Imports could help US paraffin wax supply concerns

Focus story by Judith Taylor

HOUSTON (ICIS)–Imports could ease US paraffin wax supply concerns, market participants said this week.

“If there is a need for wax, China can supply it,” one paraffin wax importer said.

This factor may have been less clear for US wax market players because of a spate of events in the Chinese upstream refinery and wax production sector that have affected wax production in the region.

The source pointed out that Sinopec’s and Petrochina’s wax output in 2014 is at about 50% of production capacity because of turnaround activity and a decision to curtail production at one key location.

A maintenance turnaround at Sinopec’s Shanghai Gaoqiao refinery that began 1 March and extended for two months also affected about 70% of the location’s paraffin wax production capacity, significantly cutting back wax output.

This same refinery is said to be planning another maintenance turnaround that is scheduled to begin on or about 1 September and extend for about three months.

Other Chinese refinery turnarounds were mentioned that also chopped back paraffin wax production in this key exporting region.

An additional wrinkle in the wax supply scenarios is that price decreases in base oils in the region are said to have muted China’s interest in exporting.

The importance of this sequence of events in China did not immediately reveal itself to US wax market participants because 2014 US requirements were being easily met by local production and standard imports.

US wax buyers are concerned about forward supply options mostly because of shrinking production of Group I base oils.

Paraffin wax is a direct by-product of certain solvent processing methods used to make Group I base oils.

Group II base oils – made by a process that does not yield a wax by-product – are becoming a common base oil of choice for finished lubricant blenders and compounders because of the ability of these base stocks to meet about 97% of all requirements.

Alongside Group II base stocks, Group II+ and Group III offer lighter viscosities than does the Group I tier, which is part of the underpinning for the ability of the Group II stocks to meet finished lubricant requirements that must increasingly deal with environmental and regulatory stipulations.

But paraffin wax production only comes from Group I, keeping wax buyers on edge as the base oil market shifts and changes wax supply.

In a significant wax market development, the largest paraffin wax producer, ExxonMobil, announced in 2013 plans to expand its Group II and Group II+ base oil production capacity at its Baytown, Texas, refinery.

The company put a 2015 target for start-up of the base oil expansions.  

This past May, paraffin wax market participants said communications from ExxonMobil informed buyers that two wax streams are to be discontinued by year end.

Although ExxonMobil does not comment on its plans outside of its company press releases, wax market players view these changes in the producer’s wax output as leading to shorter domestic supply conditions in the future.

The chart below from Amy Claxton of My Energy, an ICIS Training affiliate, shows a percent comparison of global base oil production capacity at 2012-13 by group – the pale oil percent portion refers to naphthenic base stocks.

The chart below shows the percent changes in global production capacity by groups expected by 2020 per Claxton’s My Energy database, underscoring the shrink in Group I.

Importers and other market participants in the wax sector view the changes taking place in Group I base oils as a potential opportunity, looking to a refreshed Chinese wax production capacity in 2015 to help meet any demand needs that might develop in the US and elsewhere.

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