Paraffin wax, once a near-afterthought to base oil manufacturing, today is a valuable prop to API Group I refinery margins. Due to falling Group I capacity, U.S. wax production now averages about 250,000 barrels per month, less than half of what it was in 2005. This has made for a balanced-to-snug market, and kept mid-melt paraffin prices in the $1,580 per metric ton range for much of the year.
North America is a significant part of the wax scene, accounting for about one-fifth of waxes produced and 23 percent of worldwide wax consumption, notes Energy Vice President Geeta Agashe of the market research firm Kline & Co. On a global basis, she says, fairly large shortages loom, especially for paraffin waxes. If so, the support refiners get from waxes could begin to teeter, as buyers cut back on purchases or switch to alternate materials.
The next five years will be very turbulent for the wax industry, Agashe cautioned. Wax supply is changing, with a return to recession feared in North America, Europe and Asia. Kline also expects global wax suppliers will continue to restructure, with increased capacity coming in Asia while Western Europe and North America could see more shrinkage. Synthetic wax supply from gas-to-liquids plants probably will grow, too.
Agashe, who is based in Parsippany, N.J., was slated to speak to the American Fuels and Petrochemical Manufacturers in Houston on Nov. 1, but could not reach the event due to Hurricane Sandy. So on Nov. 8 she conducted a webinar for attendees of its International Lubricants and Waxes meeting.
According to Kline’s study “Global Wax Industry 2010” and current research that is updating it, Asia-Pacific firmly leads the world in wax production, generating about 43 percent of the world’s total 9.6 billion pounds in 2010, she indicated. North America comes next with 19 percent of the supply, followed by Western Europe at 14 percent.
Petroleum paraffin is the dominant wax type, at 84 percent of the global output, Agashe explained. Olefin waxes account for 6 percent, while GTL waxes contribute 5 percent. The rest comes from animal, vegetable and other sources.
Kline forecasts global supply will reach 11 billion pounds by 2020, a modest growth rate of 1.4 percent a year. And some wax types and regions will outperform the pack. Africa and the Middle East will see wax production grow by 50 percent over the decade, and Asia-Pacific will add about 25 percent.
Elsewhere, wax production will be flat or even shrink slightly, Agashe forecast. Where specifically will this shrinkage occur? “Europe has a much higher surplus of Group I compared to North America,” she pointed out to Lube Report, in part because Group I rationalization is largely complete in the latter region. This makes the position of North America’s surviving Group I refiners “much stronger.” Some, like American Refining Group in Bradford, Pa., Imperial Oil in Strathacona, Canada, and PBF Energy in Paulsboro, N.J., seem perennially to be on the “may shut down” watch list, Agashe remarked. “But they defy expectations.”
By contrast, Europe’s Group I producers are beset by overall lubricants demand contraction, the Euro crisis and automotive market quality upgrades. Europe’s base oil producers are also being challenged by new Group III capacity in Asia and the Middle East, which have a logistics advantage when catering to export markets in North Africa and South Asia, she observed.
“On the other hand,” Agashe continued, “consider that for many plants wax is an important business, as is marine oils. This will be a big factor in the decision to continue operating. Many plants are government-owned where shutdowns and layoffs will be very difficult politically. In balance though, a few closures in Europe are likely.”
What uses will propel wax demand over the next decade? In answer, Agashe pointed to packaging, board sizing, and rheological and surface applications such as plastics, tire, rubber and hot-melt adhesives. New applications in the health industry will also push demand (but as the industry’s smallest market it may not contribute much to overall volume growth).
However, demand for candles — now the largest outlet for wax at 43 percent of total global consumption, according to Kline’s research — will become “sluggish” due to declining demand for candles for illumination and a flat market for religious uses.
Kline believes global wax demand will hit 12 billion pounds by 2020, up from 2010’s demand level of around 9.6 billion pounds. That’s a yearly growth rate of about 2.3 percent. It further predicts demand will outstrip supply and begin to leave a growing deficit after 2015. And by 2020, the supply shortfall could be 1 billion pounds worldwide.
Looking ahead to the period from 2015 to 2020, Agashe said “fairly large wax shortages seem likely.” These shortages probably will result in higher prices, which in turn will subdue demand from price-sensitive segments. Already, Kline is seeing “a reduction in the usage of candles for lighting in developing countries, especially with the development of cheaper alternatives such as solar LED lamps,” Agashe told Lube Report this week. “These have a relatively high upfront cost but no recurring costs.”
Another end-use segment, containerboard manufacturing, may seek alternatives as well, such as plastic coatings. “There is also a shift to other materials like fatty acid stearins,” Agashe said, as well as increasing production of polyethylene or polypropylene scrap wax.” The coming shortages also may drive non-traditional sources such as GTL producers to boost their output.
In the end, refiners may face a choice between continuing to market wax or divert their wax feed to base oil production, she added. “For companies with a limited interest and competency in wax, the choice may be producing Group III for their internal blending requirements. Other plants, which are feeding to an in-house wax business or have tied their production to a de-oiler, will continue to produce wax.”
Either way, a turbulent wax market seems probable for this decade and beyond.