News
05/05/26
Japan stockpiles biomass to avoid higher upstream costs
Japan stockpiles biomass to avoid higher upstream costs
Singapore, 5 May (Argus) — Several biomass power producers in Japan have been
trying to secure more biomass fuels than usual through bilateral negotiations,
because of an uncertain market outlook caused by the war in Middle East, to
avoid any prolonged impact of rising upstream costs. A Japanese independent
power producer (IPP) recently purchased several cargoes of Indonesian palm
kernel shells (PKS), amounting to over 200,000t. The prices were in a wide range
of $93-102/t fob east coast Sumatra, to be loaded in early May to late December.
The reason for such a sizeable volume of procurement is to mitigate the risk of
unstable market environment, the company said. The IPP has also secured
considerable volumes of wood pellets for the same reason from Malaysia,
Indonesia and China, to meet its spot demand for this year. The company has been
struggling with the quality of Vietnamese wood pellets. The company purchased
fewer spot cargoes of wood pellets than PKS, because most of its wood pellet
supplies to biomass-fired power plants in Japan is fulfilled through term
contracts. Another power producer sought to procure 80,000-100,000t of wood
pellets to meet its spot demand for the whole of this year, with the aim to
avoid the market uncertainty caused by the conflict, a market source said. Some
consumers are also likely to do the same, mainly in PKS markets, while other
companies are following their initial procurement schedule, according to
traders. Argus assessed the Indonesian market for PKS that meets Japan's feed in
tariff (FiT) requirements at $100.06/t fob east coast Sumatra on 29 April, while
the price for Malaysian PKS that complies with Japan's FiT requirements were
assessed at $93.71/t fob peninsular Malaysia. The Vietnamese market for pellets
that meet Japan's FiT requirements was assessed at $151.40/t fob Vietnam on 29
April. Bulk freight rates from Vietnam to Japan were in a very wide range of
$25-45/t, while fuel costs were still volatile because of the war in the Middle
East. Rising operating costs Biomass buyers fear that rising upstream costs may
persist because of the inflationary impact that the US-Iran war has had on
gasoil, bunker fuel and freight costs. Crude palm oil (CPO) prices in Indonesia
have also risen due to the war and a weak harvest season. PKS is a by-product of
CPO mills and its availability depends on the harvest of palm fresh fruit
bunches and the production of CPO. PKS export taxes are based on CPO prices,
which have exceeded over $1,000/t in May. This has led to a $10/t export tax for
this month . PKS exporters will also need to pay a levy of $5/t, bringing the
total cost of tax and levy to $15/t in May, the highest level in almost four
years. It was last higher at $16/t in July 2022. Tax and levy rates averaged
around $10.60/t in 2025. The nearly $5/t increase means shipments would cost
around $44,000-88,000 more on an fob basis for 10,000-20,000t PKS cargoes to
Japan. Rising fuel prices in Indonesia and Malaysia, which are major PKS
exporting countries, have weighed on operating costs of suppliers, because they
must collect PKS from CPO mills by truck. Heavy machinery, barges, and
screeners, which are used in the PKS industry, are also exposed to higher fuel
prices, and total operating costs are currently higher by 25-35pc than before,
market participants said. Meanwhile, some of sellers were willing to compromise
on PKS prices to align with buyer expectations to clear stockpiles. Japanese
trading firms face rising freight rates stemming from the US-Iran war and are
asking sellers to reduce fob prices to help offset that effect, according to
market sources. In the Vietnamese wood pellet market , recent offer prices from
suppliers for Japanese biomass-fired power plants have been likely $160/t or
higher on fob basis. But bidding prices by Japanese buyers seem the same as
before the war, around $140-150/t on fob basis, resulting in limited spot
liquidity. This has prompted some buyers to source cargoes in other countries.
By Takeshi Maeda and Nadhir Mokhtar Send comments and request more information
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