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Brodie Govan Halifax 5 November 2015

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Brodie Govan Halifax 5 November 2015

•  PVM is the world's leading independent broker of oil instruments and has been established for over 40 years.

•  Has offices in Europe, Singapore and the USA •  Daily turnover averages in excess of 100 million barrels of

swaps, forwards, futures and options. •  Late 2012 started the diversification of the business into non

oil in order to become the worlds leading commodity house. •  The group employs around 180 people globally •  We now broker biomass, emissions, biofuels, coal and iron

ore.    

The Asian Background

Korean  Industrial    and  Residen0al  Wood  Pellet  Imports    

SE Asia, 1,084,611

China, 287,063

North America, 406,238

Rest of World – 65,797

                                                         Vietnam  742,794                                                      Malaysia  -­‐168,336                                                      Thailand  110,752                                                      Indonesia  62,729                      

Canada  –  344,261  US    -­‐  61,977  

2014. 1.8mill tons

}  The  Korean  renewable  por/olio  standard  (RPS)  has  led  to  a  rapidly  growing  wood  pellet  demand  for  co-­‐firing.    

}  Market  demand  grew  300%  during  2014.  }  Typical  contracts  are  spot  and  contracts  are  

awarded  through  an  aucIon  process.  ◦  Security  of  supply  from  sellers  who  do  not  

have  capital  or  guaranteed  fibre  does  not  lend  itself  to  long  term  contracts.    

}  Asia  has  been  the  largest  supplier  due  to  price  with  offers  CIF  Korea  from  Vietnamese  suppliers  at  $100/t.  US  offers  have  been  as  high  as  $205  ◦   There  have  been  issues  with  quality.  

}  In  the  future  sustainability  criteria,  security  of  supply  and  pellet  quality  concerns  may  favour  North  American  supply  but  not  so  far  

Spot  deals

 from  BC  in

to  Korea  ra

nged  

from  $190-­‐202/

t  in  2014  

Spot Wood Pellet Deals from BC to Korea in 2014

Korean Industrial and Residential Pellet Imports

Origin   2013   2014   Change on year %  

Vietnam   157,226   742,794   372  

Canada   79,795   344,261   318  

China   25,676   287,063   1,018  

Malaysia   78,420   168,336   115  

Thailand   20,028   110,752   453  

Indonesia   33,534   62,729   87  

US   74,693   61,977   -17  

Russia   76,941   34,756   -55  

Australia   0   26,751   na  

Japan   4,628   4,290   -7  

Total   550,940   1,843,707   235  

0

500,000

1,000,000

1,500,000

2,000,000

Imports

Wood Pellet Imports

2010 2011 2012 2013 2014 2015

Korean Pellet Imports and Historical Pricing

120

130

140

150

160

170

180

2010 2011 2012 2013 2014 2015

Cif US$/t

Cif US$/t

Imports Almost Quadrupled since

2013

But Prices Dropped by US$40-50/t……

Korean  Wood  Pellet  Imports  from  Canada  

0

10

20

30

40

50

60

Jan 2014 to September 2015

Average Cif Korea price 2013-2014 (US$)

Vietnam   Malaysia   Indonesia   Russia   Thailand   Canada  

122.3   137.65   135.2   144.8   156.65  180.6  

For 2015……

The Vietnamese and Thai Competition

Spot deals from Vietnam into Korea $100/t cfr - Container Freight $2-3/t

Korean Genco Kosep tender for 46kt in September

Spot deals from Thailand into Korea $105-110/t cfr - Container Freight $10/t

What does the policy say about what feedstock can be imported?

}  South Korea's Forestry Promotion Institute (KFPI) checks the quality of wood pellets. }  Government decided FSC and PEFC certification schemes were not adequate to test if pellets

made from hardwoods and not waste woods }  The Government said it was not a sustainability issue but rather a chain of custody issue, to

trace the product

}  Five days prior to the delivery at the discharging area, the Seller should provide the Buyer with a copy of certificates of quality.

}  Quality checks performed only by firms accredited by Korea Laboratory Accreditation Scheme

}  The biomass fuel must be wood fibre exclusively, without any type of binder and should not be chemically treated biomass. Wood fibre is defined as sawdust, shavings, round wood and bark from any species of woody plants.

}  Upon request, seller must provide documents, including certificates, from the authorities of the exporting country, to demonstrate the legal status and current situation of the forest from which the fuel would be supplied.

What is the Korean Specification

Item Unit Limit of Range Diameter mm 6~8 Length mm Max. 32

Unit Volume Mass (As Received Basis kg/㎥ Min. 600 Total Moisture (As Received Basis) % wt Max. 10

Gross Calorific Value(As Dried Basis) kcal/kg Min. 4,300 Gross Calorific Value(As Air Dried Basis) kcal/kg Min. 4,200 Gross Calorific Value(As Received Basis) kcal/kg Min. 4,100 Net Calorific Value (As Received Basis kcal/kg Min. 3,900

Ash (Air Dried Basis) % wt Max. 3.0 Fines % wt Max 2.0

Durability(Strength) % Min. 95 Clorine (Air Dried Basis) % wt Max. 0.05 Sulphur (Air Dried Basis) % wt Max. 0.05 Nitrogen (Air Dried Basis) % wt Max. 1.0

Ash Fusion Temperature, IDT (Reducing Atmosphere) ℃ Min. 1,150

Biomass(As Dry Basis) % wt Min. 95

Trace Element

As

mg/kg

Max. 1.0 Cd Max. 0.5 Cr Max. 10 Cu Max. 10 Pb Max. 10 Hg Max. 0.05 Ni Max. 10 Zn Max. 100

Other Substance % wt Max. 2.0 DNA Test(Rice Husk)   Negative

Japan  }  In Japan a feed in tariff (FIT) for renewable energy is incentivising the

development or conversion of biomass power plants. }  The program requires utilities to purchase power generated from renewable

energy at a fixed price for a fixed period of time. Currently 20 years }  FIT rates are determined every fiscal year (April 1-March 31) }  Projects expected to come on line from 2017 }  Certification and audits for sustainability is important. }  Security of supply is important. }  Torrified or waterproof pellets likely develop due to lack of storage. }  Port restrictions means typical cargo size around 20-23kt. }  Seeking reliable producers with a track record. Preference for Canadian. }  Specs are I2 standard }  Proof of sustainability, consistent with mutually agreed international

standards such as Sustainable Biomass Partnership and FSC the standard

Japanese Wood Pellet Imports in 2015

Data from Argus

Japanese Long Term Contracts

•  Typical contract length ten years •  Contract volume has been around 100-150kt/yr •  FSC and SBP included in contracts now •  Preference for Canadian producers at this stage •  Preference is for Fixed Price and Simple Annual Escalator •  European traders actively involved using Canadian offtake

The Competition…Vietnam Supply

q Only small percentage of certified product q  Supply is fragmented and requires aggregators q  Key producers are family groups q  Typical producer supplies 5-10kt per month q  Largest supplies up to 30kt a month from many mills q  Shipped mostly in containers q  Feedstock quality and cost varied and inconsistent q  Reports old furniture is being used q Most can meet Korean specs of 3pc ash and 10pc moisture q  Internal logistics are poor q  Pulp, paper and furniture markets take priority of hardwoods q  Korean traders are helping to part fund the certification process q  Korea will not fully switch to other feedstocks like EFB/PKS until

they have confidence they won’t damage boilers

Key Vietnamese Ports and Freight

Ho Chi Minh

Dong Nai

Ha Noi

§  Typical Bulk Shipment 5kt §  Most shipped in container (20ft) §  Pellets trucked to Ports

Freight §  20ft Container - $1-5/t

Vietnam – The next stage

Does Vietnam have capacity to produce more?

q  Vietnam imports nearly 3.5 million cubic meters of wood annually, 65 percent of which is lumber for the wood processing industry

q  There is 13mn hectare of forested area in Vietnam, with10mn Natural Forests and 3mn Plantations

q  Competition and demand for materials has led to illegal and extensive deforestation at Natural Forests

q  The hardwood plantations are Eucalyptus, Acacia and Pine but

are largely dedicated to the production of pulpwood q  Vietnam has around 2,500 wood processing enterprises. Some

500 export wood products and only 200 have FSC chain of custody certificates but only a small number in Bioenergy

Supplier   Capacity(month)  

HDV   15,000  

Phu Tai   15,000  

Phuc Hy   5,000  

Vinomig   4,000  

What is the typical Vietnamese supplier and specification?

Korean  Standard    Moisture   Max 10pc  Ash   Max 3pc  Diameter   6-8mm  Length   32mm Max  Fines   Max 2.0  Durability   Min 95pc  Chlorine   Max 0.05  Sulphur   Max 0.05  

Vietnam  Range    Moisture   10-15pc  Ash   1.5-3pc  Diameter   6-8mm  Length   20-40mm  Fines   1-3pc  Durability   95-97.5pc  Chlorine   0.04-0.07pc  Sulphur   0.03-0.07  

Threats & Opportunities

Vietnamese Production Plant

Threat and Opportunity

Good News

q  Trade dispute with Korea resolved q  Korea imposed certification requirements. Canada could not

comply as was not member of the Apostille Convention q  Second issue was Korea issued forest standards that didn’t

comply with ISO but now working to comply q  Korea was asking for commercially sensitive fibre agreements

Threat of PKS

q  Korea PKS imports up 5pc to 517kt to date q  GS Group constructed 105MW plant in Korea based on 400kt of PKS q  Indonesia and Malaysia key exporters q  Heavy Indonesian tax may derail exports

Japanese Wood Pellet Demand Forecast (tonnes)

China  

}  China  is  currently  a  net  exporter  of  wood  pellets.  

}  China’s  current  5  year  energy  plan  has  a  goal  of  reaching  11.4%  renewables  by  the  end  of  this  year.  (from  8.6%  in  2010  and  currently  at  around  10%)  

}  “In  the  first  three  quarters  of  2014,  China  spent  $175  billion  on  clean  energy  projects,  a  16  percent  jump  from  the  previous  year.  This  comes  on  top  of  the  $54.2  billion  invested  in  China’s  renewable  energy  market  in  2013,  far  more  than  any  other  country”*.    (quote  from  Bloomberg  New  Energy  Finance)  

}  Around  120  new  plants  are  in  the  process  of  being  built  with  a  minimum  capacity  of  14MW  

}  China  imported  327mill  tons  of  coal  in  2013.    ◦  If  China  was  have  a  5%  co-­‐firing  rate  and  16%  of  plants  were  co-­‐firing  by  2020  they  would  

have  a  demand  of  around  38mill  tons.  (coal  and  pellet  demand  forecast  by  FutureMetrics.)  

Broker View.....

In Vietnam competition from other sectors and poor infrastructure will stifle capacity growth and potential disaster around the corner

Sustainability and Certification Key to Japan but not Korea. Adoption of SBP needed

PKS will grow and challenge wood as primary feedstock

Vietnam will continue as key wood pellet supplier to Korea. Canada will remain largest Japanese supplier

Brodie Govan Biomass Broker

PVM Environmental Products Tel: 44 207 3891097

[email protected]

Thank You