Wang Xinnuo, Sun Chaowei, Sinopec Refinery Product Sales Co., Ltd. 

China has huge production and export volume of paraffin, and major manufacturers are PetroChina and Sinopec. On the back of stable domestic demand and enlarging global demand, coupled with the emerging substitutes, more and more paraffins have been exported. Enterprises, facing the complicated market environment, need to enhance their competitive edges from three aspects. 

Capacities from PetroChina and Sinopec

1. China’s paraffin capacities

China’s total paraffin capacity is 2.13 million t/a, and except for Panjin Northern Asphalt Fuel, all other paraffin producers are affiliates of either PetroChina or Sinopec. Table 1 details it. 

2. China’s paraffin productions in recent three years

China’s paraffin output is estimated to be 1.585 million tons in 2021, up by 2.7% YoY. The output of PetroChina is 1.274 million tons, accounting for 80.4% of the national total, up 13.5% YoY; the output of Sinopec is 268 thousand tons, 16.9% of the national total, down 23.9% YoY; the output of the teapot enterprise is 43 thousand tons, accounting for 2.7%, down 37.7% YoY. The outputs from 2019 to 2021 are listed in Table 2, and the trend in Chart 1.

Chart 1 China’s paraffin production data and trend, 2019-2021

Stable derivative structure

1. Downstream demand in recent three years

China needs to export paraffins to ease the oversupply situation. The domestic downstream demand has been stable recently, except for a decline in 2020 due to the pandemic and a following rebound in 2021. Chart 2 shows the details. In 2022, the paraffin output is anticipated to keep expanding, and the demand might remain at 900 thousand tons. 

Chart 2 China’s paraffin downstream demands, 2019-2021

2. Downstream demand analysis

Despite of the numerous downstream companies, the consumption structure of paraffin is stable, with candle manufacturing, the largest consumer, accounting for 45.1% of the total; plate industry 14.9%; packaging industry 11.7%; plastic additives industry 15.9%; tire and rubber industry 7.7%; and others 4.7%. The consumption shares of downstream industries in the domestic paraffin market are shown in Chart 3.

Chart 3 China’s paraffin downstream industries’ consumption shares

Candles are divided into civilian purpose and craft purpose. The former refers to candles for religious purpose and the peak demand season is from October to March. The craft candles are usually for exports, and the peak season is from July to September, with No. 56 and No. 58 paraffin as the main feedstock. 

The plate industry is heavily influenced by macro policies and real estate market. Its demand for paraffin decreased in 2021 as some plate manufacturers curtailed or even stopped production as a result of double controls and power use restriction. 

The plastics producers need paraffin to work as lubricants. However, the plastic pipes demand has been dampened by the bearish real estate industry, due to policies such as property tax and the cooling down of the second-hand housing market. At the meantime, the emerging Fischer-Tropsch wax has started to replace paraffin in the sector of plastics processing. 

Rubber protective wax plays the role of anti-oxidation aging in tire and rubber industry and is one of the essential additives in the production process of rubber tires. However, since the second half of 2021, due to the shortage of chips, the domestic automobile production and sales volume declined, resulting in a significant decline in the demand of the tires and hence the rubbers. Meanwhile, as the international shipping cost is at a historical high, the demand for paraffin from the end of tire and rubber has decreased.

3. Consumptions in different regions

China’s paraffin producers are mainly located in Northeast while the consumers are mainly in South China, East China and North China. The consumption shares of regions remain stable, as shown in Chart 4. 

Chart 4 China’s paraffin consumptions in different regions

4. Fischer-tropsch wax taking more market shares

The coal chemical Fischer-Tropsch (F-T) synthetic wax, the alternative to paraffin, are widely used in hot melt adhesives, printing inks & coating plastic processing, food & cosmetics, and textile auxiliary brightening waxes. With the rapid developing coal chemical industry, and Fischer-Tropsch wax has been localized on a large scale. Its production is growing rapidly and has been replacing the paraffin wax in plastic industry with its price advantage. By now, 90% of paraffin has been substituted by Fischer-Tropsch wax.

Export volumes remain high

China has maintained its paraffin exports at 500-600 thousand tons per year in recent five years, and such volume has been increasing (Chart 5). The export in 2021 is anticipated at 790 thousand tons, a YoY growth of 25.4%, taking 49.8% of total production. Major target markets are in Europe, the US and Southeast Asia. 

Chart 5 China’s paraffin exports, 2017-2021

Five factors influencing the market trend

China’s paraffin market is dominated by its producers ---- refineries of PetroChina and Sinopec.

Crude oil, as the raw material, also guides the prices of paraffin. The prices of paraffin and crude oil are positively correlated in the long term. See Chart 6 for the price trends of paraffin and crude oil from 2019 to 2021. 

Chart 6 The price trends of paraffin and crude oil, 2019-2021

Supply-demand: generally, domestic supply in 2021 was higher than that of 2020. The wide application of paraffin has weakened the downstream ends’ influence on the pieces. The candle industry had a robust demand, but the other derivatives were sluggish. Overall, the supply-demand of paraffin in China is balanced. 

Substitutes: there are many substitutes but the most influential one is Fischer-Tropsch wax at present. Although the coal prices went up in 2021, thus pushing up the cost of Fischer-Tropsch wax, the State’s coal price policy once again dampened the thermal coal price, followed by the decrease in Fischer-Tropsch wax prices in November 2021. The price gap between paraffin and Fischer-Tropsch wax is estimated to be enlarged and the substitution of paraffin will continue. 

Export: the export of paraffin accounted for 40% of its total production and such percentage might rise to 50% in 2021. The overseas demand and the RMB forex change will both influence the prices of paraffin. In 2021, the export grew by 20.6% YoY, easing the oversupply of domestic market. 

China’s macro economy, industrial policies and pandemic: COVID-19 restricted the transportation of paraffin in July and August 2021. In the second half of 2021, the double controls and power use restriction limited the operating rates of medium and small companies, impacting the paraffin too. The State issued adjustment policies in November 2021 to support medium and small companies, with the effect uncertain yet. Meanwhile, the policies on real estate and automobile all influenced the paraffin market. 

Bigger pressure in 2022

Globally, the crude oil prices kept increasing in 2021, so did the commodities. In 2022, the crude prices are expected to decline. However, the pandemic persists, and the trade environment between China and the US is yet to be improved. 

Locally, paraffin derivatives have all been restricted by the upsurge in raw material prices, and the substitution from Fischer-Tropsch wax has further squeezed the market. 

Under the global and domestic influences, the paraffin market will be under heavier pressure in 2022. 

Supply: no maintenance has been announced by paraffin producers for the year of 2022, and the supply is anticipated to exceed 1.6 million tons. 

Demand: China’s downstream demand for paraffin has been around 900 thousand tons recently. Exports are necessary for balance the domestic fundamentals. Local demand in 2022 might remain flat. 

    Export: given the robust global demand, China’s paraffin export will be maintained at 750 thousand tons in 2022.