Dwindling API Group I base oil production is tightening the supply of wax at a time of demand growth. Mostly derived from base oil, petroleum waxes accounted for up to 70 percent of the global market, which was estimated at 4.76 million metric tons in 2016, according to United States-based chemicals consultancy Kline & Co.
Kline predicted worldwide demand, including for synthetic, vegetable and animal waxes, will increase at a compound annual rate of 1.5 percent between 2016 and 2021, outperforming likely supply growth of 0.4 percent over the same period. With demand exceeding supply by more than three times, the deficit will be more than 272,155 metric tons by 2021.
Availability of mineral waxes is declining as Group I supplies have shrunk over the past decade due to a gradual shift to Group II. Group I base stocks are becoming technically unviable for use in automotive applications and are being replaced with higher-quality base stocks. This has resulted in the closure of Group I plants that also supply petroleum waxes, said project manager in Klines energy practice Pooja Sharma at the Asia, Middle East and Africa Base Oil, Lubricant and Wax Conference in Mumbai in July.
This has created opportunities for the alternative wax business. Synthetic waxes such as Fischer-Tropsch and polyethylene and vegetable waxes such as hydrogenated soy and palm are the fastest-growing products in the current market.
Illuminating the Region
Wax is used in a wide range of industrial and commercial applications, from disposable tableware, textiles, papermaking, cosmetics, pharmaceuticals, polishes, crayons, artificial logs and, of course, candles. Demand for conventional applications such as candles has slowed, but they continue to dominate the market, accounting for nearly half of total global demand. Candles have been driving wax demand in Africa and the Middle East region, especially.
The African and Middle Eastern market is relatively small compared with other regions, but combined it remains a net exporter of waxes as production is higher than demand, Sharma said. According to Kline, Africa and the Middle East account for 6 percent of demand while their supply share is 8 percent and is largely petroleum and synthetic waxes. Denis Varaksin, base oils and slack wax director at German commodity trader DYM Resources, said sales in Africa and the Middle East are growing in every segment: candles, construction, hot-melt adhesives, cosmetics, pharmaceuticals and packaging, in tandem with broader economic growth.
The candle industry, which is the primary demand driver for wax in the region, has been growing continuously as a result of growth in exports of decor candles to Europe and the Americas, Sharma said. More than 80 percent of Africa and the Middle East regions wax demand is accounted for by candles, according to Kline.
Kline projected the overall supply of waxes in Africa and the Middle East to grow at 2 to 3 percent between 2017 and 2022, outperforming potential demand growth of close to 2 percent during the same period.
Filling the Petroleum Wax Void
The global supply of petroleum waxes has fallen from more than 80 percent of total production in 2010 to less than 70 percent in 2016, and it will decline each year at 1 to 2 percent due to changes in lubricant-refining technology, according to Kline.
Synthetic waxes are growing at 3 to 4 percent to fill the space left by petroleum waxes, Sharma said. In the global synthetic waxes market, Fischer-Tropsch is growing fast, with its share increasing from 34 percent to 39 percent between 2010 and 2016, according to Kline.
The reason for such strong growth is that the physical properties of Fischer-Tropsch waxes are similar to the physical properties of paraffin waxes, which make it easier for end users to absorb these waxes into their processes and formulation, Sharma said. He added that the quickly growing share of rheology (the study of material flow) and surface applications is also driving demand for both Fischer-Tropsch and polyethylene/polypropylene waxes.
Kline also projected strong growth for Fischer-Tropsch waxes in the next five years, from around 230,000 to around 360,000 metric tons, driven by further capacity additions in South Africa and North America by 2020.
It is believed that due to declining supply of petroleum waxes, the increase in supply of Fischer-Tropsch waxes will be easily absorbed, Sharma said. The supply of other synthetic waxes in Africa and the Middle East region is much lower than in Asia, the main source of nearly all types of wax.
The majority of wax in Africa and the Middle East is produced in three countries – South Africa, Iran and Egypt – while the United Arab Emirates and South Africa are the key markets. Petroleum waxes in the region are largely derived from Group I base oil plants in Egypt and Iran, while Fischer-Tropsch waxes are primarily supplied by South African energy and chemicals company Sasol, one of the two key global Fischer-Tropsch wax suppliers.
South Africa made Fischer-Tropsch technology commercially viable in the 1950s, turning more readily available coal, and now natural gas, into liquid hydrocarbons rather than crude oil. Paraffin wax is a byproduct of this process, similar to base oil refining.
Sasol, which is currently in phase two of a U.S. $1.02 billion expansion of its wax production facilities, will drive the supply of synthetic waxes in the region. The company completed phase one in June 2015, increasing capacity by 40 percent. The second phase is expected to be operational by the end of 2017 or the start of 2018.
Varaksin said that while wax demand is growing in Africa and the Middle East, supply is shifting from mineral to synthetic waxes also. [Gas-to-liquid] slack wax produced in Qatar is a big game changer in the region, [and is making] clients look more at synthetic wax, he told LubesnGreases. Slack wax is a byproduct of lube refining and is a combination of oil and wax that is separated by distillation.
Oil major Shell operates the worlds largest gas-to-liquids refinery, Pearl, in Qatars Ras Laffan Industrial City, in a 50-50 joint venture with Qatar Petroleum. The 260,000 barrel per day facility, which opened in late 2010 and shipped its first product in June 2011, makes base oils, waxes, paraffin, process oils, naphtha and liquid fuels, among others. Pearl also has one of the worlds largest base oil plants, with capacity to make 1.4 million metric tons per year of Group II and III stocks.
Although production is increasing in the Middle East with new synthetic production coming on stream, the picture is less rosy elsewhere in the region. Majid Safdari, CEO of Tehran-based additives and base oil company Vista Energie, said that Irans slack wax production is declining, hurt by the higher cost of manufacturing and lower demand from India due to price differences.
He added that China and India are the two main markets for Irans slack wax output, but the country has seen a dip in demand from India in recent months due to cheaper local supplies of low oil content quality slack wax. Most importers in Kolkata and Haldia in the east have stopped importing from Iran altogether, while some shipments were headed for Tuticorin in the south and Mumbai in the west, Safdari said.
India is a price-sensitive market, so if Iranian refiners and Iranian exporters want to play an active role in the Indian market they have to match local prices, Safdari said at the conference. Iran exported approximately 50 percent of its slack wax to China in 2016-17, followed by India at 39 percent and Turkey at 6 percent.
Despite the challenges, the global market outlook from the supply side is upbeat for the next few years as the expected jump in demand, the rising supply deficit and shrinking petroleum wax volumes will likely keep the prices strong going forward. However, the biggest beneficiaries will be suppliers of the fastest-growing products in synthetic and vegetable waxes.