Vietnam Pellet Price Delivered to S. Korea and Japan will Continue to Trend Higher

First, shipping costs may rise. The rapid increase in demand for containers for pellet shipments from Vietnam to S. Korea has lowered the imbalance between incoming and outbound freight. As excess empties decline, the shippers gain more leverage in pricing. Given current bulk shipping rates, we expect that freight rates, particularly to Japan, will move above $20/ton.

Second, the condition for low-cost production in Vietnam is also changing. The availability of low-cost and pre-dried sawdust and milling dust from furniture factories is near ｏｒ at its limit at the current level of furniture production and this has caused competition against pellet producers for the feedstock.

The furniture manufacturing sector in Vietnam has grown rapidly over the last decade: from exports of about $2.1 billion in 2006 to about $7.2 billion in 2016. That is an annualized growth rate of 13% . Compared with the annualized growth rate of 61% for the Vietnamese pellet export industry from 2013 through the estimated exports in 2018 (from 160,000 tons to 2.46 million tons).Demand for furniture manufacturing residuals has been growing many times faster than the industry that supplies those residuals.

As pellet production levels increase, Vietnam producers will increasingly depend upon forest residuals, forest wastes, and other wood logs. Those sources of pellet feedstock are costlier to procure and require debarking, chipping, drying, and hammer milling prior to being densified into pellets.

As production in Vietnam increases, the cost to produce pellets in Vietnam will also increase.