First Argus-indexed biomass deal concluded

German utility RWE and US-based commodity management firm Gavilon have concluded the first physical supply contract to be priced against Argus’ European industrial wood pellet index. The one-year supply deal was brokered by Geneva-based Starsupply Commodity Brokers.

The pellets will be delivered on a cost, insurance and freight (cif) basis to Amsterdam-Rotterdam-Antwerp (ARA). Supply will start in the fourth quarter of 2011 and will be priced against the Argus weekly spot European industrial wood pellet index.
RWE said it is pleased with the first trade against the Argus index. “Trading wood pellets physically or financially versus the Argus index gives us another tool to manage our price risk in our biomass portfolio. Also, it will drive liquidity and transparency in the wood pellet market,” vice-president of biofuel origination Martin de Wolff said.
Gavilon director of renewables Mark Lay added: “Gavilon increases liquidity and provides flexible alternatives to create value for its customers. Index transactions will further improve the liquidity of the biomass market.”
Starsupply said it expects rapid growth in the over-the-counter pellet market in future.
Argus chairman and chief executive Adrian Binks said: “Completion of this landmark deal is an important step in the development of the biomass market and demonstrates the benefits of an independent price index in an emerging commodity market.”
“Argus is committed to providing the biomass market with robust price references that can form the basis of spot and term contracts, and enable effective risk management.”
Argus launched its coverage of the industrial wood pellet market in May 2009 in response to demand from the market. It added a weekly index for wood chips in October 2010.