Wood chip prices hold premium to pellets

Spot industrial wood chip prices have continued to hold a premium over wood pellets for deliveries to northwest Europe (NWE) since mid-January. This is primarily as wood pellet prices have dropped sharply since the start of 2023 while the wood chip market has been more resilient.

A drop in deliveries of wood chips from Russia and Belarus following the start of the war and subsequent sanctions in 2022 weighed on supply availability in Europe, keeping prices firm. European companies had higher dependency on these two countries for wood chip sourcing, unlike for wood pellets, which could be sourced from more producing regions to offset the shortfall, primarily from North America.

Phytosanitary requirements imposed on wood chip receipts from North America also make sourcing from this region — where raw material availability is ample — more expensive.

Additionally, the more challenging transport logistics of importing wood chips from overseas, owing in part to its higher moisture content, made the product more difficult for European buyers to source and stock, compared with pellets. Freight and insurance costs of importing from overseas were also said to be relatively higher for chips.

And some wood chip-fired utilities lack port capacity to receive large vessels from overseas, further limiting their ability to diversify sourcing to close the supply deficit. By contrast, end-users in the pellet market are more equipped to deal with receipts of large overseas cargoes in most countries.

Wood chip prices saw a slower decline compared with pellets in the first quarter of 2023, because they were more exposed to tighter raw material availability because of weakened sawmilling activity, while wood pellet producers have a more diversified pool of feedstock available.

An uptick in construction activity over the same period also meant that bioenergy companies had to compete more for chip supplies with these and other sectors, such as the pulp and paper and cardboard industries.

Wood chip end-users also have more limited storage capacity and tend to rely more on smaller and more constant deliveries compared with pellets.

This is the first shift in competitiveness between the two commodities since June-September 2020 — when high volumes of German and Czech raw material from trees affected by pine beetle infestation competed with the comparatively more expensive feedstock in the Baltic region, sharply bringing down pellet prices.

Wood chip demand has been picking up in the Scandinavian countries, although it is unclear whether demand will be met by local production or if buyers will have to import in the next heating season. Some market participants expect that an uptick in demand from the pulp and paper industry, as well as strong bioenergy-sector demand in Sweden and Finland may further add to the tightness in the region in late 2023.

By Hannah Adler

Wood chip and pellet prices €/GJ