Biomass Pellet Market in Southeast Asia: Growth, Competition, and the Road Ahead

Southeast Asia is rapidly emerging as one of the most dynamic regions in the global biomass pellet industry. Fueled by abundant natural resources, growing export demand from Northeast Asian markets, and an accelerating push for renewable energy, countries across the region — Vietnam, Indonesia, Malaysia, and Thailand — are reshaping the global biomass trade landscape. At the same time, rising competition, quality concerns, and infrastructure challenges are testing the resilience of producers and exporters alike.

Market Overview: A Region on the Rise

The global biomass pellets market was valued at approximately USD 14.99 billion in 2026 and is projected to reach USD 25.44 billion by 2034, growing at a compound annual growth rate (CAGR) of around 6.83%. Within this global picture, the Asia-Pacific region — with Southeast Asia at its core — stands out as the fastest-growing segment, forecast to expand at a 14.3% CAGR through 2031, driven by intensifying co-firing mandates in Japan and South Korea.

For Southeast Asia specifically, the biomass pellet fuel industry market is estimated to have exceeded 10.2 billion yuan (approximately USD 1.4 billion) in 2024, representing a year-on-year increase of roughly 15%. The region's role is not merely domestic — it serves as the primary export hub supplying the voracious energy demand of Japan and South Korea, the two largest biomass-importing nations in Asia.

Key Markets and Country Profiles

Vietnam: The Dominant Exporter Under Pressure

Vietnam has long been the region's leading wood pellet exporter, particularly to South Korea. However, 2025 and 2026 have brought mounting structural challenges. Vietnamese exporters face a raw material shortage that is pushing up production costs, while quality issues — including elevated moisture content and impurities in shipments — have led to cargo rejections at South Korean ports. In March 2025, Vietnam's pellet exports to South Korea fell 46% year-on-year, a sharp indicator of the competitive erosion the country faces.

Despite these challenges, Vietnam retains significant production infrastructure and trade relationships built over many years, and the country remains a major player in the regional market.

Indonesia: The Rising Challenger

Indonesia has emerged as Vietnam's most formidable competitor in the South Korean market. Exports to South Korea surged from approximately 56,000 tons per month at the end of 2024 to over 105,000–106,000 tons per month by late 2025, a year-on-year jump of 88–89%. Indonesian pellets have gained favor among South Korean buyers due to competitive pricing and generally higher assessed quality compared to Vietnamese cargoes.

New investment is pouring into the Indonesian pellet sector. Polish trader G7 and Indonesia's PT Biomassa Energy Group are jointly planning six new production facilities, beginning with a 120,000-tonne-per-annum (tpa) empty fruit bunch (EFB) pellet plant in Sumatra, expected to commence operations in 2026. Additionally, Tess Holdings is set to begin EFB pellet production in mid-2026, targeting 100,000 tpa by 2030. However, logistics risks loom: a major jetty collapse at Tanjung Buton Port in Riau in early January 2026 exposed the vulnerability of Indonesia's export infrastructure.

Malaysia: Diversification and Innovation

Malaysia dominated the Southeast Asian wood pellet market with over 22% market share in 2023, leveraging its extensive palm oil industry as a feedstock base. The country is actively diversifying beyond traditional white wood pellets into high-value black (torrefied) pellets, which offer superior energy density and easier handling in coal-to-biomass conversions. Malaysian producers are also capitalizing on palm oil waste, including empty fruit bunches (EFB), as a cost-competitive and sustainable raw material.

Aisin Takaoka and Triputra began producing biocoke from palm kernel shells (PKS) in West Kalimantan in December 2025, with current capacity of 15,000 tpa and expansion plans to 90,000 tpa by 2031, signaling strong Japanese industrial interest in Malaysian biomass.

Thailand: From Exporter to Importer

Thailand's position in the market is undergoing a structural shift. Thai industries are transitioning away from wood chips and pellets toward palm kernel shells (PKS) for power generation, effectively turning Thailand into a net biomass importer rather than a significant pellet exporter. The country now sources PKS from Indonesia and Malaysia. While Thailand may continue supplying niche spot volumes of pellets, it is unlikely to compete for major long-term contracts in the current market environment.

Export Destinations: Japan and South Korea

The two primary buyers of Southeast Asian biomass pellets are Japan and South Korea, both of which rely heavily on biomass co-firing as a pathway to decarbonizing their electricity grids.

• Japan imports nearly 3 million tonnes of industrial pellets per year under its national feed-in tariff (FIT) system, with long-term supply contracts providing investment certainty for producers.
• South Korea operates through a Renewable Portfolio Standard (RPS) that obliges power generators to source certified biomass, despite a 2024 subsidy reduction that created some market turbulence.

Both markets prioritize quality certification (such as SBP — Sustainable Biomass Program), energy density, and logistical reliability, which increasingly differentiates successful Southeast Asian exporters from those struggling to maintain market access.

Feedstocks: From Forests to Farms

Southeast Asia's biomass pellet industry draws on a diverse range of feedstocks:

• Forest and wood residues remain the dominant category, accounting for the largest market share due to their high calorific value and established supply chains.
• Agricultural residues — including rice husks, EFB, and bagasse — are the fastest-growing feedstock segment, particularly as producers seek to differentiate products and reduce dependence on timber-based inputs.
• Palm kernel shells (PKS) have become a significant biomass commodity in their own right, especially from Indonesia and Malaysia, valued for their high energy density.

A persistent challenge across the region is feedstock moisture content, which frequently exceeds 15% in tropical climates, reducing pellet efficiency and increasing production costs by an estimated 12%.

Policy Environment: Governments Driving Growth

Policy support is a central pillar of the market's expansion across Southeast Asia:

• Indonesia's energy structure adjustment plan has accelerated biomass applications in power generation and positioned the country as a strategic partner for international investors.
• Malaysia has strengthened its investment laws and actively improved the environment for foreign participation in its biomass energy sector.
• Vietnam has benefited from a long history of government support for the wood processing industry, though emerging raw material constraints are now challenging the sector's competitiveness.
• Regional carbon targets aligned with the Paris Agreement are pushing all ASEAN nations toward renewable energy mandates, creating sustained long-term demand for clean burning fuels like biomass pellets.

Challenges and Risks

Despite the market's strong growth trajectory, several significant challenges temper expectations:

1. Quality Control South Korean buyers have raised concerns about Vietnamese pellet quality — particularly around moisture content and impurities — leading to cargo rejections. Maintaining consistent quality is essential for long-term market access.

2. Feedstock Scarcity Raw material shortages are increasing production costs in Vietnam and other countries. Local biomass collection networks remain underdeveloped in many areas, causing supply bottlenecks.

3. Infrastructure Vulnerabilities The January 2026 jetty collapse at Tanjung Buton Port in Indonesia highlighted how fragile export logistics can be, with potential to disrupt supply chains and divert cargo to congested alternative ports.

4. Market Competition Southeast Asian producers increasingly compete not only among themselves, but also with Canadian, Russian, and American pellet exporters, all vying for contracts in Japan and South Korea.

5. Price Volatility Freight costs, currency fluctuations, and feedstock price swings create margin pressures, particularly for smaller producers without long-term offtake contracts.

Emerging Trends

• Torrefied (black) pellets: Higher energy density and coal-plant compatibility are driving interest in torrefied pellet technology, with Malaysia positioning itself as a leader in this premium segment.
• EFB pellets: Empty fruit bunch pellets from palm oil processing are gaining traction as a cost-competitive and carbon-friendly alternative to wood-based pellets.
• Biocoke: The emergence of biocoke from palm kernel shells in Indonesia represents a next-generation product aimed at steelmakers and industrial users seeking coal substitutes.
• AI and digitalization: Advanced storage and logistics management technologies are beginning to enter the regional supply chain, promising improvements in efficiency and quality consistency.

Outlook to 2030

The biomass pellet market in Southeast Asia is set to grow robustly through the end of the decade. The Asia-Pacific region's projected CAGR of 14.3% through 2031 reflects the powerful combination of Northeast Asian import demand, ASEAN renewable energy commitments, and the region's natural resource advantages.

Indonesia is positioned to capture an increasing share of export markets, while Malaysia's diversification into black pellets and PKS-derived products points toward higher-value market segments. Vietnam will need to invest in quality improvements and feedstock security to defend its position. Thailand, meanwhile, is pivoting toward a demand-side role as a net importer.

For investors, traders, and policymakers, Southeast Asia's biomass pellet sector offers substantial opportunity — but success will depend on navigating quality standards, securing stable feedstocks, and building resilient logistics infrastructure capable of meeting the demands of Asia's energy transition.

Sources: THANG LONG Market Analysis (January 2026), Mordor Intelligence (2026), Future Market Insights (2026), Polaris Market Research, Fortune Business Insights, Rotex Machinery Market Report (June 2025), SRON Biomass Energy Analysis (February 2026).