United States Office of Analysis and Evaluation 440/2-79-030
Environmental Protection Office of Water and Waste
Agency Management
Washington, DC 20460
Water
vvEPA Economic Impact
Analysis of Proposed
Effluent Limitations
Guidelines, New Source
Performance Standards
and Pre-Treatment
Standards for the
Gum and Wood Chemicals
Manufacturing Point
Source Category
-------
ECONOMIC IMPACT ANALYSIS OF PROPOSED EFFLUENT
LIMITATIONS GUIDELINES, NEW SOURCE PER-
FORMANCE STANDARDS AND PRE-TREATMENT
STANDARDS FOR THE GUM AND WOOD
CHEMICALS MANUFACTURING
POINT SOURCE CATEGORY
Prepared for
U.S. Environmental Protection Agency
Office of Water Planning and Standards
Washington, D. C. 20460
Contract Number
68-01-4698
November, 1979
-------
TABLE OF CONTENTS
PREFACE
EXECUTIVE SUMMARY
I. INTRODUCTION 1
A. Scope of this Report 1
B. Organization of this Report 3
C. Data Sources 3
II. METHODOLOGY 3
A. Industry Structure and Subcategorization 3
B. Financial Profile of the Industry 5
1. Size of the Industry 5
2. Financial Performance 5
C. Model Plants 6
D. Pricing Patterns 6
E. Waste Treatment Technological Options and Costs 7
1. BPT Limitations 7
2. BAT Limitations 7
3. NSPS Limitations 7
4. PSES Limitations 8
5. PSNS Limitations 8
F. Analysis of Economic Impacts 8
1. Profitability 8
2. Economic Impact Assessment 9
3. Differential Impacts 9
4. Plant Closures and Production Effects 10
5. Employment Impact Analysis 10
6. Community Effects Analysis 10
7. Other Effects 10
III. INDUSTRY CHARACTERIZATION 13
A. Overview 13
1. Industry Size and Growth 13
2. Industry Structure 13
3. Historical Development of the Industry 17
4. Potential Changes within the Industry 21
5. Financial Profile 22
6. Employment and Wages 22
B. Sulfate Turpentine and Fractionation Products
Subcategory A 26
1. Supply Characteristics 27
1.1 Producers 27
1.2 Integration and Capital Requirements 29
1.3 Estimated Profitability 30
1.4 Other Supply Characteristics 30
-------
2. Demand Characteristics 30
2.1 Market Size and Share 30
2.2 Major End Uses 32
3. Substitute Products 39
4. Foreign Competition 40
5. Prices 41
6. Growth Forecasts 44
C. Wood Rosin, Turpentine and Pine Oil (Subcategory B) 45
1. Supply Characteristics 46
1.1 Producers 46
1.2 Integration and Capital Requirements 46
1.3 Estimated Profitability 46
1.4 Other Supply Characteristics 48
2. Demand Characteristics 48
2.1 Market Size and Share 48
2.2 Major End Uses 52
2.3 Substitute Products 52
2.4 Foreign Competition 52
2.5 Prices 55
2.6 Growth Forecasts 55
D. Tall Oil Fractionation Products (Subcategory C) 56
1. Supply Characteristics 57
1.1 Producers 58
1.2 Integration and Capital Requirements 60
1.3 Estimated Profitability 61
1.4 Other Supply Characteristics 62
2. Demand Characteristics 62
2.1 Market Size and Share 63
2.2 Major End Uses 63
2.3 Substitute Products 66
2.4 Foreign Trade 69
2.5 Prices 69
2.6 Growth Forecasts 70
E. Rosin Derivatives (Subcategory D) 72
1. Supply Characteristics 72
1.1 Producers 72
1.2 Integration and Capital Requirements 74
1.3 Estimated Profitability 75
2. Demand Characteristics 75
2.1 Market Size and Share 75
2.2 Major End Uses 77
2.3 Substitute Products 79
-------
2.4 Foreign Competition 79
2.5 Prices 79
2.6 Growth Forecasts 79
..-. Gum Rosin and Turpentine (Subcategory E) 81
1. Supply Characteristics 81
1.1 Producers 81
1.2 Integration and Capital Requirements 83
1.3 Estimated Profitability 83
1.4 Other Supply Characteristics 84
2. Demand Characteristics 85
2.1 Market Size and Share 85
2.2 Major End Uses 88
2.3 Substitute Products 93
2.4 Foreign Competition 94
2.5 Prices 97
2.6 Growth Forecasts 97
IV. WASTEWATER EFFLUENT CONTROL COSTS 101
A. Discharge and Wastewater Treatment Status 101
B. Alternative Treatment Technologies Considered 101
C. Wastewater Treatment Costs 102
V. ECONOMIC IMPACTS OF PROPOSED REGULATIONS 109
A. BPT Effluent Regulations 109
B. Best Available Technology Effluent Regulations 110
1. Economic Impact-Option 1 110
2. Economic Impact-Option 2 110
3. Economic Impact-Option 3 111
4. Economic Impact-Option 4 113
C. New Source Performance Standards 114
D. Pretreatment Standards for Existing Sources 115
1. Economic Impact-Option 1 116
2. Economic Impact-Option 2 116
3. Economic Impact-Option 3 116
E. Pretreatment Standards for New Sources 118
F. Summary by Industry Subcatetory 119
1. Sulfate Turpentine and Fractionation Products 119
2. Wood Rosin and Turpentine 121
3. Tall Oil Fractionation 121
4. Rosin Derivatives 124
5. Overall Summary 124
YI. MAJOR ASSUMPTIONS AND LIMITS OF THE ANALYSIS 126
-------
LIST OF TABLES
I Economic Impact Summary, Gum and Wood Chemicals 9
II-B-1 Preliminary Estimate of the Value of 1977 Industry
Shipments by Products 11
II-B-3 Income Statement Ratios 12
III-l Preliminary Estimate of the Value of 1977 Industry
Shipments by Products 14
III-2 Growth Rates by Industry Segment 15
III-3 Product Lines of Selected Industry Participants 19
III-4 Income Statement Ratios 24
III-5 Major Participants in Naval Stores Industries:
1977 Financial Summaries 25
III-B-1 Producers of Sulfate Turpentine and Fractionation
Products 28
III-B-2 Sulfate Turpentine's Share of the Total U.S.
Turpentine Market 31
III-B-3 U.S. Turpentine Production and Apparent Consumption 33
III-B-4 Production and Sales of Pinene 34
III-B-5 Turpentine Consumption 35
III-B-5 Turpentine Consumption (continued)
III-B-6 Estimated End Use of U.S. Turpentine Consumption 38
III-B-7 Crude Sulfate Turpentine Price History 42
III-B-7 Crude Sulfate Turpentine Price History (continued) 43
III-C-1 U.S. Producers of Wood Rosin, Turpentine, and Pine Oil 47
III-C-2 Wood Rosin's Share of the Total U.S. Rosin Market 49
III-C-3 Wood Turpentine's Share of the Total U.S. Turpentine
Market 50
III-C-4 Pine Oil Production and .Exports 51
III-C-5 Estimated World Production of Wood Rosin 53
III-C-6 U.S. Exports of Wood Products by Country 54
III-D-1 U.S. Producers of Tall Oil Fractionation Products 59
III-D-2 Tall Oil Fatty Acid's Share of the Total U.S. Fatty
Acid Market 64
III-D-3 Tall Oil Rosin's Share of the Total U.S. Rosin Market 65
III-D-4 Estimated End Uses of Tall Oil Fatty Acids 67
III-D-5 Estimated End Uses of Tall Oil Rosins 68
III-D-6 Average Prices of Tall Oil Fractionation Products 71
III-E-1 Producers of Both "Naval Stores" and Rosin Derivatives 73
III-E-2 Production of Rosin Derivatives by Type 76
-------
III-E-3 Rosin Consumption by Major End Use Markets 78
III-F-1 U.S. Producers of Gum Rosin and Turpentine 82
III-F-2 Gum Rosin's Share of the Total U.S. Rosin Market 86
III-F-3 U.S. Rosin Production and Apparent Consumption 87
III-F-4 Gum Turpentine's Share of the Total U.S. Turpentine
Market 89
III-F-5 Rosin Consumption 90
III-F-5 Rosin Consumption (continued) 91
III-F-6 U.S. Rosin Consumption by End Product 92
III-F-7 Estimated World Production of Gum Rosin 95
III-F-8 Production of Gum Chemicals in European Countries 96
III-F-9 U.S. Imports of Wood Products by Country 98
III-F-10 U.S. Exports of Gum Products by Country 99
III-F-11 Gum Rosin and Gum Turpentine Prices 100
IV-1 Effluent Control Costs Estimates (Best Available
Technology) 103
IV-2 Effluent Control Cost Estimates Pretreatment Standards
Existing Sources 105
IV-3 Estimated Control Costs (New Sources-Direct Dischargers) 106
IV-4 Estimated Control Costs (New Sources-Indirect
Dischargers) 107
V-l Economic Impact Summary Gum and Wood Chemicals (Direct) 112
V-2 Economic Impact Summary Gum and Wood Chemicals
(Indirect) 117
V-3 Sulfate Turpentine and Fractionation Products 120
V-4 Wood Rosin and Turpentine (Subcategory B) 122
V-5 Tall Oil Fractionation Products (Subcategory C) 123
V-6 Rosin Derivatives (Subcategory D) 125
-------
PREFACE
This document is a contractor's study prepared for the Office of Water Plan-
ning and Standards of the Environmental Protection Agency (EPA), The purpose
of this study is to analyze the economic impact which could result from the
application of effluent standards and limitations issued under Section 301, 304,
306, and 307 of the Clean Water Act to the Gum and Wood Chemical Manufacturing
Industry.
The study supplements the technical study (EPA Development Document) support-
ing the issuance of these regulations. The Development Document surveys existing
and potential waste treatment control methods and technology within particular
industrial source categories and supports certain standards and limitations based
upon an analysis of the feasibility of these standards in accordance with the
requirements of the Clean Water Act. Presented in the Development Document are
the investment and operating costs associated with various control and treatment
technologies. The attached document supplements this analysis by estimating
the broader economic effects which might result from the application of various
control methods and technologies. This study investigates the effect in terms
of product price increases, effects upon employment and the continued viability
of affected plants, effects upon foreign trade and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Water Planning and Standards of EPA. This report was submitted in fulfillment
of Contract No. 68-01-4698 by Arthur D. Little, Incorporated and completed in
November 1979.
This report is being released and circulated at approximately the same time
as publication in the Federal Register of a notice of proposed rule making. The
study is not an official EPA publication. It will be considered along with the
ii
-------
information contained in the Development Document and any comments received by
EPA on either document before or during final 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 on EPA's views regarding the Gum
and Wood Chemical Manufacturing Industry.
iii
-------
EXECUTIVE SUMMARY
The Gum and Wood Chemicals industry includes products that either
are extracted from trees or are derivatives of products extracted from
trees. They include gum and wood chemicals—the traditional "naval stores"
industry—as well as sulfate pulping chemical, by products, essential oils,
rosin derivatives and turpentine derivates.
1. Sulfate turpentine and fractionation
products
2. Wood rosin, turpentines, and pine oil
3. Tall oil fractionation products
4. Rosin derivatives
5. Gum rosin and turpentine
6. Essential oils
7. Charcoal briquettes
Subcategories 5, 6, and 7 have been excluded under paragraph 8
of the Settlement Agreement since the plants producing these products
do not discharge process wastewater or very .small quantities.
The 1977 estimated shipment value is approximately $300 million.
Tall oil fractionation products is the largest single segment accounting
for approximately $165 million. Wood rosin, turpentines and pine oil
is the second largest accounting for approximately $66 million. Rosin
derivatives is third accounting for about $50 million and gum turpentine
and rosin, and sulfate turpentine each account for about $10 million.
The historical growth in sales for this industry has been modest
and future growth is likely to be limited by the supply of raw materials.
iv
-------
Over the period of 1968 through 1978, the industry sales volume has
increased marginally (3-5%/yr.) on a declining production volume
(-1%/yr.). Current dollar growth has been due to higher selling prices
and a general industry trend to upgrade the value of products sold.
Future growth is not expected to exceed a 1-2% real growth. All of this
growth is expected to be realized by the Sulfate Turpentine, Tall Oil and
Rosin Derivatives subcategories while the tfood Rosin and Gum Rosin
subcategories will continue to decline in real growth. Prices should
be firm in the future since available supplies of raw materials-
particularly crude sulfate turpentine and crude tall oil- are now and
will be in tight supply. The availability of these feedstocks is
determined by growth of the pulp and paper industry particularly in the
soft wood pulping process.
Many products produced by this industry are totally substitutable
by products derived from petrochemical feedstocks. In key end use
application these competitive products have equal or superior perform-
ance characteristics which has created significant competitive pricing
pressures in this industry. Even with a short supply of raw materials,
the pricing environment created by a shortage of raw materials will likely
only result in a recapture of higher raw material costs and not result in
higher margins. Those producers which are subsidiaries of pulp and paper
companies will be in the strongest competitive position in the future.
Since many of the participants in this industry are small business
centers within large corporations, financial statements specific to gum
and wood chemicals are not available. An estimated average industry
income statement suggests that 1977 before-tax profitability of between
-------
4 and 14 percent was realized. This performance is about equal to or
slightly lower than the performance of the Total Chemicals and Allied
Products industry. It is believed that the sulfate turpentine and
fractionations subcategory is the most profitable followed by Rosin
Derivatives, Tall Oil Fractionation, and Wood Rosin in that order. The
profitability of each company in this industry is largely dependent on
the mix of subcategories in which it is engaged and the. degree of
product upgrading (higher priced product development) carried on by the
company. Most of the major firms in this industry upgrade at least 40%
of their production volume.
Capacity utilization in the industry is low. Most segments are
currently operating well below 70% capacity utilization even though
this number is difficult to define. Capacity for upgraded products is
flexible since much of the chemical processing is carried out in a
batch process rather than a continuous process. The average age of
equipment in this industry is high compared to the chemical industry
in general. Little new capacity has been added in the past 5 years
and little is expected over the next 5.
The gum and wood chemicals category consists of seven subcategories
and includes approximately 114 plants. Three of the subcategories
represent about 91 plants that either do not discharge process waste-
water or only discharge small amounts of process wastewater. These
three subcategories have been excluded under paragraph 8 of the
Settlement Agreement. In addition, three of the plants in the remaining
four subcategories do not discharge wastewater and are also excluded.
The four remaining subcategories consists of 20 plants that
vi
-------
discharge process whatsoever. There are 8 direct dischargers and
12 indirect dischargers in this industry. Four of the 12 indirect
dischargers dispose of their wastewater through an adjacent pulp and
paper mill's treatment system and two combine their wastewater with
pulp and paper mill's wastewater prior to discharges to a POTW.
Only one producer in this industry is not covered by BPT regulation.
The annualized cost of compliance for this sulfate turpentine plant was
estimated to be approximately $180,000 and would necessitate a capital
investment of about $160,000. The economic impact associated with
these costs is expected to be low and not result in competitive shifts,
community effects or international trade balance impacts.
Four options were considered for setting BAT regulations, and
three options were considered for setting PSES regulations. Table 1
summarizes the economic impacts associated with each technological
option. Option 1 would perpetuate existing BPT regulations. Option 2,
metals control at-the-source, would impact only 7 of the 20 industry
producers and would lead to a low economic impact. No plant closures,
community effects or balance of trade impacts are expected. The effluent
control costs would likely result in a small reduction of plant profita-
bility. The total capital investment required under Option 2 is
$484,000 and the annual operating costs are $916,400.
Option 3, end-of-pipe metals control, would impact 8 of the 20
industry pror1i"'.ers and would impact two of these producers significantly
more than others. We expect that one of the two producers would likely
close down resulting in a loss of 150 jobs. The displaced employees
vii
-------
could not easily be absorbed resulting in substantial community
effects. There would be no significant impact on supply or on the
balance of trade in this industry. The total industry capital invest-
ment required under Option 3 is $939,300 and annual operating costs
are $2,678,400.
Option 4 - metals control at-the-source plus activated carbon
absorption - would impact 8 of the 20 plants in the industry. All
plants impacted are direct dischargers which would be economically
disadvantaged versus indirect dischargers. Four of the 8 plants
would experience a high economic impact and two of these plants would
likely close down. This would result in the loss of between 350-400
jobs and would lead to significant community impacts, but would not
disrupt industry supply or result in balance of trade impacts. The
total industry capital investment required under Option 4 is
$15,699,100 and the annual operating costs are $4,523,700.
The four options considered for new source performance standards
and the two options considered for pretreatment standards for new
sources were judged to have a low impact on the industry. The capital
investment required under these options were less than 10% for all
options (most being less than 2%) and the annual operating costs were
less than 20% (most being less than 10%) of projected plant profits.
It was judged that these costs would not preclude new plant construction
as needed but would likely result in slowing new plant construction
activity.
viii
-------
I I I I I
I I I I I
! !
I I
I I
I I I
I I I
10
iH
cd
en
§
H
&
O
(U Q) 0)
cpiei
OOO
H
1
E >w 3 ««
O J3 O
o
o o o
4J CM (N in
CO V A A
o
U 4-1 4J 4J
10 10 10
o o o o
55 U U O
Vi
0)
U
Vi
a
§
Vi
o
0
cd
o
C
CO
H
Vi
U
0
S
CG
U
CO
M
Q
4-1
0
0)
Vi
•H
O
4-1
U
0)
Vi
•rl
Q
4J
U
CU
VI
•H
Q
4->
U
CU
Vi
•H
P
4J
U
CU
Vi
•H
P
4-1
U
0)
Vi
•H
P
4J
U
CU
Vi
•H
P
4J
U
(U
Vi
«H
P
4J4J4J4J4-I4J4J4-I4J
0)CUQ)CUCUcUQ)cUcU
MViViVlVlViViViVi
•H -H -H -H -H -H -H
M H H
4J 4-1
o o
CU (U
VI V4
H H II It
nj
Vi
0) f.
§
HrOOOoOCOvOen
-------
I. INTRODUCTION
Section 301 (b) (1) (A) of the Clean Water Act (the Federal Water
Pollution Control Act Amendments of 1972, as amended by P. L. 95-217, the
Clean Water Act of 1977) requires existing industrial dischargers to waters
of the U.S. to achieve by July 1, 1977, effluent limitations requiring the
application of the best practicable control technology currently available
(BPT). By July 1, 1984, these same dischargers are required to achieve
effluent limitations requiring the application of the best available technology
economically achievable (BAT) and the best conventional pollutant control
technology (BCT) pursuant to Sections 301 (b) (2) (A), (b) (2) (C), (b) (2) (E),
Additionally, new industrial dischargers are required to comply with New Source
Performance Standards (NSPS) under Section 306 of the Clean Water Act (the Act),
and new and existing industrial dischargers to Publicly Owned Treatment Works
(POTW's) are subject to Pretreatment Standards under Sections 307 (b) and 307
(c) of the Act.
The purpose of this study is to assess the economic impacts of these
requirements on the Gum and Wood Chemical Manufacturing Point Source Category.
A. Scope of this Report
The analysis of the economic impact of the seven effluent limitation
options on the Gum and Wood Chemical Manufacturing Industry is developed
primarily on a microeconomic basis. While an overall industry analysis (e.g.
macroeconomic basis) is presented, it is primarily an aggregate of individual
plant impacts.
-------
Although the Gum and Wood Chemicals industry can be subdivided into seven
subcategories, only four of these will be discussed in this report. These
are:
1. Sulfate Turpentine
2, Wood Rosin, Turpentine, and Pine Oil,
3. Tall Oil Fractionation Products, and,
4. Rosin Derivatives.
Three other subcategories-Charcoal, Gum Rosin and Turpentine, and
Essential Oils-were excluded from this analysis because the plants in these
subcatetories either do not discharge process wastewater or only discharge
negligable amounts of process wastewater as compared with other plants in
this industry.
This report depicts the Gum and Wood Chemical's structure, financial
characteristics, supply and demand relationship, domestic and international
competitive environment, market characteristics, proposed effluent limitations
costs, and the analysis of their resulting economic impacts. Also included
is a description of the methodology used to determine these impacts.
Specific impacts discussed are:
(1) price increases,
(2) profitability,
(3) industry growth,
(4) plant closures,
(5) production changes,
(6) employment,
(7) consolidation trends,
(8) balance of trade effects, and,
(9) community and other dislocational effects.
2
-------
B. Organization of this Report
This report Is organized into six sections, of which sections 3 through 5 deal
specifically with the industry, and sections 1, 2, and 6 deal with this report
and/or the analytical methodology. Section 1 defines the overall scope of
this study; section 2 details the study methodology; and section 3 sub-
categorizes the industry structure, and discusses the characteristics of each
of the four subcategories covered in this study. Major areas addressed in
each subcategory are: Major products, supply characteristics and demand
characteristics. Section A details the proposed effluent control costs, by
control option, for existing plants and new direct and indirect discharge^
plants. Section 5 estimates the impact of these costs on the plants operating
in this industry and section 6 addresses the assumptions made and limitations
of this analysis.
C. Data Sources
The data sources supporting this assessment are the Development Document
for the Gum and Wood Chemical Manufacturing industry provided by the EPA,
publically available financial reports, studies and surveys, and the results
of EPA's survey of three major participants in this industry. Supplementing
this data were articles drawn from public documents (e.g. Chemical Week, the
Wall Street Journal, Naval Stores Review, etc.) which reported on various
current and potential future developments in this industry.
II. METHODOLOGY
A. Industry Structure and Subcategorization
The Gum and Wood Chemicals industry consists of seven subcategories and
includes approximately 114 plants. These subcategories are defined by
-------
the raw materials used and processes employed rather than by markets
served or "typical" plants since most plants have discrete manufacturing
facilities for different raw materials used, most plants produce products
intended for many diverse markets, and there is no "typical" plant in this
industry.
The Gum and Wood Chemicals industry, as defined in this report, is
actually a grouping of several closely related industries. Crude sulfate
turpentine and tall oil are produced as by-products of the pulp and paper
industry. The fractionation of tall oil into rosin and fatty acids is part
of the traditional naval stores industry, as is production of gum turpentine,
gum rosin, wood turpentine, wood rosin, and wood pine oil. Production of
rosin derivatives is closely associated with the plastics industry while production
of turpentine derivatives is associated with several related organic chemical
industries. Essential oils are grouped with miscellaneous chemical preparations.
Major manufacturing routes for these products are shown in Figure 1-1.
This exhibit demonstrates the close interrelations between the pulp, chemical,
and plastics industries. For example, sulfate turpentine, a by-product of the
pulp industry, competes directly against gum and wood turpentine, both products
of the naval stores industry. In contrast, tall oil, which is also a by-
product of the pulp industry, serves as an important raw material for the
traditional naval stores industry.
Defining subcategories within this industry is a difficult process. In
addition to complex supply and demand relationships among various products,
the degree of forward and backward product integration observed varies by
company. One firm, for example, may be involved in kraft pulping and tall
oil fractionation, while another purchases crude tall oil for fractionation
-------
and further rosin modification. The degree of participation in various levels
of product refinement is shown for selected companies in Table 1-3.
For the purpose of this report, the industry has been divided into sub-
categories on the basis of processes rather than by markets or "typical" plants
to allow congruence with the Technical Document treatment cost data.
Although we feel that these subcategories represent the best possible compromise,
they do cause some difficulties in that they do not correspond to SIC groupings,
and thus to readily available government statistics.
B. Financial Profile of the Industry
1. Size of the Industry
The estimated shipment value of primary products produced by the Gum and
Wood Chemicals industry in 1977 was slightly under $300 million, excluding the
value of gum turpentine and gum rosin. Not included in this estimate is the
value of rosin derivatives produced at plants engaged in primary product pro-
duction which could add an estimated $100 million to the industry size estimate.
The production volume and estimated value of shipments by product are provided
in Table II-B-1.
2. Financial Performance
The financial status of this industry is difficult to characterize
precisely since most of the participants are small business activities of much
larger corporations. However, an estimate of the average industry income
-------
statement was prepared from several sources and is shown in Table II-B-3. This
statement suggests that the average profitability is probably less than that of
the Total Chemical Industry. Specific profitability estimates for each
subcategory were prepared using a similar format and based on a judgment as to
whether the subcategory profitability was higher or lower than the estimated
industry average.
C. Model Plants
Since there are only 20 plants discharging in this industry, the
analysis of the proposed effluent limitation control costs and industry economic
impact analysis was done on a plant by plant basis. Therefore, no model plants were
proposed or characterized.
D. Pricing Patterns
Pricing patterns within an industry subcategory are critical to an under-
standing of who will bear the economic impact of proposed effluent limitations.
In markets where prices are depressed (i.e., soft), participants bear some or
all of the costs incurred until supply and demand forces allow cost recapture
through higher than "normal" prices. In markets where prices are strong,
consumers of the products bear most or all of the costs incurred through higher
prices. To determine the cost pass-through capability, historical price
changes were compared with demand fluctuations to estimate a maximum %
price increase limit beyond which significant demand shifts could be expected.
A detailed analysis of price elasticity was not performed. It is believed
that, during periods of reasonable supply/demand balance, price increases up to
5% could be uniformly brought to the market without disturbing the current and
future demand for specific gum and wood chemical products. Beyond 5%, an
analysis of demand elasticity would be required to estimate the impact on
producers of such an action. While many products in this industry are
6
-------
currently supply limited, it is also felt that most products have a fairly
high demand elasticity co-efficient and large price increases would result in
significantly curtailed demand in a very short period of time.
E. Waste Treatment Technological Options and Costs
Several options for each regulatory alternative were considered in this
analysis to aid developing the proposed regulations for BPT, BAT, NSPS, PSES
and PSNS. Independent assessments were done for each of four industrial
subcategories.
1. BPT Limitations
Three options were considered for setting BPT limitations. Option I
was not to regulate. Option II was to perpetuate existing BPT regulations, and
Option III was to regulate based on performance of the treatment systems in
place in the industry. The potential effluent reduction and costs associated
with each technology are estimated in the EPA Development Document for those
plants not yet complying with these standards.
2. BAT Limitations
Four technological options were considered for setting BAT limitations.
Option 1 would perpetuate the existing BPT regulations. Option II would add
at-the-source metals removal. Option III would require BPT control plus
metals removal end-of-pipe and Option IV would require activated carbon
treatment with Option II are in the EPA Development Document.
3. NSPS Limitations
Four control options for NSPS were considered for setting NSPS limitations.
Option 1 would require only existing BPT limitations. Option II would require
-------
BPT limitations plus at-the-souice metals removal. Option III would require BPT
limitations plus end-of-pipe metals removal. Option IV would require activated
carbon columns in addition to Option II. The costs associated with each of
these options are estimated in the EPA Development Document for a
"typical" (i.e. slightly "above average") new plant in
might reasonably experience new plant construction.
4. PSES Limitations
Three control options were considered for setting PSES limitations.
Option I was not to regulate. Option II would require at-the-source metals
removal, and Option III would require end-of-pipe metals removal prior to
discharge into municipal sewer systems. The potential effluent reduction and
costs associated with each of these options are estimated in the EPA
Development Document for each existing indirect discharger in this industry.
5. PSNS Limitations
Three control options were considered for setting PSNS limitations.
Option I was not to regulate. Option II would require at-the-source metals
removal and Option III would require end-of-pipe metals removal prior to
discharge into municipal sewer systems. The costs associated with each of these
options are estimated in the EPA Development Document for a "typical"
(i.e. slightly "above average") new plant in the two subcategories which might
reasonably experience new plant construction.
F. Analysis of Economic Impacts
1. Profitability
Basic to the Economic Impact Analysis is an estimate of the profitability
for each plant in this industry. Based on factors such as the product mix
produced in each plant, estimated production volume, average market prices for
these products and average estimated cost of production, a pre-tax profit
margin for each plant was estimated. After-tax profitability was not estimated
8
-------
since participants in this industry are typically business activities of
much larger corporations and allocation of corporate overhead and interest
charges would affect the actual tax rate applicable to each plant in a manner
which cannot be estimated without detailed financial data and knowledge of
corporate policy in these areas.
2. Economic Impact Assessment
The methodology used in the economic analysis employs estimation of the
before tax profit reduction expected for plants currently operating in this
industry assuming no cost pass through. Compliance costs as a percentage of
before tax profits was chosen as the lay measure of the expected economic
impact.
When cost pass-through was not ignored, the compliance cost as a % of
plant production value was estimated and used as a reference point to
qualitatively judge the possibility of recovering all or part of the
compliance costs. For plants with compliance costs less than 20% of before-tax
profits and 5% of production value, a negligible or slight economic impact was
expected. For plants with compliance costs more than 207, but less than 50%
of before-tax profits and less than 5% of production value, a moderate economic
impact was expected. For plants with compliance costs more than 50% of before-
tax profits and more than 5% of sales, a high economic impact was expected.
3. Differential Impacts
Competition takes place in specific markets rather than at specific
plants. A plant which includes production of a group of products which results
in high plant compliance costs is at a significant disadvantage to those, with
a different mix of products, which have low compliance costs. Therefore, a
second line of analysis involved analyzing only those plants producing products
in a specific subcategory to determine which if any might be disadvantaged
relative to the remaining producers. No attempt was made to examine the
9
-------
possibility of reallocating the compliance costs to other products produced
at a potentially disadvantaged plant to maintain an overall competitive
balance within an industry subcategory.
4. Plant Closures and Production Effects
The decision criteria for plant closures are based on compliance costs
as a % of profits and as a % of value of production. Plants are projected
to close if compliance costs are more than 50% of before-tax profits and more
than 5% of sales.
5. Employment Impact Analysis
For those plants which are projected to close, it was assumed that those
employed at that plant would be discharged and not transferred to other plants
owned by the corporation making the closure decision.
6. Community Effects Analysis
Plants located in or near substantial industrial areas were judged not
likely to inflict significant imbalances on the surrounding community upon
closure.
7. Other Effects
Other effects of effluent limitation compliance costs (such as Balance
of Trade Effects) were determined judgmentally based on historical importance
of imports and exports and the expected potential of non-domestic producers
to supply U.S. requirements at lower prices.
10
-------
TABLE II-B-1
PRELIMINARY ESTIMATE OF THE VALUE OF 1977
INDUSTRY SHIPMENTS BY PRODUCT
Production
GUM
Turpentine
Rosin
WOOD
Turpentine
Rosin
PINE OIL
871 K. gal.
32 M lb.(a)
2,986 K. gal.
265 M Ib.
9,489 K. gal.
(a)
Average
Price
$1.32/gal
0.24/lb
Shipment
Value
<$M).
1.25
7.68
1.20/gal.(b) 3.58
0.20/lb. 53.00
1.05/gal.(b) 9.96
SULFATE TURPENTINE 20,255 K. gal.
0.50/gal.
10.13
FRACTIONATION
Fatty Acids
Rosin
375 M Ib.
410 M Ib.
0.25/lb.
0.18/lb
93.75
73.80
Total $302.58
(a) K » thousand; M - Million
(b) No published price data are readily available; these are esti-
mated prices.
Source: Arthur D. Little, Inc.
11
-------
TABLE II-B-3
INCOME STATEMENT RATIOS
Chemicals & Allied Products* Gum & Wood Chemicals
Net Sales & Receipts
—Depreciation
—Materials Costs
—Labor Costs
—Fuel & Energy Costs
—Other Operating Costs
100.0%
3.8
85.9
100%
6C
53
17
5
5-15
Income from Operations Before Taxes
—Income Taxes
income after Taxes
6.3
2-9
a. Average ratios for 1977 from "Quarterly Financial Report", 4th quarter, 1977.
b. Arthur D. Little, Inc. estimates based on data from the 1972 Census of Manufacturers
and the 1976 Annual Survey of Manufacturers for SIC 2861.
c. Six percent is the maximum estimate; the actual value is probably much lower because
of the age of most of the equipment. Investment is new plants and equipment represented
3% of sales during this period.
12
-------
III. Industry Characterization
A. Overview
The industry reviewed in this report deals with products that either
are extracted from trees or are derivatives of products extracted from
trees. They include gum and wood chemicals—the traditional "naval stores"
industry, as well as sulfate wood chemicals, essential oils, rosin derivat-
ives and turpentine derivates.
The following industry segments will be discussed in this report:
A. Sulfate turpentine and fractionation products
B. Wood rosin, turpentines, and pine oil
C. Tall oil fractionation products
D. Rosin derivatives
E. Gum rosin and turpe^'~*.ne
While subcategory E - Gum Rosin and Turpentine has been excluded under
paragraph 8 of the Settlement Agreement, products produced in this segment
do compete with products produced in other subcategories and therefore will
be discussed.
1. Industry Size and Growth
The size and preliminary estimated values of industry shipments by
product are provided in Table III-l. The growth rates predicted for each
industry segment are shown in Table III-2.
2. Industry Structure
The gum and wood chemicals industry, as defined in this report, is
actually a grouping of several closely related industries. Crude sulfate
turpentine and tall oil are produced as by-products of the pulp and paper
industry. The fractionation of tall oil into rosin and fatty acids is
13
-------
TABLE III-l
PRELIMINARY ESTIMATE OF THE VALUE OF 1977
INDUSTRY SHIPMENTS BY PRODUCT
GUM
Turpentine
Rosin
WOOD
Turpentine
Rosin
PINE OIL
Production
871 K gal.
32 M lb.U)
2,986 K gal.
265 M Ib.
9,489 K gal.
(a)
Average
Price
$1.32/gal
0.24/lb
(b)
Shipment
Value
($M)
1.25
7.68
1.20/gal.vl" 3.58
0.20/lb. 53.00
1.05/gal.(b) 9.96
SULFATE TURPENTINE 20,255 K gal.
0.50/gal.
10.13
FRACTIONATION
Fatty Acids
Rosin
375 M Ib.
410 M Ib.
0.25/lb.
0.18/lb
93.75
73.80
Total $302.58
(a) K = thousand; M = Million
(b) No published price data are readily available; these are esti-
mated prices.
Source: Arthur D. Little, Inc.
14
-------
TABLE III-2
GROWTH RATES BY INDUSTRY SEGMENT
Segment
Average Historic Growth
Rate; 1968-1978
(%/yr)
A. Sulfate turpentine
and fractionation
products.
Predicted Future Growth
Rate: 1978-1988
0-2%/yr.
B. Wood rosin, turpen-
time and pine oil
(6 -9)
Continued decline
C. Tall oil fractiona-
tion products
2 - 3%/yr.
D. Rosin derivatives
NA
0 - 2%/yr.
E. Gum rosin and
turpentine
(13)
Continued decline
Source: Arthur D. Little, Inc.
15
-------
part of the traditional naval stores industry as is production of gum
turpentine and gum rosin. Production of rosin derivatives is closely
associated with the plastics industry; production of turpentine derivatives,
with several related organic chemicals industries.
Major manufacturing routes for these products are shown in Figure III-
1. This exhibit demonstrates the close interrelations between the pulp,
chemical, and plastics industries. For example, sulfate turpentine, a by-
product of the pulp industry, competes directly against gum and wood
turpentine, both products of the naval stores industry. In contrast, tall
oil, which is also a by-product of the naval stores industry, serves as an
important raw material for the traditional naval stores industry.
Defining subcategories within this industry is a difficult process.
In addition to complex supply and demand relationships among various pro-
ducts, the degree of forward and backward product integration observed
varies by company. One firm, for example, may be involved in kraft pulping
and tall oil fractionation, while another purchases crude tall oil for
fractionation and further rosin modification. The degree of participation
in various levels of product refinement is shown for selected companies in
Table III-3.
For the purpose of this report, the industry has been divided into
subcategories on the basis of processes rather than by markets or "typical"
plants to allow congruence with the Development Document treatment
cost data. Although we feel these subcategories represent the best
possible compromise, they do cause some difficulties in that they do not
16
-------
correspond to SIC groupings, and thus to readily available government
statistics.
3. Historical Development of the Industry
Wood-derived products have been of major interest and importance since
early civilization. Theophrastus (ca. 300 BC) describes in detail various
techniques for gathering oleoresins from pines in his "Enquiry into plants."
Pitch was a highly valued product in the ancient power centers of Greece,
Macedonia, Asia Minor, and Egypt.
The original naval stores industry, called as such, had its origins
with European shipbuilders of the late 16th Century, Initially the term
"naval stores" designated the pitch and tar derived from destructive
distillation of the Scotch pine. These commodities were indispensable in
the production and maintenance of wooden sailing vessels. With the advent
of iron and steel sailing vessels, the maritime application of naval stores
disappeared and the industry channeled its efforts toward the refinement
and production of turpentines, rosins, and pine oil, which were beginning
to become commercially important. Although these products are not related
to the maritime industries, the old term "naval stores" has been carried
over to encompass them.
In the Middle Ages, the original naval stores industry was centered
in the Baltic States (predominantly Sweden). At that time, the industry
was concerned with gum chemicals. By the end of the 17th Century (to the
alarm of European maritime nations, who feared shortages and monopolies on
naval stores products and their potentially devastating effect on the
maritime economy), Sweden had succeeded in completely dominating the
industry.
17
-------
CO
C_|
&3
Q
cd
O
S5
H
1
cd
o
^c
35
Jj
d
01
•H
<4H
0)
Cd
O
Produ
o
to
rH
0)
^
0)
(1)
d
c
1
e
d
^
x>
cd ca
Cd d
CO
4-1 "\
u ca c
3 d c
cd
3 U
3 iH CO
dp 60
•O iH CO 43 d
O CO rH P 3 iH
M 01 cd (
p t p^ {J ]
3 rJ •>->
> cd
•H cd •• O
0) T) S CO rH CO U
ca d 55 o) P
D S >
30) -H
.
^^
CO
co a
rH O
cd IH
U 4J
iH 0
B cd
3 oi
43 P
o
01 P
S cd
O 4J M 3 U Q) 43 CO 3 B
iH COO) UH 0) > O 0) MH *H
IH Pj Pj_ P* H CO
0) > iH
> -H M
iH IH 01
4J 01 O
cd Q CO
> PC
•H T3 01 -H
p -H 4-1 CO
01 O CO O
Q
-------
•8
H
•XUBC.OOO
•03
•03
jjj
^1
a
&
X
X
X
X
RUDE PRODUCT:
Tall Oil
M
X
X
X
M
K
Turpentine
X
X
X
K
f
bl
O
I
c
tn
s
X
X
X
X
pH
9
D
35
S
•H
O
1
6.
X
"
X
X
K
ONSTITUENTS:
Tall Oil Rosin
u
M
M
X
X
K
X
X
X
I
fcl
*j
r-t
O
rH
K
M
K
X
X
I
1
a
X
X
X
X
X
B-Plnene
X
tn
5
ERIVATIVES :
Fatty Acid Per
a
H
M
K
X
X
K
a
«
u
e
*4
i
X
K
44
a
-H
|
I
01
O
x
U
•H
C
>
•H
O
f-t
p-
X
X
X
Camphene
X
X
X
X
X
Cl
X
"•E
"01
g
4-1
c
V
a
*H
Q
X
X
X
Terpene Resins
X
X
Myrcene
X
M
ND USE PRODUCTS
'Paper Size
w
X
X
X
«
e
91
Plastics and R
x
X
X
X
X
X
I
g
§
u
<0
EM
1
I
K
Insecticides
X
X
Adhesives
* I
• 44
t 3
•H • V)
S I I
-3 o ?
& £ U
5 « 1
IH -S 01
* -a
i s.
3-
f-l C O D.
§ • S 5
5 S S .
** -H C M
> 9 4»
e 44 o.
•» S CO
* C B
• o -H 5 x
•rt O h i-t
tO «44 44
a -a w e
C ° £ c S
Stfl *H 0)
So. « j:
u o u
MM M
IIII
o
1
19
-------
Spurred by opposition to this monopoly, development of the industry in
North America began shortly after its discovery in 1492. The use of native
pine tree pitch for naval stores was documented in 1528 by the Narvaez
expedition to Florida, Commercial production of crude turpentine was
initiated in Nova Scotia in 1606. In 1608, prompted by European demand and
some sponsorship, the first export market for pine pitch and tar began in
Virginia. Production of crude turpentine and pitch shifted from Nova Scotia
to New England and then began to drift southward, when it was discovered
that the longleaf pines of the Carolinas gave better yield than the pitch
pines of New England. The use of longleaf pines for gum (oleoresin)
exudates was established in North Carolina in the 17th Century, peaking in
1880, a year in which more than 1500 gum mills were operating there. With
the commencement of the lumbering industry in North Carolina came the
discovery of the slash pine, a more desirable species for gum collecting
than the longleaf species. Copious yields can be attained from this species
within 15-25 years, while for the longleaf variety the trees cannot be
profitably tapped before reaching 25-45 years.
For a short period, South Carolina led the gum industry in production,
having an abundance of both the longleaf and the slash pines. But, because
of wholesale clear cutting of virgin stands without reseeding, the industry
continued its southward migration. The naval stores industry began in
Georgia in 1875 and by 1880, Georgia was its leading producer. In the
early 1920's, the Department of Agriculture noted the continued devastation
of virgin pine forests and predicted that the industry would die within
ten years.
Commercial production by the wood chemicals industry was established
in 1909. Production of these chemicals is somewhat less complicated and
20
-------
less labor-intensive than production of gum chemicals. The raw materials for
the wood chemicals industry are 20- to 30-years old stumps and other residual
woods from the cutting of southeastern pine forests. The resinous chemicals
in these pines is extracted with a solvent, and the solvent extract is then
separated by fractionation.
As techniques for extraction of wood chemicals from pine stumps were
refined and further developed the gum chemical industry continued to decline.
From 1950 to 1968, the wood chemicals industry was the leading producer of
naval stores. However, in 1968 the sulfate chemicals industry, an offshoot
of the kraft paper process, surpassed the wood chemicals industry to become
the leading source of wood derived chemicals.
In this most recent industry, turpentine is recovered directly during
the pulping process, while rosin is obtained by fractionation of a kraft
process by-product known as "tall oil." The term "tall oil," derived
from the Swedish word "tallolja," translates as pine oil. However, in the
United States such a literal translation would cause confusion with the
essential oil known as pine oil, thus the simple transliteration to tall
oil. Today, sulfate turpentine represents 86% of all turpentine produced
in the United States; tall oil rosin, 60% of all rosin.
4. Potential Changes within the Industry
Two factors may combine in the future to change the gum and wood
chemicals industry. Recently, research has shown that paraquat treatment
of pine trees increases the yield of oleoresin by 2 to 5 times over the
untreated tree yield. (Since oleoresin contains both rosin and turpentine,
a paraquat-treated tree could be expected to increase its yield of both
these products.) This opportunity for increased production of oleoresin,
combined with rising petrochemical prices, presents the possibility of
oleoresin substitution for petroleum in the production of several important
21
-------
derivatives. It has been estimated that petrochemical prices would have
to increase to roughly three times their current level to make sub-
stitution of oleoresins economically feasible.
Oleoresin is a hydrocarbon and it is technically feasible to derive
compounds from it that are identical with those derived from petroleum.
Some potential markets, thought to be suitable for oleoresin substitution,
include polyurethane foam, synthetic lubricants, and mellitic acids. In
addition, turpentine could easily be burned as a fuel. (Turpentine
releases slightly more energy per gallon than gasoline; a private
research organization has allegedly developed a process to produce motor
fuel from turpentine, claiming that the fuel offers high gas mileage.)
5. Financial Profile
Since many of the participants in this industry are small business
centers within large corporations, financial statements specific to gum
and wood chemicals are not available. However, an estimate of an average
industry income statement is shown in Table III-4. Note that depending
on the level of general administrative costs, profitability could vary
widely from company to company. It is thought that some of the small,
backwoods gum and wood producers make essentially no company profit,
while the owners work for wages.
Financial summaries of four companies are included in Table III-5.
Even among these large companies, 1977 profitability varied from 2.0%
(for Reichhold) to 10.6% (for Union Camp).
6. Employment and Wages
In 1976, the Gum and Wood Chemicals industry (SIC 2861) (including
charcoal production), employed 4700 people and had an annual payroll
22
-------
of $56.1 million. This level of employment represents a decrease of
more than 20% since the 1972 Census of Manufacturing was taken, at
which time the industry employed 5900 people at an annual payroll of
$47.6 million. There were 139 facilities reporting under SIC 2861 in 1972;
50% of these were located in the South. Seventy-one percent of the 1972
establishments employed less than 20 people; only 11% employed 100 or
more people.
23
-------
TABLE III-4
INCOME STATEMENT RATIOS
Chemicals & Allied Products3 Gum & Wood Chemicals
Net Sales & Receipts
—Depreclat ion
—Materials Costs
—Labor Costs
—Fuel & Energy Costs
—Other Operating Costs
100.0%
3.8
85.9
100%
6°
53
17
5
5-15
Income from Operations Before Taxes
—Income Taxes
Income after Taxes
6.3
4-14
2-5
2-9
a. Average ratios for 1977 from "Quarterly Financial Report", 4th quarter, 1977.
b. Arthur D. Little, Inc. estimates based on data from the 1972 Census of Manufacturers
and the 1976 Annual Survey of Manufacturers for SIC 2861.
c. Six percent is the maximum estimate; the actual value is probably much lower because
of the age of most of the equipment. Investment is new plants and equipment represented
3% of sales during this period.
24
-------
TABLE III-5
MAJOR PARTICIPANTS IN NAVAL STORES INDUSTRIES:
1977 FINANCIAL SUMMARIES
Net Sales
Net Income
Income/Sales
Total Assets
Return on Assets
Shareholder's Equity
Return on Sharehold
Number of Employees
($000)
Hercules
1697,800
57,900
3.4%
1477,543
3.9%
y 757,570
er's Equity 7.6%
24,002
Company
Reichhold
673,942
13,711
2.0%
387,636
3.5%
191,080
7.2%
6,546
Union Camp
1081,653
114,664
10.6%
1130,061
10.1%
722,981
16.7%
15,013
Westvaco
1000,622
61,944
6.2%
885,710
7.0%
162,605
13.8%
15,850
Source: 1977 Annual Reports
25
-------
B. Sulfate Turpentine and Fractionation Products (Subcategory A)
Sulfate turpentine is produced as a by-product of the kraft or sul-
fate pulping process. During the kraft process, available species of
pine trees are cut, debarked, chipped, and subjected to cooking with
sulfate white liquor, a mixture of sodium hydroxide, sodium sulfide,
and sodium carbonate. The wood is digested, releasing the cellulose
fibers or pulp from the other wood constituents. Turpentine, contained
in the oleoresin of the pine tree's sapwood and heartwood, is volatilized
during the kraft process and recovered by condensation of the vapors.
Crude sulfate turpentine, collected during the pulping operations,
contains sulfur compounds that give it an extremely disagreeable odor.
In order to make a product of marketable grade, suitable for use as a
chemical raw material, it is necessary to remove most of the sulfur
compounds as well as the small amounts of pine oil and other terpenes
which may be present in the crude. This refining process includes dis-
tillation to strip the odor-causing mercaptans from the turpentine,
followed by fractionation to separate the turpentine into its major
components: alpha-pinene and beta-pinene. Minor components, also re-
covered during the fractionation process, include limonene, camphene,
dipentine, and pine oil. These turpentine fractionation products may be
subsequently altered through various chemical reactions to produce
marketable end products.
This report will include only establishments engaged in refining
and fractionating crude turpentine into its components. The recovery of
crude sulfate turpentine at the pulp mill is an integral part of the
kraft pulping process and is reported under the Standard Industrial
26
-------
Codes (SIC) 2611, 2621, or 2631, (depending on whether the pulp mill
is a separate operation, combined with paper mills, or combined with
paperboard mills). The pulp mill recovery process is not included in
the scope of this report.
1. Supply Characteristics
1.1 Producers
The eight U.S. plants producing refined sulfate turpentine and
turpentine fractionation products are shown in Table III-B.l. All but
one of these operations (Stimson Lumber Company's Washington plant) art:
located in the Southeast region of the United States.
The combined capacity within the industry is unknown; however, it
is likely that most, if not all, of these plants are operating below
capacity. The pulp and paper industry is currently undergoing a reces-
sion and the pulping operation's by-products, including crude turpen-
tine, are in short supply. Only an estimated 25 million gallons of crude
turpentine was collected by pulp mills during the 1977 crop year and
made available to turpentine producers. This amount represents roughly
one-third of the crude turpentine that could be collected if the pulp
mills were operating at full capacity and efficiently collecting all
the turpentine vapors released during the pulping process.
The known capacity for softwood kraft pulping within the pulp
industry is currently 60,000 tons per day. This indicates a capa-
city for crude turpentine of 270 to 360 thousand gallons per day,
or approximately 80 million gallons per year.
(Arthur D. Little, Inc., estimates)
27
-------
TABLE III-B-1
PRODUCERS OF SULFATE TURPENTINE AND FRACTIONATION PRODUCTS
Company Plant Location
Arizona Chemical Co. Panama City, FL
Crosby Chemicals, Inc. Picayune, MS
Hercules, Inc. Brunswick, GA
Reichhold Chemicals, Inc. Oakdale, LA
Reichhold Chemicals, Inc. Pensacola, FL
SCM Corp. Jacksonville, FL
Stimson Lumber Co. Anacortes, WA
Union Camp Corp. Jacksonville, FL
Source: Arthur D. Little, Inc.
28
-------
1.2 Integration and Capital Requirements
Varying degrees of forward integration are observed within the sul-
fate turpentine segment of the gum and wood chemicals industry. One firm,
Stimson Lumber Company, sells alpha-pinene and beta-pinene; others (e.g.,
SCM Corp.), market predominantly turpentine derivatives, such as flavor,
fragrance, and other fine chemicals. Most of the companies appear to be
making some effort to move further forward into higher value-added
specialty chemicals.
Backward integration by turpentine refiners into the operation of
pulp mills is not found within the industry, although informal supply
agreements may often occur. Arizona Chemical Co. is partially controlled
by International Paper Co., which operates fourteen kraft pulp mills,
and SCM Corp. is involved in a joint venture with St. Regis Paper Co.,
which also owns four kraft mills. It is uncertain how much advantage,
if any, these associations give Arizona and SCM over other refiners in the
procurement of raw material.
Capital investment levels within the industry are moderate; the
estimated ratio of capital investment to sales is 1.2 to 1.0. Both
capital intensity and the level of research and development spending
increase with greater forward integration.
New equipment purchases, usually representing from 10% to 15% of
total capital investment, are necessary roughly every five years with-
in this segment to allow the firms to keep pace with new product develop-
ments .
29
-------
1.3 Estimated Profitability
Profitability within the sulfate turpentine segment (expressed
as income after taxes as a percent of sales), tends toward the high
end of the 2% to 9% range estimated for the gum and wood chemicals
industry as a whole. This segment is able to obtain slightly higher
profits than the industry average by integrating forward, away from more
price-sensitive commodity products. There is reason to believe that
opportunity exists for individual producers to further upgrade their
product line if they come under pressure for better profit margins.
1.4 Other Supply Characteristics
The overriding factor influencing producers of sulfate turpen-
tine and derivatives is their dependence on kraft pulp mill operations
for raw material. Because of this dependence, the turpentine industry
has located almost exclusively in the Southeastern United States, near
the softwood pulp mills. The availability of crude sulfate turpentine
has also influenced the growth of the industry; currently most plants
are operating below capacity, and no major capacity additions or market
entries are anticipated in the near future.
The industry is not highly labor-intensive; however, the ratio of
skilled to nonskilled labor is relatively high. Many companies find
it necessary to employ large R&D staffs to compete in the specialty
chemical markets.
2. Demand Characteristics
2.1 Market Size and Share
The sulfate turpentine industry grew rapidly during the 1950's and
1960's. However, as Table III-B-2 shows, production reached a peak level
30
-------
TABLE III-B-2
SULFATE TURPENTINE'S SHARE OF THE TOTAL U.S. TURPENTINE MARKET
Year Ending Sulfate Turpentine Total U.S. Turpentine Sulfate Turpentine's
March 31 Production Production Market Share
(000 gals) (000 gals) (%)
1954 8,200 26,900 30
1955 11,600 30,900 38
1956 15,150 32,750 46
1957 15,250 32,250 47
1958 15,600 31,350 50
1959 15,750 30,400 52
1960 17,670 31,840 55
1961 16,150 30,270 53
1962 16,642 31,856 52
1963 17,418 32,653 53
1964 18,777 33,677 56
1965 20,104 33,955 59
1966 21,033 35,033 60
1967 21,338 33,275 64
1968 20,987 31,397 67
1969 23,658 32,609 73
1970 23,975 30,869 78
1971 22,768 28,790 79
1972 22,745 28,433 80
1973 23,206 28,303 82
1974 22,019 26,532 83
1975 20,458 24,352 84
1976 19,274 22,380 86
1977 20,255 24,112 84
1978 20,608 23,878 86
(preliminary)
Source: Arthur D. Little, Inc., based on U.S. Department of Agriculture
reports
31
-------
of 24 thousand barrels in 1970 and has declined slightly since that time.
The decline is attributed to the recent recession in the paper industry
and to the increased use of hardwood and waste fiber in kraft pulping
processes. Nevertheless, sulfate turpentine's share of the total
turpentine market (on a production basis) has continued to increase
since 1970 and now stands at 86%.
Growth in sulfate turpentine production has been accompanied by a
decline in the production of gum and wood turpentine. Table III-B-3
compares production figures for the three types of turpentine. Apparent
U.S. consumption of turpentine is also provided, although the breakout
of consumption between the different turpentine types is not available.
Production statistics for a-pinene and $-pinene are provided in
Table III-B-4. Information is not readily available on the consumption
level of these products within the Untied States. However, it is reason-
able to assume that essentially all of the production shown in Table
III-B-4 was subsequently converted to various chemical derivatives. The
large difference between "sales" and "production" figures is an indication
of the sizeable quantity of these products consumed in-house.
2.2 Major End Uses
Most of the turpentine produced in the United States today is consumed
in the manufacture of chemicals, as shown in Table III-B-5, which lists
the reported ^ndus,tri^l consumption of all types of turpentine by
(1) Oleoresin, which contains both turpentine and rosin, is found only
in softwood trees (i.e., pine). Increased use of hardwood species
and of waste or recycled fibers from which the oleoresin has al-
ready been removed, decreases the pulp industry's yield of crude
turpentine and rosin.
32
-------
.j a. cu
-H B >H
cu 3
00 CO CO
c: c 3
co o o
X! CJ
o
cu
a n
C PL,
19 6
a o
CL r-l
<^ fa
III
(•O
I
CO
O
CO
00
•O
CO
CO
o
W
H
CO
D
en C
• o
D -H
4J
4J O.
c e
CU 3
O O O O O
m o m o m
CM o*> r^ o CM
CMCMCMCMCMCMCMCMCMCMrOCOrOCOCOrOCMCMCMCSICMCMCMCM
o o o o o
o o o m o
•r^
4-1
O
3
r-l
4-1
CO
CU
•o
cu
e
o
•a
CO (U
CU CO
T3 -H
3 >
rH CU
U r-l
c a
H Q
T3
r-l
CO
O
m
bO
c
•H
0
a
CU
CX
o
u
n
cu
3
4-1
iH
3
o
•H
M
00
M-l
0
4J
C
CU
E
W
r-l
CO
a
cu
O
«
C/3
P
>•>
^
CO
3
rH
3
c
c
<:
CO
1-1
o
4J
cn
rH
CO
cO
!S
• *
CU
CJ
3
o
en
CO fs
33
-------
TABLE III-B-4
1972
n- Pinene
3- Pinene
1973 (a)
1974
1975
1976
a- Pinene
3- Pinene
PRODUCTION AND SALES OF PINENE
Sales
Production Quantity Value Unit Value
(000 Ib) (000 Ib) ($000) ($/lb)
19,814 2,106 0;il
38,095 29,180 4,638 0.16
85,102 51,767 6,251 0.12
76,857 28,494 5,340 0.19
70,215 18,422 4,305 0.23
5,300 724 0.14
25,366 2,757 828 0.30
(a) Combined a- and 3-Pinene production and sales figures were reported
in 1973-1975.
Source: "Synthetic Organic Chemicals, U.S. International Trade
Commission publication
34
-------
£
0
•H
!5 "-> t
5 M 9
H C CO
•? & ° §
M i ** °
« g° rt
•_! fei w
H O O H
r i W
^ Ed CO CO
25 CJ J3
9 H 0 TJ
^ H "H Cj
H SS rH H
W rH
p G 4J
F-j tj
O
Pi
oT
t
;
^^ C3
4-1 4J
§ &
rl 3
0) CO
P. C
Cb O
<; o
rH
o
cr
O
M at
•* vy
4-J 1-1
a
•rf T3
(d c
CO
^1
0)
0
6
s
rH
W
CO
rt
u
JS
0
M 60
n) C
Q) -H rH
H (3
C rH
3 60 M
M a> p
J M •<
rH CM 00 VO r-.
co m os co in
CM CM i-H CM CM
r**« co co sr m
in f-" m os os
i-H CO rH CO CM
vo CM sr CM o
CM CO rH H rH
rH rH i-H rH CO
O O O O O
O O O O O
o oo r^ os CM
CM CM CM VO f~
O i-H CM CO ST
*^ ^J ^J ^f ^J
ON ON ON OS ON
^_l f~^ f^ f~i f~i
VO CM CO O 00
m sr co vo r^
CM CM CM CM rH
CM O O CM VO
oo r- r^ in in
I-H oo vo m sr
rH O 0 0 0
ON 00 00 r*» vO
0 O 0 0 0
CO CM CM rH rH
O O O O O
O O O O O
CM CO r-. O VO
vo m m sr sr
m vo r^ oo os
sr
-------
3
o
o
m
ea
i
w
,-4
CQ
CO
g
rH
rH
(d
O
CO
g
•H
C
o
•H
4-1
Q.
5
CO
a
0
CJ
rH
cd
•H
to
4J
CO
3
T3
C
H
*^
CU
4J
M
O
0>
£
*.
C
X1
C
v,.
to
cd
cu
H
P.
O
to
J
•N
d
S
4J
C
A)
w
to
cd
p.
p.
<
&
co
•H
B
cd
>
«
4J
a
•H
cd
60
C
•H
C
C
•rl
60
CU
M
C
O
4J
&
1
CO
C
0
CJ
rH
4J
O
H
CU
4-1
O
to
CU
3
V
CM
•*
O
CM
rH
O
CM
O
O
0
O
•
0
CM
CM
vO
O^
i-H
sr oo
r-. co
CM CO
o i->
rH -*
CM CM
CM CM
O O
CM CM
O O
«<± sr
o o
0 0
vO CO
• •
0 «*
CM CM
CO Sf
vO vO
CT* ON
i-H rH
«3- m m vo m
CO CM CM CM O
co co co co co
00 <^ vO rH ON
vO t^ 00 O O^
CM CM CM CO CM
«* CM CM CM CM
00000
CM CM CM rH rH
o o o o o
^"^
CM •* CM 00 l"»
ViD r*1* oo ^^ o^
CM CM CM CM CM
m vo r*. oo cj\
^O ^5 ^3 ^O ^D
O^ &\ &\ O^ O\
i-H rH rH i-H rH
OmvOrHin OCMCM >>
t^r».ini^vo cocom -H
CMCMCMCMCM CMCMCM to
§
•H
P.
CU
3
T3
CO
OOCMSTCMO r^ovo -H
vor>-cocMcM r^-sfco c
CMCMCMCMCM HCMCM O
•H
O.
I
O
o
rH
COrHCMCM-
4-4
O
CO
CU
rH
Cd
CO
rH
•H
cd
4J
CU
to
o
4J
co
H
0
iH
4J
O
•H
rH
r-i
3
CU
to
4J
rH
3
O
•H
to
<
UH
O
4-1
rj
CU
e
4-1
to
id
Pi
cu
Q
*
Cfl
&
• •
CU
CJ
to
3
O
CO
36
-------
industry. The decline of turpentine as an ingredient in industrial
paint, varnish, and lacquer, is attributed to increased substitution of
mineral spirits in these applications.
An estimated 40% of the U.S. turpentine production is used in the
manufacture of pine oil. Other major end use product categories for
turpentine are shown in Table III-B-6, which represents a composite of
the use patterns for all three types of turpentine. In the specific
case of sulfate turpentine, slightly higher percentages are used in
chemical manufacturing. The market for retail turpentine and solvent
is supplied more heavily by gum and wood turpentine.
Pine oil is used as a solvent and bactericide in soaps and other
disinfecting compounds. It also serves as a solvent for chlorinated
phenols used in the treatment of lumber, and as a. preservative for
casein and other proteins in adhesives and water paints. Some pine oil
fractions are used as odorants in commercial cleaning compounds. Terpineol-
rich fractions are used in the manufacture of terpineol derivatives.
Camphene, derived from a-pinene, is chlorinated to produce toxa-
phene, an insecticide.
j.erpene resins include a variety of low-molecular-weight polymers
produced from a-pinene or mixtures of a- and 3-pinene. mey are
used in adhesives, (particularly in the compounding of pressure-sensitive
adhesives), in hot-melt adhesives and coatings, and in general purpose
solvent cements. Other uses include the formulation of chewing gum
and dry-cleaning sizes. Recently, terpene resins have found application
in paper size and as a modifier for polyolefin films.
37
-------
TABLE HI-B-6
ESTIMATED END USE OF U.S. TURPENTINE CONSUMPTION
(a)
End-Use Category
Products
Percent
Synthetic pine oil
Insecticides
Terpene resins
Flavors and perfumes
Refined terpenes and
derivatives
Paint, varnish and
lacquer
Other industrial uses
Retail turpentine,
paint thinner, and
solvent
Pine oil (various grades);
terpineols
Chlorinated camphene and
mixtures of terpenes
Polymerized a- and 6-pinenes;
mixtures of other terpenes
Isobornyl acetate, geraniol,
linalool, citnal, etc.
Camphene, -pinene, etc.
40
15
15
13
10
Negligible
2
6
100%
(a) Includes gum, wood, and sulfate turpentine
Source: Arthur D. Little, Inc., estimates
38
-------
An important and growing use of the alpha and beta pinenes is in
the production of flavor and fragrance chemicals for use in perfumes,
foods, and other consumer products. The major manufacturing route
for these products begins with the conversion of 8-pinene to myrcene,
or a- and B-pinene to pinane; followed by the conversion of these deriv-
atives to linalool, geraniol, and citral.
A mixture of monocyclic terpenes is released during several of the
primary production processes discussed above, and is sold under the name
"dipentene" for use primarily as a solvent. Dipentene may also be separ-
ated into its various constituents for processing into flavor and fragrance
chemicals or used as a lubricant.
3. Substitute Products
The closest substitutes for sulfate turpentine are gum and wood
turpentine. Although today these three products are considered essen-
tially identical in quality, at one time sulfur odors present in sulfate
turpentine gave gum and wood products a distinct advantage in the retail
paint thinner and solvent markets. Improvements in the crude sulfate
refining process now allow the removal of essentially all impurities,
including any lingering sulfur odors, from the refined sulfate product.
Because of this one-time advantage, gum turpentine and, to a lesser
extent, wood turpentine, may still be perceived by consumers as superior
products. However, the rising prices and supply shortages of gum and
wood turpentine are rapidly eroding any advantage that they may have
derived from their superior image. As a consequence, sulfate turpen-
tine is able to compete effectively with gum and wood turpentine in all
markets, including the retail paint thinner market. Sulfate turpentine
39
-------
has always been of adequate quality for use in manufacture of turpentine-
derived chemicals, and its lower price and greater availability have
allowed it to dominate that market.
Other products that compete with sulfate turpentine include mineral
spirits in the retail paint thinner market, and petroleum-based chemi-
cals in various specialty chemical manufacturing processes. Flavors and
fragrances that are now produced synthetically from turpentine are also
obtained by extraction from the natural products.
4. Foreign Competition
World production statistics for crude sulfate turpentine are not
readily available, although they can be estimated from a country's
production of crude tall oil since both are by-products of the same
kraft pulping process. The United States is probably the world's major
producer of sulfate turpentine with roughly 45% of the total, followed
by the Scandinavian countries (Sweden, Finland, and Norway) with an esti-
mated combined total of 40%. The U.S.S.R., France, and Mexico are also
known to produce sulfate turpentine.
The United States is a net exporter of turpentine. In 1977, the
United States exported 685 thousand gallons of sulfate turpentine. Fifty
percent of that total was sold to Japan, and another 45% went to France.
Imports of turpentine (type unspecified) during that same period were
valued at $342 thousand or an estimated 400 thousand gallons. They came
almost exclusively from Mexico and probably consist mostly of gum
products.
Since turpentine shortages are being experienced in all parts of
the world, it is not likely that foreign imports will seriously threaten
40
-------
the U.S. industry over the next 10 years. Moreover, foreign demand for
U.S. exports is expected to remain strong. There is, however, some indi-
cation that Japan may purchase an increased portion of the country's
turpentine requirements from China, a large producer of gum turpentine.
5. Prices
Crude sulfate turpentine prices currently range from 55 to 60 cents
per gallon. The general price trend over the past 10 years has been
upward, from 30 cents per gallon in 1969 to 60 cents per gallon in 1978
as shown in Table III-B-7. This trend is expected to continue in the fore-
seeable future. Accompanying this upward price trend has been a decline
in production volume.
During the 1973 and 1974 petroleum shortage, the steady upward
price trend was temporarily interrupted. Prices had dipped slightly
during late 1972, possibly in response to increased production during that
year. They then shot up dramatically during late 1973 and early 1974
as the petroleum shortage increased in severity, and the demand for sub-
stitute turpentine-derived chemicals increased. Between December, 1973
and December, 1974 the price of crude sulfate turpentine rose 175% from
40 cents to 70 cents per gallon. These abnormally high prices declined
during 1975.
Sulfate turpentine is priced below both gum and wood turpentine, and
this differential is increasing. In 1969, the price of gum turpentine
was 47 cents higher than the price of crude sulfate; by early 1978 gum's
price was 87 cents above that of sulfate.
41
-------
TABLE HI-B-7
CRUDE SULFATE TURPENTINE PRICE HISTORY
Year Quarter
1969 1
2
3
4
1970 1
2
3
4
1971 1
2
3
4
1972 1
2
3
4
1973 1
2
3
4
1974 1
2
3
4
1975 1
2
3
4
1976 1
2
3
4
Price
(C/gal)
30
32
35
35
38
42
45
50
50
50
50
50
50
48
48
43
40
37
37
37
40
50
60
70
75
75
75
75
65
45
45
45
42
-------
Year
1977
TABLE III-B-7 (Continued)
CRUDE SULFATE TURPENTINE PRICE HISTORY
Quarter
1978
1
2
3
4
(a)
Price
(c/gal)
45
45
50
50
50
55
60
(a) Expected Price
Source: Arthur D. Little, Inc.
43
-------
6. Growth Forecasts
This segment of the industry is expected to grow no faster than
2% to 3% per year in volume of production output over the next 10 years.
Growth is slowed by the shortage of raw materials which will probably
continue over the near future. However, there is reason to believe
that opportunities exist for the segment to increase its dollar sales
at a faster rate by continuing to slowly raise prices and by upgrading
the product lines to include higher value-added materials.
44
-------
C. Wood Rosin, Turpentine and Pine Oil (Subcategory B)
The wood chemicals industry uses pine stumps as its basic raw mat-
erial. As the pine tree grows and matures, oleoresin is deposited in the
heartwood, where it helps to protect this important structural part of
the tree from insect attack and decay. When the tree is cut for timber,
the stump deteriorates and its bark and sapwood slough off. After ten
years or more, the residual stump is mostly heartwood, rich in oleoresin,
containing up to 25% in the case of virgin longleaf stumps. At one time,
large acreages of cutover pine lands in the Southeastern United States
contained a rich supply of longleaf stumps for the wood chemicals industry.
Methods for removing the stump vary with terrain and soil. The
earlier method of using dynamite has been replaced by a variety of modi-
fied forms of tractors and stump pullers. After extraction, the stumps
are transported by rail or truck to plants where they are water-washed
and reduced to chips.
Depending on the product desired and the operator, the chips are
extracted under pressure with hot solvents such as gasoline, benzene,
or a ketone. The extraction solvent is recovered by distillation and
reused. The oleoresin is then subjected to further distillation to
separate it into volatile oils and residual crude rosin.
Turpentine and pine oil, along with a mixture of monocyclic mono-
terpene hydrocarbons, are recovered by rectification of the volatile
oils. The crude rosin is treated to remove undesirable color components
by passing it through an adsorbent such as Fuller's earth or using a
solvent such as furfural. After treatment, wood rosin is considered
generally equivalent to the corresponding color grades of gum rosin.
45
-------
1. Supply Characteristics
1.1 Producers
Only three U.S. companies are currently producing wood chemicals.
These companies combined operate five plants, all located in the South-
eastern United States, as shown in Table III-C-1.
Although capacity figures are not available, production has been
decreasing and it is likely that all plants are now operating signifi-
cantly below capacity.
1.2 Integration and Capital Requirements
Wood chemical producers are integrated backward into the procure-
ment of stumps. As the readily available supplies of stumps have diminished,
procurement operations have played an increasingly critical role in a
company's ability to compete successfully.
The three producing companies are also integrated forward into
rosin derivatives. Continental and Hercules both produce rosin deriva-
tives at the same plants where wood stump distillation occurs. Reichhold
manufactures rosin derivatives at plants located in Pensacola, FL and
Telogia, FL.
Production of wood chemicals is not a highly capital-intensive oper-
ation. The ratio of investment to sales is estimated at 0.7 to 1.0.
Equipment used by this industry segment is estimated to be over 20 years
old.
1.3 Estimated Profitability
Profitability for the wood chemicals segment is probably in the low
end of the 2% to 9% range estimated for this industry as a whole. Rising
costs of both stump transportation and labor are expected to further erode
this slim margin.
46
-------
TABLE III-C-1
U.S. PRODUCERS OF WOOD ROSIN. TURPENTINE. AND PINE OIL
Company
Continental Turpentine &
Rosin Company
Hercules, Inc.
Hercules, Inc.
Reichhold Chemical Co.
Reichhold Chemical Co.
Plant Location
Cross City, Florida
Brunswick, Georgia
Hattiesburg, Mississippi
Pensacola, Florida
Telogia, Florida
Source: Arthur D. Little, Inc.
47
-------
1.4 Other Supply Characteristics
The regional location of this industry segment was originally in-
fluenced by the relatively high cost of transporting pine stumps from
the cut over forest to the plant. As a result, plants were located as
close as possible to stump sources. However, the supply of suitable
pine stumps is rapidly declining even in these once-prime areas. This
shortage both decreases the amount of raw material available for pro-
duction and increases the cost of transporting the remaining limited
supply because wider areas must be exploited.
This segment employs roughly two field workers to extract and
transport stumps for every one plant worker. The majority of the posi-
tions are nonskilled or semi-skilled.
2. Demand Characteristics
2.1 Market Size and Share
Wood rosin and wood turpentine's market shares are shown in Tables III
G-2, III-C-3 respectively. Both products have experienced a steady
decline in market share over the past 20 years. Primarily because of a
shortage of kraft pulping by-products, wood rosin and turpentine's market
shares strengthened somewhat during the past two years.
The total U.S. production levels for pine oil are provided in Table III
C-4. These figures include both "natural" or wood pine oil, produced
during the stump distillation process, and "synthetic" pine oil produced
from a-pinene. Wood pine oil represented an estimated 25% of the total
pine oil production during the 1978 crop year.
43
-------
TABLE Ul-C-2
WOOD ROSIN'S SHARK OF THE TOTAL U.S. ROSTN MARKET
(million pounds)
Year Ending
March 31
Wood Rosin
Production
Total U.S. Rosin
Production
Wood Rosin's
Market Share
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
(preliminary)
563
631
698
712
688
622
615
623
634
575
569
571
539
562
513
502
499
432
399
382
365
342
283
186
265
246
911
926
999
1,013
1,036
970
966
996
1,044
1,067
1,073
1,083
1,047
1,075
1,017
971
958
906
860
849
848
823
679
565
707
676
62
68
70
70
66
64
64
63
61
54
53
53
51
52
50
52
52
48
46
45
43
42
42
33
37
36
Source: Arthur D. Little, Inc., based on U.S. Department of Agriculture
reports.
49
-------
TABLE III-C-3
WOOD TURPENTINE'S SHARE OF THE TOTAL U.S. TURPENTINE MARKET
Year Ending Wood Turpentine Total U.S. Turpentine Wood Turpentine's
March 31 Production Production Market Share
(000 gals) (000 gals) (%)
1954 9,650 26,900 36
1955 10,400 30,900 34
1956 10,050 32,750 31
1957 9,750 32,250 30
1958 9,300 31,350 30
1959 8,650 30,400 28
1960 8,800 31,840 28
1961 8,150 30,270 27
1962 7,574 31,856 24
1963 7,631 32,653 23
1964 7,874 33,677 23
1965 7,873 33,955 23
1966 8,432 35,033 24
1967 7,727 33,275 23
1968 7,024 31,397 22
1969 6,430 32,609 20
1970 5,144 30,869 17
1971 4,731 28,790 16
1972 4,270 28,433 15
1973 3,769 28,303 13
1974 3,443 26,532 13
1975 3,113 24,352 13
1976 2,071 22,380 9
1977 2,986 24,112 12
1978 2,544 23,878 11
(preliminary)
Source: Arthur D. Little, Inc., based on U.S. Department of Agriculture
reports.
50
-------
TABLE C-III-4
Year Ending
March 31
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1873
1974
1975
1976
1977
1978
PINE
Production
(000 gal)
9,351
9,469
9,271
9,713
9,857
8,348
9,082
11,581
10,912
11,687
13,331
13,675
14,256
14,460
13,887
13,847
14,521
13,013
12,473
10,663
8,561
9,503
9,489
OIL PRODUCTION
Exports
(000 gal)
1,991
2,020
2,188
2,154
2,318
2,556
2,952
2,417
2,790
3,262
4,161
4,075
3,696
3,876
3,690
4,022
3,726
3,805
4,529
4,719
3,604
3,466
3,563
AND EXPORTS
Exports as
a Percent
of Production
(%)
21
21
24
24
24
31
33
21
26
28
31
30
26
27
27
29
26
29
36
44
42
36
38
Percent Change
in Production
from Previous Year
(%)
-
1.3
-2.1
4.8
1.5
-15.3
8.8
27.5
-5.8
7.1
14.1
2.6
4.2
1.4
-4.0
-0.3
4.9
-10.4
-4.1
-14.5
-19.7
11.0
-0.1
Source: Arthur D. Little, Inc., based on U.S. Department of
Agriculture reports
51
-------
2.2 Major End Uses
The major end uses for wood turpentine, rosin, and pine oil are the
same as those discussed for sulfate turpentine, gum rosin, and synthetic
pine oil in Sections 1.2 and 1.3.
2.3 Substitute Products
Gum and sulfate/tall oil products are close substitutes for wood
chemicals. Improvements in wood production processes have brought the
quality of wood products on par with most gum chemicals. However, the
rising price of wood chemicals caused largely by raw material shortages
has not allowed wood products to compete effectively in many of the
chemical manufacturing markets now dominated by sulfate/tall oil
products.
Other substitute products for wood rosin, turpentine and pine oil
include petrochemical derivatives and other hydrocarbons as discussed
in Sections'1.2 and 1.3.
2.4 Foreign Competition
The United States and the U.S.S.R. are the only major world pro-
ducers of wood, steam-distilled chemicals, although small amounts are
also produced in Poland, Yugoslavia, and Honduras. U.S. production
is estimated to be four times greater than the Soviet Union's, as shown
in Table 1II-C-5.
U.S. import data provides no indication that any wood chemicals
were imported into the United States during 1977. However, during
that same period, the United States exported 48 million pounds of
wood rosin and 468 thousand gallons of wood turpentine. Table III-C-6 shows
that the Netherlands and Brazil are major markets for wood rosin, while
52
-------
TABLE III-C-5
ESTIMATED WORLD PRODUCTION OF WOOD ROSIN
(tons)
United States
Europe
U.S.S.R.
1972-73
Crop Year
181,906
(a)
44,000
1977-78
Crop Year
123,000
-
NA
(a) A small amount of wood rosin is produced in Poland,
Yugoslavia, and Honduras
Source: "Pulp and Paper," January, 1975; "Chemical Week,"
October, 1976; and U.S. Department of Agriculture
Reports
53
-------
TABLE III-C-6
U.S. EXPORTS OF WOOD PRODUCTS BY COUNTRY
Product
Country
Amount Exported in 1977
Wood Rosin
Netherlands
Brazil
United Kingdom
Canada
Japan
Germany
Australia
Venezuela
Italy
Republic of So. Africa
Sweden
China (Taiwan)
Denmark
Jamaica
Argentina
Spain
Nicaragua
New Zealand
France
Other countries
12,531 (000 Ib)
9,128 "
5,779
5,372
3,040 "
2,915
1,494 "
1,298
1,038
852 "
449
413
386
316
306
241 "
219
173
124
1,688 "
Wood Turpentine
Nicaragua
Other countries
251,403 (gals)
216,988 "
Source: U.S. Export Data
54
-------
Nicaragua is the U.S.'s major market for wood turpentine.
2.5 Prices
Historical price data for wood products are not readily available.
In general, wood turpentine prices fall within a range bracketed by
the price of gum turpentine on the high end, and sulfate turpentine
on the lower end. The same relationship is found among the prices of
gum, wood, and tall oil rosin, although the variety of grades availa-
ble in each of these products makes the relationships less straight-
forward .
2.6 Growth Forecasts
The wood chemicals industry segment has been declining at approxi-
mately 6% per year over the past decade. This downward trend is
expected to continue, perhaps at an even faster rate. Growing raw
material shortages, the increased cost of transporting stumps to the
plant site, and the impact of higher labor costs on this fairly
labor-intensive operation all contribute to the segment's decline.
Estimates of the length of time over which this industry segment can
continue operating before all suitable stumps are exhausted vary
w idely within a range from 5 to 20 years.
55
-------
D. Tall Oil Fractlonation Products (Subcategory C)
Tall oil is a major by-product of the kraft pulping of pine trees.
Recovered from the black liquor residue produced in the pulping opera-
tions, crude tall oil contains 55% resin and fatty acids, 35% water and
10% black liquor solids. In this form, it finds few direct applications
and those which do exist value it primarily because it is a low cost
material. Tall oil's real value is realized only after it is separated
into its two major components: resin acids (rosin) and fatty acids.
While many processes for carrying out this separation have been reported,
the most effective and universally practiced method is fractional distil-
lation. High quality fatty acid mixtures and relatively pure rosin is
produced in this manner which have significantly higher sales value than
the crude tall oil itself. Commercial grades of tall oil rosin do con-
tain a small amount of sulfur, incorporated during the kraft pulping
process, however, they are generally competitive with gum and wood
rosins at equal or slightly lower prices.
In a typical fractional distillation process, the crude oil is
first dehydrated to remove water completely and flash distilled through
a stripping tower to separate the volatile rosin and fatty acids from
the black liquor solids and non-volatile rosin residues referred to as
tall oil pitch. The vaporized materials are passed through a continuous
fractionating tower where odoriferous sulfur containing light ends are
removed at the top, fatty acid fractions are removed at intermediate
locations, and high quality tall oil rosin is removed at the bottom of
the tower. The fatty acid fractions are further fractionated to yield
high quality fatty acid mixtures and additional tall oil rosin.
56
-------
The amount of fatty acid, rosin and pitch obtained in this manner
is largely dependent on the composition of the crude tall oil itself,
which is in turn dependent primarily on the geographic location where
the pine trees are grown. Average percentage of recovered fractions
for U.S. producers are: fatty acids, 25%; rosin, 40%; pitch and other
secondary, neutral products, 35%.
The fatty acid fraction of tall oil is composed principally of
oleic and linoleic acids which are linear hydrocarbon acids containing
18 carbon units. Neither of these acids are unique to tall oil as oleic
acid is a major component of animal tallow and linoleic/oleic acid
mixtures are obtained from vegetable oils: linseed oil, safflower oil
and soybean oils. The rosin fraction of tall oil is composed primarily
of terpene based monocarboxylie acids. The number of acids and the
percent of composition varies with the geographical source of the pine
trees pulped, however, the rosin fraction from tall oil is essentially
identical to gum and wood rosin with the exception of trace color material.
With modern purification schemes even this distinction is no longer signi-
ficant.
1. Supply Characteristics
The supply of tall oil fractionation products is closely tied not
only to the demand for both fatty acids and rosin but also to the pro-
duction of wood pulp. Since crude tall oil is a by-product of the
pulping of pine trees (softwood), its supply is limited by the quantity
of softwood pulped in any given year. Since the kraft pulping process
can accept both hardwood chips and recycled paper, the supply of crude
tall oil can vary year to year depending on the quantity of softwood
57
-------
consumed in the kraft pulping process. As a rule of thumb, approximately
100 pounds of crude tall oil is produced for each ton (air dried) of
softwood pulp produced. As the proportion of hardwood chips or recycled
paper material is increased, the quantity of crude tall oil available
is decreased. In recent years, declining use of softwoods has tightened
the supply of crude tall oil considerably and at the present time the
demand for crude tall oil exceeds the supplies even though the capacity
utilization reported by the fractionators is a very low 65-70%.
A second factor complicating the supply of tall oil fractionation
products is the interdependent relationship between tall oil rosin and
fatty acids. About 1.1-1.5 pounds of rosin is produced for each pound
of fatty acid. Since this ratio cannot be varied significantly, the
ability to supply either fatty acids or rosin can be limited by the
demand for the other co-product. Therefore, if the demand for rosin and
fatty acid gets significantly out of line with the 1.1-1.5 to 1 production
ratio, suppliers are typically unwilling to increase supplies. This
typically has not been a limiting factor since the demand for both co-
products contained in tall oil have exceeded the supply of crude.
1.1 Producers
The producers of tall oil fractionation products, along with plant
location and 1977 capacity, are shown in Table III-D-1. Capacity is based
on the volume of crude oil input and in most cases represents the optimum
capacity depending on product mix and/or crude oil availability. Total
industry capacity ranges between 891,000 and 998,000 tons of crude oil,
depending on whether Crosby's Mississippi plant, currently on standby,
and Hercules' Canadian plant are considered.
58
-------
TABLE III-D-1
U.S. PRODUCERS OF TALL OIL FRACT10NATION PRODUCTS
Company
Arizona Chemical
Arizona Chemical
/V'
Crosby Chemical
Hercules , Inc .
Hercules , Inc .
Hercules, Inc.
Hercules, Inc.
Monsanto-Emery
Reichhold
Reichhold
Silvachem
Union Camp
Westvaco
Westvaco
Total U.S.
Capacity
(g\
Plant Location 1977 Capacity
Panama City, Florida
Spring Hill, Louisiana
Picayune, Mississippi
Franklin, Virginia
Hattiesburg, Mississippi
Portland, Oregon
Savannah, Georgia
Nitro, West Virginia
Bay Minnette, Alabama
Oakdale, Louisiana
Port St. Joe, Florida
Savannah, Georgia
Charleston, South Carolina
DeRidder, Louisiana
Total U.S. Capacity
Capacity in Currently , .
Operating Plants'" '
Available to U.S. Market ^
(000 tons)
100
50
90
65
60
30
65
65
36
60
100
105
85
70
981
891
998
1972 Capacity
(000 tons)
105
45
90
65
90
25
65
45
36
59(e)
55
110
70
65
940
(a)
(b)
(c)
(d)
Capacity in terms of tons of crude oil input
Plant currently on standby
Excludes Crosby's Picayune, Mississippi, plant, currently on standby
Includes Hercules' plant in Burlington, Ontario, Canada (capacity of
17,000 tons)
(e)
Owned and operated by Tenneco in 1972.
Source: "Chemical Profiles," Schnell Publishing Co., Inc., January 1, 1978.
59
-------
Capacity has increased only slightly since 1972 as seen in Table III-D-1.
Silvachem was the only plant to increase capacity significantly over
this period and the Hercules plant in Hattiesburg, Mississippi and the
Crosby Chemical plant in Picayune, Mississippi are currently on partial
or total standby operation.
Capacity utilization within the industry is approximately 65-70%
based on an estimated 1977 production of 405 million pounds of tall oil
rosin. Total demand for tall oil in 1977 was about 755,000 tons of
which about 80,000 tons was the U.S. net exports of tall oil, and 45,000
tons were used in the crude form. The remaining 630,000 tons were
probably fractionated by the producers of fractionated tall oil products.
1.2 Integration and Capital Requirements
The producers of fractionated tall oil have historically located
near and often adjacent to pulp mills in order to have a nearby source
of raw material. Transporting the relatively high value tall oil fractions
or even subsequent derivative products is far more economical than trans-
porting the crude tall oil which contains about 45% 'of water and low
value pitch material. As the tall oil fractionating industry grew and
pulp mills began pulping more hardwood and recycled material, the
capacity of the tall oil fractionating plants exceeded the supply of
crude tall oil available from the pulp mill. Fractionators therefore,
had to look to more and more distant locations to secure sufficient
supplies of crude. Today, most of the large fractionators must purchase
at least some of its crude requirements from pulp mills located as much
as 300-400 miles away. Transporting crude much beyond that distance is
economically impractical.
60
-------
Of the 13 plants currently operating in the United States, 3 are
totally owned and operated by paper companies, and 3 more are joint
ventures between paper and chemical companies. These plants are
located close to or contiguous with the paper companies pulp mill. At
least 3 other plants, operated by chemical companies, are located in the
same town location with a major pulp mill, and it is believed that there
exists priviledged purchasing priority for these fractionators.
There is considerable downstream integration in the industry as
well as primarily producing rosin derivatives rather than fatty acid
products. The basic trend in this industry has been to up-grade tall
oil rosin to produce higher value-added rosin derivatives. Seven of
the 13 operating plants (Arizona Chemical - 2, Hercules - 2, Reichhold -
2, Union Corporation - 1), in this industry also produces a variety
of rosin derivatives.
The capital investment requirements for tall oil fractionation is
only moderate. The fixed investment to sales ratio is about
0.8 - 1.0 to 1.0. The capital equipment is neither extremely com-
plex nor entirely specific to fractionating crude tall oil.
1.3 Estimated Profitability
Since many of these companies are either part of large paper or
chemical companies or are engaged in several activities other than tall
oil fractionation, little public data specific to this process is avail-
able on which to base an estimate of the profitability. However, the
non-integrated fractionator is in the weakest supply position in the
processing chain from crude to final products and in a period of over-
capacity cannot expect to have above average profitability. These
61
-------
producers in turn condition the average profitability for the rest of
the crude fractionators. We estimate that, at the present time, the
profitability in this segment is no more than 4-5% of sales and con-
ceivably could be less.
1.4 Other Supply Characteristics
The tall oil fractionating business is highly regional with only
one plant located outside the "pine belt" region which includes the
South Atlantic and South Central States.
This segment of the gum and wood chemicals industry is not excep-
tionally labor-intensive and requires only average skills to operate and
maintain the plant and equipment.
While capacity has increased only marginally since 1972, three
plants have changed hands and two companies have left the industry.
Two plants operated by Tenneco at Bay Minette and Oakvale, La. were
acquired by Reichhold in 1975 and one plant operated by Crosby in
DeRidder, La. was acquired by Westvaco in 1977. Both Tenneco and Crosby
have apparently left the Gum and Wood Chemicals industry although Crosby
may still have a small position in sulfate turpentine.
2. Demand Characteristics
As indicated in Section 1.5.1 the supply of crude tall oil is at
present limited, therefore, it is difficult to estimate the actual
demand for tall oil fractionation products at current prices. It is
assumed however, that demand is not significantly higher than supply
since prices for tall oil fractionation products have not increased
62
-------
excessively over the past year and are substantially lower now than in
1973-74, especially for rosin.
2.1 Market Size and Share
Tall oil fatty acid competes principally with those materials
produced from animal fats and vegetable oils. Because it is readily
available and low in cost, tall oil fatty acid has successfully com-
peted with these substitute materials and accounts for about 30% of
the total fatty acid production and for nearly 50% of the unsaturated
fatty acid production in the United States as shown in Table III-rD-2. The
share of the unsaturated fatty acid market and total fatty acid market
attributable to tall oil fatty acid has declined significantly from
that share held during most of the last decade. Production has remained
relatively constant since 1969 with the exception of 1975, consistent
with the constrained supply of crude tall oil.
Tall oil rosin represents a growing portion of a declining market
for all rosins in the United States. As shown in Table III-D-3, tall oil
rosin has increased market share from 2% in 1953-54 to about 60% in
1976-78. As with tall oil fatty acids, production of tall oil rosin
has remained relatively constant over the period 1968-1977. However,
the total United States production of rosin has declined about 25% over
that same period.
2.2 Major End Uses
The principal uses for tall oil fatty acids are derived from the
carboxylic group and the degree of unsaturation present in the molecule.
The carboxylic group reacts with metallic ions to form soaps and ortho
63
-------
CM
Q
H
M
M
W
3
H
EH
§
2
^c
5a
O
)_|
U
KH
H
O
CO MH
H 0
a
o
•H 0)
4-1 -rj
3 0
13 <*
O
4J
• to
P rH
r-l
rH <
«
O "n
H °
4*4
0 *J
>
3 4J1
O 10
PJ
• CU
CO 4-1
• CO
P U
3
CO CO
4J CO
o a
H p
a
>> 0
4-1 4J
CO U
•a
i™H 0
•H M
O PLI
rH T3
rH *H
CO cj
EH <
VI
ct
a
^^
s*c
v^
/-N
1
^
§
^^
gsg
V^
^,
J*
rH
»Q
jy*
§
^
O*^^O'Alooo^^riii»oo o r— i 0*1 in iH o COrHCOr*.OOOC?r*"'jcocococo r^» r*^ r*** p* r*** r**
O> o^ CJN &\ ON ON o^o^O^O^O^O^o^O^O^ O> ^
,-HrHrHrHi-HiHrHrHrHrHrHrHrHiHiHiH^H
o\
CM vo
f*^
ON
rH
01
4J
3
4-1
4-1
co
a
M
,£
CJ
CO
CU
CO
0)
0 ft
i-H
CO T3
O
<4H
c
CO
4-1
CO
O
o
13
C
CO
33
co
O
•iH
ON B
-* 0
C
O
CJ
rH
to
CJ
•H
0
CJ
e
0
in
to
4-1
CO
13
c
O
O 13
r-. cu
r-* co
eo
tf^
•s
•
O
£j
n
0)
4J
4-1
.^
,-1
n
in rl
r* 3
CO J3
<;
IT CU
^-s O
r^ M
r- 3
ON 0
rH CO
64
-------
TABLE III-D-3
TALL OIL ROSIN'S SHARE OF THE TOTAL U.S. ROSIN MARKET
Year Ending
March 31
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
(preliminary)
Tall Oil Rosin
Production
(MM Ibs.)
16
18
26
65
117
140
159
199
218
245
249
275
305
326
363
354
371
412
416
419
437
443
367
342
410
404
Total U.S. Rosin
Production
(MM Ibs.)
911
926
999
1,013
1,036
970
966
996
1,044
1,067
1,073
1,083
1,047
1,075
1,017
971
958
906
860
849
848
823
679
565
707
676
Tall Oil Rosin's
Market Share
2
2
3
6
11
14
16
20
21
23
23
25
29
30
36
36
39
45
48
49
52
54
54
61
58
60
Source: Arthur D. Little, Inc., based on U.S. Department of Agriculture
reports.
65
-------
amines to form amides, which are converted to fatty acid amines, or
esterfied with alcohols, glycols, and polyols for plasticizers, surfact-
ants, and flotation agents. The double bond can be epoxidized to epoxy
products useful as plasticizers. With phthalic and polyols, the fatty
acids give alkyds for paints and coatings. Dimerized fatty acids find
use as resins and epoxy curing agents. The estimated pattern of tall
oil fatty acid end uses is shown in Table III-D-4.
Tall oil rosins are used in rubber and emulsion polymerization as
emulsifiers. Paper sizing, once the principal market for tall oil rosin,
is declining in importance but still represents a major end use. Table III*
D-5 lists the estimated pattern of tall oil rosin end uses.
Producers also sell the tall oil pitches and heads obtained during
the distillation process, but these end use markets are low value added
applications and are not important to tall oil fractionators except as
a vehicle to get rid of undesirable waste materials.
2.3 Substitute Products
Substitute products for tall oil fractionation products are dif-
ferent for each end use application. In general, tall oil fatty acids
compete directly with animal fat and vegetable oil derived fatty acids.
In some end use areas, these can be readily substituted for tall oil
fatty acids and the decision as to which to purchase is made solely
on price and availability. In most end use areas, the lead time for
switching types of fatty acids is somewhat longer, however, the number
of end use markets for which tall oil fatty acids are uniquely suited
to are insignificant.
66
-------
TABLE 1I1-D-4
ESTIMATED END USES OF TALL OIL FATTY ACIDS
Product Percent
Intermediate chemicals 40
Protective coatings 20
Soaps and detergents 10
Flotation Agents 2
Miscellaneous 14
Exports 14
Source: Chemical Products Synopsis; Mannsville
Chemical Products, 1977.
67
-------
TABLE III-D-5
ESTIMATED END USES OF TALL OIL ROSINS
Product Percent
Chemicals and Rubber 30
Paper and Paper Sizing 25
Ester Gum and Resins 20
Miscellaneous 7
Exports 19
Source: Chemical Products Synopsis. Mannsville
Chemical Products, 1977.
68
-------
Substitute products for tall oil rosins are both gum/wood rosins
and synthetic resins. In the case of gum/wood rosins the substitution
is readily accomplished but over the past several years, the trend
has been in favor of tall oil rosins. Synthetic resins, however, have
penetrated many of the markets for rosin/rosin derivatives especially
in paper sizing applications. The performance edge usually belongs to
the synthetic resin but prices are usually higher, therefore a complex
price/performance trade-off must be made before switching. Once the
switch has been made, it rarely is reversed.
2.4 Foreign Trade
The United States was a net exporter of both crude tall oil and
tall oil fatty acids and rosins. Most of the tall oil exports have been
to Japan and other Southeast Asian countries. Canada has been an
important trading partner but is a net exporter of products used by
or produced in this industry segment. Therefore, foreign trade appears
to contribute to the firm supply/demand picture in the United States.
2.5 Prices
Tall oil fatty acid and tall oil rosin prices were relatively
stable until 1973. At that time, high domestic and export demand for
crude tall oil and the lifting of price controls combined to push up
tall oil fatty acid prices to 35 cents per pound, more than double
their previous high. Rosin prices were up over 80% to 29 cents per
pound and crude tall oil nearly tripled in price to 15 cents per pound
in early 1975. With the onset of the recession in 1975, prices
plummeted and remained low through most of 1976 until demand picked up
for tall oil fatty acids.
69
-------
Tall oil rosin prices still have not recovered to any measurable
degree due to poor demand and competition from substitute products.
The average price range for tall oil fatty acid and tall oil rosin is
shown in Table III-D-6.
2.6 Growth Forecasts
Future growth for this industry segment will largely depend on
whether the pulp and paper industry increases the quantity of softwood
pulped thereby increasing the availability of crude tall oil. Most
industry observers and industry participants in the Gum and Wood
Chemical industry feel that crude tall oil supplies will increase by
about 2% per year through the early 1980's. If the quantity exported
does not increase over this period (it is not likely to decrease and
conceivably could increase), the domestic availability of crude tall
oil should allow a real growth of about 2.0-2.5% per year for both
acids and rosins.
70
-------
TABLE III-D-6
AVERAGE PRICES OF TALL OIL FRACTIONATION PRODUCTS
(a)
Average Price^ Range (p/lb)
Year
1960
1965
1970
1973
1974
1975
1976
1977
Tall Oil Fatty Acid<.b>
8
9-12
10
13-16
26-35
35-24
24-25
25-25-1/2
Tall Oil Rosin
NA
10
13-14
15-16
16-29
29-18
18
18
Crude Tall Oil
NA
NA
4
5
5-12
15-7
7
7-8
(a) Trade List Price
(b) Containing less than 2% rosin
Source: Chemical Products Synopsis, Mannsville Chemical Products, 1977,
Industry Data.
71
-------
E. Rosin Derivatives (Subcategory U)
1. Supply Characteristics
The term "rosin derivative" is used to describe rosin after it has
undergone a chemical reaction at the acid site or unsaturated site in
the original molecule. Since most rosins are modified prior to use
the distinction between modified rosins and rosin derivatives is not
altogether clear. In general, it appears that modified rosins are
those produced by a simple chemical transformation of the unsaturated
site such as hydrogeneration, reaction with maleic anhydride, or poly-
merization. Rosin derivatives require a more complex chemical trans-
formation or are modified at the acid rather than the unsaturated site.
The rosin derivatives of greatest commercial importance are salts
and esters but others include the alcohol and amine derivatives as well
as dicarboxylic acids produced from modified rosins. There has been a
trend since the early 1960*s for producers to manufacture higher per-
formance rosin derivatives to preserve existing markets versus higher
performance synthetic materials to develop new markets for rosin, and to
increase revenue from rosin production since rosin derivatives frequently
sell for substantially higher unit values vs. modified rosins.
1.1 Producers
Rosin derivatives are produced by many companies in a variety of
United States industries, but, for the purposes of this report we have
focused on companies directly involved in other gum and wood chemical
processes. Table III-E-1, lists those companies which produce gum, wood or
tall oil products in addition to rosin derivatives. Other producers
exist which primarily convert modified or unmodified rosin into various
types of rosin derivatives, however, these producers are classified
72
-------
TABLE III-E-1
PRODUCERS OF BOTH "NAVAL STORES" AND ROSIN DERIVATIVES
Arizona Chemical Company
Arizona Chemical Company
Continental Turpentine Rosin Corp.
Crosby Chemicals, Inc.*
Hercules, Inc.
Hercules, Inc.
Monsanto: FRP
Reichhold Chemicals, Inc.
Reichhold Chemicals, Inc.
Union Camp Corporation
Total
Panama City, FL
Spring Hill, LA
Cross City, FL
Picayune, MS
Brunswick, GA
Hattiesburg, MS
Baxley, GA
Bay Minette, AL
Oakdale, LA
Savannah, GA
Estimated Annual
Production
Rosin Derivatives
(MM Ibs.)
24
10
12
25
58
43
23
12
16
32
255
*Believed no longer operating its rosin derivatives facility.
Source: Arthur D. Little estimates
73
-------
under SIC2821 - Plastic Materials, Synthetic Resina, and Nonvulcanizable
Elastomers.
The estimated 1977 production of all types of rosin derivatives by
the 7 producers included in this segment is 255 million pounds. The
actual capacity is not known, however, it is believed to be somewhat in
excess of production. Although rosin supplies are currently tight most
producers prefer to devote existing rosin supplies to this activity since
these products often realize the highest prices and margins.
1.2 Integration and Capital Requirements
All the major producers of rosin derivatives are integrated back to
production of either tall oil or wood rosin. It appears that all but
two producers manufacture sufficient rosin to supply its own annual raw
material requirements although not necessarily at the plant producing
rosin derivatives. Continental Turpentine & Rosin Corporation produces
only wood rosin and its annual production is sufficient to supply only
about half of its raw material needs. Crosby Chemical no longer produces
rosin and it is believed to be phasing out its rosin derivative business
The capital intensity for rosin derivative production is highly
dependent on the type of derivative produced. In general the investment
to sales ratio ranges from 1.0 to 1.5 to 1.0. Many
specialized rosin derivatives are recent innovations and to the extent
that new production facilities were required for these products, the
investment requirements are higher than average for these types of gum
and wood chemicals. This has not apparently been a deterrent to product
development since prices realized for the higher performance specialty
products have been sufficient to justify investment.
74
-------
1.3 Estimated Profitability
The profitability of rosin derivative production is believed to be
well above average for this industry. Based on limited data, the pretax
profitability ranges from about 10% to more than 20% of sales. The trend
in this industry has been to produce higher performance products which
offer the consumer exceptional value-in-use, providing both the oppor-
tunity to improve product performance and production costs (such as for
pressure sensitive adhesives) and the option of using less expensive raw
material (such as for paint & varnish production).
2. Demand Characteristics
Because the number of applications for rosin derivatives are
numerous the demand for these products is not well characterized. However,
many of the larger end use applications (e.g., paint/varnish, paper size)
are established, mature markets and the demand for rosin derivatives is
level or even declining. Many newer end use applications (e.g., adhesives,
resin modifiers) are fast growth products and the demand is probably
close to production capacity.
2.1 Market Size and Share
As shown in Table III-E-2 most of the rosin derivatives produced are
consumed as rosin salts or specialized formulations specified in the
other category. Of these major products for which we have some data,
ester gum (principally the glycerol ester) is the most important product
type. Plastic, phenolic, and fumaric resins in each accounted for about
5% of the 1977 production of rosin derivatives by those companies included
in this report.
75
-------
TABLE III-E-2
PRODUCTION OF ROSIN DERIVATIVES BY TYPE
Rosin Derivative % of 1977 Production
Ester Gum 15%
Maleic 6%
Pehnolic Resins 5%
Fumaric Resins 4%
Other (includes Rosin Salts) 70%
Total 100%
Source: Arthur D. Little, Inc., estimates
76
-------
The major end use areas for rosin consumption in 1970 and 1977 are
shown in Table II L-K-3. Ester gum and synthetic resins and the other appli-
cations have increased in market share relative to 1970, while the
remaining end use areas have declined. Total consumption of rosin has
declined from 760 million pounds in 1970 to 555 million pounds in 1977.
2.2 Major End Uses
The salt derivatives of rosin, called "salts of resin acids," find
end uses in a variety of industries. Sodium resinate is used in soaps,
where it improves sudsing action, and in paper size. Rosin salts of
polyvalent metals (calcium, zinc, lead, and manganese), are used as
driers for paints and varnishes and as constituents of printing inks,
adhesives, and protective coatings.
The most important commercial rosin ester is made with glycerol,
and usually called "ester gum." Rosin esters can also be formed with
various alcohols. Esters are commonly used in lacquers and varnishes
and in many adhesive compounds as tackifiers. A hydrogerated form of
ester gum is used in chewing gum.
The properties of the rosin ester can be altered according to the
type of modified rosin used in the manufacturing process. For example,
ester gum produced from maleic-modified rosin is advantageous where
light-colored, fast-drying, hard finishes are desired, while the
phenolic-modified product is particularly outstanding for durability
and chemical resistance.
The alcohol form of rosin derivatives (hydroabietyl alcohol), has
found application as a plasticizing resin in lacquers and hot-melt
coatings. It is also used in oil additives and wetting agents.
77
-------
TABLE III-E-3
ROSIN CONSUMPTION BY MAJOR END USE MARKETS
End Use Market
Chemicals and Elastomers
Ester Gum and Synthetic Resins
Paint, Varnish, Lacquer
Paper and Paper Size
Other
Total
1970
42
15
4
36
3
100%
% Consumption
1977
35
23
2
34
6
100%
Source: Arthur D. Little, Inc., based upon U.S. Department
of Agriculture publications.
78
-------
Amines derived from rosin have been used effectively as cationic
flotation reagents in ore operations. Rosin oil has been used in paper-
wrapped cables, greases for skidways, rubber reclaiming, linoleum, and
shoe polishes.
2.3 Substitute Products
Rosin derivatives compete to a large extent with synthetic petro-
chemical products. In most end use applications a synthetic material
is available with equal or better performance properties. The principal
advantage of rosin derivatives is price which in many end use appli-
cations gives them a superior cost/performance position. The shift from
rosin derivatives to substitute materials would require substantial
formulation and production changes. Therefore in most applications
substitution is not a significant short term threat although it is
possible.
2.4 Foreign Competition
Foreign trade in rosin derivatives does not appear to be significant
at the present time. However, we do not have any statistics yet on the
import-export balance.
2.5 Prices
No data on actual prices for rosin derivatives have been made
available.
2.6 Growth Forecasts
While there is continuing interest in developing new derivatives
for existing and new end use markets, these would only serve to offset
a general decline in demand for rosin products. Future demand growth
for rosin derivatives is expected to be modest at best and is likely to
79
-------
be in the 0-2% per year range. Most of the growth is likely to be for
adhesive end use applications especially for hot melt and pressure
sensitive types of adhesives.
80
-------
F. Gum Rosin and Turpentine (Subcategory E)
The oleoresin of the living pine tree was once the only known
source of rosin and turpentine, and the gum forms of these products
represent their oldest commercial types.
Harvesting oleoresin is mechanically simple, involving only periodic
wounding or scarification of the tree and collection of the exudate. The
crude oleoresin is transported to central processing plants where it is
steam-distilled to separate the turpentine from the rosin.
Work is continually under way to improve the gum industry proces-
ses. For example, trees are now sprayed with sulfuric acid to stimulate
and prolong the flow of exudate. A process developed by the U.S. De-
partment of Agriculture, (the Olustee process), allows 80% of all gum
rosin currently produced to be placed in the top three or four color
grades. Prior to this development, over 60% had been of the lower seven
grades.
Only the actual distillation of gum oleoresin into turpentine and
rosin is included in the scope of this report. The process of collect-
ing oleoresin from the pine trees is included under SIC 0843, Extraction
of Pine Gum.
1. Supply Characteristics
1.1 Producers
There are currently five major U.S. producers of gum rosin and
turpentine, as shown in Table III-F-1. These five companies operate
at seven plant sites, all located in Georgia.
The capacity of each of these plants is unknown; however, the
U.S. production of gum products has declined an average of 13% per year
31
-------
TABLE III-F-1
U. S. PRODUCERS OF GUM ROSIN AND TURPENTINE
Company Plant Location
Monsanto: FRP Baxley, Georgia
Monsanto: FRP Douglas, Georgia
Monsanto: FRP Helena, Georgia
Shelton Naval Stores Processing Co. Valdosta, Georgia
Union Camp Paper Co., Nelio Div. Valdosta, Georgia
K.S. Varn & Company Hoboken, Georgia
Vidalia Gum Turpentine Co. Vidalia, Georgia
Source: Arthur D. Little, Inc.
82
-------
over the past decade. It is, therefore, reasonable to assume that these
plants may now be operating significantly below capacity (i.e., at levels
which represent 20% to 30% of full capacity).
1.2 Integration and Capital Requirements
There is little forward or backward integration at the plant level
in this segment of the industry. All but two of the currently operating
plants produce only gum rosin and turpentine. (The exceptions are Monsanto*s
FRP plant in Baxley, GA and Union Camp at Valdosta, GA which also produces
some rosin derivatives.) Moreover, it is unlikely that any of these plants
employ workers to collect the oleoresin from pine trees. Harvesting is
probably carried out by Georgia farmers on privately owned timber lots
during slow periods in their planting season.
Three of the five companies currently have no downstream operations,
and sell their output as turpentine and rosin. Two do produce some
rosin derivatives: FRP in the Baxley plant and Union Camp at a plant
in Savannah, GA. There is no indication that producers are considering
either backward integration (i.e., owning wood lots and employing har-
vesters) , or increased forward integration into the production of
derivatives.
This segment of the industry requires very little capital invest-
ment; the investment-to-sales ratio may be as low as 0.2 - 0.4 to 1.0.
The age of the equipment used by the gum industry segment is estimated
to be more than 30 years.
1.3 Estimated Profitability
Profitability within this segment of the industry varies widely,
not only from company to company, but also from year to year. Since
83
-------
this segment comprises a relatively small percent of the total U.S.
production of rosin and turpentine, the segment's pricing structure—
and thus profits—depend on the performance of wood and sulfate/tall
oil segments. In any given year, the operating results of an individ-
ual small producer of gum products could range from a profit of 20% of
sales to a loss of the same magnitude. Over a longer period of time, the
fluctuations probably average out to provide profit levels in the low
end of the 2% to 9% range estimated for this industry as a whole.
1.4 Other Supply Characteristics
This segment of the gum and wood chemicals industry is highly
regionalized. All seven plants are located within the state of
Georgia, near the few remaining pine forests from which oleoresin is
harvested.
In addition to raw oleoresin, a low cost labor pool is vital to
the production of gum chemicals. The harvesting operation is both
labor-intensive and highly seasonal. Oleoresin is typically harvested
by nonskilled workers from mid-March through November. Traditionally,
the employment has offered only minimum wages. Increases in the
government's unemployment compensation program have decreased the number
of willing workers available to harvest oleoresin.
The distillation plants, although less labor-intensive, also employ
largely a nonskilled, low paid work force.
Historically, this segment of the industry has been declining since
the early 1900's when production peaked at levels exceeding 2 million
drums per year. By 1940, production had dropped by more than 50%. To-
day's production volume represents only 2% of that peak level.
84
-------
The structure of the industry has also changed. In the early
1930's, the gum chemicals industry was comprised of 1300 backwoods stills.
In 1934, the Olustee Naval Stores Laboratory began consolidating the
industry to improve product quality and sales distribution, and to en-
able farmers owning pine forests to earn revenues without having to
purchase distillation equipment. By 1948, this organization had suc-
ceeded in replacing all but 100 of the 1300 backwoods stills with 30
strategically located, large stills.
This decline in the number of separate producers has continued
into the 1970's. In 1975 there were 10 gum processing plants in oper-
ation. Three years later, only seven plants remain in operation.
The major reason for the decline of this industry segment is the
diminishing supply of both raw materials and labor. Over the years,
there has been massive harvesting of pine trees in the Southeast by the
pulp and paper industry, combined with little reforestation of trees
suitable for the gum chemicals industry. The shortage of labor is
intensified by the seasonal nature of the work and the low wages pre-
valent in the industry.
2. Demand Characteristics
2.1 Market Size and Share
Gum rosin's share of the total rosin market has decreased from
36% in 1953 to 4% in 1978, as shown in Table III-F-2. Over the same
period, total U.S. rosin production remained relatively steady, aecliu-
ing somewhat in the 1970's. Production levels for all three types of
rosin, along with apparent U.S. consumption, are listed in Table III-F-3.
85
-------
TABLE III-F-2
GUM ROSIN'S
Year Ending
March 31
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
(preliminary)
SHARE OF THE
Gum Rosin
Production
(MM Ib)
332
111
275
236
231
208
192
174
192
247
255
237
203
187
141
115
88
62
45
48
46
38
28
37
32
26
TOTAL U.S. ROSIN MARKET
Total U.S. Rosin
Production
(MM Ib)
911
926
999
1,013
1,036
970
966
996
1,044
1,067
1,073
1,083
1,047
1,075
1,017
971
958
906
860
849
848
823
679
565
707
676
Gum Rosin
Market Share
36
30
28
23
22
21
20
17
18
23
24
22
19
17
14
12
9
7
5
6
5
5
4
7
5
4
Source: Arthur D. Little, Inc., based on U.S. Department of
Agriculture reports
86
-------
g
•H »H
4-1 «
a. m
0>
t>o
a
BJ
6
4-1
0)
o
n
01
PH
co co
C 3
O O
O-g!
4J 01
c u
01 P*
S3 B
&2
CMrH~3-CMvOCMrH<-
rH rH rH
III I
O
CM
c e
0) 3
U CO
tfl C
a o
0.0
sOvOv0r^.r*-\or*-r*-vr>
-3- ON 00 ~J CM O rH
in CM VO CO rH O VO
vo vD vo in in »-o m
rt
o
ca
DO
C
§
CO
§
1 1
1 1 1 1 1 1
in -3- rH CO VO
in 00 rH rH rH
M
O
ex
ex
o
o
'•§
o
a
10
I
g
2
M
CD
§
(J
»
W
-------
The gum turpentine industry has also declined over the past 20
years. Production levels for all types of turpentine were discussed in
Section 1.2.2; gum turpentine's market share is provided in Table III-F-4.
During the 1970's, the market share for gum turpentine has remained
relatively constant at roughly 4%.
2.2 Major End Uses
Rosin, as it is obtained from the exudate of living pine trees (and
from aged pine stumps and tall oil, discussed in earlier sections), is
called unmodified rosin. In this form, rosin has three properties which
make it unsuitable for many applications: it crystallizes in the presence
of some solvents, it is oxidized by atmospheric oxygen, and it reacts with
heavy metal salts. Chemical treatment increases the stability and
improves the physical properties of rosin through modification of the
phenanthrene-derived moiety. The products are known as modified resins.
Today, more rosin is used in modified than in unmodified forms.
Current uses for unmodified rosin as such are few and include the manu-
facture of paste solder flux, soldering compounds, and cable oils for
high-tension electrical lines. These markets for unmodified rosin con-
sume an insignificant volume of the U.S. production.
Modified rosin products are used in the manufacture of paper
size, synthetic resins, and rubber chemicals. Table III-F-5 demonstrates
that currently over 60% of the rosin consumed in the United States is
purchased by intermediate industries for incorporation into chemicals
and synthetic resins. An estimated breakdown of the use of rosin with-
in various end product categories is included in Table III-F-6.
88
-------
TABLE III-F-4
GUM TURPENTINE'S SHARE OF THE TOTAL U.S. TURPENTINE MARKET
Year Ending Gum Turpentine Total U.S. Turpentine Gum Turpentine's
March 31 Production Production Market Share
(000 gals) (000 gals) (%)
1954 8,900 26,900 33
1955 8,800 30,900 28
1956 7,450 32,750 23
1957 7,200 32,250 22
1958 6,450 31,350 21
1959 6,000 30,400 20
1960 5,370 31,840 17
1961 5,970 30,270 20
1962 7,641 31,856 24
1963 7,605 32,653 23
1964 7,026 33,677 21
1965 5,979 33,955 18
1966 5,569 35,033 16
1967 4,211 33,275 13
1968 3,387 31,397 11
1969 2,521 32,609 8
1970 1,750 30,869 6
1971 1,292 28.790 4
1972 1,418 28,433 5
1973 1,328 28,303 5
1974 1,071 26,532 4
1975 781 24,352 3
1976 1,035 22,380 5
1977 871 24,112 4
1978 727 23,878 3
(p r e1iminary)
Source: Arthur D. Little, Inc., based on U.S. Department of Agriculture
reports
89
-------
^•^
CO
z TJ
m 0 g
1 rH 3
b P.
^J 3^
u»4 P *M
. i rrt O
a
pq O co
9 55 in
H W H
CO rH
§g
,-
O
•H
4-1
8
0
rH
CO
•H
M
*t3
C
M
0)
4-1
M
O
p.
fi\
Prf
<~ e
A O
4J 4-1
cl a
V 8 rs. CM O rH «» ONCOONCMON OOsa-QvOrH COvOCMvOCO
(-43 sjps.fMoooN m rH ON s^- i— i ONOOsjinsa' OCOOOT-ION
cdco inrs.vors.ps. vots*vovovo PS.VOVDVOVO ps.vovots.ps.
c. c
P, 0
ps. 00
H
a) covooNrHvo vovooomoo rs.coeMONCM IOON er
u
"Cd vOi-HOOvOON COONONOOOO COCMrHO\in «3-OOrHONO
4J h4 vootvovovo mininmsj- m-stsa-coco COCMCOCMCO
•H T3
cd G
to cd
CO
C
•H
•d co
C cu
cd prf
§ u
3-H COCMps-vOO OO-strHs* vOrs.vOvOON «a-ps.cOsa-in
O4J inrHrs.l-s.CO CO«stcOrHO VOCMCOCOCM CMrHrHrHCM
t-t f
CU 4J
4-1 a
CO >,
M co
CO
4-1 COCOCOvOCM rH«3-ONOOin OOCOOOrHON CMONCMmON
CO rHrHrH rHrHCNrHCNCMCOCOCO
Cd
H
CO
o oos3-oomoo CMONCMOCM ONcomooo CMI^OOCO
^H S^OOONCO sj'ps.oooors. OONVOOOON rococo^st-ON
e HrH H 1-HrHrHrHrH CMrHrHrHrH CMCMCMCMCM
(U
CJ
M 00
cd ti
CD iH
p. iH vH
O 60 M
rl (U a
CJ » <
O H CM CO «*
s» •* «* -» •»
ON ON ON ON ON
m vo rs. oo ON
•st •* s* «* •*
ON ON ON ON ON
O rH CM CO -sT
m m m >n m
ON ON ON ON ON
m vo PS. oo o»
m m m m m
ON ON ON ON ON
90
-------
l^\
td
i^X
4J
g
M
cd
P.
c*.
|
4-1
P.
to
g
r*« oo os CT\ in m co o co in co
OOOOOONCM rHCMO«*H vO
«*
m
vO
vO 00
oo in
m vo m r-» oo vo r->
CM CM CM CM CM CM CM
vO CM
r^ co
Is* oo
VO CM
CM CO
00 ON
vO vo
CM CM
rH
O
oQ
oo
CM
0
vO
CM
O CO
VO -*
CM vO
CM CM
O 00
f-» vO
CM CM
CO i-H <•
rH vO f^
r** \c) \f\
vo !•>• rH
CM CM >*
<• o o
-* 00 VO
CM rH rH
co m m
o CM m
VO CM VO
CM «* CO
H CO vo
VO ON 00
rH rH rH
j_l
P.
o>
3
•a
01
M
cd
C
o
•H
4J
P.
6
3
to
pj
O
CJ
rH
cd
•H
•
^
rH
^J
o
0)
^4
(-)
O
o
c
*iH
4-1
C
0
U X-N
^ 03
&
0
m H
I H
I gj
M P
M M
M S5
O
w u
3
S z
H |
rt
-a
C
3
O
P.
<4H
O
CO
C
O
•H
,1-f
rH
•H
e
•rl
C M
t-J 01
cd 3
> v
CJ
• cd
c
•H T3
cd C
PL, cd
sTcvirHor^ mcMcMOoo or^.r~-voin ONCMCM
CMeMCMCMrH CMCMCMCOCM COCOCMCMrH rHrH
CO
.s
-o to
C 01
cd p4
g u
3 -H
CJ 4J
01
rl tC
01 4J
^ c
to £,
pa w
vomcMOrH vo-*cor-»o -vo
OrHrHCNCN CMCOCMCMCM rHHCMCOO rH3- mvOt^
rx r^ f*^ r*^ t^* r^* r^ r*»
ON ON ON ON ON ON OS ON
i-HrHrHrHi-H i-HrHrH
o>
3
•a
01
M
cd
C
o
•H -
P,rH
3 cj
to o)
O V4
CJ O
o
rH C
cd «H
•1-1
tO 4-1
3 ^
•O 0
C P.
•H Q)
M
T3
0) rl
4J O
V-i
O TJ
P. 0)
Ol 4-1
rl rl
0
T3 P.
C OJ
cd t->
C 4J
O O
•rl C
4-1
tai
fi
CO 4-1
O *iH
O CD
O
CO
4-1 td
C S
01
M 4J
cd cd
p. JJ
cd
C
c o
d) -H
41 4-1
^2 tfl
C
CO O
O) CJ
•rl
0 rH
Cd iH
P. rl
0) 4-1
V-i CO
0 3
CO 13
•H C
n -H
s**^
cd
^-^
•
CO
pj
o
•rl
1J
cd
a
•H
rH
3
P.
0)
M
4J
rH
3
O
•H
^
U-t
O
4J
fl
01
E
4-1
(-1
cd
p-
01
o
.
C/l
•
l~\
• •
at
CJ
M
3
O
00
91
-------
TABLE III-F-6
U.S. ROSIN CONSUMPTION BY END PRODUCT
End Product Percent of Total Rosin Consumption
Paper and Paper Size 35
Synthetic Rubber 15
Adhesives 14
Coatings 12
Inks 9
Others, including chewing gum and
rosin oils 15^
100%
Source: Arthur D. Little, Inc., estimates
92
-------
Gum rosin is usually consumed only in the higher quality, relatively
price-insensitive segments of these rosin markets. However, gum rosin's
higher quality is not derived from superior product performance within
one color grade, but comes instead from a larger percentage of the
total production output qualifying for top color grades (and therefore
for quality-sensitive applications). Gum rosin does have one performance
advantage over tall oil rosin: it has been approved by the Food and
Drug Administration for use in chewing gum and other food-related
applications, and tall oil rosin, which may contain trace amounts of
sulfur, has not.
Major turpentine end markets and uses were discussed in Section
1.2. Gum turpentine has no real performance advantage over wood and
sulfate products, but does comprise a slightly larger relative share
of the retail turpentine market.
2.3 Substitute Products
The closest substitutes for gum rosin and turpentine are wood and
sulfate/tall oil products. Although gum chemicals may now have a slight
advantage because they don't contain any sulfur, this edge is being
eroded by improved sulfate/tall oil processes. In the future, gum
chemicals will probably face increased competition from other naval
store products.
Other substitutes for turpentine were discussed in Section 1.2.2
Petrochemical products compete heavily with rosin, and in fact, now
dominate many markets once supplied by resins based on rosin. Two areas
are notable exceptions—paper sizing, and emulsion aids and tackifiers
for rubber. The paper sizing market continues to be supplied by rosin
93
-------
derivatives that offer desired product characteristics at acceptable
costs. Presumably this market is relatively price-insensitive, offer-
ing no immediate advantage to petrochemical products.
The other market—emulsion aids and tackifiers—is currently
highly competitive. Producers of petrochemical resins made significant
inroads into the market in recent years when they were able to offer
prices nearly half those of the rosin-based resins. However, over the
past several years, rosin prices have been dropping while petrochemical
prices have increased. As a result, the so-called "natural resins"
are regaining market shares in applications such as pressure-sensitive
and hot melt adhesives. Producers of rosin tackifiers are also fighting
for market share by upgrading their materials into specialty additives.
2.4 Foreign Competition
Foreign competitors play a dominant role in the markets for gum
chemicals. Gum products represent an estimated 75% of all rosin and
turpentine produced outside of the United States. In the case of rosin,
foreign production of gum rosin comprises over 45% of the total world
production of all three types of rosin combined.
Mainland China is the world's major producer of gum chemicals,
although exact production figures are unknown. The U.S.S.R., Europe,
and Mexico are also important producers, as shown in Table III-F-7.
Production by European country is broken out in Table III-F-8, which
reveals Portugal as the major European source of gum chemicals.
Specific data is not available on the size of gum chemical imports
into the United States. However, in 1977 U.S. Import Data lists imports
of miscellaneous wood products valued at $2.4 million, most of which
94
-------
TABLE III-F-7
ESTIMATED
United States
Mainland China
Europe
Mexico
U.S.S.R.
WORLD PRODUCTION OF GUM ROSIN
(tons)
1972-73
Crop Year
23,012
198-220,000
161,538
55,125
105,000
1977-78
Crop Year
13,000
200,000
N.A.
57,000
N.A.
Source: Arthur D. Little, Inc. J "Pulp & Paper," January
1975; and "Chemical Week," October, 1976.
95
-------
TABLE III-F-8
PRODUCTION OF
IN EUROPEAN
!um Rosin Production (in tons
Crop Year
1972-73
1973-74
1974-75
1975-76
1977-78
1978-79
(forecast)
Gum Turpentine
Crop Year
1972-73
1973-74
1974-75
1975-76
1977-78
1978-79
(forecast)
France
12,870
12,100
9,900
9,900
NA
NA
Production (in
France
3,300
3,080
2,530
2,530
NA
NA
GUM CHEMICALS
COUNTRIES
of 2000 Ib)
Greece
14,300
13,200
14,300
11,000-
13,200
NA
NA
gallons)
Greece
3,520
3,300
3,520
2,750-
3,300
NA
NA
Portugal
103,568
120,018
115,500
121,000
92,000
56,000
Portugal
25,000
28,625
26,400
28,600
22,000
12,000
Spain
30,800
32,340
33,000
33,000
NA
NA
Spain
8,800
9,240
9,460
9,460
NA
NA
Source: Arthur D. Little, Inc., and "Pulp and Paper," January, 1975.
96
-------
was probably gum rosin. Almost 60% of this total figure was imported
from Mainland China, as shown in TableITI-F-9. The United States also
imported $0.3 million worth of turpentine, largely from Mexico. Gum
turpentine imports probably comprised over half of this total.
The United States exported 6,715 thousand pounds of gum rosin
and 56 thousand gallons of gum turpentine in 1977, as shown in Table
III-F-10. Japan, the major market for U.S. exports of gum rosin, has
recently begun importing increased amounts of these products from Main-
land China. Over 30% of Japan's total rosin imports in 1976 were
Chinese gum rosin, and this percent is expected to rise as China be-
comes increasingly competitive in world markets.
2.5 Prices
Current prices for gum rosin and gum turpentine are provided in
Table III-F-11. The prices for both products are typically higher than
those of the comparable wood or sulfate/tall oil products. For example,
gum turpentine was priced 87 cents higher, or over one and one half times
more than crude sulfate turpentine in early 1978. During the same per-
iod, a top grade of gum rosin was priced 17 cents higher, or over two and
one-half times above a good tall oil rosin.
2.6 Growth Forecasts
The shortage of pine forests, and thus of raw materials in the gum
chemical industry, is expected to grow more severe in the future. Pro-
duction has been declining at an average rate of 13% per year over the past
decade, and this downward trend will probably continue.
Rising labor costs, a general shortage of willing workers, and in-
creased competition from foreign gum producers, are expected to contribute
to the segment's decline.
97
-------
TABLE III-F-9
U. S. IMPORTS OF WOOD PRODUCTS BY COUNTRY
Product
Turpentine
Country
Mexico
Other countries
Value of Imports in 1977
($000)
Wood Products, NEC* China
(People's Republic)
Portugal
Mexico
Nicaragua
Other countries
322
20
1,358
382
344
270
71
* Not Elsewhere Classified
Source: U.S. General Import Data
98
-------
TABLE III-F-10
U.S. EXPORTS OF GUM PRODUCTS BY
COUNTRY
Product Country Amount Exported in 1977
Gum Rosin Japan
Canada
Germany
Netherlands
France
United Kingdom
Australia
Italy
Other countries
1,609 (000 Ib)
1,008 "
871
715
520 "
463
354
315
860 "
Gum Turpentine
Other countries 55,820 (gals)
Source: U.S. export data
99
-------
TABLE III-F-11
GUM
Year Ending
March 31
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
(preliminary)
ROSIN AND GUM TURPENTINE
Gum Rosin
Prices
($/100 Ib)
7.72
7.91
8.45
8.37
7.90
8.33
9.59
14.52
11.95
11.05
11.00
11.02
10.36
10.30
10.36
10.45
11.80
15.03
16.93
18.89
22.72
35.92
25.15
24.46
25.35
PRICES
Gum Turpentine
Prices
($/gal)
.516
.519
.556
.555
.543
.513
.534
.479
.247
.201
.339
.450
.555
.562
.574
.770
1.138
1.200
1.200
1.046
.806
1.389
1.585
1.427
1.425
Source: U.S. Department of Agriculture
100
-------
IV. Wastewater Effluent Control Costs
A. Discharge and Wastewater Treatment Status
Current treatment practices in the Gum and Wood Chemicals Industry
include oil/water separation by all plants. Biological treatment
facilities are in place for 7 of the 8 direct dischargers. Activated
carbon columns as a secondary treatment system in place of biological
treatment exist in one of these plants. The 12 indirect discharges
have only oil/water separation and equalization in place. One indirect
discharger currently utilizes extensive pretreatment facilities.
B. Alternative Treatment Technologies Considered
The control and treatment technologies used in arriving at the
previously promulgated BPT effluent limitations for tall oil rosin,
fatty acids, and pitch, wood rosin, turpentine, and pine oil; and rosin-
based derivatives were: (1) in-plant control—reduction of wastewater
generated by process water reduction and recycle, waste stream segre-
gation, and oil/water separation; (2) equalization; (3) dissolved air
flotation for wood rosin and tall oil subcategories only; (4) biological
treatment by activated sludge; arid (5) flocculation and clarification.
This same treatment system, deleting dissolved air flotation, was used
in arriving at BPT treatment levels for the sulfate turpentine subcate-
gory in the current proposal. Additional control and treatment tech-*
nologies available for this industry include: (6) Advanced Treatment
I-metals precipitation (in plant removal and end-of-pipe removal),
101
-------
and (7) Advanced Treatment II—greater activated carbon columns.
In-plant control, preliminary treatment, and primary treatment
technologies have been demonstrated within the Gum and Wood Chemicals
Industry. Activated sludge biological treatment also has been
demonstrated in the industry. Metals precipitation is currently in
use at our sulfate turpentine facilities. One plant has isolated a
wastewater source and is treating only that stream. Granular activated
carbon columns are in use at one plant in lieu of biological treatment.
Performance factors for use of activated carbon columns as a tertiary
polishing treatment for organic toxic pollutants remaining after
biological treatment of gum and wood chemicals wastewater are not
available.
C. Wastewater Treatment Costs
The control cost data was developed by EPA's Technical Contractor
and forwarded to us for use in this analysis. A plant by plant waste
effluent control cost estimate was prepared in place of the model
plant approach. For each control technology option a list of processing
steps and equipment was developed which would be particularly suited
to the specific flow volume and waste characteristics at each plant in
the industry which cannot already discharge water of suitable quality
specified under each option. The capital investment costs and
operating costs were estimated based on the 1977 equipment costs and
1977 labor, power, fuel and other rates.
102
-------
•*
C
0
iH
4-1
P.
o
(O
H
JS 60 °°
H H x-s g
W O CO .2
w£ fc 5
rH & ££? 0
1 co H ed
H co CU
•H
H 4J p
S co
P m
M
^ CM
O
•H
O.
Q
Removal
co
rH
cd
1 1
*d
4-»
a
cd
H
i
c
M
ed
•rl O*
4J ^^
cd o
fc
-------
for the 8 direct discharge plants in this industry. Only 3 plants
would be required to make investments under Options 2 and 3. The
remaining 5 plants either do not have metals in their waste streams
or have treatment technologies in place to reduce the metals
concentration. All plants will have to make investments under
Option 4 which for all but one plant are in excess of $1.0 million.
Table IV-2 summarizes the capital and operating cost estimates
for the 12 indirect discharge plants in this industry. Only A plants
would be required to make investments under Option 2 and 5 would be
affected under Option 3. The remaining plants either have metals
removal facilities in place or do not have metals in the plant waste-
water stream to be removed.
Table IV-3 summarizes the capital and operating costs for four
types of new source direct discharge plants. These plants are chosen
as the types most likely to be constructed in the future considering
1) the growth potential of each category; 2) the raw material upgrading
which does and will continue to take place; and 3) the present structure
of the industry. Table IV-4 summarizes the capital and operating costs
for three new source indirect discharge plants. These plants are the
same type as for direct discharges except for a plant in Subcategory C
which will not require any technologies considered. The technology
in Option 1 is provided by the municipal treatment facilities or off-
site biological treatment facilities into which it discharges, there
104
-------
CO
Ed
U
CO
C
O
•H
4-1
P.
O
r-l
cd
>
6
01
P5
CO
t*H
cd
4J
£
0)
ex
1-1
P4
1
>W
0
1
c
W
Ofl
0
•H
4-1
Cd
0)
/~»
o
0
o
**S
H
cd
4-1
•rl
a
0
/**^
0
o
o
•CO-
I I
I I
i i
I i
CN 00 iH CO
VO
eo
m
CN
vO Oi
CN
co
r-.
oo
CM
CO
00 00
vo
sr
CN
*
oo
\0
CO
CN
3
CN
-
d
0
§1
•rl
4-1
cd
M
-------
co
CO
H
CO
o
cj
rJ
o
B
55
O
CJ
w
£_ (
^4
rH
rH
H
CO
U
CO
H
V^
rH
cd
iH
cd
CJ
•H
J-l
cd
-------
CM
c
0
•H
4J
00
e
•H
4-1
cd
HI
p.
O
o
o
o
-------
are no metals to treat in a tall oil fractionation plant, and activated-
carbon treatment facilities are not considered for indirect dischargers.
Therefore, there are no additional wastewater treatment costs for a new
indirect discharge plant in ubcategory C.
108
-------
V. Economic Impacts of Proposed Regulations
A. BPT Effluent Regulations
All but one subcategory-sulfate turpentine-in this industry has
existing proposed limitations on effluent discharge promulgated Interim
Final in 1976. The options considered for current BPT regulations were:
Option 1: Not to Regulate
Option 2: Remain with existing BPT Regulations
Option 3: Regulate based on performance of the
treatment systems in the previously
regulated subcategories
It is clear that Options 1 and 2 would require no additional capital
investment and no increased operating costs and therefore would have no
economic impacts associated with them. Option 3 implies that previously
unregulated sulfate turpentine producers would have to install the
appropriate BPT treatment facilities or hook into a municipal treatment
system. Of the 7 plants in this subcategory, only two plants are cur-
rently direct dischargers and one of these plants already has access
to a BPT treatment facility. The capital investment required for the
remaining plant to install appropriate facilities has been estimated to
be approximately $100,000 and annual operating costs have been estimated
to be approximately $160,000.
Based on these estimates and an estimate of the plant profitability
before taxes in 1978, we estimate a low economic impact since the annual-
ized costs are less than 20% of pre-tax profitability and less than 5% of
sales. It is likely that this one producer is neither able to signifi-
cantly raise prices for its products relative to other suppliers nor
109
-------
develop and sell high value-in-use (upgraded) products over the short
term to reinstate its present profitability. The capital investment
required is relatively small and should present no severe problems
other than limiting the financial resources for product upgrading.
Therefore, we expect this producer to continue in business at a some-
what lower level of profitability than experienced historically. Since
the growth and profit potential for the sulfate turpentine and deriva-
tives subcategory has been well above average for the industry, we do
not expect plant closure, community effects, or balance-of-trade impacts
to result from this regulation.
B. Best Available Technology Effluent Regulations
Four technological options were considered for BAT effluent limita-
tions:
Option 1: Not to Regulate
Option 2: Require at-the-source metals removal
Option 3: Require end-of-pipe metals removal
Option 4: Require at-the-source metals removal and
activated carbon absorption
1. Economic Impact - Option 1
The costs and economic impacts for Option 1 are obviously zero for
the producers in this industry.
2. Economic Impact - Option 2
Of the 8 plants which are currently direct dischargers in this
110
-------
industry, only 3 would be affected by the proposed limitations under
Option 2. The estimated total industry capital investment required
under this option is approximately $225,600 and total annual operating
costs are approximately $459,500. There is a relatively narrow range in
capital investment required for the three producers ($55,100 to $85,700)
and a slightly wider range in annual operating costs ($81,700 to
$219,500).
Table V-l summarizes our expected economic impacts for the 8
direct dischargers in this industry. All producers will have either a
low or no economic impact under this option, and no single producer will
be significantly hampered by a high differential impact versus its
competitors.
3. Economic Impact - Option 3
Of the 8 plants which are currently direct dischargers in this
industry, only 3 would be affected by the proposed limitations under
Option 3. These plants are the same plants affected by Option 2
limitations and as a general rule would experience costs roughly three
times that estimated for Option 2. The estimated total industry capital
investment required under this option is approximately $561,100 and the
total annual operating costs are approximately $1,806,900. In contrast to
Option 2, the range in capital investment required ($51,800 to $286,300)
and annual operating costs ($152,200 to $1,035,900) is considerable.
Table V-l summarizes our expected economic impacts for the 8
direct dischargers in this industry. One producer will likely experience
a high economic impact as the result of Option 3.
Ill
-------
§
60 00 00 -O -O
•H -H -H O O
0)
4J
n)
co
o
H
H
PL.
O
43 0) 0) 01
60 C (3 C
•H O O O
EC ss a z
CM
§
H
H
PM
O
0) 01 01
gggg
2 13 2
>
1
o
cj Q Q
4J 4J4J4J4J4J4J4J
U O O O O O O O
oi oicuoioioioioi
CO
0)
CO
co
M-l
O
CO 6-S CO
o) m o)
i-H V iH
CO TJ CO
c
u-i cd M-I
O 0
co
m -H m
V >4-l A
CO O
S *2 M "2
o C a, C
w rt X rt
cd co cd co
4-> 4J 4J 4-1
•H TH 1 1-1
0 M-l Q) M-l
•HOMO
H M O M
QJ ij-j pt
U Q)
C X Xi X
ai cd cd
3 4-) U-l 4-1
iH 1 0 1
M-l 01 0)
u-i M &•« M
01 O O O
M-I m M-I
4J 01 V 0)
0) rfS ,0
0) 4-1
e «w 3 M-I
o ,n o
o
o o b
4J CN CM in
CO V A A
o
O 4-1 4-1 4-1
co ca co
o o o o
SS O CJ CJ
II II II II
a>
cd
0) 0) 4=
C > T3 00
0 0 0 -H
2 (-J S 3-
..
m*
K>
PC
Lscharger,
rn
t>
.
4J
CJ
0)
J?
^3
s*
cd
o
m
4-1
u
cd
t
s
5
CO
4J
CO
01
H
§
•H
&
0)
4J
o
2
CN
112
-------
It would probably close down or sell out to another established
producer in the industry. Since this plant is small, it is probable
that few industry participants would be interested in purchasing it but
rather would obtain its customer relationships and supply products
from another location. The net result of either course of action would
be a net loss of up to 150 jobs and a significant community impact.
There are few other similar employment opportunities in or near
this plant and absorption of the employees at this plant by the
industrial community at large is expected to be a lengthy process. We
do not expect plant closure for the plant experiencing a moderate
economic impact. We also do not anticipate any balance-of-trade effects
caused by Option 3 limitations,
4. Economic Impact - Option 4
All 8 plants which are currently direct dischargers in this
industry would be affected by the proposed limitations under Option 4.
The estimated total industry capital investment required is approximately
$15,699,100 and the total annual operating costs are approximately
$4,523,700. There is a broad range of both capital investments
($1,263,000 to $3,974,100) and operating costs ($217,300 to $1,329,100).
Table V-l summarizes our expected economic impacts for the 8
direct dischargers. We expect that 4 of the direct dischargers will
experience a high economic impact; in 2 cases the impact would be
extremely high (more than 100% of estimated pre-tax profits and more than
15% of sales). Three of the 8 plants will experience a moderate impact
and one will experience a low impact. We estimate that the economic
impact for two of the 8 plants would lead to plant closure since the
113
-------
annualized operating costs are more than 145% of estimated before-tax
operating costs. At one of these two plants, production might be
shifted to an alternate location also operated by the owning corpora-
tion if adequate raw material feedstocks are available. The two remain-
ing plants might also be closed but production would likely be shifted
to a nearby plant if space and/or production capacity permitted, result-
ing in little, if any, impact on employment for the two plants most
likely to close. We estimate a loss of between 350 to 400 jobs. A
significant community impact would be experienced in both locations
since there is little additional employment of this type in either area.
C. New Source Performance Standards
Four technological options were considered for new source perform-
ance standards:
Option 1: Require BPT Control Technology
Option 2: Require BPT plus at-the-source metals removal
Option 3: Require BPT plus end-of-pipe metals removal
Option 4: Require BPT plus at-the-source metals
removal and activated carbon absorption
In assessing the economic impacts resulting from each of these
technologies we have resorted to general approximations since: 1) it
is not clear what size new source plant is considered the minimum
economic size plant, 2) new plants will likely contain production
facilities relating to more than one industry subcategory (except
for tall oil or sulfate turpentine fractionation) and 3) a precise
estimate of the capital investment required for a new plant is not
available. It is noteworthy that only one new plant project has
been announced for the forseeable future and that plant is a modest size
tall oil fractionation unit.
114
-------
In our analysis of the economic impact for new source performance
standards, we have considered four types of plants: 1) tall oil
fractionation only, 2) tall oil fractionation plus rosin derivative
production, 3) sulfate turpentine fractionation and 4) tall oil
fractionation, rosin derivative production, and sulfate turpentine
fractionation. The model plants on which the control costs were based
were chosen to be somewhat larger than the average size existing plant
of each type. For each of the options 1-3, the capital costs were
estimated to be less than 10% of the plant investment and the annual-
ized operating costs were judged to be less than 20% of the new plant
projected pre-tax margin. Neither of these conditions are sufficient
to preclude future investment in production capacity for these
industries as needed, but would likely result in delayed expansions
until the prices for products were pushed up sufficiently high due to
supply shortages. For Option 4, the capital costs were estimated to
be nearly 20% of the plant investment and the annualized operating
costs nearly 50% of the new plant projected pre-tax margin. Either
of these conditions are likely to significantly retard investment in
this industry, and it is likely that both together would all but
prevent future capital investment in this industry.
D. Pretreatment Standards for Existing Sources
Three technological options were considered for PSES effluent
limitations:
Option 1: Not to Regulate
Option 2: Require at-the-source metals removal
Option 3: Require end-of-pipe metals removal
115
-------
1. Economic Impact - Option 1
The costs and economic impacts for Option 1 are obviously zero
for the producers in this industry.
2. Economic Impact - Option 2
Of the 12 plants which are currently indirect dischargers in this
industry, only four producers would be affected by the proposed
limitations under Option 2. The estimated total industry capital
investment required under this option is approximately $258,400 and
the total annual operating costs are approximately $456,900. There is
a moderate range in capital investment required by each of the four
producers ($19,300 to $103,100) and in the annual operating costs
($34,300 to $246,800).
Table V -2 summarizes our expected economic impacts for the 12
indirect dischargers in this industry. There are no disproportionately
high impacts for a producer in this subcategory and each of the four
producers which will be affected by Option 2 effluent limitations will
experience only a low economic impact. The range of estimated impacts
is quite narrow (1.5% - 6.6% of profits) and no community or internation-
al trade effects are expected to result from Option 2 regulations.
3. Economic Impact - Option 3
Of the 12 plants which are currently indirect dischargers in this
industry, 5 would be affected by Option 3. These plants are the same
plants affected by Option 3 plus one plant which cannot meet the end-
of-pipe standards but adequately controls the in-plant emission of
certain heavy metals included in the control standards. For three of
116
-------
§
I I I I I I I I I II!
I I I I I I I I I III
ro
§
CU
4-1
Cd
M
CU CU
T) (3
O O
CU
t3 5
O O
CU CU CU CU CU
sea c a S
o o o o o o
*1 125 S3 S5 S3 55
CN
§
H
H
O O
h4 2
S §
ss
CU CU
a a
o o
Z 2
CM
a
P
*
o
OP
4J4JJJ4J4J4JJ-I4-I4J 4J 4J 4-1
ooooooooo ooo
4>Q)Q>a)
MUt-lMMHI-lUl-l M !-l l-l
•H-H-H-H-H-H-HiH^H 'H'H'H
TJf^rOf^TJ'OT3rO'X3 TO?Ot3
psccacceac ccc
MHHMMHMMH HHH
co
CU
^1
cd
co
m
0
CO &•« CO
cu m cu
H V rH
co cd
CO Td CD
<4-l CO M-l
0 0
CO
*5 4J 6^
m 1-1 in
V 14-1 A
CO O
C T) H T3
o c ex c
•H CO Cd
u M
cd co co co
4-1 4-1 4-1 4J
•H -H 1 -H
8 S 8^S &«
000
4J CN CM in
CO V A A
O
O 4J 4J 4J
CO CO CO
O O O O
55 CJ O cj
II II II II
CU
4J
CO
M
CU CU ^3
C S T3 00
O O O -H
Z *J X «
*•
>.
cu
M
•
M
a
ex
n
cc
J3
O
CO
•H
T3
4J
O
CU
M
•H
•0
c
•H
>•
c
cd
M
0
M-l
4J
O
cd
(X
e
£
0
e
c
•H
CO
4-1
rH
3
CO
cu
^
I-l
a
o
«H
4J
o-
• •
CU
4J
O
S5
oo
co
117
-------
of the four plants also affected by Option 2, the costs for Option 2
are roughly the same as for Option 3. For the fourth plant the costs
are roughly three times that of Option 2.
The estimated total industry capital investment required under
this option is approximately $368,200 and the total operating costs
are approximately $871,600. As under Option 2, the range is
capital investment required by each producer ($19,300 to $145,700
and annual operating costs ($34,300 to $366,100) is moderate.
Table V-2 summarizes our expected economic impacts for the 12
indirect dischargers in this industry. All producers affected will
experience a low economic impact as annualized costs are estimated
to be less than 20% of profits and 5% of sales for each plant. The
range of economic impacts expected is quite low (2.7% to 10.7%) and
no community or balance of trade impacts are expected.
E. Pretreatment Standards for New Sources
Two technological options were considered for new source pre-
treatment standards:
Option 1: Do not regulate
Option 2: Metals removal at-the-source
In assessing the economic impacts resulting from each of these
technologies, we have resorted to general approximations since:
1) it is not clear what size new indirect discharge plant is
considered the minimum economic size plant, 2) new plants will likely
contain production facilities relating to more than one industry sub-
category and 3) a precise estimate of the capital investment required
for a new plant is not available.
118
-------
In our analysis of the economic impact of pretreatment standards
for new sources, we have considered three types of plants: 1) tall oil
fractionation plus rosin derivative production, 2) sulfate turpentine
fractionatioa and 3) tall oil fractionation, rosin derivative pro-
duction, and sulfate turpentine fractionation. The model plants, on
which the control costs are based, are somewhat larger than the
average existing plant of each type. For each of the two options, the
capital costs were estimated to be less than 1% of the plant investment
and the annualized operating costs were estimated to be substantially
less than 20% ©f the new plant projected pre-tax margin. Neither of
these impacts are sufficient to preclude future investment in production
capacity for these industries as needed, but would likely result in
delayed expansions until the prices for products were pushed
sufficiently high by supply shortages.
F. Summary by Industry Subcategory
A secondary assessment of the economic impact on this industry
is based on a segment analysis. Competition occurs within a business
segment and is independent of type of discharge. A complete analysis
therefore has to consider the possibility of a plant producing a
particular gum and wood chemical being impacted in a disproportionately
high manner because the effluent from its product mix is more costly
to treat than that of its competitors.
1. Sulfate Turpentine and Fractionation Products
Table V-3 shows the expected economic impacts resulting from each
of the technological options applicable to the 7 plants active in this
segment. Option 2 will impact all plants affected to about the same
119
-------
TABLE V-3
SUBCATEGORY A:
SULFATE TURPENTINE & FRACTIONATION PRODUCTS
Economic Impact on Profitability
Plant Option 2 Option 3 Option A
Direct Dischargers
121 Low High High
800 None None Low
Indirect Dischargers
168 None None
087 Low Low
266 None Low
151 Low Low
607 Low Low
Key; None = No cost to meet effluent limitations
Low = Cost <20% of before-tax profits and <5% of sales
Moderate - Cost >20% but <50% of before-tax profits and <5% of sales
High = Cost >50% of before-tax profits and >5% of sales
Note; Option 1 results in no impact for any producer.
120
-------
degree and no large differential impacts are expected. Options 3 and 4
will clearly impact plant A much more dramatically than any ot the other
participants suggesting it as a plant closure candidate under these
options. That plant A alone will experience a high impact and all
others a low or no impact suggests that price relief from this impact
will be very unlikely.
2. Wood Rosin and Turpentine
Table v -4 shows the expected economic impact resulting from each
of the technological options applicable to the four plants active
in this segment. Options 2 and 3 will impact all plants affected to the
same degree and no significant defferential impacts are expected.
Option 4 will impact plant A much more than plant B and also much more
than Options 2 and 3 for plants C and D. Therefore, Option 4 might
result in plant closure and transferral of production to another
location if possible.
3. Tall Oil Fractionation
Table v—5 shows the expected economic impact resulting from each
of the technological options applicable to the 12 plants active in this
segment. Option 2 will impact all plants affected to about the same
degree and no significant differential impacts are expected. Option 3
will impact one plant somewhat more harshly than others and may cause
some product withdrawal or even withdrawal from the market altogether.
Option 4 will cause severe differential impacts and
would likely alter the competitive positioning of the large partici-
pants already well established in this segment. In addition to giving
121
-------
TABLE V-4
SUBCATEGORY B.
WOOD ROSIN & TURPENTINE
Economic Impact on Profitability
Plant Option 2 Option 3 Option 4
Direct Dischargers
606 N°ne None High
698 Low Low Low
Indirect Dischargers
151 Low Low
607 None None
Key; None - No cost to meet effluent limitations
Low - Cost <20% of before-tax profits and <5% of sales
Moderate - Cost >20% but <50% of before-tax profits and <5% of sales
High - Cost >50% of before-tax profits and >5% of sales
Note; Option 1 results in no impact for any producer.
122
-------
TABLE V-5
SUBCATEGORY C.
TALL OIL FRACTIONATION PRODUCTS
PLANT
Direct Dischargers
333
800
693
416
948
Economic Impact on Profitability
Option 2 Option 3 Option 4
None
None
None
None
Low
None
None
None
None
Low
High
Moderate
High
Low
Moderate
Indirect Dischargers
168
111
532
355
686
346
641
None
None
None
None
Low
None
None
None
None
None
None
Moderate/Low
None
None
Key;
None » No cost to meet effluent limitations
Low • Cost <20% of before-tax profits and <5% of sales
Moderate - Cost >20% but <50% of before-tax profits and <5% of sales
High » Cost >50% of before-tax profits and >5% of sales
Note; Option 1 results is no impact for any producer,
123
-------
a strong coat advantage to indirect dischargers, it would likely
cancel any expected cash flow for at least two of the plants. Under
those circumstances we project plant closure as discussed under Option
4 technology for direct dischargers (p. 113).
4. Rosin Derivatives
Table V-6 shows the expected economic impact resulting from each
of the technological options applicable to the 13 plants active in this
segment. Option 2 will impact all plants affected to about the same
extent and no significant differential impacts are expected. Option 3
will impact two plants much more than the other 7 and will likely
reduce the profitability of these plants as they continue in operation.
These two plants likely account for only 15-18% of industry capacity, and
therefore, even acting together, cannot be expected to influence industry
segment prices enough to get much price relief. Option 4 will result
in significant differential impacts and will likely drive one pro-
ducer out of the segment. The remaining producers have more than
sufficient capacity to compensate for this loss of productive capacity.
5. Overall Summary
Option 2 appears to offer the best prospects of controlling the
industry's dischargers but avoiding potentially damaging economic
consequences in this industry. Option 3 appears to also offer relative-
ly little possibility of adverse economic impacts (only two plants
impacted) but the incremental improvement in effluent control is not
demonstrated. Option 4 would severely impact certain segments of this
industry-particularly tall oil fractionation products-and substantial
differential impacts within each segment would be felt.
124
-------
TABLE V-6
SUBCATEGORY D.
ROSIN DERIVATIVES
PLANT
Direct Dischargers
121
800
948
698
Compliance Costs as % of Pretax Profitability
Option 2 Option 3 Option 4
Low
None
Low
Low
High
None
Low
Low
High
Low
Moderate
Low
Indirect Dischargers
168 None
151 Low
686 Low
111 None
607 None
None
Low
Moderate/Low
None
None
Key; None =NO cost to meet effluent limitations.
Low = Cost <20% of before-tax profits and <5% of sales
Moderate » Cost >20% but <50% of before-tax profits and <5% of sales
High = Cost >50% of before-tax profits and >5% of sales
125
-------
VI. Major Assumptions and Limits of the Analysis
The basic assumption which underlies the quantitative assessment
of the economic impact of proposed effluent control technologies in
existing plants in the Gum and Wood Chemicals industry is that no cost
pass through to mitigate the financial consequences of these control
costs is considered. This assumption is valid for many types of gum
and wood chemicals, although not necessarily valid for all types.
Without a detailed study of the sensitivity of demand to higher
prices and the intercompetitive relationship of these products with
those not considered part of this industry, this assumption serves to
define the worst case economic impact for this industry.
A second set of critical assumptions relates to the estimate of
plant profitability. Three key assumptions were made which influence
the accuracy of the estimated profitability:
1) Plant Sales Estimates: 1978 sales estimates were obtained from
public sources for 13 of the 20 discharging plants in this industry. The
The sales estimates for the remaining 7 were estimated based on production
volume in each industry subcategory, average industry selling price,
and employment. In most cases the average production volume times the
average selling price gave an estimated sales volume significantly
in excess of what we would expect compared to an existing plant of
similar production volume size in the industry. To adjust these sales
volumes downward, the plants were compared to existing plants with a
similar product mix. Two factors were considered in adjusting the sales
volume: 1) the ratio of reported sales volume to estimated production
126
-------
value in the example plant, and 2) the ratio of reported sales to
employment. It was assumed that the merchant sales and percentage of
product upgrading In these two plants was roughly comparable even If
different products were produced. To the extent this is not true the
sales value is in error.
2) Sales By Industry Subcategory For Each Plant
The total sales for each plant was next apportioned to each
industry subcategory known to exist in that plant on the ratio of
production volume in each subcategory to total porliction volume
adjusting for the selling price differences betwee subcategories.
We have recognized that some double counting of production volume
exists, and the validity of this step is contingent on a basic
assumption that double counting is roughly the same in each sub-
category. Since the double counting is likely related to product
upgrading, this assumption is a fairly safe one except for Subcategory
D - Rosin Derivatives, which draws raw materials from Subcategories
B, C and E. To the extent that a plant is heavily engaged in both
Subcategory D and one or more of B, C or E, our estimates would under-
state the plant profitability and overstate the impact. However, we
do not believe that this assumption materially distorts this impact
analysis.
The ratio of subcategory production volume to total production
volume is insufficient to apportion total sales to each subcategory
represented within each plant. The unit sales value for products in
different subcategories is substantially different; therefore, we
127
-------
weighted the production volume more heavily for those subcategories
which typically produce higher value products. The weighting factors
used are estimated average selling prices for products in each sub-
category. In specific cases where it is known that plants emphasize
the higher unit value products within a subcategory, a higher average
selling price was used.
The production volume for each subcategory was multiplied by the
estimated average selling price. This product is expressed as a
percentage of the sum of all such products for each plant. This
percentage is also assumed to be the percentage of subcategory sales
volume to total plant sales volume.
3) Plant Profitability
Current manufacturing cost estimates are based on data developed
in an earlier study of the industry and are representative costs for
specific manufacturing processes found in plants producing products in
each subcategory. It was assumed that the processes costed in the
earlier study are still representative of those used in the plants
active now, and that the conversion cost variations between different
products within a given subcategory are small. To the extent this is
not true and differences between the product mix in a given sub-
category in two separate plants are significant, the plant profitability
estimate are in error. We do not believe the error to be significant.
This analysis does not represent a detailed study of the competitive
economics of this industry. It is an analysis based on publically
available information, a limited amount of economic data obtained from
the industry, and considerable reasoned judgment concerning the basis
128
-------
of competition within segments and with products produced in other
industries. We do believe that sufficient data has been developed
or made available to allow a first order approximation of the economic
impact of proposed regulations on the industry in total. However,
the economic impacts for each plant are subject to considerable
uncertainty. In spite of this uncertainty, the accuracy of each
estimated impact is sufficient to justify the impact ranges chosen
and it is not expected that refined data would result in more than
a few changes in plant impact classifications. Therefore, the
evaluation of the impact on the industry in total or on a subcategory
within the industry is a fair use of the data contained in this report.
The evaluation of the impact on a specific plant within a subcategory
is not fair use of this data and is presented only to support, along
with the data for other plants in the industry, our overall conclusions
as to the economic impact on the industry.
129
U. S. GOVERNMENT PRINTING OFFICE : 1979 0 - 307-020
------- |