By Richard Welbirg
LONDON (ICIS)--Following a difficult 2013, European paraffin wax (p-wax) producers are likely to face another year of weak end-user demand in 2014.
With economic growth in the eurozone forecast at just over 1% next year, macroeconomic conditions remain unfavourable, while the trend for buyers of fully-refined p-waxes to seek alternative inputs is likely to continue.
The past year saw candle makers – the major end market for p-wax – use increasing proportions of vegetable waxes in their production blends, primarily palm wax.
If palm waxes of Malaysian and Filipino origin continue to sell at often €100/tonne ($139/tonne) below equivalent fully-refined p-waxes, candle makers will increase their usage.
The availability and pricing of alternative vegetable waxes may put an effective ceiling on p-wax values.
Fully-refined paraffin wax prices in Europe are stable and are expected to remain so for the remainder of December, before declining in January.
Demand is currently muted. Supplies are more than adequate and prices are under pressure when it comes to discussing January contracts.
Longer term trends in the candle industry, namely the smoothing of consumption by candle makers which has reduced the once-significant seasonal variation in p-wax markets, look set to continue.
Outages which severely constrained the production of slack wax in northwest Europe in the latter half of 2013 could well turn out to foreshadow a more permanent reduction in supply.
Outages at Kuwait Petroleum’s Rotterdam and Shell’s Pernis facilities in the Netherlands severely constrained the production of slack wax in northwest Europe in the latter half of 2013, and these restrictions could well turn out to foreshadow a more permanent reduction in supply.
Observers of the European base oils - from which slack wax is produced as a side product - expect refiners to reduce operating capacities further during 2014 and European refinery closures are not out of the question.
Structural tightening in the slack wax supply would have effects along the wax refining chain, with any increase in slack wax prices squeezing margins for fully- and semi-refined wax producers, who may increasingly rely on slack wax imports of Asian origin.
Meanwhile, trade in semi-refined p-wax at the Polish-Belorussian border could be shaken up by the removal of Russia from the EU’s Generalised Scheme of Preferences, which gives developing countries favourable terms of trade.
From 1 January, Russian-origin p-waxes will now be subject to a 2.2% import duty. The semi-refined trade on the Polish border is predominantly supplied by railcars of Russian origin.
Traders are likely to pass on the impact of the tariff to their customers, which could depress activity in the semi-refined market, while producers inside the EU may benefit from the new terms of trade.
($1 = €0.72)