Theres good news and bad news for white oils, petrolatum and microcrystalline wax – three high-value product streams that are derived from mineral base oil refineries. The good news is that each should see positive demand growth in coming years. The bad news is that supply/demand imbalances loom for some applications and regions, which may allow alternative products to make a grab for market share.
The global white oils market will show moderate growth, expanding to 1.6 million metric tons by 2023, consultancy Kline & Co. projected. Current annual demand is estimated at about 1.5 million metric tons, Milind Phadke, a director in the consultancys energy practice, told the ICIS Base Oils & Lubricants Conference in London earlier this year.
Odorless and colorless, white oils belong to that large segment of lubricants collectively known as process oils, and account for more than a quarter of global process oil demand, he pointed out. Traditionally these are made from a feedstock of API Group I paraffinic base oils, but Group II and III stocks also can be reprocessed into white oils, and so can naphthenics. A key differentiator in the marketplace is the degree of process severity, which results in either technical grade white oils – suitable for industrial applications – or a higher-purity U.S.P. grade that meets Food and Drug Administration requirements for use in food, cosmetics and pharmaceuticals.
Major markets include Asia-Pacific (China, India, South Korea and Taiwan), the United States, and Europe – mainly Germany, France, the United Kingdom, Italy, Turkey and Iberia.
The North American and European markets for white oil have many similarities, Phadke noted. For example, plastics and polymer applications dominate in both regions. Polystyrene production is the leading end-user in these regions, and significant volumes also go into thermoplastic elastomers, low-density polyethylene and polyvinyl chloride.
The health and beauty market is the second largest application, using white oils in a myriad of products (lip balm, suntan lotion, emollients, etc.). Hot-melt adhesives come next, especially where transparency is desirable.
In the pharmaceuticals industry, white oils are used in various medicines, laxatives and ointments, as well as in the manufacturing of medical equipment. The food industry uses white oils as release agents and as the basis for food-grade lubes. Other sizable applications include textiles, agricultural sprays, fertilizers and defoamers.
Buyers and Sellers
Despite some similarities, Phadke pointed out, the supply scene in the United States is quite different from Europe. North Americas top three suppliers are Calumets Penreco subsidiary, Sonneborn and Petro-Canada. North America has abundant capacity, and its leading suppliers have a strong market position. Existing companies are entrenched with customers, and barriers to entry for new suppliers are high, he said.
Europes leading white oil suppliers, in ranking order, are ExxonMobil, H&R Group, Petro-Canada, Sonneborn and Nynas. Though saturated, Europe offers room for new suppliers with differentiated products and attractive pricing, he added.
White oil demand tends to track closely with the economic growth rate of any region, Kline found. So Asia-Pacific – which already consumes more than half of the worlds white oil – will enjoy a higher growth rate over the next five years because many end-use industries are migrating to that region from Europe and North America, Phadke said.
The polystyrene market will decline due to substitution by other polymers and processing improvements that reduce overall demand. Other segments, such as health and beauty, hot-melt adhesive, pharmaceuticals and food, will provide moderate growth. In addition, competition from other materials like waxes will temper some of the growth.
Competition is heating up in every market between participants at different points of the supply chain – base oil producers, white oil producers, blenders and importers. In addition, reduced supplies of API Group I oils (due to refinery closures) and competition from Group II and III products are prompting substitution. However, Phadke reminded, substitution will tend to be slow because of the lengthy approval processes involved for many end uses.
Microwax Firms
In another study, Kline turned its lens to global markets for microcrystalline wax and petrolatum, and in both cases concluded that demand will outstrip supply through 2019. The two products are closely linked: Petrolatum – sometimes called petroleum jelly – is a soft, spreadable mix of white oil, paraffin wax and microcrystalline wax components, which can be de-oiled to extract the microcrystalline wax. Microwax is also produced by some base oil refiners using solvent dosing.
In the face of a shrinking supply of microcrystalline waxes and petrolatum, and on other hand, growing demand and penetration of alternative materials, it will suddenly be very interesting to know how this industry shapes up in the near future, Pooja Sharma, a project lead in Klines energy practice, advised in an early spring webinar.
Microcrystalline wax demand, estimated at between 200 million and 300 million pounds worldwide in 2014, is expected to grow 2.9 percent a year to 2019 – but supplies are tacking downward and will contract 1.7 percent a year over that period, the consultancy forecast. This will result in creating a deficit of about 25 percent of the current supply, said Sharma. She attributed the shortfall to the slow loss of API Group I base stock refineries, along with the declining operational efficiency of the surviving ones.
As its name suggests, microcrystalline wax has a finer, more flexible structure than regular paraffin wax. Where regular wax may be translucent, stiff and low-melting, the microcrystalline version is opaque, more malleable, tacky, and higher in melting point. It finds many uses, ranging from candles to adhesives to inks, laminates and chewing gum.
Kline projects that Asia-Pacific will exhibit strong growth in microcrystalline wax demand to 2019, with industrial, food processing and pharmaceuticals being top application areas. In Europe and the Americas demand will grow more moderately, Sharma observed, with some boost in industrial applications. In terms of the overall demand, Asia-Pacific is the region with the highest demand because of the amount of industry there, followed by Europe and then the Americas.
The supply of microcrystalline wax was almost evenly divided between Europe and the Americas in 2014, Kline found. The European region accounts for the largest volume of close to 40 percent of the global supply, closely followed by the Americas, and the balance of close to 20 percent is supplied by Asia-Pacific, Sharma said.
Globally, Kline has identified about 17 refineries and de-oilers that produce microcrystalline waxes through dewaxing of base oils and/or through de-oiling of petrolatum. Basically, the supply dynamics are such that the top five suppliers account for more than half of the global microcrystalline wax supply, Sharma pointed out. Canada-based International Group Inc. (IGI) is the leading supplier, followed by H&R in Germany, HollyFrontier Refining & Marketing in Oklahoma, Shell Oil, and Nippon Seiro in Japan. Rounding out the top 10 are Petrobras, Sinopec Jingmen Petrochemical, Sinopec Nanyang Petrochemical, Total and Mol Group. Other key players include Calumet Specialty Products Partners, Cepsa, Repsol, Dong Nam Petrochemical, YPF, Galp and TonenGeneral.
Looking at this geographically diverse mix, Kline highlighted the fact that more than 80 percent of microcrystalline waxes produced in Europe are food or pharmaceutical grades; by contrast, those produced in Asia-Pacific are almost entirely technical grade.
As with white oils, the supply of microcrystalline wax and petrolatum splits neatly into two categories – food/pharmaceutical grade and technical grade – based on the level of regulatory approvals required for various applications. Food/pharmaceutical includes microcrystalline waxes and petrolatum used in cosmetics, pharmaceuticals and food processing applications and thus must comply with national, regional and international pharmacopeia and food industry regulations. Technical grade includes microwaxes that dont contain aromatic compounds but also dont meet any standards.
Sharma pointed out that in addition to refiners and de-oilers, hydrofinished microcrystalline waxes are also supplied by some specialized blenders, who buy unfinished waxes from refineries and then perform hydrofinishing at their own end. Two prominent examples: Sasol in Europe and Sonneborn in North America. These blenders are not reflected in [Klines calculations] so as to avoid any double-counting of wax supply, she clarified.
Petrolatums Prospects
The third product studied by Kline – petrolatum – is produced in its crude form by Group I refineries and then sold to de-oilers, blenders and specialty wax manufacturers for further refinement. Blenders and processors add value by modifying its characteristics according to specific end-user requirements.
Kline pegged global output of petrolatum at between 500 million and 600 million pounds in 2014. As with microwax, demand is expected to outpace supply to 2019.
The top 10 global petrolatum suppliers in 2014 were Sonneborn, Sasol, Aiglon, H&R, IGI, Penreco, Lukoil, Hebei Feitian Petrochemical Group, Raj Petro Specialties and Guangdong Maoming Petroleum Group. Together they accounted for more than half of the global petrolatum supply in 2014.
Global demand for petrolatum is forecast to grow at a 2.3 percent compounded annual rate over the next 5 years, while supply will grow at a slower 1.4 percent, Kline said. Supply from the Americas will decline during this period, even as petrolatum supply from Europe, Asia-Pacific and the rest of world slowly advances. This will result in a supply- demand imbalance of about 5 percent of current market size over the next five years, Sharma noted.
Europe leads in petrolatum production, accounting for nearly half of global supply, followed by Asia-Pacific and then the Americas. Europe also is the overall leading petrolatum consumer, accounting for nearly a third of global demand.
Pharmaceuticals, cosmetics and personal care applications will be key growth areas, with moderate to strong upticks expected in all regions. One rising challenge that Sharma highlighted is the emergence of counterfeit products, which have gotten a boost from declining supplies of legitimate petrolatum. Were more likely to see this trend in Asia-Pacific countries than anywhere else, she added.
The two Kline studies on these markets are Global White Oils: Market Analysis and Opportunities, and Microcrystalline Wax and Petrolatum: Global Market Analysis and Opportunities. Details can be found at www.klinegroup.com.