SEPTEMBER 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
THE PLASTICS AND SYNTHETICS INDUSTRY
(Viscose Rayon, Cellophane, Cellulose
Acetate & Triacetate Fibers)
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
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This document is available in limited quantities through the
U. S. Environmental Protection Agency, Information Center,
Room W-327 Waterside Mall, Washington, D. C. 20460.
The document will subsequently be available through the
National Technical Information Service, Springfield, Virginia
22151.
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EPA-230/1-73-022
ECONOMIC ANALYSIS OF PROPOSED EFFLUENT
GUIDELINES — PLASTICS AND SYNTHETICS
(VISCOSE RAYON, CELLOPHANE, CELLULOSE
ACETATE AND TRIACETATE FIBERS)
September 1973
Contract No. 68-01-1541
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D.C. 20460
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This report has been reviewed by the Office of
Planning and Evaluation, EPA, and approved for
publication. Approval does not signify that
the contents necessarily reflect the views and
policies of the Environmental Protection Agency,
nor does mention of trade names or commercial
products constitute endorsement or recommendation
for use.
ii
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PREFACE
The attached document is a contractors' study prepared for
the Office of Planning and Evaluation of the Environmental Protection
Agency ("EPA"). The purpose of the study is to analyze the economic
impact which could result from the application of alternative
effluent limitation guidelines and standards of performance to be
established under sections 304(b) and 306 of the Federal Water
Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development
Document") supporting the issuance of proposed regulations under
sections 304(b) and 306. The Development Document surveys existing
and potential waste treatment control methods and technology within
particular industrial source categories and supports promulgation
of certain effluent limitation guidelines and standards of performance
based upon an analysis of the feasibility of these guidelines and
standards in accordance with the requirements of sections 304(b) and
306 of the Act. Presented in the Development Document are the invest-
ment and operating costs associated with various alternative control
and treatment technologies. The attached document supplements this
analysis by estimating the broader economic effects which might
result from the required application of various control methods and
technologies. This study investigates the effect of alternative
approaches in terms of produce price increases, effects upon employment
and the continued viability of affected plants, effects upon foreign
trade and other competitive effects.
The study has been prepared with the supervision and review of
the Office of Planning and Evaluation of EPA. This report v?as
submitted in fulfillment of Task Order No. 2, Contract 68-01-1541 by
Arthur D. Little, Inc. Work was completed as of August 1973.
This report is being released and circulated at approximately
the same time as publication in the Federal Register of a notice of
proposed rule making under sections 304 (b) and 306 of the Act for the
subject point source category. The study has not been reviewed by
EPA and is not an official EPA publication. The study will be considered
along with the information contained in the Development Document and
any comments received by EPA on either document before or during
proposed rule making proceedings necessary to establish final regulations,
Prior to final promulgation of regulations, the accompanying study shall
have standing in any EPA proceeding or court proceeding only to the
extent that it represents the views of the contractor who studied the
subject industry. It cannot be cited, referenced, or represented in
any respect in any such proceeding as a statement of EPA's views
regarding the subject industry.
111
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TABLE OF CONTENTS
Page
List of Tables v
SUMMARY 1
VISCOSE RAYON 3
Industry Structure 3
Financial Profiles 6
Price Effects • 9
Economic Impact Analysis 12
Rayon Staple 13
Industrial Rayon Filament 19
Rayon Textile Filament 23
CELLOPHANE - 27
Industry Structure . 27
Financial Profiles 30
Financial Constraints 33
Price Effects 33
Economic Impact Analysis 35
Impact Analysis B.P.T. Guidelines 36
CELLULOSE ACETATE AND TRIACETATE FIBER AND POLYMER 40
Industry Structure 40
Financial Profiles 44
Price Effects 46
Economic Impact Analysis 48
Cellulose Acetate Filament 50
SUPPLEMENTAL REVIEW OF EFFLUENT CONTROL COSTS ON OTHER
PLASTICS AND SYNTHETICS 56
PVS 58
ABS 58
Polystyrene 58
Polyvinyl Acetate 59
Low Density Polyethylene 59
High Density Polyethylene 59
Polypropylene 60
Epoxies 60
Urea Melamine Resin 60
Phenolics 61
Polyester 61
Nylon 66 61
Nylon 6 62
Acrylic Fibers 62
iv
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LIST OF TABLES
Table No. Page
I VISCOSE RAYON PLANTS AND CAPACITIES 5
2 1972 RAYON FIBER PRODUCTION AND SALES 14
3 RAYON INDUSTRIAL.FILAMENT 20
4 RAYON TEXTILE FILAMENT 24
5 U.S. CELLOPHANE PRODUCERS ESTIMATED PRODUCTION
CAPACITY 29
6 CELLOPHANE MANUFACTURING COSTS 31
7 ESTIMATED CELLULOSE ACETATE AND TRIACETATE
FIBER CAPACITY 42
8 CELLULOSE ACETATE CIGARETTE TOW 49
9 CELLULOSE ACETATE AND TRIACETATE FILAMENT 51
10 EPA IMPACT ANALYSIS 57
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SUMMARY
This report concludes our work under Contract Number 68-01-1541
to the Environmental Protection Agency relative to the economic impact
of the proposed effluent guidelines on the manufacture of viscose
rayon fiber, cellophane, and cellulose acetate fiber.
We foresee no economic impact of the imposition of best
practical effluent control technology by 1977 on the production of
viscose rayon. At the present time the rayon producers are optimistic
over the future of viscose staple due to the expected future high prices
for competitive fibers, notably cotton and polyester staple. Generally,
the viscose rayon industry expects higher future demands and future
prices for viscose rayon staple. This demand will also support viscose
rayon textile filament and industrial filament if demand and prices
slacken for these products as producers will shift capacity to the
manufacture of staple.
The economic impact of best available technology by 1983 is
considerably more difficult to estimate. Rayon producers are, as of
this time, focused principally on the 1977 standards. Should demand
and price not develop for rayon staple as anticipated during the late
1970's, it is entirely possible that one or more rayon producers may
discontinue rayon fiber production both because of the additional
investment required for effluent control and the pressure of rising
costs of raw materials and labor. Our best guess is that this will
not happen and that continually rising prices for rayon staple will
support the industry and there will be no significant economic
consequences of the imposition of best available technology guidelines.
The manufacture of cellophane is an entirely different case.
Markets for cellophane have been decreasing and there is no expectation
for a turnaround in this business. Costs are rising and although these
costs may be offset or partially offset by increasing costs for
competitive materials, we do not expect the pricing flexibility avail-
able to the producers of cellophane as in the case of viscose rayon.
As a consequence, we foresee that by 1977 the market for cellophane
will decline from close to 350 million pounds to 250 million pounds.
With the imposition of best practical technology guidelines, our best
estimate is that production would decline to 200 million pounds. By
1983 and with the imposition of best available technology effluent
control guidelines, we foresee the production of cellophane as de-
clining to 100 million pounds.
We foresee no significant economic consequences of the imposi-
tion of best practicable control technology in the production of
cellulose acetate fiber or triacetate fiber. Producing companies appear
to be well on their way to meet best practical control standards at
the present time. This may, however, not be true for guidelines
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applicable for 1983 under best available technology. Under these
guidelines, we expect there will be no significant economic impact
on triacetate filament or on cellulose acetate cigarette tow but there
may well be economic impact on the production of cellulose acetate
filament. We expect that prices in the industry will not improve
dramatically over the next decade and that within ten years time,
demand will be no higher and perhaps lower than current Levels for
cellulose acetate filament. Under this circumstance, prices will be
sufficiently low so that the capital investment requirement to achieve
best available technology guidelines may be sufficient to remove SOTK-
of the existing capacity. .We have forecast a reduction in capacity by
50 million pounds by 1983 caused at least in part by imposition of the
best available technology guidelines.
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VISCOSE RAYON
The rayon industry in total is treated in this report as a
sector of plastics and synthetic industry. While the rayon industry
is considered one sector, the analysis is most appropriately handled
in four segments: industrial filament, textile filament, regular
staple, and high wet modulus staple. These product group.5 have differ-
ent prices, different production costs, different markets and differ-
ent past and future growth rates.
The one product group of the U.S. rayon industry not treated
in this report is the production of cuprammonium rayon. There is c.ne
cuprammonium plant operating in the United States estimated at eight
million pounds per year of textile denier filament capacity. ihis
plant operated by Bemberg Industries, Inc. in Elizabethiron, Tennessee,
accounts for less than 1% of total production and only about 3% of
total employment. As this is a.unique plant, it i.s our understanding
that it is also by definition an exemplary plant and hence not covered
by the effluent guidelines developed.
Industry Structure
Types of Firms. All the rayon producers are divisions ot large
diversified corporations. Of the four producers, Beaunit and the former
American Viscose Division of FMC were both at one time independent but
acquired within the past decade. The remaining two major producers,
Akzona, Inc. and Courtalds North America are both controlled by foreign
fiber companies.
Three of the parent organizations have sales in 1L)72 of over
$1 billion per year, including KMf at $1,498,000; El Paso Natural Gas
at $1,097,000; and Courtalds Limited of 660 million pounds. Courtalds
North America, a subsidiary of Courtalds Limited, has annual sales of
around $55 million per year. Akzona is a U.S. company 57% owned by
AKZA of The Netherlands. Akzona's sales in 1972 were $572 million.
There is a relatively modest degree of integration in the
industry back to raw materials. Of all the producers, only FMC, has any
significant degree of backward integration. FMC produces pulp through
its affiliate Ketchikan Pulp Company, it also produces caustic, soda and
carbon disulfide, all of which are raw materials for ciscose rayon
production. Akzona, El Paso Natural Gas, and Courtalds do not produce
their own raw materials.
Forward integration to textile fabrics exists only in the
Beaunit Divisions of El Paso Natural Gas Company. Courtalds Limited
is also integrated to fabric in the United Kingdom, but this is not
significant to production of rayon by Courtalds North America.
The smallest companies, Courtalds North America is a one plant
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company, provided that Courtalds North America is considered an
independent entity. The three major companies are multi-plant
companies. FMC in total has close to 100 plants including 10 in the
Fiber and Film Division. Akzona has 21 plants, including nine plants
in four locations in the American Enka Division, which produces fiber.
El Paso Natural Gas is primarily a gas utility, but the Beaunit
Corporation within El Paso operates four plants in its Fiber Division
and 13 plants in its Textile Division. fn addition, F.I Paso owns
Narragansett Wire Drawing Plant, El Paso Products Chemical Plants,
Odessa Natural Gasoline Company, mining properties and an insurance
business.
Courtalds North America is essentially a one product: line-
company producing rayon staple. Akzona produces hundreds of individual
products in its six divisions, including American Enka Company, Armak
Company, Armour Leather Company, Brand Rex Company, International Salt
Company, and Organon, Inc. El Paso Natural Gas Company produces
hundreds of products and services in its various divisions as described
above. FMC, the largest and most diversified, produces thousands of
products, principally machinery and chemicals, in its 34 domestic
divisions.
Types of Plants. Table 1 describes the estimated plant
capacities, locations, and age.
The rayon industry in the United States is an old industry
which has not expanded significantly in the last 20-30 years. Rayon
is the oldest man-made fiber produced in the United States. There have
been no new filament plants built since the late 1940's and the last
new staple plant was built in 1956. There have been only modest
increases in the capacities of individual facilities since the raid-
1950's.
Technical innovation in the industry has been relatively modest
compared to that which has taken place in the newer synthetic fibers.
Two major developments have been the development of high wet modulus
staple and a continuing program of improvement over the last 15 years
in the properties of the industrial filament yarns. In general terms,
however, compared to competitive man-made fibers, the rayon industry
operates at a significant lower rate of improving technology in both
processes and products.
There is no integration, either forward or backward, at the
particular plant sites for the production of rayon. The only signifi-
cant forward integration in the industry, the production of fabric by
Beaunit, is done at separate plant locations. Similarly, the only
backward integration, by FMC would require interplant shipments of raw
materials.
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TABLE 1
VISCOSE RAYON PLANTS AND CAPACITIES
Filament
Reg. H.Ten.
AKZONA
Enka, North Carolina
Lowland, Tennessee
35
10
20
40
Staple
Ree. HWM
Original Plant
Construction
90
20
Staple:
Fil:
1929
1956
1948
COURTALDS NORTH AMERICA, INC.
LeMoyne, Alabama
EL PASO NATURAL GAS
Beaunit Fibers Division
Elizabethton, Tennessee
FAIR HAVEN MILLS
Fair Haven, Vermont
FMC CORPORATION
Fredericksburg, Virginia
Front Royal, Virginia
Nitro, W. Virginia
Parkersburg, W. Virginia
13 11
65
25. _
85 136
196
Pre
20
50
145
90
80
70
Pre
Pre
Pre
1952
1942
1949
1969
1942
1942
1942
591 170
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Number of Plants and Employees. We estimate, on the average,
direct employment for the production of heavy denier industrial yarns is
22 employees per million pounds of annual capacity. Similarly, direct
employment in the production of textile denier yarns averages 50 direct
employees per million pounds of annual capacity, and for staple fiber,
41/2 employees per million pounds of annual capacity. The allocation
of central overhead employees, such as in operating utilities, machine
shops, etc., results in an average employment of seven employees per
million pounds of annual capacity involved in filament production, and
21/2 employees per million pounds of annual capacity for staple
production. Using these ratios, we calculate the total direct employ-
ment in the rayon industry as 13,600 people. In addition, another
3,600 people are employed in central facilities allocated to rayon
production within the plant complex. In total, therefore, there are
an estimated 17,200 employees involved in the U.S. rayon industry.
Financial Profiles
Estimated Manufacturing Cost — 1972. We have estimated the
industry's average manufacturing cost and the range of manufacturing
cost for each of the four product categories of concern. For the year
1972, these are given as follows:
Regular Rayon Staple C/lb.
Variable Costs 20.5
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As with regular staple, we believe there is about a 10% variation be-
tween the lowest and highest cost producing plant and costs vary between
270 and 31c per pound.
Industrial Filament Q/lb.
Variable Costs 32. Oc
[Raw Materials] (17.0)
[Labor and Other] (15.0)
Fixed, including 16.7
depreciation
48.70
The chief variations in the manufacture of industrial filament is
accounted for by difference in technology of spinning. Continuous
spinning is done at a cost of about 1C per pound less than pot spinning.
We estimate the variations and production costs for the industry be-
tween 47.7c and 48.7c per pound.
Textile Filament C/lb.
Variable Costs 66. Oc
[Raw Materials] 17.0
[Labor and Other] 49.0
Fixed, including 19.0
depreciation
85.OC
We estimate that cost for the manufacture of textile denier filament
varied between 85C and 87<; per pound on the denier mix represented by
the cost calculations.
Annual Profit Before Taxes. Over the past four years, the
profitability has varied widely for each of the four products under
consideration due chiefly to variations in price. Currently, prices
are higher than they have been at any time during the past four years
due principally to the world-wide shortage of all fibers brought about
by increasing demand from the world textile industry. Future
profitability is threatened by a number of factors including the proba-
bility of continually increasing pulp costs and decreasing returns for
by-product sodium sulfate recovered from the rayon manufacturing
operations. Sodium sulfate is liable to be produced significantly in
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excess of demand with reducing requirements by the kraft pulping
industry under restraint to contain its own effluent streams.
Currently the industry, as an industry, obtains about 3/4c credit for
sodium sulfate production per pound of rayon produced.
Prices on regular rayon staple are currently 32c per pound for
new orders. Between 1969 and 1972, average annual prices were between
27c per pound and 31C per pound. Over the four year period, the esti-
mated average price was 28c per pound. On this basis, the industry was
earning l.lc per pound or approximately 4% pre-tax on sales. At
present with their price of 32c per pound, the industry is earning
5.10 per pound or 16% pre tax on sales at capacity.
Prices for high wet modulus staple are currently 34 3/4c per
pound. Average prices over the past four years have been approximately
32c per pound. At these average prices, the industry is earning 3.9C
per pound, or an estimated 12% pre-tax on sales. At the current price
of 34 3/4C, returns are 6.6c or 19% before sales pre-tax operating at
capacity.
Industrial filament prices between 1969 and 1972 ranged from
47.5
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buildings might have value if alternative uses were found.
Financing Constraints. The principal constraint on the
financing of new capital facilities for the manufacture of rayon has
been the poor record of earnings of these facilities. Construction of
new staple plants requires approximately 80C to 90C in capital per
annual pound. On the basis of the prices over the past four years,
this would earn an average a little over 1% on investment. At current
prices, it would only return 6% before taxes.
The situation is even more stringent on filament. Clearly no
investment would be made on textile filament at average prices yielding
a negative return. At current prices, and on the basis of an estimated
$1.10 per annual pound for the production of textile filament, new
textile filament production would earn about 9% on investment before
taxes.
Industrial filament, at four years historical prices, would
just about break even. At current prices of 56c and an investment
requirement of $1.00 per pound, pre tax returns would be about 7% on
investment.
In addition, as previously mentioned, the rayon industry is
faced with higher raw material cost, reducing prices for by-product
sodium sulfate, and substantial pollution abatement investments and
costs. As the industry is composed of diversified manufacturing
enterprises, these companies have alternative investments, such as
the production of other synthetic fibers, which are more attractive
and reduce capital availability for the manufacture of rayon.
Price Effects
In each of the four major product categories under considera-
tion, prices are presently and have in the past been determined by
supply and demand. Production capacity has, by and large, been
relatively constant, the chief variable has been demand for rayon
fibers. Inevitably, when demand for textile fibers in general and
rayon in particular is low and idle capacity is high, the producers
tend to reduce prices to attempt to keep their plants full. Each
major product area has a different history and outlook for demand and
we have reviewed these separately below.
Demand for production of industrial filament has declined
steadily over the past 20 years. In 1953, the production of industrial
filament in the U.S. totaled 454 million pounds. By 1972, this had
declined to 147 million pounds. On the basis of the first half year
1973, the annual production rate is down to 130 million pounds.
Industrial filament has been consumed principally as tire
cord. In addition to tire cord, about 50 million pounds per year are
used in other industrial applications such as mechanical rubber goods,
sewing thread, cordage and tape reinforcing.
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Consumption of rayon in the U.S. as tire cord will very
probably be maintained for the next five years by the present conversion
of U.S. tire production from bias and bias belted construction to
radial constructions. Rayon can be used in both the belts and carcasses
of radial tires. It competes in the carcass with polyester fiber and
in the belt with steel wire and glass fiber. As of the writing of this
report, we understand that one or more of the U.S. tire producers,
concerned over the possible decline in the manufacture of rayon tire
yarn, have signed five year contracts with the rayon companies to
guarantee supply. This appears to guarantee a market for industrial
rayon as tire cord for the next five years. We expect, however, that
demand will decline sharply during the subsequent five years as the pro-
duction of radial tires switch increasingly to the use of polyester
yarns for carcass construction.
Production of textile denier rayon filament peaked at 170
million pounds in 1966. This production declined to 105 million in
1972. In mid-1972, 50 million pounds of capacity was removed by the
flooding of the FMC plant at Lewistown, Pennsylvania. Production
during the first six months of 1973 was at an annual rate of 78 million
pounds with nominal industry capacity of 85 million pounds per year.
Textile denier rayon filament is used in the manufacture of
upholstery and drapery fabrics, linings for men's suits, braids, and
toy plush and velvet. The fiber experiences some competition from
nylon, polyester and acetate filaments but at present price relation-
ships is relatively secure in its existing markets. Prices are
currently high because of the relatively high utilization of existing
capacity. We expect that over the next several years prices of
competing fibers, particularly polyester filament, will decline from
current levels and rayon filament may over the next decade also decline
in price in order for the rayon filament producers to retain their
present markets.
Unlike filament, the production of rayon staple has been in-
creasing steadily over the past decade. Through the late 1950's,
production of rayon staple was maintained at a level of around 350
million pounds. By 1962, it had increased to 500 million pounds.
Production grew to reach 759 million pounds in 1969 and was at a level
of 713 million in 1972. For the first six months of 1973, production
was running at an annual rate of 730 million pounds per year compared
to a nominal capacity of 761 million pounds.
Both regular rayon staple and high wet modulus staple compete
with imported fiber, with cotton and with polyester staple. Imports
have traditionally been a significant factor in the U.S. market. In
the past several years, they have run at 80 to 90 million pounds with
the exception of 1972 when they dropped to 44 million pounds. World
capacity for the production of rayon staple has not changed significant-
ly increasing from 5,375 million pounds in 1970 to 5,411 forecast for
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1973. As imports normally increase during periods of relatively
high prices for rayon staple in the U.S., the decline in imports
experienced in 1972 was probably caused both by the dollar devaluation
in 1971 and a demand for the fiber in other areas of the world
generated by the general world shortage of fiber starting in the latter
half of 1972. Imports during the first five months of 1973 are still
running at about the annual rate experienced in 1972, that is, around
45 million pounds per year.
Cotton competes with both high wet modulus and regular rayon
staple. The competition is probably more direct with high wet modulus
staple as this product is more cotton-like in its characteristics and
tends to be used in somewhat similar fabrics. Currently the availa-
bility of cotton is relatively low and the price extremely high, both
because of world fiber demand and because of poor weather conditions
experienced in the Mississippi Delta area of the U.S. Over the past
decade, 1 1/16 middling cotton has maintained a "normal" price be-
tween 25c and 35C per pound. Currently spot prices are close to 60c
per pound. As cotton's effectiveness in competition with rayon is at
least partly a function of price, we expect rayon demand, particularly
high wet modulus demand, to benefit in the near term from high cotton
prices. The longer term is far less certain, as while cotton will
most certainly come down in price from current levels within the next
several years, it may be available at average prices somewhat higher
than those experienced during the past five years.
Both high wet modulus and regular staple compete indirectly
with polyester staple. Often these fibers are blended with polyester
staple, as is cotton, to produce permanent press fabrics. The cellu-
losic fiber in the blend serves the purpose of cross linking with the
resin used to produce the permanent press characteristics. For the
longer term, there is a tendency for the fabric manufacturer to move
the blend level toxvTards higher proportional use of the lower priced
fiber. Unbranded polyester staple was selling at levels of around
35c in 1972. Over the past year, it has increased by 2c to 3c per
pound. Expectations are that raising raw material costs over the next
five years will increase prices of polyester staple to 40 to 450 per
pound.
During the next five years we expect a growth in demand of
around 5% per year in total rayon staple. Increase in demand for
regular staple will come chiefly from increasing requirements in
drapery upholstery fabrics and in non-woven fabrics used as diaper and
sanitary napkin cover stock. The growth in the demand for high wet
modulus will stem chiefly from a higher and volatile cotton price.
Over this period of time we expect rayon staple prices to
continue to fluctuate as they have in the past. They will move in
response to changes in demand and prices of competitive fiber. On
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average, we expect prices of both regular and high wet modulus staple
to be somewhat higher over the next five years than they have been in
the past five.
As described above, we expect prices for the products in each
of the four major sections of the rayon industry will be influenced
by fluctuation in demand over the next five years. Prices for
industrial filament will probably change the least as producers are
currently under contract for five years.
Capacity has declined for the manufacture of textile denier
filament and current prices are high compared to the experience of
the past four years. We do not expect much price fluctuation in these
products. There may be some reduction in current price levels with
significant reductions in the prices of competitive synthetic fibers.
Rayon staple prices, both high wet modulus and regular, are
probably the most volatile of the segments under consideration.
Domestic prices are heavily influenced by imports and by the cotton
price and both factors can change significantly, effecting staple
demand and pricing.
Economic Impact Analysis
Introduction. In our economic impact analysis of the
imposition of proposed guidelines on the rayon industry, we have
treated each major product area — rayon staple, industrial filaments,
and textile filaments — as an entity. We believe this provides more
continuity in the discussion than any other format.
In very broad terms, we foresee no significant economic impact
by virtue of the industry meeting either Proposed Best Practicable
Technology (B.P.T.) orProposed Best Available Technology (B.A.T.)
guidelines. We expect no new plants and hence no application of
Proposed New Source Performance Standards (N.S.P.S.) guidelines. This
case is built on the hypothesis that there will be a continuing strong
market for rayon staple which will override economic consequences of
meeting effluent guidelines proposed. The continuing demand and the
resultant high price of staple will also, in effect, shield other
portions of the industry from being significantly affected in meeting
the guidelines by providing means of the industry shifting capacity
from both industrial and textile denier filament yarn to the production
of staple. This capability ameliorates the direct consequences of
meeting the guidelines not only by virtue of equivalent guidelines
being imposed for both staple and filament but also because filament
capacity can be reduced along with declining demand and hence an
acceptable price maintained for the remaining filament producers.
It was our hope to get the existing effluent treatment costs of
each separate rayon plant. We were not able to obtain this for the major
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portion of the industry. We have assumed, therefore, that no effluent
treatment facilities exist in developing our analysis of the economic
impact. We know this is not true for the industry, but may be true for
some producers and these could be the ones suffering greatest economic
consequences in meeting the proposed guidelines.
Rayon Staple
Background. Production of rayon staple constitutes the bulk
of the rayon industry in the United States both in terms of pounds
and sales. As shown in Table 2, during 1972, shipments of rayon
staple accounted for over 70% of the total pounds of U.S. produced
rayon and approximately 55% of total dollar sales.
As we indicated in our previous discussion of the industry
structure, there are two basic grades of rayon staple produced in the
United States. The regular grade of staple is produced from U.S.
facilities with capacity of an estimated 591 million pounds. Cost of
production is approximately 27<:/lb. and current price 32c/lb. The
price was scheduled to rise by lo to 33C, but has been frozen under
Federal Government price control. The second grade, high wet modulus
rayon fiber is produced from U.S. capacity of around 170 million
pounds per year at the estimated cost of slightly over 28c/lb. and sold
at a current price of 34 3/4<:/lb.
The effluent control costs are specified in the cost information
given to the EPA in June, 1973. The details are available from the
effluent guideline development document. The guidelines do not make
distinctions between physical form of the fiber, i.e., a staple vs.
filament or for tenacity variations. According to calculations
provided in a supplement to the report, the guidelines result in
operating costs increase of from .77c/lb. to .99c/lb. for B.P.T. and
from 1.9c/lb. to 2.66c/lb. of product for B.A.T. The guidelines were
calculated for a plant with 150 million pounds per year capacity.
The variations as given above are accounted for by variations in
calculated water usage for different plants. The report specifies
standard water usage of 17 units per unit of product up to a high
water usage of 23 units per unit of product produced.
With a regular rayon staple at a current price of 32c/lb.
these increases in cost calculate to be from 2.4 to 3.1% of the selling
price for B.P.T. for regular staple and for B.A.T. from 5.9 to 8.1%
of current selling price depending on water usage. For high wet
modulus staple at a current price of 34 3/4c> B.P.T. would require
2.1 to 2.8% of current selling price in control cost while to meet
B.A.T., requirements would be in the range of 5.5 to 7.5% of current
selling price depending on water usage.
In the absence of being able to obtain specific information
13
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TABLE 2
1972 RAYON FIBER PRODUCTION AND SALES
Shipments $ Price Sales
Product Million Pounds Per Pound Million $
Staple 692 .32 222
Industrial Filament 149 .53 79
Textile Filament 107 .90 97
14
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from the industry as to current control costs, we have assumed the
additional cost would be the total cost as given by the work provided
by the Guidelines report. We know, in fact, that this is not
completely true as some rayon manufacturers are currently incurring
some costs for effluent control. We do not know the case for the
majority of the rayon production, however, and thus we have assumed
the most stringent conditions to test the sensitivity of the industry
to future effluent control costs.
The key to the rayon producers' willingness to undertake the
investment necessary for effluent control is these producers'
expectations of future costs and more importantly, their current
expectations of future selling prices and demand. Future costs,
exclusive of effluent control, are expected to be significantly higher
than current costs. An important component of this cost increase is
the rising cost of dissolving pulp. Slightly over one pound of
dissolving pulp (estimated 1.08 Ibs.) is required for each pound of
fiber produced. At present prices, this is about one-third of the
total cost of fiber manufacture. In 1972, dissolving pulp in grades
suitable for high tenacity of yarn was available at $185 per ton. This
cost is slated to rise to $200 per ton by 1973, to $215 per ton by
1974, and $235 per ton by 1975. This is a calculated rate of increase
of approximately 8%/year between 1972 and 1975. Labor costs account
for an estimated 18% of the total cost of manufacture of rayon staple.
The industry expects labor rates to continue to increase. This will
translate into increasing labor costs per unit of production at a
rate of at least +3-4% per year in the foreseeable future. In
addition, the requirements for caustic soda which is approximately 5%
of the total manufacturing costs are similarly expected to increase.
Caustic soda was available in 1970 at around $33/ton under contract.
This has gone up to $50 and in some cases $60/ton under current
conditions. Quite probably these high prices will not prevail through
the long term but future caustic prices will, no doubt, be higher
than 1970-1972 prices and could be in the range of $50/ton in five
years. Finally rayon producers currently recover on average about
0.6 Ibs of sodium sulfate for every pound of rayon produced. The
product is sold F.O.B. for approximately 9c per pound. We believe
it quite likely that the current price for rayon grades of sodium
sulfate of $30 to $32 per ton will decline substantially due to a
decrease in demand for total sodium sulfate. Rayon grade sodium
sulfate competes in a number of instances with more crude sodium
sulfate (salt cake) for application in kraft pulping mills. The
pulp mills are being required to restrict the sodium and sulfur values
in their effluent and consequently are reducing their requirement for
make-up salt cake. Most of the sodium sulfate sold in the United
States is either by-product or co-product and most probably will
continue to be sold at any price providing a positive net back to the
producers. We estimate that prices for sodium sulfate will decline
over the next five years to the point of substantial or complete
elimination of product credit for the material which is probably on the
order of 3/4c per pound.
15
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At the present time, representatives of the rayon industry
and the textile industry appear to expect significantly higher prices
for cotton and polyester staple, the chief competitive fibers to
rayon staple. The expectation of a significantly higher cotton price
in the future than has been experienced over the past decade is based
chiefly on the rationale that there will be a relative limited supply
available to meet a continually increasing world demand for cotton.
It is assumed the supply will be limited because of competition by
food crops for arable land suitable for growing cotton. This will
mean that, on average the world's increasing demand for food,
particularly protein, will bid up the prices of competitive food
crops to the point that cotton must either be sold for significantly
higher prices than the "normal" price of the last decade or the land
will be devoted to the production of food.
Polyester staple is expected to increase in price chiefly
because of increasing cost of raw materials. Currently the U.S.
capacity to produce polyester staple is being fully utilized and
in the past year staple prices have risen about 30 to around 38c per
pound. These prices are based on dimethyl terephthlate available
under contract at around 13C per pound. Dimethyl terephthlate is
currently sold in Japan and Western Europe at 16C - 18c per pound.
As crude petroleum prices increase, and the alternative fuel
value of petrochemical feedstocks increase, there will be compensating
increases in the price of paraxylene and ethylene, the basic raw
materials for the production of dimethyl terephthlate and ethylene
used to produce polyester fiber. Within the next several years,
even should polyester staple no longer be in tight supply, we expect
the fiber to be selling between 40c and 45c per pound.
Industry expectations, therefore, with the prices of polyester
staple and cotton rising in the foreseeable future, are that it will
also be possible to increase rayon staple prices to justify the
effluent control costs necessary and to increase returns on existing
operations. There is no way to predict with certainty future price
levels, but we believe prices will be higher and that within the next
five years regular rayon staple will approach 40c/lb. High wet
modulus staple will sell for 3
-------
a 10% before tax return on investment. At 50c per pound, this would
increase to 13% before tax return on investment, or perhaps sufficient
to attract new capital.
Economic Impact Analysis B.P.T. We see no significant price
effects on either regular or high wet modulus staple caused by the
additional effluent control costs required to meet B.P.T. in view of
the rising prices in the industry. The only possible effect will be
to increase the floor price or minimum price acceptable to the industry
by three quarters to one cent per pound. This price, around 31c per
pound in 1975, would be the level at which out-of-pocket costs are
larger than revenue and at which rayon facilities will cease
production.
The financial effects of achieving B.P.T. will be essentially
to reduce industry profits. If by 1977, given regular rayon staple prices
of 40c a pound, the additional effluent control costs previously
described will reduce profit by about 2% to 2 1/2% of sales. Effluent
control costs for high wet modulus fiber at this time will be from
1.9 to 2.4% of current sales price.
There will be little or no effect meeting B.P.T. on capital
availability. Capital will be available to achieve the effluent control
specified by B.P.T. but as we previously mentioned, it will in all
likelihood not be available to construct new rayon staple plants unless
producers become assured of prices over 50c per pound. Capital require-
ment for effluent control as specified in the guideline report will be
approximately 3c per pound or an extremely modest proportion of the
capital investment of 800 to 900 per annual pound of staple produced.
There should be no production effects directly attributable to
achieving B.P.T. effluent control. We foresee no production curtailment,
plant closings, or restriction in the growth of new facilities. Pro-
duction will be market controlled and capacity limited as previously
described.
Similarly there will be no employment effects directly
attributable to B.P.T. except for the very modest increase in labor
requirements due to the increased effluent control.
Obviously, in view of the foregoing, there will be no
significant community effects in achieving the B.P.T. guidelines.
Economic Impact Analysis, B.A.T. Provided, as we have assumed,
that the industry installs effluent controls to meet B.P.T., additional
cost to achieve B.A.T. would be from l.lc per pound to 1.6c per pound
of product produced. At estimated 1977 prices, additional cost to the
rayon producer would be between 2.8 and 4.0% of sales price for
regular rayon staple and 2.6 to 3.8% of sales price to the high wet
modulus staple producer.
17
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The controlling factor in estimating the economic impact of
these additional costs will remain the price expected for rayon staple.
The producers need not make this determination, however, until such
time as it would take them to install the additional effluent
treatment facilities to meet the 1983 requirements. Producers recognize
that they are faced with a high degree of uncertainty as to rayon prices
after 1980 and consequently will be reluctant to make definitive
plans at this time for investments which will not be required until
1983.
Our best guess as of this time, given the limited scope of
our assignment for the Environmental Protection Agency, is that
conditions after 1982 will not change substantially from the trend
we estimated to occur between now and 1977. Thus, pressure will
continue on the requirement for arable land for food and consequently
cotton prices will stay high or perhaps increase under increasing
world fiber demand. We also forecast that there will be no broad
scale commercial development of a hydrophilic synthetic fiber to
substitute for rayon and cotton at competitive prices. Under these
conditions, we would expect rayon staple prices to continue to rise
at full utilization of existing U.S. capacity. Assuming a 2% per
year increase in price, regular rayon staple would reach 44c by 1983
and high wet modulus staple 470 by this date.
Under these circumstances, there will be no significant price
effects by the imposition of B.A.T. guidelines. Fiber prices will be
controlled by the prices of cotton and competitive synthetic fiber.
The financial effect will be a reduction of profit by 2 3/4% to 4%
of sales for regular staple and 2 1/2 to 3 3/4% of sales for high wet
modulus staple. As in B.P.T. there will be no significant effects on
capital availability.
Similarly we would foresee no production effects, employment
effects or community effects under the pricing assumption as defined
above.
Economic Impact N.S.P.S. Unless prices rise to 50c per
pound, we do not expect new rayon facilities will be built. We do not
expect these price levels within the next decade, we anticipate no
new plants, and hence N.S.P.S. guidelines will not be applicable.
Limits of Analysis. The accuracy of our analysis depends in
large part on our assumption of competitive fiber prices. The most
difficult of these to predict and probably the most significant to the
prediction of future rayon price is the price of cotton. Future cotton
prices are highly uncertain and could vary from a "normal" price of
recent history of around 300 per pound to as high as twice that much
on average within the next 5-10 years.
18
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Another major uncertainty in the longer term is the assumption
that the world synthetic fiber industry will not produce a cost
competitive synthetic fiber directly substitutable for cellulosic
fibers cotton and rayon. We see no way to quantify the risk in this
assumption other than to indicate, as given above, that our expectation
is that this will not happen.
The analysis could be made more accurate by additional data on
manufacturing costs in individual plants and current effluent control
costs experienced by individual plants. These costs were not provided
us for a major portion of the total U.S. capacity.
Industrial Rayon Filament
Background. As shown in Table 3 production and capacity for
rayon industrial filament have fallen steadily over the past decade.
During this period the industrial rayon filament producing capacities
of both the DuPont company and Industrial Rayon were closed. Manu-
facturing facilities of Industrial Rayon were first purchased by
Midland-Ross, later purchased from Midland-Ross by American Cyanamid
and finally closed in 1972.
The major use of industrial filament has been and remains as
tire cord. In 1972 tires required an estimated 96 million pounds out of
the 147 million pounds produced. Other significant applications were
in hose and belts which required over 30 million pounds. The drop in
production shown in Table 3 is directly due to the declining use of
rayon as tire cord. Uses of high tenacity or industrial rayon filament
other than in tire cord have stayed relatively constant at about 50
million pounds for the past decade. The decline in demand for tire
cord was due initially to replacement by nylon in truck and replacement
passenger car tires and within the past three or four years from
increasing competition from polyester tire cord in both original
equipment and replacement passenger car tires.
In spite of the history of decline in the use of rayon as tire
cord, industry representatives are currently relatively optimistic for
at least the next five years concerning the application of rayon tire
cord. We understand from one of the producers that the U.S. tire
manufacturers are sufficiently interested in sustaining U.S. production
of rayon tire cord to have recently negotiated a five-year contract to
insure supply. This is due to the tire producers' requirement for the
use of rayon in the manufacture of radial tires. Rayon competes with
polyester tire cord in radial ply tire carcasses and with fiberglass and
steel in the manufacture of radial ply tire belts. Rayon has the
property of good adhesion to rubber and good flex fatigue and hence the
U.S. tire industry, taken as a total, wishes at least for the time
being to sustain the supply of rayon while developing a line of radial
ply tires. Quite probably these rayon radial tires will be sold in the
19
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TABLE 3
RAYON INDUSTRIAL FILAMENT
Million Pounds
Year Production Capacity
1960 279 343
1962 272 315
1964 258 267
1966 236 250
1968 202 223
1970 146 208
1972 147 150
Source: Textile Organon.
20
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replacement market rather than to the original equipment producers
which are currently specifying steel belted radials utilizing a
polyester tire cord carcass.
Currently prices for industrial rayon cord are 63C for 1100
denier, 57C for 1650 denier, and 54c for 2200 denier. Prices were
scheduled to increase 5C per pound but frozen by recent Federal
regulations. Assuming that 1650 denier yarn does increase to 62C
a pound with a manufacturing cost of approximately 49c, this yields
a 13
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rayon filament will depend on the demand by the U.S. rubber industry
for its use as tire cord and the 1.2% to 1.6% of sales price to achieve
this necessary level of effluent control should not be a major considera-
tion either by tire producers or the industrial rayon filament manufac-
turers.
Between now and 1977 prices will be determined largely by the
tire company need rather than by cost. We do not know the details of
the agreement reached between the tire producers and the rayon
manufacturers, but presume1 these agreements contain provisions for
escalating costs. The total effect of the effluent guidelines
therefore, will be to increase costs and prices by less than lc per
pound.
We foresee no significant financial effects in imposition of
B.P.T. guidelines. As indicated in the previous paragraph, if costs
are offset by contract provisions, it will have no effect on rayon
company profitability. Similarly, we expect no effect on capital
availability as prices would have to be somewhat higher than the
contemplated 62<; for 1650 denier in order to justify the building of
new capacity for tire cord production.
We foresee no production effects in view of the imposition of
guidelines for B.P.T. in terms of production curtailment, plant
closings, or industry growth. Similarly, we foresee no effect on
employment or resulting community effects.
Impact Analysis B.A.T. The economic impact of achieving B.A.T.
is considerably less certain than achieving B.P.T. We expect, however,
by 1980 there will be little or no rayon required as tire cord in the
United States. By this time, the product will have been substituted
by polyester in radial ply tire carcasses and largely substituted by
glass, steel, or Fiber B in radial ply tire belts. Thus the market
requirement will decline and tire cord facilities shifted to rayon
staple. The economic impact of B.A.T. guidelines on rayon staple were
described in the previous section.
A small amount of industrial rayon capacity may remain to
produce yarn for mechanical rubber goods and other miscellaneous
applications. This will probably not require more than 50 million
pounds per year of industrial rayon yarns. Imposition of B.A.T.
guidelines will imply an increase in manufacturing costs of approximately
1.3<: per pound. This is the difference between the average cost defined
to reach B.P.T. and the average cost defined to reach B.A.T. The
price effect of this on the existing remaining capacity, if any, would
be to effectively raise prices in 1983 by about 10 per pound. With
these prices increased as foreseen to cover effluent control cost, there
would be no significant financial effects. Similarly, as described, we
foresee no significant production effect directly attributable to the
22
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imposition of B.A.T. guidelines. As there is no production effect,
there will be no significant employment effect or resulting
community effects.
Limits of the Analysis. We believe our analysis quite
accurate for conditions up through 1977. Market conditions are
apparently guaranteed through contract for this period. In addition,
effluent control cost as suggested by the guidelines will be a very
modest proportion of total cost. The most critical assumption relative
to B.P.T. is that tire cord output is guaranteed a market under
existing contracts and that these contracts include provision for
escalation of cost including effluent control costs.
The analysis relative to the effects of economic impact of
B.A.T. guidelines is necessarily considerably more speculative.
Effects of achieving B.A.T. effluent control are a significantly
greater proportion of total sales and costs but more importantly, we
have had to assume the nature' of tire cord demand for 1983. While
this assumption, in the abstract, is critical to the analysis of the
future of rayon tire cord, we do not believe it critical in broader
terms because of our expectation that the industry will shift as
required to the production of rayon staple from its existing tire cord
facilities when this becomes economically desirable. As previously
noted, we do not expect the production of rayon staple to be inhibited
by the imposition of existing effluent control guidelines.
Rayon Textile Filament
Background. As shown in Table 4, U.S. production and
capacity of rayon textile filament peaked in 1966. Capacity and
production have declined steadily since that time. In the past year,
production has been limited by lack of capacity caused by the flooding
of FMC's production facilities in Lewistown, Pennsylvania, in June,
1972. The capacity figures shown in Table 4 are from the Textile
Organon and include about eight million pounds of capacity of
cuperammonium rayon, a product similar but not identical in
properties to viscose rayon filament.
Major end uses for textile denier rayon filament are in the
manufacture of men's suit linings, warps in drapery and upholstery
fabric, braids, toy plush and velvet. These uses are indicated by
combination of the fiber's easy and thorough dyability, moisture
absorbency, and moderate tenacity.
As we have previously indicated, the average price of rayon
textile deniers has increased significantly in the past three years.
Rayon textile deniers sold in 1970 at an average price of about 77c
per pound. The price has risen steadily to current average prices of
approximately 95c• At total manufacturing costs, estimated at 85c,
current prices for the rayon filament provide the producer about 11%
23
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TABLE 4
RAYON TEXTILE FILAMENT
Million Pounds
November
Production Capacity
1960 147 186
1962 -148 165
1964 153 170
1966 170 188
1968 163 177
1970 121 152
1972 105 85
Source; Textile Organon.
24
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return on sales and 8 to 10% return on new investments.
Effluent treatment costs achieved in B.P.T. would be between
.3 and 1.0% of current sales prices. To reach B.A.T., effluent treatment
cost would total between 2% and 2.6% of the current sales price.
We expect that with the recent curtailment of capacity, rayon
textile yarns will be able to be sold at least at current prices for
the next five years. The product has become somewhat of a specialty in
a rapidly growing man-made fiber market. The properties of dyability
and moisture absorbency are required in present uses and will continue
to be required. The rayon producers' present view is that they will
close capacity if they become involved in price competition so severe
as to take them back to previous price levels under the burden of
continually increasing costs.
Impact Analysis B.P.T. Guidelines. We expect no major economic
impact from the imposition of B.P.T. guidelines. Effluent control costs
are only about 1% of current prices and these will have modest effects;
if any, in establishing future prices. Prices are principally a
function of supply and demand and quite probably meeting of B.P.T.
guidelines will simply result in reduction of profitability of about
1% of sales. We foresee no effect on capital availability which as
in the case of rayon staple and rayon industrial filament is controlled
chiefly by the high cost of building new facilities relative to
current prices.
We foresee no production effects or employment or community
effects in view of the imposition of B.P.T. guidelines.
Impact Analysis B.A.T. Guidelines. The future production of
textile denier rayon in the 1980's will depend principally on a
sustained demand which will permit increasing prices to offset increasing
costs. We consider that by the 1980's this demand may soften to a
point below existing capacity and that one or more plants may close.
The most likely candidate for closing would be filament facilities
operated in conjunction with a rayon staple facility as the chemical
or viscose dope producing portion of the filament facility could then
be devoted to an increased capacity for the production of rayon staple.
A:i in considering industrial filament, therefore, the strong
market expected for rayon staple will obviate the necessity for
deciding whether possible plant closures, such as the Parkersburg
facility, are a resuJt of reduced demand and price, the requirement to
invest to meet B.A.T, effluent guidelines, or a combination of the two.
As a consequence we foresee no direct significant effects due to the
LmposLi.ku of B.A.T. guidelines. The plants continuing in operation
will experience a modest decrease in profitability due to meeting
B.A.T. effluent guidelines and there will be no production effect,
directly attributable employment effect or directly attributable
resultant community effects.
25
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Limits of the Analysis. We believe our analysis reasonably
accurate relative to B.P.T. B.A.T. is so far in time that it is
extremely hard to predict with any reasonable degree of accuracy
what market conditions will exist when decisions must be made to
install facilities to meet B.A.T. By the 1980's, demand for textile
denier rayon could be as high as 85 million pounds at prices of
$1.00 per pound or more, or it may be as little as half of the
current capacity, or 40-45 million pounds at current prices or lower.
The critical issue is the price elasticity of textile denier rayon
yarns, that is, whether increasing costs can be passed on without
reducing demand by substitution of other fibers.
26
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CELLOPHANE
The cellophane industry described in this report is defined as
a sector of the plastics and synthetic industry. The base cellophane
web is essentially the same product, regardless of producer. The three
main types of cellophane produced are a function of the type of coating
used to protect and seal the basic cellophane web stock. These three
categories are: (1) moisture proof cellophane used primarily for
cigarette pack overwrapping;• (2) heat scalable cellophane with moderate
barrier properties based on a nitrocellulose coating; and (3) high
barrier, heat scalable polyvinilidene or saran coated cellophane. Each
of the cellophane manufacturers produces all three grades. The coatings
are a negligible consideration in their effect on water effluent problems
as defined by the existing effluent guidelines. Effluent considerations,
thus are related directly to the basic cellophane web.
Industry Structure
Types of Firms. All of the cellophane producers are divisions
of very large, diversified corporations. Although cellophane was
originally developed in Europe by the French firm of LaCellophane,
DuPont was the sole U.S. producer until 1938 when they first received
competition from Avisco, now a division of FMC Corporation. The third
producer, Olin, began its cellophane manufacturing operation in 1951.
DuPont's corporate 1972 sales were $4,366,000,000 while Olin's were
$1,098,000 and FMC's were $1,498,000.
The major raw material, cellulose pulp, accounts for approximately
half the total raw material costs. Of all the producers, only FMC is
integrated to pulp. For the other raw materials of lesser importance,
such as glycerine, caustic soda, carbon disulfide and sulfuric acid, both
DuPont and Avisco are integrated backwards to a considerably greater
degree than is Olin. Avisco uses many of the same raw materials in the
manufacture of viscose rayon. We believe the latter company is also the
only firm of the three which recovers sodium sulfate from cellophane
production.
Other than coating and slitting to size, there is no forward
integration by the three cellophane companies. They sell both to
converters, who do printing, lamination and even fabrication as well as
direct to end users, primarily the food processors. Roughly two thirds
of total production is sold to converters while only one third of sales
are direct to end users. Some of the larger end users do simple
converting operations such as printing in their own facilities. The more
complex structures or laminates using cellophane are produced by film
converters who in turn sell to the end user firms. There are approximately
one dozen major film converters in the United States plus many smaller
firms.
27
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All three firms are highly diversified. DuPont's business covers
a wide range of chemical products and manufacturing facilities. DuPont's
Film Department manufactures a number of specialty films in addition to
cellophane. These include polyethylene terephthalate, polyvinyl fluoride
and shrink polyolefin films. The major portion of FMC's business is in a
wide spectrum of chemicals and machinery products and the company operates
some 100 plants including 10 in the Fiber and Film Division including its
cellophane operations. Olin Corporation is highly diversified with a wide
variety of industrial and consumer products. Its cellophane division is
part of the company's Fine Paper and Film Group.
Types of Plants. Table 5 presents the estimated plant capacities,
locations and age. As shown by the table, the cellophane industry in the
United States is a mature business with the most recent plants being built
by DuPont and FMC (Avisco) in 1958. Cellophane output reached its peak
in the mid-1960's and since then has been experiencing an erratic but
consistent decline. The decline has stabilized to some degree during the
past two years but will probably resume again in the near future. DuPont,
by far the largest factor in the industry, has already shut down two
locations, each having two cellophane plants. These were Buffalo, New
York and Old Hickory, Tennessee. These were the oldest and probably the
least efficient of its cellophane production operations. DuPont has also
shut down lines (but not entire plants) in its Spruance, Virginia opera-
tion and probably has done the same in its Clinton, Iowa facilities.
Avisco in its Fredericksburg, Virginia plant has made a substantial
capacity shift from cellophane to viscose rayon, estimated at about one
half of the plant output. Due to competition from competitive thermoplastic
films, there will be no new cellophane plants built in the United States
in the future.
The manufacture of basic cellophane web and its subsequent coatings
represents relatively sophisticated technology. This is a major reason
for existence of only three companies producing cellophane film compared
to the numerous firms producing the various plastic films, especially
low-density polyethylene. As cellophane has lost market position based
primarily upon its relatively high cost and thus high selling price, the
three cellophane producers have, in recent years, placed primary emphasis
on developing suitable, thinner gauged films and making a major effort in
coating technology with PVDC or saran coated grades. These PVDC grades
are premium products and result in a material for which there is no real
competition where a high barrier, clear film is required for a given
application. These technical developments have not been single major
efforts but are the results of continuing, longer term efforts to enhance
the properties of cellophane as well as to lower its cost, thus minimizing
further inroads into present cellophane consumption.
Cellophane economics have been improved in the past by shifting
from a single web to a double web casting machine which considerably
increases the throughput for a given line without a concurrent increase
in the labor requirements. DuPont, more than Avisco and Olin, have
28
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TABLE 5
U.S. CELLOPHANE PRODUCERS ESTIMATED
PRODUCTION CAPACITY
(millions of pounds)
Supplier
DuPont
FMC (Avisco)
Olin
Location
Buffalo, N.Y. (1)'
Old Hickory,
Tennessee (1)
Old Hickory,
Tennessee (1)
Spruance, Va. (1)
Spruance, Va. (2)
Buffalo, N.Y. (2)(
Clinton, Iowa (1)
Clinton, Iowa (2)
Tecumseh,
Kansas (1)
Fredericksburg,
Virginia
Marcus Hook,
Pennsylvania
Pisgah Forest,
N.C.
Covington,
Indiana
Total
Production
Started
April, 1924
Oct.
Aug.
Nov.
May,
Feb.
Mar.
Feb.
Nov.
June
Oct.
, 1929
, 1930
, 1930
1937
, 1932
, 1941
, 1947
1958
, 1938
1958
, 1951
, 1956
Estimated
Original
30
30
30
35
35
35
50
50
50
315
100
50
150
40
50
90
Capacity
Current
-
-
-
SO
_^w
-
80
50
180
50
50
100
40
30
70
555
350
Buffalo plant (1) closed 1942, switched to rayon.
D01d Hickory, Tennessee (1) and (2) closed mid-1964,
'Buffalo (2) closed mid-1964.
Switched one half its capacity to rayon.
Source: Arthur D. Little, Inc., estimates.
29
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emphasized the double web machines. There is no integration, either
backward or forward, at any given plant location in cellophane manufacture
and coating. Coating is always done in the same plant which makes the
basic cellophane web. Cellophane is coated in web form through the coating
towers, using solvent based coatings.
Number of Plants and Employees. There are, as noted in Table 5,
nine individual plants at seven plant locations. Of DuPont's five plants,
four are in two locations. Avisco and Olin have individual facilities
as noted. A casting machine, the basic unit used in manufacturing the
cellophane web, typically produces about 4.4 million pounds a year. The
man-power required in a cellophane operation has been considered confiden-
tial by the three cellophane producers. An approximate "rule of thumb" for
hourly and salaried employees together is 75,000 pounds of cellophane output
per man year. At 350 million pounds per year production capacity, the
cellophane industry has approximately 4600 employees.
The Total Industry for Each Segment. As there are only three
producers, this analysis covers the entire cellophane production in the
United States. This represents the plants of all three of the companies
with an estimated 350 million pound production or the rated capacity
level at which the industry is currently operating. This, therefore,
accounts for 100% of the employment of the cellophane industry. We have
not, however, included the converter sector as it is a separate category
and is not part of the basic cellophane industry which we are studying.
Financial Profiles
The following data represents Arthur D. Little, Inc.'s best
estimates based on economics of manufacture which we have previously
developed. The basis for the ADL economics is a 40 million pound per
year plant which is considered to be the minimum economic size. Actual
manufacturing cost data was not made available to the contractor from
the industry.
Annual Profit before Taxes. The cellophane estimate presented in
Table 6 represents an average for the industry. The net selling price is
a composite of the three main grades previously discussed. New cellophane
prices have gone into effect as of May 30, 1973, by all three cellophane
companies. The average price increase is 3
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TABLE 6
CELLOPHANE MANUFACTURING COSTS
Net Selling Price 65c/lb.
Manufacturing Costs
Raw Material 24
Labor and Overhead • 16
Depreciation, Utilities
and Other 5
R&D, GS&A _9
54
Profit Before Taxes llC
Return on Sales (before tax) 17%
Source: Arthur D. Little, Inc., estimates.
31
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(1) 7% converter's discount (2/3 of total sales)
(2) low, unpublished selling prices to the cigarette companies
(3) lower net back on exports
(4) returns and allowances
While there was little discounting in 1972, a year of high demand
and tight supply, discounting from list has occurred in the past and will
occur in the future when there is excess capacity.
Exports, amounting to 30-40 million pounds in 1972, also result
in a lower net selling price to the cellophane producer due to freight
and duties. Thus the average net selling price shown of 65e per pound
would vary by plus or minus 5% per pound at a minimum, depending on
producer, plants and producer production.
In addition, raw material costs for a given plant probably vary
from the average by l£ to 2c per pound, or 5% to 8%. Labor and overhead,
depreciation, utilities and other in total, similarly, vary by an
estimated 10%. Finally, research and development (R&D) , and general,
selling and administrative (GS&A) expenses, we believe, range from 8c to
IOC per pound. Net selling prices range from under 62£ to 68c while
total manufacturing cost, both variable and fixed range from 49C to 57c.
This results in a profit before tax of a low of 5c per pound to a high
of 19C per pound. As percent of sales, this ranges from 3% to 28%.
Annual Cash Flow. Given the variation in profits before taxes
there is, of course, a similar variation in the annual cash flow. The
profit before taxes and thus the cash flow is highly dependent on the
selling price as well as the variations from plant to plant in manufacturing
cost and raw material prices. The major element, cellulose pulp, is in tight
supply and is selling at about $200 per ton. The new selling price should
improve the overall industry's low margins. The nitrocellulose coated
cellophanes now sell for 72$ per pound and the PVDC or saran coated
cellophanes sell from 83C to 87% per pound, depending on gauge. In the
present tight market, these prices should hold. If an economic slackening
occurs, the actual prices could fall as they have in the past.
The industry overall is roughly two-thirds amortized in terms of
plant investment. The original investment was slightly more than $1.00
per pound of film produced. The very old, fully amortized plants have been
shut down and thus, no longer are a factor. The original investment in
many of the still existing plants has also been fully amortized. These
-•lants have been modernized with new capital investment over the years.
• or this reason, we estimate that an annual depreciation figure of le to
2c per pound is realistic. This then will be added to the 5 . 50 per pound
average figure (Table 6 using 50% Income Tax rate), resulting in 6 . 50 to
7.5C per pound cash flow. With the industry making shipments of 350
32
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million pounds, this results in an approximate $25 million annual cash
flow derived by adding profits after taxes to depreciation.
Market (Salvage) Value of Assets. The manufacturing facility for
the cellophane base is highly specialized. Other than shifting some of
the facility to the production of viscose rayon (which has been separately
discussed), there is no other product which can be made in these facilities.
The coating towers in a cellophane plant can be used for coating other
types of films. They represent, however, only 5% to 10% of the total
investment in a cellophane manufacturing plant.
Of these three cellophane producers, only DuPont with its Mylar
brand polyethylene terephthalate film has another film which could
conceivably run on the same equipment. DuPont recently discontinued
production of its oriented polypropylene film which was also coated.
However, such a facility tied in closely with a cellophane production
unit would not be the economic way to coat plastic films. It would be
even less likely, however, that an independent film producer would have
any interest in using a small part of a cellophane manufacturing facility
for film coating if the base cellophane web manufacturing part of the
operation was shut down. Further, cellophane coating is solvent based and
requires special equipment and careful control to minimize the hazards of
the operation. While a number of the major independent converters also
do solvent coating, they would have no incentive to use additional coating
capacity except under unusual circumstances.
Financial Constraints
The low profitability of these operations combined with the compe-
tition within the respective corporations for available capital has, as
previously noted, imposed severe financial constraints on investing new
funds to cover pollution abatement requirements on the basis of an average
5 l/2c per pound after tax return. The total net earnings of the cellophane
industry in 1972 were about $20 million. This, as emphasized, is an average
figure with some operations below this and some above. Furthermore, 1972
was a year in which the industry operated at full capacity, which cannot be
expected to be sustained. With an estimated original $500 million investment
this represents only a 4% return on original investment or a 12% return on
the depreciated amount. In poorer years, and with plants and/or companies
experiencing higher average manufacturing costs and lower average selling
prices, the return on investment would be well below 5%. On the basis of
such a low return it would be very difficult for the cellophane divisions
or plants to obtain additional capital funds from their corporate
managements.
Price Effects
Cellophane is only one of a family of transparent flexible films.
Depending on the end market use on the consideration, cellophane competes,
to varying degrees, with low-density and high-density polyethylene film,
cast polypropylene film, oriented polypropylene film and polyvinyl chloride
33
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film. Further, when transparency is not a key factor in a major end
market such as snack foods, cellophane also competes with glassine and
other grades of paper. Packaging users purchase flexible films on a
"price per area", not a "price per pound" basis. Cellophane is at a
disadvantage in this respect with its specific gravity of nearly 1.5.
Only paper is this high, although polyvinyl chloride is fairly close
with a density of nearly 1.4. The films that have made the greatest
inroads into cellophane's historic markets have been the polyethylenes
and polypropylenes. These have densities in the 0.9 to 0.95 range and
thus give roughly half again as much film for the same gauge or thickness
on a pound basis. This has been a decisive factor in cellophane's loss
of markets. Cellophane's market loss would be even greater if it were
not for the fact that the material has several unique properties which
no plastic film has yet been able to duplicate completely. These include
ease of printability, machinability (that is ease of running over high
speed packaging machines), and its excellent stiffness when dry. On the
other hand, cellophane is subject to aging and embrittlement while
plastic films are not. Cellophane 'is not waterproof and it must rely
upon coatings to give it this property.
Prices in the flexible packaging industry have been strongly
controlled by the small, independent producers. This is particularly
true in low-density polyethylene film where the technology is readily
available and relatively low capital investment is required to become
a manufacturer. DuPont has historically been the price leader in
cellophane. Price leadership in the cellophane industry has been in a
state of flux over the past two years, although it now appears that
DuPont has again resumed leadership with the May 30 price increase
that was instituted. However, DuPont and the other two cellophane
producers are fully cognizant of the highly competitive situation in
flexible films. They are well aware that their product is expensive
for a number of applications where it has already lost market position.
In other applications where cellophane is one part of a structure or a
laminate, it is marginally competitive and in a relatively few cases,
it is quite competitive on a cost/performance basis.
All these factors taken together put a severe limitation on price
increases even when manufacturing costs increase such as has occurred and
is expected to continue with cellulose pulp.
One hope of the cellophane industry is that the fossil fuel and
petrochemical shortage and/or rising prices in the United States will
force up the prices of the thermoplastic resins and thus the films made
from these resins. While we expect that this will happen to a relatively
minor extent, it will provide only modest room for cellophane suppliers
to raise prices to meet rising manufacturing costs. Overall, cellophane
p.ices should go up in the future, but probably below the average of
industrial commodities. Any such increases will continue to be dampened
by the highly competitive situation with thermoplastic films. Cellophane,
even with its past market erosion, is still the second most important
34
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clear flexible film (after low-density polyethylene). As such, it is
the target for many new materials which come on to the market. After many
years of being the premiere film in the flexible packaging industry,
cellophane established the industry standards. Many companies with new
products have tried to attain these standards. With continual competitive
pressure, even more market erosion was expected than has actually occurred.
The reason that this decline has not been even sharper has been a combina-
tion of diligent efforts of the three cellophane manufacturer's to improve
the manufacturing increases, and thus, selling price increases, as far as
possible. The addition of the substantial capital investments together
with added costs above and beyond the amortization of these new investments
could certainly accelerate plant closings.
Economic Impact Analysis
Background. The cellophane business in the United States is a
mature, declining industry. Only three companies—DuPont, FMC and Olin—
manufacture and market cellophane; and the largest firm, DuPont, has
already shut down its two oldest plants due to a declining market for the
product. Over the past five to ten years, cellophane has experienced
increasing competition from thermoplastic, flexible packaging films which
offer both price and performance advantages. In order to improve the
profitability of this product in the face of rising cellulose pulp costs,
labor increases and other factors, the three cellophane companies instituted
a price increase on May 30, 1973.
The cellophane manufacturing cost data available was developed
internally based on the contractors knowledge of the cellophane business
and its operations. Further, the profitability of the various cellophane
plants defined in Table 5, varies widely due to plant location, product
mix, and the type and width of the casting equipment used in the
individual plants.
Among the three producers, DuPont is generally considered to have
the most efficient plants and thus, the most profitable operation. This
is due to the typically wider width of the casting equipment of DuPont's
facilities as well as the fact that most, if not all, of DuPont's casting
operations are "double web" rather than "single web" as are the facilities
of its competitors.
The three cellophane companies have been unwilling to meet with
the contractor separately to discuss either manufacturing economics or the
water pollution abatement investment and operating costs. Instead, they
have chosen to have an accounting firm develop at least some of the desired
data on a total industry basis. The absence of such firsthand assistance
has placed obvious limitations on the accuracy of our data, especially on
an individual plant basis. It is our understanding that a copy of the
report will go directly to the EPA. The report being prepared by the
accounting firm will, however, provide no information on cellophane
manufacturing economics but will contain pollution abatement investment
and operating costs on a total industry basis, but not on a plant by plant
35
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basis. The report, even when complete, therefore, will provide relatively
little of the requested information beyond that which the contractor has
developed.
Impact Analysis B.P.T. Guidelines
Price Effects. The industry only has a marginal ability to raise
prices as cellophane has already been losing markets because of its high
price to low density and high density polyethylene, polypropylene, polyvinyl
chloride and polyethylene terephthalate films. In some cases, a customer
has continued to use cellophane in spite of its higher price because of its
excellent properties; such as machineability, printing capabilities, and
clarity. However, there is a maximum economic value which users will
place on these properties. Thus, further increases in cellophane prices to
cover pollution abatement costs could well result in loss of such accounts.
In addition, cellophane is frequently used together with other
flexible films and papers as part of a laminate structure for flexible
packaging. Increases in cellophane prices in such laminates might well
result in a thinner and more costly gauge of cellophane being used and,
in some cases, result in the total elimination of cellophane from the
laminate construction. For these reasons, we estimate that cellophane can
only be increased a few cents per pound in price at most without running
the definite risk of significantly eroding its market position still further.
Secondary effects of cellophane price increases where the material
continues to be used will mean higher packaging costs. Given the generally
low profit margins in the food industry, such cost increases are likely to be
passed on to the final consumer. Where the packaged product is a discretion-
ary item, such as is true in many snack food areas, higher prices might also
mean lower sales for the food packager.
Financial Effects. Increased costs due to pollution abatement
equipment investment and operating costs will further reduce the already
modest profits of a mature product with declining markets. In the case of
the most marginal cellophane plants, the added costs necessary to reach the
B.P.T. requirements could result in a pre-tax loss on operations and even
lead to the shut-down of that particular facility.
All three cellophane producers are large multi-divisional firms.
This means that, at any given time, the various divisions of each corpora-
tion are competing for available capital for additional investment. As
cellophane is one of the lower profit items for each of the three firms,
the management of the cellophane operations even now have difficulty in
obtaining corporate funds. All three firms have various alternative
higher profit and certainly higher growth product areas in which to invest
their available capital in order to maximize growth and profitability of
the total corporation. We thus expect the management of the cellophane
operations will be very hard pressed to convince their corporate management
to invest funds in pollution abatement facilities for a low-profit product
in a declining market. In addition, the cost of operating such pollution
abatement equipment will further lower the profitability.
36
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Production Effects. Production curtailment is not a consideration
as the cellophane companies are likely to shut down an entire plant, not
just one line. The only exception to this situation might be FMC's
Avisco operation which has already shifted some of its cellophane manu-
facturing capacity to rayon manufacture and might well do more in the future.
We expect that the oldest plants will be shut down first except
where extensive modernization has been undertaken. DuPont, as noted, has
already shut down two plants due to the decline in the market. For this
reason, DuPont expects its competitors to shut down one or more plants
before DuPont shuts down any additional lines or plants. As DuPont is
considered to have the- most efficient, lowest cost plants in the industry,
due in part to its "double web" casting, we expect that plant shut down
by the other competitors is more likely; but there is no way to determine
what specific plants will be shut down.
Cellophane, as stated, is an industry in decline. The business
is temporarily at capacity (estimated at 350 million pounds per year) but
renewed decline is expected in the.future, especially when the U.S.
economy slackens. Cigarettes and related tobacco products represent the
last single big cellophane market accounting for some 40 to 45 million
pounds of film. If this market is lost to competitive films such as
oriented polypropylene or polyethylene terephthalate, we believe that the
total market (and thus capacity requirements), might well decline to the
level of 250 million pounds provided there were no added investments in
cost due to meeting pollution abatement requirements. With such added
costs, the market and capacity levels could go even lower—to 200 million
pounds or perhaps even less before becoming relatively stable.
Employment Effects. As production curtailments are not a considera-
tion, the main concern is plant closings. It is likely that this will occur
even without additional costs due to competitive materials and cellophane's
relatively higher price. The cellophane industry has approximately 4,600
employees for 350 million pounds per year production. If the market
requirements, and thus production, falls to the level of 250 million pounds,
this would result in an employment level of approximately 3,300 employees
or a decrease of 1,300 people over present levels.
Based on previous work, we have determined that the ratio of direct
employees, direct loss of jobs to secondary loss of jobs is 1.0. This
then, would result in doubling the job reduction number to 2,600 rather
than 1,300 employees. It should also be noted that this number will
undoubtedly take place over several plants and thus several communities.
There is a further possibility of a "snowball" effect where major cellophane
end users might become sufficiently concerned about the cellophane availa-
bility to shift prematurely, where possible, to competitive materials and
thus further accelerate the decline in cellophane production and concurrent
loss of employment.
Despite efforts by the cellophane companies to develop new products
or grades, we consider this at best to be a "holding action"; and it will
37
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not change the present pattern of decline. How fast cellophane requirements
decline depends somewhat on the energy situation and petrochemical availa-
bility and prices as these could well mean higher prices for the competitive
films and thus provide additional "breathing time" for the cellophane
business.
Resultant Community Effects. There is no specific means of
determining the location of possible plant closings. The most likely
facilities to be closed are the oldest operations. However, many of these
belong to DuPont and have been substantially upgraded and improved in
efficiency and thus are among the most efficient facilities in the industry.
It is also quite likely that facilities tied in with other manufacturing
operations at a given location will be continued while totally separate
cellophane operations could be shut down; thus the Fredericksburg, Virginia
plant of FMC where rayon fiber is also made and Pisgah Forest plant of Olin
where fine papers are also produced would probably be the last facilities
to be shut down for these two firms. The majority of the cellophane opera-
tions are located in rural areas and frequently constitute the only major
industry in an otherwise agricultural region. Shutdown of such a facility
would not only eliminate the major employment center for the particular
region but would also have a very severe and adverse effect on the specific
town and county tax base. In addition, there would be little if any
opportunity for the majority of the employees to find other positions in
the particular region. Such individuals would be forced to move or live
on unemployment benefits.
Various small private businesses in any of these communities
would certainly be effected since they are highly dependent on the earnings
provided by the major manufacturing plant in the area; e.g., the cellophane
operation. With its closing, a wide variety of small businesses would feel
the impact.
Impact Analysis B.A.T. Guidelines. All the comments which have been
made for B.P.T. hold true for B.A.T. as well. However, it is estimated that
B.A.T. will add as much as 5 1/2 cents in cost to making cellophane while
meeting B.P.T. requirements will add a maximum of two cents. The effect of
meeting B.A.T. requirements can be expected to be very severe. Those
cellophane plants still in operation after B.P.T. requirements had been
met would be severely affected by trying to meet the investment and operating
requirements under the B.A.T. guidelines. All three cellophane companies
would be affected and the profitability, if any, of the cellophane business
could well become very low. The plants would either be shut down by the
respective companies because of their unprofitability or the market would
be severely decreased by raising the cellophane prices to cover the added
operating costs needed to meet the pollution abatement requirements.
While we can only speculate as we do not have precise numbers on
cellophane profitability (especially by plant), it is quite probable that
meeting B.A.T. requirements could reduce cellophane production to as low
as 100 million pounds or even 50 million pounds. Using the previous rule
of thumb of annual output per employee, this production would require a work
force of from 660 to approximately 1,300 employees or a net direct reduction
38
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of 3,300 to 4,000 employees. If the same 1.0 ratio is used, this number
would double to a. resultant loss of total jobs ranging from 6,600 to
8,000 caused by shutdowns in the cellophane industry.
Although we have not been able to obtain the specific numbers
from the cellophane companies as of the date of this draft report, we
firmly believed, based on our understanding of the industry, that meeting
B.A.T. requirements would prove so costly in terms of capital investment
and operating costs that the cellophane business would be very severely
curtailed with a concurrent high loss of employment in mainly rural
communities where there are a relatively limited number of alternate jobs
available.
Limits of the Analysis. Our analysis of the cellophane business
including economics and the effects and costs of meeting the B.P.T. and
B.A.T. requirements has been significantly limited by the lack of
assistance from the cellophane industry. The accountant's document,
except possibly in a general narrative form, will provide little additional
information on the actual effect on profitability of the cellophane industry
as a whole, much less specific companies or specific plants in the industry.
Further, this document addresses itself to air and solid waste requirements
which are not pertinent to this report to the EPA. According to the
outline which is to be followed, the report will provide pollution control
costs and investment. Beyond that, the document will primarily provide
additional background information on the nature of the cellophane business
but will specifically exclude current or future profitability with or with-
out pollution abatement investment and costs.
We believe that our analysis is reasonably accurate for the total
industry but there is no way to determine specific plant costs and future
closings. Among our critical assumptions are that the oldest plants are
the most likely to shut down and that entire plants (and not just individual
lines) will be closed.
The analysis could obviously be made more accurate if individual
plant manufacturing costs and pollution abatement costs were available.
This would permit accurate definition of the effect on future profitability
by effluent control costs on the discrete production units currently
operating.
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CELLULOSE ACETATE AND TRIACETATE FIBER AND POLYMER
This section of our analysis includes a discussion of acetate and
triacetate fiber and the polymer facilities associated with the production
of these fibers. Unlike viscose rayon, the preparation of the polymer to
produce cellulose acetate fiber is not necessarily intimately associated
with spinning of the fiber. Cellulose acetate polymer or flake is a
merchant product which is often shipped from the site of production to the
spinning plant. In addition, two of the producers of acetate and triacetate
fiber, Celanese and Eastman Kodak, also sell cellulose acetate from their
production facilities for use in the plastics industry.
Industry Structure
The significant product areas in the acetate and triacetate business
include: a) cellulose acetate filament, b) cellulose acetate tow for
cigarette filters, and c) triacetate filament. Relatively small quantities,
about 20 million pounds per year, of cellulose acetate staple are also manu-
factured by Celanese.
Types of Firms. There are four major corporations producing cellulose
acetate or triacetate fiber. These include E. I. DuPont de Nemours, Celanese
Corporation, Eastman Kodak Company, and FMC Corporation. All produce cellu-
lose acetate filament. Celanese Corporation and Eastman Kodak Company produce
cellulose acetate cigarette tow, and Celanese Corporation alone produces
triacetate textile filament and staple. All of these corporations have over
one billion dollar sales. The largest, DuPont, had sales in 1972 of approxi-
mately $4,366,000,000; the next, Eastman Kodak had sales of approximately
$3,478,000,000; FMC had sales of approximately $1,498,000,000 and Celanese
had sales in 1972 of approximately $1,385,000,000.
Of the four producers, Celanese and Eastman Kodak, are integrated
back to the raw materials, acetic acid, acetic anhydride, and acetone.
At the present time, none of the producers are integrated backward to
cellulose pulp. There is very little forward integration in the industry.
Celanese has the capability to convert a small proportion of its fiber
into tricot knit fabric.
Among the four producers, DuPont operates 138 plants, Eastman
Kodak 23 plants, FMC close to 100 plants, and Celanese 93 plants.
Each of the companies is highly diversified. The largest, DuPont,
has five major divisions of activity, including fibers, plastic materials,
synthetics, industrial chemicals, international activities, and other
chemicals and miscellaneous products. This latter category includes
instruments, electronic products, photo products, pharmaceuticals, agri-
chemicals, finishes, and explosives. Eastman Kodak has nine major product
groupings in three divisions. The U.S. and Canadian photographic divisions
include: amateur photography, commercial photography, radiography, business
systems, education and entertainment, and government business. The Eastman
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Chemicals Division includes fibers, chemicals and plastics. The third
division is the International Photographic Division.
FMC has 11 major product groups, including chemicals and fibers,
construction and mining equipment, consumer and special products, defense
equipment, environmental equipment, food and agricultural machinery,
material handling, packaging, petroleum and fluid control equipment,
power transmission, and transportation equipment.
Celanese has five product groups, including the fibers group,
chemicals, plastics, coatings and specialties, and forest products.
Among the four major producers, with one exception, the production
of cellulose acetate and triacetate fiber is a modest proportion of total
sales. We estimate that Celanese Corporation derived around 15-20%
of its annual sales revenues from the sale of acetate and triacetate fiber.
Types of Plants. Cellulose acetate and triacetate fiber spinning
plants in the United States with the associated estimated capacities and
ages of the original plants are given in Table 7. Total capacity for the
production of acetate and triacetate filament and staple has not changed
significantly for some time. The rate of capacity for the production of
filament and staple was at 531 million pounds by the end of 1966, based
on an average 88 denier for the filament capacity. Peak capacity, based
on an average of 91 denier for the filament, was 534 million pounds by
the end of 1970 but declined slightly to 510 million pounds based on an
average 86 denier for filament in July of 1973.
Capacity for the production of cigarette filter tow has expanded
steadily to meet demand. As shown on Table 7, this capacity is held by
two companies, Celanese and Eastman Kodak. The current capacity is
estimated at 320 million pounds, although according to some trade estimates,
Eastman may have a larger capacity than the 170 million pounds shown on
Table 7.
All of the acetate and triacetate fiber producers are self-
sufficient in the production of polymer with the exception of FMC
Corporation. Eastman Kodak produces cellulose acetate polymer at
Kingsport, Tennessee, for fiber use from a total cellulose ester capacity
of 450 million pounds per year. This capacity is devoted not only to the
production of cellulose acetate flake for fiber manufacture but also
triacetate film for photographic film base, cellulose acetate plastic
compounds, cellulose acetate propionate, and cellulose acetate buterate
plastics and plastic sheeting.
Celanese Corporation produces cellulose acetate and triacetate
polymer from plants with estimated capacities of 270 million pounds
per year at Rock Hill, South Carolina, and 260 million pounds per year
at Narrows, Virginia. Cellulose acetate production and spinning capacity
is interchangeable with cellulose triacetate polymer and fiber spinning
capacity. Production of cellulose acetate flake for filament manufacture
41
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TABLE 7
ESTIMATED CELLULOSE ACETATE AND TRIACETATE FIBER CAPACITY
Million Pounds - July 1973
Company & Plant
Celanese Corporation
Cumberland, Md.
Narrows, Va.
Rock Hill, S. Car.
NJ Rome, Ga.
DuPont
Waynesboro, Va.
Eastman Kodak Company
Kingsport, Tenn.
FMC Corporation
Meadville, Pa.
Fil
65
45
75
50
235
Cellulose
Staple
10
10
—
20
Acetate
Tow
150
—
—
150
Total
65
205
185
50
405
Fil.
30
—
30
—
60
Triacetate
Staple
—
. 5
—
5
Total
30
—
35
—
65
Total
All
95
205
120
50
470
Plant
Construction
1924
1947
1970
1928
50 — — 50
80 — 170 250
60 ^^ — 60
425 20 320 765
50
250
Pre 1942
1931-48
60 Pre 1942
60
65
830
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normally proceeds through cellulose triacetate which is then hydrolyzed
back to the desired degree of acetylation. We believe that Celanese
utilizes a similar production process for the manufacture of triacetate
polymer. The production of triacetate polymer does not require the
same hydrolysis technique as utilized to produce acetate polymer for
spinning from acetone solvent.
Celanese had previously supplied almost all FMC's requirement of
cellulose acetate flake. Reportedly, and unconfirmed by the company, FMC
has plans to start up its own. flake manufacture to supplement or replace
the supply by Celanese.
DuPont is self-sufficient in the manufacture of cellulose flake.
Technology in the cellulose acetate industry has been focused
principally on reducing manufacturing costs rather than the development
of product variations. As illustrated by the age of the plants, acetate
fiber has been produced in the United States for more than 40 years.
There have been major innovations in the industry within the recent past
such as the development by Celanese of triacetate fiber and the development
of a manufacturing process for the production of acetate tow by Eastman
Kodak. In total, however, development of new processes and product forms
has been significantly less than that experienced in the manufacture of
synthetic fibers such as polyester and nylon.
Fiber and polymer production are integrated at the Narrows, Virginia,
plant and the Rock Hill, South Carolina, plant of Celanese and the Kingsport,
Tennessee, plant of Tennessee Eastman. We also believe, although the company
has not confirmed this, that the Waynesboro plant of DuPont is also an
integrated producer of polymer. These plants are not integrated to acetic
anhydride, acetone or acetic acid production at the fiber and polymer
production plants. In addition, Celanese is integrated to fabric production
at its plant in Rome, Georgia. The fabric knitting capacity at this site
is less than half of the fiber capacity of the Rome, Georgia, plant.
Numbers of Plants and Employees. We estimate that a total of about
12,000 people are employed in the manufacture of cellulose acetate and
triacetate. The largest proportion of these, or about 8,300 are employed
in the production of cellulose acetate filament. An additional 1,300 are
involved in cellulose acetate staple and tow production. An estimated 1,200
employees are required for the production of triacetate fiber and 1,200 for
the manufacture of acetate and triacetate polymer.
Percent of Total Industry for Each Segment Studied. Our analysis
includes all of the acetate and triacetate fiber produced. Cellulosic
plastic and resin production is carried out not only by Celanese and
Eastman Kodak, but also by Dow Chemical, Hercules, Inc., Monsanto Company,
Standard Pyroxoloid Corporation. Total cellulose plastic and resin produc-
tion, exclusive of use in fiber manufacture, is around 180 million pounds
per year. Fiber therefore accounts for approximately 650 million out of
830 million pounds of polymer production, or about 80% of total production.
43
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Fiber related cellulose polymer production accounts for about 80% of total
employment although fiber polymer is manufactured in about half the total
number of plants producing cellulose ester polymer for either fiber or
plastic use.
Financial Profiles
The producers of acetate and triacetate fiber and polymer refused
to provide us with data relative to their costs and profits. Our revised
contract with EPA, //2-8595R,, excludes the independent development of this
data. This was done because of the limited budget available to study this
sector and our mutual prejudgment that the cellulose acetate and triacetate
industry would be impacted less severely than the viscose rayon and
cellophane industries.
Representatives of the companies whom we contacted, while they
refused to provide detail on costs and profits, did provide their general
judgments on the current state of -the industry.
Prices for cellulose acetate filament have dropped, on average,
about 30% over the past four years. This has come about because of decline
in demand and ensuing price competition for the remaining business. We
expect that at current price levels, the manufacture and sale of cellulose
acetate filament is a marginally profitable activity at best. There may,
in fact, be some plants which are operating at below break-even at current
prices.
We believe that the production of cellulose acetate cigarette filter
tow is a profitable business. Contract sales of cellulose acetate polymer or
flake are reportedly made at around 30
-------
expect, however, that additional manufacturing costs and merchandising costs
offset the very substantial differences between selling prices of triacetate
and acetate fiber. Thus while cellulose acetate is only a marginally
profitable activity, we expect the production and sale of Arnel triacetate
is a highly profitable business.
The production of cellulose acetate staple is not a very profitable
activity. Cellulose acetate staple is produced only by Celanese Corporation
and is probably manufactured and sold at around 32$ per pound only as a
means of utilizing excess polymer producing capacity.
As in the case of rayon, we expect the net salvage value of the
production equipment for acetate and triacetate polymer and fiber to be
close to zero dollars. Producers commented, and we concur, that there is
no reasonable alternate use for the equipment and that cost of removal
would probably be just about offset by its value as scrap.
As both Celanese and Tennessee Eastman also sell other cellulose
esters, the polymer manufacturing activities devoted to these products
would retain their value. Over time, an increasing proportion of the
facilities used to produce polymer for fiber might be used to fulfill the
increasing demand for cellulose ester plastics. Currently the capacity to
produce cellulose acetate polymer for filament and staple is about twice
that to produce cellulose ester plastics. Cellulose ester plastics should
grow in application by about 7 or 8% per year over the next decade, it will
take ten years, therefore, before half of the total idled capacity could
be utilized in producing cellulose ester polymers.
We expect there are significant constraints upon financing addi-
tional capital assets for the production of cellulose acetate filament due
to the low returns. The companies involved have, in all probability,
alternative investment opportunities providing substantially higher
returns. As previously mentioned, all of the producers are large, highly
diversified corporations.
We expect the levels of return for cellulose acetate cigarette filter
tow are sufficiently high to attract the necessary capital to provide
additional capacity as required. We do not expect, however, that additional
capacity will be needed in view of the estimated 320 million pounds of
capacity and about 200 million pounds of current demand.
There will be no major problem in obtaining additional capital for
the production of Arnel triacetate fiber. In all likelihood were the market
to expand to require additional manufacturing capacity, Celanese Corporation
would simply switch some of its cellulose acetate polymer and fiber spinning
capacity to the production of triacetate polymer and fiber. To date, there
have been no other producers of triacetate. Not only has the development
of manufacturing technology been an inhibition, but more importantly, the
market is limited and specific to the brand name, Arnel. Another producer
attempting to enter tiie market would have the formidable job of developing
a brand franchise and merchandising their fiber and this has, no doubt,
45
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prohibited others from entering. We consider it unlikely that they will
do so in the future.
Price Effects
Prices for cellulose acetate filament are a function of supply and
demand. Supply, indicated by domestic industry capacity, has not changed
significantly for some years and therefore price is directly determined by
changes in demand. With a drop in demand, such as occurred in 1972, there
is normally an accompanying drop in price as the four producers compete on
the basis of price to hold their markets. The production of acetate and
triacetate fiber is reported as one figure by the Textile Economics Bureau.
Triacetate is not segregated as it is manufactured by only one producer and
to do so would be to define production by Celanese. We estimate, however,
that triacetate filament is produced at an annual rate of around 60 million
pounds. This estimate is neither confirmed not denied by the producer.
Under this assumption, there was approximately 385 million pounds of cellulose
acetate filament produced in 1970,- the peak year of production. Production
of cellulose acetate filament declined to about 370 million pounds in 1971
and declined further to around 325 million pounds in 1972. Shipments during
the first four months of 1973 were at an annual rate of about 370 million
pounds.
Acetate filament in woven form goes mostly into curtains, drapes, and
taffeta fabrics for dress goods. In knit form, the fiber is used as tricot
fabric in a variety of applications, the largest of which are applications
as lingerie and as bonding fabric for backing single knit or woven fabrics
used in dress goods. About 35 million pounds a year of acetate is also
used in textured yarns in the production of circular knit goods.
Starting in 1971 and extending into 1972, there was a coincidence of
several events leading to the drop in demand for acetate filament. These
included: a) decline in the bonded fabric market, b) some substitution of
nylon for acetate in bonded fabrics, c) rapid growth in the use of polyester
in the double knit market replacing textured acetate, and d) a style swing
back to nylon from acetate woven and tricot fabrics. All of these contributed
to the reduction in demand but the most important was the decline in the use
of bonded fabrics. About 60 million pounds per year of cellulose acetate
filament were used in this application. The acetate tricot fabric in a
bonded fabric serves the purpose of stabilizing the relatively flimsy woven
and knit surface constructions as well as acting as a lining for the goods
produced. The bonded fabric market declined for two major reasons. The
bulk of the decline was probably accounted for by replacement of the single
knit bonded fabrics by double knit polyester fabrics which dropped signifi-
cantly in price in 1972. Industry representatives also believed that the
public became disenchanted with utility of bonded goods which did not hold
ap satisfactorily during dry cleaning.
With the decline in demand, acetate filament prices dropped sub-
stantially. In total terms, averaging all deniers, prices were reportedly
down about 30% between 1969 and mid-1973. They have recovered modestly in
46
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recent months with the current shortage of nylon and polyester yarns and
the boom in the total world fiber demand. The worst price drops were
experienced in beamed tricot yarns used for bonding fabrics. These yarns
were sold in 1969 at around 85
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linear yards per pound selling at 99c per pound. Similar Arnel fabric of
60 denier tricot at 3.30 linear yards per pound sells at $1.81 per pound.
Cellulose acetate staple is made in small quantities by Celanese
Corporation. As shown on Table 7, the company has a capacity for about
20 million pounds per year. Cellulose acetate staple is reportedly sold
at around 32c per pound on a contract basis. Celanese has used this
outlet for staple principally as a means of selling its excess acetate
polymer capacity.
Economic Impact Analysis
Cellulose Acetate Cigarette Tow
Background. As shown in Table 8, production of cellulose acetate
cigarette tow has grown from 108 million pounds in 1960 to an estimated
210 million pounds in 1972. This increase occurred as the production of
cigarettes shifted to the use of filters and acetate tow assumed a steadily
increasing proportion of the total cigarette filter market.
Both Celanese and Tennessee Eastman produce cellulose acetate polymer
in large facilities. Celanese's two polymer facilities each have capacities
of over 250 million pounds per year while Tennessee Eastman produces cellulose
acetate in a facility with a capacity of around 400 million pounds per year
of cellulose esters. In addition, Tennessee Eastman's effluent is co-mingled
with other effluent from its manufacturing activity in Kingsport, Tennessee
and treated in a common system.
The guidelines specified in the guideline document indicate a
plant size of annual capacity of 200 million pounds. This plant utilizing
standard water usage results in a control cost of from . 165C to 1.65c per
pound to meet B.P.T. and .49<: to 4.9
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TABLE 8
CELLULOSE ACETATE CIGARETTE TOW
Million Pounds
Production
1960 108
1962 128
1964 154
1966 ' 153
1968 160
1970 185
1972 210
Source: Trend Information and Chemical Economic Handbook
Stanford Research Institute.
49
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Similarly, we expect no effect on production of cellulose acetate
cigarette tow or on consequent employment or results in community effects.
Impact Analysis B.A.T. Guidelines. In order to meet the B.A.T.
guidelines, producers of cellulose acetate cigarette tow will incur addi-
tional costs of approximately 0.5C to 5c per pound according to the
guideline document. Although this is a significantly higher cost than
that required for B.P.T., we believe costs will be absorbed by the manufac-
turers if they are below l£.per pound and passed along in higher prices if
they are above this figure. Producers have not estimated actual costs to
meet B.A.T. although they expect them to be considerably higher than B.P.T.
We do not anticipate this will restrict capital availability,
production levels of tow, employment or have significant community effects.
Limits of the Analysis. We believe our analysis relative to both
B.P.T. and B.A.T. to be reasonably accurate provided that current profita-
bility levels are maintained. It is within a reasonable possibility that
the two producers may compete more vigorously on the basis of price in order
to keep their existing capacities utilized. We have assumed this will not
be so. Should it be so, and price levels decline substantially, one of the
two producers may choose not to make the necessary investment to achieve
B.A.T. guidelines by 1983 and with limitations in capacity, prices would
increase to restore profitability.
A significant outstanding question relative to the analysis is the
actual profitability of producing cellulose acetate cigarette tow. As
indicated above, we have estimated what we consider to be the general range
of profitability but this has not been confirmed by industry response or
detailed analysis.
Cellulose Acetate Filament
Background. Cellulose acetate and cellulose triacetate filament
are reported as a single figure. This is done to keep confidential the
production data of the single cellulose triacetate producer, Celanese
Corporation. We estimate the production of cellulose triacetate filament
increased over the period of time shown in Table 9 from about 40 million
pounds in 1960 to around 60 million pounds by 1972. The remainder, or
approximately 180 million pounds in 1960 and 340 million pounds in 1972
was cellulose acetate filament.
As shown in Table 9, production of cellulose acetate filament
increased steadily between 1960 and 1970. During most of this time
capacity utilization was over 90%. By 1972, however, due to a decline and
demand for acetate yarns, capacity utilization had decreased to close to
80%. With this decline in capacity utilization, prices of acetate filament
plummeted. As previously described, prices went down about an average of 30%
between 1970 and 1972.
50
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TABLE 9
CELLULOSE ACETATE AND TRIACETATE FILAMENT
Million Pounds
November
Year Production Capacity
1960 221 318
1962 282 324
1964 .364 387
1966 388 461
1968 426 476
1970 445 494
1971 432 490
1972 386 486
51
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In 1972, 45% of the acetate yarn consumed went into the production
of woven goods, approximately the same amount in tricot knit fabrics, and
about 6 or 7% in circular knit fabrics. While consumption in woven goods
declined by about 4 or 5 million pounds relative to 1970, the bulk of the
decline in acetate came in reduced requirements in the market for acetate
tricot fabrics. Most of this originated with the decline in bonding
fabrics as previously described.
At the present time representatives of the major acetate producing
companies are not optimistic about the future demand and price. The
general attitude is that probably acetate filament faces, at best, relatively
static demand. They foresee increasing competition from nylon and polyester
and quite probably the permanent loss of bonding fabric market due to the
broad scale adoption of double-knit polyester fabrics which are not normally
bonded. While demand during the first half of 1973 reached an annual rate
of near 400 million pounds per year, this is probably principally because
of the worldwide fiber shortage during this period of time. This shortage,
caused by burgeoning textile demand, led not only to increased requirement
for acetate fabrics but also to shortages of competitive fibers such as
nylon filament and the necessity of substituting acetate. Industry repre-
sentatives, therefore, believe that the first half of 1972 is not repre-
sentative of the long run outlook for the fiber and over the next five
years demand will remain relatively static for cellulose acetate filament
at 250 to 375 million pounds per year of fiber.
As filament producing capacity will be more than adequate to serve
demand, industry representatives expect, and we concur, that prices will
not return to the levels enjoyed in 1969. Prices have recovered somewhat
from the lows experienced late in 1972 and are still well below those of
three years earlier. As a consequence of relatively depressed prices, the
acetate filament business is not now highly profitable and has not been for
the past two years. According to producers, some plants were operating
below break even during 1972. We did not obtain manufacturing costs from
the producers nor were the development of these costs included under the
scope of our proposal for EPA.
Existing polymer plants providing cellulose acetate flake for the
production of fiber are over 200 million pounds per year except for the
plant operated by DuPont. This plant, supplying a 50 million pound per
year spinning plant, has its effluent treated in conjunction with other
manufacturing activities at the same site. Cellulose acetate effluent
is combined with effluent from major acrylic fiber manufacturing activity
and a spandex fiber and manufacturing activity. As a result, the supplying
plant is able to take advantage of economies of scale of effluent treatment
and hence effluent control costs are significantly below the case for the
small plant as presented in the report defining effluent guidelines.
The effluent control costs to meet B.P.T. were given at .165c to
1.650 for a 200 million pound plant and to meet B.A.T. at .49C to 4.9c
per pound of product produced. On the basis of current acetate filament
yarn costs, these are about .3% to 3.0% of present yarn sales prices to
52
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meet B.P.T. guidelines and .8% to 8.0% of current sales prices to meet
B.A.T. guidelines.
Investment required to treat the effluent of a cellulose acetate
plant with a capacity of 200 million pounds per day is approximately $5.3
million to reach B.P.T. control and $9.4 million additional to reach B.A.T.
control.
Economic Impact B.P.T. Guideline. The three producers of cellulose
acetate flake for fiber production are all currently meeting or close to
meeting the B.P.T. guidelines for effluent control. The companies have made
or are planning the necessary investments and the only question remaining
is whether the increased cost of pollution abatement between 1977 and 1983
will be so significant as to significantly alter production, profitability,
or employment. We believe that this will not be the case. The costs of
meeting B.P.T. guidelines are actually relatively modest as a percentage
of total sales that none of the producers will alter their actions relative
to price or production of cellulose acetate fiber based on the requirement
to meet B.P.T. guidelines.
We foresee no significant price effects, reduction in profitability,
significant production effects, employment effects or resultant community
effects.
Economic Impact B.A.T. Guidelines. The imposition of B.A.T. guide-
lines may be a different matter from the meeting of B.P.T. guidelines.
An accurate prediction of the effect of B.A.T. depends, of course, on what
the acetate fiber producers have experienced and foresee as future market
and price for acetate in the year 1980 or 1981. We consider it well within
the realm of possibility, however, that demand will not have grown, and
perhaps declined by the 1980's and prices relative to costs at that time will
be so low as to reduce profitability to the point that one or more producers
will reduce or eliminate the production of cellulose acetate fiber in view
of the additional investment required for control of effluent to meet B.A.T.
standards.
We do not expect any price increases by virtue of meeting B.A.T.
effluent control guidelines. Prices will continue to be set by demand and
supply and competition with other fibers.
The financial effects include a reduction in profitability of at
least .8% of current prices. Quite probably there will be no effect on
capital availability. Capital will not be available in any event for
the relatively low profit cellulose acetate activity.
As we mentioned above, the imposition of B.A.T. guidelines in
conjunction with relatively low profit margins may cause curtailment of
some production by virtue of the additional investment requirement. This
reduction in capacity to the shutdown of facilities should improve prices
into the market and establish these prices on the basis of supply and
demand.
53
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As a best estimate, therefore, we have judged our producer will
shut down one plant with a reduction in 50 million pounds of capacity
and the loss of about 120 jobs. In all probability, these employees will
be absorbed in other jobs at the manufacturing site DuPont, for example,
at its Waynesboro operation could absorb unemployed personnel either from
the growth in the existing products manufactured at Waynesboro or introduc-
tion of new products in the plant complex by 1980.
In total terms, therefore, while there may be a redaction in employ-
ment directly associated with the reduction of cellulose acetate fiber, it
is likely to have little direct community effects if these people are
absorbed in increasing manufacture of other products in the same complex.
Limits of the Analysis. If we consider our analysis relative to
the effects of B.P.T. guidelines to be reasonably accurate based on both the
existence of current effluent controls and predictability of the market over
the next five years; the analysis of the economic effects of meeting B.A.T.
is substantially less accurate. This analysis depends on our being able to
predict prices for cellulose acetate in the 1980's as well as the actions
of the various producers facing significantly increased investments to meet
the effluent guidelines.
We consider our most critical assumption to be that the price and
demand for cellulose acetate will not change significantly for the next five
years and begin to decline by the 1980's. If the producers of the fiber are
sufficiently innovative to develop new applications in uses for existing
fiber or modified fiber forms are developed with new markets, our assumptions
relative to the B.A.T. guidelines would not be valid. Under conditions
of increasing demand and price, the producers would very probably make the
necessary investment in order to achieve the necessary effluent control
for B.A.T.
The principal unanswered question in our review of cellulose acetate
filament is the manufacturing costs for producing the fiber. It would be
most helpful to know the costs of the producers in the individual manufac-
turing plants. We could then actually judge the effect of additional invest-
ment requirement relative to the profitability of the enterprises.
Cellulose Triacetate Filament. We estimate the production of cellulose
triacetate filament has increased from around 40 million pounds in 1960 to
current levels of about 60 million pounds. The fiber is produced only by
Celanese Corporation under the brand name Arnel. As previously described
in our industry analysis, it is sold at prices far higher than cellulose
acetate, highly merchandised, and, we believe, highly profitable.
The same effluent standards are apparently applied to cellulose
triacetate production as cellulose acetate production. We have assumed the
same effluent control costs as described for cellulose acetate, or .1650
to 1.65$ per pound to meet B.P.T. and ,490c to 4.9
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spinning is done from a different solvent base than cellulose acetate, but
the fiber manufacturing facilities are very similar and readily converted
from cellulose acetate to cellulose triacetate or vice versa.
Meeting B.P.T. guidelines will, under the assumptions given above,
require cost equivalent to approximately 0.14% to 1.4% of selling price to
meet B.P.T. guidelines and 0.4% to 4% of selling price to meet B.A.T.
guidelines.
Impact Analysis B.P.T. Guidelines. We expect the market for Arnel
fiber to expand slowly over the next five years and for the price to be
maintained. With the high profitability of the product, the investment and
operating cost to achieve B.P.T. should be no obstacle to the producer. We
expect no changes in price by virtue of these costs or investments, very
modest reduction in profitability commensurate with the additional costs
incurred and no production effects, employment effects, or resultant
community effects.
Economic Impact B.A.T. Guidelines. We believe the production of
cellulose triacetate fiber as Arnel will continue into the 1980's. It will
remain a highly profitable activity, closely controlled and well merchandised.
In view of this we expect there will be no significant effects by the imposi-
tion of B.A.T. guidelines for effluent control. Prices will not be effected,
profits will be only very modestly reduced, there will be no production effect,
employment effect or resultant community effects.
Limits of the Analysis. We believe our analysis to be accurate for
both B.P.T. and B.A.T. The most critical assumption we have made is that
the merchandising costs by Celanese are not so heavy as to offset the apparent
profitability of manufacture and sale of Arnel. The principal question
remaining to refine the analysis would be to determine the manufacturing
and marketing costs of Arnel fiber.
55
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SUPPLEMENTAL REVIEW OF EFFLUENT CONTROL COSTS ON OTHER PLASTIC AND
SYNTHETICS
The following comments are based on a quick internal review
of the effect of pollution abatement costs shown in Cost Information
Supplement A to the "Development Document for Effluent Limitations
Guidelines and Standards of Performance," Plastics and Synthetics
Industry for the EPA under.Contract Number 68-01-1500. Certain
definitions and assumptions have been made. In Table 10 the first
column shows the previous EPA cost of abatement as a percent of
the sales price (1.2% for PVC). The second column (1.3% for PVC) is
the 1977 abatement cost, as a percent of sales, to achieve best
practicable BOD reduction for a large, new exemplary plant having
standard water use. The third column (4.8% for PVC) represents the
cost of abatement by 1977 in a small plant having high water usage
which is probably relatively old-. There is no good correlation between
age and high water usage, but this range of figures, 1.3 to 4.8, are
understood to represent the minimum and maximum cost as a percent of
sales to meet 1977 best practical abatement.
Columns 4 and 5 are the costs to achieve best available
pollution control by 1983. The minimum figure, (3.5% as a percent
of selling price for PVC) in Column 4 is for a new or recent exemplary
plant having standard water use and Column 5 is the cost to meet the
standards for a smaller plant with high water usage. The cost of
meeting 1983 standards for an older small plant with high water use
would be 13.6%. Column 6 shows the industry average after tax profit
on sales for each resin.
The major overriding factor as to the impact of these costs
for pollution control will depend on whether the producers will be
able to pass the increased cost on to the consumer. This is the least
accurate and most critical part of the discussion. The plastics
industry in 1971 was running at minimum profits in an over-capacity
situation and it is unlikely that any costs could have been passed on
to the consumer. The reverse is true in 1973 and probably 1974 since
capacity is short of demand and prices could rise to absorb any cost of
water pollution control except for price freezes. It is not possible
to project what the supply-demand-profitability factor will be in 1977
or 1983. However, it is our opinion, based on past history, that
supply will again exceed demand in the near term future and that it will
be difficult to pass on all increased costs due to water pollution. A
final factor, which has not been considered, is the effect of the
increased investment required to build a plant which will meet the 1977
and 1983 abatement requirements. In general, the plastics industry-
is composed of major firms and capital availability is not a problem.
There are, however, a number of specific situations where companies are
small, capital is not readily available, and the increased investment
will be a problem. An analysis of each of the resins follows.
56
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TABLE 10
EPA IMPACT ANALYSIS
Cost of Abatement Control as % of 1972 Sales Price
Plastic
PVC
ABS - SAN
Polystyrene
PV Acetate
LDPE
HOPE
Polypropylene
Epoxies
Melamine-Urea
Phenolics
Polyester
Nylon 66
Nylon 6
Acrylic
Average
Previous
EPA Value
1.2
0.8
0.9
0.7
1.6
1.0
2.1
0.1
0.6
0.2-0.4
0.3
0.3
0.2
0.9
1977
Std.
1.3
0.9
0.9
0.6
1.1
1.8
0.4
0.1
0.1
0.6
0.1
0.1
0.5
0.7
0.8
High
4.8
1.4
2.4
3.0
3.4
3.0
4.7
0.1
0.1
0.7
4.1
2.4
1.4
1.4
2.9
Std
3.5
2.5
2.4
1.5
3.3
5.2
1.0
1.0
1.5
9.8
0.2
0.4
1.8
2.1
2.3
1983
Hi£h
13.6
5.3
9.2
12.8
10.3
7.9
10.8
1.2
2.3
16.0
11.9
7.7
4.8
4.1
8.9
1972 Before Profit
Tax or Sales Cost
9.6
17.4
11.0
3.6 - 36
15.0
9.4
9.4
(25 m Ib./yr.) 5.2
4-16
6-10
15.0
10-30
10-30
5-20
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PVC
The first question is whether standard water use plants can
afford to meet the level one, 1977 requirements. Column 2 shows that
the cost as the percent of sales is only 1.3% — almost the same as in
previous estimates. We believe that this would not have any impact
on the industry. The second question is whether the high water use,
smaller plants, can afford the cost needed to reach 1977 requirements,
i.e., 4.8% on sales. Since selling prices in 1971-72 only represented
a 10% margin over cost, it would be difficult for the smaller
producers using high water loads to meet this requirement. There are
four producers in the 100 million pound and below category.
In order to meet 1983 guidelines, large, new plants would face
a cost of 3.5% on sales which would be significant in periods of
oversupply. It would be virtually impossible for the small, high water
use plant to meet the 1983 level since this would require a 13.6%
increase. New plants would presumably have exemplary controls and low
water or standard water usage and would have to pay the 3.5%. This
might be sufficient to discourage further expansion during times of
over capacity.
ABS
The new costs to meet the 1977 standards for companies having
large plants and standard water usage is not significantly different
from the previous EPA value and would not represent any problem. Small
volume plants having high water usage would have to face a price
increase of 1.4% of sales. This would not appear to be significant in
an industry which is relatively profitable. In order to meet 1983
guidelines, large or new plants having standard water usage would have
to pay 2.5% which could also be adsorbed since profits are presently
running close to 18% of sales. The older, smaller, high water usage
plant would face a cost increase of 5.3% of sales which would be
burdensome particularly since profit margins are expected to drop.
However, there are only three such plants and their capacity will
probably be expanded by 1983 which should reduce the average cost
per pound.
POLYSTYRENE
The proposed cost of meeting level one guidelines for the
larger plants using standard water usage is the same as previous EPA
values so that these plants should have no problem in meeting 1977
best practical levels. The small plants, 50 million pound a year
capacity, plants with high water usage, would have to pay 2.4% on sales
and this would be onerous since average recent profits have been
only 11%. In periods of over capacity, this could be a problem.
There are approximately seven small plants in operation. To meet
1983 best available guidelines, the large plants using standard
amounts of water, which would include any new plants, would have to
58
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pay 2.4% which again in periods of oversupply would be burdensome.
The small plants using high amounts of waste water would have to pay
9.2% which would be almost impossible in view of profits in the last
several years.
POLYVINYL ACETATE
Larger plants using standard amounts of wastewater will face
a cost of 0.6% of sales price to reach 1977 levels which is actually
slightly lower than the previous EPA value and should represent
no problem. Small polyvinyl acetate plants using high amounts of
water, however, are going to face a very high cost, namely 3% of
sales price which would be beyond the capability of the commodity
latex producers. In order to meet 1983 guidelines, the large, new
standard water usage plants would be paying 1.5% which again would
be a major burden on the latex commodity producers since they only
make a 3.6% profit. The high water usage, small plant would have to
pay 12.8% which would put the commodity latex producer out of
business. Those companies producing solution resins for specialty
uses would be able to pass all of these costs on. There are a large
number of small latex producers, captive and otherwise, who will find
it difficult to meet level two and level three requirements during
periods of over supply.
LOW DENSITY POLYETHYLENE
The large producer of low density polyethylene using standard
water levels will have to pay no more than 1.1% which is lower than
the previously stated EPA value and this should be no burden. The
smaller producers having high water usage, however, will have to pay
significantly more, 3.4% of sales to reach 1977 levels. Profits in
times of oversupply are only 15%. Also, under customary profit
margins, the large and new producer using standard water quantities
will find it onerous to meet 1983 levels. The smaller plant
utilizing large quantities of wastewater will find it almost impossible
to meet 1983 levels. There are approximately nine plants operating
below the 200 million pound a year level. It is probable, however,
that many of these will be obsoleted because of size before 1977 or
before 1983.
HIGH DENSITY POLYETHYLENE
New figures show that cost to reach 1977 best practical levels
for large plants having standard water loads is considerably higher
than previous EPA values, namely 1.8% of sales. Since profits in
this industry have been as low as 5% of sales, this would be a burden
in terns of times of oversupply. Small plants with high water
loads would face a 3% levy on sales which would not be tolerable if
profit margins sink to the level of 1971. In order to reach 1983
levels, even the large or new exemplary plants having standard water
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use is going to face a 5.2% cost in order to provide the wastewater
treatment. This is obviously not acceptable under recent profit margin
standards. The smaller plants or a plant using high amounts of
water would face a 7.9% increase on sales which would force them out
of business in periods of oversupply. There are three plants in the
industry with capacities presently below 125 million pounds.
POLYPROPYLENE
The cost of abatement control for polypropylene in a large
volume plant having standard water use is considerably lower than
the previous EPA value and would cause no problem in reaching 1977
levels. However, the cost for a small plant with high water use,
4.7%, is double the previous EPA value corresponding to half of the
1972 profit. Therefore, small plants with high water use would riot
be able to operate profitably, even at the 1977 level. In reaching
1983 levels, the large plant with standard water use would still be
able to operate profitably, however, the smaller plants with high
water use would be out of business. There are two plants operating
below this level, and two additional plants at slightly above the
level so that in all four might might be jeopardized.
EPOXIES
The cost to reach 1977 pollution levels are the same as
previously estimated regardless of the amount of water used and do
not represent any problem to the industry. In order to meet 1983
levels, however, the estimated cost of one percent of selling price
could be burdensome to the small plants which make only a profit
of 2.6% after tax. The larger plants probably would not be affected,
There are three plants whose, capacity are in the area where there
might be a problem, however, we do not know the product mix and
therefore, the specific profit level of these particular plants.
There are about 20 compounders and a large number of captive producers
and most discharge to sewers.
UREA MELAMINE RESIN
The cost of pollution control for 1977 standards is obviously
minimal. The cost to meet 1983 levels are not significant for the
larger plants using standard amounts of water. Small plants using
high amounts of water would have some problem, especially those plants
making urea resins whose profit margins are minimal. There are a
number of captive urea resin plants used to make resin for particle
board and adhesive which might also find it difficult to install new
capacity considering the investment required and the overall cost.
Under these circumstances it might be cheaper for those producers to
buy resin rather than manufacture their own.
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PHENOLICS
The cost of meeting pollution standards for 1977 are not a
burden to the phenolics industry. There is however a major increase
in cost in order to meet 1983 standards since incineration will be
required. The cost of these plants large or small and regardless
of the amount of water use is prohibitive since the industry only
operates at profit margins of 6 to 10 percent of selling price. As
in the case of urea resins there are a large number of small captive
phenolic resin plants which could not afford this cost and would
cease production and purchase resin rather than continue to operate.
Even the most modern and most profitable plants would be unable to
meet this standard unless there was a period of real shortages in
which case the cost could be passed on to the consumer.
POLYESTER
This category relates to the polyester fibers not the un-
saturated polyester resins commonly used for sailboats etc. Costs
for a large volume plant having standard water usage is insignificant
as a percent of sales price for both 1977 and 1983. The smaller
plants with high water usage will face significant problems in meeting
the 1983 standard and would presumably shut down. This might effect
approximately six plants.
NYLON 66
This is related to the manufacturer of the nylon 66 fibers
rather than the resin itself. Data shows that the cost of abatement
control in 1977 for a large plant with standard water usage is lower
than the previous EPA values and would cause no problem. On the other
hand, the costs for pollution control in a small, high water usage
plant is almost 10 times the previous stated value of 2.4 percent of
sales. It is difficult to analyze the impact of this since the
profitability of the industry varies so significantly with both
product form and time. In 1971, whereas, Staple 15 denier fiber showed
a profit of 15 percent after tax on sales; 40 denier filament shows
a three percent after tax profit. We understand from our background
in the industry, however, that both of these fibers can be increased
in price to offset any increase cost of pollution abatement since the
price is really dependent upon the relation between nylon and other
synthetic fibers. Therefore the 2.4 percent would not be a factor in
1977.
In order to reach 1983 guidelines, the standard water use
plant again has negligible cost compared to the profits. However,
the high water use, smaller plants with a cost 7.7 percent could
cause problems for the producers of the lower return fiber forms.
There are two plants operating below 50 million pound a year
level which might have difficulty meeting 1983 guidelines.
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NYLON 6
The situation with regard to nylon 6 is quite similar. The
cost to reach 1977 standards for a large plant with normal water
use is essentially the same as the previous EPA values. However,
the cost of a small plant using high quantities of water is 1.4
percent of sales which could also be tolerated by the industry
regardless of whether they make staple or filament. With regard to
1983 standards, the cost of a large plant using standard water loads
is still well within the profitability limits and could probably be
passed on to the ultimate consumer. The cost of a small plant with
high water usage 4.8 percent, would be disruptive to a producer of
fiber forms yielding low returns. We assume, however, that price
of the low return fiber forms could be raised in order to take care
of the increased cost of pollution control. There might be seven
plants producing at rates less than 25 million pounds a year which
would have to raise prices in order to maintain an adequate
profitability.
ACRYLIC FIBERS
The recent analysis shows that the cost of water pollution
abatement is going to be approximately three times the previous EPA
value for a large plant with standard water usage. It is going to be
seven times the previous value for a smaller plant with high water usage.
The percent of this value ranges from 0.7 for the standard water
usage plant to 1.4 percent for the high water treatment plant. We are
unable to relate this to profitability of the industry since the price
of fiber under competitive conditions varied from 33 cents to 40 cents
depending on the specific product mix and profits range from 0 to 10
percent after tax. In certain years some producers actually produce
at a loss while other producers may have shown a profit of 10 percent
return on sales before tax. We would estimate, however, that meeting
the 1977 guidelines will probably not be too much of a problem to the
industry. The real problem lies in the relationship between the
value of acrylic fibers to polyester fibers and nylon fibers. In
reviewing the figures for 1983, however, we see that even the large
volume plants are going to have to pay 2.1 percent on sales for
pollution control abatement since this is higher than for Nylon 6,
Nylon 66, and polyester; this might become a problem to the industry.
The cost of achieving the 1983 goals for high water use plant is up to
4 percent which would obviously have a significant impact on even the
most profitable of the procedures.
In summary, a review of table one shows that the cost to meet
1977 abatement requirements for a large plant using a standard amount
of water is, with two exceptions, the same as previously estimated
on the values supplied by the EPA in 1971. The cost of a small
plant having high water usage, however, is significantly greater and
this applies primarily to PVC, polypropylene, polyester fibers, and
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low density polyethylene. The average of 2.9 percent is probably
tolerable. It is when we get to the 1983 that the cost of
abatement control becomes a significantly greater problem. Even the
large, modern, exemplary plant with standard water usage is going to be
faced with loss of income in the case of high density polyethylene,
polyvinyl chloride, ABS, polystyrene, low density polyethylene,
and particularly phenolics. Finally, it is quite obvious that cost
to meet 1983 standards in a small plant with high water usage will
force many of these plants to shut down. The only exception is the
epoxies resins, possibly melamine resins and PV acetatesolution
resins.
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CIINK Al Rl PORT
DMA PACI
I Keport No
EPA-230/1-73-022
3. Recipient's Accession No.
4 I HI. .iii.l Suhlilk
I Economic Analysis of Proposed Effluent Guidelines —
Plastics and Synthetics (Viscose Rayon, Cellophane,
Cellulose Acetate and Triacetate Fibers).
5. Report Date
August 1973
8. Performing^Organization Rcpt. No.
C-75902
IVrlormin^ Orf!ani7atlon Name anil Address
Arthur D. Little, Inc.
Acorn Park
Cambridge, Massachusetts 02140
10. Projcct/Task/Work Unit No
Task Order No. 2
11. rontractJooaOSX-
68-01-1541
I1 Sponsoring Or^am/ahon Njme and Address
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D.C. 20460
13 Type ol Report & Period Covered
Final
14
Supplementary Notes
Id Ahslr.li.1s
We expect little economic impact from the imposition of the best practicable
technology guidelines on the manufacture of rayon fiber in all forms, on
cellulose acetate and triacetate fiber. We forecast the imposition of these
guidelines will reduce cellophane manufacture by about 50 million pounds.
The impact of best available technology guidelines is considerably more
difficult to forecast at this time. Our best estimate is there will be no
impact on rayon, but they will cause the reduction of cellulose acetate filament
capacity by 50 million pounds and cellophane capacity by 100 million pounds.
17 Kcv Words and Donmicnt Analysis. I7a Descriptors
Rayon
Viscose
Cellophane
Cellulose Acetate
Guidelines
Impact
17b. Idenlifiers/Open-I.nded Terms
I7i COS Ml I teld/Croup
IX AvjiLihilily St.ilemenl
Limited availability through U.S.
Environmental Protection Agency Information
Center; Room W-327, Waterside Mall,
Washington. D.C. 20460
19 Securit} Cljss 11 his
Report)
UNCI.ASSII 11 11
211 Si-iuritv ( lassl Plus
Page)
ITN( I
; I ASSII II 1)
21 No 01 I
64
KWM N1IS IS lid V 1-72)
USOOMM-W 14952 l'72
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