RISIWood Fiber Conference

Craig JacksonFebruary 13-15 2017

1.CellMark

2.Challenges Facing Supplier

3.Challenges Facing Traders

4.Opportunities

5.Summary Conclusions

CellMark

• Incorporated in 1984

• 65 offices in 30 countries

• 700 employees

• Presented in 120 markets

• Trading volume of 6 million tons

• Annual sales of USD 3+ billion

Main Focus

Pulp Paper Packaging Recycling

Chemicals

Metals

Energy Basic chemicals

CellMark specializes in sales and marketing and we bring a broad range of products, services and solutions to the world market. We focus our capabilities in these key areas:CellMark Energy plans to be a global leader in production and trade of Bio Mass

Source: www.cellmark.com

Bioenergy

• Employees in The U.S, Sweden, Italy, Singapore, Korea and Vietnam

• Involved in the bioenergy sector since 2010

• Moved 350,000 + tons in Asia since April, 2015

• Exclusive sellers for wood pellet plants in: Malaysia, and Indonesia and Vietnam

Our Portfolio

• GPS

• Sara Rasa

• ABC

GPS• Formally known as Polima Compressed Wood Bintulu

founded in 2006

• Located in Bintulu, Sarawak Close to Deep Water Port (28 km) and Close to Raw material (60 KM radius)

• The state of Sarawak has large wood-based industries generating significant amount of wood residuals

• STIDC controls over 120,000 hectares of mature Acacia Plantation

• Capable of producing durable and premium quality wood products

Sara Rasa

• Founded in 2012

• By European Bio Energy Experts

• Located Surabuya Indonesia

• Raw Material residuals for legal logged industries

• CPM Pellet Mills

• 75,000 Capacity

Asia BioMass Corp

• Asia BioMass Corporation

• J/V between AVP amd CM

• Will Produce 84,000 MT per annum

• Located near significant wood waste.

• Start up 4Q 2017

Challenges Facing Supplier/Trader.

• Biggest Challenges

• Some apply only to Supplier and Some to Trader and often Both

• Raw Material

• Logistic

• Freight

• Quality

• Competition

• Legislation/Sustainability

Raw Material • Raw Material Procurement

• Logs

• Residuals from Plywood and Lumber Mills.

• Sawdust and Dominos from the Furniture Industry

• Wood Chips

• Don’t forget Wood has multiple uses unlike Coal

Raw Material • Logs

• Have Multiple Uses

• Dimensional Lumber

• Furniture

• Pulp and Paper

• Animal Bedding

• All higher value than current pellets

Raw Material

• Residuals from Lumber

• Dependent of the Lumber Business

• More and more the waste is being used internally

Raw Material • Furniture and Veneer

Industry Waste

• Again depends on the vagaries of the Furniture and Veneer Industry

• Currently a huge source in Vietnam as furniture companies are moving out of Indonesia and Taiwan

• Is this sustainable?

Raw Material

• Saw Dust

• Used to make Charcoal

• Used as growing Medium for Mushrooms

• Animal Bedding

• Hard to Store

• Often Dirty

Raw Material

• Wood Chips

• Current price for unprocessed wood chips is higher than pellet price

• MDF has higher value

• New Pulp Mill being built in Vietnam. Will use 1.6 million BDT of wood.

• What does that do to raw material price for pellets?

Japan and South Korea: Future Biomass Imports Demand Growth ScenarioDemand mostly imported wood pellets

Biomass in tonnes pellet equivalent and includes PKS and wood chip

Source: Indufor Analasys

Korean Tender • Tender Documents are Released

• Submit bid with 5% bid bond

• Tender has penalty for non conformance for Ash and NCV

• Winners submit delivery schedule with performance bond 10%

• Genco then tells you what delivery schedule they accept

• Deliveries are usually 300-500 MT per day over 3-6 months

• Winners ship to a warehouse and then redeliver.

Logistics• Logistics

• If we reach the forecast volume how are we going to meet the logistic requirement?

• Japan requires bulk shipment 7000 MT-25,000 MT per shipment

• Who can deliver to Genco’s in Korea at increased volume?

• Current system will not work.

Logistics

• Varies by End User/Market

• Bulk Shipment

• Bulk In Container

• Jumbo Bags in Container

• Small Bags (15-20 KG) in Container

Logistics Korea• Currently

• Supplier are selling on FOB

• Trader is handling

• Ocean Freight

• DDP delivery

• Inland Costs

• Storage

Logistics KoreaBulk Shipment

• Can Also Load using Jumbo Bags

• Unloading

Logistic Korea Containers

• Containers are off-loaded

Logistics Korea Containers

• Lift Container to Dump Truck to be moved to Container Free Storage

• Delivery Pellets into Container Free Storage

Hooper or Dump Truck

• Dump Trucks are used based on end user requirement

• Hooper Trucks are used based on end user requirement

Logistics Japan • Will require Bulk shipment.

• Ranging from 7,000 MT Now to 25,000 MT Future

• Very little infrastructure to handle in SE Asia ports

• Cost is higher than Container

• Supplier charter a Vessel ??

• End User buys FOB ??

Freight

• Both Korean and Japanese customers want long term fixed price contracts. (FOB, CIF)

• Because of RPS and FIT

• If CIF how can Suppliers and Traders handle?

• Charter a Vessel?

Freight

• Cost of Freight

• Depends on Oil Price

• Supply and Demand

• Price of container freight is rising

• Hanjin Bankruptcy

• Merge of Container Lines in Japan

Quality• Trader has to buy from Multiple Sources

• To meet demand.

• Suppliers are Small to Medium

• Need to have Good Partners

• Quality Varies because Raw Material varies

Competition

• Rising Prices Mean

• Greater Chance NA producers come to Asia

• They have the Infrastructure

• They have the Scale

• Greater Competition from other Asian suppliers

Legislation

• The Pellet Market Potential in Asia is HUGE

• But Not Financially Driven:

• Will Korean and Japanese Governments stay the course?? Can they afford the cost

• RPS in Korea

• Has been pushed back once already

• FIT in Japan

• MITI meets in March to review current FIT system

Sustainability

• Very Hard to Achieve

• Multiple Sources of Raw Material

• Producers with FSC or PEFC Limited

• Will Market Pay the Price.

Opportunities

• Infrastructure

• Scale

• Freight

• Quality

• China

Infrastructure

• Port Services need to Improve

• Bulk shipments

• Load Faster

• Handle Bigger Vessels

Freight

• Charter Vessels

• Long Term

• Chip Carriers

Scale

• With the Forecast Volume

• Build Bigger Mills

• Need to Secure Raw Material.

• Forest Ownership

Quality

• We are Selling Energy

• Quality will be more important

• Industrial/Residential Grade

• Makes Economic Sense

• Fewer Possible Producers

China

• The potential is Gigantic• But not there yet.

Summary and Conclusions• The Potential Is Huge?

• Current Pricing Does Not Support New Investment:

• Price Currently is in most cases Below Production Cost.

• Most Sellers are Counting on Future

• Traders in Korea Speculate.

• Taking loss to gain Market Share

• Taking loss to reach Record Bidder Status

Summary and Conclusions• Pellets should not be compared Fuel Oil Or Coal.

• Wood has many other uses besides pellets

• Furniture, Paper, MDF, Plywood

• Remember you are Buying Energy not Tons

• Both Supplier and User are going to have get better at working towards WIN/WIN relationship.

Thank You