South Korea's wood pellet imports declined by nearly a third on the year in the third quarter as lower renewable energy credit (REC) spot prices and more interest in unused wood biomass from state-owned utilities (gencos) continued to weaken demand.
South Korea imported 610,000t of wood pellets in the third quarter, down by 32pc on the same period in 2018 and by 23pc from the second quarter of 2019.
Vietnam remained the dominant wood pellet supplier to South Korea, accounting for 68pc of the country's third-quarter imports. But Vietnam-South Korea deliveries were down by 26pc on the year and 21pc on the quarter at 415,000t in July-September. Vietnam shipped 102,000t in September, down by 42pc on the year and 36pc on the month. The decline in demand has weighed on wood pellet spot prices. Argus' fob Vietnam wood pellet price reached a record low of $71.06/t on 4 September, down from $112.67/t on 2 January 2019.
Other southeast Asian countries shipped less in the third quarter compared with a year earlier. Malaysia was the second-largest supplier to South Korea, with 97,000t in the third quarter, down by 31pc on the year. Indonesia and Thailand were South Korea's third and fourth-largest suppliers in the quarter, accounting for 50,000t and 8pc of imports, and 30,000t and 5pc of imports, respectively. The number of gencos issuing tenders for unused wood biomass — woody forest biomass in South Korea that would otherwise not be used in any industrial function — has risen, displacing demand for imported wood pellets.
Korea South East Power (Koen) issued the first unused wood biomass tender last year. The utility sought 500,000t of unused wood biomass in June 2018 for November 2018-October 2020 delivery. And Korea Southern Power (Kospo), Korea Midland Power (Komipo) and Korea East West Power (EWP) have all issued tenders for unused wood biomass this year.
Furthermore, South Korean gencos have almost met their 6pc renewable portfolio standard (RPS) obligation for 2019, easing REC demand. As a result, South Korean REC spot prices continued to fall in July-September, further eroding wood pellet demand. While most South Korean independent power producers (IPPs) do not need to comply with the RPS, many opt to co-fire pellets to earn RECs to sell on the spot market for profit, but the profitability of IPP co-firing has declined in line with lower REC values. The average REC spot price was 60,438 won/REC ($51.06/REC) in the third quarter, significantly lower than the W97,904/REC average a year earlier, Korean Power Exchange data show.
