The candle manufacturers were hopeful that wax prices would remain closer to those at the start of COVID 19. However, the post-pandemic carries on a lot of instability in supply chains, logistics issues, recurrent production disruptions in the main refineries and to top it all the Russia-Ukraine conflict. Prices continue to be at historical high rates.
Philip Budwick, CEO of Globalwax and speaker at the presentation “The global wax market” at our upcoming World Candle Congress shares his concerns on this topic.
Which are the main drivers for the paraffin high price increase?
The initial cause for the increase in paraffin prices came from the increasing freight rates from Asia to Europe and the Americas. The COVID shutdowns led to reduced capacity of containers ships and shortages of containers and when the demand grew significantly, the global shipping network could not handle the volume. Although the world is experiencing far less disruptions from COVID than in 2020, the recent outbreaks in China during March have caused disruptions in the ports of Hong Kong and Shanghai shutting down production facilities and logistics. The shipping situation also has not improved at all. There is still a large demand for spaces on container ships which is keeping freight very high even though they have come down slightly. There are still large backlogs of ships trying to enter U.S. and European ports which are causing significant delays. The demand for wax is incredibly strong as candle makers keep buying to not only meet their customers’ growing demand but also to try and replenish inventories that have been sold down since the start of the COVID epidemic. Refineries are not able to produce wax fast enough to meet this demand and the logistics issues means customers must wait even longer to get products causing them to keep ordering more.
Russia is the second largest oil producer in the world, how does the war against Ukraine impact the paraffin market?
Being Russia one of the major oil producers in the world and being involved in a military or political battle, it will cause a spike in the price of oil. Even if Russia does not supply any specific refineries producing wax, the embargo on Russian oil will cause global purchasers to look to other suppliers of oil. We should expect high oil prices and higher wax prices. Oil producing countries naturally want to take advantage of this and I do not expect them to increase production significantly to bring the price down quickly. High oil prices also result in higher gasoline and fuel prices. We should expect to see bunker and fuel surcharges in the shipping and trucking sectors which will keep the cost of logistics high and be reflected in delivered wax prices.
How is the market situation for vegetable waxes?
When demand for commodities is strong and supply is not enough to meet this demand, all prices increase, and we have global inflation. The inflationary price pressures we see in wax and logistics spreads to all commodities, including vegetable oils. The biggest use for vegetable oils such as soy and palm, is for cooking. The demand for food during the lockdowns and after has resulted in spikes in the prices of vegetable oils. Since vegetable waxes and their prices come from the cost of vegetable oils, it is not surprising that palm and soy waxes have spiked higher in price and are even priced higher than paraffin waxes. The overall supply of vegetable waxes is better than for paraffin waxes but the strong demand for wax has caused many candle makers to look for alternatives and palm and soy waxes are now less available than before.
What are your recommendations for the candle manufacturers given these market situations?
In the short term we should expect high freight rates and a limited supply, the world has a demand for wax unlike anything we have seen in the past.
Any softening in the freight market is overridden by increases in the FOB prices of waxes. Candle manufacturers must balance the cost of paying the higher wax prices versus shutting down their plants due to lack of raw materials. The market is still accepting the price increases for raw materials and finished candles due to the strong demand in the market. The more critical time will come in July and August when the candle season begins. It is too volatile a market to predict where pricing and freight will be by then, but demand will pick up again and candle manufacturers must accumulate inventories sooner rather than later to avoid running out. Candle manufacturers should begin planning early to obtain raw materials and avoid a shortage during the candle season.