UK EU exit could benefit UK wood pellet producers

UK wood pellet producers supplying the UK premium pellet market will benefit in the short term from the UK's vote to leave the EU, UK Pellet Council chair John Westmacott said.

Producers within the UK could benefit from a weaker pound against the dollar and euro, which would make the cost of imports more expensive. But UK premium pellet prices are unlikely to be affected in the short term, Westmacott said. Meanwhile, a large European supplier to the UK premium market posited that a weaker sterling against the euro and less competition from cheap European imports could give UK producers scope to raise prices to consumers.

A few importers have already left the market in recent months, dissuaded by currency movements, Westmacott said, a trend that the UK's vote to leave the EU "may accelerate". Importers benefited greatly when the £/€ rate reached £1/€1.42 in November, but a move since the start of the year to below £1/€1.30 meant importers were already struggling to sell into a well-supplied market, he said. The £/€ exchange rate has fallen to £1/€1.24 since the UK's EU referendum vote was announced this morning.

But it is uncertain how long-lived the sterling dip will be, he added.

UK producers could snap up market share if wood pellet importers were to leave the UK market. And investors in the UK premium market are likely to see more value in having UK production assets, instead of relying on assets in North America and Europe, Westmacott said. But it is unlikely that more wood pellet production plants will be built as a result. Instead, existing production plants could increase output to fill underutilised capacity, he said.

The UK's vote to leave the EU is unlikely to have an immediate effect on UK premium pellet prices, Westmacott said. June is a weak demand point in the heating market and the market is currently well supplied by a mix of UK production and imports. But prices could firm in the winter if importers pull out of the market or a continued weak pound against the euro makes imports relatively more costly.