NOVELTY - The pneumatic steam dryer comprises a circulation conduit system, which is pressurized and filled with steam, a heat exchanger connected into the circulation conduit system for heating the steam, an inlet feeding device connected to the circulation conduit system for feeding bulk material into the circulation conduit system, a drying conduit connected into the circulation conduit system, a separating unit connected to the drying conduit for separating the bulk material from the steam, and a fan (5) connected into the circulation conduit system.    USE - The pneumatic steam dryer is useful for producing bio fuel pellets of wood and peat based bulk materials.    ADVANTAGE - The pneumatic steam dryer is capable of energy-efficiently, easily, safely and economically producing the bio fuel pellets.    DETAILED DESCRIPTION - The pneumatic steam dryer comprises a circulation conduit system, which is pressurized and filled with steam, a heat exchanger connected into the circulation conduit system for heating the steam, an inlet feeding device connected to the circulation conduit system for feeding bulk material into the circulation conduit system, a drying conduit connected into the circulation conduit system, a separating unit connected to the drying conduit for separating the bulk material from the steam, a fan (5) connected into the circulation conduit system for pneumatically conveying the bulk material suspended in the steam from the inlet feeding device to the separating unit, a pelleting device integrated in the circulation conduit system, and a mill connected into the circulation conduit system. The pneumatic steam dryer is adapted to operate above atmospheric pressure. The bulk material is dried by heat transfer from the steam for forming surplus steam. The separating unit comprises a steam outlet, a bulk material outlet, and cyclones connected in parallel into the circulation conduit system. The pelleting device is connected to the bulk material outlet of the separating unit, and comprises an extrusion pellet press including a ring-and-roll pellet press and a screw type extruder. The total mass flow of bulk material is conveyed from the separating unit to the pelleting device. The mill is connected between the bulk material outlet and the pelleting device. An INDEPENDENT CLAIM is included for a process for producing fuel pellets in a pneumatic steam dryer.    DESCRIPTION OF DRAWING(S) - The diagram shows a schematic view of a pneumatic steam dryer.    Drying section (2)    Heating section (3)    Pelleting section (4)    Fan (5)    Surplus steam outlet. (7)