp-up of the power plant quite considerably compared to just switching from coal to pellets, which is meant to be quite straightforward. That was something that I find interesting, and I didn't really get an answer. Is biomass actually feasible to provide power to those developers? And if so, since the conversion from a coal plant is that straightforward, why are we not seeing that yet? 

Hannah: I feel like the panel that I hosted on biochemicals and biomaterials was also very forward-looking. I think what was really interesting is that the whole conference, all the panels were talking about, we've got this cliff edge next year. Where are we going to send supply? Where are we going to send products? And, yeah, the biochemical panel was just really interesting because they were just saying that players in the market should really move and transition towards biochemicals in order to diversify their revenue and ensure long-term demand, especially if subsidies are dropping off. And even the producers, I remember, on the first day, they said, "We're moving away from a subsidy growth market or driven market." 

I think my takeaway was that players are definitely going to have to start thinking about other avenues to move into, and I think the biggest challenge is, it sounded like, with the supply chains. Because they're not traditional, they're not as established, and that's a big challenge to scaling pilot projects into commercial projects. And also, there isn't enough regulatory support, which, until they can achieve economy of scale, they're going to need policy support in order to do that. 

Hannah: Thank you both for coming on to the podcast. 

Marta: Thank you. 

Jeff: Yeah, thanks very much, Hannah. Great to be here. 

Hannah: Stay tuned for the next edition of the Argus biomass podcast. In the meantime, if you want to learn more about this topic and other factors driving the biomass industry, follow all our coverage in Argus Biomass Markets Report and visit us at argusmedia.com.