Ethylene oxide: steady and steady rise

In recent years, China's fine chemical industry has experienced rapid growth, particularly in the surfactants sector, which has led to a significant shortage in the ethylene oxide market. In 2007, the domestic ethylene oxide market continued the price trends from 2006, with a generally stable outlook and a gradual upward movement in prices. It was anticipated that this positive development would persist into 2008. During the first quarter of 2007, ethylene oxide prices saw minor fluctuations, remained low in the second quarter, and gradually increased in the third. By the fourth quarter, prices were strong and reached new highs. The average price for ethylene oxide last year was 14,437 yuan per ton, marking a 9.1% increase compared to the previous year. Although production in 2007 reached approximately 600,000 tons—showing an upward trend from 2006—the demand from downstream industries surged, resulting in a persistent supply shortage. Especially during the second half of the year, when the sales season began, the supply gap became more pronounced, leading to both higher volumes and rising prices. In 2008, the production capacity of ethylene oxide/ethylene glycol co-generation plants in Jiangsu, Zhejiang, and Shanghai is expected to rise slightly. If demand continues to outpace supply, ethylene oxide prices are likely to see steady or modest increases. Overall, the domestic ethylene oxide market in 2008 will benefit from several key factors: First, demand is expanding. Despite the completion of several ethylene oxide/ethylene glycol projects in recent years, the production capacity remains relatively low. Current output still falls short of demand, and the supply tightness is expected to persist in the near term. The pattern of high demand and strong sales is unlikely to change soon. Second, the market is becoming more competitive and regulated. 2008 is a crucial year for meeting energy conservation and emission reduction targets under the "Eleventh Five-Year Plan." The government is tightening control over new projects, and companies failing to meet environmental standards may be phased out. The National Development and Reform Commission’s 2005 "Guidance Catalogue for Product Structure Adjustment" set a minimum annual production limit of 132,000 tons for ethylene oxide/ethylene glycol units. This policy is expected to help stabilize the market and support large and medium-sized enterprises. Third, the development of fine chemicals is accelerating. China will continue to prioritize the growth of fine chemicals, which is vital for restructuring existing products, improving economic returns, and boosting national economic development. This shift will drive up the demand for ethylene glycol, synthetic detergents, and surfactants derived from ethylene oxide. With ongoing innovation and product development, the ethylene oxide market still holds great potential, supporting sustained price growth. Fourth, the centralized sales system under Sinopec Group will help maintain market stability. It is expected that ethylene oxide prices in 2008 will steadily rise or experience a slight increase. This centralized approach is beneficial for market stability, and the average price for 2008 is projected to be around 14,800 yuan per ton. However, the domestic ethylene oxide market also faces challenges. Rising international crude oil prices are pushing up the cost of ethylene and other downstream products, creating pressure on producers. Additionally, the deposit reserve ratio may continue to rise, and with commercial banks' lending capacity weakening, some downstream companies could face capital flow issues. Moreover, China's ethylene oxide production capacity remains relatively low, and there is still a gap in production processes, energy consumption, and material usage compared to advanced countries. Currently, most ethylene oxide and ethylene glycol are produced together, and the price link between the two will continue. Manufacturers should adapt to the market environment, adjust the optimal ratio of the two products, and strive for maximum efficiency.

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