Market outlook: Stable US paraffin wax counters upstream slide

Judith Taylor

06-Feb-2015

US wax buyers are beginning to ask for lower prices based upon the fall in upstream indicators, but market dynamics are holding up values for now

US paraffin wax prices are countering upstream indicators by remaining stable amid the dramatic slide in crude oil pricing over recent months.

“This is just weird in my experience,” said one US wax market participant, commenting on the unusual stability of the wax prices during a period of such upstream volatility and citing experiences that stretched back over 10 years.

 

 Paraffin wax is used in candlemaking

Copyright: Getty Images

US paraffin wax prices are rarely volatile, sources said. However, these prices do typically track up or down alongside Group I base oil prices, by far the primary source of production for paraffin waxes.

Group II, II+ and III base oil production results from a hydro-treatment processing that does not produce wax streams.

Group I base oil prices plummeted during the second half of 2014, driven by the “perfect storm” of Group II capacity additions in the US and elsewhere that increased base stock supply and by the dramatic fall in global crude oil prices.

Group I base oil producers Paulsboro Refining Company (PRC) and ExxonMobil dropped prices late December on the 26th and 22nd, respectively, after HollyFrontier and Calumet sliced all grades the week before.

Base oil price drops in these changes ranged 40-45 cents/gal on all grades except brightstock, which fell 35 cents/gal.

But US paraffin wax prices did not change in December, maintaining spreads of 72.50-77.00 cents/lb FOB (free on board) US Gulf on meltpoints ranging 125-140°F and at 75-82 cents/lb FOB US Gulf on high melt 150F waxes for ratable business in the domestic market.

Slackwax pricing on the same basis is stable at 58-63 cents/lb in January.

“Still no movement in slackwax prices – hard to believe with the slide in crude,” one slackwax producer said.

The reason behind the glaring stability of US wax prices in view of the upstream price dive that is dragging down prices across the energy and petrochemical complex is the exit of two scale-wax streams by the largest wax producer, sources continue to say.

EXXONMOBIL IMPACT

 

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

In its announcements, the company put a 2015 start-up date on the base oil expansions.

Base oil sources said that the Baytown units are offline and the expansion is underway.

ExxonMobil did not comment this because it does not confirm its pricing or operation activities. All Exxon information is obtained from active market sources and not from Exxon.

However, paraffin wax buyers and sellers said that Exxon built significant inventories of the eliminated waxes well ahead of moving into the expansion for Group II base oils, keeping wax supply balanced during the fourth quarter of 2014 and shielding prices from the upstream volatility.

US wax buyers are beginning to ask for lower wax prices based upon the fall in crude oil and sinking price factors percolating through the energy complex.

Contrary to buyers’ expectations that paraffin wax prices are likely to fall because of the upstream indicators, at least one key wax producer raised prices at some low-based accounts.

The initiative shied from an outright wax price increase push of 3 cents/lb that rumbled through market chatter for January but never materialised.

SHIFT AWAY FROM GROUP I
As Group I base oil production is eclipsed by Group II production, expectations are that US paraffin wax supply is likely to continue to shrink in domestic output.

While wax market sources have pointed out that Chinese wax can meet any supply shortfall, and US buyers continue to say wax requirements are readily met, buyers are now trying to gauge consistent supply versus hopes of price reduction.

“I can’t get anyone to budge on prices,” one US buyer said.

Most US wax market participants say that paraffin wax is increasingly becoming a specialty product and offers value-added margin potential for producers.

Underpinning this direction on the waxes is higher interest in making the waxes from gas-to-liquids (GTL) processing.

However, the soonest likely candidate into the commercial US market for GTL wax production has a projected 2017 start-up date.

In the meantime, US buyers and sellers are vying to see if demand will outstrip supply in this region and pressure prices up in spite of sub-$50/bbl crude oil and sinking base 
oil margins.

On the other hand, if demand trends flat in the first quarter, wax inventories deplete slowly and imports fill in any requirement gaps, reductions that buyers are now seeking because of low crude oil prices hold potential to emerge.

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