Everyone was hoping that after the continued increasing prices of 2005 and 2006 that 2007 would bring us some relief. However a few reasons for this non development came to surface that forced prices to continue their steep increase.

As we all know U.S. Gulf refineries suffered severe damage from both Hurricanes Rita and Katherine. We did not realize at first the extent of the damage until after repairs started in 2006. These halts in production produced severe shortages of product from the U.S. manufacturers, while at the same time several Chinese refineries also did preventive maintenance further exacerbating the situation.

Shortages of product, combined with strong demand gave prices only one way to go, you guessed it, UP. If this was not enough of a price pusher, China saw other forces at work that affected our wax price levels. As a condition of entry into the World Trade Organization China was required to eliminate export tax rebate incentives that have been in place for a long time to spur the export of Chinese products. Fortunately, China was not required to eliminate this 13% rebate at one time, but was permitted to phase it out.

Early 2006 saw a reduction of this rebate from 13% to 5%. It was not on all products but it was for Petroleum Waxes. In September we were advised that the remaining 5% would be eliminated for any contracts signed after September 30th and not shipped by the end of 2006. Therefore, there was a rush to ship any wax available in China in the last three months of 2006.

While all this was going on people turned their attention to Vegetable waxes and other substitutes to help reduce overall costs. So for a while there was some relief for the industry. But as luck would have it, as Crude Oil and related product prices soared the world clamored for alternatives. So Bio Diesel and Ethanol came into vogue. Therefore the sources for these vegetable waxes came into high demand, causing prices for soy and palm waxes to also go through the roof. Prices for these waxes went from about 60% of Petroleum wax prices in early 2006 to the same level as Petroleum Wax prices just this month, so that source of help has been closed.

The end is not in sight. Further forces are at work that will in my opinion force the continued escalation of wax prices. The Chinese Yuan is artificially kept at a low exchange rate vs. the dollar and pressure is being brought to bear to revalue the Yuan once again. Rumors abound in China that this is an imminent possibility. There is no doubt this will come, but when and how much, if any, notice might be given is anyone’s guess.

In summary, the wax industry has seen hard times and there are more difficulties to come. Only the inventive and flexible will survive. Those just plodding along trying to keep the status quo will vanish, and the swift and nimble will reach the top of the mountain.