Paraffin – Supply & Demand in China

By Jin Yanchun, PetroChina Daqing Petrochemical Company

China’s supply of paraffin

The majority of China’s paraffin producers are subsidiaries of China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec Group). Most of the production capacity is hosted by CNPC’s refineries in northeastern China – PetroChina Fushun Petrochemical Company, PetroChina Daqing Petrochemical Company, PetroChina Dalian Petrochemical Company and PetroChina Daqing Refining & Chemical Company – together having a total capacity of 1.115 million t/a, which mainly processes paraffin grade crude oil from the Daqing Oilfield. Among those refineries, PetroChina Daqing Petrochemical Company and PetroChina Daqing Refining & Chemical Company each expanded its capacity by 50 kt/a in 2014, and the other two remain unchanged. Because PetroChina Dushanzi Petrochemical Company shut its paraffin line in 2009 and CNPC Yumen Refinery closed its paraffin facility in 2010, PetroChina Lanzhou Petrochemical Company, with a capacity of 60 kt/a, is now the only paraffin maker in northwestern China.
Sinopec Group has seven paraffin manufacturing subsidiaries: Sinopec Beijing Yanshan Petrochemical Co., Ltd., Sinopec Jingmen Petrochemical Co., Ltd., Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd., Sinopec Maoming Petrochemical Co., Ltd., Sinopec Taizhou Petrochemical Co., Ltd., Sinopec Jinan Petrochemical Co., Ltd. and Sinopec Nanyang Energy Chemical Co., Ltd. The first four produce a lot, but together, they account for only 30% of China’s total production, with the share going down year by year. Sinopec Nanyang Energy Chemical Co., Ltd., Sinopec’s specialty paraffin maker, plans to expand its paraffin production capacity and consume more paraffin grade crude oil, hence reducing the raw material supply of Sinopec Jingmen Petrochemical Co., Ltd., which will then be forced to cut back or suspend its production of paraffin.
The domestic supply of paraffin is expected to remain between 1.25 million tons and 1.3 million tons in 2015. The year’s paraffin production forecast for the main refineries is shown in Table 1.
Given the limited supply of raw material, China’s paraffin production is mainly controlled by the refineries of CNPC and Sinopec Group. Despite this, a few private companies persist in constructing paraffin projects at favorable locations. For example, Guangdong Xinhuayue Petrochemical Incorporated Company already has a 70 kt/a paraffin production facility in operation, manufacturing low quality crude paraffin by using raw materials from Sinopec Maoming Company. And Panjin Zhongtian Paraffin Chemical Co., Ltd. operates an 80 kt/a paraffin production line using raw materials with high wax content supplied by the Liaohe Oilfield.

Demand

China’s biggest market for paraffin is candle makers, who consumed 48%-50% of China’s total in 2014. Demand for candles is growing up, but consumption of alternative candle materials has also been continually increasing. Palm wax, stearic acid and shortening oil can all be substituted for paraffin to different degrees in different applications. Among these, shortening oil has become popular in the past three years. Particularly in 2014, with the increase of Filling Lines, shortening oil replaced 60%-70% of paraffin in the tea candle market. Therefore, the demand for paraffin has been slack recently in the candle market.
PVC panel makers are the second largest consumers of paraffin in China. This year, the growth of China’s economy slowed down, furniture production continued to drop off and wooden articles are subject to strict export policies, so both domestic and export sales of artificial panels face huge challenges. The growth of demand for PVC panels will go on slowing down, and hence the demand for paraffin is unlikely to recover rapidly. The domestic use of paraffin in packaging has not developed well, and for packaging explosives, it is now being partly replaced by plastics. So the demand for paraffin in packaging explosives has begun to shrink.
Besides, most of the paraffin products made in China are mainstream goods, and high level paraffin holds a small share of the market. China-made high level paraffins such as microcrystalline wax and specialty wax cannot meet domestic demand, leaving a big gap. Globally, the rational consumption ratio between microcrystalline wax and common paraffin is 1:10. However, China’s annual demand for paraffin approaches 1 million tons while that for microcrystalline wax is only 20 kt. Therefore China’s consumption of microcrystalline wax will likely grow greatly in the future.

Import and export

China exports around 40% of its paraffin production, shipping out 464 kt in 2012, 497.2 kt in 2013, and 481.4 kt in 2014. In the first quarter of this year, China exported 169 kt, a year-on-year growth of 43.95%, reportedly because some refineries in the U.S. closed low-end lubricant oil production lines due to low profits, sharply shrinking the supply of raw material for making paraffin there and opening doors for China-made paraffin.
In the first quarter of this year, China imported 1 688 tons of paraffin, a drop of 27.96% year over year. But in recent years the import of low quality paraffin has generally increased gradually, driven mainly by slowly increasing domestic demand and cheap goods from the Middle East. China imports paraffin mainly from Iran, UAE, Indonesia, Singapore and Thailand. In 2014, Iran supplied 30.1 kt at prices between US$680/t and US$750/t, accounting for 62% of China’s total import of mineral wax. Some sectors use a growing amount of paraffin from Iran. China’s foreign trade in paraffin in recent years is shown in Figures 1 and 2.

Market

Most Chinese paraffin processing is in eastern China. Products include craft candles, PVC auxiliaries, PVC panels, etc. In this region, Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. is capable of supplying 50 kt of paraffin per year. Paraffin made in northwestern China and northeastern China regions will also be sold in eastern China, where the largest demand exists. Guangdong province is the main paraffin consumer in southern China. The paraffin production capacity in southern China was 60 kt/a in 2014, while the local demand was around 120 kt. Northeastern China produces 40% of the nation’s paraffin but consumes very little. Most of the paraffin made in this region is exported or sold to other parts of the country. Northwestern China has abundant raw materials for paraffin and large paraffin output. Like the northeast, the northwest exports its paraffin or sells it to other regions. In coming years, demand in eastern and southern China will remain dominant, while demand in other regions will grow to a certain extent.
Sinopec Group’s paraffin output will decline because the firm is switching over to processing imported high sulfur crude oil, and its refineries focus more on exports. If CNPC’s refineries in northeastern China region keep running smoothly and enjoy a steady supply of raw materials, there will be no large fluctuation of their paraffin output and prices.
The nationwide average ex-works price of paraffin in 2014 was RMB7 655/t, a bit lower than the 2013 price of RMB8 039/t.
China consumed 183.2 kt of paraffin in the first quarter of 2015, a year-on-year drop of 16.12%. During the first quarter, the export volume in January and March both exceeded 60 kt, strongly supporting the paraffin price in the domestic market.

Table 1    Paraffin production forecast for main refineries, 2015

Refinery     Planned production (kt)
PetroChina Daqing Petrochemical Company    140 (reducing)
PetroChina Fushun Petrochemical Company    400 (steady)
PetroChina Daqing Refining and Chemical Company    132 (steady)
PetroChina Dalian Petrochemical Company    222 (steady)
PetroChina Lanzhou Petrochemical Company    30 (steady)
Sinopec Beijing Yanshan Petrochemical Co., Ltd.    Plans to process imported heavy sour crude, leading to a sharp decrease of paraffin production
Sinopec Maoming Petrochemical Co., Ltd.    60 (steady)
Sinopec Jingmen Petrochemical Co., Ltd.    70 (steady)
Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd.    50 (reducing)
Sinopec Jinan Petrochemical Co., Ltd.    30 (steady)


Prospects

In 2014, Southeast Asia consumed 600 kt of paraffin, most of which was imported. China-made paraffin has good prospects in Southeast Asian markets. European demand has some potential to grow. U.S. consumption of paraffin is big but has grown slowly in recent years. International petroleum giants such as Shell Malaysia, ExxonMobil and Russia Inc. have signaled plans to expand paraffin production, stimulated by strong global demand. So, Chinese paraffin manufacturers must improve product quality, adjust product portfolios, develop the high-level products needed in the global market and enhance the competitive edge of China-made paraffin products.