The wood fuel market in Denmark - Price development, market efficiency and internationalization

In this paper, the Danish wood fuel market is investigated. The analysis consists of three parts. First, the development of price dispersion over time for wood chips and wood pellets is examined as a proxy for market transparency. Second, the interconnections between the prices of pellets, chips and straw are studied by use of cointegration analysis. Finally, relations between wood fuel prices in Denmark and Sweden are analyzed. The result is that price dispersion has decreased notably for wood pellets, but not for wood chips. In terms of intra-fuel cointegration, the results point towards the presence of cointegration between prices of wood chips and straw. There are also indications that the Swedish and Danish markets for wood pellets are integrated but this is not the case for wood chips. Given that Sweden and Denmark trade wood pellets between each other and also import from common third sources, it is logical that pellet prices are cointegrated. The conclusions from this study strengthen the view that markets for wood chips and wood pellets have different characteristics, not least as a result of the lack of transparency resulting from the significant product heterogeneity for wood chips. (C) 2014 Elsevier Ltd. All rights reserved.