Petroleum Wax Supply and Demand - Marketplace Issues. Stephen Burns Managing Editor, Americas ICIS

Transcription

1 Petroleum Wax Supply and Demand - Marketplace Issues Stephen Burns Managing Editor, Americas ICIS

2 Global Publishing Company ICIS is part of Reed Business Information (RBI), the publisher of more than 100 market-leading publications and online services, as well as the organizer of leading industry conferences and awards. RBI, a division of Reed Business, is a member of Reed Elsevier plc, which reported revenues of around $8bn in 2004.

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6 ICIS methodology for paraffin wax price assessments Traced transactions and contract negotiations Supply/demand balance and export/import information General sentiment for price direction Upstream, downstream developments General market intelligence

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9 Once upon a time The Company buys a variety of raw materials for inclusion in its products. The only raw material that is considered to be of a commodity nature is wax. Wax is a petroleum-based product. However, its market price has not historically fluctuated with the movement of oil prices. Rather, over the past five years wax prices have generally moved with inflation. (Yankee Candle s Form 10-K filing with the SEC, 2001)

10 Feedstock costs bite hard High paraffin wax prices hurt Yankee Candle Q4 net 15 February :55 [Source: ICIS news] BUENOS AIRES (ICIS news)--yankee Candle, a leading US scented-candle manufacturer and marketer, said on Wednesday its fourth-quarter net income fell almost 10%, in part due to higher paraffin wax prices. The company had net income of $43.4m (Euro36.5m) in the fourth quarter of 2005, compared with a yearearlier profit of $48m. North American paraffin wax prices hit all-time highs in 2005, driven by soaring petroleum prices, unprecedented tightness in supply due to post-hurricanes Katrina and Rita production curtailments and continued demand strength in downstream markets. Low- to mid-melting-point fully refined paraffin wax prices peaked in third quarter 2005, hitting levels in the mid 40s cents/pound FOB US Gulf, which represented increases of nearly 10 cents/pound or almost 30% from a year ago, according to ICIS-LOR. Halfway through first quarter 2006, North American paraffin wax prices were poised for further increases, however, as a pre-existing tight wax-supply scenario was being exacerbated by regional production issues and rising imported wax prices. Founded in 1969, Yankee Candle is headquartered in South Deerfield, Massachusetts and employs about 5,500. ICIS Copyright Reed Business Information 2005

11 Key wax market drivers in 2005 High crude oil prices Hurricane impact Core global demand up A whole new ball game for buyers

12 US Gulf prices in 2005 D a te ra n g e : 0 1 J a n D e c D is i s p la y e d in i n C T S - L B C T S / L B Source: ICIS pricing Source: ICIS pricing Jan A pr Jul Oc t Jan-2006 D a te PA RA FFIN WA X : MELT POINT 125F (52C) TO 140F (60C) In US Gulf SPOT FOB USG. Quoted in USD-MT.

13 European prices in 2005 D a te ra n g e : 0 1 J a n D e c D is i sp la ye d i n C T S - L B C T S / L B Source: ICIS pricing Jan Mar May Jul Sep Nov-2005 D a te PARAFFIN WAX : MELT POINT DEGREES CENT In Europe DOMESTIC FD NWE. Quoted in USD-MT.

14 Asia-Pacific prices in 2005 D a te ra n g e : 0 1 J a n D e c D i s p la y e d i n C T S - L B C T S / L B Source: ICIS pricing Source: ICIS pricing Jan A pr Jul Oct Jan-2006 D a te PARA FFIN WA X : SLA B SOLID WA X MP 52/54 TO 56/58C In A sia Pacific SPOT SEMI REFINED. Quoted in USD-MT.

15 The China factor GDP growth lifting domestic demand, oil imports Wax content of China s crude oil imports is perceived to be falling China s wax exports can t cover extra global demand Tax rebate change drives up export price

16 China s exports to US shrinking US wax imports (Source: ITC) Other Venezuela India Germany Japan Canada China M i l l i ons of k i l ogr a ms

17 China s supply dominance Percentage share of US wax imports in China Canada Japan Others (Source: ITC)

18 China s supply dominance Percentage share of US wax imports in China Canada Japan Others (Source: ITC)

19 China s supply dominance Percentage share of US wax imports in China Canada Japan Others (Source: ITC)

20 Importers on growth path North America growing at a moderate clip, economic outlook positive Brazil and Argentina engines for Latin American expansion Steady appetite in Europe

21 Other supply issues: feedstock competition High margins drawing slackwax into fuels stream No demand plateau in sight for transport fuels MTBE phase-out altering dynamics

22 Other supply issues: hurricane impact Key refineries affected: Baton Rouge, Beaumont, Lake Charles Some wax blendplants affected - Pass Christian Railroad problems added to logistical issues

23 Other supply issues: problems in related markets Petro-Canada s Mississauga white oils plant fire on January 7 Shell Canada restart issues in Montreal after turnaround Q1 06 story: allocations, tight supply

24 Q base oil plant toll ConocoPhillips: Westlake, Louisiana plant explosion on February 1 ExxonMobil: fire at Port Jerome (Gravenchon, France) on February 6 Penreco: Karns City, PA plant hit by strike

25 US prices still rising in 2006 D a te ra n g e : 0 1 J a n M A pa r D is i s p la laye yed i in n C T S - L B C T S / L B Jan Jan Jan A pr-30-jan Feb Jul Feb Oc t-10-mar Mar-2006 Jan A pr-2006 D a te PA RA FFIN WA X : MELT POINT 125F (52C) TO 140F (60C) In US Gulf SPOT FOB USG. Quoted in USD-MT.

26 ...along with Europe D a te ra n g e : 0 1 J a n M A pa r D is i s p la la ye ye d i in n C T S - L B C T S / L B Jan Jan Jan A pr- 30-Jan Feb Jul Feb Oc t- 10-Mar Mar-2006 Jan A pr-2006 D a te PA RA FFIN WA X : MELT POINT 125F (52C) DEGREES TO 140F CENT (60C) In Europe In US DOMESTIC Gulf SPOT FOB FD NWE. USG. Quoted in in USD-MT.

27 but Asia coming off the boil D a te ra n g e : 0 1 J a n M A pa r D is i s p la la ye ye d i in n C T S - L B C T S / L B Jan Jan Jan A pr- 30-Jan Feb Jul Feb Oc t- 10-Mar Mar-2006 Jan A pr-2006 D a te PA RA FFIN WA X : MELT SLA B POINT SOLID 125F WA X (52C) MP 52/54 TO 140F TO 56/58C (60C) In US A sia Gulf PacSPOT if ic SPOT FOB SEMI USG. REFINED. Quoted in Quoted USD-MT. in USD-MT.

28 Current market factors Severe supply disruptions in the base oils chain Low inventories in Latin America Firm prices for Chinese exports Interest in alternatives

29 Outlook for 2006 Pressure on margins how far can costs be passed on? Strong incentives to explore alternatives Issues for alternatives impact on quality, color, fragrance North American supply picture to stabilize in Q2? Long-term future for base oils market

30 Thank you! Stephen Burns Managing Editor, Americas ICIS