EPA-23D/1-74-04?
SEPTEMBER 1975
ECONOMIC ANALYSIS
OF
INTERIM FINAL EFFLUENT GUIDELINES
FOR
THE ORGANIC CHEMICALS INDUSTRY
(PHASE II)
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
tU
O
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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.
This document will subsequently be available through the
National Technical Information Service, Springfield, VA 22151.
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EPA-230/1-74-042
ECONOMIC ANALYSIS
OF
INTERIM FINAL
EFFLUENT GUIDELINES
FOR
THE ORGANIC CHEMICALS INDUSTRY
(PHASE II)
September 1975
Contract No. 68-01-1541
Task Order No. 32
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D.C. 20460
Environmental Protection Agency
Region V, Llbmry
230 South Dearborn Street
Chicago, Illinois 606d*f
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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.
PROTECTION ACEKCY
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PREFACE
The attached document is a contractor's 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 limita-
tion 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 Docu-
ment") supporting the issuance of interim final regulations under
sections 304(b) and 306. The Development Document surveys existing and
potential waste treatment control methods and technology within parti-
cular industrial source categories and supports the proposal 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 investment and operating
costs associated with various alternative control and treatment tech-
nologies. The attached document supplements this analysis by estimating
the broader economic effects which might result from the required appli-
cations of various control methods and technologies. This study investi-
gates the effect of alternative approaches in terms of product price
increases, effects upon employment and the cont ied vir ^lity of affected
plants, effects upon foreign trade and of ar Competitive effects.
The study has been prepared with the supervision and review of the
Office of Tlanning and Evaluation of the Environmental Protection Agency.
This report was submitted in partial fulfillment of Contract No. BOA
68-01-1541, Task Order No. 32, by Arthur D. Little, Inc., Cambridge,
Massachusetts. Work was completed as of September, 1975.
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This report is being released and circulated at approximately the
same time as publication in the Federal Register of a notice of interim
final and proposed rule making under sections 304(b) and 306 of the Act
for the subject point source category. The study is not an official EPA
publication. It 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.
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TABLE OF CONTENTS
PAGE
List of Tables xi
List of Figures xxv
I. EXECUTIVE SUMMARY 1
II. INTRODUCTION AND METHODOLOGY 15
A. PRESCREENING APPROACH 17
B. GENERAL IMPACT APPROACH USED FOR DETAIL STUDY 17
C. THE IDEAL APPROACH VS. PRACTICAL CONSTRAINTS 24
D. SPECIFIC TECHNIQUES 28
III. OVERVIEW OF THE ORGANIC CHEMICALS INDUSTRY 45
A. BASIC INDUSTRY STRUCTURE 45
B. RAW MATERIALS 47
C. INDUSTRY ECONOMIC CONSIDERATIONS 51
IV. HIGH PURITY ISOBUTYLENE BY SULFURIC ACID EXTRACTION 61
A. SUMMARY 61
B. INDUSTRY BACKGROUND 62
C. ECONOMIC IMPACT 71
V. ADIPONITRILE VIA CHLORINATION OF BUTADIENE A:;:. HEXA-
METHYLENEDIAMINE VIA HYDROGENATION OF ADIPCUITRILE 76
A. SUMMARY 76
B. INDUSTRY BACKGROUND FOR ADIPONITRILE BASED ON
CHLORINATED BUTADIENE 81
C. INDUSTRY BACKGROUND FOR HEXAMETHYLENEDIAMINE FROM
ADIPONITRILE 87
D. ECONOMIC IMPACT ON ADIPONITRILE BY CHLORINATION OF
BUTADIENE AND HEXAMETHYLENEDIAMINE BY HYDROGENATION
:.'F A.DJPCNITR1LF, O",
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TABLE OF CONTENTS (Cont'dJ
PAGE
VI. SECONDARY BUTYL ALCOHOL BY HYDROLYSIS OF BUTYLENE
AND METHYL ETHYL KETONE BY DEHYDROGENATION OF SECONDARY
BUTYL ALCOHOL 10°
A. SUMMARY
100
B. INDUSTRY BACKGROUND FOR SECONDARY BUTYL ALCOHOL BY
HYDROLYSIS OF BUTYLENE 106
C. INDUSTRY BACKGROUND FOR METHYL ETHYL KETONE 112
D. ECONOMIC IMPACT ON METHYL ETHYL KETONE BY DE-
HYDROGENATION OF SECONDARY BUTYL ALCOHOL AND
SECONDARY BUTYL ALCOHOL BY HYDRATION OF NORMAL
BUTENE 123
VII. ACRYLONITRILE FROM PROPYLENE AND AMMONIA 128
A. SUMMARY 128
B. INDUSTRY BACKGROUND 131
C. ECONOMIC IMPACT 139
VIII. BENZOIC ACID BY AIR OXIDATION OF TOLUENE 146
A. SUMMARY 146
B. INDUSTRY BACKGROUND 147
C. uCGNOMIC IMPACT 160
IX. ISOPROPYL ALCOHOL FROM PROPYLENE 164
A. SUMMARY 164
B. INDUSTRY BACKGROUND 165
C. ECONOMIC IMPACT 179
X. METHYL CHLORIDE FROM METHANE 184
A. SUMMARY 184
B. INDUSTRY BACKGROUND 187
C. ECONOMIC IMPACT 202
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TABLE OF CONTENTS (Cont'd)
PAGE
XI. METHYLENE CHLORIDE FROM METHANE (CH2C12) 206
A. SUMMARY 206
B. INDUSTRY BACKGROUND 209
C. ECONOMIC IMPACT 218
XII. CHLOROFORM FROM METHANE CHLORINATION 222
A. SUMMARY 222
B, INDUSTRY BACKGROUND 225
C. ECONOMIC IMPACT 234
XIII. CARBON TETRACHLORIDE FROM METHANE 238
A. SUMMARY 238
B. INDUSTRY BACKGROUND 241
C. ECONOMIC IMPACT 249
XIV. CALCIUM STEARATE BY NEUTRALIZATION AND PRECIPITATION 254
A. SUMMARY 254
B. INDUSTRY BACKGROUND 257
C. ECONOMIC IMPACT 268
XV. HYDRAZINE BY PARTIAL OXIDATION OF AMMONIA 271
A. SUMMARY 271
B. INDUSTRY BACKGROUND 274
C. ECONOMIC IMPACT 280
XVI. MALEIC ANHYDRIDE BY OXIDATION OF BENZENE 282
A. SUMMARY 282
B. INDUSTRY BACKGROUND 285
C. ECONOMIC IMPACT 297
Vll
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TABLE OF CONTENTS (Cont'd)
PAGE
XVII. PRESCREENING ANALYSIS 300
1. BENZENE, TOLUENE, AND XYLENE - REFORMING AND
EXTRACTION
2. CHLOROBENZENE - CHLORINATION OF BENZENE 302
3. CITRONELLOL AND GERANIOL - PROCESSING OF
CITRONELLOL OIL 302
4. CUMENE - BENZENE AND PROPYLENE 303
5. DIPHENYLAMINE - DEAMMONATION OF ANILINE 303
6. ETHYL ACETATE - ESTERIFICATION OF ETHANOL AND
ACETIC ACID 303
7. HEXAMETHYLENEDIAMINE - AMMONOLYSIS OF 1,6-
HEXANEDIOL 304
8. IONONE AND METHYL IONONE - CONDENSATION AND
CYCLIZATION OF CITRAL 304
9. METHYL SALICYLATE - ESTERIFICATION OF SALICYLIC
ACID WITH METHANOL 305
10. ORTHO-NITROANILINE - AMMONOLYSIS OF 0-NITROCHLORO-
BENZENE 305
11. PARA-AMINOPHENOL - CATALYTIC REDUCTION OF NITRO-
BENZENE 306
12. PARA-NITROANILINE - AMMONOLYSIS OF P-NITROCHLORO-
BENZENE 306
13. PARA-XYLENE - FRACTIONAL CRYSTALLIZATION 307
14. PHTHALIC ANHYDRIDE 307
15. PLASTICIZERS - CONDENSATION OF FHTH/-' ;C ANHYDRIDE 308
16. TANNIC ACID - EXTRACTION 309
IX
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LIST OF TABLES
TABLE NO. PAGE
1-1 Total Annual Cost For Effluent Guide-
lines And As A Percent Of Selling Price 4
1-2 Investment Cost As Percent Of Estimated
Production Investment 6
1-3 Price Increases And Profit Reductions 9
II-l Estimated BPCTCA Treatment Costs And
Investments 33
II-2 Estimated BATEA Treatment Costs And
Investments 37
III-l Concentration Of The Organic Chemicals
Industry 1967 46
III-2 Organic Chemical Industry Sales Value 48
III-3 Organic Chemical '"ndustry Production
Volume 49
III-4 Organic Chemical ndustry Sales Volume 50
III-5 Profitability Of U.S. Basic Chemical
Industry 53
III-6 Capital Expenditures 55
III-l U.S. Balance Of Trade In Organic
Chemicals 59
IV-1 Isobutylene By Sulfuric Acid Extraction • 3
IV-2 Estimated Manufacturing Costs For Pro-
duction Of High Purity Isobutylene By
Sulfuric Acid Extraction 70
V-l Adiponitrile From Chlorination Of
Butadiene - Hexamethylenediamine From
Adiponitrile 78
V-2 Estimated Effluent Treatment Cost In
Medium Complexes For Adiponitrile And
Hexamethylenediamine 80
XI
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LIST OF TABLES (Cont'd)
TABLE NO. PAGE
V-3 Production, Exports, Imports And
Apparent Consumption Of Adiponitrile
Based On Butadiene Raw Material 82
V-4 Adiponitrile By Raw Material 84
V-5 Adiponitrile Producers Using Butadiene 86
V-6 Production, Imports, Exports And Apparent
Consumption Of HMDA 88
V-7 Consumption Of HMDA By End Use 89
V-8 Production, Sales And Captive Use Of
Hexamethylenediamine 91
V-9 HMDA Producers Using Adiponitrile - 1971 93
V-10 Estimated Cost Of Manufacturing Adiponitrile
And Hexamethylenediamine 94
V-ll Estimated Capacity, Production And
Capacity Utilization Of HMDA 96
VI-1 MEK By Dehydrogenation Of Secondary Butyl
Alcohol 103
VI-2 Estimated Effluent Treatment Cost In Large
Complexes For Secondary Butyl Alcohol And
Methyl Ethyl Ketone 105
VI-3 Sec-Butyl Alcohol Producers 109
VI-4 Estimated Manufacturing Costs For
Secondary Butyi Alcohol 110
VL-5 List Prices For Sec-Butyl Alcohol 111
VI-b Production, Fot -ign i'tade Ard jpr nt
Consumption 0! MEK 113
Vi-7 MEK Consumption By End Use ]n 1972 115
VI-8 Methyl Ethyl Ketone Producers 118
VI-9 Estimated Cos.. Of Manufacturing Methyl
Enhyl "••'tone 120
• i
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LIST OF TABLES (Cont'd)
TABLE NO. PAGE
VI-10 Actual Versus List Prices For MEK 121
VII-1 Acrylonitrile From Propylene And Ammonia 129
VII-2 Production, Foreign Trade And Apparent
Consumption Of Acrylonitrile - All
Processes 132
VII-3 Consumption of Acrylonitrile 133
VII-4 Production, Sales And Captive Use Of
Acrylonitrile - All Processes 135
VII-5 % Production Of Acrylonitrile By Propylene/
Ammonia Route 136
VII-6 Acrylonitrile Producers 138
VII-7 Estimated Cost of Manufacturing Acryl-
onitrile 140
VII-8 Actual Vs. List Prices For All Acrylonitrile 141
VII-9 Capacity, Production And Capacity Utiliza-
tion For Acrylonitrile From Propylene/
Ammonia 142
VIII-1 Benzoic Acid By Air Oxidation Of Toluene 148
VIII-2 Production, Foreign Trade And Apparent
Consumption Of Benzoic Acid 150
VIII-3 Benzoic Acid Consumption By End Use In 1972 152
VIII-4 Captive Versus Commercial Cons'j iption Of
Benzoic Acid 154
VIII-5 Benzoic Acid Production 156
VIII-6 Estimated Cost Of Manufacturing Benzoic
Acid 158
VIII-7 Actual Versus List Prices For Benzoic
Acid 159
xv
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LIST OF TABLES (Cont'd)
TABLE NO. PAGE
IX-1 Isopropylene Alcohol From Propylene 166
IX-2 Production, Foreign Trade And Apparent
Consumption Of Isopropyl Alcohol 168
IX-3 Isopropyl Alcohol Consumption By End Use -
1972 170
IX-4 Historic Volume Of Isopropyl Alcohol Con-
sumption By End Use 172
IX-5 Captive Vs. Commercial Consumption Of
Isopropyl Alcohol 174
IX-6 Isopropyl Alcohol Producers - 1973 176
IX-7 Estimated Manufacturing Costs For Iso-
propyl Alcohol 177
IX-8 Actual Vs. List Prices For Isopropyl
Alcohol 178
X-l Methyl Chloride From Methane 185
X-2 Production, Foreign Trade And Apparent
Consumption Of Methyl Chloride 188
X-3 Consumption Of Methyl Chloride By End Use 190
X-4 Froductir.. Sales And Captive Use For
Methyl f ;oride 192
X-5 Methyl ,-7 Estimat, ^.-st )T Manufar ar. Chlor-
inated 1-• hane Thermal Cb ,>r< .tion
Procers \97
X-8 Pro-Rated lanufacturin^ Costs For Chlor-
inated Methane Joproduets From Thermal
Chlorinaulrn Process 198
xvi
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LIST OF TABLES (Cont'd)
TABLE NO. PAGE
X-9 Actual Vs. List Prices - Methyl Chloride 200
X-10 Industry Operating Capacity - Methyl
Chloride 201
X-ll Cost Of Effluent Treatment To Achieve
BPT And BAT Control Levels 204
XI-1 Methylene Chloride From Methane 207
XI-2 Production, Foreign Trade And Apparent
Consumption Of Methylene Chloride 210
XI-3 Consumption Of Methylene Chloride By
End Use 211
XI-4 Production, Sales And Captive Use For
Methylene Chloride 213
XI-5 Methylene Chloride 216
XI-6 Actual Vs. List Prices - Methylene Chloride 217
XI-7 Industry Operating Capacity - Methylene
Chloride 219
XII-1 Chloroform From Methane 223
XII-2 Production Foreign Trade And Apparent
Consumption Of Chloroform 226
XI1-3 Consumption Of Chloroform By End Use 228
XII-4 Production, Sales And Captive T; r
Chloroform 229
XII-5 Chloroform 232
XII-6 Actual Vs. List Prices - Chloroform 233
XII-7 Industry Operating Capacity - Chloroform 235
xix
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LIST OF TABLES (Cont'd)
TABLE NO.
XIII-1 Carbon Tetrachloride From Methane
XIII-2 Production, Foreign Trade And Apparent
Consumption Of Carbon Tetrachloride
XIII-3 Consumption Of Carbon Tetrachloride By
End Use
XIII-4 Production, Sales And Captive Use For
Carbon Tetrachloride
XIII-5 Carbon Tetrachloride
XIII-6 Actual Vs. List Price - Carbon Tetra-
chloride
XIII-7 Industry Operating Capacity
XIV-1 Precipitated Calcium Stearate
XIV-2 Production, Foreign Trade, And Apparent
Consumption For Calcium Stearate
XIV-3 Calcium Stearate End Use Pattern
XIV-4 Production, Sales And Captive Use Of
Calcium Stearate
XIV-5 Calcium Stearate Producers And Plant
Locations
XIV-6 Estimated Manufacturing Costs For
Precipitated Calcium Stearate
XIV-7 Actual V?. List Price History For Calcium
Stearate
XV-1 Hydrazine By Partial Oxidatior )f Ammonia
XV-2 Estimated End Use Breakdown Fo Hydrazine
XV-3 Hydrazine Producers and Locations
XV-4 Manufacturing Cost Estirate For Hydrazine
PAGE
239
242
243
245
248
250
251
255
258
259
262
264
266
267
272
275
278
279
xxi
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LIST OF TABLES (Cont'd)
TABLE NO. PAGE
XVI-1 Maleic Anhydride By Oxidation Of Benzene 283
XVI-2 Production, Import, And Apparent Consumption
Of Maleic Anhydride 286
XVI-3 Maleic Anhydride Consumption By End Use 287
XVI-4 Captive Consumption Of Maleic Anhydride 290
XVI-5 Maleic Anhydride Producers, Location And
Capacity 292
XVI-6 Estimated Cost Of Manufacturing Maleic
Anhydride From Benzene 294
XVI-7 Published Vs. Actual Prices Per Maleic
Anhydride 295
XVI-8 Maleic Anhydride Production Vs. Capacity 296
XXlll
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LIST OF FIGURES
FIGURE NO. PAGE
1 Refinery/Petrochemical Interface 52
XXV
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I. EXECUTIVE SUMMARY
This report deals with the definition of the economic impact of
proposed water effluent guidelines for selected products of the organic
chemicals industry which are included in Interim Final Effluent Guidelines,
Organic Chemicals Industry, Phase II. For the purpose of the analysis,
the industry is defined as products produced within SIC Codes 2865 and
2869.
The economic contractor was provided with effluent abatement cost
and investment data for the evaluation'of economic impact on 49 product-
process combinations. Thirty-three of these products or product groups
were studied in detail. The remainder were eliminated from detailed
study by a prescreening process on the basis of apparently low potential
for significant economic impact. The products covered by this analysis,
including 15 of those studied in depth and those which were prescreened,
are shown in Table 1-1. Others studied in depth were excluded from
the current Interim Final regulations because of potentially severe
economic impact.
INDUSTRY DESCRIPTION
The organic chemicals industry is characterized by its diversity
and large number of individual products, optional raw materials and
processes, degree of integration, and rapidly changing technology. In
total, the industry in 1972 included 674 establishments, according to
the U.S. Census of Manufacturers, accounting for sales of approximately
$5.8 billion. The great majority of these establishments were, in
reality, plant complexes many of which were integrated forward or back-
ward to products falling outside of conventional industry definition.
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Each of the products of manufacture, whether discrete finished
chemicals for sale or products which are one step in the chain of con-
version within a complex, generates a specific raw waste load and con-
sequent water treatment costs and investment. Since there was no apparent
manner in which to meaningfully handle these individual products or com-
plexes in aggregate form for the definition of economic impact, this
report deals with some of the individual products of the industry, on a
product-by-product basis, as manufactured by the specific process for
which effluent treatment cost and investment data were provided.
METHODOLOGY
As a means of assessing the economic impact of water treatment
costs on those products studied in depth, we utilized a specific analytical
framework to arrive at the impact judgments. In addition to providing
us with a systematic approach to the individual products, the methodology
provides an explicit format in which conclusions are presented.
The development of the data and judgments within the framework is
based on an analysis of the factors affecting the likelihood of the
producer's: (a) passing on additional costs as price increases,
(b) absorbing the costs, or (c) shutting his plant down. These factors
include;
1. An analysis of market characteristics including: size and
growth, product uses, substitute products, captive require-
ments, product prices, and other product specific considera-
tions .
2. Description of supply characteristics including: manu-
facturing routes, the number and capacity of producers,
raw materials, and estimated manufacturing economics for a
"typical producer".
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These data, in conjunction with the costs and investments required
for effluent treatment, were then summarized in an impact analysis matrix
and judgments made as to probable economic impact.
The guidelines contractor provided cost and investment data required
for meeting the proposed guidelines on the basis of producing plants in
a free standing condition; that is, not associated in plant complexes
with common effluent treatment facilities. In order to more closely
approximate actual industry conditions, we modified these costs, from
basic data provided by the guidelines contractor, to take advantage of the
economies of scale in treating a specific plant's effluent in a medium-
sized complex (3 million gallons per day) and a large complex (10 million
gallons per day). We then estimated how the existing plants were dis-
tributed among the three categories and developed a range of effluent
treatment costs depending upon the distribution of plants.
ECONO: 1C IMPACT
Table 1-1 shows the annual costs for pollution control in absolute
terms and as a percent of 1973 selling prices. As shown in the table,
the annual costs for pollution control are equal to or less than five per-
cent of 1973 selling prices for all product segments except acrylonitrile,
benzoic acid, hydrazine, isobutylene, maleic anhydride, ionones, and
o-nitroaniline.
Table 1-2 provides a summary of estimated investment costs in
pollution abatement as a percent of estimated plant investment. This
is provided only for those products studied in detail where estimates
cf production investment were developed.
The cost estimates presented represent total pollution control costs
and do not include the possibilities of investment in pollution control
that have already taken place or annual costs which are currently borne.
Probably the incremental costs, and therefore impact, associated with
the effluent guidelines will be less than as defined in this report.
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TABLE 1-1
TOTAL ANNUAL COST FOR EFFLUENT GUIDELINES AND
AS A PERCENT OF SELLING PRICE
Annual Cost as Percent Total Annual Cost
of Selling Price2 ($MM)'
In Depth Study Product BPT BAT BPT BAT
Acrylonitrile (Propylene) 0.6-0.7 4.6-5.3 .85 6.24
Adiponitrile (Butadiene Chlorination) 3 3 .75 2.85
Benzole Acid (Toluene) 0.3-25.0 1.4-26.76 4.54 4.93
Calcium Stearate (Neut. & Precip.) 3.8 5.1 .60 .80
Carbon Tetrachlonde (Thermal Chi.) 0.6-2.8 1.0-3.7 .55 .83
Chloroform (Thermal Chi.) 0.6-2.6 0.9-3.3 .24 .32
Hexamethylenediamine (Adip.) 3 3 .14 .83
Hydrazine (Ammonia) 6.3 7.5 .86 1.01
Isobutylene (Sulfuric Acid Ext.) 3.3-12.3 6.7-18.5 1.58-5.76 3.14-8.64
Isopropanol (Propylene) 0.5 0.7-0.9 .55 .79
Maleic Anhydride (Benzene) 10.7 10.7 4.51 4.51
Methyl Chloride (Thermal Chi.) 0.7-3.1 1.1-4.0 .32 .41
Methyl Ethyl Ketone (Sec. Butyl) 0.4 1.8 .09 .14
Methylene Chloride (Thermal Chi.) 0.5-2.2 0.8-2.8 .21 .33
Sec-Butanol (Butylene) .06 .50
15.85- 28.34-
20.03 33.84
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TABLE 1-1 (Continued)
Annual Cost as Percent
of Selling Price4'5
Prescreening Study Products BPT BAT
BTX Aromatics (Ref. Extraction) 1.8 2.6
Chlorobenzene (Benzene) 2.6* 3.3*
Citronellol & Geraniol (Cit. Oil) 2.0 3.6
Cumene (Benz. & Propyl.) 0.03* 0.03*
Disphenylamine (Aniline) 1.6* 1.8*
Ethyl Acetate (Ethanol) 1.3* 1.4*
Hexamethvlenediamine (Hexan.) 1.2 1.5
lonone & Methyl-lonones (Citral) 7.4* 7.4*
Methyl Salicylate (Salicylic Acid) 0.7 1.0
o-Nitroaniline (o-Nitrochl. benz.) 3.9 6.5
p-Aminophenol (Nitrobenzene) 2.1 2.5
p-Nitroaniline (p-Nitrochl. benz.) 6.6 4.3
p-Xylene (Fract. Cryst.) 1.7 2.0
Phthalic Anhydride (Napth. & o-Xyl.) 2.2 2.9
Plasticizers (Phth. Anhy.) 1.2 2.1
Tannic Acid (Extraction) 1.3 2.1
1. Annual cost includes depreciation, cost of capital, operations and maintenance, and energy
costs. Depreciation and capital cost was calculated using the capital recovery method at 8%
over 20 years. Cost all on 1973 basis.
2. Selling price and pollution control cost on 1973 basis except for items marked with an
asterisk which are on a 1972 basis. Ranges indicate scale economies resulting from variations
in the size of the treatment system required.
3. Cost-price ratio for adiponitrile not computed separately since almost all adiponitrile is used
captively and has no market price. The. combined cost incidence of treatment for adiponi-
trile and hexamethylenediamine on the price of hexamethylenediamine is 0.5% and 1.9%
for BPT and BAT, respectively.
4. Selling price and pollution control cost on 1972 basis except for items marked with an
asterisk which are on a 1971 basis. Ranges indicate scale economies resulting from variations
in the size of the treatment system required.
5. Total annual cost for prescreening products is probably higher than reality since limited data
precluded factoring in scale economy in treatment costs in most cases.
6. See discussion under Prices.
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TABLE 1-2
INVESTMENT COST AS PERCENT OF
ESTIMATED PRODUCTION INVESTMENT1
BPT BAT
Acrylonitrile (Propylene) 3.6-4.1 13.3-19.1
Adiponitrile (Butadiene — Chlorination) 2 2
Benzole Acid - Toluene 3.2-212 6.7-227
Calcium Stearate (Neut. & Precip.) 116 158
Carbon Tetrachloride (Thermal Chlor.) 1.5-5.9 1.9-7.7
Chloroform (Thermal Chlor.) 1.5-5.9 1.9-7.7
Hexamethylenediamine (Adiponitrile) 4.4 9.2
Hydrazine (Ammonia) 18.5 19.1
Isobutylene (Sulfuric Acid Ext.) 12-47 19-68
Isopropanol (Propylene) 6.1-7.3 8.0-10.1
Maleic Anhydride (Benzene) 15.1 15.1
Methyl Chloride (Thermal Chlor.) 1.5-5.9 1.9-7.7
Methylene Chloride (Thermal Chlor.) 1.5-5.9 1.9-7.7
Methyl Ethyl Ketone (Sec. Butanol) 3.1 5.8
Secondary Butanol (Butylene) 0.6 1.9
1. Production investment based on Arthur D. Little, Inc., estimate of cost for
typical production plant, installed, mid-1970 basis. Ranges indicate a spread
in treatment cost across plant size categories by wastewater flow volume and
related economy of scale in treatment cost.
2. Production investment estimated for the combined process of butadiene-
adiponitrile-hexamethylenediamine. Figures shown are for the combined
treatment cost impact.
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Costs for New Source Performance Standards are intermediate between
BPT and BAT (sometimes equal to one or the other). They were not addressed
specifically in this study, but general observations can be made by ex-
tension of BPT or BAT data.
Economic impact deals primarily with the effects of the effluent
abatement costs on prices, production, plant closures, employment,
community and regional development, industry growth, and the balance
of trade. It should be recognized that a precise analysis of economic
impact is difficult due to numerous other economic forces at work within
an industry and the great variability between plants in such factors as
pollution control costs, profitability, and return on investment. In
a study such as this, it is not feasible to deal with these factors
on a plant-by-plant or product-by-product basis. Subject to this
qualification, the major findings of the study are summarized below.
Generally the costs of compliance are low and are not expected to
significantly affect prices, profitability, industry production, or
growth in the product-process segments covered by these guidelines.
In most cases, it is expected that these costs can be passed on to the
consumer through price increases ranging from 0.03 to 25 percent of 1973
selling prices for 1977 and from 0.03 to 27 percent by 1983. However,
in four segments — isobutylene, isopropanol, methyl ethyl ketone, and
secondary butanol — some producers will have to absorb these costs in
their profit margins. The economic contractor does not expect, however,
that this will result in any plant closures, significant output changes,
or impact on employment or communities.
A trade loss of about $6 million in 1977 and $18 million in 1983
(in 1973 dollars and prices) is anticipated in the maleic anhydride from
benzene segment resulting from the combination of abatement costs and
changes in duty rate. Although difficult to evaluate in this study,
irapacts on industry growth attributable to pollution control requirements
are expected to be minimal.
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PRICES
In general, due to such factors as strong market conditions, low
substitutibility, tight supply, concentrated production, and low foreign
competition, singly or in combination, the economic contractor anticipates
that the cost of proposed guidelines will be passed on to the consumer
through price increases. These expected price increases (measured by
the annual cost for pollution control as a percent of 1973 selling
prices) range from 0.03 to 25 percent for 1977 requirements and from
0.03 to 27 percent by 1983. In four segments, prices are not expected
to fully reflect pollution control costs, specifically isobutylene,
isopropanol, methyl ethyl ketone, and secondary butanol. (See Table 1-3).
Although price}increases are anticipated in the high purity iso-
butylene segment, these increases will probably not be sufficient to
cover the full costs of abatement for all producers. Due to high com-
petition brought about by relatively low capacity utilization and the
coproduct nature of isobutylene production, it is probable that actual
price increases will approximate the nominal treatment costs for plants
in large chemical complexes. Thus, the producers in relatively free
standing plants who tend to have higher unit treatment costs will have
to absorb part of their treatment costs. Based upon the economic con-
tractor's estimate, it appears that isobutylene is sold below cost,
but this is assumed to be due to the vagaries of coproduct cost accounting
and is further complicated by a lack of published information on this
product.
Producers of isopropanol from propylene will be unable to increase
prices to fully cover the cost of abatement due to overcapacity because
of growing competition on the major end product - acetone - from lower
priced, cumene-based acetone and with isopropanol itself from other
solvent alcohols. Acetone from cumene is a coproduct of phenol manufacture
and must be disposed of as phenol is produced. This economic fact keeps
a tight lid on acetone prices and therefore isopropanol prices. The
8
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TABLE 1-3
PRICE INCREASES AND PROFIT REDUCTIONS1
Price Increases Price Increases Expected Reduction
Affected
Product
Isobutylene
Isopropanol
Methyl Ethyl Ketone
Secondary Butanol
1. Product-process segments which are expected to completely pass on abatement costs in the form
of price increases are omitted from this table. Expected price increases for those segments can be
found in Table II,
2. Isobutylene appears to have a negative gross margin which may result from its nature as a co-
product and a lack of published data against which to evaluate process economics estimates.
Affected
Producers
Free-Standing
All
All
All
Required (%)
BPT
12.3
0.5
0.2
0.1
BAT
18.5
0.7-0.9
0.3
0.9
Expected (%)
BPT
3.3
0.3
0
0
BAT
6.7
0.4
0
0
in Gross Margin (%)
BPT
2
0.7
0.8
0.2
BAT
2
1.5
1.3
1.4
-------
contractor estimates that treatment costs would appear in higher base
prices, but would be discounted to effectively 50% pass through in a
strategy of sharing treatment costs equally with consumers.
Producers of methyl ethyl ketone (MEK) and secondary butyl alcohol
(95% captively used to produce MEK) will not be able to increase prices
in order to pass on the costs of pollution control. Price increase for
these segments is restrained by strong competition from competitive
solvents, uncertainties associated with state and federal regulations
concerning polyvinyl chloride polymers which currently utilize MEK in
surface coating formulations, and direct competition from MEK produced
by direct oxidation of butanes, both domestic and imports. Thus, it is
expected that the modest increase in cost will have to be absorbed by
the producers.
Two other segments merit comment because of very high costs even
though full cost pass through has been predicted. The very wide range
in treatment costs for benzoic acid (0.4 to 24.9% and 1.4 to 26.9%
of selling price for BPT and BAT, respectively) would normally suggest
a severe price increase constraint for the smaller plants. This is not
the case, however, since the free standing plants, although facing much
higher abatement costs, are the major producers in this industry,
together controlling 87% of industry capacity. Thus, they are able to
set the prices for the industry. In addition, the large plant of the
free standing producers would significantly reduce costs as a proportion
of investment below that defined in the guideline document. The other
similar situation concerns calcium stearate with investment costs for
BPT and BAT equal to 116% to 158% of in-place investment. This is
considered a misleading ratio because of the batch nature of calcium
stearate production. The cost for treatment (as specified by the
Development Document) while accurately applying to calcium stearate
during those periods when it is being produced would also apply to all
other similar products ^arufactured ir that plant. Thus, the costs
would actually be spread over i numbei of products of esterification to
10
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a level which may well not appear so disproportionately large. In
addition, production investment is modest compared to annual sales of
the product from the facility.
PRODUCTION
Since in most cases the costs of abatement will be passed on
through price increases, the guidelines should have no significant
effect on plant profitability or industry production. As indicated
above, the exceptions to this conclusion are the isobutylene, iso-
propanol, methyl ethyl ketone, and secondary butanol segments of the
industry. Although plants in these segments are not expected to fully
recover abatement costs through price increases and may experience
reduced profit margins, the reductions are expected to be modest (see
Table 1-3) in most cases. As a result, no plant shutdowns are expected.
In the case of isobutylene, examination of the process economics
might suggest a potential shutdown for the single plant which is not
part of a major petrochemical complex. However, this is not considered
a significant threat because of the coproduct nature of isobutylene.
The primary product from the mixed C, - hydrocarbon feedstock is butadiene,
a major chemical precursor. Extraction of isobutylene must be accomplished
in the manufacture of butadiene, and it is suspected that this producer will
not have other viable options for the removal of isobutylene. Thus, the
real economics of a shutdown decision are probably masked by the complexities
of coproduct cost accounting.
EMPLOYMENT AND COMMUNITY IMPACTS
/
Since no plant shutdowns or significant reductions in output are
expected, no loss of employment or community impacts are anticipated.
11
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BALANCE OF TRADE EFFECTS
In all but one case, because there are no significant changes in
domestic supply predicted nor price changes sufficient to encourage
accelerated import competition, no U.S. balance of trade effects are
expected. The sole exception is the production of maleic anhydride
by benzene oxidation. The combination of the incremental abatement
cost facing U.S. producers and a reduction in the rate of duty on
maleic anhydride produced from butene (a relatively new technology)
act to make foreign producers more competitive in U.S. markets. The
expected result is that U.S. producers will expand production —
perhaps by butene oxidation — in meeting future demand growth
simultaneous with an increase in imports. The predicted result is an
increase in imports of $6 million in 1977 and $18 million in 1983, in
1973 dollars and prices.
INDUSTRY GROWTH
Attempts to assess the impact of abatement costs on industry growth
are frustrated by two conditions. The first is an analytical problem
resulting from evaluating economic impact on a product basis in an
industry characterized by large, multi-product complexes. Corporate
decisions on expansion of existing plants or construction of new ones
are not likely to be made on the basis of individual products (and
attendant pollution control costs) but rather on the basis of groups
of related chemicals. The second problem is intrinsic to the industry
itself. The chemical industry is noted for its rapid product and
process obsolescence and rapidly fluctuating supply and demand for given
products. Against this backdrop, it is difficult or impossible to
predict growth effects from abatement costs for specific products.
In general, however, it seems fair to state that the relatively
low costs and the ability to raise prices will lead to minimal effects
on industry growth. Over the long term, further concentration and over-
-------
seas relocation are reasonable expectations, but the degree to which
water pollution control regulations alone will determine these changes
is probably modest in the specific products studied.
13
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II. INTRODUCTION AND METHODOLOGY
The following report is submitted in compliance with competitive task
order WA-74X-058 under Basic Ordering Agreement No. 68-01-1541. The
study is intended to supply the Environmental Protection Agency with
analyses of the economic impact on the certain specified organic chemicals
pollution abatement requirements under the Federal Water Pollution Control
Amendments of 1972. The study is Phase II dealing with the organic
chemicals industry and extends the list of products considered in the
Phase I study previously submitted.
The data available in the Organic Chemicals Industry Phase II Develop-
ment Document for effluent limitation guidelines deals with specific
product-process combinations. Some products under consideration are manu-
factured by more than one process. As data on effluent control are specific
to the process being used, the economic impact analysis must perforce be
limited to "consideration of that portion of the total production accounted
for by the designated process. Forty-nine product-process combinations
were evaluated in detail. Those covered in this report include the
following:.
1. Isobutylene by Sulfuric Acid Extraction.
2. Adiponitrile Based On Chlorination of Butadiene.
3. Hexamethylenediamine from Adiponitrile.
4. Secondary Butyl Alcohol by Hydrolysis of Butylene.
5. Methyl Ethyl Ketone by Dehydrogenation of Secondary Butyl Alcohol.
6. Acrylonitrile from Propylene and Ammonia.
7. Benzoic Acid by Air Oxidation of Toluene.
8. Isopropyl Alcohol from Propylene.
9. Methyl Chloride from Methane. '
10. Methylene Chloride from Methane.
11. Chloroform from Methane.
12. Carbon Tetrachloride from Methane.
15
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13. Calcium Stearate by Neutralization and Precipitation.
14. Hydrazine by Partial Oxidation of Ammonia.
15. Maleic Anhydride by Oxidation of Benzene.
A series of other products were considered and eliminated from detailed
consideration by the economic contractor or by the Environmental Protection
Agency. Those products eliminated from detailed consideration by the
economic contractor's prescreening process include:
1. Benzene, Toluene and Xylene by Reforming.
2. Citronellol and Geraniol by Extraction.
3. Tannic Acid by Extraction.
4. Naphthenic Acid by Extraction from Caustic Sludge of
Petroleum Refineries.
5. Hexamethylenediamine from 1,6-Hexanediol.
6. 0-Nitroaniline by Amminolysis of 0-Nitrochlorobenzene.
7. P-Nitroaniline by Amminolysis of P-Nitrochlorobenzene.
8. P-Xylene.
9. Phthalic Anhydride from Naphthalene.
10. Phthalic Anhydride from 0-Xylene.
11. Plasticizers by Condensation of Phthalic Anhydride with an
Alcohol.
Other products prescreened out of consideration by the Environmental
Protection Agency include:
1. Chlorobenzene by Chlorination of Benzene.
2. Cumene from Benzene and Propylene.
3. Diphenylamine by Deammonation of Aniline-
4. Ethyl Acetate from Ethanol.
5. lonone and Methyl lonone.
16
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A. PRESGREENING APPROACH
Due to the large number of individual organic chemical products for
which guideline data were available, the economic contractor briefly
reviewed all products being considered in order to most appropriately
focus the total effort of Phase II. The general guidelines used were:
• to eliminate from detailed consideration those products in
which the BAT treatment cost in a free standing plant was
a minor proportion (less than 3%) of the 1972 sales price.
• to include those major products which were judged to have
low manufacturing margins even if abatement costs were modest
and costs might not be passed through.
• to prescreen out those products which were of minor commercial
significance (less than $5 million sales per year).
In addition, several products on which guideline data had been
developed were eliminated by the Environmental Protection Agency prior
to prescreening by the economic contractor. These were generally
products whose manufacture on the basis of the guideline document
generated sufficiently low quantities of effluent so as to require no
treatment to pass the effluent guideline standards contemplated.
Further description of the list of products prescreened from in-
depth analysis is provided in the final section of this report.
B. GENERAL IMPACT APPROACH USED FOR DETAIL STUDY
Analysis of economic impact has been made on a product-by-product
basis. The assessment of the economic impact is based on the annual
treatment costs and capital investment data provided by the guidelines
contractor in conjunction with analyses of the industries (this case
specified as a specific product) in terms of its market characteristics,
17
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supply characteristics, prices, and supply/demand balance. Where a
specific product or chemical entity is made by more than one process, the
impact section of the analysis is limited to that specific process as the
effluent treatment costs and investment required vary by the type and
amount of effluent produced and this is dependent not only on the product
being manufactured but the process being used.
In order to deal with the question of economic impact in a generalized
fashion, we have developed an analytical framework to arrive at judgments
as to impact. In addition to providing us with a systematic method by
which to weigh each of the factors affecting the impact judgment, the
methodology also provides a format by which the basis for our conclusions
are clearly presented.
The basic premise behind the methodology is that a producer faced
with new investment in water treatment facilities could:
1. Continue to operate by: (a) passing on the additional cost
through price increases, or (b) absorbing the cost (thereby
reducing profits); or
2. Shut his plant down.
This premise, of course, reduces the impact of increased costs due
to water treatment to the simplest terms. In the real world, a result
of a higher cost for some process yielding some specific product would
most probably be some combination of these alternatives; e.g., a price
increase permitting the most efficient producer sufficient income to recover at
least part of his cost (but not enough to cover most of the cost of the
marginal producer).possibly reduced profit margins for the most efficient
producer partially offset by an increased market share resulting from
plant shutdowns by the marginal producer or producers.
18
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The approach we have taken in assessing the impact on each of the
product-process combinations is to first examine the likelihood that the
higher cost imposed on the industry by virtue of new water effluent
treatment guidelines will be defrayed, totally or in part, by higher
product prices. If the conclusion is that the treatment cost cannot be
passed on through price increases, the second part of the impact analysis
is to examine the likelihood that some or all of the plants in the industry
would be forced to shut down, taking into account both economic and
noneconomic factors.
1. Price Increase Constraints
The treatment cost per pound of product before taxes indicates
the magnitude of the price increase necessary to fully recover all treat-
ment costs (i.e., repay the investment and cover operating costs). The
larger the ratio of before tax unit treatment cost and actual unit selling
price, in general,the more difficult it will be to fully recover treatment
costs, all things being equal. Most of the treatment costs described in
our analysis of individual products indicate a range. This range exists
because of the existence of actual plants in the industry in effluent
treatment complexes as well as in free standing conditions. As detailed
later in this section, we have classified the plants producing any one
a.
particular product into those which are free standing, those in small
effluent treatment complexes and those in large effluent treatment com-
plexes. Costs provided by the guideline contractor were only for free
standing units. In practice, however, most of the plants we are dealing
with are in either large or small complexes and we have assumed these com-
plexes will have common waste treatment facilities with consequent
economies of scale.
19
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The first question we have addressed is whether conditions in
the specific competitive situation would permit price increases. In
general, the product's price history and the nature of those prices,
whether historically firm or widely dispersed and discounted, provide a
clue as to the possibility of price increases. More specifically,
however, the following factors are those which we have used in arriving
at the judgment as to whether price increases are feasible. Except in
unusual circumstances, no one factor would be overriding. Rather, the
judgment is based on a combination of factors.
In many cases, as illustrated in the body of this report, there
is a wide difference between the treatment cost in complexes versus
treatment costs of a free standing plant. In considering some products,
therefore, we have had to make the judgment as to whether the price
increases which will pertain in the long run will be sufficient not only
to cover those producers enjoying economies of scale in complexes, but
also those in free standing facilities.
The following factors, and the specified effects, were con-
sidered in judging the possibility for price increases:
(a) Substitute Pi: .u^ts: If substitute products exist,
price increases to cover the costs of water treatment would be more
difficult.
(b) Capacity Utilization: If capacity utilization for the
industry is low, price increases to cover the costs of water treat-
ment would be difficult.
(c) Captive Usage: If there is negligible captive usage for
the product under consideration, price increases to cover the cost
of water treatment would be difficult.
20
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(d) Demand Growth: Price increases are more difficult to
achieve in a static or declining market than in a growing market.
(e) Foreign Competition: If the market has been traditionally
served by foreign competitors (particularly if the foreign producers
are not faced with added water pollution abatement costs), price
increases are less likely.
(f) Price Elasticity of Demand: For some products, substantial
water pollution abatement costs, if passed on as price increases, could
result in reduced demand for the product and price increases would be
less likely.
(g) Basis for Competition: If the basis for competition in the
industry is primarily price as opposed to service or technology, cost
increases will be more difficult to pass on. This would tend to be
particularly true if there is a significant difference between unit
treatment costs of producers.
(h) Market Share Distribution: If the market share distribution
is fragmented (rather than concentrated in which case there often is a
dominant price leader), price increases would be more difficult.
(i) Number of Producers: If the market is served by many
producers (increasing the likelihood of manufacturing cost differences,
abatement cost differences, etc.), a condition exists constraining price
increases.
(j) Substitute Processes: In each of the individual products
under consideration, we are concerned with the abatement cost associated
with a particular process. If other processes exist and these are judged
to incur lower effluent treatment costs, the condition exists for con-
straining price increases by the process under consideration.
21
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In the final analysis, in considering all the factors specified
above, the contractor reached a judgment as to whether the producers of
the products by the specified process will be able to pass on effluent
treatment costs as price increases. If it does not seem likely that the
total costs for effluent abatement can be passed through as price
increases, the judgment was made as to the amount of these costs which would
be passed through as higher prices.
2. Plant Shutdown Factors
If treatment costs cannot be passed on as price increases, the
matrix approach to analysis says that the producer either absorbs these
costs or shuts down his plant. The shutdown decision on the part of the
producer will involve both economic and strategic (i.e., noneconomic)
considerations as follows:
(a) Profitability: The after tax cost of water effluent
treatment per pound of product produced compared with the unit after
tax net income measures the producer's ability to absorb the added cost.
(b) Cash Flow: Plant-; are liable to continue operating tem-
porarily at zero profitabil 1 .-.y (if necessary) if the plant is producing
a positive cash flow, particularly if it is in a stable or growing
market.
(c) Ratio of Investment in Treatment Facilities and Net Fixed
Investment: If the new investment in water treatment facilities is large
in comparison with existing plant investment (and other factors are
marginal), there will be a greater inclination for the producer to
shut, down plant facilities rather than make the investment in effluent
treatment. In some instances the availability of capital to the producer
may influence the shutdown decision.
22
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(d) Integration: The degree of backward or forward integration
is a factor in the shutdown decision. The producer with a significant
raw material position or one using the product for downstream manufacture
is less likely to curtail production of the nonintegrated producer.
(e) Chemical Complex: In addition to the economies of treating
effluent from a chemical complex in relation to treating the same
effluent from a free standing plant, the existence of plants in com-
plexes may tend to reduce the possibility of plant shutdown because of
the effect on other elements of the complex.
(f) Other Environmental Problems: If a company faces a sub-
stantial water and air pollution abatement (and/or unusual OSHA costs) ,
the magnitude of the environmental cost taken together may prompt plant
closing whereas any one taken alone would not. Very little data were
available to the contractor relative to the costs which will be incurred
due to requirements to meet other environmental and safety standards.
(g) Emotional Commitment: The emotional commitment of a company
to that particular product under consideration (taking into account
protection of competition position, prestige, history of the product
in the company's developments and importance of the product in the
company's long-range strategy) may be a factor in the shutdown decision.
(h) Ownership: Other things being equal, multi-industry
companies are more likely to shut down marginal plants than less diver-
sified producers. The premise is that the multi-industry company has other (and
better) investment opportunities than the single product company t
particularly a privately-held family business.
23
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In reaching decisions concerning probable future plant closures,
the contractor again must utilize his best judgment taking into
account all of the factors specified 'above. In many cases, one or two
factors may assume overwhelming importance and this can change from
situation to situation. As in the real world of decision making, however,
in the final analysis decisions are based on judgment as to what factors
are most important and how these will affect decisions by the companies
relative to plant closure. A rigorous quantitative analysis to "improve"
the possibility of closure is not possible within the scope of the work
given the number of individual products under consideration and, we
believe, would be no more reliable given the generalized history
approach required by this study.
C. THE IDEAL APPROACH VS. PRACTICAL CONSTRAINTS
Most major products manufactured by the U.S. organic chemicals industry
are produced under a range of conditions affecting both the products
manufacturing costs and costs of treating effluent. Products are pro-
duced in plants with significant variations in individual plant capacities
providing manufacturing economies of scale. In many cases, raw materials
are transferred from other manufacturing operations in the company.
These transfers may be made sc market price or at some other arbitrarily
defined cost to the consuming plant. In addition to manufacturing cost
differences, there will also be differences in treatment costs, depending
on the specific treatment methods applicable, whether the plant is in a
complex and the size of the complex for the joint treatment of effluents
from a number of different individual streams entering the complex. In
general terms, the larger the complex for effluent treatment the lower
the unit cost because of the economies of scale possible.
An "ideal" approach to the problem of defining economic impact would
require the detailed examination of each producer of the product under
consideration in its own particular circumstance.
24
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For each complex of plants, therefore, an "ideal" approach would
require specification of the waste water treatments currently in place,
under construction,or planned and the costs currently incurred as well
as the cost and investment necessary to meet the specified guidelines
standards. This in turn would require an analysis of the total waste
water flow system, how the production of each individual plant affects
this total, and the cost allocation method utilized to distribute total
effluent treatment costs back to the individual plants in the complexes.
For each product under consideration in either free standing plants
or complexes an "ideal" analysis would require a specific description of
the process utilized and the manufacturing costs experienced by each
individual producer. It would also require accurate definition of the
production capacity and planned capacity changes as well as the history
of production in the individual unit. Information required associated
with the manufacturing cost would include the actual prices and forecast
price for raw materials, expected product prices, and the degree of
backward and/or forward integration of the particular product in all
the particular companies under consideration.
As well as knowing manufacturing cost and degree of integration,
each product market condition would be specified. This would include
the significance of the product to the company in terms of supporting
other product lines, existing and potential competition as foreseen by
the producer, expected future growth in product demand for the particular
producer,and the existence of long-term contracts for the supply of
materials.
25
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Where a product is manufactured in a complex, as is usually the case,
detail would have to be developed on the effluent from the process in use.
This information would include the waste water flow from the plant, the
raw waste load, the requirement for a possibility of pretreatment
for entering the common effluent treatment system of the complex. In
addition, for each product the contractor would have to specify other
regulations and the cost associated with these regulations which could
affect production of the product. These could include the requirements
for air pollution abatement, and the requirements to meet OSHA standards.
In addition to the detailed analysis of each individual producer, an
extensive study would be required of the existing and future market and
technological conditions for each product in general. This study would
include an extensive analysis of competitive materials and their likely
future prices as the primary determinants of the elasticity of demand in
the product under consideration. This is an extremely complex job in
the synthetic organic chemicals industry because of frequent broad ranges
of inter-competition between end products manufactured from the synthetic
organic chemicals under consideration. As the competitive materials
themselves are subject to future price changes by virtue of effluent
control costs or other factors such as changing raw material costs,
the entire families of in*-;v competitive materials would have to be
studied simultaneously and all the factors affecting each product
taken into consideration. An "ideal" study would also, with the aid
and assistance of the producers,,forecast changes in process technology
™
which could affect manufacturing costs, product quality, or effluent.
In defining the likelihood of price increases and/or plant closures,
the data on waste water treatment costs by producer, manufacturing cost by
producer, and general market outlook by product would have to be placed
in broad context by a thorough understanding or profile of each of the
firms manufacturing the product under consideration. This would require
an analysis of the financial strengths of the individual companies, their
history in the business, alternate plants and products, and an understanding
of their general business strategy in the organic chemicals, industry.
26
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Finally, in order to define community effects of the projected plant
closures, it would be necessary to obtain from the producers their employ-
ment by worker category in the plants forecast to be closed. It would
also be necessary for the "ideal" study to develop a profile of the
community in which these plants were contained. This would include
consideration of other employers, the size and growth of the community
and its capability of absorbing those workers which would be unemployed
by the shutdown of specified facilities.
Constraints in approaching the ideal approach for studying economic
impact as described above would include the requirement for highly con-
fidential company data and the very extensive nature and hence high cost
of the study. The managements of most, if not all, companies would
be extremely reluctant to reveal confidential manufacturing cost data,
marketing plans, and general business strategy. In the type of "ideal"
study as described, every plant would have to be visited, and a thorough
analysis made of cost and effluent treatment data. In addition, the
management of every company involved in the production of the products
under consideration would have to be interviewed, and would have to give
their complete cooperation in order to define objectives, business
strategies, etc. This would require a substantially larger budget and
longer study time than that authorized for the generalized approach
utilizing the impact analysis matrix as is demonstrated in the body of
this study.
It would be possible to use more sophisticated financial analytical
techniques given the generalized data available on effluent treatment
costs and investment and manufacturing costs. The contractor believes,
however, the utilization of these techniques, such as calculating the
induced changes in discounted cash flow or present value of the plant
caused by effluent treatment costs, would not be cost effective. Only
generalized quantitative data are available on both treatment cost invest-
ments as well as manufacturing costs. The use of extensive analytical
techniques does not make this generalized data any more accurate and
without accurate data would not significantly contribute in refining or
substantiating the judgments necessary relative to probable future plant
closures.
27
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D. SPECIFIC TECHNIQUES
I- Manufacturing Costs
As data for consideration of economic impact of application of
effluent guidelines,it has been necessary to provide investment and
operating costs for some 25 chemical products. Budget restrictions
precluded primary work in preparation of these estimates, but we were
able to provide the required data from prior studies. Two factors
affect the accuracy of such data: the first, the timeliness of the prior
work; the second,the detail in which the prior work was conducted.
This list of 25 chemicals includes many products where our data basis
is weak, about half the list falls into this category.
We have chosen to base our cost estimates on economics as pre-
vailed in the summer of 1973. This represents a relatively stable
period for the chemical industry in contrast to the depressed condition
of 1972 and the chaotic condition during the fuel shortage of the fall
and winter of 1973. Each element of operating cost was considered
separately and a basis was adopted which is uniform for the group of
products.
Utilities prices were guided by the Chemical Week annual surveys
of plant site economics. We attempted to draw trend curves from this data
but found too much scatter in the data due to step increases in rates
in specific locations. After study of the data we adopted the following
rates:
Electric Power 1.3C/KWH
Water 3£/M gal
Fuel 35C/MMBTU
28
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Operating labor was estimated at the staffing indicated for the
particular product and at a payroll cost of $5 per hour.
We used the "percent of investment" method to estimate the main-
tenance costs and updated the result to 1973 terms.
Labor and plant overhead were estimated at 100% of direct labor.
In order to estimate depreciation, taxes and insurance, and main-
tenance costs it was necessary to estimate the plant investment. The
actual plants represented by this product list are of all ages, and the
question of the calendar year base for depreciation became important.
We decided to use an investment for each plant equal to the cost of a
similar plant in 1970. Not many plants are newer than this, and older
plants have been modernized. Our data for other years were adjusted to
1970 by application of the Chemical Engineering "Plant Cost Index".
Depreciation was estimated at 9% of investment per year, and taxes
and insurance at 1-1/2%.
The accuracy of these estimates is highly dependent on the prior
estimate. Investment figures may be in error by + 15% to + 100%.
Operating costs are less variable and probably have a range of error of
+_ 10% to + 30%. The magnitude of this range of error is masked by the
dependence of cost of manufacture on raw material costs, which for some
products are 90% of total cost, and commonly are 75% of cost.
2. Model Water Effluent Treatment Complexes
The Development Document for Effluent Limitations Guidelines,
Organic Chemicals Industry Phase ill, specifies the investment and annual
operating costs to meet guidelines specified for the series of synthetic
organic chemicals dealt with in this report. These capital investments
and annual costs were developed on the basis of a model waste water
treatment facility utilizing biological treatment to achieve the BPCTCA
29
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level and carbon adsorption (following biological treatment) to achieve
the BATEA level. The Development Document specifies the average produc-
tion, waste water flow rate, BOD, COD and TSS effluent limitations
per 1,000 pounds of product produced. In generating the waste treatment
costs, the Development Document provides a free standing, i.e., separate
and self-contained, waste water treatment facility for each of the
organic chemical production units.
In fact, however, most of the total volume of products con-
sidered in the Phase II economic impact study of the organic chemicals
industry are produced in complexes rather than in free standing plants.
These manufacturing complexes typically employ a single large waste
water treatment facility that collects, combines and treats all the
waste water emanating from the individual production units within the
complex. Costs and investments, therefore, as specified in the guideline
document do not take advantage of the economies of scale which would
exist in the real world in the joint treatment of effluents from a series
of plants in a complex. In order to more closely approximate actual
waste water treatment practice, we developed effluent treatment costs
and investments for the products under consideration assuming that
producing plants were not only in a free standing configuration but also
in a small and in a large complex. For the purpose of this analysis
we have defined a small complex as one which treats 3 million gallons
per day of waste water and a large complex as one which treats 10 million
gallons per day (this is a typical size range for the organic chemicals
industry). In our analysis for economic impact, we then classified
the plants producing each of the products under consideration into the
three categories under consideration: free standing, in a small complex,
t
or in a large complex. This classification was made on the basis of
our judgment and with reference to 1974 Directory of Chemical Producers
issued by the Stanford Research Institute. Thus,in most of the products
under consideration, there is a spread of treatment costs and investments
reflecting the situation of the plants producing ^e product; i.e.,
30
-------
whether in free standing configuration, effluent treatment in a small
complex or in a large effluent treatment complex. In some instances,
plants were judged to be all in the same configuration, such as all
includacl in large complexes, and in that instance only one cost and
investment for effluent treatment per unit of output is applicable.
The scale-up from the free standing case to the small and
large complexes was performed using waste water treatment plant cost
estimating procedures and data provided by the guidelines contractor.
An allocation system was then developed for purposes of distributing
costs back to the producing plant under consideration which was
operating within the hypothetical complexes. In considering BPCTCA
waste treatment, the total treatment cost was allocated among the
individual products on the basis of the hydraulic flow rate contributed
by the individual production unit. For example, if a production unit
within a complex contributes 20% of the total waste water flow rate,
20% of the total investment and operating cost of the waste treatment
facility would be assigned to that specific production unit.
The use of hydraulic flow rate as the basis for cost allocation
is justified because in biological waste treatment systems the size of
equipment (and hence its cost) is predominantly dependent on the volume
of water treated. While we recognize that the cost of a biological
waste treatment system is also partially dependent on the BOD and
suspended solids of the incoming waste water, we have chosen hydraulic
flow rate as the sole basis for allocation. To include BOD and suspended
solids would necessitate the use of a rather cumbersome allocation
formula that would be highly dependent on the specific type of combined
.waste water entering the treatment plant. Such an allocation method
would be very tedious for a generalized economic impact analysis of
this type.
31
-------
The results of the economies of scale in a 3 million and a
10 million gallons per day waste water treatment facility are given in
Table II-l.
Cost allocations for the BATEA treatment level in the hypothetical
complexes were performed in a somewhat different manner due to the nature
of the treatment specified by the Development Document. The Development
Document specifies activated carbon adsorption which would follow the
biological treatment system required for the BPCTCA level.
In the activated carbon treatment of waste water, practically
all of the energy and power required is associated with the thermal re-
generation of the carbon. The rate at which carbon must be used (and
hence regenerated) is almost totally dependent on the amount of total
organic carbon (TOG) removed from the waste water and is therefore
almost completely independent of hydraulic flow rate. Also, being that
upwards of 10% of the total activated carbon inventory is lost each
time the carbon is regenerated, replacement carbon also forms a major
component of the total operating cost, and, too, is almost totally
independent of hydraulic flow rate. As such, there are practically
no economies of scale associaf id with the energy and power requirements
and the replacement carbon t: juirements of carbon adsorption. Thus,
for a given product type and production rate, the allocated in-complex
energy and power cost can be taken as identical to the energy and power
cost of the free standing treatment plant set forth in the Development
Document.
In addressing the amortization cost to achieve BATEA, we
considered that the yearly amortization cost is, of course, a direct
function of the capital investment and as such will be influenced
by whatever economy of scale prevails between free standing and the
two in-complex cases considered. The operating and maintenance cost
32
-------
Free-Stand ing
3.0 MGD Complex
10.0 MGD Complex
1.
2.
3.
4.
5.
6.
7.
8.
9.
0.
1.
2.
Production Wastewater Annual Unit Capital Unit Capital Unit
Rate Flow Rate Cost Cost Investment Cost Investment Cost
Product lOOOIbs/day gpd (Syr) ($/1000lbs) ($1000) ($/1000lbs) ($1000) ($/1000lbs)
Acrylonitrile 658 353,000 790,000 3.71 2,800 0.69 619 0.58
Adiponitrile 548 642,000 3,268,000 16.34 12,487 1.50 1,121 1.26
Benzoic Acid 164 56,000 1,739,000 28.94 6,582 0.44 97.9 0.37
Calcium Stearate 80 519,000 426,000 14.00 1,622 8.34 907 7.00
Chloromethanes 356 120,000 120,000 1.60 634" 0.40 196* 0.34
Hexamethylenediamine 548 66,000 1,069,000 5.34 4,201 0.15 115.3 0.13
Hydra^ne 6 21,800 209,000 95.34 609 5.04 43,3 4.24
Isobutylene 137 335,000 454,000 9.59 1,820 3.14 585 2.64
Isopropanol 1,370 366,000 342,000 0.72 1,249 0.34 640 0.28
flvlaleic Anhydride 137 38,000 806,000 15.99 830 -
Methyl Ethyl Ketone 274 43,000 581,000 5.81 1,937 0.20 74.9 0.16
Secondary Butanol 218 16,400 650,000 8.61 2,217 0.16 44.3 0.14
Capital
Investment
($ 1000)
508
922
81.0
746*
161
94.8
35.5
48 1"
525
..
61.6
36.4
1. Guideline Contractors Costs Escalated to mid-1973 (+ 16.7%).
Note: Annual Cost Includes' 1) Amortization (8% over 20 years).
2) Operating and Maintenance.
3) Energy and Power.
Incineration Used.
"Adjusted in 1972 Cost Base (+ 8.8%).
-------
as provided in the Development Document represents a combination of
operating and maintenance labor which does benefit from economies of
scale and replacement carbon which does not benefit by economies of
scale.
Being that the costs associated with the use of activated
carbon are highly dependent on the composition of the specific waste
water being treated, we could not legitimately use a generalized carbon
adsorption treatment system for the in-complex treatment cases. Because
of this complication, we have resorted to a construction that in an
admittedly crude way adjusts the amortization cost for use in the two in-
complex cases. The purpose here was to acknowledge the economy of scale
between the free standing and the in-complex cases while avoiding the
practice of actually specifying a raw waste load of a single composition
for the entire complex. A specification of a fixed raw waste load has
implicit in it the assumption of a certain type of product mix. As such
it would be necessary to justify the selection of that product mix and
the combined waste load. Even worse, a rather tedious allocation method
based both on hydraulic flow rate and total organic carbon would have to
be used and this would require an elaborate justification.
In adjusting the free s anding BATEA treatment costs to reflect
the economies of scale that would result when the particular production
unit resided within a complex and shared a common treatment facility,
we have performed the following steps:
a. Scaled-up the size of the effluent emanating from each
production unit (based on given unit water usage rates) such that
the result in waste water flow rate is equal to 3 million gallons per
day for the first case and 10 million gallons per day for the second
case. These are the same sizes as the hypothetical complexes used
in the BPCTCA allocation.
-------
b. With all the production units now adjusted to the same
size, the capital investment for the activated carbon treatment system
was then scaled-up according to the scaling factors normatt_y .used for
waste treatment systems. For example, if the carbon system is "i-atfreas^id
in size by a factor of 10, the cost will not increase by a factor of 10,
but rather by a factor of approximately 4.5. ^he scale-up^was done on
the basis of hydraulic flow rate. Hydraulic flow rate is justifiable
if one is considering a single waste, because if the' waste concentrations
are the same, the amount of total organic carbon that must be removed
will be directly proportional to the hydraulic flow rate.
>
c. The new capital costs for the enlarged fictitious 3 million
and 10 million gallons per day treatment plants were then allocated back
to the actual size production unit on the basis of hydraulic flow rate.
Thus, if a particular production unit had a flow rate of 10% of the
fictitious complex, its allocated capital cost would be 10% of that of
the fictitious complex. Being that the capital cost of the 10-fold
larger complex is only 4-5 times larger than the free standing unit,
the allocated capital cost for the in-complex case will now be 45%
of the cost of the free standing unit. This is how economy of scale
exerts itself on capital costs and related amortization costs. The
amortization costs for all the products included in this study have
been adjusted in this manner.
d. Assigned energy and power costs to the in-complex case
were taken as identical to the free standing case. As mentioned earlier,
energy and power requirements will not benefit from economies of scale.
35
-------
e. We then adjusted operating and maintenance costs by means
of a partial allocation method. Operating and maintenance materials and
labor will benefit by economies of scale while replacement carbon will
not. The Development Document does not break out the individual components
of the operating and maintenance cost, but rather gives a lump sum. As
such, we have arbitrarily assumed that 50% of the operating and maintenance
cost will be affected by economies of scale and 50% will not. The portion
that is dependent on economies of scale was allocated in the same manner
as the amortization cost described in step b. The portion not benefiting
from economies of scale was left as is. In this manner the operating and
maintenance costs associated with the treatment of waste water from the
individual production units was adjusted to take into account the economies
of scale resulting from in-complex operation.
f. The above cost components were then summed up to arrive at
an adjusted total annual treatment cost for each of the production units.
This cost represents the incremental BATEA cost as set forth in the
Development Document and adjusted to take into account the economies of
scale resulting from in-complex operation. The incremental BATEA
treatment costs are presented in Table II-2.
As can be seen by comparing the "in-complex" BPCTCA and BATEA
treatment costs, the BPCTCA costs benefit from in-complex economies of
scale far more than the BATEA costs.
36
-------
TABLE 11-2
ESTIMATED BATEA TREATMENT COSTS AND INVESTMENTS1
(All Cash Investments to BPCTA)
Free-Standing
3.0 MGD Complex
10.0 MGD Complex
Product
Rate
Product 1000 Ibs/day
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Acrylonitrile
Adiponitrile
Benzoic Acid
Calcium Stearate
Chloromethane*
Hexamethylenediamine
Hydrazine
Isobutylene
Isopropanol
Maleic Anhydride
Methyl Ethyl Ketone
Secondary Butanol
658
548
164
80
356
548
6
137
1,370
137
274
218
Wastewater
Flow Rate
gpd
353,000
642,000
56,000
519,000
120,000
65,000
21,800
335,000
366,000
38,000
43,000
16,400
Annual
Cost
($/yr)
1,551,877
109,383
139,235
136,539
55,750
270,300
39
237,951
138,406
-
26,724
205,000
Unit
Cost
($/1000 Ibs)
6.47
5.47
2.32
4.68
0.42
1.35
17.50
4.76
0.28
-
0.27
2.58
Capital
Investment
($ 1000)
4,467
2,122
445
585
177
799
19
829
532
-
152
677
Unit
Cost
(S/1000 Ibs)
4.33
4.21
1.20
3.23
0.24
0.75
8.30
3.09
0.18
-
0.08
1.21
Capital Unit
Investment Cost
($ 1000) ($71000 Ibs)
2,055
1,230
110
316
58
216
3
384
256
-
31.9
108
3.72
3.61
1.07
2.54
0.21
0.67
7.66
2.60
0.12
-
0.09
1.10
Capital
Investment
($ 1000)
1,358
806
72
2.09
38
142
2
253
165
-
20.8
68
1. Guideline Contractor's Costs Escalated to mid 1973 (+ 16.7%) Note: Annual Cost Includes
1) Amortization (8% over 20 yrs.)
2) Operating and Maintenance
3) Energy and Power
* Adjusted to 1972 Cost Base (+ 8.8%).
-------
3. Data Sources
The data included in the industry background relative to the
various products under consideration were developed from the contractor's
own general background in the chemical process industries and from a
number of specific published sources. Information on historical sales,
production and average prices was obtained from the annual issues
of Synthetic Organic Chemicals published by the U.S. Tariff Commission.
Information on exports generally came from Series FT 410 published by
the U.S. Department of Commerce, Bureau of Census while information
on imports generally came from FT 210 also published by the U.S.
Department of Commerce, Bureau of Census. Some but not all information
on capacities and industry trends was obtained from Qhemical Profiles
published by the Schnell Publishing Company. Historical list prices
were obtained from the trade journal, Chemical Marketing Reporter. In
addition, and where appropriate, background data was obtained from trade
journals such as Chemical Week and .Chemical Engineering News, from the
Encyclopedia of Chemical Technology published by Kirk Othmer, Chemical
Economics Handbook by the Stanford Research Institute and the 1,974
Directory of Chemical Producers published by the Stanford Research
Institute.
4. Definition of Teruij
Throughout the report a number of terms are recurrently used.
For the purposes of clarity we have defined some of these terms in the
introduction. Reference to a plant, for example, indicates a single
producing unit. That is a sequence of unit operations resulting in
the production of a product or coproduct. Reference to a complex
indicates a series of plants operating in the same location. Plant
capacity is usually the stated capacity provided by the company operating
the plant. This may be "nameplate" or nominal design capacity and
usually is. In some cases, capacity has been modified from nameplate
or original design capacity. Where the company provides this data,
this is the capacity taken. List prices are the prices as published
38
-------
in the Chemical Marketing Reporter. Actual prices are the average
prices paid during the year as specified in Synthetic Organic Chemicals
published by the U.S. Tariff Commission.
Return on investment, or ROI, includes gross investment in
physical plant but excludes working capital. Return on investment is
normally specified as either on a before tax or after tax basis.
Profitability is a more generally used term and unless specifically
indicated as a percentage of sales, it is to be considered as indicating
return on investment. Reference in the impact analysis sectors relative
to the profitability of individual products actually indicates manu-
facturing margin as we have not added general sales and administrative
costs or corporate burden to the plant cost. Cash flow defines plant
profit or manufacturing margin plus depreciation.
5. Standard Conventions
The tables utilized in the report specify the sources of data
to develop the tables. The report generally makes reference to the
table where the source is indicated and hence often does not specify
the source as this is obvious from the table.
Each subsection of the report dealing with a specific product
contains a summary. The purpose of the summary is to provide a brief
review of individual sections. In the interest of brevity, we have
generally omitted references, tables or sources, and these are specified
in the bodies of the sections dealing with individual products.
6. Limits to the Analysis
The analysis attempts to deal with an extremely complex industry
in general and often in simplified terms. Because of the timing of the
report, generally the latest available data was for the year 1973.
39
-------
This concept of the model representing maximum costs and invest-
ments is reinforced by the assumption made that no treatment facilities
were in place at the time of the writing of the report. All investments
and costs, therefore, which are estimated required for 1977 and 1983
are considered additional costs.
The analysis of economic impact, however, was limited solely
to costs and investments specified for treatment of water effluent given
in the guideline document. The economic impact statement does not attempt
to deal quantitatively with other regulatory requirements such as state
and local regulations in other sections of the Federal Water Pollution
Control Act controlling water quality or toxic pollutants, the Clean
Air Act or OSHA regulations. An often voiced concern on the part of
the chemical producers is that while individual economic impact state-
ments may not indicate any serious impact, all the regulations considered
at one time are quite different and often far more significant.
Another limitation to the analysis occurs in attempts to judge
the possibility of price pass through of effluent treatment costs. Many
of the products being considered by the study encounter substantial
competition in their secondary application; that is, competition of the
products in which they are vsed with other products, both petrochemical
and nonpetrochemical in origin. In many cases, competition is extremely
complex and a variety of secondary applications have a variety of end
uses each facing different competitive materials. Analysis is made even
more complex by the fact that many of these competitive materials will
also experience costs for water effluent treatment or costs incurred by
other government regulatory programs. In many cases, these costs have
not yet been specified. Often the analysis has to rely on the explicit
assumption that there will not be equivalent costs associated with the
production of either primary or secondary competitive materials.
40
-------
List prices often were available up through mid-1974 but production
and sales data were not available nor was average sales price for the
year 1974. In 1973 and the first half of 1974 there were highly unusual
conditions for the organic chemicals industry as well as many other
industries in the United States. Part of this time the industry
experienced price controls and during most of this period many products
were in short supply. During 1973 and early 1974 many prices rose
rapidly. This reflected both the shortage of supply relative to demand
and rising prices of raw materials, particularly petrochemical feed-
stocks. In our analysis, we have attempted to normalize conditions
and assume that demand would not continue to exceed available capacity
through 1977 and 1983 and hence more normal competitive conditions
would prevail in considering economic impact of the effluent treatment
costs and investments.
By virtue of the scope of our assignment, it was necessary
for us to consider generalized or model plants and complexes in con-
sidering manufacturing cost and waste treatment cost. Actually, these
costs probably represent a reasonable point in a range of costs actually
experienced by different producers by virtue of differences in manu-
facturing processes or capacities and by differences in the size of the
complexes in which these plants are located. In addition, the guidelines
contractor also predicted effluent treatment costs on model treatment
facilities for the effluents of all products under consideration. We
suspect that in some cases effluent treatment may be handled quite
differently than the model specified by the guideline contractor. The
model serves, therefore, the function of representing a maximum effluent
treatment cost which might actually be significantly lower due to in
process modification or other methods of effluent treatment.
41
-------
In addition, except where we have explicitly recognized competitive
technologies, the existence of future technological change has not been
taken into account. In short, we have not attempted to predict future
changes in technology which may obsolete processes or significantly
change product properties. This is a particularly significant limitation
in the organic chemicals industry because of the rapidly changing technology
which has been characteristic of the industry.
Finally, we have utilized material costs as of mid-1973. Most
of the products under consideration are sensitive to energy costs, parti-
cularly the cost of feedstock derived from natural gas or petroleum.
Substantial changes in these feedstock or energy costs, such as might be
caused by a collapse of the existing international price of crude oil,
could significantly affect these costs. We have not attempted to develop
a variety of different cases for each product reflecting different feed-
stock prices caused by variations in crude oil prices.
T_^ Employment and Community Effects
The effects on employment caused by plant shutdowns have been
estimated from data presented in each section on manufacturing costs.
These data include the specif tcatior of direct labor required for plant
operation. We have assumed that for each job lost as direct labor in
the event of plant shutdown an additional job is lost in the plant support
labor.
Direct labor consists very largely of chemical operators. These
skills, and hence the employability of the operators displaced are not
broadly transferable. Generally speaking, a chemical operator in the
organic chemicals industry would have the capability of utilizing these
developed skills in other chemical manufacturing operations or petroleum
refining operations. These skills would not be generally applicable,
however, outside of the chemical process industry.
42
-------
Support labor in the chemical plant consists of skilled trades-
men such as electricians, sheet metal operators, pipe fitters, machinists,
and riggers as well as clerical workers and general nonskilled labor.
The skills possessed by these craftsmen should be more broadly capable
of being utilized in other types of manufacturing operations.
-------
III. OVERVIEW OF THE ORGANIC CHEMICALS INDUSTRY
A. BASIC INDUSTRY STRUCTURE
According to the 1967 Census of Manufacturers published by the
Bureau of Census, approximately 450 companies in 665 establishments
make up the organic chemicals industry which we have arbitrarily described
as SIC Codes 2865 and 2869. Any definition of the U.S. organic chemicals
industry necessarily requires arbitrary distinctions in the actual con-
tinuation of processing raw materials to finished products. In actuality,
the industry is contained within companies many of whose operations, even
within the same establishments, extend forward into the manufacture of
upgraded products such as plastics, fibers, paints, etc., and backward
for the basic raw materials such as ethylene, propylene, benzene and
toluene; or in the case of petroleum refineries also manufacturing organic
chemicals, to crude oil.
A description of the concentration of the organic chemicals industry
by company size is given in Table III-l. The information available
from the preliminary 1972 Census of Manufacturers does not indicate any
substantial change from the total number of establishments as shown in
Table III-l. By 1972, the number of establishments in SIC category 2865 -
Cyclical Crudes and Intermediates - had decreased slightly to 171 estab-
lishments whereas the number in SIC code 2869 - Industrial Organic
Chemicals NEC - had increased to 503 establishments to total 674
establishments in 1972 as opposed to 665 in 1967 within the two categories.
No breakdown by company size is provided in the preliminary 1972 data.
As shown in Table III-l, the organic chemicals industry is quite
heavily concentrated in a relatively small number of companies. Each
of these companies, however, is involved in the manufacture and sale of
hundreds of individual organic chemical products. In terms of value
of shipments, in 1967 the four largest companies accounted for 45% of
45
-------
TABLE 111-1
CONCENTRATION OF THE ORGANIC CHEMICAL INDUSTRY 1967
Companies Establishments
No. %
Cyclic Intermediates & Crudes - SIC 2865 (formerly 2814 & 2815)
115
Total industry
4 largest companies
8 largest companies
20 largest companies
50 largest companies
177
21
44
71
12
25
40
110 62
Industrial Organic Chemicals, NEC - SIC 2869 (formerly 2818)
339
Total industry
4 largest companies
8 largest companies
20 largest companies
50 largest companies
488
29
49,
98
175
6
10
20
36
Value
of
Shipments
SMM
»815)
1,596.8
719
1,021
1,326
1,550
I)
6,377.8
2,868
3,700
4,770
5,860
%
45
64
83
97
45
58
75
92
Number of
Employees
thousand
30.0
13.2
18.0
24.5
28.8
95.1
40.0
50.4
67.5
83.7
%
44
60
83
96
42
53
71
88
Production
Workers
thousand
20.3
9.3
12.4
17.1
19.7
62.4
26.8
34.3
44.2
54.9
46
61
84
97
43
55
71
88
Source: Bureau of the Census, 1967 Census of Manufactures, Concentration Ratios in Manufacturing — MC67(S) 2.1, 2 & 3.
-------
total shipments and about 42% of total employment. The fifty largest
companies in the industry described by these two SIC categories account
for 93% of total shipments.
The history of the growth in sales of the organic chemicals industry
as given in Table III-2 is derived from data published annually by the
U.S. Tariff Commission. These data have been broken down and categorized
by major product group. The sales of the industry consist normally of
products which must be further upgraded by chemical or physical conver-
sion to final consumer or industrial goods. This upgrading may take
place within the industry, as categorized, or outside the industry.
Tables 1II-3 and III-4 compare the production volume in total and that
proportion of the production which is sold for further upgrading. As
shown in Table III-4 over the last decade, sales volume has accounted
for between 45% and 48% of total production volume, the major portion
of production being captive for further upgrading within the manufacturing
company.
B. RAW MATERIALS
The organic chemicals; industry, based on the processing of carbon
containing raw materials, became a significant entity in the mid-1800's
with the invention of synthetic organic dyes based on raw materials
distilled from coal tar. For the next seven or eight decades, the
industry continued to rely for raw material derivatives from the coal
coking process and the fermentation of agricultural products. In the
1930?s and 1940's, the research was done and fundamental processes
developed which led to the rapid growth of the industry to date as
shown in Table III-2.
It became apparent that the growth of the synthetic organic
chemicals industry could not be supported on the raw materials available
from coking coal and the limited and relatively high cost fermentation
techniques available. It was also obvious that large volumes of organic
47
-------
00
A. Basic Organic Chemicals
1. Coal Derived Basics
2. Petroleum Derived
Basics
B. Large Volume Intermediates
and Finished Organics
3. Resin Intermediates
4. Fiber Intermediates
5. Chlorinated Hydro-
carbons
6. Miscellaneous
C. Small Volume Intermediates
and End Products
7. Dyes and Organic Pig-
ments
8. Rubber Processing
Chemicals
9. Flavors and Fragrances
10. Unformulated Pesticides
11. Plasticizers
Grand Total Accounted for:
D. Miscellaneous Intermediates
TABLE 111-2
ORGANIC CHEMICAL INDUSTRY
SALES VALUE
(Millions of Dollars)
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973
529
121
408
1549
222
148
265
913
1053
320
119
77
369
168
579
129
450
1684
250
185
292
958
1170
348
123
84
427
188
648
139
509
1764
243
226
317
979
1305
386
123
85
497
214
747
139
608
1890
273
243
339
1035
1500
439
138
93
584
246
728
132
596
1879
278
236
338
1027
1713
440
132
93
787
261
737
138
599
2023
312
299
339
1073
1867
490
151
97
849
280
815
178
637
2198
359
362
389
1089
1873
518
144
94
851
266
870
178
692
2221
368
345
407
1101
1856
513
149
89
870
235
833
159
674
2208
384
329
409
1086
2033
553
159
84
979
258
944
166
778
2564
483
387
468
1226
2278
629
178
88
1092
291
1157
180
977
3104
570
401
543
1590
2293
701
199
108
1344
341
3131 3433 3717 4137 4320 4627 4886 4947 5074 5786 6954
Note: Totals do not add up due to rounding.
*Preliminary
Source: U.S. Tariff Commission, Synthetic Organic Chemicals, U.S. production and sales.
-------
TABLE 111-3
ORGANIC CHEMICAL INDUSTRY
PRODUCTION VOLUME
(Billions of Pounds)
1963 1964 1965 1966 1967
1968
1969
1970
1971
1972
1973
A. Basic Organic Chemicals
1. Coal Derived Basics
2. Petroleum Derived
Basics
B. Large Volume Intermediates
and Finished Organics
3. Resin Intermediates
4. Fiber Intermediates
5. Chlorinated Hydro-
carbons
6. Miscellaneous
C. Small Volume Intermediates
and End Products
7. Dyes and Organic Pig-
ments
8. Rubber Processing
Chemicals
9. Flavors and Fragrances
10. Unformulated Pesticides
11. Plasticizers
Grand Total Accounted for:
27.9
5.5
22.4
34.1
6.2
3.1
4.4
20.5
2.1
.2
.2
.1
.8
.8
64.1
31.6
5.8
25.8
39.0
7.9
3.7
5.0
22.4
2.3
.2
.3
.1
.8
1.0
72.9
34.9
6.2
28.7
43.0
8.8
4.6
5.7
24.0
2.6
.3
.3
.1
.9
1.1
80.5
38.9
6.0
32.9
49.6
9.9
5.9
7.1
26.6
2.9
.3
.3
.1
1.0
1.2
91.4
41.6
5.6
36.0
50.8
10.1
5.3
7.6
27.8
2.9
.3
.3
.1
1.1
1.3
95.3
46.1
6.0
40.1
58.0
12.0
6.7
8.7
30.7
3.2
.3
.3
.1
1.2
1.3
107.3
56.9
12.1
44.8
66.5
14.7
7.4
10.5
34.0
3.2
.3
.3
.1
1.1
1.4
126.6
58.1
11.6
46.5
69.3
14.7
6.6
12.2
35.8
3.1
.3
.3
.1
1.0
1.3
130.5
57.9
10.1
47.8
69.9
15.6
7.1
12.2
35.0
3.4
.3
.3
.1
1.1
1.5
131.2
65.2
10.9
54.3
81.5
18.8
8.7
12.9
41.1
3.7
.3
.4
.1
1.2
1.7
150.4
70.4
11.1
59.3
37.9
19.5
9.3
15.1
44.0
4.0
.4
.4
.1
1.3
1.9
162.3
D. Miscellaneous
Note: Totals do not add up due to rounding
'Preliminary
Source: U.S. Tariff Commission, Synthetic Organic Chemicals, U.S. production and sales.
-------
Ln
O
TABLE 111-4
ORGANIC CHEMICAL INDUSTRY
SALES VOLUME
(Billions of Pounds)
1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973
A. Basic Organic Chemicals
1. Coal Derived Basics
2. Petroleum Derived
Basics
B. Large Volume Intermediates
and Finished Organics
3. Resin Intermediates
4. Fiber Intermediates
5. Chlorinated Hydro-
carbons
6. Miscellaneous
C. Small Volume Intermediates
and End Products
7. Dyes and Organic Pig-
ments
8. Rubber Processing
Chemicals
9. Flavors and Fragrances
10. Unformulated Pesticides
11. Plasticizers
Grand Total Accounted for:
(Sale as % of production)
(47.3)
13.2
3.5
9.7
(41. -V
14.1
2.3
1.3
2.3
8.1
(90.5)
1.9
.2
.2
.1
.7
.8
29.2
(45.6)
(45.9)
14.5
3.7
10.8
(42.6)
16.6
?..9
1.7
2.6
9.3
(91.3)
2.1
.2
.2
.1
.7
.9
33.1
(45.4)
(48.7)
17.0
4.1
12.9
(42.6)
18.1
3.0
2.2
3.8
10.0
2.3
.2
.2
.1
.8
1.0
37.4
(46.5)
(51.0)
19.7
3.9
15.8
(40.3)
20.0
3.3
2.8
3.1
10.8
2.5
.2
.2
.1
.8
1.2
42.3
(46.3)
(49.0)
20.4
3.9
16.5
(40.2)
20.4
3.5
2.8
3.2
11.0
2.6
.2
.2
.1
.9
1.2
43.4
(45.5)
(47.5)
21.9
4.0
17.9
(41.4)
24.0
4.4
3.5
3.5
12.7
2.8
.3
.2
.1
1.0
1.2
48.7
(45.4)
25.7
6.8
18.9
(42.1)
28.0
5.4
4.0
4.8
13.4
2.8
.3
.2
.1
.9
1.3
56.6
(44.7)
27.8
6.9
20.9
(42.1)
29.2
6.0
3.7
5.0
14.4
2.7
.3
.2
.1
.9
1.2
59.7
(45.8)
26.9
5.9
21.1
(43.5)
30.4
6.4
3.5
5.0
15.5
(88.2)
3.0
.3
.2
.1
.9
1.4
60.3
(46.0)
(46.7)
30.5
6.0
24.5
(46.4)
37.8
8.2
4.4
5.9
19.4
(91.9)
3.4
.3
.3
.1
1.0
1.6
71.7
(47.7)
(46.4)
32.7
5.9
26.8
(47.1)
41.4
8.5
4.3
6.3
22.3
(92.5)
3.7
.3
.3
.1
1.2
1.7
77.9
(48.0)
Note: Totals do not add up due to rounding.
Source: U.S. Tariff Commission, Synthetic Organic Chemicals, U.S. production and sale.
-------
chemical precursors existed in the petroleum and natural gas being
extracted and processed for fuel. The raw material base of the organic
chemicals business shifted to the use of petroleum, gas and gas liquids,
and currently over 85% of the organic chemicals manufactured are
derived from petroleum gas or gas associated hydrocarbons.
The organic chemicals industry has been characterized by its exten-
sive technology which has led to a proliferation of products and processes.
In recent years the raw material supply situation has become increasingly
complicated as the technology was developed to utilize internal petroleum
refinery streams either directly for chemical manufacture or as precursors
for chemical production. Refinery economics, or the determination of
competitive values of hydrocarbons for use as fuel, became inexorably
interwoven with the economics of organic chemical manufacture. The graphic
illustration of the interface between refinery operation and petrochemical
manufacture is shown in Figure III-l. As illustrated by the figure, the
integration of basic petrochemical manufacture (olefins and aromatics)
into a refinery produces a proliferation of jointly manufactured products
many of which can be used either as fuels or as petrochemicals. The
refinery operator normally attempts to optimize the total slate of
products produced but in so doing is faced with a complex series of inter-
related choices involving not only what products to make but the effect
of any change on the total system.
C. INDUSTRY ECONOMIC CONSIDERATIONS
1. Cyclicality
Organic chemical manufacture was recognized during the 1950's
and much of the 1960's as an opportunity for participation in a rapidly
growing and relatively profitable sector of the U.S. economy. A history
of earnings of the Basic Chemical Industry is shown in Table III-5.
As a consequence, those firms in the business were interested in at least
holding their existing market shares and a number of firms not involved
51
-------
0 I
JD
0
r
H
r
m
n
m
-r\
5
rn
§
O
m
o
F
M
z:
-4
m
RtF\NERY FUEL
GASOUME
CHEM \ CA.L&
MIDDLE DtSTlUJO*
RESIOUM. FUtl.
J_t_
-------
TABLE 111-5
PROFITABILITY OF U.S. BASIC CHEMICAL INDUSTRY
Year Net Sales Net Profit1
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
12.7
13.0
14.3
15.8
18.4
20.9
23.6
24.4
26.2
27.1
27.4
29.5
33.2
39.6
1. After Tax.
1.1
1.1
1.2
1.3
1.6
1.7
1.9
1.6
1.7
1.6
1.4
1.5
1.8
2.6
Return on
Equity2
{$ billion) {$ billion) (percent)
11.1
10.5
11.6
12.5
14.2
14.3
14.0
10.9
11.1
10.5
8.6
8.7
10.0
12.9
Return on
Total Capital2
(Percent)
8.6
8.2
8.8
9.2
10.1
9.7
9.5
7.3
7.4
7.0
5.6
5.8
6.7
9.2
2. Total capital employed = long-term debt (+ other nonrecurring
liabilities) + stockholders' equity.
Rounding of profits, equity and total capital does not permit checking
against above figures.
Source: Securities & Exchange Commission 1960-1973.
-------
in organic chemical manufacture were anxious to enter for reasons of
diversification or forward or backward integration. As shown in
Table III-6, capital expenditures rose from a range of around $400-$500
million per year in the late 1950's and early 1960's to close to
$1 billion per year from 1966 through 1970. This rapid expansion
led to overcapacity and declining prices and profit margins starting
in 1967. The situation was exacerbated by the decline in the rate of
growth in demand brought about by the recession in 1970 and 1971. This
led to a significant decline in returns and subsequent declines in in-
vestment as shown in Table III-6. As shown, decreases in investment
lagged the substantial decline in profitability by two years or about
the length of time required for major plant construction.
As demand increased rapidly with general economic conditions
during 1973, producers' capacity utilization rates substantially improved
though prices and profit margins were partially restrained by price
controls. The actual capacity available relative to the growing demand
was then significantly reduced by restraints imposed by the oil embargo
in late 1973.
Demand continued to irc.ease through the first half of 1974. By
the spring of 1974, price e ttrols had been removed. Prices rose rapidly
both because of the increase in costs generated by higher petroleum prices
and because of shortages generated by lack of capacity to meet the rising
demand. By the fall of 1974, demand for many organic chemical products
declined precipitously and by early 1975, prices had again begun to
soften due to overcapacity. By this time, however, the industry was
experiencing substantially higher feedstock costs than existed prior
to the .increase in the international price of crude oil. . So long as
crude oil prices and alternate energy values remain at current high levels,
it is highly unlikely that petrochemical prices will return to previous
levels. It is not unlikely, however, that the petrochemical industry will
repeat its cycle of overexpansion which occurred in the late 1960's with
consequent future pressure on industry profit margins,
54
-------
TABLE 111-6
CAPITAL EXPENDITURES
Cyclic Crudes
and Intermediates
SIC-2865
78.0
73.3
98.6
69.6
80.3
106.8
103.5
91.9
88.4
136.1
99.3
140.4
283.2
279.6
151.8
MILLIONS
(Current $)
Ind. Organic
N.E.C.
SIC-2869 SIC
330.3
224.3
297.7
380.6
267.9
401.0
496.4
641.2
886.2
781.2
884.8
711.7
738.1
659.4
565.2
Total
2865 & 2869
408.3
297.6
396.3
450.2
348.2
507.8
599.9
733.1
974.6
917.3
984.1
852.1
1066.3
939.0
717.0
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Source: 1972 Census of Manufactures.
55
-------
2. Prices
Prices for organic chemicals are quoted weekly in the Chemical
Marketing Reporter and other published sources. These are list prices
for spot sales of specified quantities for shipment such as carload lot.
As most large volume organic chemical materials are sold under contract,
these list prices have not normally been the same as actual prices paid
in any period of time.
The U.S. Tariff Commission prints an annual summary, Synthetic
Organic Chemicals, which specifies the production, sale and average
price of most large volume organic chemicals. The actual average price
paid during any year is derived simply by dividing the total volume of
sales by the total quantity of sales of any specified product. In most
instances where products are sold in large volumes under contract, the
average actual prices have been significantly lower than the quoted
list prices during the year. A history of both list prices and actual
prices is provided in the individual sections of this report dealing
with the economic impact on specific chemical products.
3. Coproducts
In many cases a specific organic chemical process will result
in the production of more than one product of commercial value. The
cumene process for the production of phenol, for example, yields both
phenol and acetone as coproducts. Similarly, styrene and propylene
oxide are yielded by the new Oxirane process described further in the
body of this report. If one product is of minor value, either because
of low unit value or quantity yield, it is usually referred to as a
byproduct and disposed of at whatever price the market will bear. If
two or more products of significant value are yielded by a process,
these are normally termed coproducts and can present both problems
and opportunities to the manufacturer. A problem exists to the extent
56
-------
that in order to derive one coproduct, the manufacturer necessarily gets
the other and hence looses the flexibility of operating his plant relative
to total market needs. An opportunity may exist in that if the process
has inherent cost advantages over the manufacture of products derived
by other routes, the manufacturer retains a measure of flexibility in
that he is able to consider returns available from the total output of
the plant and is not rigorously constrained by the total cost of plant
operation being placed against one product. Operators of coproduct processes,
therefore, may have the potential capability of pricing individual co-
products to gain the market desired for that specific product while sale
of the other products satisfies the overall return on investment require-
ment for the plant.
4. Captive Usage
By its very nature, the synthetic organic chemicals industry
lends itself to a relatively high degree of vertical integration and
hence captive use for the output of individual processing units.
Usually, there are a series of processing steps involved from the basic
raw material to the finished products. For example, the manufacture of
polystyrene housewares starts with the isolation of benzene from a
catalytic reformer in a refinery and the production of ethylene through
cracking ethane, propane, naphtha, or gas oil. Ethylene and benzene
are then synthesized to ethylbenzene. Ethylbenzene is next dehydrogenated
to styrene. Styrene is polymerized to polystyrene resin. This resin is
then fabricated into the final article of use. The chemical company
might be involved in any one or all of these processing steps. Usually
the chemical industry has focused its interest on the chemical conversion
activities taking place between isolation of the feedstock and the final
formulation or fabrication of the end product. In the case of styrene,
therefore, chemical companies, with the exception of chemical affiliates
of petroleum companies, will not be involved in isolation of benzene
or olefin cracking stock for ethylene nor would they be involved in the
final fabrication of polystyrene into finished products.
57
-------
The degree to which a particular company integrates forward and/
or backward in its processing steps depends on a variety of factors often
in unique combinations in any particular situation. These include
the availability of capital, security of markets for the intermediates
being sold, technological capability for forward or backward integration,
security of supply, and general corporate strategy or philosophy as to
how the management of the company wishes to position the company given
the available corporate resources. In most products examined within
the body of this study, there is at least some degree of captive con-
sumption. In a number of cases, captive consumption constitutes a con-
siderably larger proportion of total production than merchant sale. In
very few cases, however, are the products being produced entirely con-
sumed within the producing organizations.
5. International Trade
Within the past decade, the United States has been a net exporter
of organic chemicals. As shown in Table III-7, the U.S. net export position
increased from around $600 million in 1966 to an estimated $1.7 billion
in 1974.
There is currently serious question as t-> whether the United
States can continue to increase its long-term favorable trade balance in
view of the emphasis being put by the oil producing nations on the develop-
ment of petrochemical manufacturing plants. In almost all cases, manu-
facturing facilities will be devoted principally or entirely to export
as the nations planning the facilities do not have sufficient domestic
demand to absorb the output of the world-scale plants under consideration.
Once these plants are built and on stream, presumably by the early to
mid-1980's, oil producing nations will be seeking markets for large
quantities of petroleum and gas-derived organic chemicals and, should
the oil producers cartel hold until this time, would be able to supply
these chemicals in world markets at prices substantially below prices
based on purchased crude oil. Quite probably, once the investment is
58
-------
TABLE HI-7
Total Trade
Exports
Imports
Balance
1965
U.S. BALANCE OF TRADE IN ORGANIC CHEMICALS
(Million Dollars)
1966
1967
1968
1969
1970
759.0 802.7 864.8 992.3 1016.4 1183.2
144.4 189.0 184.6 221.9 263.3 298.7
+614.6 +613.7 +680.2 +770.4 +753.1 +884.5
1971
1972
Preliminary
1973 1974
1143.0 1219.5 1683.8 2845.0
345.3 432.5 546.5 1098.5
+797.7 +787.0 +1137.3 +1746.5
Source: U.S. Department of Commerce, Bureau of the Census, FT 135 and FT 410.
-------
made in petrochemical facilities, oil producing states will seek to
insure the continued viability of these facilities by transferring gas,
gas liquids or crude oil at whatever price is necessary above their
production cost to obtain necessary markets. These markets are the same
as those currently served by U.S. exports. In addition, the United
States, which is short of the hydrocarbons required by its own economy,
presents the largest single market in (the world for the import of
petrochemical intermediates or finished products.
60
-------
IV. HIGH PURITY ISOBUTYLENE BY SULFURIC ACID EXTRACTION
A. SUMMARY
Data on total isobutylene production or the production of high purity
isobutylene from sulfuric acid extraction are not published by the U.S.
Tariff Commission. Consumption for chemical manufacture is believed to
be about 600 million pounds per year for high purity isobutylene.
About two-thirds of total high purity isobutylene production is used
in the manufacturing of butyl polymers. The remainder is used in a
variety of applications for the manufacturing of specialty chemicals.
Butyl rubber competes on a price basis with other specialty rubbers
such as neoprene or nitrile rubber. The industry's forecast average
consumption growth rate is low - in the order of 2% per year. A sub-
stantial proportion of total production of high purity isobutylene is
used captively in the manufacturing of polymers and specialty chemicals.
Historically, high purity isobutylene has been manufactured by
sulfuric acid extraction from a C^ hydrocarbon fraction resulting from
thermal cracking. Isobutylene is separated from n-butane which is
later used in the manufacturing of butadiene. The leading manufacturer
is Exxon followed by Petro-Tex. Under a new process patented by Oxirane
Corporation, isobutylene is produced as a coproduct of propylene oxide
when isobutane is used as a raw material. This is a highly competitive
process, which has made Oxirane probably the leading manufacturer of
isobutylene. The industry is concentrated in the Gulf Coast area.
Capacity utilization can only be subjectively evaluated since
production of isopropylene depends on its market demand and demand for
n-butane and propylene oxide, not necessarily on potentially available
61
-------
capacity. List prices of isobutylene have remained stable at 38
-------
TABLE IV-1
ISOBUTYLENE BY SULFURIC ACID EXTRACTION
(High Purity)
\ll Processes:
972 Production (Million Pounds)
972 Unit Value (C/Lb)
972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
I
600
7.8
47
5
3.3- 12.3%
6.7 - 18.5%
Direct: Low
Secondary: Moderate
Not Applicable:
Co-product Manufacture
High
Low: 3-4%/yr.
Low
-
Low
Price
Concentrated
Few
1 : Oxirane Process
63
-------
TABLE IV-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
'>••"•' " - :•
B.P.T.
DAT*
u . rv* .t •
"v";^: •' '-:.; '":
. . . .
See Text
See Text
12-47%
19-68%
Moderate to high
Primarily large complexes
Few
Moderate
Multi-Industry
-------
A relatively new process, commercialized by Oxirane in 1970,
utilizes isobutane and propylene to produce propylene oxide and tertiary
butyl alcohol. As there is only a small market for tertiary butyl alcohol
(according to Chemical Economics Handbook,14 million pounds were produced
in 1967) the great majority of the tertiary butyl alchohol is dehydrated
to high purity isobutylene. According to trade estimates 1.6 pounds of
isobutylene are produced per pound of propylene oxide produced. Oxirane
currently operates a plant with a capacity of 560 million pounds per year
of propylene oxide. No data were publicly available from Oxirane, the
operations of this proprietary process, as to the quantities of high
purity isobutylene produced.
The U.S. Tariff Commission reports the production of iso-
butylene and judging from the average price of 2.9C per pound this is
low purity isobutylene utilized in chemical manufacture. During 1973
a total of 771 million pounds were produced. Of this total 497 million
pounds, or 64% was sold. Low purity isobutylene (80-95% isobutylene
content)was reported by the U.S. Tariff Commission to have been produced
at a rate of 213 million pounds in 1963 and hence, production was given
at a rate of approximately 13.5% per year over the ten year period.
b. End Uses
Low purity isobutylene, obtained as part of the cracking
operations, in the manufacture of gasoline, is used in alkylation for
the production of alkylate gasoline and in the manufacture of polybutenes.
Polybutenes are used as components of sealants, caulking compounds for
architectural applications, adhesives and as the basis for lube oil
additive manufacture. Consumption of isobutylene for these chemical
uses grew at an average rate of 13.5% per year from 1963 to 1973.
65
-------
High purity isobutylene is obtained by isolation from other
hydrocarbons by sulfuric acid extraction and by the Oxirane process.
About 75% of total production is used in the manufacturing of butyl
polymers (butyl rubber and polyisobutylene). The remaining 25% is used
in the production of a variety of miscellaneous specialty chemicals.
Total production is estimated by trade sources at about 600 million
pounds per year.
At one time butyl rubber was commercially promoted for use
in tire carcasses. The product has extremely low gas permeability and
is presently used in the production of truck and tire inner tubes and
liners for tubeless tires. The market for passenger car tire inner tubes
has declined but butyl rubber is still used as an inner liner or sealant.
In the past few years, growth in total demand has declined to about 3%
per year. Butyl elastomers also find diverse markets as a specialty
rubber in a variety of applications where gas permeability and good aging
characteristics are critical.
Polyisobutylene, a chemical derivative, is used in lubricating
oils where it acts as viscosity index improvers. It is manufactured and
sold by Exxon, an isobutylene producer. Polyisobutylene is also used
in s'mall amounts in adhesivp.s, waxes, tank linings, pressure-sensitive
tapes.
Growth in the consumption of high purity isobutylene is fore-
cast to grow at 2% per year over the next five years. Growth of butyl
rubber in tire and tube manufacture will be restrained by the production
of longer wearing radial tires. Growth of polyisobutylene will be re-
strained as the market has matured and will be directly related to increases
in consumption of automotive lubricating oil.
66
-------
c. Substitute Products
Products made from high purity isobutylene are less price
sensitive than those made from low purity isobutylene. In the elastomer
area, butyl elastomers compete against neoprene, nitrile rubber, and
other specialty rubbers. These are elastomers with unique combinations
of properties, and their end-use applications are not very price sen-
sitive. These products, however, do compete among themselves on the
basis of price for the same end-use market. There is no substitute for
isobutylene in butyl rubber manufacture.
Similarly, there is no good substitute for polyisobutylene
as a viscosity index improver in motor oils. Polyisobutylenes consti-
tute a relatively modest proportion of the total volume and cost of the
oil sold and viscosity index improved oils sell at a premium over com-
petitive lubricating oils. We expect that demand is quite inelastic
for relatively small price changes (<10%) in the price of isobutylene
and polyisobutylene.
The isobutylene content in specialty chemicals is small.
Consequently, isobutylene price changes do not have a major effect on
the final price of the specialty product. This reduces the need to
find substitute products with more competitve prices.
d. Captive Requirements
According to trade estimates about 85% of total production
of high purity isobutylene from the sulfuric extraction process is used
captively in the manufacturing of chemical derivatives, such as butyl
elastomers and polyisobutylene. Isobutylene derived as a coproduct
from the Oxirane process is not used captively.
67
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2. Supply Characteristics
a. Manufacturing Routes
Isobutylene is basically a byproduct from thermal cracking
of petroleum for gasoline manufacture. Large amounts of butenes are
produced in petroleum refineries during the catalytic cracking of gas
oils and heavier fractions to gasoline. Generally, the butenes, as
recovered by conventional refinery distillation operations, are present
in a C4 fraction (four carbon atoms) along with isobutylene and the two
saturated C^ hydrocarbons, n- and iso-butane. If the refiner wishes to
produce butadienes, the catalysts customarily employed for dehydrogen-
ating butenes do not appreciably convert isobutylene and the butanes;
hence, these must be removed from the butenes which are fed to a dehy-
drogenation process to produce butadiene.
Isobutylene is generally removed from the other 04 hydro-
carbons by treatment with aqueous sulfuric acid, of a concentration
carefully controlled so that the isobutylene is dissolved selectively
by the acid phase, while only small amounts of the butenes react. The
extract is treated with steam to liberate a 96% (volume) isobutylene
product. (The mixture could also be processed to produce diisobutylene,
which is a chemical intermediate instead of isolating isobutylene.)
Subsequent purification by distillation yields greater than 99% pure
isobutylene.
After isobutylene is eliminated, n-butane is dehydrogenated
to butene which is further processed to butadiene.
b. Producers
Principal producers of high purity isobutylene using the
sulfuric acid extraction process are: Exxon in Baton Rouge, Louisiana;
and Petro-Tex in Houston, Texas.
68
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Annual production volumes are not available and capacity
was not defined by our investigation. Oxirane Corporation is now pro-
bably the major producer of isobutylene.
c. Manufacturing Costs
Estimated manufacturing costs for high purity isobutylene
are given in Table IV-2. As shown, estimated costs exceed the list price
of 7.8c per pound. This may be due to assumed refinery values for C,
hydrocarbons or the general complexity inherent in coproduct cost accounting
which often fails to reflect the true marginal cost of marketing the
coproduct, and/or pressure on prices from excess capacity.
3. Prices
Actual average prices for high purity isobutylene are not available
in the U.S. Tariff Commission. List prices of 99% isobutylene, (Tank-
car, f.o.b.) are listed in the Chemical Marketing Reporter at 38c per
gallon from 1963 to 1974. One of the reasons for apparent price sta-
bility is Oxirane's new process, which probably results in lower cost
product than the sulfuric acid extraction process, although in both
cases, isobutylene is a coproduct and, hence, cost of manufacture is
necessarily somewhat arbitrary.
A. Supply/Demand Balance
The production volume of high purity isobutylene depends not only
on demand for isobutylene but also on demand for n-butane. Both products,
isobutylene and n-butane, are present in the same C, fractions produced
within a refinery. Production capacity and production volume, when the
Oxirane method is used, are not reported.
In summary, there would appear to be an ample supply of high
purity isobutylene available from byproduct sources. Even should butadiene
production eventually be curtailed, we expect large quantities are
available from Oxirane.
69
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TABLE IV-2
ESTIMATED MANUFACTURING COST FOR PRODUCTION OF
HIGH PURITY ISOBUTYLENE BY SULFURIC ACID EXRACTION
Production Economics (Summer 1973)
Process Sulfuric Acid Extraction of Mixed C4's
Location Gulf Coast Capacity 50 MM Ib/yr. Invest. $2.8 MM (1970 construction)
Cost
$/Yr. rf/lb. Product
C4 Hydrocarbons 2.8 lb@2.9
-------
C. ECONOMIC IMPACT
1. Treatment Costs
The costs required to achieve BPT and BAT guideline specifica-
tions are presented in the guideline document for a free standing plant
with 137,000 pounds per day of production capacity. These costs total
0.96C per pound to achieve BPT and 1.44
-------
process water. Significant cost differentials exist between the free
standing and the large complex plants, as described above, handicapping
the producer in the smaller waste treatment complex — essentially a
free standing condition.
2. Price Impact
Actual prices paid for high purity isobutylene are not reported
by the U.S. Tariff Commission in Synthetic Organic Chemicals. The fact
that isobutylene is reported in this journal priced at 2.9C per pound
indicates this to be low purity material. List prices for high purity
isobutylene have been stable at 38c per gallon or 7.8C per pound from
1963 through 1974. In all probability, list prices have been restrained
as isobutylene is a coproduct or byproduct in both of two manufacturing
processes: production of butadiene and production of propylene oxide.
The price has probably been kept low by existing potential capacity for
production beyond existing demand.
Normally, price increases, as shown by the impact matrix, would
be restrained as capacity utilization is probably relatively low, com-
petition is on a price basis, ina most importantly, isobutylene is the
coproduct with other matetxolfa presenting the option for increased costs
on the process to be passed through the isobutylene coproduct. There
are, however, a few large producers of a product for which there are no
substitutes for its major use, and its major end-use product, butyl
rubber,has relatively low price elasticity of demand. We expect, there-
fore, there will be pass through of both BPT and BAT treatment costs.
We judge the producer in a free standing plant, however, will be limited
to the pass through of only that amount of price increase as defined by
the cost of producers in large complexes. As shown in the impact matrix,
this will be equivalent to 3.3% of the price of BPT costs and 6.7% of
the price to cover BAT costs.
72
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3. Plant Shutdown Decision
Estimated manufacturing costs indicate the production of high
purity isobutylene by sulfuric acid extraction to be an unprofitable
activity given the hydrocarbon feedstock and the coproduct values shown
in our manufacturing cost economics.
In spite of the illustrated economics, processors have continued
the removal of isobutylene in the production of high purity butylene.
This has probably been due to both the necessity for isobutylene removal
to purify the normal butene fraction in butadiene manufacture, the
capability of producers' coproducts to absorb losses in one product while
enjoying an overall profit on the total plant operation, and the vagaries
of coproduct cost accounting.
If there is a plant shutdown, in all probability it would be
limited to one free standing producer. Other producers in large effluent
treatment complexes would, by virtue of full pass through of treatment
costs, be in the same profit position as prior to the imposition of
effluent treatment guidelines. It is difficult to say with certainty,
within the scope of this assignment, whether the one free standing plant
will shut down. Were isobutylene not a coproduct of butadiene, the
differentials in costs would appear sufficiently great so as to dis-
advantage the producer to the point that a plant closure would ensue
in anticipation of meeting BAT guidelines. Costs of meeting the BAT
guidelines would be equivalent to close to 19% of total selling price
and require an investment of about 68% of the existing net fixed invest-
ment for the sulfuric acid extraction process. We suspect, however, this
producer will not have other viable options for the removal of isobutylene
from the butene feedstock to produce butadiene and, hence, will be forced
into sulfuric acid extraction of isobutylene. Under these circumstances,
therefore, there will be no plant shutdowns or loss of employment, but
rather loss of profits by the free standing producer equivalent to the
difference between effluent treatment costs in the complex, which we
73
-------
estimate will pass through, and his own treatment cost. These differ-
ences would be equivalent to 0.70C per pound to achieve BPT and 0.92C
per pound to achieve BAT.
4. Foreign Trade
We expect no impact on foreign trade balance by the imposition
of either BPT or BAT effluent guidelines.
74
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V. ADIPONITRILE VIA CHLORINATION OF BUTADIENE AND
HEXAMETHYLENEDIAMINE VIA HYDROGENATION OF ADIPONITRILE
A. SUMMARY
Virtually all adiponitrile is used captively in the production of
nylon 66 salt. In this process, adiponitrile is hydrogenated to hexa-
methylenediamine (HMDA), which is then reacted with adipic acid to
produce nylon salt. Since adiponitrile, hexamethylenediamine, and
nylon salt production often are found at the same plant location, we
have treated the two products together in considering the economic
impact. However, the industry backgrounds for the two products are
described separately to facilitate a more thorough review of each inter-
mediate for nylon salt.
U.S. production of adiponitrile derived from butadiene was estimated
by trade sources to have been 500 million pounds in 1973. E.I. DuPont
de Nemours Co., Inc. (DuPont) is the sole U.S. producer of butadiene-
based adiponitrile and consumes its entire production internally, as do
all other adiponitrile producers. There are no imports or exports of
adiponitrile and apparent consumption is equivalent to production.
The sole end use of adiponitrile is the production of hexamethylene-
diamine (HMDA), a principal raw material for the production of nylon 66
fiber and nylon 66, 610 and 612 fibers and resins. The production of
adiponitrile is normally an integral part of an HMDA production facility.
Capacity utilization is probably high since nylon capacity utilization
has been over 90% and expansions in HMDA would match nylon capacity expansions,
The major foreseeable determinant of growth in the production of
adiponitrile based on butadiene is the growth of DuPont?s sales of
nylon 66, 610 and 612.
76
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Total U.S. hexamethylenediamine (HMDA) production in 1973 was
918.3 million pounds, of which 94% was made from adiponitrile. HMDA
production has experienced an average annual growth rate during 1967-
1973 of close to 11%. Imports and exports have been nonexistent or
negligible, so U.S. production closely approximates apparent consumption.
HMDA's sole end use is a raw material for the production of nylon 66,
610 and 612 fibers and resins. Virtually all HMDA production is used
captively for the production of nylon salt, which is then polymerized to
nylon polymer. HMDA capacity utilization, therefore, has probably closely
followed nylon polymer capacity utilization, normally in the range of
80%-85% of nominal capacity.
The major determinant of growth in the production of HMDA will be
the demand for nylon 66, 610 and 612 fibers and resins in the future.
We expect approximately 6% per year growth in the demand for nylon over
the next five years.
Only one impact analysis for adiponitrile and hexamethylenediamine
together is considered, since all adiponitrile is consumed captively and
converted to hexamethylenediamine. This impact analysis matrix is
provided in Table V-l. A summary of the joint effluent treatment costs
for the two products and applicable to hexamethylenediamine production
costs is given in Table V-2.
We believe that these costs can be fully passed through and will
cause no severe dislocations in this industry. The guidelines indicate
a cost increase of only 0.17
-------
TABLE V-1
ADIPONITRILE FROM CHLORINATION OF BUTADIENE
HEXAMETHYLENEDIAMINE FROM ADIPONITRILE
\11 Processes:
972 Production (Million Pounds)
I972 Unit Value (C/Lb)
[972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
458
36
3 (butadiene based)
0.5%
1.9%
Direct — Low
Secondary — High
High
High
Moderate (5%/yr. forecast)
Low
-
Low — Direct
Totally Integrated
Concentrated
3
3 to adiponitrile: acrylonitrile,
butadiene and adipic acid plus 2
processes utilizing butadiene.
78
-------
TABLE V-l (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
CO
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
•«.
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
' ''•":-• •' " '"'.' "••::
B.P.T.
OAT1
Lt • f\ • JL •
"P'X ' '.'' '" ' ''
-."-.• '" '
2.8%
11.0%
Positive
4.4%
9.2%
High
Medium Complex
Few
High
Multi- Industry
79
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TABLE V-2
ESTIMATED EFFLUENT TREATMENT COST IN MEDIUM COMPLEXES FOR
ADIPONITRILE AND HEXAMETHYLENEDIAMINE
(1972 Basis)
U/lb)
Medium Treatment
Complex1
BPT
BAT
Free Standing
Plant
BPT
BAT
Adiponitrile
.15
.57
1.6
2.2
HMDA
.02
.10
0.5
0.6
Total
.17
.67
2.1
2.8
1. 3 million gallons per day effluent treatment facility.
80
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Further, the impact of the projected price increases on the relatively
high value added nylon 66, 610 and 612 products will be very small.
We expect no plant shutdowns and no effect on the U.S. balance of
trade caused by the proposed treatment costs.
B. INDUSTRY BACKGROUND FOR ADIPONITRILE BASED ON CHLORINATED BUTADIENE
1. Market Characteristics
a. Size and Growth
We estimate that in 1973, 500 million pounds of adiponitrile
were made from butadiene (see Table V-3). This represents an average
annual growth rate of 8.4% during 1963-1973. Since adiponitrile is nor-
mally made at the same plant where it is further processed into HMDA,
exports and imports are nonexistent. Apparent consumption per year,
therefore, is equivalent to production. We estimate production of nylon
will increase at 6% per year. DuPont, however, has introduced a new
adiponitrile process, and we do not expect the company to expand adipo-
nitrile production by the route of butadiene chlorination.
b. Uses
Adiponitrile's sole use is the production of HMDA, which is
used in the manufacture of nylon 66, 610 and 612 fibers and resins for
molding and extrusion.
c. Substitute Products
HMDA can be produced from either adiponitrile or hexandiol.
Celanese Corporation at the present is the only firm pursuing the hexan-
diol/HMDA route and represents 6% of total HMDA production in 1973. The
other 94% of HMDA made in 1973 was derived from adiponitrile which
81
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TABLE V-3
PRODUCTION, EXPORTS. IMPORTS AND APPARENT CONSUMPTION OF ADIPONITRILE
BASED ON BUTADIENE RAW MATERIAL
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Production
222
-
264
-
312
356
350
322
372
458
500
Imports
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
No* Reported
4cK Reported
Not Reported
Exports
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Apparent
Consumption
222
-
264
-
312
356
350
322
372
458
500
SOURCE: Chemical Economics Handbook Estimates.
82
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can be produced from various raw materials - butadiene, adipic acid, or
acrylonitrile (see Table V-4 for a percentage breakdown for adiponitrile
capacity by raw material in 1973). Historically, firms which have chosen
a raw material for adiponitrile production base further expansions on the
same raw material. The one known exception is Monsanto Company, which
makes adiponitrile from adipic acid and acrylonitrile and is expected to
base further expansions only on acrylonitrile. No changes of present
capacity from one raw material to another are expected due to the high
capital cost involved. The share of adiponitrile production derived from
the chlorination of butadiene should, therefore, relatively remain con-
stant for the near future. It will change as DuPont's market share of
total nylon 66 varies in the future and as DuPont brings on its new
adiponitrile process based on treating cyanide with butadiene.
d. Captive Requirements
All adiponitrile production is used captively. No sales
of adiponitrile are reported by the U.S. Department of Commerce and
it has been industry practice to use 100% of adiponitrile capacity
internally.
2. .Supply Characteristics
a. Manufacturing JProcesses
Adiponitrile can presently be made from butadiene using two
processes. The older process is to chlorinate butadiene into a mixture
of l,4-dichlorobutene-2 and 3,4-dichlorobutene-l; subsequent reactions
of each of a mixture of these products with sodium cyanide, derived
from hydrogen cyanide, yields mixed isomers of 1,4-dicyanobutene-l and
-2. The dicyanobutenes are then isomerized and hydrogenated to adipon-
itrile utilizing a palladium-on-charcoal catalyst. The newer process
avoids the chlorination step. The dicyanobutenes are produced by a two-
stage reaction of hydrogen cyanide with butadiene. In the first reaction,
hydrogen cyanide reacts with butadiene in the presence of a zero-valent
catalyst to form mixed unsaturated mononitriles which are isomered to
mixed linear pentene-nitriles. A second hydrogen cyanide reaction forms
mixed dinitriles from which adiponitrile is isolated.
QT
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TABLE V-4
ADIPONITRILE BY RAW MATERIAL
Raw Material % of Adiponitrile
Butadiene 63
Adipic Acid 26
Acrylonitrile 11
100
SOURCE: CEH Capacity Estimates.
84
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According to the trade literature, DuPont's adiponitrile pro-
duction at Victoria, Texas and LaPlace, Louisiana is based entirely on
chlorination of butadiene. Within the last year the company has intro-
duced the new direct hydrocyanation process into its existing plant at
Orange, Texas, presumably to supplement its existing production of
adiponitrile at that location.
b. Producers
The sole producer of adiponitrile from butadiene is DuPont
(see Table V-5). The plants in LaPlace, Louisiana, and Victoria, Texas
are based on the older process while the plant in Orange, Texas uses
the improved two-stage reaction process for at least a portion of its
production. The plants are located close to the butadiene raw material
rather than the nylon fiber plants.
3. Prices
Since all adiponitrile is used captively, there are no actual
prices reported by the U.S. Department of Commerce or list prices.
Probably adiponitrile is transferred at cost or cost plus return on
adiponitrile plant investments to the HMDA production facilities.
4. Supply/Demand Balance
Capacity utilization cannot be accurately determined since
DuPont does not publicly report its adiponitrile production rates or
capacities. Production, therefore, has to be derived from DuPont's
estimated nylon production. Capacities are also estimated using the
same method. During 1973 and the first half of 1974, U.S. nylon fiber
production, which accounts for about 90% of nylon 66, 610 and 612, was
operating at or close to capacity. During this period, nylon fiber
was in short supply. We assume, therefore, that adiponitrile production,
keyed to nylon 66, 610 and 612 capacity, was also operating at high
capacity levels.
85
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TABLE V-5
ADIPONITRILE PRODUCERS USING BUTADIENE
Company
E. I. DuPont de Nemours
& Co., Inc.
Location
La Place, Louisiana
Victoria, Texas
Orange, Texas
Capacity - 1972
(MM Ibs.)
440
SOURCE: Chemical Economics Handbook
86
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Over the past decade, nylon fiber production has become a
cyclical business. In periods of reduced demand, capacity utilization
for fiber spinning has dropped to levels of 70-75%. Probably capacity
utilization for adiponitrile was similarly reduced.
C_. INDUSTRY BACKGROUND FOR HEXAMETHYLENEDIAMINE FROM ADIPONITRILE
1. Market Characteristics
a. Size and Growth
According to the U.S. Department of Commerce data, production
of HNDA from all processes totaled 918.3 million pounds in 1973 (see
Table V-6) and has increased at an average annual growth rate of close
to 11% during 1967-1972. Production was not reported by the U.S.
Tariff Commission prior to 1967. Imports and exports, although they
were reported in 1970-1972 are minimal, especially since they are
normally between subsidiaries of the same corporation. Apparent con-
sumption in the United States is equivalent to production and we
estimate will increase at an average rate of 6% per year over the next
five years.
b. Uses
All HMDA is used for the production of nylon fibers or
resins. As shown in Table V-7, 90% of the HMDA produced in 1972 was
used in the production of nylon 66 staple and filament fibers.
Eight percent of HMDA production was used in nylon 66 resin production.
The remaining 2% was utilized in the production of other nylon fibers
and resins (nylon 610 and 612).
87
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TABLE V-6
PRODUCTION, IMPORTS, EXPORTS AND APPARENT CONSUMPTION OF HMDA
(million pounds)
Ysar
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Production
Not Reported
Not Reported
Not Reported
Not Reported
497.9
549.8
663.1
613.4
709.5
354.4
918.3
Imports
.7
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
.2
.1
.4
—
Exports
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
.2
—
Apparent
Consumption
-
-
-
497.9
649.8
663.1
613.6
709.6
854.6
918.3
SOURCES: Chemical Economics Handbook, U.S. Tariff Commission
88
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TABLE V-7
CONSUMPTION OF HMDA BY END USE
End Use %-1972
Nylon 66 Fibers 90
Nylon 66 Resins 8
Other Nylon Fibers & Resins1 2
100
1. Nylon 610 and Nylon 612
SOURCES: Contractor's Estimates, Chemical Economics Handbook
89
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C. Substitute Products
There is no substitute in the production of nylon 66 for
HMDA, although nylon 6 made from caprolactam competes directly with
nylon 66 in most of its end uses as fiber and molding resins. There
are, however, presently two routes to HMDA available. In 1972, 94%
of the HMDA produced used adiponitrile as a raw material. The other
6% was made from hexandiol. Celanese Corporation is the sole user at
the present time of the hexandiol/HMDA route. Other processes are
in the development stage to produce HMDA from still other raw materials
than adiponitrile. An example is Toray Industries' reported process
to manufacture HMDA using as a raw material aminocapronitrile produced
from caprolactam. It is improbable, however, that current producers
of HMDA from adiponitrile will change current manufacturing processes
due to the high capital cost of conversion and the risk inherent in
the new processes. HMDA from adiponitrile should, therefore, continue
to be the major form of HMDA produced.
d. Captiye Requirements
According to the U.S. Tariff Commission data, there has
been no reported sales of HMDA until 1972 (see Table V-8) when 1% of
the year's production was sold. Therefore, virtually all of HMDA pro-
duction is used captively for the production of nylon resins or fibers.
2. Supply Characteristics
a. Manufacturing Processes
HMDA is produced from adiponitrile by hydrogenation which
is carried out in a liquid phase at high pressures and temperatures.
Ammonia is added as a solvent for the adiponitrile, and catalysts,
such as copper or cobalt, are used in the process. Byproducts produced
are hexamethylene amine, 1,2-diaminocyclohexane, and heavy tars.
90
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TABLE V-8
PRODUCTION, SALES AND CAPTIVE USE OF HEXAMETHYLDIAMINE
(million pounds)
Year
Production
Sales
1963
1964
1 '65
1 66
1 67
1968
1969
1970
1971
1972p
1973
P — Preliminary
SOURCE: U.S.
_
-
-
-
497.9
649.8
663.0
613.4
709.5
854.4
918.3
Tariff Commission
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
Not Reported
8.4
Not Reported
Captive Use
497.9
649.8
663.0
613.4
709.5
846.0
918.3
91
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b. Producers
Table V-9 lists the producers who manufacture HMDA from
adiponitrile and their estimated capacities. Exact capacities are not
known since they are not reported by the companies, and therefore,
must be derived from their nylon production. Note that these facilities
are all located near the source of raw materials - butadiene, adipic
acid, or acrylonitrile; i.e., Texas predeminently. Also noted in
Table V-9 is the raw material used to produce the adiponitrile that
is hydrogenated into HMDA. DuPont, which is by far the largest of
the three producers, uses butadiene; El Paso uses adipic acid; and
Monsanto uses both adipic acid and acrylonitrile. Probably further
capacity expansions at Monsanto will be based on adiponitrile from
acrylonitrile.
c. Manufacturing Economics
Estimated manufacturing costs for adiponitrile and hexa-
methylenediamine based on chlorination of butadiene are given in
Table V-10. Capacity for this plant is about 5% greater than that
specified in the guideline document. We estimate that net capital
investment for the plant specified in the guideline document is
$29.3 million.
3. Prices
Since virtually all HMDA produced is used captively, published
prices are nonexistent. Only in 1972 were ex! irnal sales reported to
the U.S. Tariff Commission when 8,4 million po-ads were sold at a unit
value of 36C per pound. The great bulk of HMD '•. is probably transferred
to the nylon manufacturing facility at cost or cost plus some specified
return on the investment in HMDA facilities. We do not expect this to
change within the foreseeable future.
92
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TABLE V-9
HMDA PRODUCERS USING ADIPONITRILE - 1971
Company
E.I. DuPont de Nemours &
Company, Inc.
El Paso Natural Gas Co.
Monsanto Company
Location
Orange, Texas
Victoria, Texas
Odessa, Texas
Decatur, Alabama
Pensacola, Florida
Capacity
(MM Ibs)
440
30
75
155
700
% of Total
63
11
22
100
Process
Butadiene
Adipic Acid
Acrylonitrile
Adipic Acid
Note: Celanese makes approximately 45 million pounds per year of HMDA at Bay City, Texas from
hexanediol, not adiponitrile.
SOURCES: Chemical Engineering Handbook, Contractor's Estimates
93
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TABLE V-10
ESTIMATED COST OF MANUFACTURING
ADIPONITRILE AND HEXAMETHYLENEDIAMINE
Production Economics (Summer 1973)
Process From Butadiene
Location Gulf Coast Capacity 200 MM Ib/yr1 Invest. $30.4 MM (1970 Construction)
Cost
$/Year ti/lb Product
Butadiene 0.74 lb@ 8.1 sf/lb 11,980,000 5.99
Chlorine 0.96 Ib @ 3.8d/lb 7,300,000 3.65
Hydrogen Cyanide 0.65 lb@ 10.0«
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4. Supply/Demand Balance
S
As shown in Table V-ll, we estimate that the industry was
operating at 97% capacity in 1972. Again, this judgment is based on
trade estimates since capacities are not reported. Since the vast
majority of HMDA produced is used captively, capacity utilization is
probably directly related to nylon fiber capacity utilization. In the
recent past, nylon fiber capacity utilization has been high due to
rapid increases in nylon fiber demand. Over the past five to ten years,
capacity utilization has probably averaged around 85%.
D. ECONOMIC IMPACT ON ADIPONITRILE BY CHLORINATION OF BUTADIENE AND
HEXAMETHYLENEDIAMINE BY HYDROGENATION OF ADIPONITRILE
1. Treatment Costs
The guideline document presents separate waste treatment costs
for adiponitrile and hexamethylenediamine. Since all adiponitrile based
on chlorination of butadiene is captively consumed to produce hexamethylene
diamine, these costs should be considered together to determine the
economic impact on hexamethylenediamine and consequently on adiponitrile.
The treatment cost data were determined, as shown in Table V-2, by
summing the data for separate facilities.
The costs required to achieve BPT and BAT guideline specifica-
tions as presented in the guideline document for a free standing plant
with a 548,000 pounds per day production capacity of both hexamethylene-
diamine and adiponitrile, are 2.1c an(] 2.8C per pound respectively. We
estimate that all adiponitrile and hexamethylenediamine production
facilities are located in medium-sized complexes leading to substantial
economies of scale. Our estimation of BPT and BAT costs for medium-
sized complexes are 0.17C and 0.67C per pound respectively.
95
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TA&LEV-il
ESTIMATED CAPACITY, PRODUCTION, AND
CAPACITY UTILIZATION OF HMDA
(million pounds)
Year Capacity Production % Utilization
1963 -
1964 -
1965 -
1966 -
1967 - 497.9
1968 - 649.8
1969 - 663.1
1970 - 613.4
1971 742 709.5 96
1972 900 854.4 95
1973 950 918.3 97
SOURCES: U.S. Tariff Commission, Contractor's Estimates
96
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There are three processes for production of adiponitrile: chlorina-
tion of butadiene, hydrocyanation of butadiene - a variant of the
chlorination route, and oxidative coupling of acrylonitrile. DuPont is
the only major producer using the chlorination route, and even they are
supplementing this old technology with the newer hydrocyanation route.
It is doubtful, however, that they will abandon their existing chlorina-
tion route facilities because their investment in these is quite large.
The treatment costs for the alternate routes are estimated by the
guideline contractor to be about the same as for the chlorination route.
Therefore, no cost differentials will be introduced by the alternate
processes for adiponitrile.
All adiponitrile is converted to hexamethylenediamine by catalytic
hydrogenation. This is the principal production process accounting for
about 94% of production in 1972. The remaining 6% was produced directly
from hexanediol by reaction with ammonia. This alternate production
route is not attractive to those already committed to adiponitrile
reduction. The guideline contractor estimates that the latter process
has a comparable waste load to hydrogenation of adiponitrile. It may
have a somewhat lower treatment cost than the combined adiponitrile,
hexamethylenediamine production process. However, we do not believe
that this cost differential will affect this industry because the
amount of hexamethylenediamine produced from hexanediol is so small
and virtually all hexamethylenediamine is consumed captively to make
nylon salt and is not sold in the merchant market.
2. Impact on Prices
Virtually all hexamethylenediamine is captively converted to
nylon salt then to nylon fibers or resins. Since little or none is
sold, the costs will be passed along to nylon 66 purchasers in periods
of high demand or in view of the high commitment to nylon 66 production
97
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and the small impact on prices (0.5 to 1.9%) and on net income (2.8 to
11.0%) will be absorbed in nylon 66 resin or fiber margins in periods
of demand and oversupply. We do not feel that major dislocations in
the market will occur as the result of water treatment costs. Some small
percentage of consumers may switch to polyester fibers or resins -
nylon's largest competitor - however, this should be offset by consumers
switching from nylon 6 (from caprolactam) to nylon 66.
For certain applications where the physical property differences
between nylon 6, nylon 66 and polyester resins or fibers are not important,
there is a continual reevaluation of the raw material used based on price
and availability. If waste treatment cost for these products is large
enough, some market dislocations could occur. However, we do not expect
much, if any, market switching because all the competitive products will
incur waste treatment costs and while the absolute costs for nylon 66
are very low, the cost differentials, if in favor of competitive fibers,
will be even less or, if in favor of nylon 66, support the current market.
Therefore, we do not expect any adverse reactions if the full treatment
costs are passed through.
The price impact matrix suggests that the full treatment costs
can be passed through as the economic recession reverses and as growth
returns to the textile industry. The market for nylon 66 fibers and
resins should remain strong because the demand potential for nylon 66
is near nameplate capacity. Moderate growth is forecast even with higher
prices caused by water treatment costs. Foreign competition continues
to be low, and the market share distribution is highly concentrated.
Further, the impact of the waste treatment costs on the higher value
added nylon salt, resin, or fibers will be even less than that estimated
for hexamethylenediamine.
98
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3. Plant Shutdown Decisions
All adiponitrile and hexamethylenediamine producers are
vertically integrated from basic raw materials through nylon resins
or products. Therefore, the commitment to their product is high.
Further, the capital costs required to switch from their current
technology to another - assuming the waste treatment costs were sub-
stantially less - is very high, therefore, there is little chance
that these manufacturers would switch to a new technology with
concurrent plant relocation. Finally, the costs associated with
waste treatment are relatively small even to achieve BAT waste level
specifications and the capital investment required -$1,24 million
for BPT and $2.69 million for BAT facilities - is not large. We do
not expect that the adiponitrile/hexamethylenediamine producers will
be severely affected by the proposed effluent specifications and we
predict no plant closures or production curtailments. <
4. Foreign Trade
Historically, foreign trade has been negligible for both
adiponitrile and hexamethylenediamine. Since the duty rate is 5% ad
valorem for HMDA versus a 0.5% and 1.9% price increase from BPT and BAT
treatment costs respectively, it is not likely that foreign trade will
change significantly because of waste treatment costs. Therefore,
we expect no effect on the U.S. balance of payments.
99
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. BUTYL ALCOHOL BY HYDROLYSIS OF BUTYLENE.
AND. METHYL ETHYL KETONE BY DEHYDROGENATION OF
SECONDARY BUTYL ALCOHOL
A. SUMMARY
An estimated 95% of all secondary butyl alcohol produced in the
United States is utilized by the producers at manufacturing locations as
raw material for the production of methyl ethyl ketone. We have, therefore,
treated the two products together in considering the economic impact as
we are essentially talking about the two steps in one method for the pro-
duction of methyl ethyl ketone. The industry backgrounds for the two
products, however, are described separately to facilitate a more thorough
review of the total subject matter.
There are no reliable data in the U.S. Tariff Commission, or else-
where which we have been able to determine, defining the production of
secondary butyl alcohol. Based on the production of methyl ethyl ketone
by the secondary butyl alcohol process and industry comments, we estimate
consumption at approximately 400 million pounds per year with an average
historical growth rate of 7% per year. We forecast future growth in the
demand for secondary butyl alcohol at 7% per year. This growth is tied
to forecast increases in demand for methyl ethyl ketone.
Secondary butyl alcohol is manufactured by three companies with an
estimated total annual capacity of 416 million pounds in four plants.
The industry is concentrated in two companies which hold 84% of total
capacity. All companies use the normal butylene process in which normal
butylenes are converted to secondary butyl sulfate and subsequently
hydrolyzed with water to secondary butyl alcohol. Based on our estimates
of industry demand and capacity, we believe the industry has been operating
in recent years at over 85% of capacity and was at approximately 96% of
capacity in 1973.
1 0
-------
About 5% of total secondary butyl alcohol is sold by the producers for
application as a solvent. Actual prices are not reported by the United
States Tariff Commission but industry sources interviewed estimate prices
at around 9c-10c per pound during 1970-1972, approximately 4c below list
prices. List prices were stable at 12.5c per pound from 1963-1969. Since
then they increased to 13.5c per pound in 1970 through 1972. In 1973
list prices increased to 14. 5c per pound and 16.5c per pound by mid-1974.
Methyl ethyl ketone is produced by the direct oxidation of butane as
well as by the dehydrogenation of secondary butyl alcohol. The butane
oxidation process yields a variety of products depending on conditions and
methyl ethyl ketone is one of the major products of the process.
Total production of methyl ethyl ketone reached a high point of
approximately 541 million pounds in 1973. Production has grown since
964 i t an average annual rate of 7% per year. Exports have been a
igni;leant portion of total U.S. producers' sales since 1966. Imports
became significant in 1968, peaked at approximately 57 million pounds
in 1972, and declined to 42 million pounds in 1973.
Over the nine year period of history examined, apparent consumption
of methyl ethyl ketone has increased from 288 million pounds to 536
million pounds or at the same rate of increase as production or 7% per
year. Future growth in domestic demand is uncertain because of both the
uncertainty surrounding the changes in prices of a variety of competing
materials used as solvents as well as by changes in energy and feedstock
costs and more importantly because of government regulations affecting
the use of solvents.
About two-thirds of the methyl ethyl ketone finds application as a solvent
in a variety of uses. Relatively smaller amounts are used in lube oil
dewaxing, adhesives and miscellaneous uses. Its major competitive product
is ethyl acetate, a solvent with very similar characteristics. Captive
10 L
-------
requirements represent about 5% of total production volume.
According to one of the producers, total methyl ethyl ketone capacity
in the United States is 591 million pounds. About 70% of this total is
produced by the dehydrogenation of secondary butyl alcohol by three
companies. Another two producers manufacture methyl ethyl ketone by
oxidation of normal butane. This process also produces acetic acid as a
coproduct. Assuming the accuracy of the industry estimates on capacity,
the industry was working at 91% of available capacity in 1973. In fact,
according to industry commentary, the industry was working at about 100%
of effective capacity due to limitations on the availability of feedstocks.
Methyl ethyl keLone prices have deteriorated largely because of
pressure from imported materials through 1973. Actual prices declined
from lie per pound in 1964 to 8c per pound in 1973. During the same
period, list prices declined from 12.5c per pound in 1963 to 9.75C
per pound in 1973. By the end of 1974, however, list prices were posted
at 17c per pound reflecting increasing raw material costs and an apparently
relatively tight supply/demand situation,
The impact analysis for methyl ethyl ketone is controlling for both
products being considered as the production of secondary butyl alcohol is
essentially one step in the production of methyl ethyl ketone starting
with isobutylene ^"Ing to o condary butyl alcohol and then the dehydrogena-
tion to methyl ethy3_ ketone This impact analysis matrix is provided in
Table VI-1. A summary of . "** joint effluent treatment costs for the two
products and applicable to u .K ma.iufactuie is £,;ven in Table VI-2.
We do not believe producers oi me thy} e hyl _;etone by the route under
consideration will be able to past, through oicr jased prices because of
foreign competition, competitive materials and -,. ^mpetitive processes.
The guideline indicates a ~ost inert se of 0.03QC per pound to achieve
BPT '-ffluent conLrr] , f ban secoiJary bi tyl alcohol and methyl ethyl
kc.>"> . which vill ha o bp ^sovp t i>y the methyl ethyl ketone pt .uucers,
02
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TABLE VI-1
MEK BY DEHYDROGENATION OF
SECONDARY BUTYL ALCOHOL
•
Ml Processes:
L972 Production (Million Pounds)
L973 Unit Value (C/Lb)
L972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost of MEK & Sec. Butyl
• Alcohol to Selling Price
of MEK (%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
509
8.4
41
6
0.4%
1 .8%
High
High: 85%
Low
7%: Moderate
High
I
High
Price
Mod. Concentrated
5
1: MEK from n-butane
103
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TABLE VI-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in Tote
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
1
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
B.P.T.
BA T*
• n. . x .
•'••> ' "'• '
1 .6%
7.9%
Positive
3.1%
5.8%
Moderate
Large complex
Multiple '
Strong
Multi- Industry
104
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TABLE VI-2
ESTIMATED EFFLUENT TREATMENT COST IN LARGE
COMPLEXES FOR SECONDARY BUTYL ALCOHOL
AND METHYL ETHYL KETONE
U/pound)
Large Treatment Complex1 Sec. Butyl Alcohol MEK Total
BPT
BAT
Free-Standing
BPT
BAT
1. Ten million gallons per day effluent treatment facility.
0.014«i
0.124
0.861
1.12
0.016
0.025
0.581
0.608
0.030
0.149
1.442
1.728
105
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Our economic analysis indicates that this is possible and thus we fore-
see no significant price effect or do we expect any plant shutdowns.
The achievement of BAT effluent control levels will result in cost
increases specified at 0.149C per pound for secondary butyl alcohol
and methyl ethyl ketone together. We estimate, according to our manu-
facturing cost estimates, that those costs would also be absorbed
without plant shutdowns. This estimate is predicated on the transfer
of secondary butyl alcohol at cost to the methyl ethyl ketone manu-
facturing facility.
B. INDUSTRY BACKGROUND FOR SECONDARY BUTYL ALCOHOL BY HYDROLYSIS OF BUTYLENE
1. Market Characteristics
a. Size and Growth
Production data for secondary butyl alcohol is not available in
U.S. Tariff Commission reports. Production of secondary butyl alcohol on the
assumption that all methyl ethyl ketone facilities operated at an average
capacity during 1973 of 91% is approximately 400 million pounds assuming a
5% yield loss in conversion. Total growth in demand is estimated at about 7%
per year, the same as for methyl ethyl ketone for the 1963-1973 period.
Secondary butyl alcohol is a chemical intermediate in the
production of methyl ethyl ketone. Sales for other uses are very limited.
Future of growth and consumption of all methyl ethyl ketone is expected to
remain at around 7% per year. We expect that growth in demand for secondary
butyl alcohol will continue to parallel the growth in demand for methyl
ethyl ketone.
lOf.
-------
b. End Uses
As previously mentioned, 95% of the total production of
secondary butyl alcohol is used in methyl ethyl ketone manufacture.
The remainder is used either directly or as an ester in the manufacture
of such items as lacquers, paint removers and adhesives.
c. Substitute Products
There is no direct substitute for secondary butyl alcohol
in its significant end use in the manufacture of methyl ethyl ketone.
There is another process for the production of methyl ethyl ketone.
This product is dealt with in more detail in the following section on
industry background for methyl ethyl ketone.
d. Captive Requirements
Ninety-five percent of the secondary butyl alcohol that is
produced is consumed captively not only by the same companies but at the
same points of manufacture. As previously described, only relatively small
amounts are sold for other purposes.
2. Supply Characteristics
a. Manufacturing Routes
Secondary butyl alcohol is manufactured from normal butylenes
contained in refinery C. fraction. In order to produce secondary butyl
q
alcohol the C, fraction is first separated and the isobutylene removed from
the normal butylene. Normal butylenes are first absorbed by concentrated
sulfuric acid (75%) to form isobutyl sulfate. T^his is subsequently
hydrolyzed with water to secondary butyl alcohol in dilute sulfuric acid.
The mixture is separated by distillation and as sulfuric acid reconcentrated
for recycle.
107
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b. Producers
Producers are listed in Table VI-3. The data in Table VI-3.
were obtained by industry interviews with the major producers. As shown
by the table, this is a highly concentrated industry with two companies
accounting for 72% of total productive capacity. Shell Chemical has
closed one 50 million pounds per year plant producing secondary butyl
alcohol in Domingues, California, in mid-1971. We believe this was
done to optimize manufacture at its larger facility in Houston, Texas.
c. Manufacturing Economics
The economics of producing secondary butyl alcohol are shown
in Table VI-4. Capacity for the plant is the same capacity as specified
in the guideline document.
3. Prices
Actual prices for secondary butyl alcohol are not available in
the U.S. Tariff Commission and are largely academic as the material is
transferred in one plant to the manufacture of methyl ethyl ketone.
Industry reports of the relatively small amount sold between 1971 and 1973
were at 9(?-10c per pound. As shown in Table VI-5, list prices were stable
at 12.5c per pound from 1963 to 1969. In 1970, they were increased to
13.5
-------
TABLE VI-3
SEC-BUTYL ALCOHOL PRODUCERS
Annual
Capacity
Producer Location (MM Ibs) Raw Material
Atlantic Richfield Channelview, Texas 66 n-Butylene
Exxon Chemical Bayway, New Jersey 200 n-Butylene
Shell Chemical Deer Park, Texas 100 n-Butylene
Shell Chemical Norco, Louisiana 50 n-Butylene
Total - 416
Capacity from n-Butylene 416
SOURCE: Industry estimates
109
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TABLE VI-4
ESTIMATED MANUFACTURING COSTS FOR
SECONDARY BUTYL ALCOHOL
Production Economics (Summer, 1973)
Product Secondary Butyl Alcohol
Process Hydration of n-Butenes
Location Gulf Coast Capacity 75MMIb/yr Invest. $3.2 MM (1970 Construction)
Cost
n-Butenes - 0.80 Ib @ 3.0fii/lb
Catalyst, Chem., Supplies
Utilities
Direct Labor 20 men @ $5.00/hr
Maintenance, Labor & Materials
Labor & Plant Overhead
Depreciation 9%/yr
Taxes & Ins. 1-1/2%/yr
Factory Cost
$/Year
1,800,000
75,000
1,155,000
213,000
150,000
213,000
288,000
48,000
il\b Product
2.40
0.10
1.54
0.28
0.20
0.28
0.38
0.06
3,942,000
5.24
110
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TABLE VI-5
LIST PRICES FOR
SEC-BUTYL ALCOHOL
(cents per pound)
Year i per Ib
1963 12.5
1964 12.5
1965 12.5
1966 12.5
1967 12.5
1968 12.5
1969 12.5
1970 13.5
1971 13.5
1972 13.5
1973 14.5
1974 16.5
Note: Synthetic, tanks, delivered
SOURCE: Chemical Marketing Reporter
111
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existing route to the production of methyl ethyl ketone. Whether the
production of secondary butyl alcohol will continue to rise with methyl
ethyl ketone demand is directly related to the amount of production by other
routes (direct oxidation of butane) and increasing competition from imports.
Import competition will in itself be partly controlled by the costs which
must be borne by the secondary butyl alcohol/methyl ethyl ketone producers
controlling effluents providing that foreign points of production do not
experience similar control costs.
C. INDUSTRY BACKGROUND FOR METHYL ETHYL KETONE
1. Market Characteristics
a. Size and Growth
According to data published by the U.S. Tariff Commission,
production of methyl ethyl ketone increased from about 290 million
pounds in 1964 to approximately 541 million pounds in 1973 or at an
annual average yearly growth rate of 7% for the period. As shown in
Table VI-6 production volume increased rapidly from 1964 to 1969, then
leveled off at the rate of 2% per year growth from 1969 to 1972.
Production grew by about 6% in 1973. During this period of time,
apparent consumption in the United States grew fairly steadily at an
average rate of approximately 7% per year. The variations in production
in growth rate were due principally to developing imports into the
United States which peaked in 1972 at 57 million pounds. Imports in 1964
totaled less than 9 million pounds.
Future growth in U.S. demand for methyl ethyl ketone is
t
difficult to predict because of the impact of a variety of regulations
concerning its application and the use of products in which it is con-
sumed. California has issued regulations relative to the use of solvents
in the manufacture of industrial products. Methyl ethyl ketone is an
e, ampt solvent and hen:•-;• may benefit in demand of the expense of other
11
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TABLE VI-6
PRODUCTION, FOREIGN TRADE AND APPARENT CONSUMPTION OF MEK
(million pounds)
Apparent
Year Production Imports Exports Consumption
1964 288.9 8.8 9.3 288.4
1965 317.5 8.7 29.1 297.1
1966 399.1 12.6 32.7 379.0
1967 400.4 8.8 47.2 362.0
1968 451.2 18.3 33.2 436.3
1969 484.4 29.7 29.8 484.3
1970 480.2 33.0 22.1 491.1
1971 483.8 29.3 26.0 487.1
1972 509.0 57.1 21.8 544.3
1973 540.7 41.6 37.3 545.0
SOURCES: Synthetic Organic Chemicals, U.S. Production and Sales, U.S. Tariff
Commission, Washington, D.C.
Preliminary Report on U.S. Production of Selected Synthetic
Organic Chemicals, S.O.C. Series C/P-73-1, U.S. Tariff Commission,
Washington, D.C.
113
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nonexempt solvents. On the other hand, potential hazards in the
manufacture and use of vinyl chloride products, which consume approxi-
mately one-third of the total methyl ethyl ketone required, may
negatively affect future consumption growth rates unless vinyl chloride
surface coatings are replaced by other coatings containing the equivalent
amount of methyl ethyl ketone. Our best estimate is that over the next
several years, demand for methyl ethyl ketone will continue to grow at
a rate of approximately 7% per year.
Productive capacity for methyl ethyl ketone is close to the
1973 rate of demand. Capacity, if fully utilized, could support an
additional 10% growth in methyl ethyl ketone demand. There have been no
announcements to date of plant expansions or new capacity production.
Failing expansions, by 1976, increases in domestic demand will have to be
satisfied either by additional imports of MEK or by substitute products.
b. End Uses
As shown in Table VI-7, about two-thirds of methyl ethyl
ketone applications are as solvents in coatings. Relatively smaller
amounts are used in the manufacture of adhesives, lube oil dewaxing
and a variety of miscellaneous applications. Methyl ethyl ketone has
broad applications in synthetic surface coating preparations versus uses
as a solvent along with vinyl resins, nitrile cellulose, acetate butarate,
acrylic resins, vinyl acetate. It is also used as a dewaxing solvent
for lubricating oils and is favored as a solvent in lacquer preparation
because of its capability of providing low viscosity, high solids con-
centration and great diluent tolerance. MetKyl ethyl ketone is one of the
solvents exempt by Rule 66 specified by the .tate of California for con-
trolling solvent applications. Enforcement of Environmental Protection
Legislation for air pollution may favorably affect the consumption of
methyl ethyl ketone at the expense of solvents which are excluded by
tais legislation.
-------
TABLE VI-7
MEK CONSUMPTION BY END USE IN 1972
End Use % of Total Million Pounds
Vinyl Coatings 34 185
Nitrocellulose Coatings 14 76
Adhesives 14 76
Acrylic Coatings 12 65
Miscellaneous Coatings 7 38
Lube Oil Dewaxing 7 38
Miscellaneous 8 43
Exports 4 22
Total 100 533
SOURCE: Chemical Marketing Reporter 1/14/74
115
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As a solvent, methyl ethyl ketone competes with a variety
of other products in formulating surface coatings. Ethyl acetate is
the major potential substitute product for methyl ethyl ketone,
especially as a low boiling solvent for nitrile cellulose formulations.
The two products sell at approximately the same price with ethyl acetate
sold at an average actual price of 8<: in 1972 and 9c per pound in 1973.
Significant price changes in either product alone would tend to lead
to reformulation in the greater use of these others. This conclusion
is based on qualitative statements by the industry and the detailed
examination of price elasticity of methyl ethyl ketone in view of ethyl
acetate competition is beyond the scope of this assignment.
c. Captive Requirements
According to the production and sales data given by the
U.S. Tariff Commission the great majority of methyl ethyl ketone
produced is sold on the merchant markets. About 5% of production is
used captively in refinery operations, principally in lube oil dewaxing
and by some of the manufacturing companies in the production of surface
coatings.
2. Supply Characteristics
a. Manufacturing Routes
About 70% of the total methyl ethyl ketone manufactured in
the United States is produced by dehydrogenation of secondary butyl
alcohol. In the process, preheated vapors of secondary butyl alcohol
are passed through a reactor containing a catalytic bed of zinc oxide
or brass maintained at 400°C to 550°C. The vapor phase dehydrogenation
reaction takes place near atmospheric pressure with methyl ethyl ketone,
byproduct hydrogen, and unreacted secondary butyl alcohol subsequently
separated. The condensed product stream containing methyl ethyl ketone
a:ij, unreacted alcohol 1-- taken ftcra zhe reactor and sent to two distillation
11
-------
columns. The first dehydrates the product mix by removing water and light
hydrocarbons overhead. Methyl ethyl ketone is separated from recycled
alcohol in the second column.
Methyl ethyl ketone is also produced by the direct oxidation
of butanes. There is no guideline data concerning effluent control costs
for the direct oxidation route. The process involves oxidation of normal
butanes over catalysts and separation of the new products produced. The
principal coproduct with methyl ethyl ketone is acetic acid. The guide-
line contractor estimated qualitatively that the butane oxidation process
would produce a larger waste load than the vapor based oxidation of
secondary butyl alcohol. He did not, however, consider the cost associated
with secondary butyl alcohol itself as a necessary adjunct to the manu-
facture of methyl ethyl ketone. Hence, the route utilizing secondary butyl
alcohol may be at a small cost disadvantage to the direct oxidation route
when both components of the process are considered together as we have
done in our impact statement.
b. Producers
As presented in Table VI-8, there are three producers and four
plants manufacturing methyl ethyl ketone from secondary butyl alcohol.
Total capacity is reported by our industry contacts at 416 million pounds
or 70% of total methyl ethyl ketone capacity as identified by the same
contacts. In 1971, Shell closed its Domingues, California, plant to
optimize manufacture at their own facilities. The facility at Domingues
was one of Shell Chemical's oldest plants which first began producing the
solvent in the early 1930's. This may have contributed to its being
selected for closure as well as the desirability of concentrating manu-
facture.
117
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TABLE VI-8
METHYL ETHYL KETOIME PRODUCERS
Annual
Capacity
Producer Location (MM Ibs)
Sec-Butyl Alcohol Process
Atlantic-Richfield Channelview, Texas 66
Exxon Bayway, New Jersey 200
Shell Deer Park, Texas 100
Shell Norco, Louisiana 50
Subtotal 416
Butane Oxidation Process
Celanese Pampa, Texas 90
Union Carbide Brownsville, Texas 85
Subtotal 175
Total Capacity 591
Capacity from Sec-Butyl Alcohol 416
% of Total 70%
SOURCE: Industry estimates
118
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There are two other producers of methyl ethyl ketone both
of which utilize the butane oxidation process. Celanese and Union
Carbide produce methyl ethyl ketone by the direct oxidation of butane.
As cited above, this process yields coproducts, the most significant
of which is acetic acid. Recently these producers have tended to maximize
acetic acid production because of high current demand. There may,
however, be some flexibility in the plants which would permit additional
production of methyl ethyl ketone if acetic acid demand drops while
the requirement for methyl ethyl ketone continues to rise.
In addition to the major producers listed on Table VI-8,
we understand that Dixie Chemical in Bayport, Texas, recovers a small
amount, estimated at 3 million pounds per year, of methyl ethyl ketone
from butadiene.
c. Manufacturing Economics
Estimates for the production of methyl ethyl ketone by
dehydrogenation of secondary butyl alcohol are given in Table VI-9
In constructing this table we have taken into account that this production
is carried out by manufacturing plants integrated back to the manufacture
of secondary butyl alcohol. We have, therefore, transferred the secondary
butyl alcohol at our estimated cost into the process. As indicated in
the table, the supply of secondary butyl alcohol accounts for approxi-
mately 84% of total manufacturing cost.
3. Price
As indicated in Table VI-10,prices for methyl ethyl ketone have
declined significantly over the last decade. The price decline began in
1968 when actual prices were reduced from lie per pound to 10c per pound
and continued through 1972 when actual prices reached 8c per pound. In
1973, actual prices as reported by the U.S. Tariff Commission were
8.4c per pound. We believe one of the significant pressures leading to
119
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TABLE VI-9
ESTIMATED COST OF MANUFACTURING METHYL ETHYL KETONE
Production Economics (Summer, 1973)
Product Methyl Ethyl Ketone (MEK)
Process Dehydrogenation of Secondary Butyl Alcohol
Location Gulf Coast Capacity 85 MM Ib/yr1 Invest. $1.7 MM (1970 Construction)
Cost
$/Year il\b Product
Sec. Butyl Alcohol 1.05 Ib @ 5.24«
-------
TABLE VI-10
ACTUAL VERSUS LIST PRICES FOR MEK
(cents per pound)
Year Actual List Price1
1963 - 12.5
1964 11 12.0
1965 11 12.5
1966 11 12.5
1967 11 11.5
1968 10 11.5
1969 10 11.5
1970 9 10.5
1971 8 10.0
1972 8 10.0
1973 8 9.75
1974 N.A. 17 (12/74-F.O.B.)
Notes: N.A. — not available
Tanks, delivered east
1974 list price 16.00«!/lb
SOURCES: Chemical Marketing Reporter
Synthetic Organic Chemicals, U.S. Production
and Sales, U.S. Tariff Commission, Washington,
D.C.
Preliminary Report on U.S. Production of
Selected Synthetic Organic Chemicals, S.O.C.
Series C/P-73-1, U.S. Tariff Commission,
Washington, D.C.
121
-------
this steady erosion of prices has been competition from abroad with
consequent increase in imports as shown in Table VI-6.
By December 1974, methyl ethyl ketone list prices reached
17<: per pound. We believe this reflects not only the raw material
price increases but also both tight supply/demand situation domestically
and availability of imports.
4. Supply/Demand Balance
In spite of the "best estimate" provided by the industry as to
methyl ethyl ketone capacity, capacity is in fact somewhat flexible.
It is flexible on the downside in that Shell Chemical Company and Exxon
Chemical Company can produce acetone as an alternative to methyl ethyl
ketone production. This has not been desirable with the pressure on
acetone prices. It is flexible on the upside in that in some degree,
the capacity of Celanese Corporation and Union Carbide Corporation for
oxidizing butane can, we believe, be converted to the greater production
of methyl ethyl ketone with the sacrifice of the production of acetic
acid. This complex situation defined in terms of supply/demand in
1973 indicates a relatively tight supply position for the existing
methyl ethyl ketone producers. No new capacity has been announced and
as methyl ethyl ketone demand continues to rise, this may prompt the
greater production of methyl ethyl ketone from Union Carbide and
Celanese as well as increasing levels of imported material. This con-
dition of short supply would, we believe, maintain until either general
economic conditions decrease demand below projected trend rates or new
capacity is built. If world production cannot satisfy U.S. methyl ethyl
ketone demand in the near term and no additional capacity is devoted the
production of the product, this may lead to substitution by other solvents
notably ethyl acetate.
122
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D. ECONOMIC IMPACT ON METHYL ETHYL KETONE BY DEHYDROGENATION OF
SECONDARY BUTYL ALCOHOL AND SECONDARY BUTYL ALCOHOL BY HYDRATION
OF NORMAL BUTENE
1. Treatment Costs
The guideline document presents separate waste treatment costs
for methyl ethyl ketone and secondary butyl alcohol. However, since
about 95% of secondary butyl alcohol is captively consumed at the same
plant complex in the production of methyl ethyl ketone, these costs
should be considered together to determine the economic impact on methyl
ethyl ketone and consequently on secondary butyl alcohol. The treatment
cost data were determined, as shown in Table VI-2, by summing the data
for the separate facilities. We estimate that all methyl ethyl ketone
production by dehydrogenation of secondary butyl alcohol and all secondary
butyl alcohol production facilities are located in large plant complexes
leading to significant economies of scale.
The guideline document specifies waste treatment cost for free
standing facilities producing 218,000 pounds per day of secondary butyl
alcohol and 274,000 pounds per day of methyl ethyl ketone. As shown
in Table VI-2, effluent treatment costs associated with these two activities
total 1.44c per pound to achieve BPT and 1.73c per pound to achieve BAT.
When these plants are located in complexes for the treatment of 10 million
gallons per day, the combined cost including the effluent of the secondary
butyl alcohol and methyl ethyl ketone plants totals O.OSc per pound to
achieve BPT and 0.149£ per pound to achieve BAT levels of treatment.
The direct oxidation of butane is an alternate process for the
production of methyl ethyl ketone. This process, therefore, competes
not only directly with existing methyl ethyl ketone plants dehydrogenating
secondary butyl alcohol but also with secondary butyl alcohol plants
in view of the fact that an estimated 95% of the total secondary butyl
alcohol produced is consumed in the manufacture of methyl ethyl ketone.
123
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Imports also compete with the production of methyl ethyl ketone
from secondary butyl alcohol. U.S. import duties are at 4% ad valorem.
In 1973 average prices, this is approximately 0.3c per pound. These
relatively low rates of duty have, no doubt, facilitated the growth of
imports of methyl ethyl ketone into the United States over the past
nine years.
2. Price Impact
Both list prices and actual prices for methyl ethyl ketone
declined steadily from 1966. Actual prices totaled lie in 1966 and
8.4c in 1973. List prices declined 12.5c to 9.75c. By the end of
1974, however, list prices had risen substantially and totaled 17C
per pound. Actual average prices are not available for 1974 from
existing data but quite probably increased significantly above the
1973 levels. This increase in price appears likely in view of the
increase of raw material costs, specifically normal butylene and the
relatively tight domestic supply of methyl ethyl ketone.
Review of the impact analysis matrix indicates that the secondary
butyl alcohol/methyl ethyl ketone producers will not be able to pass on
waste treatment costs. Factors mitigating in favor of cost pass through
are the extremely modest effluent treatment cost as specified by the
guideline document, relatively high probable demand growth and currently
high capacity utilization. More significantly, however, there is a very
substantial degree of uncertainty associated with future growth and demand
because of the potential uncertainties of state enforced air standard
regulations and federally enforced regulations affecting the loss of
polyvinyl chloride polymers which currently utilize methyl ethyl ketone
in surface coating formulations. Methyl ethyl ketone also faces com-
petition from competitive solvents, most notably ethyl acetate, and con-
sequently experiences a relatively high price elasticity of demand.
-------
Most significant, however, is the fact that methyl ethyl ketone from
secondary butyl alcohol faces direct competition with methyl ethyl
ketone produced by direct oxidation of butanes and from imported products.
Foreign producers have assumed an increasing share of the U.S. market
for methyl ethyl ketone. Prices in the past have, we believe, been
held down by virtue of this competition and future price increases
would serve only to accelerate competition.
It is our judgment that the factors acting as restraints on
price increase will prevail over the long term. By virtue of this,
relatively modest increases in cost, as specified by the guideline
document, will have to be absorbed by the producers rather than passed
through as price increases.
3. Plant Shutdown Decision
We expect no plant shutdowns by virtue of the producer's methyl
ethyl ketone and secondary butyl alcohol being unable to pass through
effluent treatment costs. Costs as specified are a relatively modest
proportion of the estimated net income. As shown in the impact matrix
these costs will total 1.6% to achieve BPT levels and 7.9% of net
income estimated for 1973 to achieve BAT levels. In addition, the
investment cost is a modest proportion of the existing fixed investment
for the production of secondary butyl alcohol and methyl ethyl ketone.
With the existing producers this is estimated at 3.1% total investment
in the two processes to achieve BPT and 5.8% to achieve BAT levels of
effluent production. The companies involved in production are all major
petroleum companies and should not be restrained by lack of access to
capital required for treatment as specified in the guideline document.
4. Balance of Trade
It would not appear that the modest costs and capital investments
required would, in themselves, be sufficient or would be a precipitating
cause altering future balance of trade in methyl ethyl ketone. Prices
125
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are not forecast to rise by virtue of pass through of effluent treat-
ment cost and the only fashion which effluent treatment would affect
future trade would be through the discouragement of domestic capacity
expansion either by virtue of reduced profit margin or high capital
requirements for effluent treatment facilities. As indicated in the
impact matrix the effect on profit and the capital requirements is
very modest given the effluent treatment cost as specified. We expect,
therefore, no influence on future balance of trade.
126
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VII. ACRYLONITRILE FROM PROPYLENE AND AMMONIA
A. SUMMARY
Acrylonitrile production from propylene and ammonia in 1973 was
1,115 million pounds. This is equivalent to total acrylonitrile pro-
duction since only the propylene/anunonia route was utilized to produce
the product. Total acrylonitrile production experienced an annual
growth rate of 11.5% during 1963-1973. Exports have been sizable over
this period, usually in excess of 100 million pounds per year, while
there has been only a negligible amount of acrylonitrile imported.
Apparent consumption, therefore, is derived by subtracting exports
from production each year.
The majority of acrylonitrile production is used in acrylic fibers,
ABS and SAN resins, and nitrile elastomers. Over 50% of acrylonitrile
is used captively to produce these end products since all acrylonitrile
producers are also integrated forward into one or more of these end
uses. Capacity utilization has been increasing and in 1972 it was over
90%. It declined to 85% in 1973 because of significant capacity expan-
sions.
Prices, which had declined from 1963 to 1972, have recently (August
1974) increased due to increased costs of raw material and a high level
of demand and capacity utilization. Probably a significant portion of
this price increase is temporary and more normal pricing will be re-
instated in the near future when additional acrylonitrile capacity ex-
pansions come on stream.
A summary of factors affecting price increases and plant shutdowns
is provided in Table VII-1. Effluent treatment costs required to meet
both the BPT and BAT guidelines are moderate and can probably be passed
through in the form of higher prices. Approximately a 0.6% increase in the
1973 price will be required to cover the cost of meeting the BPT regula-
128
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TABLE VIM
ACRYLONITRILE FROM PROPYLENE AND AMMONIA
Ml Processes:
972 Production (Million Pounds)
973 Unit Value (C/Lb)
972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
1115
9.4
123
6
0.6 - 0.7%
4.6 - 5.3%
Direct — Low
Secondary - High
High - over 90%
High (Over 40%)
5% Forecast
Low
-
High — Moderate
Price
Moderate
5
None, competitive but
two other options
129
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TABLE VI1-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
''•'. •
B.P.T.
BA nn
• n. • L .
'•'.".- ' " •'
'
3.7 - 4.3%
26.4 - 30.7%
Positive
3.6 - 4.5%
13.3 - 19.1%
High
Complexes
None apparent
High
Multi-Industry
13'
-------
tiorts. About 5% of the 1973 price will be required to comply with
BAT guidelines. The price increases will not significantly effect
the demand for acrylonitrile. We do not anticipate any plant
shutdowns. Also, we foresee no effect on the U.S. balance of
payments.
B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size and Growth
According to the U.S. Tariff Commission data, production of
acrylonitrile in 1973 was 1,354 million pounds (see Table VII-2).
Acrylonitrile production by all processes has grown at an average annual
rate of 11.5% during 1963-1973. Imports since 1963 have been negligible
while a significant portion of production has been exported in every
year except 1972. Therefore, apparent consumption in the United States
is assumed to be equivalent to production net of exports. We expect
future growth in domestic demand to be at a rate of about 5% per year over
the next five years. Export growth is less certain because of expansions
abroad and we forecast no growth in exports over the next five years
and more likely a decline of 25-50 million pounds per year.
b. Uses
As shown in Table VII-3, over half of the acrylonitrile
consumed is used in the production of acrylic fibers. ABS and SAN
resin producers consumed 18% of acrylonitrile production in 1972 while
producers of nitrile elastomers, which are used in seals, gaskets, and
specialized paper due to their oil resistance property, consumed 5%
of acrylonitrile production. Five percent of acrylonitrile production
is exported. The remaining portion of acrylonitrile production was
used in making adiponitrile (for nylon 66), acrylamide, and minor
end uses such as grain fumigants, chemical reactants, and gasoline
anti-stall additives.
131
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TABLE VII-2
PRODUCTION FOREIGN TRADE AND APPARENT
CONSUMPTION OF ACRYLONITRILE - ALL PROCESSES
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Production
455.3
594.2
771.6
716.1
670.8
1,021.0
1,156.6
1,039.3
978.9
1,114.7
1,354.2p
1 mports
Negligible
Negligible
1.2
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Exports
100
165
160
115
100
175
-
-
100
52
105
Apparent
Consumption
355
429
613
601
571
846
-
-
879
1,063
1,247
P — Preliminary
SOURCES: U.S. Tariff Commission, U.S. Department of Commerce, Chemical Economics
Handbook
-------
TABLE VII-3
CONSUMPTION OF ACRYLONITRILE
End Use % of Total - 1972p
Acrylic Fibers 58
ABSand SAN Resins 18
Nitrile Elastomers 5
Exports 5
Miscellaneous1 14
100
1. Used to make adiponitrile for Nylon 66 resins, acrylamide,
and minor uses as a grain fumigant, chemical reactant, and
anti-stall additive for gasoline.
SOURCE: Chemical Economics Handbook
-------
We astLuiate growth in acrylic fiber consumption between
1973 and 1978 at 3% per year, ABS and SAN at 12% per year, nitrile
elastomers at 3%, exports at 0% and other uses at 5% per year.
c. Substitute Products
In each of its major end uses, acrylonitrile is a critical
and nonsubstitutable raw material. The percent of acrylonitrile used
in the end product can change, but this would also alter the end
product's properties, There are, of course, secondary levels of
competition as acrylic fibers compete with nylon, polyester and wool;
acrylonitrile-based resins compete with polyvinyl chloride and other
polymers; and nitrile elastomers compete with neoprene rubbers.
d. _Captive Requirements
According to Table VTT-'j, captive requirements have been
continually greater than 50% of production (64% in 1973) since most of
the producers of acrylonitrile also produce acrylic fibers, ABS resins
and/or SAN resins.
!• Supply Characteristics
a_. ^tenu factoring _
Acrylonitrile can be made from the following sets of raw
materials:
• Propyiene and ammonia,
• Acetylene and hydrogen cyanide,
• Ethylene oxide and hydrogen cyanide, or
• Propyiene and nitric acid.
Presently all of acrylonitrile being produced uses the propylene
lad -Ammonia route to acryionitrile* is shown in Table VII-5.
-------
TABLE VII-4
PRODUCTION, SALES AND CAPTIVE USE OF ACRYLONITRILE - ALL PROCESSES
(million pounds)
Year Production Sales Captive Use
1963 455.3 (100)1 212.4 242.9
1964 594.2 (194) 311.1 283.1
1965 771.6 (352) 303.3 468.3
1966 716.1 (426) 318.2 397.9
1967 . 670.8 (577) 270.5 400.3
1968 1,021.0 (908)
1969 1,156.6 (1,037) 561.6 595.0
1970 1,039.3 (984) 547.1 492.2
1971 978.9 (978.9) 429.2 449.7
1972 1,114.7 (1,114.7) 460.0 654.7
1973 1,354.2 (1,354.2) 480.7 873.5
1. ( — ) represents production of acrylonitrile from propylene/ammonia.
SOURCES: U.S. Tariff Commission, Chemical Economics Handbook
135
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TABLE VI1-5
% PRODUCTION OF ACRYLONITRILE BY PROPYLENE/AMMONIA ROUTE
(million pounds)
Production of Acrylonitrile Production
Year (all processes) (from propylene and ammonia) %
1963 455.3 100 22
1964 594.2 194 33
1965 772.6 352 46
1966 716.1 426 59
1967 670.0 577 86
1968 1,021.0 908 89
1969 1,157.6 1,037 90
1970 1,039.3 984 95
1971 978.9 978.9 100
1972p 1,114.7 1,114.7 100
1973 1,354.2 1,354.2 • 100
P — Preliminary
SOURCES: U.S. Tariff Commission, Chemical Economics Handbook
13
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(1) Propylene and Ammonia
The SOHIO process is used in the United States to
produce acrylonitrile. It introduces refinery propylene, fertilizer
grade ammonia, and air into a fluidized-bed catalytic reactor. Recent
improvements in catalysts made by SOHIO have acted to increase the
rate of conversion and actual capacity and reduce the level of by-
products. The principal byproducts are hydrogen cyanaide and acetonitrile
which are produced approximately at a rate of .10 and .05 pounds
respectively per pound of acrylonitrile.
Other processes using propylene/ammonia are in develop-
ment outside of the United States using a fixed-bed reactor and a
different catalyst system. With the recent licensing in Europe and
Asia of the SOHIO process, though, it seems that this process will
continue to be the dominant propylene/ammonia route throughout the
world for production of acrylonitrile.
(2) Other Routes^Raw Materials
In the United States, no route other than propylene
ammoxidation is being used due to higher costs of alternative routes.
Some plants using other routes, however, are on standby which could
become operational if they were economically feasible (e.g., Union
Carbide's ethylene oxide/hydrogen cyanide plant). In the near term,
however, this does not seem probable.
b. Producers
Table VII-6 lists the producers of acrylonitrile in 1972
a.nd 1973 and their capacities. Capacities depend in part on the type
of catalyst used and the figures given are our best estimates for actual
capacities in the years under consideration. QuPont, Monsanto and
American Cyanamid - all acrylic fiber producers - control 76% of acrylon-
137
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TABLE VII-6
'\CRYV.ONirRlLE PRODUCERS
Capacity
million pounds/year
Company Location 1972 1973
American C'/dndmid Fortier, Louisiana 175 200
E.I, DuPont de Nemours Memphis, Tennfissee 180} 235
> 380
Beaumont, Texas 200 > 265
3,F. Goodrich Caivert City, Kentucky 45 45
'Monsanto Alvin, Texas 370 460
V.stron (SOHIO) Lima, Ohio 240 390
SOURCES: CMR- C'riL-m- ,al Profiles: I972
Contractor's Fitimaies' 1973
1,210 1,595
13f
-------
itrile capacity. At Vistron's plant (a part ofSOHIO), 800 million
pounds of capacity can be shifted over to methacrylonitrile production
by switching the feedstock from propylene to isobutylene. An additional
500 million pounds per year of capacity is planned by Monsanto.
c. Manufacturing Economics
The estimated manufacturing cost by the SOHIO process is
shown in Table VII-7.
3. Prices
Table VII-8 compares the actual versus list prices for acrylonitrile
from 1963 to 1972. The list price for 1974 is also given. As shown in
the table, actual average prices have generally been Ic to 3c lower than
list prices. The actual price of acrylonitrile has gradually declined
from 16c in 1964 to under 10c per pound in 1972-1973. In 1974, however,
the list and probably the actual price of acrylonitrile increased from
13c in mid-1973 to 23C in August 1974. We expect that prices will not
remain this high with new capacity coming on stream and reduced exports.
4. Supply/Demand Balance
According to Table VII-9, the plants producing acrylonitrile
from propylene/ammonia have increased their capacity utilization from
50% in 1966 to 92% in 1972, and to 85% in 1973. This high capacity
utilization was brought about not only by increasing demand but also by
the phasing out of acrylonitrile production by other processes during
this period.
Probably increased capacity will be installed overseas and will
reduce the amount exported. This may modestly reduce capacity utiliza-
tion over the near term.
139
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TABLE VII-7
ESTIMATED COST OF MANUFACTURING ACRYLONITRILE
SOHIO PROCESS - TYPE 41 CATALYST
Mid-1973
Physical Investment: $14.0 MM (1970 Construction)
Capacity: 100MMIb/Yr'
Variable Costs
Raw Vlj.erials
Propy'ene
Ammonia
Catalysts
Utilities
Power
Water
Natural Gas
Semi-\/anab\e Costs
Operating Labor & Super.
Maintenance
Labor & Riant Overhead
Fixed Costs
Depreciation
Taxes & Insurance
Quantity/100 Ib
96lbs
GOIbs
25kwh
9Mgal
0.8 MMBtu
20 men
4% of Investment/yr
100% of Labor & Supervision
9% of Investment/yr
1-1/2% of Investment/yr
$/Unit
0.028
0.02
0.013
0.03
0.35
$5.00/hr
$/100lb
2.14
1.80
.49
0.34
0.27
0.28
5.32
0.21
0.56
0.21
0.98
1.26
0.21
1.47
Factory Cost
7J7
1. Investment m plant with capacity 658,000 nounds per day equals $25 million.
140
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TABLE VII-8
ACTUAL VS. LIST PRICES FOR ALL ACRYLONITRILE
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972p
1973
8/15/74
Quantity
Sold
(MM Ibs)
212.4
311.1
303.3
318.2
270.5
Not reported
561.6
547.1
429.2
460.0
480.7
_
Value
($MM)
29.5
48.8
48.4
40.3
31.9
-
66.0
59.8
44.4
49.3
50.9
_
Actual
Unit Value
W/lb)
14
16
16
13
12
-
12
11
10
9.3
9.4
_
List Price3
(4/lb)
14.5
17.0
17.0
14.5
14.5
14.5
14.5
14.5
14.5
13.0
13.0
23.0
a Note: Terms, tanks/works
P — Preliminary
SOURCES: U.S. Tariff Commission; CEH; Oil Paint and Drug Reporter
141
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TABLE VII-9
CAPACITY, PRODUCTION AND CAPACITY UTILIZATION
FOR ACRYLONITRILE FROM PROPYLENE/AMMONIA
(million pounds)
Year Capacity Production % Capacity
1963 - 100
1964 - 194
1965 - 352
1966 875' 426 48.7
1967 7951 577 72.3
1968 1.0251 908 88.6
1969 - 1,037
1970 1,1252 984 87.5
1971 - 979
1972 1,2102 1,115 92.1
1973 1,5953 1,354 84.9
SOURCES:
1. Chemical Economics Handbook
2. U.S. Petrochemicals, Arthur M. Brownstein
3. Contractor's Estimates
142
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C. ECONOMIC IMPACT
1. Treatment Costs
The development document supplies the treatment cost for plants
producing acrylonitrile by the ammonoxidation of propylene for a plant
with the capacity of 658,000 pounds per day of product. The document
specifies that a free standing plant of this size would incur a cost of
0.37? per pound to achieve BPT and 1.02C per pound of product to achieve
BAT guidelines. The plant would require an investment of $2.8 million
to achieve BPT guidelines and an additional $4.5 million to achieve BAT
guidelines.
There are no free standing acrylonitrile plants operating on the
propylene and ammonia process in the United States. The six U.S. plants
are in plant complexes; they have been classified either in hypothetical
3 million gallons per day effluent complexes or 10 million gallons per day
effluent complexes. On the basis of being located in effluent treatment
complexes of these two sizes, we estimate BPT treatment costs range from
0.06c per pound to . 07c per pound of product depending in which size
complex the plants are located. BAT treatment costs vary between 0.43C
per pound to 0.50C per pound depending on complex size.
2. Price Impact
The list price for acrylonitrile increased from 13C in 1973
to 23C per pound by August 1974. The actual average price was 9.3C
in 1972 and 9.4c per pound in 1973. The average prices are not available
for 1974 but we expect that actual prices have risen sharply with the
high demand relative to capacity during the first half of 1974.
We believe producers of acrylonitrile will be able to pass through
as price increases the costs necessary to meet both BPT and BAT standards.
Most factors are favorable for cost pass through as prices increase.
Capacity utilization has been high, captive usage is very significant and
there are only a relatively small number of producers of this major organic
chemical product. The principal problem in increasing acrylonitrile prices
under normal competitive conditions is in the intercompetition from other
fibers and polymers to the products made from acrylonitrile (acrylic fibers
and ABS resins).
143
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Producers of these competitive products such as nylon will also experience
some increased costs for their intermediates and the cost to reach BAT
will, we judge, be sufficient in other products to permit acrylonitrile
producers to increase their prices sufficiently to cover the relatively
modest cost increases imposed to meet BPT guidelines and quite probably
the 5% additional price necessary to offset the costs of achieving BAT
guidelines.
We do not expect that these relatively modest cost increases
will significantly affect the demand for acrylonitrile. One of the
conditioning factors leading us to this assumption is that by the timp
acrylonitrile reaches the final consumer in the form of acrylic fibers
or plastics, the product is substantially upgraded in value. Acrylic
fibers sell for six or seven times the price of acrylonitrile and A8S
resins three or four times the price of acrylonitrile, Thus, absolac.-,
increases in the cost of acrylonitrile become proportLonately less
significant in the form of the finished product,
3• Plant Shutdown Impact
As we expect cost pass through for effluent treatment in the
form of higher prices, we do not anticipate any plant shutdowns as a
direct result of the requirement for meeting BPT or BAT effluent
guideline standards. The only potential constraint would be the require-
ment for the additional capital to meet these standards. As this
capital requirement is no more than a maximum of 19.1% of the net fixed
investment, we have assumed capital will be available for ..he necessary
invesLment.
144
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4. Balance of Payments
We anticipate no balance of payments effect to meet BPT guidelines
in 1977. The achievement of BAT guidelines is more difficult to judge.
It is possible that 5% price increase may restrain exports to some degree
against competitors for export markets which are not required to carry
effluent treatment costs. It is our best judgment that these costs will
by 1983, be overweighed by other factors such as raw materials costs and
increasing world capacity and there will be no significant effect on
the U.S. balance of payments.
145
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VIII. BENZOIC ACID BY AIR OXIDATION OF TOLUENE
A. SUMMARY
Benzole acid production is reported by the U.S. Tariff Commission
at 156 million pounds and since trade volume is considered negligible,
apparent consumption is equal to production. About 50% of total
reported production is used captively in the manufacturing of phenol,
the remainder is used in the manufacturing of chemical derivatives.
Consumption for phenol manufacturing has been rather static but it will
increase as a result of new plant construction announced by a producer.
Apparent consumption for other end uses than phenol has been increasing
at about 10% per year and is expected to remain in the order of 7%.
Almost 40% of this total not used to produce phenol is used in the
manufacturing of sodium benzoate, a food preservative which competes
with other food preservatives for the same market; plasticizers which
compete with phthalate plasticizers; and benzoyl chloride, a chemical
intermediate.
Benzoic acid manufacture is based principally on the air oxidation
of toluene. One producer reportedly also uses a process based on chlorine
oxidation of toluene. There are five producers of benzoic acid reporting
a total capacity of 208 million pounds for 1972. The industry is heavily
concentrated in two producers: Kalama Chemical and Velsicol, which
combined, had together held 90% of total industry capacity in 1972.
About 90% of total reported production is used captively, over 50% for
phenol manufacturing by Kalama Chemical. The industry is believed to be
working close to available capacity.
Actual prices have declined from 18c per pound in 1963 to 11.6c
per pound in 1973 reflecting Velsicol1s entry into the market in 1968
and an oversupply situation created when benzoic acid used for phenol
manufacturing was diverted to commercial use. List prices declined from
146
-------
20
-------
TABLE VIII-1
8ENZOIC ACID BY AIR OXIDATION OF TOLUENE
Ml Processes:
LQ72 Production (Million Pounds)
1973 Unit Value (C/Lb)
1972 Production Value ($MM)
Dumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
180
11.6
25
5
I
!
.3 - 25.0%
1.4 -26.7%
Direct: Low
Secondary: High (inc. phenol)
High
I
i
50% - High
7% - Moderate
Low
i
I
Moderate
Price
Cone. (2 prod, with 85%)
5
1: Oxidation by
chlorine
148
-------
TABLE VI11-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
B.P.T.
D A Ti
U . t\ . i. .
r-._. > ' . :. . • • •
" '•" ' '..'.'
.6 - 42.5%
2.3 - 45.4%
Positive
3.2-212%
6.7 - 227%
High
Dominant Producer - isolated
plant; Others - medium
complex
Few
High
Multi-Industry
-------
TABLE VIII-2
PRODUCTION, FOREIGN TRADE1 AND APPARENT CONSUMPTION OF
BENZOIC ACID2
(million pounds)
Apparent
Year Production Consumption
1963 15.3 15.3
19643 15.9 15.9
1965 16.2 16.2
1966 20.5 20.5
19674 22.3 22.3
19684 21.9 21.9
19694 23.9 23.9
1970s
19716 142.9 142.9
1972 155.5 155.5
Notes: 1. No data on foreign trade — Imports and Exports are considered negligible.
2. Technical grade, production of medicinal-grade is negligible.
3. Excludes production of Pfizer plant brought on-stream in 1964.
4. In 1967 Dow's plant at Kalama, Washington reportedly began producing benzoic
acid for sale as well as for captive use in the manufacture of phenol. Data for pro-
duction or sales of benzoic acid from this plant have not been reported. In 1971
the facility was sold and the Kalama Chemical, Inc. company was formed.
5. Data for 1970 was not published.
6. Volume understated until 1971 because data excludes major quantities that are
captively consumed.
SOURCES: Synthetic Organic Chemicals, U.S. Production and Sales, U.S.
Tariff Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Cyclic Inter-
mediates, U.S. Tariff Commission, Washington, D.C.
150
-------
Apparent consumption of benzoic acid, for other than phenol
manufacturing, is reported by trade literature as increasing at an
average annual rate of 10% from 1962 to 1972. This growth is expected
to decline to about 8% per year.
b. Uses
Over 50% of total benzoic acid produced is used in the manu-
facturing of phenol (see Table VIII-3). By-and-large, this end use is
considered isolated from the others. Most publications, when discussing
benzoic acid, exclude that segment of the industry. Consumption of
benzoic acid for phenol manufacture will probably increase. Kalama
Chemical has recently announced an expansion of current plant capacity
which includes about 100 million pounds of additional phenol production
based on benzoic acid produced by the oxidation of toluene.
Consumption o^ benzoic acid in end uses other than phenol
manufacturing should incr ^e at about 8% per year. Consumption of
sodium benzoate, used primarily as food preservatives, is forecast to
grow at about 4% per year for the next five years. Benzoate plasticizers
are forecast to become the leading end use for benzoic acid. Estimates
of growth in consumption range from 7% to 20% per year for the next
five years. Benzo^l ale•ide is an intermediate in the process of
producing benzo^ aci by oxidation of toluene with chl<~ a. High prices
for chlorine i making this process obsolete and production of benzoyl
chloride bae on benzoic acid from oxidation of toluene is forecast
to increa. at about 9-10% annually. Consumption of butyl benzoate,
a dye carrier, used in dyeing some polyester fibers and fabrics, is fore-
cast to increase at least 5% per year for the next five years.
Benzoic acid used for alkyd resins and all other miscellaneous
end uses will probably not increase at more than 3-4% per year according
to trade comments. Overall consumption volume in these minor applications
is small and changes will not significantly impact total consumption.
151
-------
TABUE VIII-3
BENZOIC ACID CONSUMPTION BY END USE IN 1972
% of Million
End Use Total Pound
Phenol 51 80
Sodium Benzoate 14 22
Plasticizers 14 21
Benzoyl Chloride 9 14
Butyl Benzoate 4 6
Alkyd Resins 2 3
Miscellaneous 3 5
Stocks 3 4
Total 100 155
SOURCE: Contractor's Estimates.
152
-------
c. Substitute Products
By-and-large, there are no broad and general substitutes
for benzoic acid. In the case of phenol manufacture, there is an alternate
process based on cumene oxidation. The relative economics of both
processes depends on their raw materials cost (benzene and propylene
vs. toluene) and the market price for acetone, a coproduct of phenol
under the cumene process, and for benzoic acid. For the other end
uses - which are mostly chemical intermediates - there are some market
substitutes, although generally there are important property differences.
These substitutes include alternate food or cosmetic preservatives and
phthalate plasticizers which are the most widely used plasticizers.
Benzoate plasticizers are manufactured by one producer and are utilized
principally for their high solvency capability where large proportions
of fillers are mixed with the polymer. Their price/property balance
does not bring them in direct competition with the phthalate plasticizers
used in quantities of over 1 billion pounds per year in the United
States. Currently, substitute products do not seem to pose serious
market threats to benzoic acid products.
d. Captive Requirements
As shown in ^ .ib • VIII-4, in 1972 about 90% of total
production was used capt /ely in the manufacturing of chemical products.
Over 50% of total f.aptive consumption is in the manufacturing of phenol
and the remaind ^ in the manufacturing of benzoic acid derivatives.
Commercial sa"is of benzoic acid are probably understated. Only 14
million pounds are reported by the U.S. Tariff Commission as sold in
1972 but commercial sales might have been closer to 40 million pounds.
Apparently one producer, Monsanto, devotes most of its capacity of
10 million pounds to the manufacture of USP grade benzoic acid for
direct sale and based on phenol capacity Kalama Chemical seems to use
only 80 million pounds captively and the remainder of the production,
from its 120 million pound plant, is sold as industrial or technical
grade benzoic acid.
153
-------
TABLE VIII-4
CAPTIVE VERSUS COMMERCIAL CONSUMPTION OF BENZOIC ACID
(million pounds)
Consumption
Year
1963
1964
1965
1966
1967
1968
1969
19701
1971
1972
Apparent
Consumption
15.3
15.9
16.2
20.5
22.3
21.9
23.9
-
142.9
155.5
Captive
8.3
7.9
7.7
8.9
12.1
13.5
10.1
125.7
141.2
Merchant
7.0
8.0
8.5
11.6
10.2
8.4
13.8
17.2
14.3
%of2
Captive
54
50
48
43
54
62
42
88
91
Notes:
1. Data for 1970 was not published.
2. Percentage of captive consumption from 1963 to 1969 is under-
stated
SOURCES: Synthetic Organic Chemicals, U.S. Production and Sales, U.S.
Tariff Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Cyclic Inter-
mediates, U.S. Tariff Commission, Washington, D.C.
154
-------
2. Supply Characteristics
a. Manufacturing Routes
Most of the U.S. production capacity is based on the toluene
oxidation process. This is a continuous process where toluene and air,
with a mixture of recycled gas and toluene, are combined in a reactor
in the presence of a catalyst. Reaction temperatures may range from
150°C to 500°C with corresponding pressure ranges of 1 to 10 atmospheres.
Specific manufacturers operate at different conditions. Benzoic acid
and toluene are continuously stripped off; the unreacted toluene is
recycled and the crude benzoic acid is refined using distillation.
Crystallation or a combination of the two operations could also be
used. The process can also produce benzaldehyde in varying proportions
as a coproduct. Benzaldehyde is removed from the product stream before
the first oxidation step to benzoic acid.
An older route tor the production of benzoic acid involves
the chlorination of toluene to benzotrichloride. This is then hydrolized
to benzoic acid. One producer is reported by the Directory of Chemical
Producers of having at least a portion of its benzoic acid capacity
by this process.
b. Producers
• iblished information indicates that there are five producers
of benzoic acid with a total reported capacity of 208 million pounds
(see Table VIII-5). The industry is heavily concentrated in one producer,
Kalama Chemical, with a 120 million pounds per year plant, about 60% of
total capacity. Kalama has announced plans for an expansion of its
benzoic acid capacity to 400 million pounds per year. The second largest
plant, Velsicol, had a fire and explosion in 1973 which reduced its actual
capacity to about half the nominal given capacity. In September 1974,
155
-------
TABLE VIII-5
BENZOIC ACID PRODUCERS
Producer
Kalama Chemical
Monsanto
Pfizer
Tenneco
Velsicoi
Total
Location
Kalama, Washington
St. Louis, Missouri
Terre Haute, Indiana
Garfield, New Jersey
Chattanooga, Tennessee
Annual
Capacity
(MM Ibs)
120
10
6
12
60
208
Raw Material
Toluene
Toluene
Toluene
Toluene
CI2 & Toluene
SOURCES: Chemical Profile, October 1, 1973; Director of Chemical Producers, 1974 Edition
156
-------
Velsicol announced the construction of a benzole acid plant in Beaumont,
Texas. The plant will have an initial capacity of 50 million pounds
per year with potential for later expansion to 150-175 million pounds.
Some 70% of Kalama's production is used captively in the
manufacturing of phenol. The remainder is used to produce industrial
and technical grade benzole acid for sale to other firms. Pfizer's pro-
duction is entirely for captive use, Tenneco and Velsicol manufacture
benzoic acid primarily for production of different chemical derivatives
at the same location. Monsanto's plant may no longer be active in the
sale of technical grade benzoic acid, the form of product reported by
the U.S. Tariff Commission,
c. Manufacturing Economics
Manufacturing economics are provided in Table VIII-6. it
is shown that raw material costs, energy and capital depreciation are
the major elements of the manufacturing cost and account for 88% of the
total factor cost in 1973. "ariable costs are estimated to be about 84%
of the total factory cost, .ae capital investment for a 56 million
pound per year plant is estimated to be $3.1 million.
3. Prices
List and actua pr.J .^ trends are shown in Table VIII-7 . As
this table indicates, list prices have been rather stabl about 20c
per pound from 63 to 1973 while actual prices have been in a declining
trend from a ,cable 17c~18<: per pound maintained from 1963 to 1970 to
140 per pou d in 1971-1972 and 11.6c per pound in 1973. In 1972, actual
prices were 35% below list prices. There are a number of reasons behind
the price declines. The most important were an oversupply situation
creatad by the new phenol plants using the cumene oxidation process in
the last decade, which freed considerable volumes of benzoic acid to the
merchant market and the entry of Velsical into this market in 1968.
157
-------
TABLE VIII-6
ESTIMATED COST OF MANUFACTURING BENZOIC ACID
Production Economics (Summer, 1973)
Process Air Oxidation and Toluene
Location Mid-West Capacity 15MMIb/yr' Invest. $1.3 MM (1970 Construction)
Cost
Toluene 0.87 lb@ 3.1d
Catalyst, Chem., Supplies
Utilities
Direct Labor 4 men @ $5/hr
Maintenance, Labor & Materials
Labor & Plant Overhead
Depreciation 9%/yr
Taxes & Ins. 1-1/2%/yr
Factory Cost
1. Investment in a plant with 56 million pounds per year capacity is estimated at
$3.1 million.
$/Year
405,000
4,500
106,500
41,600
62,400
41,600
117,000
19,500
798,100
C/lb Product
2.70
0.03
0.71
0.28
0.42
0.28
0.78
0.13
5.33
158
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TABLE VIII-7
ACTUAL VERSUS LIST PRICES FOR BENZOIC ACID
(cents per pound)
Year Actual List Price1
1963 18.0 20.0
1964 17.0 20.0
1965 18.0 20.0
1966 18.0 20.0
1967 17.0 19.5
1968 18.0 19.5
1969 17.0 19.5
19702 - 21.5
1971 14.0 21.5
1972 14.0 21.5
1973 11.6 19.5
1974 N.A. 31.5
Notes:
N.A. — not available
1. Barrels, drums, carlots and truckloads, freight allowed
2. Data for 1970 not reported - 1974 list price 31.5tf/lb
SOURCES: Chemical Marketing Reporter
Synthetic Organic Chemicals, U.S. Production and Sales,
U.S. Tariff Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Cyclic
Intermediates, U.S. Tariff Commission, Washington, D.C.
159
-------
List prices in July 1974 were posted at 31.5c per pound or
61% higher than their 1973 value. The reasons behind the increase are
higher raw material costs, which have quadrupled from late 1972 to
mid-1974 and a tight supply/demand situation. The increase in toluene
price would account for an increase in costs of about 5C per pound or only
about 40% of the list price change. Much of the price rise, therefore,
was probably the pricing opportunity brought about by the tightness of
supply.
4. Supply/Demand Balance
Since reported production data are believed understated, it is
difficult to establish the industry capacity utilization. We estimate
that in 1972 the industry was probably at about 85% of capacity utili-
zation. With Velsicol's capacity reduced to half, the industry must
have worked close to its nominal capacity in 1973. Future capacity utiliza-
tion will depend on Kalama's ability to market its phenol production
from the new facility planned for late 1976 and on Velsicol's plans to
increase capacity by virtue of a new plant.
C. ECONOMIC IMPACT
1. Treatment Costs
The costs required to achieve BPT and BAT guideline specifica-
tions as presented in the guideline document for a free standing plant
with a 164,000 pounds per day production capacity are 2.9c and 3.1o Per
pound respectively. Substantially lower costs are realized by those
producers manufacturing benzoic acid in a medium plant complex with an
effluent volume of 3 million gallons per day: . 04c and . 16c per pound.
respectively. These are very probably at least partially offset by
the economies of scale of manufacture for the large free standing
producer;. Even though the economies of scale in water treatment are
sc significant, we estimate that 87% of the total industry capacity is
160
-------
located in free standing plants; therefore, pass through of the free
standing plant effluent treatment costs as higher prices will be the
only effluent treatment condition considered.
The major competing technology used for production of benzoic
acid - chlorination of toluene - is not an important factor. Only one
producer currently uses this technology and virtually all of its pro-
duction is consumed captively. The guideline contractor has estimated
that the treatment costs for this process will be much higher than for
oxidation of toluene. In addition, chlorination of toluene has the dis-
advantage of consuming large quantities of expensive chlorine, all of
which ends up as waste.
2. Price Impact
Actual prices for benzoic acid have declined from 17<: per pound
in 1970 to 12<: per pour
-------
production in essentially a free standing plant, full treatment cost
pass through as higher prices will result.
The matrix in general suggests that full cost pass through
will be possible. BAT treatment costs for a free standing plant
represent a 27% price increase. Considering the high captive usage,
the low foreign competition, the moderate price elasticity and the
highly concentrated nature of the competition, all suggest full treat-
ment cost pass through which will maintain the profitability typical
of this industry.
This conclusion is predicated on the assumption that Kalama
will, in the future, be able to continue to compete with other
producers of phenol by the existing alternate routes. We assume these
producers will also have to bear relatively high effluent tieatment
costs. If Kalama cannot compete, then benzoic acid production will have
to be sold from existing and planned capacity, the industry will be
in serious overcapacity and cost pass through may not be possible.
3. Plant Shutdown Decision
Since the treatment costs will be passed through in full, it is
not likely that effluent treatment according to the guideline specifica-
tions will cause any plant shutdowns. The large capital investment
required for free standing plants will be the only deterrent, but Kalama
will no doubt make these to protect its dominant position and to
continue to participate as a dominant factor in this industry. The
secondary producers, who can achieve lower treatment costs per unit of
production due to their location in plant complexes, will enjoy
relatively higher profits and will be required to invest substantially
lower capital in waste treatment facilities since they typically produce
benzoic acid in locations which are part of medium -sized complexes.
162
-------
4. Foreign Competition
Foreign trade in benzoic has been and is likely to continue to
be negligible. High import duties of 1.7c per pound and 12.5% ad valorem
are higher than projected waste treatment costs. Therefore, domestic
producers would not choose to produce overseas and import into
the U.S. based solely on treatment costs. No impact on the U.S. Balance
of Trade is expected in this industry.
163
-------
ISOPROPYL ALCOHOL FROM PROPYLENE
A. SUMMARY
The U.S. Tariff Commission reports the production of 1.84 billion
pounds per year for 1973 with an average growth rate of 2% per year
from 1963 to 1973. Imports are negligible and exports during that period
represented from 2% to 5% of total production. Based on production and
export volume, apparent consumption increased from 1.4 billion pounds
in 1963 to 1.77 billion pounds in 1972. Consumption reached a plateau
in 1969 and then declined as a result of market oversupply for acetone,
the major end use of isopropyl alcohol. Trends in consumption growth
depend largely on the future of the acetone manufacturing industry using
the isopropyl alcohol process. On the basis of the industry comment
and published sources, we estimate overall growth at 3.5% per year for
the next five years.
In 1972, about 40% of total isopropyl alcohol production was used
in the manufacturing of acetone. For this end use, isopropyl alcohol
competes with cumene oxidation as an alternate process in acetone manu-
facture. The cumene oxidation process yields phenol and acetone and
its manufacturing economics for acetone are probably more attractive
than with the isopropyl alcohol process. About 35% of total production
is used as a solvent for a variety of applications and for this end use
isopropyl alcohol often competes with ethanol on a price-performance
basis. The remaining 25% of total production is used in the manufacturing
of chemical derivatives in the drugs and cosmetic manufacture and the
export market. About 50% of total isopropyl alcohol production is used
captively, primarily in the manufacturing of acetone.
Isopropyl alcohol is manufactured from propylene which is absorbed
in concentrated sulfuric acid and the resulting isopropyl ether of
sulfuric acid is then hydrolyzed. It is produced by four companies in
164
-------
six plants with a total nameplate capacity of 2.45 billion pounds in
1973. The industry was working at about 75% of capacity in 1973 and
an estimated 90% in the first half of 1974. During 1970-1972, capacity
utilization was more in the order of 70%-75% as a result of acetone
oversupply.
Actual prices have remained stable at 6c per pound from 1963 to
1973 in spite of increases in posted prices which changed from 6.9c
per pound in 1963 to 7.35C per pound in 1972 for anhydrous grade,
tank delivered. In August 1974, prices were listed at 9<: per pound.
The costs required to achieve BPT and BAT guideline specifications
for the major producers in this industry are small; only $.03-^.05
per pound respectively for the smaller producers and $.03-$.04 per
pound for the major producers. Competitive environmental factors
will limit cost pass through to about 50% and as such will not adversely
affect this industry. No plant shutdowns are expected and no major
change in U.S. balance of trade in this industry is expected.
The summary of factors affecting these conclusions is given in
Table IX-1 in our impact matrix.
B. INDUSTRY BACKGROUND
JL._ Market Characteristics
a. Size and Growth
According to the U.S. Tariff Commission production of
isopropyl alcohol increased from 1.5 billion pounds in 1963 to 1.8
billion pounds in 1973 which represents an average growth rate of 2%
per year (see Table IX-2). Production volume, however, peaked at
9,950 million pounds in 1969 and has been declining since. This
decline is directly correlated to a decrease in production volume of
165
-------
TABLE IX-1
ISOPROPYLENE ALCOHOL FROM PROPYLENE
\11 Processes:
I972 Production (Million Pounds)
I972 Unit Value (C/Lb)
[972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
1800
6
108
6
0.5%
0.7 - 0.9%
High (Solvents; Prod, from
Cumene)
Low- 1972& 1973
High: about 50%
Low: 3.5%/yr.
Low
-
High
Price
Concentrated
3
None — direct; 1 for major
use: acetone prod.
166
-------
TABLE IX-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
'•;- .
B.P.T.
DAT*
u • rv . JL .
1 .9%
2.5 - 3.2%
Positive
6.1 - 7.3%
8.0-10.1%
High i
Large complex
Few
High
Multi-Industry
]67
-------
TABLE IX-2
PRODUCTION, FOREIGN TRADE1 AND APPARENT
CONSUMPTION OF ISOPROPYL ALCOHOL
(million pounds)
Apparent2
Year Production Exports Consumption
1963 1,466 60 1,406
1964 1,504 31 1,473
1965 1,538 46 1,492
1966 1,714 36 1,678
1967 1,840 38 1,802
1968 1,890 54 1,836
1969 1,950 92 1,858
1970 1,919 81 1,838
1971 1,674 74 1,600
1972 1,790 91 1,699
1973 1,835 65 1,770
Note:
1. Imports are negligible
2. Apparent consumption = production less exports
SOURCES: Synthetic Organic Chemicals, Production and Sales, U.S. Tariff
Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Miscellaneous
Chemicals, U.S. Tariff Commission, Washington, D.C.
168
-------
acetone produced from isopropyl alcohol, its major single end use.
Total acetone production has continued to increase.
Imports of isopropyl alcohol are negligible; the maximum
reported volume was 2.3 million pounds in 1967 which represented 1%
of total production for that year. Export of isopropyl alcohol in-
creased from 60 million pounds in 1963 to 91 million pounds in 1972.
On a year-to-year basis, export volumes have been uneven. During that
period of time, export volume represented from 2% to 5% of total pro-
duction.
Apparent consumption, estimated at 1.7 billion pounds for
1972, has grown at an average rate of 2% per year from 1963 to 1972.
Like production, consumption volume reached a plateau in 1969 and
declined afterwards as a result of lower demand for acetone manufacture.
The industry, at that time, was converting phenol production to the
cumene oxidation process which also yields acetone. Acetone is yielded
as a coproduct but volume of production is principally controlled by
the demand for phenol from cumene-based plants. Currently, phenol
capacity has been mostly switched to the cumene route and market demand
for coproduct acetone from this source has been•absorbed. We expect
this transition to permit acetone producers using the isopropyl alcohol
process to work closer to existing capacity. Since 1971, this has increased
demand growth rate for isopropanol considerably above the 2% per year
rate experienced between 1963 to 1973. Further consumption growth rate
will depend on the market for acetone and the production of acetone
and phenol as coproducts of cumene oxidation.
b. Uses
The major use for isopropyl alcohol is in the manufacture
of acetone followed by its application as a solvent mainly for gums,
shellac and synthetic resins and in the manufacturing of other chemical
products, such as glycerine and isopropyl acetate (see Table IX-3).
If 9
-------
TABLE IX-3
ISOPROPYL ALCOHOL CONSUMPTION BY END USE - 1972
End Use % of Total Million Pounds
Acetone 41 734
Other Chemical Uses 10 179
Coatings and Solvents 35 627
Drugs and Cosmetics 5 89
Miscellaneous Exports 9 161
Total 100 1,790
SOURCE: Chemical Marketing Reporter, April 15, 1973, pg. 1
Preliminary Report on U.S. Production and Sales of Miscel-
laneous Chemicals, U.S. Tariff Commission, Washington, D.C.
170
-------
Isopropyl alcohol is also used widely as a rubbing alcohol.
As indicated in Table IX-4, consumption of isopropyl
alcohol for acetone production reached a plateau in the late 1960's.
In 1964, almost 60% of total isopropyl alcohol production was used in
the manufacturing of acetone, whereas only about 40% was so used in
1972. Total acetone production in the United States increased from
1.05 billion pounds in 1964 to 1.74 billion pounds in 1972. Acetone
is a coproduct of the production of phenol from cumene and has
traditionally been disposed of as produced leaving the residual market
to isopropanol derived acetone. About 1.9 billion pounds of phenol
are produced and approximately 85% is via the oxidation of cumene
yielding an estimated 920 million pounds of acetone. Phenol production
is forecast to increase at 7.5%. Assuming 85% of this increase is via
phenol (the current science), this will result in an increase in the
supply of acetone from cumene at 7.5% per year to total 1,315 million
pounds by 1977. Total demand for acetone is forecast to increase 6%
per year to total 2,240 million pounds by 1977 or by 570 million
pounds. This means demand for acetone via isopropyl will provide the
balance or about 75 million pounds. Use of isopropyl for acetone pro-
duction is, therefore, forecast to increase by about 10% in five years
or at 2% per year.
Demand for isopropyl alcohol in other end uses is forecast
to increase at 5% per year. Overall growth rate in demand, therefore,
will be at about 3.5% per year over the next five years.
c. Substitute Products
There are no chemical substitutes for isopropyl alcohol in
the manufacturing of acetone, other than the use of cumene, which
produce phenol and acetone by oxidation of cumene and appears to
offer attractive manufacturing economics. Acetone from isopropyl
alcohol takes only the share of the market that cannot be supplied with
cumene-based acetone.
171
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TABLE IX-4
HISTORIC VOLUME OF ISOPROPYL ALCOHOL CONSUMPTION
BY END USE
(million pounds)
Year Acetone
Other
End Uses
581
598
633
665
890
917
857
879e
814e
965e
Total Apparent
Consumption
1,406
1,473
1,492
1,678
1,801
1,836
1,858
1,838
1,600
1,699
1963 825
1964 875
1965 859
1966 1,013
1967 911
1968 919
1969 1,001
1970 959e
1971 786e
1972 734e
Note: eEstimates since 1970. Data on acetone production from
isopropyl alcohol are no longer published by the U.S. Tariff
Commission.
SOURCES: Synthetic Organic Chemicals, Production and Sales, U.S.
Tariff Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Mis-
cellaneous Chemicals, U.S. Tariff Commission, Washington,
D.C.
172
-------
As a solvent and in cosmetic uses, isopropyl alcohol competes
with ethanol on a price-performance basis. Over the past several years,
the two products have been quite close in price. Substantial price
changes in either would probably lead to reformulation of some products
and loss of market share by the more expensive product.
d. Captive Requirement
Isopropanol is used captively in the manufacturing of
acetone and other chemical derivatives. As shown in Table IX-5, captive
volume has declined from 924 million pounds in 1963 to 878 million
pounds in 1972. Production of acetone from isopropanol peaked
in 1966 and declined through 1972. As a percentage of total consumption,
captive requirements decreased from 63% in 1963 to 49% in 1972, once
again reflecting the market decline for acetone from isopropyl alcohol.
About 90% of total captive consumption is for acetone manufacture.
2. Supply Characteristics
a. Manufacturing Routes
Isopropyl alcohol is made from a C steam containing 40%-60%
propylene that is isolated from refinery off-gasses. (Sometimes chemical
grade, or even polymer grade propylene is also used.) Propylene feed-
stock combined with hydrocarbons is absorbed in concentrated sulfuric
acid to form a solution of diisopropyl sulfate and isopropyl acid
sulfate. The reaction takes place at approximately 400 psig and 140°F.
The sulfated hydrocarbon solution is converted to an acid solution of
isopropyl alcohol, ether, and polymer by hydrolysis reactions with the
addition of dilution water in the hydrolyzer-stripper. Hydrolyzed
reaction products are steam-stripped from the acid and the vapors are
condensed following neutralization with a caustic solution. Isopropyl
alcohol is separated from isopropyl ether by distillation.
173
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TABLE IX-5
CAPTIVE VS. COMMERCIAL CONSUMPTION OF ISOPROPYL ALCOHOL
(million pounds)
Year Production
1963 1,466
1964 1,504
1965 1,538
1966 1,714
1967 1,840
1968 1,890
1969 1,950
1970 1,919
1971 1,674
1972 1,790
SOURCES: Synthetic Organic Chemicals, Production and Sales, U.S. Tariff
Commission, Washington, D.C.
Preliminary Report on U.S. Production and Sales of Miscellaneous
Chemicals, U.S. Tariff Commission, Washington, D.C.
Consumption
Captive
924
965
956
1,019
1,011
1,096
1,099
1,058
830
878
Merchant
542
539
582
695
739
795
851
861
844
912
% of Captive
63
64
62
59
60
58
56
55
50
49
174
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b. Producers
In 1973, there were four producers of isopropyl alcohol
with six plants (see Table IX-6). Total nameplate capacity was
reported at 2,450 million pounds. The two largest producers are Union
Carbide and Shell, each with a total capacity of some 900 million pounds
from two plants. Their combined capacity represents 70% of industry's
total. Seventy-five percent of total capacity is concentrated in the
Gulf Coast area, probably because of the heavy concentration of refineries
in the area.
c. Manufacturing Economics
Estimated manufacturing costs for isopropyl alcohol pro-
duction are provided in Table IX-7. It is clearly seen that raw material
and energy costs are the major elements of the manufacturing cost
accounting for 85% of the total factory cost in 1973. Variable costs
are estimated to be about 90% of the total factory cost. The capital
investment for a 470 million pound per year plant is estimated to be
$8.75 million.
3. Prices
Isopropyl alcohol list prices have increased from 6.9C per pound
for anhydrous grade, tank quantities, delivered, to 7.35C per pound in
1972. In August 1974, prices were posted at 9
-------
TABLE IX-6
ISOPROPYL ALCOHOL PRODUCERS - 1973
Annual Capacity
Producer Location (Million Pounds)
Atlantic-Richfield Channelview, Texas 50
Exxon Baton Rouge, Louisiana 615
Shell Deer Park, Texas 610
Shell Dominguez, California 275
Union Carbide Corp. Texas City, Texas 570
Union Carbide Corp. Whiting, Indiana 330
Total 2,450
SOURCE: Directory of Chemical Producers, 1974 Edition
176
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TABLE IX-7
ESTIMATED MANUFACTURING COSTS FOR ISOPROPYL ALCOHOL
Process Hydration of Propylene
Location Gulf Coast Capacity 200 MM Ib/yr Invest. $5.0 MM1 (1970 construction)
Cost
Propylene 0.80 Ib @ 2.8«i/lb
Catalyst, Chem., Supplies
Utilities
Direct Labor 20 men @ $5.00/hr
Maintenance, Labor & Materials
Labor & Plant Overhead
Depreciation 9%/yr
Taxes & Ins. 1-1/2%/yr
Factory Cost
$/Year
4,480,000
100,000
2,680,000
213,000
240,000
213,000
450,000
75,000
8,451,000
Mb Product
2.24
0.05
1.34
0.11
0.12
0.10
0.23
0.04
4.23
1. Estimated investment in a plant to produce 470 million pounds per year would
total $8.75 million.
177
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TABLE IX-8
ACTUAL VS. LIST PRICES FOR
ISOPROPYL ALCOHOL
(cents per pound)
Year Actual List Price1
1963 6 6.90
1964 6 6.90
1965 6 6.90
1966 6 7.20
1967 6 7.20
1968 6 7.20
1969 6 7.20
1970 6 7.35
1971 6 7.35
1972 6 7.35
1973 (5.8) 7.502
1974 - 8.402
Note: 1. Anhydrous, Tanks, Delivered
2. 49^/gal. in 1973 and 55d/gal. in 1974
SOURCE: Chemical Marketing Reporter
178
-------
4. Supply/Demand Balance
Capacity utilization has been significantly influenced by
market demand for isopropyl alcohol-based acetone. In 1970, capacity
utilization was in the order of 75% as a result of acetone oversupply.
In the first half of 1974, with a rather tight acetone supply situation,
the industry was probably working at about 90% of capacity. For the
foreseeable future, the industry will probably experience a higher
operating rate than the past five years as the impact of changing the
production of phenol to cumene-based production has been absorbed by
the industry and the demand for acetone continues to increase.
C. ECONOMIC IMPACT
1. Treatment Costs
The costs required to achieve BPT and BAT guideline specifications
as presented in the guideline document for a free standing plant with a
1,370,000 pounds per day production capacity are only .07c and .IOC Per
pound respectively. We estimate a small cost advantage benefits those
plants which are part of a complex having effluent volumes of 3 million
(.03C and .05^ per pound) or 10 million (.03^ and -04c per pound)
gallons per day. We estimate existing plants are all associated with
medium or large sized complexes.
Investment requirement for a free standing plant of the size
specified totals $1.25 million to achieve BPT and $1.78 million to
achieve BAT. This is estimated to decline to $0.53 million to achieve
BPT (6.1% of fixed investment) and $0.70 million (8% of fixed investment)
to achieve BAT in a 10 million gallons per day complex. A 3 million
gallons per day complex is estimated to require investments of $0.64
million to achieve BPT guidelines and $0.88 million to achieve BAT
guidelines.
179
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Virtually all isopropanol is produced by hydration of propylene.
There are no other practical routes which would have substantially
different waste water treatment costs.
No free standing isopropanol plants are found in the industry.
About 25% of the industry capacity is located in medium complexes with
3 million gallons per day effluent volumes. The remaining 75% is part
of large complexes. A high degree of vertical integration characterizes
both size complexes. Since economies of scale for treatment costs appear
not important in this industry, the plant size differences do not
create significant differential treatment costs.
2. Price Impact
List prices for isopropanol have increased from 7.5C per pound
in 1973 to 9.0C per pound by August 1974, reflecting the tight raw
material supply affecting the entire petrochemical industry. As raw
material supplies ease, these higher prices may be retained since
currently this industry is estimated to be operating near capacity.
However, demand for isopropanol shifts rapidly because demand for
isopropanol-based acetone is erratic. Low-priced, cumene-based acetone -
a byproduct of phenol production - is absorbed by the market first,
leaving the residual acetone demand to the isopropanol-based producers.
As new cumene-based phenol capacity comes on stream, more low-cost
byproduct acetone will flood the market and the demand for isopropanol
will decrease. The result of this is industry overcapacity and lower
isopropanol prices. Low prices and low capacity utilization has been a
more typical competitive environment characterizing the isopropanol
industry.
180
-------
The price matrix in general suggests that as a normal competitive
environment is restored, at least half of the treatment costs will be
absorbed into net income rather than be passed through to the
consumer. It is likely that the treatment costs would appear in
higher base prices, but would be discounted in the traditional heavy
price cutting typical of this industry. The principal conditions
constraining cost pass through are the high occurrence of substitute
products and the low capacity utilization typical in this industry.
It is significant that there are "substitute products" for isopropanol
both as a raw material for acetone and as a solvent. Oxidation of
cumene gives both acetone and phenol and as such cumene is a substitute
"raw material" for isopropanol in the manufacture of acetone. However,
phenol production is much larger than that of acetone making the disposal
of phenol the principal concern of this manufacturing route. It is not
surprising, therefore, that cumene oxidation is geared to phenol rather
than acetone demand; nevertheless, this route provided 55% of all the
acetone consumed in 1973. As a route to phenol, oxidation of cumene is a
competitive process even without marketing the byproduct acetone.
Therefore, the acetone from cumene need only be sold at a price above
disposal cost and this economic fact keeps a tight lid on acetone and
therefore isopropanol prices.
As a solvent, isopropanol competes with ethanol and to a lesser
extent methanol. Since the cost of these alcohols has recently been
virtually identical, the price changes for isopropanol depends on both
the relative merit of each alcohol as an ingredient in the final product
and the waste water treatment cost differential which results. It is
not likely that these will be large, but uncertainty about them and
the unwillingness to yield isopropanol market share to ethanol or
methanol will constrain a full cost pass through. We expect that
isopropanol producers will try and succeed with sharing treatment
costs equally with their consumers.
181
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Two principal factors which favor price pass through should
be discounted heavily when interpreting the matrix: (1) the high
captive usage, and (2) the low degree of foreign competition. The
normally insulating quality of these conditions does not apply in this
industry. First, acetone - the product for which isopropanol is
captively consumed - is sold with relatively low margins in an extremely
competitive environment. Therefore, high captive consumption of iso-
propanol for acetone production does not imply the normal price in-
sensitivity that usually exists. Secondly, although there is little
foreign competition, the fluctuating demand for isopropanol-based acetone
gives rise to the same kind of price pressures as periodic inflows of
foreign produced isopropanol. Therefore, even without foreign com-
petition, the potential for price constraint is strong and it is doubtful
that the full treatment costs would be passed through. We therefore
estimate that only 50% of the treatment costs will be passed through to
customers. This will total 0.25% of 1973 price by 1977 and 0.35% by
1983.
3. Plant Shutdown Impact
It is doubtful that waste treatment costs will cause any iso-
propanol plants to close down. Even though the treatment costs won't
be passed on, both the costs and their impact on net income (1.9-3.2%)
are small. The capital investment required, even for BAT treatment
facilities, is not large, and in light of the high emotional commitment
to isopropanol production due to the desire of petroleum companies to
remain in petrochemicals, we conclude that the facilities will be
installed and operations continued.
182
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4. Foreign Competition
It is likely that foreign competition will remain insignificant.
Import duties are currently 1.5c per pound compared with -O^C and . 05c
per pound for estimated BAT treatment costs. Therefore, it is not
likely current producers of acetone would look toward importing iso-
propanol rather than absorbing the additional treatment costs. Further,
the U.S. domestic market for isopropanol is quite uncertain and will
probably remain unattractive for foreign producers. We estimate no
significant impact on the U.S. balance of trade in this industry.
183
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X. METHYL CHLORIDE FROM METHANE
(CH3C1)
A. SUMMARY
Methyl chloride is produced in the United States primarily for use
as an intermediate to silicone and tetramethyl lead. The 1973 value
of methyl chloride production is $29 million. More than 50% of annual
production is used captively.
Production of methyl chloride is dominated by four major organic
chemical manufacturers, two of which are integrated forward into the
manufacture of secondary products for which methyl chloride is an inter-
mediate. The only major end use using methyl chloride directly was
refrigeration, but this application is now largely lost to fluorinated
hydrocarbons.
Growth of methyl chloride consumption has averaged 15.2% since
1963 but is currently growing at a much lower rate. Prices declined
from 1963 through 1972 and rose slightly in 1973. List prices, and
probably actual prices, increased modestly in 1974.
A summary of the factors used in the economic impact analysis is
given in Table X-l. Producers of methyl chloride via thermal chlorina-
tion of methane will be able to pass through modest effluent treatment
costs in the form of higher prices. We estimate BPT treatment costs
at 0.9% of the 1973 sales price and BAT treatment costs at 1.3% of the 1973
sales price. The effluent treatment costs for the manufacturers of
methyl chloride from methanol are higher than those for the thermal
chlorination plants. Also the capital investment is significant. In
our best judgment, over the long run, most producers utilizing methanol
will switch to the use of methyl chloride from methane.
184
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TABLE X-1
METHYL CHLORIDE FROM METHANE
All Processes:
1972 Production (Million Pounds)
1972 Unit Value (C/Lb)
1972 Production Value ($MM)
Number of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
i
Treatment
Level
B.P.T.
B.A.T.
435
5(5.54 in 1973)
22 (30 in 1973)
13
0.7 - 0.9%
1.1 - 1.3%
— ' — - - •-"- -
Direct — Low
Secondary — Low
Low -71% in 1973
64% -High
Low - 4%
Low
Unequal
Low
Price
Fragmented
10
From methane and from
methanol.
185
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TABLE X-1 (Continued)
! PLANT SHUTDOWN DECISION
i Factor
Ratio of AT Treatment
Cost to AT Net Income
(*)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
• ''• . " ; -'" .
B.P.T.
D A T*
U . f\. i. .
'•;'';> ;' •':.':'
2.4-10.2%
3.6-13.2%
Positive
1.5-5.9%
1.9-7.7%
High forward
Low backward
Complex and isolated
Air pollution and OSHA
Low
Multi- Industry
186
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This could result in significant reduction in production of methyl
chloride from methanol unless effluent treatment costs and invest-
ments by this alternate route are competitive with costs and invest-
ments associated with the thermal chlorination process.
B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size
Large-scale U.S. production of methyl chloride began about
1920 chiefly to supply refrigerant requirements. However, since 1940,
U.S. production of methyl chloride has grown from 3 million pounds per
year to an estimated one-half billion pounds in 1974. Production in
1973 was 544.1 million pounds as shown in Table X-2. Since imports of
methyl chloride are negligible and exports are not recorded separately,
apparent consumption is taken equal to production.
b. Growth
U.S. production of methyl chloride increased at an average
annual rate of 15.2% between 1962 and 1972, however, since 1969 it has
averaged only 4.0% growth per year. The slow rate of growth in recent
years is due to uncertain demand from the tetramethyl lead end-use sector,
However, a surplus of methyl chloride does not exist in the market and
supplies were snug by mid-1974 due to limited availability of methanol.
The future of the tetramethyl lead market plus the availability of
methanol will affect future growth of methyl chloride most significantly
and probably will limit it to moderate to static growth.
187
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TABLE X-2
PRODUCTION, FOREIGN TRADE AND APPARENT CONSUMPTION
OF METHYL CHLORIDE
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972p
1973p
Production
114.0
134.0
187.5
236.9
275.6
305.2
402.8
422.7
437.5
453.5
544.1
Imports
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Exports
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Apparent
Consumption
114.0
134.0
187.5
236.9
275.6
305.2
402.8
422.7
432.8
453.5
544.1
SOURCE: U.S. Department of Commerce
188
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c. Uses
The largest, and fastest growing, end-use area in 1972 was
use as an intermediate for production of silicones. Silicone rubbers,
fluids and polymers are forecast to grow at about 10% per year over the
next five years. This area accounted for 43% of domestic consumption in
1972 as shown in Table X-3. However, use of methyl chloride as an inter-
mediate in tetramethyl lead production is almost as large and future
growth does not appear promising at present. In all probability the
use of tetramethyl lead will decline as an increasing proportion of non-
leaded gasoline is produced. The remaining consumption is shown in
Table X-3, and only accounts for 19% of total. Its use as a refrigerant
has been largely replaced by fluorocarbons.
d. Substitute Products
Methyl chloride is used synthetically as a source of the
methyl group or radical. As such, it must compete with all other chemicals
which also provide this group. The most common substitute chemicals are
methanol, dimethyl sulfate, methyl bromide and methyl iodide. Methanol,
for most practical purposes, is act a good methylating agent for most
syntheses in which methyl chloride is used and, therefore, is not a real
competitor.
Dimethyl sulfate, methyl bromide and iodide are all far
superior methylating agents, however are really not competitive with
methyl chloride for various reasons. Dimethyl sulfate is hard to handle,
extremely toxic and not produced in quantities sufficient to replace much
methyl chloride. Further, it is often too reactive to benefit controlled
synthesis. Both methyl bromide and iodide are more reactive than methyl
chloride but less than dimethyl sulfate. They can be substituted for
methyl chloride in virtually all synthetic procedures; however, their
primary disadvantage is cost. Whereas the cost of methanol is the same
for each, iodine and bromine are far more expensive than chlorine.
189
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TABLE X-3
CONSUMPTION OF METHYL CHLORIDE BY END USE
End Use % of Total! 972
Silicone Intermediate 43
Tetramethyl Lead Intermediate 38
Butyl Rubber (catalyst solvent) 4
Miscellaneous1 15
Total 100
1. Mfg. methyl cellulose, quaternary ammonium compounds, am-
monium salts, triptane (an antiknock fuel additive) methyl mer-
captan (intermediate in jet fuel mfg.), and pesticides.
SOURCE: Chemical Economics Handbook
190
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Further, if these are used as intermediates to supply the methyl groups,
each pound contains fewer methyl groups than in a pound of methyl chloride
and the heavy bromine or iodine is discarded and recycled. Therefore,
manufacturing economics are doubly affected with substitution of either
methyl bromide or methyl iodide for methyl chloride. We consider,
therefore, the use of methyl chloride will be relatively price inelastic.
e. Captive Requirements
Since the two major end-use areas for methyl chloride are
as chemical intermediates, it is not surprising that more than 50% of
the 1972 production was used captively. Captive use has been above
50% in all but two of the last ten years as shown in Table X-4. Even
with the high captive use, there are ten major producers of methyl
chloride.
f. Other Market Requirements
Competition in the methyl chloride industry is on a price
basis since most is consumed as an intermediate in other chemical
production. For these uses, quality is standard and supply has been more
than sufficient.
g. Foreign Competition
Foreign competition in methyl chloride has historically
been insignificant and is likely to remain so at least for the next
several years.
191
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TABLE X-4
PRODUCTION SALES AND CAPTIVE USE
FOR METHYL CHLORIDE
(million pounds)
Year Production Sales Captive Use1
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973p
114.0
134.0
187.5
236.9
275.6
305.2
402.8
422.7
437.5
453.5
544.1
54.7
67.2
94.8
104.2
118.0
139.2
166.1
176.0
193.1
208.0
227.3
59.3
66.8
92.7
132.7
157.6
166.0
236.7
246.7
244.4
245.5
316.8
1. Includes stock changes
p — preliminary
SOURCE: U.S. Department of Commerce
192
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2. Supply Characteristics
a. Manufacturing Routes
There are two principal processes for industrial production
of methyl chloride: hydrochlorination of methanol and chlorination of
methane.
(1) Hydrochlorination of Methanol
This was the earliest industrial process used for
methyl chloride production but is now being replaced by methane chlorin-
ation. Methyl chloride from methanol, however, still accounts for over
50% of the 1974 methyl chloride capacity. The advantage of the hydro-
chlorination route is that methyl chloride is the sole product which
is not true for chlorination of methane. A second advantage can be
the capability of utilizing excess quantities of hydrogen chloride which
might be available. The chief disadvantage of this process is the cost
and availability of methanol and the large quantities of HC1 required
if hydrogen chloride is not in excess supply in the local area. Typically
only those companies basic in methanol production will use this route.
The hydrogen chloride required is either manufactured on site or diverted
from a chlorination process such as methylene chloride, chloroform, or
carbon tetrachloride production.
(2) Chlorination of Methane
Methane can be chlorinated thermally, photochemically,
or catalytically; however, thermal chlorination is technically the most
important. The methane raw material for methyl chloride production may
be natural gas, coke oven gas, or petroleum refining gas since separation
of pure methyl chloride is essential to its production via methane
chlorination. Methyl chloride is not a single reaction product, but
193
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rather is a coproduct with methylene chloride, chloroform and carbon
tetrachloride. Extensive modifications of this process exist and
perhaps the most versatile is the McBee-Hass technique of controlled
high temperature chlorination. The ratios of the chloromethanes in
the product can be varied from nearly 100% methyl chloride to carbon
tetrachloride exclusively. The primary disadvantage of this process is
the generation of hydrogen chloride, but the gas is either oxidized
to chlorine and recycled or scrubbed clean with water and sold on the
open market as aqueous hydrochloric acid.
b. Producers
Currently ten producers have a capacity of 655 million
pounds as shown in Table X-5; however, this capacity must be regarded
as somewhat flexible since 36% of this capacity can be diverted to
produce other chlorinated hydrocarbons. Dow and DuPont share half this
market, but they both have large captive requirements for methyl chloride.
These two, with Continental Oil and Ethyl Corporation, share 77% of the
total market as shown in Table X-5.
c. Manufacturing Costs
Costs for the production of methyl chloride from methanol
are provided in Table X-6. Costs for the production of chlorinated
methanes are given in Table X-7. In Table X-8, these costs have been
allocated among the various products produced by methane chlorination
to provide a specific cost for the production of methyl chloride from
methane.
194
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TABLE X-5
METHYL CHLORIDE CAPACITIES
Producer
Allied Chemicals
Continental Oil
Dow Corning
Dow Corning
E.I. DuPont
E.I. DuPont
Ethyl Corp.
General Electric
Union Carbide
Dow
Dow
Stauffer
Vulcan
Location
Moundsville, West Virginia
Lake Charles, Louisiana
Carroliton, Kentucky
Midland, Michigan
Deepwater, New Jersey
Niagara Falls, New York
Baton Rouge, Louisiana
Waterford, New York
Institute, West Virginia
Freeport, Texas
Plaquemine, Louisiana
Louisville, Kentucky
Newark, New Jersey
Total
Capacity based on Methanol
% of Total
Annual
Capacity
(MM Ibs)
25
100
20
15
30
80
75
20
50
70
150
15
2
655
417
64%
Raw
Material
Methanol
Methanol
Methanol
Methanol
Methanol
Methanol
.Methanol
Methanol
Methanol
Methane
Methane
Methane
Methane
SOURCES: Chemical Profile, October 1, 1973; Directory of Chemical Producers,
1974 Edition.
195
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TABLE X-6
ESTIMATED COST OF MANUFACTURING
METHYL CHLORIDE BY THE METHANOL PROCESS
Mid-1972
Physical Investment: $1.7MM
Capacity: 30MM Ib/yr
Raw Materials
Methanol
Muriatic Acid (32.5%)
Utilities
Depreciation
Taxes and Insurance
Quantity/100 Ib
80
260
Chemicals, Catalyst, Supplies
Direct Labor 6 men
Maintenance & Materials
Labor and Plant Overhead
9% of investment/year
1-1/2% of investment/year
$/Unit
.014/16
.0062/lb
SB/hour
$/100lb
1.12
1.61
0.70
0.50
0.31
0.78
0.31
0.51
0.08
Total Cost of Manufacture excluding cost of muriatic acid
Total Cost of Manufacture
Average Selling Price
4.31
5.92
5.14
196
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TABLE X-7
ESTIMATED COST OF MANUFACTURING CHLORINATED METHANE
THERMAL CHLORINATION PROCESS
Mid-1972
(1970 Construction)
Physical Investment: $10.7 MM
Capacity: 130 MMIb/yr
Production is assumed to be:
39 MMIbs/yr Methyl Chloride (30%)
52 MMIbs/yr Methylene Chloride (40%)
26 MMIbs/yr Chloroform (20%)
13 MMIbs/yr Carbon Tetrachloride (10%)
Variable Costs
Raw Materials
Chlorine
Natural Gas
Utilities
Power
Water
Natural Gas
Semi-Variable Costs
Operating Labor
Maintenance
Labor & Plant Overhead
Fixed Costs
Quantity/100 Ib
170 Ibs
.504 MSCF
30kwh
6 Mgal
O.SMMBtu
$/Unit
0.02
0.25
0.008
0.03
0.25
20 men
5% of Investment/yr
100% of Labor & Supervision
S5 00/hr
Depreciation
Taxes & Insurance
9% of Investment/yr
1-1/2% of Investment/yr
Subtotal
'T» - -
Byproduct Credit - HC1 (100% basis) 86.9 Ibs
Factory Cost
$/100lb
3.40
0.13
0.24
0.18
0.20
4.15
0.17
0.41
J(XV7_
0.75
0.74
0.12
0.86
5.76
(1.74)
4.02
197
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TABLE X-8
PRO RATED MANUFACTURING COSTS FOR CHLORINATED
METHANE COPRODUCTS FROM THERMAL CHLORINATION PROCESS
Mid-1972
Capacity: 130 MMIb/yr
Methyl Chloride Methylene Chloride
($/100lb)
Variable Costs
Raw Materials
Chlorine
Natural Gas
Utilities
Power
Water
Natural Gas
Semi-Variable Costs
Operating Labor
Maintenance
Labor & Plant Overhead
Fixed Costs
Depreciation
Taxes & Insurance
Subtotal
2.94
0.13
0.24
0.18
0.20
3.69
0.17
0.41
0.17
0.78
0.74
0.12
0.86
5.33
(S/100lb)
3.48
0.13
0.24
0.18
0.20
4.23
0.17
0.41
0.17
0.78
0.74
0.12
0.86
5.87
Chloroform
($/100 Ib)
3.70
0.13
0.24
0.18
0.20
4.45
0.17
0.41
0.17
0.78
0.74
0.12
0.86
6.09
Carbon
Tetrachloride
(S/100 Ib)
3.90
0.13
0.24
0.18
0.20
4.65
0.17
0.41
0.17
0.78
0.74
0.12
0.86
6.29
Byproduct Credit - HC1 (1.50)
Total Cost of Manu-
facturing 3.83
Average Selling Price —
1972 5.14
(1.78)
4.09
6.65
(1.90)
4.19
6.61
(2.00)
4.29
5.89
198
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3. Prices
Prices historically have been depressed for methyl chloride. As
shown in Table X-9, actual prices for methyl chloride have declined
from 90 per pound in 1963 to 5c per pound in 1972. However, since 1968
actual prices have been relatively stable and probably increased in
1974, along with list prices, due to increasing raw material costs.
List prices have usually been about !<: - 1 l/4c per pound above actual.
The price decline between 1963 and 1968 is probably the result of rapid
growth and expansion leading to economies of scale with new large volume
capacity introduction and lower raw material prices. Since competition
within the industry is primarily based on price, these conditions have
favored price decreases.
4. Supply/Demand Balance
As shown in Table X-10, industry capacity has historically kept ahead
of demand and in 1973 was about 110 million pounds ahead of estimated
demand. However, the reported capacities for production by thermal
chlorination must be considered highly flexible and can be easily diverted
to production of other chlorinated hydrocarbons thereby utilizing other-
wise unusuable capacity. Therefore, overcapacity should not cause price
destabilization, but may limit potential price increases. Prices will
be principally dependent on the price of methane, methanol and chlorine.
All of these are directly related to energy costs and hence will most
probably be significantly higher than they were before 1974.
199
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TABLE X-9
ACTUAL VS. LIST PRICES - METHYL CHLORIDE
Sales
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Quantity
(MM Ibs)
54.7
67.2
94.8
104.2
118.0
139.2
166.1
176.0
193.1
208.0
227
N.A.
Value
($MM)
4.7
5.2
6.4
7.5
8.0
8.2
8.7
9.8
11.2
10.7
12.6
N.A.
Unit Value
(4/lb)
9.0
8.0
7.0
7.0
7.0
6.0
5.0
6.0
6.0
5.1
5.5
N.A.
List Price
(tf/lb)
10.00
10.00
10.00
10.00
10.00
6.25
6.25
7.25
7.25
7.25
7.25
8.50
SOURCES: U.S. Department of Commerce, Chemical Marketing
Reporter
200
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TABLE X-10
INDUSTRY OPERATING CAPACITY - METHYL CHLORIDE
(million pounds)
Year Capacity1 Production % Capacity
1963 - 114.0
1964 - 134.0
1965 209 187.5 90
1966 - 236.9
1967 376 275.6 73
1968 - 305.2
1969 - 402.8
1970 436 422.7 97
1971 - 432.8
1972 501 444.5 89
1973 655 544.1 83
1. Capacities are flexible since some processes produce more than
one product.
SOURCES: U.S. Department of Commerce, Chemical Marketing
Reporter
201
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C. ECONOMIC IMPACT
1. Water Treatment Costs
a. Thermal Chlorination
The development document describes the costs association
with the treatment of effluent from a methane chlorination plant to
produce chloromethanes. The cost of the treatment described in the
development document, for a plant producing 356,000 pounds per day,
is $128,400 per year or 0.17C per pound of product to achieve BPT
effluent guidelines. The cost to achieve BAT in the free standing
plant described totaled 0.22c per pound of product.
The guideline document does not attempt to assign effluent
control costs to the individual chlorinated methanes - methyl chloride,
methylene chloride, chloroform and carbon tetrachloride - but rather
specifies total control costs for the total product mix. For purposes
of our analysis, we have assumed the effluent control costs are equivalent
for the various chloromethane products produced.
By our calculations, the cost to achieve BPT in a 3 million
gallons per day complex would decline to 0.05C per pound and 0.04c per
pound in a 10 million gallons per day complex.
The cost to achieve BAT would decline to 0.07C per pound in
a 3 million gallons per day complex and 0.06c per pound in a 10 million
gallons per day complex.
(
2. Price Impact
Estimation of price impact is complicated by the fact that two
significantly different routes exist for the manufacture of methyl chloride;
methanol utilizing HC1 and methane from thermal chlorination. It is our
202
-------
judgment that a modest price pass through will be possible which will
cover the effluent treatment costs of the thermal chlorination process.
Although there are a fairly large number of producers, the producers
compete on price, and the market share is fragmented in a low capacity
utilization situation; there is on the other hand a high degree of captive
usage, no foreign competition and little substitution possible as well as
relatively low elasticity of demand. A complicating situation exists in
that the producers of methyl chloride by thermal chlorination do not
have fixed capacities for methyl chloride. Their capacities are fixed
at any given time for the total production of the family of chlorinated
methanes but they have the capability of switching production as demand
indicates from one product to antoher; e.g., methyl chloride, methylene
chloride, chloroform and carbon tetrachloride. The nominal capacity
of those producers of methyl chloride from methane totals 36% of total
given capacity with the residual 64% based on methanol.
There are four producers of methyl chloride by the thermal
chlorination of methane: two in medium-sized complexes and two in large
complexes. We expect that there would be no difficulty for these
producers to pass through the relatively small costs for BPT treatment
in medium-sized complexes. This would be equivalent to 1.3% of the 1973
sales price.
The longer range possibility forecast pass through is more
difficult to judge. The increase in price by 0.17C per pound increases
the advantage of the thermal chlorination producer in the production of
methyl chloride. It also increases the attractiveness of methyl chloride
as one of the products from methane chlorination. It is our best judg-
ment that given the time available between the present and 1983, there
will be a switch in capacity by the producers towards production from
methane and prices will not increase further by virtue of effluent treat-
ment costs. As shown in Table X-ll, thermal chlorination in medium
complexes to achieve BAT is estimated at .070 or only 1.3% of 1973 price,
203
-------
TABLE X-11
COST OF EFFLUENT TREATMENT TO ACHIEVE
BPT AND BAT CONTROL LEVELS
Thermal Concentration
BPT («i/lb)
Mfg. Cost W/lb) 3.83
Free Standing .17
Medium-Sized Complex .05
Large-Sized Complex .04
Range <#lb) 3.87 - 4.00
BAT U/lb)
free Standing .22
Medium-Sized Complex .07
Large-Sized Complex .06
Range («f/lb) 3.89 - 4.05
SOURCE: Guideline Contractor and Economic Contractor Estimates.
204
-------
We forecast a continuation of the 1.8% price increase for methyl chloride
through 1983.
The comparison of manufacturing economics, as shown in Table X-ll,
indicates that those producers utilizing thermal chlorination already
manufacture slightly more cheaply than those producers utilizing methanol,
even including the estimate that there is no cost associated with the
hydrochloric acid used in the process. In many instances, the methanol
process is utilized to take advantage of available byproduct hydrochloric
acid which might otherwise have no application within the chemical complex,
3. Plant Shutdown Decision
We expect no shutdown of thermal chlorination plants due to
the BPT and BAT effluent guidelines. As previously indicated, we ex-
pect relatively modest effluent treatment costs, even in the long term,
to be passed through in the form of higher prices for methyl chloride.
4. Foreign Competition
We foresee no significant effects of U.S. balance of trade by
virtue of the effluent control guidelines which are proposed. The effect
of these guidelines as described above will be to switch the industry
towards the use of thermal chlorination as a method of achieving the
required production of methyl chloride.
205
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XI. METHYLENE CHLORIDE FROM METHANE
A. SUMMARY
Methylene chloride is produced in the United States primarily for
use as a solvent. Its largest application is as a component in paint
stripping composition. Current value of methylene chloride production
is about $30 million. Less than 15% of annual production is used cap-
tively and about 20% is exported.
Production of methylene chloride is dominated by one major organic
chemical manufacturer which has nearly 50% of the total market for
methylene chloride. Three producers share 70% of the market.
Growth of methylene chloride consumption has averaged 13.4% over
the past five and ten years and we estimate will be about 8% per year
over the next five years. Prices have been both stable and high rela-
tive to other chlorinated hydrocarbons, but low relative to most
organic chemicals.
A summary of factors affecting price increases and plant shutdowns
is provided in Table XI-1. Effluent treatment costs required to meet
both BPT and BAT guidelines are moderate and can probably be passed
through in the form of higher prices. A 2.2% increase in the 1973 price
will be required to cover the cost of meeting the BPT regulations, and
2.8% of the 1973 sales price will be the price increase required to
comply with BAT guidelines for a free standing plant. We do not anti-
cipate any plant shutdowns, and no effect on the U.S. balance of pay-
ments is foreseen as a result of the water treatment guidelines.
206
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TABLE XI-1
METHYLENE CHLORIDE FROM METHANE
All Processes:
1972 Production (Million Pounds)
1972 Unit Value (C/Lb)
1972 Production Value ($MM)
Number of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
471
7
30
8
0.5 - 2.2%
0.8 - 2.8%
Direct — Moderate
Secondary — Moderate
High - 97%
1973
Low
1
High: 8%
Moderate - 10% Competition
Unequal
Low
Price
Moderate
6
1 : from methyl chloride
(methanol derived)
207
-------
TABLE Xl-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
00
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
:l\? •;•'•" .'••:V'.-:.. '
B.P.T.
D A IT"
JJ • rt. • A •
: J |S&£ if • :
.-.'•' •-';•'-•'.• •
•• -;' .'•.•'' v "• ''•:•
1.1 -4.6%
1.6-5.9%
Positive
1.5-5.9%
1.9-7.7%
Low
Isolated & Complex
Air pollution & OSHA
Low
Multi-Industry
208
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B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size
Methylene chloride became an industrial chemical of impor-
tance during World War II and since 1944 production has grown from 8.3
million pounds per year to over one-half billion pounds in 1974. U.S.
production in 1973 was about 521 million pounds and imports were an
additional 42.3 million pounds, as shown in Table XI-2. Exports for
1973 were 114.2 million pounds and during 1972 were 103.7 million
pounds. Apparent consumption, shown in Table XI-2, is taken as pro-
duction plus imports less exports.
b. Growth
U.S. production of methylene chloride has grown at an average
annual rate of 13.4% between 1963 and 1973. This average rate slowed
during the last five years when growth of methyl chloride production
declined 11.3%. However, exports seem to have accounted for a large
measure of this growth. Anticipated future growth for methylene chloride
consumption is forecast at an average of 8% per year.
c. Uses
Methylene chloride is used for its physical rather than for
its chemical properties. Methylene chloride is a solvent. Virtually no
methylene chloride is used as a chemical intermediate. The most important
application is as a paint remover component and this end use accounted
for 32% of all domestic consumption in 1972, as shown in Table XI-3.
This application has been primarily responsible for the rapid growth in
consumption of this product. Methylene chloride is superior to other
chlorinated solvents as a paint stripper. Its efficiency, low cost, and
209
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TABLE XI-2
PRODUCTION, FOREIGN TRADE AND APPARENT CONSUMPTION
OF METHYLENE CHLORIDE
(million pounds)
Year
Production
Imports
Exports
Apparent Consumption
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973p
148.0
179.6
210.8
267.2
262.3
302.6
366.0
402.2
401.2
471.3
520.2
_ -1
19.2
12.3
11.1
10.2
19.3
7.8
9.5 85.5
7.8 86.9
11.1 103.7
42.3 114.2
148.0
198.8
223.1
278.3
272.5
321.9
373.8
326.2
322.1
378.7
448.8
P — Preliminary
1. Not reported separately before 1970.
SOURCES: U.S. Department of Commerce, U.S. Tariff Commission.
210
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TABLE XI-3
CONSUMPTION OF METHYLENE CHLORIDE BY END USE
End Use % of Total 1972
Paint Remover 32
Aerosol Vapor Pressure Depressant 20
Solvent Degreasing 10
Plastics Processing 10
Miscellaneous1 28
TOTAL 100
1. Includes exports and applications of pharmaceutical solvents;
extraction solvent for some naturally occurring food substances,
photographic film and synthetic fiber solvent, fire extinguisher
component.
SOURCE: Chemical Economics Handbook.
211
-------
extremely low toxicity ensure its preeminence in this area. We expect
growth in consumption in this use to slow as the opportunities for re-
placement of other solvents have declined.
Other areas of importance are use as aerosol vapor pressure
depressants and in various solvent applications, as listed in Table XI-2.
d. Substitute Products
Methylene chloride is basically a solvent. Apart from its
use as a vapor depressant and fire extinguisher ingredient, it functions
as a solvent in all applications. As such, it competes with a large
variety of other solvents. However, because of its low cost, powerful
solvent action, stability under recovery conditions, low toxicity, and
ready availability, it has few real competitors. The primary substitute
solvents are BTX aromatics and the other chlorinated methanes and light
hydrocarbons. Methylene chloride is higher priced than most competing
solvents. Its unique properties, however, make demand for the product
relatively inelastic to price competition from other solvents in the
established end uses for methylene chloride. Prices for all competitive
solvents will be significantly affected by the increase in petroleum and
energy costs.
e. Captive Requirements
Since methylene chloride is used for its physical properties
rather than as a chemical intermediate, it is not surprising that captive
usage is less than 10%. Captive use has only been above 15% in one year
since 1963, as shown in Table XI-4. Most users are essentially formu-
lators and purchase rather than produce internally their requirements.
212
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TABLE XI-4
PRODUCTION, SALES AND CAPTIVE USE FOR METHYLENE CHLORIDE
(million pounds)
Year
Production
Sales
Captive Use1
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
148.0
179.6
210.8
267.2
262.3
302.6
366.0
402.2
401.2
471.3
520.2
133.2
156.7
194.5
225.8
226.9
288.1
338.1
358.2
366.0
443.3
473.9
15.8
22.9
16.3
41.4
35.4
14.5
27.9
44.0
35.2
28.0
46.3
1. Includes stock changes.
SOURCE: U.S. Department of Commerce.
213
-------
f. Other Market Requirements
Competition in the methylene chloride industry is primarily
on a price basis for use in paint stripping applications, but premium
prices are received from many special applications, e.g., as a food pro-
cessing solvent. Quantities supplied have historically been adequate
and prices have been relatively stable since 1963.
g. Foreign Competition
Exports have typically been well ahead of imports and have
been growing rapidly in recent years. As raw materials become scarce,
some greater quantities may be imported, but it is likely that U.S.
produced methylene chloride will be less expensive than foreign produced
since production utilizes chlorine which is produced in an energy inten-
sive process. While chlorine production costs are rising domestically,
they are rising less than in the many industrialized foreign countries
heavily dependent on imported oil as a source of energy.
2. Supply Characteristics
a. Manufacturing Routes
(1) Chlorination of Methane
Chlorination of methane is the most important route to
methylene chloride. However, a single product cannot be produced via
this process. Therefore, it is merely a coproduct along with all other
possible chlorinated hydrocarbons. Purification techniques, however,
have been refined to produce ultra-pure methylene chloride.
A disadvantage of this process is that it produces large
quantities of hydrogen chloride which either are scrubbed with water,
concentrated and sold as aqueous hydrogen chloride or are oxidized to
chlorine and recycled.
214
-------
(2) Hydrochlorination of Methanol
This process relies on chlorination of methyl chloride
rather than methane. The principal advantage here is that hydrogen
chloride generated in the chlorination step is recycled through the
methanol-methyl chloride cycle, eliminating the need to further process
the hydrogen chloride evolved. This process should be most attractive
to those producers basic in methanol production as it offers a captive
market to the methanol producer.
b. Producers
Currently six producers have a capacity of 532 million pounds;
however, as for all chlorinated methanes, this capacity must be considered
flexible and can be varied between the chlorinated methanes as market
conditions demand. Dow is the leading supplier of methylene chloride
with 45% of the current market share. The three largest producers,
Dow, Diamond Shamrock, and Stauffer, share 70% of the market, as shown
in Table XI-5.
c. Manufacturing Costs
Costs for the production of the chlorinated methane products
are in the section on methyl chloride from methane. Methylene chloride
costs are in the same section and are estimated based on the allocation
of manufacturing costs among the various products produced by methane
chlorination.
3. Prices
Prices historically have been stable for methylene chloride and
typically have been the highest priced of all the chlorinated methanes.
Prices were stable but discounted from list from 1963 to 1967, as shown
in Table XI-6, but then gently slid from 9
-------
TABLE XI-5
METHYLENECHLORIDE
Producer
Allied Chemical
Diamond Shamrock
Dow
Dow
Stauffer
Vulcan
Vulcan
DuPont
Total
Capacity based
% of total
Capacity based
% of total
Location
Moundsville, West Virginia
Belle, West Virginia
Freeport, Texas
Plaquemine, Louisiana
Louisville, Kentucky
Wichita, Kansas
Newark, New Jersey
Niagara Falls, New York
on methane
on methanol
Annual
Capacity
(MM Ibs)
50
72
150
90
60
30
40
40
532
452
85%
80
15%
Raw
Material
Methane
Methane
Methane
Methane
Methane
Methane
Methanol
Methanol
SOURCES: Chemical Profile, April 1, 1974; Directory of Chemical Producers,
1974 Edition.
216
-------
TABLE XI-6
ACTUAL VS. LIST PRICES - METHYLENE CHLORIDE
Sales
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Quantity
(MM Ibs)
133.2
156.7
194.5
225.8
226.9
288.1
338.1
358.2
366.0
443.3
473.9
N.A.
Value
($MM)
12.3
14.0
17.2
12.5
20.0
22.5
25.9
28.8
26.7
29.5
37.3
N.A.
Unit Value
(4/lb)
9.0
9.0
9.0
10.0
9.0
8.0
8.0
8.0
7.3
6.6
7.8
N.A.
List Price
(4/lb)
12.00
10.50
10.50
12.50
12.50
11.75
11.75
12.50
10.25
10.25
10.00
12.50
SOURCES: U.S. Department of Commerce, Chemical Marketing Reporter.
217
-------
by 1971. Actual prices increased in 1973 and list prices have subse-
quently increased and very probably there has been an additional increase
in actual prices reflecting increased costs of chlorine and methane.
The demand for and its value as an excellent solvent has probably contri-
buted to this price pattern. Industry capacity utilization had not been
tight prior to 1973, as shown in Table XI-7. However, in 1973 capacity
became a restrictive factor and nominal supply may be limited by availa-
bility of easily convertible facilities, the availability of chlorine,
and demand for other chlorinated methanes.
4. Supply/Demand Balance
Industry capacity has historically kept pace with demand, as
shown in Table XI-7. However, it is currently being stretched by demand.
Du Pont and others have new large chlorinated hydrocarbon facilities
scheduled to come on-stream in 1974 to produce for captive consumption.
If prices for methylene chloride rise, additional supplies can be
expected from these.
C. ECONOMIC IMPACT
1. Treatment Costs
The development document supplies the treatment costs for plants
producing chloromethanes by the thermochlorination process for a plant
with the capacity of 358,000 pounds per day of product. The document
specifies that a free standing plant of the size would incur a cost of
. 17
-------
TABLE XI-7
INDUSTRY OPERATING CAPACITY - METHYLENE CHLORIDE
(million pounds)
Year Capacity1 Production % of Capacity
1963 - 148.0
1964 - 179.6
1965 250 210.8 84
1966 - 267.2
1967 335 262.3 78
1968 - 302.6
1969 - 366.0
1970 - 402.2
1971 490 401.2 82
1972 - 471.3
1973 532 520.7 98
1. Capacities are flexible since some processes produce more
than one product.
SOURCES: Chemical Marketing Reporter, U.S. Department
of Commerce.
219
-------
gallons per day complex. The cost to achieve BAT would be . 07
-------
3. Plant Shutdown Impact
Since the industry should be able to pass on the treatment costs
through price increases, it is not expected that there will be any plant
shutdowns on the basis of the water treatment costs provided us. Also,
the relatively low level of AT treatment costs in relation to industry
profitability, the positive cash flow, and the magnitude of the invest-
ment in treatment facilities compared to the net fixed investment support
this conclusion. The free standing plants are at a modest economic dis-
advantage because of the economies of scale of the treatment costs, but
as we expect cost pass through on the basis of a free standing plant, no
closures of free standing plants are indicated.
Several of the methylene chloride producers are integrated with
chlorine production facilities, although overall, the industry integration
is low. Chlorine production facilities are also faced with water treat-
ment costs where marginal plants may be subject to shutdown. As a result,
if any of the methylene chloride producers are integrated with a mar-
ginal chlorine facility, the methylene chloride facility could be subject
to shutdown except if competitive alternative raw material supplies are
available.
4. Balance of Payments
No effect is foreseen for the balance of payments.
221
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XII. CHLOROFORM FROM METHANE CHLORINATION
(CHC13)
A. SUMMARY
Chloroform is produced in the United States primarily for use as
an intermediate in fluorocarbon gas and resin production. Its largest
application is in the manufacture of fluorocarbon refrigerants and
propellant gas which consumes over half of the annual production.
Current value of chloroform production is $14 million. Less than 25%
of annual production is used captively.
Production of chloroform is dominated by one major organic chemical
manufacturer which has nearly 50% of the total market for chloroform.
Three major producers share 80% of the total market.
Growth of chloroform consumption has averaged 9.2% over the past
ten years with a 6.8% average annual rate over the past five years.
We estimate future demand will increase at 5% per year unless fluoro-
carbon use based on chloroform is restricted due to environmental considera-
tions. Prices have been stable but substantially discounted from list.
A summary of factors affecting price increases and plant shutdowns
is provided in Table XII-1. Effluent treatment costs required to meet
both BPT and BAT guidelines are moderate even for a free standing plant
and can probably be passed through in the form of higher prices. A
2.6% increase in the 1973 price will be required to cover the cost of
meeting the BPT regulations, and 3.3% will be the price increase required
to comply with BAT guidelines. We do not anticipate any plant shutdowns,
and no effect on the U.S. balance of payments are foreseen as a result
of the water treatment guidelines.
222
-------
TABLE XII-1
CHLOROFORM FROM METHANE
Ml Processes:
1972 Production (Million Pounds)
1973' Unit Value (
-------
TABLE XII-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
'•'•V' •' /
B.P.T.
DAT1
xi • n. i. .
-
.. ' • .;••
;i;-.:C-V "-.-•/
•V • •.-.-:.•.• . '..;..:.' - .'..
1.6-6.8%
2.4 - 8.8%
Positive
1.5-5.9%
1.9- 7.7%
Low
Isolated & Complex
Air pollution & OSHA
None
Multi-Industry
224
-------
B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size
The chloroform market is today the smallest of the four
chlorinated methane markets but was one of the first organic chemicals
produced on a large scale in the United States. Prior to World War II,
chloroform was used mainly as an anesthetic and in pharmaceutical pre-
parations which required only 2-3 million pounds per year. However,
use as an intermediate for the production of fluorocarbon gasses
(fluorocarbon 22) and fluoroplastics has increased the market size from
3 million pounds in 1940 to about 265 million pounds in 1974. Production
in 1973 was officially recorded as 253 million pounds as shown in
Table XII-2. Imports are probably negligible and exports are not
recorded separately. We have assumed apparent consumption, as shown
in Table XII-2 to equal production.
b. Growth
U.S. production of chloroform has grown at an average
annual rate of 9.2% between 1963 and 1973. Growth over the last five
years has been only 6.8% t>er year and at an even lower rate since 1970.
Ultimately the demand for chloroform depends on the demand for
refrigerating equipment and for fluorocarbon plastics. We forecast
demand will grow at an average rate of 5% per year over the next five
years with the largest proportional increase from the increased pro-
duction of fluorocarbon polymers. Demand could, however, be dramatically
reduced should the Environmental Protection Agency restrict the use of
fluorocarbon 22, manufactured from chloroform and used as the working
fluid in refrigeration equipment.
225
-------
TABLE XII-2
PRODUCTION FOREIGN TRADE, & APPARENT CONSUMPTION OF CHLOROFORM
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973p
Production
105.2
119.2
152.5
179.0
190.0
180.8
216.2
239.9
230.8
234.7
252.8
1 mports
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Exports
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Not Reported Separately
Apparent
Consumption
105.2
119.2
152.5
179.0
190.0
180.8
216.2
239.9
230.8
234.7
252.8
P — Preliminary
SOURCE: U.S. Department of Commerce
226
-------
c. Uses
Consumption by end use is shown in Table XII-3. Virtually
all chloroform is consumed as a chemical intermediate. In 1972, 60%
was consumed as an intermediate in the manufacturing of fluorocarbon
refrigerants and propellants with chlorodifluoromethane being the most
important product. These fluorocarbons are the working fluids in air
conditioning and industrial refrigeration systems. The second area
of importance consuming 19% of 1972 production is as an intermediate
in the production of polyethylene tetrafluoride or Teflon . Other areas
account for 21% with medical and pharmaceutical end uses accounting for
less than 10% and declining. We estimate fluorocarbon refrigerants
based on chloroform will grow at approximately 4% per year, fluorocarbon
resins at 8%-10% per year, while miscellaneous uses will decline at about
2% per year over the next five years.
d. Substitute Products
As an intermediate for fluorocarbon gasses and plastics,
chloroform has no practical substitute products. These products them-
selves cannot easily be substituted, although fluorocarbon plastics can
be replaced in some cases by other high performance polymers. However
in medical and pharmaceutical applications, many substitute products
are available and are currently replacing chloroform in these end uses.
e. Captive Requirements
Even though chloroform is used as a chemical intermediate,
captive use is less than 25%. Captive use has only been above 25% in
two years since 1963 as shown in Table XII-4.
227
-------
TABLE XI1-3
CONSUMPTION OF CHLOROFORM BY END USE
End Use % of Total - 1972
Fluorocarbon Refrigerants & Propellants 60
Fluorocarbon Resins 19
Miscellaneous1 21
Total 100
1. Includes use of chloroform as extraction and general solvent, and as an
intermediate in preparation of dyes, drugs and pesticides.
SOURCE: Chemical Economics Handbook
228
-------
TABLE XI1-4
PRODUCTION, SALES & CAPTIVE USE FOR CHLOROFORM
(million pounds)
Year Production Sales Captive Use1
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973p
P — Preliminary
105.2
119.2
152.5
179.0
190.9
180.8
216.2
239.9
230.8
234.7
252.8
77.3
98.1
143.6
143.6
135.8
139.9
172.2
174.9
183.2
202.8
243.8
27.9
21.1
35.4
35.4
55.1
40.9
44.0
65.0
47.6
31.9
9.0
1. Includes stock changes.
SOURCE: U.S. Department of Commerce
229
-------
f. Other Market Requirements
Competition in the chloroform industry is on a price basis
since most is a commodity product consumed as an intermediate in other
chemical production. For these uses, quality is standard and supply
has been more than sufficient.
g. Foreign Competition
Imports of chloroform have been negligible and exports are
not reported separately. Most exports are for the production of fluoro-
carbon refrigerant gasses abroad. With supplies close to capacity in
the United States, it is not likely that exports will grow faster than
production unless a significant price and/or cost differential develops.
Foreign trade nevertheless is not too attractive since shipping costs
for these very heavy, low-priced chemicals are a relatively high pro-
tion of value.
2. Supply Characteristics
a. Manufacturing Routes
(1) Chlorination of Methane
Virtually all chloroform is produced via chlorination
of methane. As mentioned in other reports, a single product is not
produced in this process but rather a mixture of all possible chlorinated
methanes.
The primary problem with this manufacturing process is
the large quantity of hydrogen chloride evolved which is either scrubbed
with water, concentrated and sold as aqueous hydrochloric acid or is
oxidized to chlorine and recycled.
230
-------
b. Producers
Currently, six producers have a capacity of 308 million
pounds as shown in Table XII-5; however, as for all chlorinated methanes,
this capacity must be considered flexible and can be expanded or other-
wise utilized as market conditions demand. Dow is the leading supplier
of chloroform with 42% of the current market. Dow, Stauffer and Vulcan
together share 80% of the market.
c. Manufacturing Costs
Costs for the production of the chlorinated methane
products are in the section on methyl chloride from methane. Chloro-
form costs are in the same section and are estimated based on the
allocation of manufacturing costs among the various products manu-
factured by methane chlorination.
3. Prices
List prices historically have been relatively stable for
chloroform, but large quantity contracts have typically sold at large
discounts from list as shown in Table XII-6. Actual prices slowly
slid from 9c per pound in 1963 to about 6$ per pound by 1971 as pro-
duction more than doubled. Prices then increased in 1972 and 1973
to 6.6c per pound. In 1974 actual prices have probably risen
reflecting higher raw material costs and tighter supplies. As with other
chlorinated methane derivatives, actual prices will very probably remain
higher because of higher raw material costs but manufacturing profit
margins may not correspondingly increase over the long term.
231
-------
TABLE XI1-5
CHLOROFORM
Producer
Allied Chemical
Diamond Shamrock
Dow
Dow
DuPont
Stauffer
Vulcan
Vulcan
Total
Location
Moundsville, West Virginia
Belle, West Virginia
Freeport, Texas
Plaquemine, Louisiana
Niagara Falls, New York
Louisville, Kentucky
Newark, N.J.
Wichita, Kansas
Capacity from Methane, CI2
% of Total
Annual
Capacity
(MM Ibs)
30
18
100
30
15
75
10
30
308
308
100%
Raw Material
Methane, CI2
Methane, CI2
Methane, CI2
Methane, CI2
Methane, CI2
Methane, CI2
Methane, CI2
Methane, CI2
SOURCE: Chemical Profile, April 1, 1974.
232
-------
TABLE XII-6
ACTUAL VS. LIST PRICES - CHLOROFORM
Sales
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Quantity
(MM Ibs)
77.3
98.1
123.3
143.6
135.8
139.9
172.2
174.9
183.2
202.8
243.8
N.A.
Value
($MM)
7.0
8.2
9.9
10.8
10.1
9.8
10.8
10.7
11.4
13.4
N.A.
N.A.
Unit Value
(4/lb)
9.0
8.0
8.0
8.0
7.0
7.0
6.0
6.2
6.2
6.6
6.6
N.A.
List Price
U/lb)
17.0
17.0
17.0
17.0
17.0
17.0
17.5
17.5
17.5
17.5
17.5
17.0
SOURCES: U.S. Department of Commerce, Chemical Marketing Reporter.
233
-------
4. Supply/Demand Balance
Industry capacity has historically kept pace with demand as
shown in Table XII-7. However, raw material supply, especially of
chlorine, caused tight supplies in the first half of 1974. The tight
supply situation may be eased by expected drops in construction
activities which may result in lowered sales of industrial air con-
ditioning and refrigeration system and, indirectly, chloroform and
other fluorocarbon intermediates.
C. ECONOMIC IMPACT
1. Treatment Costs
The treatment costs for the production of chloroform are
assumed to be identical to the costs provided for methyl chloride in
the section dealing with methyl chloride. The costs for BPT range
from . 04
-------
TABLE Xtl-7
INDUSTRY OPERATING CAPACITY - CHLOROFORM
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Capacity1
136
228
234
285
285
308
Production
105.2
119.2
152.5
179.0
190.9
180.8
216.2
239.9
230.8
234.7
253.0
% Capacity
88
84
77
84
88
1. Capacities are flexible since some processes produce more than one product.
SOURCES: Chemical Marketing Reporter, U.S. Department of Commerce.
235
-------
BAT water treatment costs through small price increases of 2.6% of
1973 price by 1977 and 3.3% of 1973 price by 1983. These increases
should not jeopardize the competitive position for chloroform. Also,
these factors mitigate the impact of other price increase constraints
such as low captive usage, low demand growth and price as the basis for
competition. The impact of unequal abatement costs for free standing
plants and plants in a large chemical complex is also minimized because
the treatment costs represent such a small percentage of the selling
price.
3. Plant Shutdown Impact
The plant shutdown impact is interrelated with the treatment
costs and price impact on the other chloromethane coproducts. However,
we believe that the industry should be able to pass on treatment
costs through price increases for chloroform. Since treatment
costs for methylene chloride, chloroform and carbon tetrachloride can
be passed on as price increases, the contractor does not expect that
there will be any plant shutdown as a result of the water treatment
costs. Also, this conclusion is supported by such factors as the
relatively low after tax treatment cost relative to net income, the
positive cash flow, and the magnitude of investment in treatment
facilities relative to the fixed investment. Free standing plants
with higher treatment costs relative to plants located in large chemical
complexes should be able to fully recover costs through price increases.
As with the production of methylene chloride, chloroform pro-
duction is often integrated with chlorine production facilities. The
plant shutdown decision, as discussed previously, will most probably
be dependent on the decision to install effluent controls for the
chlorine facility unless alternative raw material supplies are available.
Also, air pollution and OSHA requirements may place additional burdens
on chloroform producers which would influence the plant shutdown decision.
236
-------
4. Balance of Payments
No effect Is expected on balance of payments.
237
-------
XIII. CARBON TETRACHLORIDE FROM METHANE
(CC14)
A. SUMMARY
Carbon tetrachloride is produced in the United States principally
as an intermediate used in the manufacture of fluorocarbon 11 and 12.
Current value of carbon tetrachloride production is about $60 million.
Less than 15% is consumed captively; however, a recent large capacity
methane chlorination plant introduced by DuPont may change this sub-
stantially.
Production of carbon tetrachloride is dominated by four major
organic chemical manufacturers who share 95% of the total market.
Growth of carbon tetrachloride consumption has averaged 7.3% over
the past ten years. Prices have been stable and low during this time
period. We estimate future growth at an average rate of 6% per year
over the next five years.
A summary of factors affecting price increases and plant shutdowns
is provided in Table XIII-1. Effluent treatment costs required to
meet both BPT and BAT guidelines are moderate and can probably be
passed through in the form of higher prices. A 2.8% increase in the 1973
price will be required to cover the cost of meeting the BPT regulations
and 3.7% will be the price increase required to comply with BAT guide-
lines. We do not anticipate any plant shutdowns, and no effect on the
U.S. balance of payments is foreseen as a result of the water treatment
guidelines.
238
-------
TABLE XIII-1
CARBON TETRACHLORIDE FROM METHANE
All Processes:
1972 Production (Million Pounds)
1972 Unit Value (C/Lb)
1972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
997
6
60
11
0.6 - 2.8%
1.0-3.7%
Direct — Low
Secondary — Low
1972 -high
1973 — low including all
capacities
Low (about 15%)
6%/year
Low
Unequal
Low
Price
Cone. - 2 Producers hold 60%
6
1 : from CS2
239
-------
TABLE Xlll-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
'•:/•,•'' " -•' -'.
B.P.T.
BA T*
* /!.. X •
'•>../•". ;.l " v* -•*• " ' •
2.3 - 9.9%
3.5-12.9%
Positive
1.5-5.9%
1.9-7.7%
Low
Isolated & Complex
Air pollution and OSHA
None
Multi- Industry
240
-------
B. INDUSTRY BACKGROUND
1. Market Characteristics
Size
The market for carbon tetrachloride is the largest of all
the chlorinated methanes. Prior to World War II, large quantities were
consumed by the dry cleaning trade, but carbon tetrachloride steadily
lost ground to perchloroethylene in this application. However, -during
and immediately after World War II, production of fluorocarbon gasses
based on carbon tetrachloride began and today this is carbon tetra-
chloride1 s most important use. This change in chloride production
from 100.8 million pounds in 1940 to over 1,049 million pounds in
1973 is shown in Table XIII-2. Production in 1977 is estimated to
reach 1,350 million pounds. Apparent consumption is assumed to be
domestic production plus imports.
b. Growth
U.S. production of carbon tetrachloride has grown at an
average annual rate of 7.3% over the past decade and 6.8% over the past
five years. However, market growth since 1970 has been much lower.
Future growth is anticipated to continue at about 6% per year through
1977 but this depends on demand for fluorocarbons continuing to increase
at about 6% per year.
Uses
Virtually all carbon tetrachloride is consumed as an inter-
mediate in fluorocarbon production. About 80% of the total 1972 pro-
duction was consumed in the domestic production of fluorocarbon 11 and 12
manufacture as shown in Table XIII-3. Although exact data on exports ^s
not available, a large portion.of the other end-use area is attributable
to exports for foreign fluorocarbon 11 and 12 production.
241
-------
TABLE XI11-2
PRODUCTION, FOREIGN TRADE AND APPARENT CONSUMPTION OF
CARBON TETRACHLORIDE
(million pounds)
Apparent
Year Production Imports Exports Consumption
1963 519.2 2.5 Not Reported Separately 521.7
1964 535.9 7.9 Not Reported Separately 543.8
1965 593.6 10.0 Not Reported Separately 603.6
1966 648.0 10.7 Not Reported Separately 658.7
1967 713.6 5.0 Not Reported Separately 718.6
1968 763.4 4.2 Not Reported Separately 767.6
1969 882.7 0.2 Not Reported Separately 882.7
1970 1,011.2 0.1 Not Reported Separately 1,011.3
1971 1,009.2 NEC Not Reported Separately 1,009.2
1972 996,7 11.8 Not Reported Separately 1,008.5
1973 1.049.0 7.5 Not Reported Separately 1,056.5
SOURCE: U.S. Department of Commerce.
242
-------
TABLE XIII-3
CONSUMPTION OF CARBON TETRACHLORIDE BY END USE
End Uie % of Totd - 1971
Fluorocarbon 11 28
Fluorocarbon 12 52
Other1 20
Total 100
1. Includes: exports and uses as solvents, grain fumigant, pesticide
intermediate, gasoline additive, and fire extinguisher intermediate.
Industries indicate that fastest growing use in other category is ex-
port to countries producing fluorocarbons. Although exports data
are not available, it probably accounts for a large percentage of the
other usage.
SOURCE: Chemical Economics Handbook.
243
-------
Other areas of importance include use as a spot dry
cleaning solvent, grain fumigant, industrial degreasing solvent, and
as a component in fire extinguishers for chemical, oil and electrical
fires.
d. Substitute Products
There are few substitute products for carbon tetrachloride
since it is a critical chemical intermediate in fluorocarbon synthesis.
However, the fluorocarbon products do compete among themselves for
certain end uses. All fluorocarbons of interest use some form of
halogenated methane or light hydrocarbon as a starting material, so
relative costs tend not to change. Therefore, selection of a fluoro-
carbon gas or liquid usually relies more on physical and chemical
properties than price. The most common uses of the fluorocarbon
gasses 11 and 12 are as a refrigerant, insulation in conjunction with
urethane foam and as an aerosol propellant. There are few acceptable
competitive materials for these end uses; e.g., methyl chloride and
fluorocarbons, which have dominated these end uses and probably will
continue to dominate the market. Propane and vinyl chloride monomer
which have competed for the aerosol market pose significant consumer
hazards. We estimate the demand for fluorocarbon 11 and 12 will
increase at an average rate of 6% per year over the next five years.
e. Captive Requirements
Even though most carbon tetrachloride is consumed as a
chemical intermediate, captive use has typically been less than 20%.
Only in 1971 did captive requirements reach 20% and in 1972 fell
precipitously to around 6% as shown in Table XII-4. However, DuPont
plans a large expansion of its fluorocarbon capacity in Corpus Christi,
Texas, and this will increase captive usage substantially. Few other
producing companies appear integrated forward into fluorocarbon pro-
duction.
244
-------
TABLE XII1-4
PRODUCTION, SALES AND CAPTIVE USE FOR
CARBON TETRACHLORIDE
(million pounds)
Year Production Sales Captive Use1
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
519.2
535.9
593.6
648.0
713.6
763.4
882.7
1,011.2
1,009.2
996.7
1,047.3
421.1
464.5
509.4
615.4
605.6
647.8
785.9
841.2
797.0
930.2
989.4
98.1
71.4
84.2
32.6
108.0
115.6
96.8
170.0
212.2
66.5
57.9
1. Includes stock changes
SOURCE: U.S. Department of Commerce
245
-------
f. Other Market Requirements
The margin on carbon tetrachloride is quite narrow and
pricing is largely on a negotiated basis. Since most nonpharmaceutical
applications require the same quality materials, and since the users
are a few large fluorocarbon producers, competition is strictly on a
price and product availability basis.
g. Foreign Competition
Imports have ranged between near negligible levels to about
10 million pounds. Imports and exports have not been a major factor
in this industry. However, the export activity which does exist,
largely depends on foreign fluorocarbon production and probably
accounts for a substantial amount of the "other" end-use category.
2. Supply Characteristics
a. Manufacturing Routes
There are two major manufacturing routes used today with
chlorination of carbon disulfide being the oldest and currently least
attractive and chlorination of hydrocarbons being the newest and most
attractive.
(1) Chlorination of Carbon Disulfide
The principal advantages of this process are that it
forms no byproducts or coproducts, other than reusable sulfur, and
the separation and purification of the carbon tetrachloride is easier.
However, the plants for this conversion are complex and the lead lined
reactors are expensive.
246
-------
(2) Chlorination of Hydrocarbons
Reaction of chlorine gas and methane produces carbon
tetrachloride as one of four possible products. The percent composition
of carbon tetrachloride can be varied by changing reaction conditions
and when optimized for carbon tetrachloride production, perchloroethylene
is the principal coproduct.
When ethylene is substituted for methane in this process,
perchloroethylene becomes the main product and carbon tetrachloride
becomes one of a group of coproducts, including hexachlorobutadiene,
hexachloroethane and hexachlorobenzene.
b. Producers
Currently, six producers have a capacity of 1,578 million
pounds as shown in Table XIII-5, however, this capacity must be con-
sidered flexible. Only the CS2 route is limited to carbon tetrachloride
production. Four major producers dominate the market, sharing 95% of
the market between them. Of these, DuPont and Stauffer Chemical are the
largest and share nearly 60% of the total market.
c. Manufacturing Costs
Costs for the production of the chlorinated methane products
are in the section covering methyl chloride from methane. Carbon tetra-
chloride costs are also in the section on methyl chloride and are estimated
based on the allocation of manufacturing costs among the various products
production by methane chlorination.
247
-------
Du Pont
Stauffer
TABLE XIII-5
CARBON TETRACHLORIDE
Producer
Allied Chemical
Dow Chemical
Stauffer
Vulcan
Location
Moundsville, West Virginia
Freeport, Texas
Pittsburg, California
Plaquemine, Louisiana
Louisville, Kentucky
Geismar, Louisiana
Wichita, Kansas
Annual
Capacity
(MM Lbs)
8
130
45
100
70
35
40
Raw Material
Methane-CI2
Methane-CI2
Co-Product
Co-Product
Methane-CI2
Methane-CI2
Methane-CI2
& Co-Product
& Co-Product
& Co-Product
FMC - Allied South Charleston, West Virginia
Corpus Christi, Texas
300
500
Lemoyne, Alabama
Niagara Falls, New York
Total
Capacity base on hydrocarbon
Chlorination
Percent of Total
200
150
1,578
1,148
73%
CS2 and Methane-CI2
Methane-CI2
Co-Product with
Perchloroethylene
CS2
CS2
SOURCES: Chemical Profile, January 1, 1973; Directory of Chemical Producers, 1974 Edition.
248
-------
3. Prices
Prices historically have been stable bat low for carbon tetra-
chloride. Most carbon te.trachlorlde is sold In large quantities to
large fluorocarbon producers in long-term contracts. The prices are
negotiated and are discounted from list as shown in Table XIII~6.
Actual prices probably increased in 1974 due to the rising cost of raw
;aaterials. Prices will In all pj.oL iblJ i *y remain higher but manufacturing
profit margins will probably not significantly change over the next
five years.
^_L-_ Supply/Demand Balance
Capacity utilisation -.lit ring the early to mid-1960's has been
normal for chlorination hydrocarbons but became tight during the late
1960's as shown in Table XI1T-7. DuPout's Corpus Christ! facility
lowered capacity utilization to less than 70%. However, DuPont plan.?
to utilize this capacity in several stages, thus helping to ease dis-
locations in the marketplace.
In spite of the large capacity excess, chlorine and availability
may restrict supply which, coupled with an incraase in demand for fluoro-
carbons, may make supplies relatively tight for the next one or two
years.
C. ECONOMIC IMPACT
1. Treatment Costs
The treatment costs for the production of carbon tetrachloride
are assumed to be identical to the costs provided for the other chloromethane
products. The costs for BPT range from .17c per pound in a free
standing complex to . 04
-------
TABLE XIII-6
ACTUAL VS. LIST PRICE - CARBON TETRACHLORIDE
Sales
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Quantity
(MM Lb)
421.1
464.5
509.4
615.4
605.6
647.8
785.9
841.2
797.0
930.2
989.4
N.A.
Value
<$MM)
32.3
33.7
37.5
42.2
37.3
37.0
42.7
44.1
43.7
54.8
59.5
N.A.
Unit Value
(tf/lb)
8.0
7.0
7.0
7.0
6.0
5.7
5.4
5.2
5.5
5.9
6.0
N.A.
List Price
U/lb)
10.75
10.75
10.75
10.75
10.75
10.75
11.25
11.25
11.25
11.25
11.125
12.00
SOURCE: U.S. Department of Commerce
250
-------
TABLE XIII-7
INDUSTRY OPERATING CAPACITY
(million pounds)
Year Capacity1 Production % Capacity
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
_
-
-
-
-
-
918
1,078
1,078
1,078
1,578
519.2
535.9
593.6
648.0
713.6
763.4
882.7
1 ,01 1 .2
1 ,009.2
996.7
1 ,049.0
_
-
-
-
-
-
96
94
94
92
66
1. Capacities are flexibt si.ice some processes
produce more than one product.
SOURCES: Chemical Economics Handbook,
U.S. Department of Commerce.
251
-------
per pound for a free standing complex and a large complex (10 million
gallons per day effluent) respectively.
Investment required ranges an estimated 1.5% to 5.9% of
existing fixed investment to achieve BPT. It ranges between 1.9% and
7.7% to achieve BAT guidelines depending on whether the plant is in
free standing condition or in a large effluent treatment complex.
2. Price Impact
Before tax BAT treatment costs represent only 3.7% of the 1973
selling price for a free standing plant and 1.0% for a plant in a large
chemical complex. We forecast price pass through based on the costs of a
free standing producer. Although capacity utilization is low, demand
growth is low, and the basis for competition is price, these factors
are outweighed by the fact that there are no real substitution products,
market share is heavily concentrated between two producers and foreign
competition is low. The capacity utilization figure may be deceptive
because of the flexibility producers have in shifting production to other
products which are more profitable, although this flexibility is limited
by the demand for other chloromethane products. Also, a new plant by
DuPont did not begin production until mid-1973 so that the industry
capacity and capacity utilization are overstated. Free standing plants
may be unable to fully recover treatment costs because of the unequal
abatement costs relative to plants located in large chemical complexes
although we believe this unlikely since the before tax treatment costs
represent such a small percentage of the selling price it mitigates
the apparent differential in abatement costs.
3. Plant Shutdown Impact
As indicated previously, the plant shutdown decision is inter-
related with the water treatment cost impact on the other chloromethane
coproducts. Since producers of methylene chloride, chloroform and carbon
252
-------
tetrachloride by thermal chlorination can pass on treatment costs as
small price increases, it is not expected that carbon tetrachloride
producers will shut down. Also, the level of after tax treatment costs
relative to profitability indicate that cost increases could, if
necessary, be absorbed to some degree by the industry. This favorably
affects producers with free standing plants which would be faced with
higher treatment costs relative to producers with plants in large
chemical complexes, and therefore, may not be able to fully recover
through price increases. In addition, the positive cash flow and the
relatively low level of treatment costs in relation to the fixed invest-
ment, support the conclusions that there will be no plant shutdowns.
On the other hand, if the chloromethane plant producing carbon
tetrachloride is integrated with a marginal chlorine production facility,
the decision to shut down the plant may well be dependent on the decision
to install facilities for control of the effluent from the chlorine
facility. Also, as previously indicated, the shutdown decision may be
affected by any pollution and OSHA requirements which are beyond the
scope of this study.
4. Balance of Payments
No impact on the balance of payments is foreseen.
253
-------
XIV. CALCIUM STEARATE BY NEUTRALIZATION
AND PRECIPITATION
A. SUMMARY
In 1972, production of calcium stearate was 42.8 million pounds, a
figure which capped a period of average annual growth of 15% per year.
Calcium stearate finds a variety of uses, but the single largest use
(50% of total consumption) is as a stabilizer and internal lubricant in
plastic compounding, particularly for PVC. Other major uses include
paper coating, general surface coatings, and numerous other applications.
Calcium stearate is produced by two processes - precipitation and
fusion. Precipitation is used to produce a dry, pure powder final pro-
duct which is used in plastics and other applications. Fusion manufacture
is less expensive and yields a 50% water dispersion of calcium stearate
of lower quality. Dispersion product is mostly used in paper applications.
There are currently eleven producers operating fourteen plants.
Supply of calcium stearate is currently tight, but not restricted.
Capacity utilization is presently estimated in excess of 90%, but new
capacity is expected to be brought on line within a year or two. Prices
at mid-1974 were at historical highs due to raw material price increases
and the present tight supply situation.
The costs to achieve BPT and BAT guideline specifications in a free
standing plant are 1.4
-------
TABLE XIV-1
PRECIPITATED CALCIUM STEARATE
Ml Processes:
972 Production (Million Pounds)
973 Unit Value (C/Lb)
L972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
38
48
13
13
1.8-3.8%
3.2-5.1%
Low
High
Low - 8%
8%/yr
Low
-
Low
Price & Service
Fragmented
11
None for precipitated. Also pro
cess for fused product — lower
grade.
-------
TABLE XIV-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
B.P.T.
t> * T*
LI . t\, J. .
- -
-
16.7%
22.3%
t
Positive
116%
158% !
Low
Isolated Plant
Few
Moderate
Multi-Industry
256
-------
B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size and Growth
In 1972, production of calcium stearate was 42.8 million
pounds. This amount was a record high for the industry and marked a
strong comeback from the period 1967-1970, when production and apparent
consumption remained nearly level. Table XIV-2 summarizes recent production
history for calcium stearate and shows that from a small base of only
10.8 million pounds in 1963, calcium stearate consumption grew at an
average annual rate of 15% per year. The rapid growth rate can be
largely attributed to calcium stearate's increasing usage in plastics,
particularly PVC. From approximately 35% of total consumption in 1963,
use in plastics had increased to about 50% of total consumption by 1972.
Exports and imports of calcium stearate are probably negligible and are
not reported separately from other stearates in U.S. Tariff Commission
data.
b. Uses
The primary end use for calcium stearate is in plastics.
Table XIV-3 gives a breakdown of end uses. In plastics applications,
stearate is used as an internal lubricant to improve the processing
:57
-------
TABLE XIV-2
PRODUCTION, FOREIGN TRADE, AND APPARENT CONSUMPTION
FOR CALCIUM STEARATE
(million pounds)
Apparent
Year Production Exports' Imports' Consumption
10.8
11.0
12.7
19.0
20.8
16.4
26.9
23.3
26.9
37.8
42.8
Note: 1. Exports/Imports not reported separately, believed negligible.
SOURCE: U.S. Tariff Commission
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
10.8
11.0
12.7
19.0
20.8
16.4
26.9
23.3
26.9
37,8
42.8
258
-------
TABLE XIV-3
CALCIUM STEARATE END USE PATTERN
% of Total Consumption
Plastics 50
Paper 22
Food, Drug, & Cosmetics 8
Paint & Varnish 4
Other 16
SOURCE: Contractor's Estimates
259
-------
characteristics of the plastic resin, particularly in extrusion and in-
jection molding operations. Calcium stearate also serves as a mold re-
lease agent and as a stabilizer in plastics and rubber processing. PVC
is the major resin in which calcium stearate is used, and it has enjoyed
significant growth in the 1970's in pipes and other rigid extrusions.
The most potentially severe obstacle to continued growth in this application
is the future growth in demand and availability for PVC resin.
We estimate tight supply of PVC resins due to OSHA requirements over
the next two years and long-term growth at 5-6% per year. Calcium
stearate in plastics is forecast to grow at 7% per year.
Another major use is in the manufacture of coated paper and
paperboard. Here, calcium stearate is used to promote smooth, uniform
coatings and to reduce friction in blade coating operations. Forecast
growth in this application is at 5% per year. Other major uses are in
food, drug and cosmetics applications, where calcium stearate is commonly
used as a moisture barrier coating and in pharmaceutical pill and tablet
manufacture as a mold release agent. Calcium stearate also finds numerous
other uses in coatings, greases, metal lubrication, and in other areas.
All other uses are forecast to grow at 5% per year to provide an
overall growth in demand at 6% per year over the next five years.
c. Substitute Products
Calcium stearate generally is not prone to substitution by
other products. What potential threat of substitution it does encounter
comes mostly from other stearates, especially zinc stearate. The primary
reason for few substitute products lies in the fact that calcium stearate
frequently plays a dual role in its use - that of a stabilizer as well
as an internal lubricant. These properties are especially important in
plastics, where calcium stearate performs not only as a lubricant, but
also as an anti-degradation agent for the polymer system. This dual role
is not easily duplicated by any single substitute product.
-------
d. Captive Requirements
Table XIV-4 summarizes production, sales and captive requirement
data. No specific data is available regarding annual changes in stock
levels, so that the last column in Table XIV-4 is actually a mixture of
captive consumption and stock changes. Stock changes, however, are
probably insignificant from year to year. In any case, captive consump-
tion has not accounted for more than 8.2% of total industry production.
Industry contacts confirmed that captive consumption is quite low.
2. Supply Characteristics
a. Manufacturing Routes
Production of calcium stearate is carried out by two basic
processes, depending on the final product form desired. The precipi-
tation process produces a fine, pure powder form of calcium stearate
which is easily dried for recovery. This process utilizes a two-step
reaction sequence to produce first, a metallic soap, then the desired
stearate salt, as shown:
1. R-COOH + NaOH— >• R-COONa + H20
Stearic Acid Caustic Metallic
Soap
2. 2R-COONa + CaCl2 -*• Ca(OOC-R)2 + 2NaCl
Metallic Soap Calcium
Stearate
The product from this process is very pure and is typically used in dry
applications such as plastics.
261
-------
TABLE XIV-4
PRODUCTION, SALES, AND CAPTIVE USE OF CALCIUM STEARATE
(million pounds)
Inventory Change
Year Production Sales and Captive Consumption
.15
.62 <
.35
(.95)
1.40
1.30
2.20
.34
1.90
(.23)
(.03)
SOURCE: U.S. Tariff Commission
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
10.8
11.0
12.7
19.0
20.8
16.4
26.9
23.3
26.9
37.8
42.8
10.7
10.4
12.3
19.3
19.4
15.1
24.7
23.0
24.9
38.0
43.0
262
-------
The alternate production method is the fusion process which
gives a product that is less pure and slightly off-color, relative to
the precipitation process product, unless extremely high purity raw
materials are utilized. The process proceeds according to the following
reaction:
2R-COOH + Ca(OH)2-» Ca(OOC-R)2 + 2H20
Stearic Calcium
Acid Stearate
Industry sources indicate that, while product purity is lower, this
process is less expensive than precipitation and is used to produce
a 50% water dispersion form of calcium stearate which is sold into
paper and coating applications. Most producers, but not all, have
both processes and offer calcium stearate both in the powder and dis-
persion form.
b. Producers
Table XIV-5 summarizes calcium stearate production and their
plant locations. Individual plant capacities are not available, although
given the total size of the market, a typical plant is probably not very
large - averaging on the order of 3-4 million pounds per year. Most
calcium stearate manufacturers also manufacture other metallic stearates
in the same equipment.
Manufacturers are generally not integrated either forward or
backward to any significant degree. Most producers buy stearic acid
from separate fatty acid producers. The only end-use areas in which
calcium stearate producers do not participate are smaller, less important
applications such as resins and coatings.
263
-------
TABLE XIV-5
CALCIUM STEARATE PRODUCERS AND PLANT LOCATIONS
Producer
American Cyanamid Co.
Dart Industries
Diamond Shamrock
Diamond ihamrock
Ferro Corp.
Mallinckrrdt Cbem.
The Norac Co., Inc.
Original Bradford Soap Works
Tenneco, Inc.
Joseph Turner & Co.
Smith Chem. & Color Co., Inc.
Witco Chemical Clearing, Inc.
Witco Chemical Clearing, Inc.
Location
Woodbridge, New Jersey
Cleveland, Ohio
Cedartown, Georgia
Richmond, California
Baton Rouge, Louisiana
St. Lou s, Missouri
Lodi, New Jersey
West Warwick, Rhode Island
Piscataway, New Jersey
Ridgefield, New Jersey
Jamaica, New York
Los Angeles, California
Perth Amboy, New Jersey
Annual Capacity
(MM Ibs)
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
SOURCE: Directory of Chemical Producers, 1974 Edition
264
-------
c. Raw Materials
The most important raw material for calcium stearate pro-
duction is stearic acid. Both precipitation and fusion producers must
buy this fatty acid from outside sources. Industry contacts report
that supplies of stearic acid went through a period of rapidly escalating
prices and tight supply in early 1974, but that the situation stabilized
by mid-1974. Supplies in mid-1974 were tight but available, and prices
leveled at about double what they were a year previous. Other raw
materials for calcium stearate production were readily available.
>
d. Manufacturing Economics
Manufacturing economics for the production of calcium stearate
are presented in Table XIV-6, based on neutralization and precipitation of
stearic acid. Published prices for stearic acid were used in determining
raw material costs, which biases the production economics unfavorably
for the integrated producers. The capital investment in a plant with
27 million pounds per year capacity is estimated at $1.4 million.
3. Prices
Table XIV-7 summarizes recent price history for calcium stearate.
During the period, list prices were relatively stable but realized
prices have varied significantly. As in many other industries, the
realized price variability largely reflects supply/demand situations
prevailing at any one time. Calcium stearate prices show a leveling
and actual decline during the period 1965-1970 which corresponds to the
period when sales growth was slowed somewhat from earlier levels, In-
dustry sources report that prices in the 1970's have continued to advance.
Due to increased stearic acid costs and the current tight supply situation.
actual average prices in mid-1974 were probably over 60£ per pound.
265
-------
TABLE XIV-6
ESTIMATED MANUFACTURING COSTS FOR
PRECIPITATED CALCIUM STEARATE
Production Economics (Summer, 1973)
Product Calcium Stearate (By analogy to aluminum sulfate)
Process Lime phos. steanc acid
Capacity 2 MM Ib/yr Invest. $275,000' (1970 construction)
Costs
il\b Product
Stearic Acid 0.98 Ib @ 19
-------
TABLE XIV-7
ACTUAL VS. LIST PRICE HISTORY FOR CALCIUM STEARATE
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974 June
Sales
(MM Ibs)
10.7
10.4
12.3
19.3
19.4
15.1
24.7
23.0
24.3
38,0
42.8
List Price
U/lb)
39.0
39.0
39.0
39.0
39.0
39.0
39.0
42.0
45.0
45.0
48.0
57.0-61.0
Actual Price
(tf/lb)
28
28
34
27
26
31
32
35
37
33
37
N.A.
SOURCES: U.S. Tariff Commission, Chemical Marketing Reporter
267
-------
4. Supply/Demand Balance
Due to the lack of industry capacity data, it is not possible to
ascertain capacity utilization to any detail. Industry contacts report
that capacity utilization for the industry has been high and increasing
in the past two years. One source estimated current capacity utiliza-
tion in excess of 90%. Several capacity expansion projects are currently
underway and the present tight supply situation for calcium stearate is
expected to ease somewhat as new facilities become operative over the
next several years. In the relatively near term the industry may ex-
i
perience another cycle of excess capacity with reduced producers profit
margins. This overcapacity situation, we believe, will result primarily
from a slowdown in the rate of growth of demand resulting from a slowdown
in the demand for polyvinyl chloride resins which utilize calcium stearate.
C. ECONOMIC IMPACT
1. Treatment Costs
The costs required to achieve BPT and BAT guideline specifications
as presented in the guideline document for a free standing plant with an
80,000 pounds per day production capacity is 1.4 and 1.9C per pound re-
spectively. Substantially lower costs (0.8 and 1.2<: per pound) are
possible for those plants which are part of a complex with waste effluent
volumes of 3 million gallons per day. We estimate that most producers
in this industry produce calcium stearate in a free standing plant with
effluent volumes less than 3 million gallons per day.
The guideline document specifies a plant providing 80,000 pounds
per day or 27 million pounds per year, operating 345 days per year. As
this is such a large proportion of total annual U.S. production, we
268
-------
assume that the plant described is a multi-purpose facility producing
a number of relative products, but that the costs described for treat-
ment are applicable for the plant when producing calcium stearate.
2. Price Impact
Actual price behavior for calcium stearate has been erratic since
1963. Although actual processes have typically been less than list, dis-
counts have varied depending on supply and costs of raw materials.
Historically, prices have shown a pattern of passing through higher raw
material costs. List prices in mid-1974 were 57-61C per pound or 14c
per pound higher than 1972. As costs have risen, prices have similarly
risen to cover increased costs. This is probably principally due to
the relatively low price sensitivity shown by users of calcium stearate.
Its principal use is as a lubricant and stabilizer and as such is used
in very small quantities. Therefore, relatively large price increases
in calcium stearate do not substantially affect the total manufacturing
cost for those products which require calcium stearate. This condition
should continue in the future.
Other factors which will contribute to full treatment cost pass
through are the low occurrence of subsitute products, the high capacity
utilization and the moderate to high projected demand growth as indicated
in the matrix. We expect that these factors will continue to act in
favor of a pass through of effluent treatment costs as higher prices for
calcium stearate and that prices will increase by about 3% of 1973 prices
to meet BPT guidelines and 4% to meet BAT guidelines.
3. Plant Shutdown Decision
Since,as we expect, there will be no significant impact on net
income, we do not forecast any plant shutdowns by virtue of reduced income.
The major problem facing these producers is the high capital investment
-------
required to install treatment facilities. This is somewhat misleading,
however, since the treatment system is probably appropriate for treating
wastes from the manufacture of other stearates as well. Capital invest-
ment for a free standing plant treatment facility is $1,620,000 to meet
BPT guidelines and $2,490,000 to meet BAT specifications. These costs
are 116% and 158% of present net fixed investment for typical free
standing plants. Since current import duties are only 0.7C per pound
and 5% ad valorem, import duties are less than projected treatment costs
for free standing plants. It would, therefore, appear within reason
for calcium stearate producers to relocate overseas and ship the finished
product back into the United States. Normally, since most producers
are not highly integrated, there would be little commitment to remaining
a domestic producer. However, the major supply of stearic acid appears
to be the United States and producers might have to buy domestic stearic
acid for export then import the finished product. The double shipping
costs might well push the total costs significantly above the projected
treatment costs.
4. Foreign Competition
Imports of calcium stearate have been negligible. Unless domestic
producers relocate overseas, imports will continue as a minor force in
this industry. However, the high price increases anticipated for calcium
stearate versus the low import duties will make imports of calcium stear-
ate more important. However, the relatively low consumption per customer
and the need for regular, small quantity shipments of known quality
materials will favor domestic producers rather than imports. We expect
little impact on the U.S. balance of trade due to the requirements of
meeting the proposed effluent guidelines.
270
-------
XV. HYDRAZINE BY PARTIAL OXIDATION OF AMMONIA
A. SUMMARY
Limited data on hydrazine are available in published literature.
As a result, most information was obtained by industry contacts,
although because of the proprietary nature of much of the information
requested, limited data were available. In 1973, consumption of
hydrazine (N^H,) was estimated to be 9-10 million pounds. Major uses
are for rocket fuel, pesticides production, as a plastics blowing
agent, pharmaceutical manufacture, and as an oxygen scavenger in
utility boilers. Hydrazine is currently being substituted by monomethyl
hydrazine as a rocket fuel.
Hydrazine is produced by the reaction of sodium hydroxide, chlorine,
and ammonia. There are three domestic producers as well as additional
producers in Japan and Europe. Capacity utilization is currently high
and hydrazine is in tight supply. Captive consumption is significant,
primarily for pesticide and pharmaceutical production, and as a plastics
blowing agent.
The costs referred to achieve BPT and BAT guideline specifications as
presented in the guideline document for a free standing plant are 9.5c
and 11.2c per pound respectively. Although these appear relatively large,
the high captive consumption and the tight supply and demand balance will
permit full treatment cost pass through with no adverse effect on the
industry or U.S. balance of trade.
The impact matrix relative to hydrazine is provided in Table XV-1.
271
-------
TABLE XV-1
HYDRAZINE BY PARTIAL OXIDATION OF AMMONIA
\11 Processes:
972 Production (Million Pounds)
973 Unit Value (C/Lb)
1972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
I
10 ;
150
10
3
- i
6.3%
7.5%
Direct — High (Rocket Fuel)
Secondary - Moderate (Agchem
High
Moderate
8%
Low
-- I
I
Low
Price and Technology
Concentrated
3
None
272
-------
TABLE XV-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
"
B.P.T.
D A m
u .rv. x .
-
-
y;}":.''"' '•'•'.•• •' :'.'/:•.'••••
•m -"^. :::'", V:;::KJ:.;'
27.9%
56.2%
Positive
18.5%
19.1%
High
Isolated Plant
Few
High
Multi- Industry companies
273
-------
B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size and Growth
Consumption of hydrazine is not available in the published
literature, however, we estimate 1973 consumption of hydrazine (N0H,)
at 9-10 million pounds, which is primarily accounted for by domestic
production. Growth in consumption has probably been at less than 10%
per year and we forecast future demand to increase at 8% per year over
the next five years due to increasing uses in agricultural chemicals
and as blowing agents.
b. Uses
Our estimate of the demand for hydrazine by end use is
given in Table XV-2.Hydrazine as a propellant finds its principal appli-
cation as rocket fuel. The literature suggests, however, that the
material finds other marketing applications where breakdown of the
molecule provides gases to power other mechanisms providing underwater
propulsion, underwater buoyancy and pressuring of rocket fuels. Growth
in demand is extremely hard to predict because of the confidential or
secret nature of applications of this type. We estimate use in these
applications to increase at 5% per year although this may be extremely
conservative.
We believe the second largest use for hydrazine is in the
production of agricultural chemicals, chiefly maleic hydrazide, where
hydrazine-derived products find application as plant growth regulators.
It is reportedly used to prevent spreading of harvested root crops,
to delay blossoming of fruit trees, prevent the growth of suckers on
tobacco plants and control the growth of plants. Another hydrazine
274
-------
TABLE XV-2
ESTIMATED END USE BREAKDOWN FOR
HYDRAZINE 1973
Propel lants 50%
Agricultural Chemicals 25
Blowing Agents 15
Other 10
100%
Source: Kirk Othmer Encyclopedia of Chemical
Technology and Contractor Estimates.
275
-------
derivative is used as a defoliant for cotton to facilitate harvesting.
We estimate demand growth as agricultural chemicals at 12% per year.
Hydrazine finds use in the manufacture of blowing
agents used to produce foamed plastics. These compounds decompose under
processing conditions to generate the cellular structure desired in the
production of some types of polymeric foams. We estimate demand growth
in this area at 9% per year over the next five years.
Other uses for hydrazine or its derivatives include applica-
tion in the preparation of medicinals, the production of spandex fibers,
and for boiler water treatment. We have forecast these and other end
uses to increase at 10% per year over the next five years.
Two producers are planning significant expansions of
capacity. Information on their plans for hydrazine applications are
proprietary. We suspect that they foresee demand developing in military
applications or agricultural chemicals at a more rapid rate than we have
forecast. Our forecast, therefore, should be considered conservative
in view of these plans and our inability to obtain more definitive
information from the producers.
c. Substitute Products
Information on the substitution of hydrazine as a rocket
fuel is generally classified; however, monomethyl hydrazine is currently
being used to replace hydrazine. Monomethyl hydrazine can be produced
with the same production equipment utilized to produce hydrazine.
Substitutes for hydrazine in agricultural chemicals are not available.
In general terms, we expect that hydrazine demand is relatively inelastic
in its commercial applications as well as its uses for military and space
applications. The product makes possible the production of unique or
almost unique end products in its major applications. In many of these
applications, hydrazine is a modest component of the cost of the final
product of use.
276
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d. Captive Requirements
A significant portion, perhaps one-third, of hydrazine pro-
duction is consumed captively. All three producers engage in the pro-
duction of agricultural chemicals and other derivatives of hydrazine.
In fact, Uniroyal's production is 100% captive consumption.
2. Supply Characteristics
a. Manufacturing Routes
Hydrazine is manufactured only by the Raschig process.
Sodium hydroxide and chlorine are mixed in a reactor system to produce
sodium hypochloride. Aqueous ammonia is added to produce chloramine,
which when reacted with anhydrous ammonia, produces hydrazine hydrate.
After ammonia removal, evaporation and fractionation, a commercial
grade of hydrazine hydrate is formed. Anhydrous hydrazine is produced
by extractive distillation of hydrazine hydrate.
b. Producers
There are currently three producers of hydrazine of which
Olin is the largest. Table XV -3 summarizes producers and plant locations.
Hydrazine is currently in tight supply. Olin has plans for expansion
of their operations and, also, Mobay has announced plans for a major new
plant with 22 million pounds of maximum capacity.
All three producers are integrated into the production of
hydrazine-based products.
c. Manufacturing Economics
Estimated manufacturing economics for hydrazine are given
in Table XV-4.
277
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TABLE XV-3
HYDRAZiNE PRODUCERS AND LOCATIONS
Producer Location
"".-:., itiour.i Chemicai Co., Inc. Newark, New Jersey
Ohn Corporation
Agricultural Chemical Division Lake Charles, Louisiana
Uniroyal, inc.
Uniroyal Cheminal Division Geismar, Louisiana
SOURCE: Chemical Marketing Reporter
278
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TABLE XV-4
MANUFACTURING COST ESTIMATE FOR HYDRAZINE
Production Economics (Summer 1973)
Product Hydrazine (as anhydrous)
Process Partial Oxidation of NH3 (Raschig)
Location Gulf Coast Capacity 2.0 MM Ib/yr. Invest. $3.4 MM1 (1970 construction)
Cost
Ammonia 2.41 Ib @ 2.0d/lb.
Chlorine 5.04 lb@3.8«i/lb
Caustic Soda 6.22 Ib @ 3.8«l/lb
Inhibitor 0.31 Ib @ 20«f/lb
Catalyst, Chem., Supplies
Utilities
Direct Labor 16 men @ $5.00/hr
Maintenance, Labor & Materials
Labor & Plant Overhead
Depreciation 9%/yr
Taxes & Ins. 1-1/2%/yr
Factory Cost
$/Year
96,400
383,000
472,800
124,000
30,000
278,000
166,400
250,000
166,400
306,000
51,000
2,324,000
il\b Product
4.82
19.15
23.64
6.20
1.50
13.90
8.32
12.50
8.32
15.30
2.55
116.20
1. Utilizing .65 factor results in capital cost of $3.3 million for a plant of 5,500
pounds per day capacity.
279
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C_. ECONOMIC IMPACT
1. Treatment Costs
The costs required to achieve BPT and BAT guideline specifica-
tions as presented in the guideline document for a free standing plant
with a 5,500 pound per day production capacity are 9.5c and 11.2C per
pound respectively. All hydrazLne is produced in essentially free
standing plants and all use the Raschig manufacturing process.
2. Price Impact
Prices (list) since 1972 have doubled reflecting a tight supply
and demand balance for hydrazine and general price increases for the
ammonia and chlorine raw materials. Mid-1973 price is estimated to
have been $1.50 per pound.
The matrix data suggest that a full cost pass through would be
possible in this industry. Much of the hydrazine produced is used
captively in the production of relatively high value-added products.
Its major use is as a propellant purchased by the U.S. Government.
In this application propellant cost is not only a small part of total
costs of the devices but also is sold to relatively price insensitive
applications concerned with national security. The prices of these
products would be affected little on a percentage basis by full pass
through of treatment costs. Therefore, the consumers of these hydrazine
derived products, including agricultural chemicals, would not likely
reduce their consumption if the treatment costs were added to this
product cost as long as alternate sources and substitute products are not
readily available.
280
-------
The tight supply and demand balance also supports a full cost
pass through. There are currently only three producers manufacturing
hydrazine and a significant portion is consumed captively. It is not
likely that new entrants or plant expansions competing for the now-
captive market would drive supply very far ahead of demand. The large
capital outlay required for production of hydrazine and its derivative
products also acts to keep supply and demand in balance. We do not
expect significant overcapacity in this industry in the near future and
the resulting snug supply and demand balance will support full treat-
ment cost pass through. Therefore, we expect that prices for hydrazine
will decline but remain high enough to recover added BAT treatment costs
as additional capacity comes on stream during the next five years.
3. Plant Shutdown Decisions
It is not likely that in the face of tight hydrazine supplies
and projected full treatment cost recovery that any plants would be
shut down. The only negative feature for hydrazine producers is the
capital investment;BPT and BAT treatment facilities for a free standing
plant would require a $610,000 and $818,000 capital investment respectively.
The BAT investment represents 24.8% of the current 3.3 million investment
in net plant and equipment. However, this should not be a deterrent since
much of the hydrazine is used captively requiring this investment to
support the production of products derived from hydrazine.
4. Foreign Trade
Data on imports or exports of hydrazine are not available from
the published sources of the U.S. Bureau of Census. However, even
though the import duty of 5% ad valorem is less than the treatment costs,
shipping and storage of hydrazine should favor domestic production rather
than importing. Hydrazine used as rocket fuel will continue to be produced
domestically Therefore, we expect no effect on the U.S. balance of trade
in this In .ir'try.
281
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XVI. MALEIC ANHYDRIDE BY OXIDATION OF BENZENE
A. SUMMARY
In 1973, production of maleic anhydride was 279 million pounds,
having risen at an average annual rate of 12% per year since 1963.
Major uses are in unsaturated polyester resins (44% of production),
fumaric acid production (13%), -agricultural chemicals (10%) and numer-
ous other uses. Maleic anhydride is subject to competition in the
production of unsaturated polyester resins through substitution by
fumaric acid, and a major basis for competition is price.
Maleic anhydride is produced in the United States by the oxidation
of benzene. There are seven doriestic producers and numerous producers
outside the United States in Japan and Western Europe. Capacity
utilization has been moderate, although in the 1969-1971 period, maleic
anhydride was in tight supply as a result of poor yield from catalysts
used. Captive consumption is significant, having been as high as 30%
of production in recent years, and all but one manufacturer are integrated
into the production of maleic anhydride derivatives.
A summary of factors used for the economic impact analysis is given
in Table XVI-1. In our judgment effluent treatment costs required to
meet BPT guidelines will be passed through in the form of increased prices,
This will amount to approximately 11% of the 1973 price. No incremental
capital or operating costs will be needed to meet BAT standards. While
the imposition of effluent guidelines will undoubtedly make foreign
producers more competitive, it is difficult to quantify the direct
effect of the guidelines on the U.S. balance of payments position.
282
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TABLE XVI-1
MALEIC ANHYDRIDE BY OXIDATION OF BENZENE
Ml Processes:
972 Production (Million Pounds)
L972 Unit Value (C/Lb)
I972 Production Value ($MM)
lumber of Plants (Current)
PRICE INCREASE CONSTRAINTS
Factor
Ratio of BT Treatment
Cost to Selling Price
(%)
Substitute Products
Capacity Utilization
Captive Usage
Demand Growth
Foreign Competition
Abatement Cost
Differences
Price Elasticity
of Demand
Basis for Competition
Market Share
Distribution
Number of Producers
Substitute Process
Condition for
Constraint
High
High Occurrence
Low
Low
Low
High
Unequal
High
Price
Fragmented
Many
Many
Treatment
Level
B.P.T.
B.A.T.
i
274
13 (1973 at 150
36
8
10.7%
10.7%
Direct - Low
Secondary - Low
82% in 1973
30%
9%V.
Low: (to date)
-
Low
Price
Fragmented
7
None in United States.
Butene Oxidation: Japan,
Europe
283
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TABLE XVI-1 (Continued)
PLANT SHUTDOWN DECISION
Factor
Ratio of AT Treatment
Cost to AT Net Income
(%)
Cash Flow (Including
Treatment Costs)
Ratio of Investment in
Treatment Facilities to
Net Fixed Investment (%)
Integration
Chemical Complex
Other Environmental
Problems (Including OSHA)
Emotional Commitment
Ownership
Condition for
Shutdown
High
Negative
High
Low
Isolated Plant
Multiple
Indifference
Multi-Industry
Companies
Treatment
Level
B.P.T.
B.A.T.
B.P.T.
P A rr<
JJ • t\ . i. .
•' - '
23.5%
23.5%
Positive
i
15.1%
15.1%
High
Isolated Plant 30%
Complex 70%
Few
Moderate — High
Multi- Industry
284
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B. INDUSTRY BACKGROUND
1. Market Characteristics
a. Size and Growth
In 1973, apparent consumption of maleic anhydride was 279
million pounds, which is primarily accounted for by domestic production.
Table XVI-2 summarizes historical production and apparent consumption.
for the 1963-1973 period. Production has grown at an annual compound
rate of 12.4% per year since 1963. Major growth in production (16%
per year compound rate) took place in the 1963-1968 period while from
1968-1973 production only increased at a 9% annual rate. The growth
rate is expected to continue at a level between 9% and 10% for the
foreseeable future.
Imports and exports are not reported by the Tariff Commission;
however, they are probably small. Only limited quantities of benzene-
based maleic anhydride have been imported in the past because of the
high duty rate. Domestic producers face a possible influx of C, based
maleic anhydride produced in briquette form since it is classified
under a tariff schedule which reduces the duty 80% and enables it to be
more competitively priced with domestic production.
b. Uses
Table XVI-3 details an estimated end-use pattern for maleic
anhydride. The largest single use is for the production of unsaturated
polyester resins used in reinforced plastic applications. Consumption
of maleic anhydride for production of unsaturated polyester resins
increased at an average annual growth rate of 9% from 1965 to 1971, and
is forecast to increase at a 12%-15% rate in the foreseeable future.
Breakthroughs in the use of unsaturated polyester resins in sheet molding
compounds by the automobile manufacturers could result in considerable
285
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TABLE XVI-2
PRODUCTION, IMPORT. AND APPARENT CONSUMPTION
OF MALEIC ANHYDRIDE
(million pounds)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973 P
Production
86.6
118.1
128.2
168.6
168.2
181.7
200.7
215.1
228.7
274.4
281.8
Imports and Exports
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Negligible
Apparent Consumption
86.6
118.1
128.2
168.6
168.2
181.7
200.7
215.1
228.7
274.4
281.8
P — Preliminary
Note: Assumes constant inventory levels
SOURCE: U.S. Tariff Commissions
286
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TABLE XVI-3
MALEIC ANHYDRIDE CONSUMPTION BY END USE
(million pounds)
End Use
Unsaturated Polyester Resins
Fumaric Acid
Agricultural Chemical
Alkyd Resins
Miscellaneous Uses
1965
1968
1971
% of Total
(1971 Consumption)
60
18
15
6
29
90
21
20
7
44
100
30
25
6
68
43.7
13.1
10.9
2.6
29.7
SOURCE: Chemical Economics Handbook Estimates
287
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increases in maleic anhydride consumption. A breakthrough is not
expected in the immediate future.
Other major uses of maleic anhydride are for the production of
fumaric acid and agricultural chemicals. Uses for fumaric acid are as
a food acidulant, in the production of fortified paper-size resins,
and in unsaturated polyester resins. Use of maleic anhydride for the
production of fumaric acid is expected to level off while use in
agricultural chemicals is expected to grow at about a 10% per year rate.
Minor uses for maleic anhydride are for lubricating additives,
reactive plasticizers, copolymers, maleic acid, and chlorendic anhydride.
The largest growth for maleic anhydride usage will occur in the pro-
duction of chlorendic polyester resins. However, this is a small market
and 1975 use is estimated to be only 12 million pounds.
c. Substitute Products
Maleic anhydride can be substituted by fumaric acid in its
largest use, the production of unsaturated polyester resins. During
1970 when maleic anhydride was in short supply, fumaric acid was used as
a replacement. However, as maleic anhydride became available in 1971,
unsaturated polyester manufacturers switched back to using it because
of its cost advantage. Since the manufacture of fumaric acid is primarily
from maleic anhydride (only one producer manufactures fumaric acid by another
process), maleic anhydride will maintain its cost advantage over fumaric
acid unless alternative routes for the production of fumaric acid are more
widely utilized. Maleic anhydride cannot be easily substituted by phthalic
anhydride, the principal dibasic acid used in polyester resins,as maleic
acid is unsaturated and can be crosslinked in a fashion that phthalic
anhydride cannot.
288
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Fumaric acid competes with a variety of food acidulants
as described under the Citric Acid section of this report. It is also
nonsubstitutable for the manufacture of maleic hydrazide plant growth
regulators as described under .the section on Hydrazine. We consider
that maleic anhydride has a relatively low elasticity of demand relative
to price.
d. Captive Requirements
Captive consumption of maleic anhydride is shown in
Table XV1-4.
e. Other Market Characteristics
The United States is the largest consumer of maleic anhydride,
accounting for 48% of world consumption in 1972. However, substantial
manufacturing capacity exists outside the United States, especially in
Western Europe and Japan. Dumping of maleic anhydride in the United
States as a result of worldwide excess capacity was prevented because
of the high duty rate on the chemical produced from benzene (l.?C per
pound plus 12.5% ad valorem).
2. Supply Characteristics
a. Manufacturing Routes
Maleic anhydride is exclusively produced in the United
States by the oxidation of benzene. Benzene is converted to maleic
anhydride by catalytic oxidation in the vapor phase. The reaction is
carried out in a fixed-bed reactor utilizing a catalyst composed of 70%
by weight vanadium pentoxide and 25%-30% molybdenum oxide. After
reaction, the off-gas is condensed, dehydrated, and fractionated
to produce pure maleic anhydride.
289
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TABLE XVI-4
CAPTIVE CONSUMPTION OF MALE1C ANHYDRIDE
(million pounds)
Year Production Sales Captive Consumption
29.5
50.3
33.8
49.7
54.1
50.4
80.0
64.1
77.0
83.8
N.A.
Notes: "Sales" are assumed to be merchant sales. Inventory levels assumed
constant.
SOURCE: U.S. Tariff Commission
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
86.6
118.1
128.2
168.6
168.2
181.7
200.7
215.1
228.7
274.4
281.8
57.1
67.8
94.4
118.9
114.1
131.3
120.7
151.0
151.7
190.6
213.9
290
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b. Producers
There are currently seven domestic producers of maleic
anhydride and Monsanto is the largest with 31% of total industry
capacity. Reichhold is the only producer which operates more than one
plant. Table XVI- 5 summarizes producers and plant data. Reichhold 's
plant in Morris, Illinois has been experiencing start-up problems,
and therefore, reportedly is currently not capable of operating at
capacity. Plant capacity was tight during 1969-1971 due to poor yields
from the catalysts used rather than insufficient nameplate capacity.
As demand has increased, maleic anhydride was again in tight supply in
1973. Petro-Tex Chemical has planned a plant expansion for maleic
anhydride, however, because of the uncertainty of feedstock supplies,
expansion has been delayed.
All seven producers have some captive use for the pro-
duction of maleic anhydride-based products, usually unsaturated polyester
resins and fumaric acid. Allied Chemical and Reichhold produce maleic
anhydride exclusively Cor captive use and Petro-Tex Chemical is the only
company which exclusively produces for the merchant market. As a
result, there is a significant degree of forward integration from maleic
anhydride manufacture.
c . Raw Materials
Maleic anhydride's basic raw material is benzene, a basic
petrochemical. Benzene was in tight supply in early 1974, and as a
result, manufacturers of maleic anhydride are prevented from operating
at capacity in spite of the high demand for the product. Benzene
became more readily available in late 1974. We do not expect benzene
availability to be a continuing restraint in maleic anhydride capacity
utilization.
291
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TABLE XVI-5
MALEIC ANHYDRIDE PRODUCERS, LOCATION AND CAPACITY
Capacity
Producer Location (MM Ibs)
Allied Chemical Moundsville, West Virginia 20
Koppers Company Bndgeville, Pennsylvania 34
Monsanto St. Louis, Missouri 105
Petro-Tex Chemical Houston, Texas 50
Reichhold Chemicals Elizabeth, New Jersey 30
Reichhold Chemicals Morris, Illinois 40*
Fenneco Chemical Fords, New Jersey 22
Ur'tfid States Steel Neville Island, Pennsylvania 40
Total 341
*Start-up capacity, maxum-m capacity 60 million pounds per year.
SOURCE: Chemical Marketing Reporter
292
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d. Manufacturing Economics
Estimated manufacturing economics for maleic anhydride
are described in Table XVI-6.
3. Prices
Price history is shown in Table XVI-7 and reveals a fairly
stable actual price history except in recent years. This is a result
of fairly constant capacity utilization throughout the 1960's. The
1968-1970 period shows an increasing price trend because of the yield
problems from existing capacity rather than inadequate capacity. Prices
dropped in 1972 probably because nominal capacity became actually
available and rose in 1973 both because of rising benzene prices and
the beginning of a supply restraint due to unavailability of benzene.
Benzene prices will remain relatively higher because of higher petroleum
costs. Prices for maleic anhydride will consequently be higher but
probably down from the levels experienced during mid-1974.
4. Supply/Demand Balance
The industry has been in a relatively good capacity situation
with the exception of the 1969-1971 period. Table XVI-8 outlines the
history of production versus capacity. The 1969-1971 period of tight
supply is not reflected in these figures because the supply difficulties
were a result of poor yield from catalysts rather than lack of nameplate
capacity. The product was in tight supply because of the benzene shortage,
By 1975, benzene availability was no longer a constraint and hence
capacity was again available.
293
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TABLE XVI-6
iSTiMATED COST OF MANUFACTURING
MALEIC ANHYDRIDE FROM BENZENE
Production Economics (Summer, 1973)
Process Scientific Design — Fixed Bed
' ocation G'j'f Coast Capacity 50 MM !hs/yr Invest, $5.5 MM (1970 Construction)
Cost
Senzane 0 17 jai ft $0 ?7.gal
C.nalysts, Chemicals and Supplies
Utilities
Direct Labor !3 ''nen >;J 36 DO hr
Maintenance -Materials and Labor
Labof and Plant Overhead
Dep.-aciation 9%/yr
Taxas and Ins. !-1-'2%/y
Factory Cost
2,295,000
i 90,000
i95,000
142,000
264,000
142,000
495,000
83.000
4,106,000
il\\a Product
4.59
.38
.99
.28
.53
.28
.99
.17
8.21
294
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TABLE XV1-7
PUBLISHED VS. ACTUAL PRICES
PER MALEIC ANHYDRIDE
(cents per pound)
Year Published Prices Actual Prices
1963
1964
1965
1966
1967
!968
1969
19/0
1971
1972
I973
1974 (June)
14.0
14.5
13.0
14.0
15.5
15.5
14.0
170
17.0
13.0
17.0
16.0-26.0
13
12
12
13
13
12
15
16
15
13
15
N.A.
SOURCES: Chemical Marketing Reporter, U.S. Tariff Commission
-------
TABLE XVI-8
MAI.£10 ANHYDRIDE PRODUCTION VS. CAPACITY
(million pounds)
Year Capacity* Production % Utilization
1965
J966
i967
!968
1969
1970
1971
5972
1973
164
!89
139
209
237
259
?81
321
341
128.2
168.6
168.2
181.7
?00.7
215.1
228.7
274.4
278,8
78
89
89
87
85
83
81
85
82
*Narnaplate capacity
SOURCES: U.S. Tariff Commission. Chemical Marketing Reporter
-------
C. ECONOMIC IMPACT
1. Treatment Costs
The cost to achieve BPT and BAT guideline specifications as
presented in the guideline document is for a free standing plant with
137,000 pounds per day of production capacity. Unlike most of the
other products treated by the guideline document, maleic anhydride
effluent was handled by incineration rather than biological techniques.
This cost is given at 1.60C per pound to meet BPT guidelines and involves
no additional cost or investment to meet BAT guidelines.
As the incineration technique is used there are no economies
of scale as a consequence of commonly treating effluent from a chemical
complex. Economies of scale,because of differences in plant size and
consequent amount of effluent incinerated, would be modest. The major
cost involved in incineration would be the energy requirement which is
a direct function of the amount of material treated. The size plant
specified in the guideline document is about an average size plant
for the industry.
2. Price Impact
The latest available annual average price paid for maleic
anhydride was for the year 1973. The actual average price was 15C
per pound. List prices increased from 17c per pound in 1973 to a
range of 16<:-26c per pound by mid-1974 and subsequently to 38
-------
duty rate applicable to benzene manufactured maleic anhydride totals
1.7C per pound plus 12.5% ad valorem. The duty applicable to maleic
anhydride produced from butene is 6% ad valorem.
Most probably one of the reasons that maleic anhydride has been
restricted from U.S. markets through 1973 has been the high rate of
duty associated with the benzene produced product. Production of maleic
anhydride from butene is a relatively new technology. The lower rate
of duty now applicable to butene derived products no longer acts as the
severe barrier to importation.
The impact matrix suggests the probability of cost pass through
for the producers of maleic anhydride. There are few substitute products
and also, we expect, the price elasticity of demand is low. Maleic
anhydride is used in relatively modest quantities, about 10% of final
product weight, in its major end use, for production of unsaturated
polyester resins. It is also the primary way that fumaric acid can be
manufactured and is a vital component of specific agricultural chemicals.
Capacity utilization has been over 80% since 1966 and probably even
higher than the data suggests both because of occasional restraints
in raw material supply such as the capability to procure benzene in late
1973 and early 1974 and because of manufacturing problems. The demand
growth is high and to date foreign competition has been low primarily
because of the high rate of duty. The major factor mitigating against
cost pass through of treatment costs is the relatively high proportion
of this cost compared to sales price. We do not know what the actual price
for maleic anhydride is at the present time, however, and this price
has no doubt been changing rapidly, as reflected in list prices. At
present, the price is probably significantly above the 1973 average
price but below the list price. As a consequence, the ratio of treat-
ment cost to selling price is somewhat lower than the 10.7% indicated by
the impact matrix.
298
-------
It is our best judgment that producers of maleic anhydride will
pass through the treatment cost as a price increase. The price increase
will in the future, therefore, total 1.60C per pound or 10.7% of the 1973
price.
3. Plant Shutdown
We expect no shutdowns of domestic plants for the production
of maleic anhydride by virtue of the BPT and BAT guideline specifica-
tions. As cost pass through will occur, there should be no impact on
prof itcibility. Investment to achieve both BPT and BAT through incinera-
tion is relatively modest compared to total plant investment and, we
expect, by itself would not inhibit producers from continuing to manu-
facture maleic anhydride via the oxidation of benzene.
4. Balance of Trade
The effect on future balance of trade is difficult to estimate
because of the combination of two significant changes which are taking
place simultaneously: the addition of a cost penalty of approximately
1.6<: per pound for the U.S. producer, and reduction in the rate of duty
on maleic anhydride produced from butene. Both of these effects will
act to make foreign producers more competitive in U.S. markets.
Demand is forecast to increase at 9% per year. By 1975,
demand should reach the limits of nominal domestic capacity. This will
require that either domestic producers expand or foreign imports will
assume an increasing portion of demand. We estimate that both events
will occur simultaneously; that is, domestic producers will expand
either by the convent tonal route or oxidation of butenes and that foreign
producers will increase shipments into the United States. We estimate
that by 1977, 10% of domestically acquired maleic anhydride will be
imported or a total of 40 million pounds valued at $6 million in 1973
dollars ai.d prices. By 1983 imports will have continued to increase
to reach jj% of total domestic demand or approximately 100 million pounds
valued at $18 million in 1973 dollars and prices.
299
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XVII. PR£SCREENING ANALYSIS
Tha first step in our analysis of Phase II of the organic chemicals
industry was to prescrcen the list of products on which costs were
available in the guideline document in order to eliminate those which,
on the basis of preliminary judgments, appeared not to present serious
problems jf f onrvaic impart or wera of miner commercial significance.
T'^e economic contractor's approach was to rely on the guideline
conrractor's estimates of costs for best available technology in a free
standing plant condition as a proportion of total selling price as one
major consideration. This presents the highest cost case possible for
.inv ^LV-M product-process combination.
We al'jo aliminated -)ome products on the basis of the commercial
significance to the organic chemicals industry. Finally, the economic
contractor tried to take into account the probability of manufacturers
of the products being able to pass through effluent treatment costs as
prica increases. Our judgments were also conditioned on whether we
antimated the profitability of the process under consideration to be in
"he high, medium or low range in profitability relative to the total
U.S. chemical industry.
In a number of specific instances, as indicated below, the products
were not prescreened by the economic contractor but rather by the
Environmental Protection Agency. In most of these cases, data on
effluent treatment cost were not available or were significantly changed
during the course of the study. It is the economic contractor's under-
standing that those products prescreened by the Environmental Protection
Agency were analyzed using the same approach as the economic contractor.
1. Ren/et',«. __T.9j-'if;'i"j and Xylene - Reforming and Extraction
.•"he iaitial guideline document indicated BAT treatment costs of
approx hn.i'.uly O.b" .;! 1972 selling prices. By 19 ,"4, se.Ui.';; pricos cf
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these products had risen, due to increasing prices of crude oil and
shortages of aromatic products, to the point that effluent treatment
costs represented approximately 0.3% of the selling price.
Due to changes in the guideline document in the course of the study,
BAT treatment costs were increased to approximately 2% of the 1972
selling price and about 1% of the 1974 selling price.
Although products were originally judged on the first set of guide-
line costs, the economic contractor continued to include these products
in the prescreening analysis due to the still relatively low treatment
costs as a proportion of total current selling price and judgments that
the industry traditionally has operated in the median range of profit-
ability of the chemical industry.
a. Benzene
Approximately 1.5 billion gallons of benzene were produced in the
United States in 1973. Total U.S. capacity for benzene production and
isolation was around 1.8 billion gallons held by approximately 68
producers. About half the total benzene produced and isolated went into
the manufacture of styrene. An additional third of the production of
phenol and cyclohexane was used for nylon production. The remainder,
approximately 15%, was used in a variety of other chemical intermediate
products.
b. Toluene
Approximately 880 million gallons of toluene were produced in the
United States in 1972 by about 45 producers. All but about 2% of this
was petroleum-derived. The product is used not only for conversion to
benzene but also has extensive application as a solvent in the manu-
facture of toluene diisocyanate ar.d a large variety of other intermediate
chemical products.
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c. Xylene
During 1972, 736 million gallons of mixed xylenes were produced in
the United States by about 50 producers. Virtually all of the mixed
xylenes isolated came from petroleum. Production of xylenes increased
60% in the two-year period between 1970 and 1972. The large increase in
production over the past several years seems to have been principally
due to the increasing demand for para-xylene as a starting raw material
for the production of dimethyl terephthalate and terephthalic acid which
in turn is used in the production of polyester fiber and film. Another
major isomer, ortho-xylene, is used in phthalic anhydride production,
while meta-xylene has a modest requirement in the production of isophthalic
acid.
2. Chlorobenzene - Chlorination of Benzene
At the time of the economic contractor's prescreening analysis,
no data were available from the guidelines contractor as to the costs
associated with effluent treatment. The economic contractor, therefore,
did not include this end product in the prescreen list. The product was
included by the Environmental Protection Agency. BAT treatment cost
estimated by the EPA totaled 3.8% of the 1971 selling price and
probably about half this amount for the average 1974 selling price.
3. Citronellol and Geraniol - Processing of Citronellol Oil
Citronellol is one of a group of turpene-based fragrances. It is
produced in conjunction with geraniol. In the process under considera-
tion, natural geraniol is isolated by the distillation of natural
citronellol oil and Citronellol produced from the hydrogenation of
geraniol. These materials are consumed in limited quantities in the
United States. No definition of consumption or growth of demand is
readily available in the proscreening process. The products are, however,
essential to the buyers in the sense that they constitute a necessary
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part of specific fragrance formulations. We estimate returns on the sale
of both citronellol and geraniol at a high range of the possibility of
the U.S. chemical industry.
The product was excluded from further consideration principally on
two bases: its modest significance in the U.S. organic chemicals industry
and the fact that estimated BAT treatment costs are between 3% and 4% of
selling price. It also seems likely that in this case cost pass through
would be possible due to the relatively small proportions of these
materials used in the finished products and their essential nature in the
qualities of the finished product.
4. Cumene - Benzene and Propylene
Cumene was not included in the prescreen analysis. It was pre-
screened by the Environmental Protection Agency, presumably on the basis
of the extremely low effluent treatment cost as a proportion of total
selling price. This cost was estimated by the Environmental Protection
Agency at .03% of the 1971 selling price.
5. Diphenylamine - Deammonation of Aniline
Diphenylamine was not included in the prescreening analysis by the
economic, contractor. It was included by the Environmental Protection
Agency presumably on the basis of the relatively low estimated BAT
treatment cost as a percentage of the selling price. These costs, as
estimated by the Environmental Protection Agency, are less than 2% of
the 1971 selling price.
6. Ethyl Acetate - Esterification of Ethanol and Acetic Acid
No costs for the treatment of effluent resulting from the production
of ethyl acetate were available in the original guideline document. The
product was, therefore, not prescreened by the guideline contractor.
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The development of costs in a later revision of the guideline docu-
ment indicated relatively low effluent treatment cost as a proportion of
total selling price. The Environmental Protection Agency estimated these
at 1.4% of the 1971 selling price,
7. Hexamethylenediamine - Ammonolysis of 1,6-Hexanediol
There are four producers of hexamethylenediamine in the United States.
Total production in 1973 was 918 million pounds. As virtually all hexa-
methylenediamine produced is consumed by the manufacturers in the produc-
tion of nylon 66 fiber and polymer, a quoted price is not generally
available. In 1972, however, external sales were approximately 8 million
pounds as reported by the U.S. Tariff Commission at a unit value of 36C
per pound.
These producers of hexamethylenediamine utilize the hydrogenation of
adiponitrile. One producer, accounting for about 5% of total production,
utilizes the ammonolysis of 1,6-hexanediol. The product was eliminated
in the prescreeming analysis by the economic contractor, both on the basis
of the relatively small commercial significance and on the basis that, as
in the case with more conventional routes to hexamethylenediamine through
adiponitrile, effluent treatment costs would be passed through. BAT
effluent treatment costs are estimated at about 1.5% of selling price.
8. lonone and Methyl lonone - Condensation and Cyclization of Citral
lonone and methyl ionone were not considered in the prescreening
process as the initial guideline document indicated no waste treatment
cost associated with the production of these materials. The revised
guideline document indicates BAT treatment costs at about 7% of total 1971
selling price as estimated by the Environmental Protection Agency.
According to the guideline document, ionones and methyl ionones are
used in perfumes and flavors. The beta ionone isomer is also an inter-
mediate in the manufacture of vitamin A. Presumably these were included
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by the Environmental Protection Agency on the basis of potential cost
pass through of treatment costs due to the essential nature of the
materials in the manufacture of the products utilizing them and the
lack of substitution possible.
9. Methyl Salicylate - Esterification of Salicylic Acid with Methanol
Production of methyl salicylate totaled 6.8 million pounds in 1973.
Methyl salicylate is used in perfumes and Pharmaceuticals and as a solvent
fo'r cellulose derivatives, polishes, inks and insecticides. Growth in
consumption is estimated to have been at an average rate of 5% per year
between 1963 and 1973. Methyl salicylate was eliminated from detailed
analysis by the prescreening process on the basis of BAT treatment costs
of approximately 1% of sales value and the modest total commercial value
of the product.
The profitability of the product was judged to be in the medium to
low range of the chemical industry.
10. Ortho-Nitroaniline - Ammonolysis of 0-Nltrochlorobenzene
In 1972 there was one producer of this chemical. Production and
sales volume were therefore not reported by the U.S. Tariff Commission
in order not to disclose confidential manufacturer's information. Ortho-
nitroaniline is used as a dye intermediate, in the synthesis of photo-
graphic antifogging agents and as a chemical intermediate.
The product was eliminated in the prescreening analysis because of
assumed modest commercial significance and the lack of available data on
which to make judgments relative to economic impact. BAT treatment costs
are estimated by the Environmental Protection Agency at 6.5% of 1972
list price.
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11. Para-Aminophenol - Catalytic Reduction of Nitrobenzene
There is only one producer of para-aminophenol reported in 1972 and
thus production and sales figures are not available from the U.S. Tariff
Commission. Para-aminophenol is available in technical and photographic
grades and is used as a specialty chemical in dyeing agents, as a photo-
graphic developer, in pharmaceutical applications and as an antioxidant
.in oil additives. BAT effluent abatement cost is estimated at 2.5% of
list price. The product was eliminated in prescreening from detailed
analysis both because of the specialty nature and limited information
available in order to make impact judgments and the relatively low
effluent abatement cost as a percentage of the selling price.
12. Para-Nitroaniline - Ammonolysis of P-Nitrochlorobenzene
In 1969 there were three producers of para-nitroaniline, two of them
holding 2-3 million pounds per year capacity and the third with about
10 million pounds per year capacity. By 1972 only two producers remained
and capacity availability was reported at 13 million pounds per year.
Capacities are flexible since the equipment can be used to make other
intermediates and is probably close to 10 million pounds per year, though
it is not reported by the U.S. Tariff Commission. Para-nitroaniline is used
as a rubber antioxidant, a gasoline additive, an intermediate in dye and
pigment manufacture, pharmaceutical and veterinary use and in agricultural
chemicals.
Effluent abatement costs to achieve BAT standards are equivalent to
4.3% of the 1972 list price.
Para-nitroaniline was prescreened from detailed study because of the
modest commercial significance of the products of the organic chemicals
industry and the relatively modest cost, 4.3% of 1972 list price, required
to achieve BAT standards.
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13. Para-Xylene - Fractional Crystallization
Para-xylene is used in the manufacture of dimethylterephthalate and
terephthalic acid used as intermediates in the production of polyester
fiber and film. In 1973 total capacity of around 2.4 billion pounds was
hi--ld by ten produce. 3 all of whom were involved in petroleum refining.
Capacity in 1973 wa", virtually fully utilized.
The original guideline document specified pollution abatement cost
•-0 achieve BAT at ..% of selling price. The product was excluded based
./a this modest aba1 ^n^nt cost. The revi'ed g- ideline document increased
-'.I •< e-inent cost to 1 '•."/ ct~ J972 prices. '-.'a ex -ct para-xylene manufacturing
;:r.,f liability is ir, 'he median range cf she rl Apical industry based on
IS"/2 and 1973 price The product was prsscr cened out from detailed study
principally on the Crisis of the relatively lov: pollution abatement cost
requirement.
14. Phthalic Anhydride
The original guideline document specified BAT treatment cost at 1.1%
of 1972 price. The product was excluded from detailed consideration on
the basis of this modest cost. BAT treatment costs were increased in the
revised guideline document to . 21c a pound from a previous level of .075C
per pound. This increased to 2.9% the cost relative to the 1972 selling
price. This increase in price is substantially ameliorated, however, by
the increase in prices for phthalic anhydride between 1972 and 1974. In
1974 phthalic anhydride was quoted at a list price of 20.75C per pound.
At this price the BAT effluent treatment cost is equivalent to 1.0% of
selling price,
Phthalic anhydride has been commercially produced in the United States
both by the oxidation of ortho-xylene and the oxidation of naphthalene. In
1973 the great majority of the product produced was derived from ortho-
xylene. The product is used principally in the manufacture of plasticizers,
alkyd resins and polyester resins.
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Capacity for the production of phthalic anhydride is approximately
1 billion pounds per year held by nine different producers. Consumption
in 1973 was approaching 1 billion pounds per year. Growth in consumption
over the past decade has been around 5% per year. In recent years,
phthalic anhydride has been significantly in excess capacity relative to
demand. Demand appeared to be coming back into balance in the latter
half of 1973. On the basis of 1973 prices, producers are estimated to be
obtaining returns on sales in the intermediate range in the U.S. chemical
industry.
15. Plasticizers - Condensation of Phthalic Anhydride
The guideline document does not specify any particular plasticizer,
but phthalic anhydride esters in total sold at an average price in 1973
of 14c per pound. On the basis of the costs in the revised guideline
document, BAT costs constitute 2.1% of 1973 average selling price.
Phthalate plasticizers increased markedly in price and approximately
doubled in price since 1963 and BAT abatement costs are currently probably
•«>.
close to about 1% of 1974 sales prices. '""'
Production of phthalic anhydride esters, the great majority of
which are used as plasticizers, totaled approximately 1.2 billion pounds
in 1973, Consumption is forecast to grow at about 5% per year in the next
five years. About 85% of total plasticizers consumed are used in polyvinyl
chloride plastics and other markets are relatively small, including
cellulose ester plastics, synthetic elastomers, vinyl resins other than
polyvinyl chloride and other polymers. There are an estimated 25 com-
panies producing plasticizers, most of whom produce more than one type
at the same facility.
The category of phthalic anhydride based plasticizers was prescreened
on the basis of the relatively low pollution abatement cost required to
meet BAT effluent standards.
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16. Tannic Acid - Extraction
The revised guideline document provides a BAT effluent cost of .890
per pound for tannic acid. It is equivalent to 2.1% of 1972 sales price.
There are only two producers of tannic acid in the United States and
production is not reported. No readily available public information was
found for the production or consumption of tannic acid.
In general terms, the application of vegetable tannins has been
replaced by synthetic organic materials. The remaining small markets are
probably relatively secure from further competition. This product was
prescreened from detailed studies by virtue of the relatively low
effluent abatement costs compared as a proportion of sales price and
because of the modest significance of tannic acid in the U.S. synthetic
organic chemicals industry.
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