Raw material cost is the most important driving factor, ethylene price volatility of ±23% in 2023 (annual average of 980−1,210/ ton), directly effect the cost of production of ethylene oxide, 0.83 tons of ethylene for a ton of production, 6235-58/ ton of operating costs, optimization of catalytic silver load from 15% to 10%, conversion rate increased to 89%. The cost per ton of the catalyst is reduced by 47. The 2022 Russia-Ukraine war boosted the cost of gas in Europe by 427,182 EO/ton, an increase of 68% compared to 2021.
Process innovation changed the cost, and Dow Chemical’s new highly selective catalyst reduced the epoxidation reaction temperature from 280 ° C to 235 ° C, reduced energy usage by 19%, and increased the yield to 92.3%. Sinopec Zhenhai Refining and Chemical uses membrane separation technology to improve oxygen purity from 93% to 99.5%, and the processing time for one ton of EO can be reduced to 4.7 hours, 37% lower than the industry. However, equipment renewal costs 120−150million, and the IRR benchmark needs to keep the price of ethylene oxide above 1,450/ton.
Supply and demand swung wildly, with global EO overcapacity of 12% in 2023 and China adding 3.2 million tons of new capacity pushing prices to 1,080/ ton (312,980/ ton lower than the 2022 peak, a 176% premium). ICIS data shows Asian EO inventory turnover days during Q1 2024 increasing from 18 days to 27 days, and spot price standard deviation hitting ±$142/ ton, a five-year high.
Environmental regulations have increased the restructuring cost, and the EU VOC emission regulation has driven the exhaust gas treatment cost of EO equipment to 38/ ton (from + 29,025-40 million/ set in 2020). In the Ministry of Ecology and Environment’s surprise inspection in 2023, 12% of the EO companies closed production due to overemission, and regional prices increased by 17% within a week.
Geopolitics disrupted the supply chain, and the 2023 Red Sea shipping crisis extended the European EO import shipping cycle by 35 days to 58 days, increasing the cost of landing by 214/ t. At the same time, the Gulf area of the United States export price of EO increased by 12327/ ton due to Panama Canal congestion. The Russian gas shortage cut BASF’s Ludwigshafen EO plant output in Germany by 43%, pushing prices in Northern Europe to $1,780/ton, +62% over 2021.
The percentage of transportation costs increased, with the freight rate for ethylene oxide price tankers reaching $0.28/ton · km in March 2024 (+41% year-on-year) and the shipping premium rate on dangerous chemicals reaching 1.7% of the cargo value (0.9% in 2022). One East China manufacturer estimated that the portion of 200km land shipping cost in selling price rose from 3.2% to 5.7%, and it cut the regional sales radius from 800km to 550km accordingly, and the inventory turnover dropped 19%.
Breakthrough pressure prices alternative technologies, Evonik bio-based EO process commercializes, 18% lower cost than petroleum-based, 2025 planned capacity will be 7% of world. Clariant metal-organic framework adsorbents reduced EO storage losses from 0.7% to 0.09% and reduced end-user buys by 23%. However, the FDA’s clearance of hydrogen peroxide cryogenic plasma sterilization alternative increased the rate of growth of North American medical EO demand from 9% to 3.2% a year.
The inventory policy contributed to market volatility, as Dow aggressively reduced inventories by 230,000 tonnes (15% of global monthly demand) during Q4 2023, resulting in an 11% month-to-month increase in Asian spot prices. Satellite Chemical reduced inventory turnover days to 9 days through the JIT mode, but increased premium procurement costs by 85/ton when responding to unexpected demand. The April 2024 hurricane warning in the U.S. Gulf of Mexico led to speculative piling up, and the spread of forward price was up to 216/ton.
The macroeconomic policy transmission effect is enormous, and the interest rate increase by the Federal Reserve has caused the financing cost of enterprise equipment to rise to 6.8% (3.2% in 2021), and lagged production capacity of new projects has released 1.28 million tons. The RMB exchange rate fluctuates between ±6.5%, and China’s EO export price competitiveness fluctuates to $135/ton. The IMF forecasted that the growth of world chemical demand will decline to 2.1% in 2024, but EO still enjoys 4.3% growth due to rigid medical demand, and structural price gaps continue.