Q: What is Dow's outlook for PO in 2005?
A: The PO markets are expected to grow at 4 percent per year, in accordance with world GDP. Based on industry sources, Dow expects global PO demand to remain strong, resulting in a tighter supply/demand ratio. While the year-to-year growth rates could vary somewhat, the balanced demand for all PO derivative products, including PG, support a 4 percent global number.

Widely accepted indicators point to energy and raw material costs remaining high in 2005. Additional price increases should be expected as margin improvement continues to be a focus in 2005. To date, industry margins are still below those reached during the last cycle peak.

Q: What is the current supply/demand situation for PO?
A: Current global industry demand for PO is approximately 14 billion pounds per year. Based on industry sources, overall industry production capability is about 15 billion pounds.

Currently, the supply/demand ratio is tight and looks to remain that way moving beyond 2005.

Several major PO facilities are expected to have maintenance shutdowns during the year and the shutdown activities will absorb excess industry capacity.

With the current state of high propylene costs, PO producers likely will produce just enough to meet demand and maintain minimum inventory levels, meaning supply for PO will remain tight. This could create short-term supply challenges in the event of unforeseen problems.

Q: What is driving demand for PO at the moment?
A:  PO is used to produce commercial and industrial products including polyether polyols, propylene glycols and propylene glycol ethers. However, the polyurethane industry drives PO demand. Over 60 percent of the PO produced in the world is used in urethane polyether polyols, with PG being the second largest consumer (19 percent). Other uses include polyglycols (6 percent), glycol ethers (5 percent), and miscellaneous applications (8 percent).

Q: What effect do the significantly high feedstock and natural gas costs have on PO pricing?
A: Rising gas, raw material and energy costs continue to put pressure on PO prices industry-wide. Although natural gas prices have eased since historic highs three years ago, they are still significantly high, along with crude oil prices. These high costs have made price increases necessary to achieve sustainable margins. The feedstock impact will vary depending upon the process used to make PO, as well as the production location.

Q: What is Dow's competitive position in the marketplace?
A: With more than 4 billion pounds of capacity, Dow is the world's largest single producer of propylene oxide. Dow owns its entire global production grid and can service customers with local and global requirements.

Q:Has Dow added any PO capacity recently?
A:In 2004, Dow increased the nameplate capacity of its Stade, Germany, PO plant to 1.3 billion pounds per annum, a more than 7 percent increase. Dow was able to achieve this increase through economies of scale, Six Sigma, and process technology improvements, without large capital expenditures.

As raw material and energy costs remain a challenge in the industry, optimizing its assets and setting new standards for efficiency in production are high priorities for Dow.

Q: What is the expected impact of the Hydrogen Peroxide to Propylene Oxide (HPPO) technology?
A: In 3Q 2004, Dow and BASF Aktiengesellschaft announced that they would proceed with plans to commercialize HPPO technology with a new plant at BASF's site in Antwerp, Belgium. Construction is scheduled to start in 2006, and the plant is expected to come on stream in 2008. The HPPO technology to be used at the new plant is advantaged in that production plants using this process are expected to have a smaller footprint, need less infrastructure and require a significantly lower investment compared with conventional PO production processes.

Q: Has Dow announced any price increases recently?
A: Effective October 1, 2004, Dow increased prices for propylene oxide by $.05/lb in North America and Latin America. On January 1, 2005, Dow increased prices for propylene oxide by $.10/lb., and on March 1, 2005, Dow increased prices for propylene oxide by $.10/lb.