The COVID-19 pandemic and low oil prices create new opportunities and challenges for polyethylene wax producers.
With the growth in supply in the last two decades, polyethylene (PE) waxes have carved out a unique market space in the global wax market. PE waxes, which were first introduced with the intention of making up for the shrinking supply of specialty petroleum waxes, such as microcrystalline and high-melt paraffin, soon became the preferred additives in several applications, due to their superior performance.
PE waxes in the spotlight
Figure 1: PE Wax Demand in Traditional, as Well as Newer Rheological and Surface Applications, 2019
PE waxes have low molecular weight, high melting points, a highly linear structure, chemical resistance, lubrication, and anti-blocking properties, which makes them top-of-the-line additives in applications that either require lubrication or physical modification in their formulation. Top application areas where PE waxes are used as additives include plastic processing, masterbatches, hot-melt adhesives, coatings, paints, inks, packaging, and tire/rubber.
Plastic processing aids, where PE waxes are used for improving the rheological properties during the processing of rigid polyvinyl chloride (PVC) and other polymers, account for almost one-third of the global PE wax demand. In masterbatches, PE waxes are preferred, as they are excellent dispersants and carriers for the masterbatch-plastic mixture. PE waxes are also desirable in applications demanding strong adhesion and compatibility, due to their high melting points and fast setting time. This is highly favorable in hot-melt adhesives that are used in a multitude of end uses such as corrugated-container or folding-carton sealants, as binding adhesives; in furniture and shoe manufacturing; and for other packaging, tapes, labels, textile products, and product-assembly applications.
Coatings, paints, and inks are some of the applications where PE waxes offer modification of surface properties such as improving the hardness, scuffability, gloss, waterproofing, and durability. PE waxes are also used in non-food flexible packaging and single-use food-based packaging applications, as they provide a strong moisture and grease barrier and also improve the appearance of packaging material.
All of the above-mentioned applications are well positioned for significant growth globally. Asia is the highest consumer of PE waxes, with most of the demand coming from China. Plastic processing (primarily PVC), masterbatches, hot-melt adhesives, as well as paints, coatings, and tire/rubber production account for a large share of Asian polymer wax consumption. Rapidly industrializing Asian economies, such as China and India, are fueling the demand for PVC, masterbatches, and hot-melt adhesives in the region. Developed Asian markets, such as South Korea and Japan, are major exporters of electronic devices and automotive parts that require plastic components and color concentrates and, thus, consume PE waxes.
Increased urbanization, a widening middle-class population, and employment growth in developing Asian countries are some factors that are propelling construction and commercial activities in the region. This, in turn, is driving up the demand for paints, inks, and coatings, which are used in residential, commercial, and industrial applications. The growing appetite of Asian households for home appliances and other consumer goods is contributing to the increase in demand for color masterbatch and packaging materials. A large portion of the wax demand by these applications is met by regional suppliers in China and India. These suppliers either process PE waxes that are produced as a by-product of plastic processing, or they produce low-grade PE wax via thermal degradation of used plastics. Marcus Oil, a large Indian producer, as well as Qingdao Bouni and Qingdao Sainuo, two producers in China, are top suppliers of PE waxes produced in this fashion.
While, the demand for PE waxes in North America and Europe is small in comparison to that in Asia, these regions are home to some of the most high-end PE wax-based applications. Currently, the demand for specialty PE waxes in high-end applications in these regions is driven by the developments in the automotive sector, new product innovations (for example, nonwoven fabrics), and a trend toward solvent-free chemistries due to regulatory concerns. These applications generate the demand for high-grade, better-performing plastic products, masterbatches, hot-melt adhesives, paints, coatings, and rubber/tires. Due to the specialty nature of these applications and higher levels of PE wax customization, the demand is met by higher-end, better-quality PE waxes. Such specialty waxes are produced “on purpose” which means that they are produced in a plant using processes designed to produce these waxes – they are not by-products. On-purpose waxes are produced via direct polymerization, which creates tailored waxes with narrow molecular weight distribution, with high uniformity at the molecular level – by manufacturers in the United States and Europe using ethylene feedstock. This includes suppliers such as Honeywell, Westlake, Clariant, BASF, and Baker Hughes.
On-purpose PE wax production from ethylene in the United States has historically been advantageous over other regions, due to plentiful supply of ethylene feedstock in the region. The availability of low-cost ethane derived from natural gas production in the region has driven an increase in new ethylene production capacities in the region. In contrast, in Europe, the ethylene feedstock for PE wax comes from crude oil-derived naphtha in refinery crackers, resulting in higher production costs. Thus, over the years, higher-cost European PE wax producers have operated at a disadvantage compared with their North American counterparts.
Figure 2: Specialty On-Purpose PE Wax Supply Chain
How have the rules of the game changed in 2020?
The market conditions in 2020 could change the rules of the game for PE wax suppliers. Factors such as reduced end-customer demand, strained United States-China trade relations, and low global crude oil and natural gas price spread will reduce the feedstock ethylene price differential between North America and Europe. In this environment, the long-time cost-competitiveness that the United States PE wax producers have enjoyed over the European producers will erode.
In 2019, the United States market had a surplus of ethylene supply due to existing production levels, as well as five new ethylene production capacities added during the year. A large share of ethylene produced in the United States is exported to China, either as feedstock or as polyethylene. However, trade tensions between the United States and China, which surfaced in the latter half of 2019 and continued into 2020, have negatively impacted trade between the two countries, leaving the United States stranded with large volumes of ethylene inventories. The situation has been further exacerbated by the slump in demand for consumer goods, due to COVID-19 lockdowns globally. COVID-triggered lockdowns have reduced Chinese industrial output, resulting in lower demand for feedstocks such as ethylene.
Surplus ethylene availability in the United States has pulled prices down. In April 2020, United States ethylene contracts settled at an 18-year low of 1.25 cents/lb. (USD 28/tonne). Lower ethylene prices translate into a lower cost of PE wax production; ideally, reaping better margins for suppliers of PE waxes in the United States. However, the recent crash in crude oil prices has also provided a considerable cost advantage to naphtha-derived ethylene producers in Europe. This is anticipated to narrow the price spread between the cost of PE wax production in Europe and the United States, thus bringing suppliers in both regions to nearly equal footing.
Where are the opportunities and challenges in this market?
Despite severe demand cutbacks for most of the wax-based applications in 2020, and grim global and regional GDP forecasts, positive outcomes have surfaced in certain application areas. Nearly all mainstream applications for PE waxes, such as plastic processing aids, masterbatches, hot-melt adhesives, paints, coatings, inks, and rubber/tires, are forecast to experience significant declines in 2020. In contrast, PE wax demand in applications related to packaging, pharmaceutical, medical rubber, and personal care products are anticipated to remain strong, supported by their growth through the COVID-19 crisis period.
Figure 3: Comparison of Pre-COVID-19 and Post-COVID-19 Growth in Key PE-Wax-Consuming Applications
Packaging material for food-contact applications and for consumer-goods deliveries continued to grow in the first half of 2020. In most countries, the food industry continued to operate through the lockdown period, as the industry was categorized as “essential.” Hence, the food-packaging industry has seen only limited impact on its demand. The shut-down of in-restaurant dining resulted in a higher volume of packaged take-aways, as well as a stronger demand for groceries and packaged food items. This trend remains strong even in the post-lockdown phase in many countries, as consumers continue to observe precautionary social-distancing measures.
Corrugated and flexible packaging for consumer-goods deliveries played an important role during the lockdown period by providing packaging for essential goods like medical products, pharmaceuticals, essential household goods, and groceries. Even post-lockdown, many regional markets are seeing a spike in online sales of consumer goods, which, in turn, is driving the demand for packaging material.
Some pharmaceutical applications have performed better than expected in 2020. The medical industry is experiencing a surge in demand for rubber-based equipment such as hand gloves, catheters, balloons, veils, knobs syringes, breathing packs, and implantation/transfusion sets. PE waxes are typically used as additives in manufacturing these rubber products, for providing softness, waterproofing, and improved finishing. Additionally, there has been a continuous demand for such wax-based products as medical ointments and petroleum jelly. Although PE wax is not the mainstream wax used in these applications, small quantities of PE waxes may occasionally be used as additives in a blend with other waxes in these products.
The personal-care industry has witnessed particularly strong growth in hygiene-based products in 2020 due to the COVID-19 pandemic. In the first half of 2020, a significant jump in demand was recorded globally for hand cleaners and sanitizers, as preventive measures against COVID-19. In the face of incremental demand, many personal-care product suppliers even switched their manufacturing capacities to produce hand sanitizers and cleaning agents. Although synthetic waxes have limited demand in these applications, PE waxes can partially make up for the shortfall of paraffin and vegetable waxes in cases of disrupted supply chains and logistics.
It is not all good news for PE wax producers. The year has witnessed a sharp contraction in demand from mainstream PE wax rheology and surface-based applications, such as PVC, masterbatches, hot-melt adhesives, paints, inks, coatings, and tires. Most of these applications are closely linked with the economic well-being of nations, driven by their industrial growth, residential and commercial construction activities, and the automotive industry. These sectors have been severely affected in 2020 due to the lockdowns and social-distancing measures being observed in key global economies.
Reduced consumer demand, disrupted supply chains, and volatility in energy markets are likely to result in reduced industrial activity, thereby impacting the demand for plastics, masterbatches, adhesives, and other related products. Business losses and financial turmoil in 2020 are anticipated to leave the residential and commercial construction sectors weakened, which will impact the demand for PVC products, paints, and coatings. The automotive industry, which is a significant consumer of masterbatches, coatings, inks, and tires, is likely to underperform over the next few years. This is due to reduced mobility, high unemployment levels, and lower consumer purchasing power over the near-term future.
In conclusion, amidst the ongoing economic adversity, a handful of select applications are prospering, while others have taken a hit. Applications such as packaging, pharmaceuticals, medical rubber products, and personal care are performing better than what was anticipated during the pre-COVID months and will provide support to PE wax demand over the near-term future. Estimated post-2020 recovery in GDP offers optimism for recovery in mainstream PE wax applications, which will experience slower growth rates in the short term compared to what was anticipated before the COVID-19 crisis.
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