Published September 2016
Ethylene oxide (EO) is a basic chemical primarily produced by the catalytic oxidation of ethylene. It is a chemical intermediate that cannot be directly used and is further reacted to produce a wide spectrum of products. Ethylene glycols (mono-, di-, triethylene glycol) constitute by far the single-largest outlet for ethylene oxide, covering about 75% of the EO market in 2015. Other dominant end uses include higher-value derivatives such as ethoxylates, ethanolamines, glycol ethers, polyethylene glycol, and polyether polyols.
The following pie chart shows world consumption of ethylene oxide:
As of 2015, EO was primarily produced in Northeast Asia (34%), the Middle East (25%), and North America (18%), which covered altogether 77% of global production. In these three regions, a significant portion of the producers are forward-integrated into the production of MEG and the EO consumption pattern is therefore broadly similar to the MEG production footprint globally.
Overall demand for ethylene oxide is broadly tied to the general economy and has been increasingly linked to emerging countries, where the improvement in living standards is driving an increasing usage of a broad spectrum of polymers and chemicals that are further used for the production of packaging, films, textile fibers, soap, detergents, etc. Over the coming five years, overall demand for ethylene oxide is expected to further grow at an average rate of 2.6% per year, primarily fueled by an incremental demand for polyester products, antifreeze, polyurethanes, soaps, detergents, etc. in emerging regions.
Similarly to all other petrochemicals, the ethylene oxide industry is cyclical, with the equilibrium between supply and demand driving the state of the industry. In times of large concomitant new capacity commissioning, operating rates generally go down (typically below 85%) and margins contract because of increased competition among producers. As margins remain under pressure, no new capacity is built (trough conditions). When demand gradually catches up with production, operating rates firm up and margins expand (peak conditions, operating rates go above 86–87%). This is when the next wave of capacity is generally planned (and the next cycle begins). Peak conditions were prominent within the ethylene oxide industry between 2011 and 2015, but the ethylene oxide industry is currently facing five years of forecast oversupply, which will inevitably drive the operating rates down. These conditions will be related to new capacity increasing faster than the demand itself. The slowdown in EO demand growth will also further exacerbate the supply glut seen in the industry.