The market for ethylene glycol (EG) is poised for a dramatic comeback after more than three years of poor to negative margins. Industry observers predict that the good times for EG producers should last at least through 2005, when new capacity will relieve some of the tightness in supply.

"A big boom is coming" in EG, says Doug Rightler, head of the global glycol business at the Guildford, U.K.-based consulting firm PCI-Xylenes & Polyesters Ltd. The reason, he says, is that more than a billion pounds of EG capacity shut down this year in North America at a time when there is "a tremendous increase in demand" for the chemical all over the world.

Leading EG producers already see some signs of an upturn. Business in EG was "very, very weak" during the first quarter of 2002, says Daniel C. Scheid, business vice president, ethylene oxide (EO)/ethylene glycol, at Dow Chemical. But the situation "has improved somewhat" since then, he adds, led by quite strong demand in the second quarter of the year. At Huntsman Corp., Bill Ruff, product manager for EO and ethylene glycol, says the first quarter of 2002 was "the low-water mark" for his firm's EG business, "but things have moved up since then."

This year's consumption of EG is likely to be 13.2 million tons, estimates Rightler. About 52% of this output will go into polyester fibers, he says, 23% will be used to make PET resins, 12% will go into antifreeze, 8% will be earmarked for polyester films, and 5% will go into industrial glycols. The largest portion of the EG market (about half) is in Asia, where growth of the chemical is also the fastest. Asian spot and contract prices for EG set the pace for prices in the rest of the world. Supply of EG is closely linked to that of EO, from which it is derived. The price of EG, meanwhile, is strongly influenced by the price of ethylene, a feedstock for EO.

The dismal margins in the EG business have prompted producers to cut back their capacities of the chemical, particularly in North America. Last July BASF announced that it would cease production of EG at its Geismar, La. EO facility. The same month, Huntsman disclosed that it would permanently shutter 240 million lbs of EG production at its Port Neches, Texas manufacturing site. Meanwhile, Dow's Taft, La. EG production plant has been idle since January, and the company also idled its Prentiss, Alberta EG unit in July. Scheid says he expects the Taft unit to restart "as [EG] demand recovers," adding that "no specific date has been picked" for the startup. He expects the Prentiss unit to resume production in early October. Dow's recent cutbacks in EG production in North America, Scheid notes, are being offset by a new EO/EG facility the company started up this year as part of a joint venture in Malaysia.

Demand for EG grew 9% in 2000 but increased only 2.3% in 2001, Rightler reports. He predicts that EG consumption will rise 5.5% this year and will rebound to about 8% in 2003. Consumption of EG in PET resins has been robust, particularly in Asia. Rightler says the PET resin market for EG increased 14.5% in 2000. The polyester fiber market for EG has been growing an average of about 7% annually, Rightler notes. Though EG consumption in this category rose only 1.9% in 2001, he expects the market to increase 5% in 2002.

Margins in the EG business were "horrendous" last year and early this year, Rightler says. In fact, he adds, over the past four years EG manufacturers have recorded operating losses of about 8¢ for each pound of the chemical they produce. He attributes the losses to surging raw materials costs and falling prices.

But costs of raw materials have stabilized while prices are on the upswing. Asian contract prices for EG—which influence EG tags globally—stood at $353/ton during the first quarter of 2002—but have reached $550/ton, effective Oct. 1. Prices should continue to rise and could reach as high as $700-$800 over the next year, Rightler believes.

The upturn in EG demand plus the recovery of prices, have encouraged producers. "We're guardedly optimistic" about the immediate future for EG, says Jim Bryan, president of the chemical division of Old World Industries in Northbrook, Ill., a leading EG manufacturer. "Barring any unforeseen occurrences, we see the market [for EG] continuing to improve and becoming relatively profitable in 2003 and 2004," Bryan adds. If the market for EG continues to grow at the historical rate of about 6%/year, says Scheid, "we would expect that 2003 would be quite tight" in both EO and EG.

That tightness won't last. New EO and EG capacity, scheduled to come onstream in East Asia and the Middle East between 2004 and 2006, is expected to bring supply and demand for these chemicals back into balance.