Biomass Exchange Review – October 2019
An unusual start of the winter season: the demand for biomass decreases
In October, the turnover of the BALTPOOL biomass exchange decreased by 21% compared to September – from EUR 4.7 million to EUR 3,713 million – due to the commenced supplies under long-term contracts. Lithuanian heat producers have prepared for the 2019 heating season in advance and in summer have purchased more than one half of the biomass required for the heating season; the first month of the heating season therefore started with record low demand.
A total of 26,046 TOE of biomass was purchased in October, which is a 21% decrease compared to September (32,871 TOE). Most of the biomass (51%) was purchased under one-week contracts, 23% was purchased under one-quarter and half-year transactions, 24% accounted for one-month transactions and the remaining 2% of the sales accounted for reserve transactions. Compared to September, the weighted price under the concluded one-week transactions increased by 8% from 127.79 EUR/TOE to 138.22 EUR/TOE. The price under one-month transactions also increased by 4% from 139.38 EUR/TOE to 145.19 EUR/TOE, and the price under long-term contracts decreased by 11% from 160.91 EUR/TOE to 149.14 EUR/TOE. Accordingly, the yearly decrease of prices was 33% for one-week transactions (from 196.71 EUR/TOE), 36% for one-month transactions (from 228.31 EUR/TOE) and 37% for long-term transactions (from 235.98 EUR/TOE).
At the beginning of October, the BWCS LT index increased to 133.48 EUR/TOE. The increase was due to the sharply increased demand for short-term transactions due to the start of the heating season in most cities; at subsequent auctions, however, the BWCS LT index dropped and, by the end of the month, amounted to 122.21 EUR/TOE. The value of the index recorded at the end of October decreased by 1.7% compared to the value recorded at the end of September (124.21 EUR/TOE). Comparison of the value of the index recorded at the end of September 2018 (196.06 EUR/TOE) shows that in the same period this year the value of the index is 38% lower.
In October, the demand for biomass deliveries increased by nearly 72% compared to September (25,234 TOE). A total of 43,400 TOE of biomass was delivered: 39% was delivered under one-week transactions, 14% was delivered under one-month transactions and the remaining 48% was delivered under one-quarter and half-year transactions. The price of biomass delivered in October increased by 13%: the price of biomass supplied in September was 124.4 EUR/TOE and the figure was 141.93 EUR/TOE in October. In the same period last year, biomass was supplied for a price that was 33% higher, i.e. 212.08 EUR/TOE.
Effect of long-term transactions on trade and execution of transactions in October
Starting from the end of spring and throughout summer, heat producers were actively concluding long-term transactions in order to prepare for the heating season. By the end of the time period for transaction conclusion, Lithuanian heat producers have secured 59% of the biomass required for the entire heating season. This affected the October trade and biomass supply:
- At the beginning of the heating season, the execution of Q4 and H02 transactions started. However, after the announcement of the start of heating season and the weather becoming warmer, the demand for biomass under the existing long-term contracts has decreased. In October 2019, as many as 15 important information notices were published about the reduced amount of biomass due to weather conditions, which is a 5 times increase compared to October 2018. According to data from the Lithuanian Hydrometeorological Service, the average temperature in October 2019 was approximately 1.2°C higher compared to 2018 and in some locations was between 8.5 to 10.5°C above zero.
- This has affected the trade in biomass: the demand has dropped to the 2014 level when orders to buy 30,000 TOE of biomass were placed. In October 2019, orders to buy 33,000 TOE of biomass were placed, which is a 77% decrease compared to the demand recorded in October 2018. The supply, compared to October 2018, has increased by 4% and amounted to 141,000 TOE.