Wood pellet production and export of Vietnam

Current dynamics and market trends

Updated by end of June 2023

Forest Policy, Trade and Finance Initiative Program | July 2023

To Xuan Phuc, Forest Trends ( [email protected] )

Cao Thi Cam, Vietnam Timber and Forest Product Association ( [email protected] )
Tran Le Huy, Binh Dinh Timber and Forest Products Association ( [email protected] )

Key findings
- Korea and Japan are the two largest wood pellet import markets of Vietnam. The volume
of wood pellets exported from Vietnam to these two countries accounts for over 95% of
the total volume of wood pellets exported from Vietnam to all markets.
- The source of raw materials for the production of pellets exported to Korea and Japan is
different. Wood pellets exported to Korea are mainly made from the by-products of the
wood processing industry such as sawdust, shavings, and wood chips. Enterprises
exporting pellets to Korea are mainly located in the Southeast region, where furniture
factories are concentrated. Pellets exported to Japan have to be made from domestic
plantation timber with FSC certificate. This material is only available where there are large
regions of plantation forests, especially from the Central region to the North of Vietnam.
- From the second quarter of 2022, the export market for wooden furniture has declined.
The by-products of the wood processing industry used for producing wood pellets have
also decreased. This creates a shortage in raw materials for pellets exported to Korea.
- The energy crisis caused by the Russian-Ukraine conflict has caused the demand and price
of pellets in the world market to increase sharply. This has led to a wave of investment in
wood pellet production not only in Vietnam but also in other countries. This wave has
increased the competition between wood pellet enterprises in Vietnam and between
Vietnamese enterprises and enterprises in other countries such as Malaysia, Thailand and
Indonesia in the future.
- At the beginning of 2023, the Korean market experienced very strong fluctuations. The
price of pellets exported to Korea from Vietnam fell below 90 USD/ton (FOB) in April,
which was below the production cost of many enterprises. Many, especially small-scale
businesses, had to stop operating. Import volume also dropped sharply.
- In the first 5 months of 2023 (5M/2023), the volume of pellets exported from Vietnam to
Korea was 0.65 million tons, equivalent to 96.1 million USD in value, dropping by 41% in
volume and 45% in value compared to the same period of 2022.
- The Japanese market is highly stable in terms of both quantity and price. In the first 5
months of 2023, the amount of pellets Vietnam exported to Japan reached 0.87 million

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 tons, with a value of 151 million USD. The export volume decreased by 5.7% while the
export value increased by 19.7% compared to the same period of 2022.
- It is forecasted that in the final months of 2023, Vietnam's production and export of wood
pellets will not have much change. Specifically, (a) The volume and price of exports to
Korea will increase, following the current momentum, but will not increase dramatically;
(b) The volume and price of exports to Japan are stable; (c) Competition for raw materials
to produce pellets for exporting to Korea will continue to increase because the export
market for wood products has not shown any signs of recovery.

Background
Vietnam has now become the second largest wood pellet producer in the world, only after the
United States. Most of the pellets produced in Vietnam are exported, with over 95% of the
export volume going to Korea and Japan as input materials for power generation. A small
amount is consumed domestically in Vietnam as fuel for boilers, kilns, etc. From 2013 to 2022,
the volume and value of Vietnam's pellet export increased by 28 and 34 times respectively.
According to the General Department of Customs, in 2022, Vietnam exported 4.9 million tons
with a turnover of 0.79 billion USD. In the first five months of 2023 (5M/2023), the export
volume reached 1.57 million tons while export value reached about 256.5 million USD. Exports
are currently on the rise.
The world’s demand for pellets will increase by about 250% in the next decade, reaching 36
million tons from 14 million tons in 2017. In recent years, demand has increased mainly in
European countries. , Japan and Korea 1. However, Vietnam's pellet industry has the
opportunity to expand the market when consumption demand in Vietnam begins to show
signs of rapid growth because the Government is making efforts to fulfill its commitments to
reduce greenhouse gas emissions and use clean energy, including pellets to replace coal in
energy production. The Power Masterplan VIII, which was approved by the Government on
May 15, prioritizes the development of renewable energy sources, including biomass power
to replace high-emission coal power. Therefore, the demand for wood pellets in the domestic
market may expand very quickly in the future.
This bulletin provides recent updates on the Vietnam's wood pellet exports, focusing on
market changes in the first five months of 2023. The statistics on export volume and value are
compiled by the Research group of Forest Trends and timber associations based on the trade
data of the General Department of Vietnam Customs. Qualitative information on recent
export market dynamics and market trends in the near future is collected from discussions
with leaders of the wood pellet sub-association and information from other trusted sources.
Opinions in the bulletin are of the authors.

1
Forest Trends Newsletter: Production and export of tablets in Vietnam Status and some aspects to be concerned
about July 2021

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Vietnam’s wood pellet export by the end of 5M/2023
Figure 1 shows the volume and value of pellets exported from Vietnam from 2019 to the end
of 5M/2023. In 2022, exports increased sharply when the export volume reached nearly 4.9
million tons and the export value reached 0.79 billion USD.
Figure 1. Export volume and value of wood pellets of Vietnam in the period of 2019 – 5M/2023

6,000,000 900,000,000

787,100,333 800,000,000
5,000,000
700,000,000
4,882,470
4,000,000 412,982,398 600,000,000
352,037,059 500,000,000
3,000,000 3,503,698
311,082,930 3,207,472
400,000,000
2,791,391
2,000,000 256,449,249 300,000,000

1,566,859 200,000,000
1,000,000
100,000,000

- -
2019 2020 2021 2022 5T 2023

Lượng (Tấn) Trị giá (USD)

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

The monthly volume and value of Vietnam's pellet export from 2021 to the end of 5M/2023
are shown in Figures 2 and 3.
Figure 2. Monthly pellet export of Vietnam from 2021 to 5M/2023 (Unit: tons)

600,000

500,000

400,000

300,000

200,000

100,000

-
M1 M2 M3 M4 M5 M6 M7 M8 M9 M 10 M 11 M 12

2021 2022 2023

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

3
 Figure 3. Vietnam's monthly wood pellet exports from 2021 to 5M/2023 (Unit: USD)

120,000,000

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

-
M1 M2 M3 M4 M5 M6 M7 M8 M9 M 10 M 11 M 12

2021 2022 2023

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

Export market
Korea and Japan are the two largest markets importing wood pellet of Vietnam. Export volume
and value of this item to Korea and Japan accounted for 97% of total export volume and value
from Vietnam from all markets in 2022 (Table 1).
Table 1. Export volume and value of Vietnam's pellets by market, 2022 – 5M/2023

Market Unit 2019 2020 2021 2022 5M/2023

Korea Ton 1,923,725 1,981,416 1,962,910 2,264,725 652,273

USD 192,780,086 193,457,090 212,045,543 377,136,572 96,114,147

Japan Ton 856,171 1,216,777 1,534,926 2,495,123 871,356

USD 116,643,997 157,569,776 200,113,784 384,296,452 151,059,458

Ton 11,495 9,279 5,862 122,622 43,229

Other
markets USD 1,658,847 1,010,193 823,071 25,667,310 9,275,644

Total Ton 2,791,391 3,207,472 3,503,698 4,882,470 1,566,859

USD 311,082,930 352,037,059 412,982,398 787,100,333 256,449,249

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

Export price of wood pellets

The conflict between Russia and Ukraine pushed the price of pellets in the world market up
sharply. The price of Vietnam's pellet exported to Korea and Japan in the first months of 2022
fluctuated around 140 USD / ton (FOB Vietnam). The price then increased sharply, reaching

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180-190 USD/ton in the last months of 2022 and early 2023. The price then fell deeply,
especially in the Korean market. According to some exporters, the export price in this market
in June 2023 was only about 110 USD/ton while the export price in Japan was 145 - 165
USD/ton. Figure 4 shows the export prices in these two markets in 2022 and the first 5 months
of 2023.
Figure 4. Pellet export prices in Korea and Japan, 2022 – 5M/2023 (Unit: USD/ton)

185 184
182 185
173 169 170 174 173
164 164 166 166 164 165 167
162 158 157
155 154 155 156
140 140 144
136 136 134 137

111 106

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5
2022 2023

Nhật Bản Hàn Quốc

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

Enterprises exporting wood pellets

The number of wood pellet enterprises participating in the market is increasing. According to
statistics of the General Department of Customs, the number of enterprises exporting wood
pellets in Vietnam has increased from 123 enterprises in 2020 to 152 enterprises in 2022
(Table 2).
Table 2. Number of enterprises exporting wood pellets in Vietnam from 2020-5M/2023

Number of exporting
Year enterprises
2020 123
2021 125
2022 152
5M/2023 119
Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

The number of enterprises involved in exporting to Korea is much larger than the number of
enterprises exporting to Japan (Figure 5). One of the reasons for this might be it is easier to
access the Korean market than the Japanese market.

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 Figure 5. Number of enterprises exporting wood pellets to Japan and Korea, 2020 - 5M/2023

120

100

80

60
97
40 74 80 75
49 44
20 39 34 42 38 32
31

0
2020 2021 2022 5T 2023

Hàn Quốc Nhật Bản Các thị trường khác

Source: Data of the General Department of Vietnam Customs, calculated by the Research group
of timber associations and Forest Trends

Dynamics and trends of exports to Korea and Japan

Korean market
Insights from a number of exporters showed that by the end of the first 6 months of 2023, the
amount of Vietnamese wood pellets exported to Korea reached about 0.8 million tons. It is
expected that by the end of 2023, Vietnam's export volume to this market will reach about 1-
1.5 million tons.
Vietnam is the main source of wood pellets for Korea (supplying 80% of the total demand of
this market). However, at present, Korea is diversifying its supply, including imports from
Russia. According to some enterprises, wood pellets from Russia are of good quality and
cheap. Before the Russia-Ukraine conflict broke out, Russia exported about 3 million tons of
wood pellets to the world annually, mainly to the EU. However, due to the conflict, Russia is
currently under sanctions from western countries and Russian pellet companies have to face
with a lot of difficulties in exporting. In this context, some Russian companies had to look for
alternative markets and accepted cheap export prices to penetrate the market. However, it is
expected that there will not be a sudden increase in the amount of wood pellets imported
from Russia into Korea in the future. Because of sanctions imposed on Russian exports, state-
owned energy companies and big Korean corporations refuse to use wood pellets from this
source. Currently, there are only a few small-scale, privately owned power plants in Korea that
use pellet supplies from Russia. Therefore, the potential to expand the market share of
Russian wood pellets in Korea is not great.
The first few months of 2023 witnessed huge price fluctuations for Vietnamese pellets
exported to Korea. The lowest import and export price (FOB Vietnam) dropped to only 78
USD/ton (April 2023). This price is estimated to be below the production price. This forced
some Vietnamese pellet enterprises, especially small-scale companies without financial
potential, to stop producing. In order to minimize risks for manufacturing and exporting
enterprises, the Wood pellets sub-association has organized a number of practical activities,
including connecting with businesses in Korea to provide more information on the current
situation of production. Since then, the level of export prices began to gradually increase. The

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price in early July reached about 110 USD/ton. Export prices to Korea tend to increase,
however, there is no information on the velocity of increase in the near future.
The demand for wood pellets in Korea is increasing again. However, the procurement method
of Korean buyers has changed a lot. Instead of buying in large quantities via bidding, buyers in
Korea are now dividing up the bidding batches and buying in smaller quantities (monthly) to
reduce price pressure (large purchase volume, unsold inventory). ).
One of the reasons that makes the import price of wood pellets from Vietnam to Korea go up
is that the price of input materials to produce wood pellets in Vietnam increases. Currently,
the supply from Vietnam accounts for 80% of Korea's total imports. Unlike the raw materials
for making pellets exported to the Japanese market (mainly domestic plantation timber with
FSC certificate), the source of raw materials for pellets exported to Korea are mainly by-
products of the wood processing industry (sawdust, shavings, bits, etc.). Because the
Southeastern provinces are the places where most export wood processing enterprises are
concentrated, Korean export pellet companies are also concentrated in this region. Recently,
the market for timber products has dropped sharply, causing a steep cut in the source of by-
products from processing. When the demand for wood pellets in Korea did not decrease, the
fall in the supply of input materials for wood pellet production led to competition among
manufacturing companies, pushing up the price of wood pellet materials.
Japanese market
The Japanese market is much more stable than the Korean market, with long-term orders
(sales contracts are usually 10 - 15 years) currently placing exporting prices from 145 to 165
USD/ton (FOB Vietnam). Besides long-term contracts, some Japanese enterprises also signs
short-term contracts with some Vietnamese suppliers. The prices under short-term contracts
are often lower than those of long-term contracts (currently around $125/ton, FOB), with
products of the same quality as under long-term contracts.
Until to now (in 2023) Vietnam has exported about 1 million tons of wood pellets to Japan. All
pellets exported to Japan require FSC certificate. Raw materials for pellets exported to Japan
are sourced from domestic plantation forests, mainly acacia trees. This source of raw materials
is different from the materials used for producing wood pellets to export to Korea.
The demand for wood pellets in Japan will increase sharply in the future. Insights from some
companies said that each year, Japan uses about 8 million tons of pellets, of which 40-50% are
made from oil palm kernel shells, the rest (50 - 60%) are wood pellets. It is expected that by
2030, the demand for pellets in Japan will increase to 20 million tons, of which the amount of
wood pellets will account for about 13-15 million tons (the rest is oil palm kernel shell). The
demand for wood pellets used in Japan will expand in the future. This is a great opportunity
for Vietnamese businesses, especially those with stable input materials and sustainable
certifications, large-scale production plants, and good management.
Competition in the future
Vietnam's wood pellet industry will face competition from wood pellets from other countries.
When the energy crisis occurred due to the conflict between Russia and Ukraine, the price of
pellets in the world increased sharply. This created a wave of investment in wood pellet
production in other countries (also in Vietnam). There are already some operating factories
and some more coming soon. In the future, Vietnamese businesses will have to compete with
these factories, especially factories in Indonesia and Malaysia.

With support from David and Lucile Packard Foundation