FutureMetrics releases dashboard to see Brexit market impacts

By Katie Fletcher | July 05, 2016

Last week, FutureMetrics released a pellet supply chain dashboard to see what the vote by the U.K. to leave the EU could mean for the industrial pellet sector. According to FutureMetrics, Brexit has had an impact on the markets, and the British pound has lost value relative to the U.S. and Canadian dollars.

The dashboard, which can be accessed here, provides a wide range of adjustable assumptions to calculate both pellet producer and utility earnings before interest, taxes, depreciation and amortization (EBITDA). FutureMetrics provides some guidance on how to look at the possible impact of Brexit on the industrial pellet sector.

Once the dashboard is open, if the “pounds per U.S. dollar” near the center of the dashboard is moved to the left and set at the current value of the exchange rate at about 1.33 (July 1), there is an immediate drop in the estimated U.K. utility’s EBITDA in the continuously updating chart and the EBITDA dial in the bottom right corner of the dashboard. According to FutureMetrics, “the U.K. buyers of industrial pellets, if not hedged against the dollar, are seeing their margins shrink.”

Another measure of producer and buyer EBITDA that FutureMetrics steps the user through begins by moving the “FOB price for pellets in U.S. $” slider to the left to around $105 per metric ton, as this is the approximate current FOB spot price of industrial wood pellets from the Southeast U.S. shipped to Europe (ARA), as reported by the Argus Biomass Markets weekly report. FutureMetrics said to note the drop in producer EBITDA and the gain in buyer EBITDA once this is done. “For a U.K. utility buying on spot, this is good news,” the company stated in its shared analysis. “But at that price, U.S. producers selling into the spot market are losing money.” Most industrial pellets are traded under long-term, offtake contracts at prices higher than current spot prices, FutureMetrics stated, however, which is fortunate.

The dashboard allows a user to switch from U.S. to Canadian dollars on the producer side and from pounds to Euros on the buyer side. Many of the assumptions that go into the cash flow model can also be adjusted. The dashboard includes a “chart” tab at the upper left to see how each assumption contributes to the cash flows as well.