pellets oulook

Wood Pellets from Russia

Arnold DaleEkman & Co

Wood Pellet Association of Canada18-20 Nov, 2013 Vancouver, Canada

Ekman is one of the world´s leading sales and marketing organizations, focusing on the global forest industry.

Represented in 100 + countries

Paper & Packaging

Ekman at a glance

Pulp Recovered Materials

Bioenergy

+ 4 400 000tons/year

Incorporated in 1802

260 employees 40 locations

Ekman GroupVolume & Turnover 10 years

0 500

1 0001 5002 0002 5003 0003 5004 0004 5005 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Turnover,USD million

Tons,thousand

Ekman GroupKey indicators, 5 years

USD million 2012 2011 2010 2009 2008Operating revenue incl. agency sales 2,310 2,420 2,100 1,493 1,779

Income after financial items 10,5 11.5 10.6 6.7 4.7

Total assets 296 302 257 199 225Equity 51,7 49.6 43.0 34.2 28.8Volume Tons, thousand 4,400 3,700 3,300 3,351 2,907

Bioenergy – at a glance

• 10 employees in Sweden, Denmark and Latvia

• Trading wood pellets and PKS since2008

• The leading biomass trader in Europe• Exclusive sales agents for the

Vyborgskaya wood pellet plant in Russia and the Scotia Atlantic wood pellet plant in Canada

• Storage in Denmark for more than 100 000 mt in 7 locations with 4 bagging lines

• Regular trade flows of wood pellets and unrefined wood fuels

The demand will be in countries with no forestsThe supply will be from countries with forests

Russian Forest 7 762 602 km2• Pellet exports to EU during 2012• 900 000 t

Canadian Forest 3 1010 340 km2• Pellet exports to EU during 2012• 1 600 000 t

American Forest 3 030 890 km2• Pellet export to EU during 2012• 1 900 000 t

Russian wood pellet exports during 2012totaled about 1 000 000 tons (source: NRLI)

46%

10%9.4%

5.6%

5%

4%

20%

Exports expressed as percentage

VLK

Krasnolessnab

Archangelsk 25

Novoyenisey

Severa ZapodnyHoldingSetnovo

Others

Vyborgskaya – The largest wood pellet plant in the world

• 900,000 ton annual wood pellet production

• Annual roundwood requirement = 2.2 million m3

• Ekman & Co exclusive sales agent• Production based on roundwood from

Russia • Turnkey delivery from ANDRITZ Group• - 2 wood processing lines

- 4 belt dryers- 24 Hammer mills - 36 pellet presses

• Focus on industrial/commercial market as well as residential

• 25km from Port of Vyborg

Logs are delivered to the pellet plant by Vyborgskaya own STK river vessels

Vyborgskaya the largest wood yard in Europe

Logs being lifted on to vibrating floor

Vyborgskaya log de-barking

Two large wood chippers each able to chip up to 1 100 000 m3 per year

Vyborgskaya Micro chips

Vyborgskaya 4 large belt dryers

Vyborgskaya 24 hammer mills and 36 pellet presses

Vyborgskaya soft loading with special 20 ft containers

Vyborgskaya port facility

• 50% of all raw material is transported to the pellet plant by own river vessels, this considerably reduces the carbon footprint

• Vyborgskaya have bought 8 river vessels

• A purpose built port is under construction which will set new standards for wood pellet exports

• Ability to load and discharge up to 5 vessels simultaneously

Vyborgskaya & Ekman partnership

•Sales and Marketing•Financing• Insurance•Logistics•Administration•Customer service•Problem solving

Information from Korea

Why Russia has the best potential to supply both Korea and Japan• Russia accounts for over 20 percent of the

world forests, but its share in the world forest products trade is below 4 percent.

• Semi-processed round wood and sawn wood make up over 54 percent of its exported wood products.

• Forests occupy over half of the land of the country, but the share of the forest sector in the gross domestic product (GDP) is only 1.3 percent

• By the end of 2011 more than 30 million hectares of Russian forests had been certified under the Forest Stewardship Council (FSC) scheme

• Russia ranks second after Canada for area of certified forests.

Wood pellet exports from Russia far east to Korea(Source: NLRI Russia)

0100002000030000400005000060000700008000090000

100000

2 nd 2012 1 st 2013

Sales

Sales

Source: Prof. Gyu-Seong Han

Source: Prof. Gyu-Seong Han

Source: Prof. Gyu-Seong Han

Industrial or Residential?

Industrial vs. residential markets

• Industrial wood pellets replace coal. Consumer pellets replace oil = different price drivers

• Quality requirements are different, although strict for both segments

• Logistics and handling for consumer marketrequires infrastructure

• Buying patterns are different, as are contracts• The consumer market is more stable in

demand…but…

• With some adjustments, most pellet producers can make premium pellets• Large shipments of consumer grade pellets from the USA to Europe expected• Trading companies are starting to be active in both market segments

Will the industrial and residential markets converge?

• We believe this will happen as more manufacturers realise that having a broader client base will provide greater security than a long term contract

• The residential market is growing steadily and long may this continue however greater professionalism by importers is needed

• In a lot of countries local pellet producers are experiencing difficulty obtaining enough raw material to meet local demandThe only way to keep growing in these markets will be through imported wood pellets

• Several producers are changing between producing industrial and premium• EN Plus is the only recognized European certification system for wood pellets and

is accepted throughout Europe

Denmark imported more than 2 million tons of wood pellets during 2012 – Probably the best importer in the world!

Source:Ekman & Co

430

340

180

348

230

220 7050 50 40 40 30 20

Imports 2012 (mt x 1000)

LatviaEstoniaLithuaniaRussiaPortugalGermanySwedenFinlandUKPolandUSACanadaBelarus

This season Ekman received a vessel from the USA with 31 000 mt of wood pellets for the residential market

Several forces create push to small-scale

• Stable continuous growth creates a predictable market with only minimal political intervention

• Annual increase for the residential wood pellet market will exceed 1 million tons during 2013

• The current confusion on sustainability rulescreates additional risk in the industrial segment

• Industrial pellet producers like long term fixed-pricecontracts but is that always more attractive than what the small-scale market can offer?

• Historically ex mill prices have been higher to the consumer segment

• Changing subsidy schemes in power markets may attract biomass from existing markets to the residential market

Wood Pellets from Russia Conclusions

• The international wood pellet market will continue to grow more rapidly than at present with the Americas becoming the mainwood pellet producing region

• Whilst Russia may have the worlds largest foresta massive increase in infrastructure investment isneeded before large scale wood pellet productioncan proceed

• Economically viable forest area available to wood pellet manufacturers is restricted to NW Russia, but the far east of Russia could supply Asia

• We believe most Russian wood pellet producers will place their pellets in the residential wood pellet market

ONE OF THE WORLD’S LEADING SALES AND MARKETING ORGANIZATIONS FOCUSING ON THE GLOBAL FOREST INDUSTRY.