Vietnam’s Wood Pellet Industry Urged to Standardize Production to Meet Global Demand

Industry experts emphasize the need for dedicated raw material zones and improved quality control to ensure sustainable growth and competitiveness.

HO CHI MINH CITY –Vietnam's Wood Pellet industry must standardize its production processes and develop stable raw material sources to capitalize on global demand, experts have advised. This call to action comes as the sector, with annual export revenue nearing $1 billion, faces significant challenges related to supply chain instability and evolving international standards.

According to data from the Vietnam Timber and Forest Products Association (Vifores), the country exported over 3.9 million tons of wood pellets in the first half of 2025, generating $564.77 million in revenue. This represents a year-on-year increase of 33.3% in volume and 38.8% in value.

Heavy Reliance on Two Markets and Associated Risks

Japan and South Korea remain the dominant export destinations, collectively accounting for 94-96% of Vietnam's total wood pellet exports by volume and value in 2024. While this focus offers geographical advantages, it also exposes the industry to risks from potential policy shifts or changes in energy demand in these countries.

"The industry's heavy dependence on Japan and South Korea means any policy changes or increased competition could leave it in a very vulnerable position," stated a government news portal.

Key Challenges: Raw Materials and Product Quality

A primary concern is the industry's reliance on secondary supplies from wood processing industries rather than dedicated raw material zones.

"This makes pellet production vulnerable to seasonal factors, fluctuations in fuel oil prices, and supply instability," said Professor To Xuan Phuc, a senior policy analyst at Forest Trends. He explained that this dependency directly impacts product quality, with chemical residues and metal content remaining a major concern for buyers.

Meeting stringent quality standards, particularly for the Japanese market, often involves costly processes like bark removal. Nguyen Thanh Phong of Vifores noted that this can push production costs above the current export price of around $144 per tonne, making it difficult for businesses to operate profitably.

Rising International Standards and Competition

Export markets are continuously raising the bar. South Korea has recently tightened its quality standards, while Japan requires certifications like FSC and PEFC and is gradually adopting SBP standards. Future alignment with the EU's Deforestation Regulation (EUDR), which demands strict traceability, is also a possibility, for which many Vietnamese producers are unprepared.

Furthermore, the industry faces increasing pressure from new regional competitors like Thailand, Indonesia, and Malaysia, which offer high-quality pellets at competitive prices.

Low-Price Competition Damages Reputation

Intense domestic competition and price dumping, especially in the South Korean market, have driven prices to historic lows. In 2023, prices fell below the production cost, causing financial difficulties for many producers and damaging the reputation of Vietnam's wood pellet industry internationally.

Pathways to a Sustainable Future

Experts propose a multi-faceted approach to secure the industry's future:

• Develop Raw Material Zones: Businesses should invest in dedicated raw material areas to ensure a stable, legal, and sustainable supply, reducing reliance on secondary sources.

• Foster Industry Collaboration: Creating a collaborative ecosystem where companies share sustainable raw materials across product lines is seen as a viable path forward.

• Improve Quality and Brand Image: Enhancing product quality and building a strong brand are crucial for competing in existing markets and entering new ones, such as the European Union.

• Implement Supportive Policies: Supportive measures, including planning the industry within the wider forest ecosystem and controlling unfair competition, are needed to create a sustainable operating environment.

Tran Quang Bao, Director of Vietnam's Forestry Department, emphasized that wood pellet production aligns with the country's circular economy strategy. He highlighted a 2024 memorandum of understanding with Japan on forestry cooperation, covering sustainable forest management and legal timber trade, as a positive step.

While long-term contracts may offer short-term stability, experts agree that without significant improvements in quality, sustainability, and strategic market diversification, Vietnam risks losing its competitive edge in the global wood pellet market.