Dual difficulties confront Vietnam's wood pellet exports

Vietnam exported more than 6 million tonnes of wood pellets in 2024, generating USD805.2 million, a nearly 30% increase in volume and an 18.5% increase in value compared to the previous year, according to Forest Trends' June 2025 report. Japan and South Korea were responsible for 95% of the total exports, with Japan accounting for 60% and South Korea for 34%.

However, since the second quarter of 2025, the industry has been under dual pressure from unresolved internal weaknesses and international policy changes.

The pressure started in February 2025, when the Ministry of Economy, Trade, and Industry (METI) of Japan announced that it would stop approving new biomass energy projects under the FIT/FIP subsidy scheme beginning in the fiscal year 2026. Although previously approved projects will continue to receive support, this action effectively curbs the potential expansion of Vietnam's wood pellet market in Japan.

In 2024, exports to Japan experienced only a slight increase in comparison to 2023, which was partly due to the fires and explosions that occurred at biomass power plants that utilized imported pellets. The Japan Biomass Power Association (BPA) has issued warnings regarding a number of impurities in Vietnamese pellets, including plastic bags, metal fragments, and chemical residues such as sodium and potassium. These impurities have the potential to damage equipment and pose fire hazards.

Despite the efforts made by many Vietnamese producers to resolve these issues, such as removing bark during the pelletizing process to reduce chemical content, the current low export prices have resulted in higher input costs, which have pushed up production prices, making it difficult to compete.

In contrast, South Korea witnessed an important price recovery in Q2/2025, with wood pellet prices increasing from under USD100/tonne last year to over USD109/tonne. However, this recovery was primarily the result of temporary factors: the United States implemented tariffs on wood-based goods, which resulted in a scarcity of by-products for pellet production and a decrease in domestic processing.

Nevertheless, Vietnamese pellets are still regarded as inferior to those from competitors such as Indonesia, Thailand, and Malaysia. Overall market prices have been depressed, sometimes below production costs, as a result of the accusations that certain Vietnamese exporters have engaged in dumping to secure contracts.

According to expert To Xuan Phuc from Forest Trends, these challenges result from Vietnam's fragmented and opaque pellet feedstock supply chain, which is heavily dependent on by-products from other wood-processing industries. As a result of this dependence, raw material availability is inconsistent, particularly during the rainy season or when timber product exports decrease.

Certain facilities utilize tropical hardwoods imported from Africa and Laos. These types of timber are frequently questioned for their legality and are not in compliance with sustainability standards such as FSC, PEFC, or SBP, which are becoming more prevalent in developed markets.

Although certain provinces, such as Ha Tinh and Tuyen Quang, have increased the number of certified forest areas, enterprises are unable to maintain stable raw material zones for high-quality pellet production due to high production costs and a lack of integrated supply chains.

In contrast to the aforementioned policies for solar and wind energy, Vietnam currently lacks explicit incentive policies for biomass power generation. Furthermore, the domestic competitiveness of pellets is restricted by the cheap prices of electricity for industrial use in the country. Despite the fact that a few FDI enterprises in sectors such as textiles, footwear, and food have begun to transition to pellets as fuel, their scale remains small and fragmented.

To address these obstacles, Mr. Phuc suggests establishing an integrated ecosystem that connects wood processing and pellet enterprises. This ecosystem would enable the full utilization of planted forests and the investment in certified sustainable forests. Some initial collaborative models between businesses and smallholder forestry groups have existed; however, they are still relatively limited in scope.

Additionally, the domestic market is underdeveloped despite its potential due to a lack of policy support. Pellets are currently employed in a restricted number of applications, predominantly in FDI factories subject to supply chain emission reporting requirements in the food processing, textile, and leather industries.

Dedicated incentives for biomass power, comparable to those provided for solar and wind energy, are recommended by Mr. Phuc. This is a critical prerequisite for the sustainable development of pellets in Vietnam, as it would reduce the country's reliance on exports and contribute to its Net Zero objective.

Wood pellets, produced from agricultural and forestry by-products, have the potential to serve as a significant renewable energy solution in Vietnam, given the country's commitment to Net Zero. Nevertheless, Vietnamese pellets risk losing their competitive advantage in the domestic market if they fail to establish a distinct domestic market strategy and enhance their quality standards.

Forest Trends notes that nearly all wood pellets produced in Vietnam are exported, mainly to Japan (60% by volume, 65% by value) and South Korea (34% by volume, 28% by value). In 2024, the average export price stood at USD133.5 per tonne.

The wood pellet sector has experienced a significant trend of continuous growth in the number of FSC-certified forest areas, which has now reached nearly 470,000 hectares as of May 9. PEFC-certified forest areas also amounted to approximately 215,000 hectares.