Dow Faces Tightening EO/EG Supply In 2005 as MEG Demand in Asia Experiences Rapid Growth

Dow Faces Tightening EO/EG Supply In 2005 as MEG Demand in Asia Experiences Rapid Growth
Excess Supply Expected In The Longer Term, Says Dow’s Earl Shipp

Midland, MI - April 05, 2005

The following is a Q&A with Earl Shipp, global business vice president for Dow Oxides & Glycols, discussing the current industry situation and market environment Ethylene Oxide (EO) and Ethylene Glycol (EG).

Ethylene Oxide
What is Dow's competitive position in the EO and EG marketplace?
Dow has a total global production capacity of 4.3 billion pounds for ethylene oxide (EO) and 3.9 billion pounds for ethylene glycol (EG). Dow and its joint ventures operate the world's largest EO and EG facilities, and have capacity to produce more than 8.1 billion pounds of EO and 8.7 billion pounds of EG per annum, which is the world's largest supply of EO and EG.

Why did Dow recently announce increased capacity at several plants?
Recognizing a need for enhanced supply in 2004 and 2005, Dow has been actively pursuing low-capital-cost, continuous improvement opportunities in EO and EG production through technology innovations, catalyst improvements, process automation and Six Sigma. In anticipation of increased demand, we have worked to optimize our operations, increase reliability, and maximize production in order to reliably meet the needs of our customers.

After we demonstrated sustainable additional EO and EG production from improvements to Dow facilities, we established new official capacities for those plants. We are proud that we have been able to successfully create more capacity without large capital investments.

What is Dow's outlook for EO in 2005?
Today's EO and EG marketplace is driven by supply/demand dynamics and pricing of ethylene, as well as by demand for derivative uses. Dow expects supply/demand for EO and monoethylene glycol (MEG) to remain tight moving into 2005. We expect that energy and raw material costs will maintain their historical highs and will generate pressure on pricing through 2005. Dow expects growth for EO at 5 percent per year through 2005 and 4.5 percent thereafter.

What is the current supply/demand situation for EO?
Current global demand for EO is approximately 40 billion pounds per year. Based on industry sources, overall industry production capacity is approximately 43 billion pounds. The industry is expected to face significant turnaround activity in 2005 with more than 60 percent of North American EO capacity reportedly scheduled for some form of shutdown activity during the year. Additional turnarounds are apparently planned in Europe and Asia for 2005.

Ethylene oxide competes with other materials, such as polyethylene and vinyl acetate, for ethylene monomer supply, with polyethylene comprising more than half of the demand for ethylene. MEG demand, especially in China for polyethylene terephthalate (PET) resins and polyester fiber, continues to be robust. Although global capacity additions are expected to balance this increased demand in the medium-term, the significant number of capacity additions beyond 2008 may create a capacity overhang in the industry after 2008.

What is driving demand for EO at the moment?
A number of factors drive demand for EO. It is a major building block in the production of materials for polyurethanes, glycol ethers, ethanolamines and ethoxylates. As demand for these materials increases, EO production also must increase.

As the majority of EO is consumed in the production of MEG, MEG can be said to drive the industry dynamics of EO. Polyester drives the industry dynamics of MEG. Polyester continues to be the fastest growing use of MEG with PET and fibers the leading applications.

What effect do high feedstock costs have on EO pricing?
High and increasing feedstock costs continue to put pressure on EO prices industry-wide. These high costs have made price increases necessary to achieve sustainable margins.

Has Dow announced any EO-related price increases recently?

Effective December 1, 2004, Dow increased prices for ethylene oxide by $.06/lb in North America.
Effective January 1, 2005, Dow increased prices for ethylene oxide by $.05/lb in North America.

Ethylene Glycol
What is the nature of Dow's relationship with MEGlobal?
MEGlobal is a joint venture with Petrochemical Industries Company (PIC) of Kuwait. Dow produces EO, MEG, diethylene glycol (DEG), triethylene glycol (TEG) and tetraethylene glycol (Tetra) for sale in the merchant market. MEGlobal markets its own MEG and DEG production as well as that produced by Dow and Dow joint ventures. Dow markets the EO, TEG and Tetra it produces, as well as that produced by MEGlobal.

What is Dow's outlook for EG in 2005?
Based on industry sources, our expectations are for global EG supply to remain tight. Demand will continue to grow, especially in Asia where PET and polyester resins will spearhead total demand growth. Overall, MEG is expected to grow 5-6 percent globally per year between 2005 and 2009.

We expect that energy and raw material costs will maintain their historical highs and will generate pressure on pricing through 2005.

What is the current supply/demand situation for EG?
The EG supply/demand balance is tight throughout the world. Market demand has outpaced supply, and demand remains high, especially in Asia. Inventories are constricted and at record lows.

Current global industry demand for EG is approximately 36 billion pounds per year. Based on industry sources, overall industry production capacity is approximately 41 billion pounds.

What is driving demand for EG at the moment?
The lion's share of MEG is used in polyester applications, such as PET resin, films and fibers. Polyester continues to be the fastest growing use of MEG. The fibers go into garment, carpet, and related industries. Overall, demand for MEG is expected grow 5-6 percent globally per year between 2005 and 2009. Asia accounts for approximately 25 percent of global EG demand.

What effect do high feedstock costs have on EG pricing?
High and increasing ethylene costs have made price increases necessary to achieve sustainable margins. However, our price increases have not been able to completely offset high ethylene prices. Managing the impact of ethylene volatility remains a challenge for Dow and the customers who rely on these products.

Has Dow announced any EG-related price increases recently?

Effective November 1, 2004, Dow increased prices for triethylene glycol and tetraethylene glycol by $.05/lb in North America.
Effective December 1, 2004, Dow increased prices for triethylene glycol and tetraethylene glycol by $.04/lb in North America.
Effective January 1, 2005, Dow increased prices for triethylene glycol by $.05/lb in North America.
Effective March 1, 2005, Dow increased prices for triethylene glycol by $.03/lb in North America.

About The Dow Chemical Company
Dow is a leader in science and technology, providing innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $40 billion, Dow serves customers in 175 countries and a wide range of markets that are vital to human progress: food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its 43,000 employees seek to balance economic, environmental and social responsibilities. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.

For Editorial Information:

Amy Ahlich
The Dow Chemical Company
(989) 636-3587

Josiah McClellan
Gibbs & Soell, Inc.
(212) 697-2600


About Ethylene Oxide DOW Ethylene Oxide: A World Class Product Applications Non-supported Applications Environmental Health & Safety Ethylene Oxide Resources Industry and Government Associations Business News Dow Increases North America Ethylene Oxide Prices /ethyleneoxide/news/20051014b.htm Dow Announces Price Increase for Ethylene Oxide Dow Launches Ethylene Oxide and Ethylene Glycol Web Sites Dow Faces Tightening EO/EG Supply In 2005 as MEG Demand in Asia Experiences Rapid Growth Dow Announces Increased Global EO and EG Capacity Since 2002 /ethyleneoxide/news/20041123.htm /ethyleneoxide/news/20040927.htm Contact Us Email Form Ethylene Glycols Web Site Ethylene Oxide Home	Dow Faces Tightening EO/EG Supply In 2005 as MEG Demand in Asia Experiences Rapid Growth Excess Supply Expected In The Longer Term, Says Dow’s Earl Shipp Midland, MI - April 05, 2005 The following is a Q&A with Earl Shipp, global business vice president for Dow Oxides & Glycols, discussing the current industry situation and market environment Ethylene Oxide (EO) and Ethylene Glycol (EG). Ethylene Oxide What is Dow's competitive position in the EO and EG marketplace? Dow has a total global production capacity of 4.3 billion pounds for ethylene oxide (EO) and 3.9 billion pounds for ethylene glycol (EG). Dow and its joint ventures operate the world's largest EO and EG facilities, and have capacity to produce more than 8.1 billion pounds of EO and 8.7 billion pounds of EG per annum, which is the world's largest supply of EO and EG. Why did Dow recently announce increased capacity at several plants? Recognizing a need for enhanced supply in 2004 and 2005, Dow has been actively pursuing low-capital-cost, continuous improvement opportunities in EO and EG production through technology innovations, catalyst improvements, process automation and Six Sigma. In anticipation of increased demand, we have worked to optimize our operations, increase reliability, and maximize production in order to reliably meet the needs of our customers. After we demonstrated sustainable additional EO and EG production from improvements to Dow facilities, we established new official capacities for those plants. We are proud that we have been able to successfully create more capacity without large capital investments. What is Dow's outlook for EO in 2005? Today's EO and EG marketplace is driven by supply/demand dynamics and pricing of ethylene, as well as by demand for derivative uses. Dow expects supply/demand for EO and monoethylene glycol (MEG) to remain tight moving into 2005. We expect that energy and raw material costs will maintain their historical highs and will generate pressure on pricing through 2005. Dow expects growth for EO at 5 percent per year through 2005 and 4.5 percent thereafter. What is the current supply/demand situation for EO? Current global demand for EO is approximately 40 billion pounds per year. Based on industry sources, overall industry production capacity is approximately 43 billion pounds. The industry is expected to face significant turnaround activity in 2005 with more than 60 percent of North American EO capacity reportedly scheduled for some form of shutdown activity during the year. Additional turnarounds are apparently planned in Europe and Asia for 2005. Ethylene oxide competes with other materials, such as polyethylene and vinyl acetate, for ethylene monomer supply, with polyethylene comprising more than half of the demand for ethylene. MEG demand, especially in China for polyethylene terephthalate (PET) resins and polyester fiber, continues to be robust. Although global capacity additions are expected to balance this increased demand in the medium-term, the significant number of capacity additions beyond 2008 may create a capacity overhang in the industry after 2008. What is driving demand for EO at the moment? A number of factors drive demand for EO. It is a major building block in the production of materials for polyurethanes, glycol ethers, ethanolamines and ethoxylates. As demand for these materials increases, EO production also must increase. As the majority of EO is consumed in the production of MEG, MEG can be said to drive the industry dynamics of EO. Polyester drives the industry dynamics of MEG. Polyester continues to be the fastest growing use of MEG with PET and fibers the leading applications. What effect do high feedstock costs have on EO pricing? High and increasing feedstock costs continue to put pressure on EO prices industry-wide. These high costs have made price increases necessary to achieve sustainable margins. Has Dow announced any EO-related price increases recently? Effective December 1, 2004, Dow increased prices for ethylene oxide by $.06/lb in North America. Effective January 1, 2005, Dow increased prices for ethylene oxide by $.05/lb in North America. Ethylene Glycol What is the nature of Dow's relationship with MEGlobal? MEGlobal is a joint venture with Petrochemical Industries Company (PIC) of Kuwait. Dow produces EO, MEG, diethylene glycol (DEG), triethylene glycol (TEG) and tetraethylene glycol (Tetra) for sale in the merchant market. MEGlobal markets its own MEG and DEG production as well as that produced by Dow and Dow joint ventures. Dow markets the EO, TEG and Tetra it produces, as well as that produced by MEGlobal. What is Dow's outlook for EG in 2005? Based on industry sources, our expectations are for global EG supply to remain tight. Demand will continue to grow, especially in Asia where PET and polyester resins will spearhead total demand growth. Overall, MEG is expected to grow 5-6 percent globally per year between 2005 and 2009. We expect that energy and raw material costs will maintain their historical highs and will generate pressure on pricing through 2005. What is the current supply/demand situation for EG? The EG supply/demand balance is tight throughout the world. Market demand has outpaced supply, and demand remains high, especially in Asia. Inventories are constricted and at record lows. Current global industry demand for EG is approximately 36 billion pounds per year. Based on industry sources, overall industry production capacity is approximately 41 billion pounds. What is driving demand for EG at the moment? The lion's share of MEG is used in polyester applications, such as PET resin, films and fibers. Polyester continues to be the fastest growing use of MEG. The fibers go into garment, carpet, and related industries. Overall, demand for MEG is expected grow 5-6 percent globally per year between 2005 and 2009. Asia accounts for approximately 25 percent of global EG demand. What effect do high feedstock costs have on EG pricing? High and increasing ethylene costs have made price increases necessary to achieve sustainable margins. However, our price increases have not been able to completely offset high ethylene prices. Managing the impact of ethylene volatility remains a challenge for Dow and the customers who rely on these products. Has Dow announced any EG-related price increases recently? Effective November 1, 2004, Dow increased prices for triethylene glycol and tetraethylene glycol by $.05/lb in North America. Effective December 1, 2004, Dow increased prices for triethylene glycol and tetraethylene glycol by $.04/lb in North America. Effective January 1, 2005, Dow increased prices for triethylene glycol by $.05/lb in North America. Effective March 1, 2005, Dow increased prices for triethylene glycol by $.03/lb in North America. About The Dow Chemical Company Dow is a leader in science and technology, providing innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $40 billion, Dow serves customers in 175 countries and a wide range of markets that are vital to human progress: food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its 43,000 employees seek to balance economic, environmental and social responsibilities. References to "Dow" or the "Company" mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted. For Editorial Information: Amy Ahlich The Dow Chemical Company (989) 636-3587 Josiah McClellan Gibbs & Soell, Inc. (212) 697-2600
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