Dow's Shipp: High propylene, hydrocarbons, energy prices pinch chemical industry

By OGJ editors

HOUSTON, Apr. 8 -- For the remainder of 2004, global propylene oxide (PO) and propylene glycol (PG) supplies are expected to remain tight, demand to remain "moderately strong," and the costs of energy and raw materials to continue exerting upward pressure on pricing, said Dow Chemical Co.'s Earl Shipp in a written statement released from the company's headquarters in Midland, Mich. Shipp is Dow's newly appointed business director for PO and PG business.

"Propylene monomer supply is extremely tight," he said, noting that propylene prices have risen more than 20% in the past 6 months and are expected to continue to climb. "This drastically affects our price point for PO and PG," he said.

Natural gas prices also are likely to remain high this year, significantly impacting costs. Last month, Dow was one of many companies that asked President Bush and congressional leaders to lower royalties on some gas production, to allow more drilling in the US, and to reduce the incentives that promote the use of natural gas for electricity generation.

Healthy markets
"However, the good news is that PO markets are growing at a healthy 5-6% a year," Shipp said. "The current global industry demand for PO is. . .12 billion lb/year."

Growth for PG also is expected—at 2-3%/year through 2004. In 2003, global demand for all propylene glycols was 3.1 billion lb, Shipp said. "Overall, global demand for PG is strong, and Dow forecasts overall growth for 2004 will be around 3%/year for the industry, which we view as the long-term growth rate."

Record-setting cold weather has driven PG demand increases in antifreeze and de-icer type applications, while personal care, food, and pharmaceutical applications have continued at their normal growth rates globally, contributing to tight supply, Shipp said. Other large, conventional applications for PGs also have continued their growth at a moderate but constant rate.

Although PO pricing has remained stable this year, Shipp said, Dow has had to increase its products price for PGs in North America, Europe, and Latin America. "Further price increases in Europe are possible," he added. And overall, prices in Asia-Pacific have been increased 10-12% for glycols.

However, price increases have not been able to completely offset the volatility of propylene and natural gas prices, Shipp said, and additional price increases may be needed "based on the high costs associated with propylene and energy or supply and demand balances."

"We firmly believe this is a crisis and that our industry has been hit the worst by squeezing margins and eroding profits," he said.