By David Reed, UT EditorMidland, Michigan-Supply of propylene oxide will remain tight in 2005 and beyond, while prices will continue to rise as suppliers focus on margin improvement.That is the stark message from Earl Shipp, global business vice president for oxides & glycols with The Dow Chemical Co., in a question and answer session issued by the firm, which claims to be the world's largest supplier of the key intermediate for making polyether polyols with capacity in excess of 1800 kilotonnes per annum (ktpa).The driving force, in addition to the margin-improvement, is rising gas, raw material and energy costs: "Widely accepted indicators point to energy and raw material costs remaining high in 2005," Shipp said. As a result, "additional price increases should be expected as margin improvement continues to be a focus in 2005," he said, adding that "industry margins are still below those reached during the last cycle peak."PO markets are expected to grow about 4 percent over the year, Shipp reported, so with current demand at 6350 ktpa this implies an increase in demand of more than 250 ktpa over the year, which implies the need for at least one world-scale plant.No such unit is planned, but Dow says it increased the nameplate capacity of its Stade, Germany, PO plant in 2004 to 590 ktpa, a more than 7-percent rise, "through economies of scale, Six Sigma, and process technology improvements." This was achieved "without large capital expenditures," Shipp's statement added.In any case, total global capacity is 6850 ktpa, and this tight situation is likely to continue, he warned, "Several major PO facilities are expected to have maintenance shutdowns during the year and the shutdown activities will absorb excess industry capacity."Downstream, the situation with regard to polypropylene glycols is no better. "In 2004, global demand for all propylene glycols was over 1400 ktpa … [while] overall industry production capability is about 1450 ktpa," Shipp said, citing industry sources. At the same time, he said, "demand remains high on a global basis … partly due to demand competition for PO supply with polyurethane producers. Over 60 percent of the PO produced in the world is used in urethane polyether polyols," he explained.Other PG markets have remained in stable growth, in line with the general economy, the Dow executive continued, pointing out that "PG trends align with the economy; as the economy improves, so does demand for PG." On pricing, a key factor is the price of propylene and, especially, its volatility in recent months."Significantly high propylene and natural gas costs have made price increases necessary to achieve sustainable margins," Shipp asserted. "However, Dow's price increases have not been able to completely offset these costs. Dow has increased propylene glycol prices in North America and Latin America almost every month since October last year, most recently on 1 March, with the total rise over the six months being $0.35 per pound (about $770 per tonne), but this still isn't enough, the Dow statement indicated."Managing the impact of propylene volatility and natural gas prices remains a challenge for Dow and the customers who rely on these products," Shipp concluded."