FocusChinese paraffin wax prices continue uptrend on tight supply

19 November 2009 05:41  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Candle makers in Asia are seeing red over the rising cost of raw material paraffin wax amid limited supply, they said on Thursday.

“Candle prices at retailers are not going up, but our costs keep on going up and it is hard to survive,” said a candle maker based in Malaysia who did not see the situation improving in weeks ahead.

Almost 60% of paraffin wax is used for making candles globally, but it also goes into production of wax paper for food and consumer goods packaging, matchstick industry, floor polishes and emulsions.

Candle demand in the US and Europe peaks in the third quarter for the Christmas season with November and December usually low period for paraffin sales.

Despite lower demand from the candle makers, the prices for paraffin wax are on an uptrend.

Chinese paraffin wax producers like refinery operators in Dalian and Daqing led the market up by raising prices in the second consecutive weak by yuan (CNY) 300-500/tonne ($44-73/tonne) amid limited supplies and high fuel prices, said regional paraffin wax buyers and sellers on Thursday.

After that, local values of fully refined 58/60ºC solid wax stood at CNY 9,000-9,100/tonne ex-works in China.

"This would mean export ideas at around $1,400/tonne FOB (free on board) China,” said a southeast Asian paraffin wax buyer who makes candles.

Current export offers were around $1,350/tonne FOB china for the same grade last week. The increases are partly due to fuel price hike and partly due to low inventories in China as most wax producers continued to operate at low rates, he added.

Candle makers in southeast Asia said their margins were squeezed due to the inability to pass on surging wax costs and most were operating at reduced rates.

But some traders were holding on to limited wax stocks in expectations of a further hike in prices.

“Prices might increase more so I am not selling right now,” said a China based wax trader.

The supply of paraffin will remain tight, as global production of paraffin wax in the past few years has been in decline. Several Group I base oils refineries, where wax is produced as a co-product, have shut amid poor economics.

The base oils industry has steadily moved to higher quality and more competitive group II/III refineries where no wax is produced.

At the NPRA (National Petrochemical and Refinery Association) meeting in Houston, Texas, this year an industry expert said that the global wax business was around 9.6bn pounds (4.36m tonnes) of which 4m tonnes was crude derived.

This level of trade had been roughly constant over the past five years, although its value had risen from $1bn in 2003 to more than $3bn in 2008 as supply reduced and prices of wax continued to climb up, said Amy Claxton of My Energy private consultancy firm.

China is one of the largest global exporters of paraffin wax and exported 597,000 tonnes of paraffin wax in 2008 from refineries in Dalian, Fushun, Daqing and Yanshan.

Other producers of wax in Asia include Thailand and Indonesia, which produce and export slackwax, the feedstock from which paraffin wax can be produced.

Some higher quality, low oil content wax is also available for export from Japan. Wax is also exported from Malaysia where a gas-to-liquids (GTL) plant is operated by Shell in Bintulu.

($1 = CNY6.83)

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By: Anu Agarwal
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