London, UK, April 4, 2005 -- The following is a Q & A with Dan Scheid, president and chief executive officer of MEGlobal, a leader in the manufacture and marketing of merchant monoethylene glycol and diethylene glycol (EG), discussing the current industry situation and market environment. EG is used as a raw material in the manufacture of polyester fibers, polyethylene terephthalate resins (PET), antifreeze formulations, and other industrial products.
Q: What is your outlook for ethylene glycol (EG) for 2005?
A: With the current global economic forecast, the momentum of the U.S. economy, and the sustainable Chinese industrial growth (albeit at slower rate than 2004), it is anticipated that demand for polyester and its raw materials in 2005 will be strong. China will lead the fiber demand growth, while PET will maintain close to a 10% annual growth rate on a global basis. I believe that we can look forward to another very good year for EG, as demand growth should continue.
MEGlobal expects 2005 to be another high growth year for the Chinese polyester industry. Because China is the largest and fastest growing EG market in the world, developments there are keenly watched by all of the major industry participants. Continued demand growth in the Chinese market will be a key factor in keeping the global EG supply/demand balance tight. As a result, we at MEGlobal believe prices and margins will stay at high levels in 2005, following the trend set in 2004.
Q: What is MEGlobal''s competitive position in the EG marketplace?
A: MEGlobal entered 2005 in a strong position to supply the projected increase in market demand. With total supply capability of over 2,800 kta from strategic sourcing locations around the world, the company is well prepared to take advantage of the growth in China or wherever it occurs in the world.
Q: What is the current demand situation for EG?
A: Demand for polyester started the year with a cautious note. Global PET resin demand picked up modestly during the first two months of 2005. China''s polyester production was slow in January and February as a result of a combination of seasonal low demand, tight cash flow creating rigid inventory control, and price uncertainties. Fabric production picked up in early March, triggered by strong order placing after the Chinese New Year. Accordingly, MEGlobal believes polyester production will surge from April onward. Currently, global inventory in polyester and its raw materials is at extremely low levels.
Given this market scenario, MEGlobal anticipates that the supply/demand balance of MEG will be tight during the coming three to four months and that pricing will continue to be stable, with occasional fluctuations due to the volatility of Chinese demand.
An area of concern is the extraordinarily high cost of energy and its impact on global economic growth rates generally.
Q: Where are the primary growth opportunities for EG?
A: The growth opportunities for EG reflect the current demand growth patterns for the two key applications -- polyester fiber and PET for containers.
Demand growth for fibers will be concentrated in Asia and will be driven by demand growth in China (estimated to be in excess of 12% for 2005). For the Asian region the overall demand growth is expected to be at around 7%. The forecasted demand for MEG in Asia is approximately 9 million tons (or 10 million tons if India and Pakistan are included) in 2005 out of a total global market of approximately 16 million tons.
PET for packaging continues its strong demand growth on a global basis with annual growth rates for 2005 approaching double digits in all regions. Within the regions, very strong growth rates are being observed in Latin America and Eastern Europe. EG demand growth for PET production in China is also very strong, although some of this production will be used to support growth in local demand and some will find its way into export markets.
Q: What is the current supply/demand situation for DEG, and what can be expected in 2005?
A: In 2004, DEG demand was extraordinarily strong as compared to previous years, due in large part to very healthy Unsaturated Polyester Resin (UPR) and Polyester Polyol demand globally. Near the end of 2004 and into early 2005, demand dropped a bit as expected due to seasonal impacts but has since firmed up. The global market for DEG appears to be in balance at the moment, with significant arbitrage opportunities between regions nonexistent.
MEGlobal expects 2005 to be a relatively balanced year for DEG, with maintenance turnarounds and continued global demand growth (albeit more moderate in UPR and Polyols than in 2004) balancing new capacity that will come online. Pricing as well should be relatively stable (below the 2004 peak pricing) with occasional fluctuation due to seasonal demand patterns and the aforementioned volatility of Chinese demand.
Q: What is MEGlobal''s supply position in the DEG marketplace?
A: Similar to EG, MEGlobal has multiple strategic sourcing locations around the world. Using these locations, the company is well positioned to service our customers in the regions where they look to grow as well as respond quickly to any regional supply needs.