-------
Table 2B-2
Process Economics for Ethylene from Ethane
Variable Name
Units
Source: Data Resources, Inc.
Coefficients*
1-3 Butadiene
Butane
Ethane
Ethylene
Fuel Gas
Propylene
Pyrolysis Gas
Cooling Water
Electricity
Labor
Natural Gas
Process Water
Steam
Operating and
Maintenance Costs
Other Fixed Costs
Sales and Admini-
strative Costs
Depreciation
Return on Investment
1
Ib.
Ib.
Ib.
Ib.
Ib.
Ib.
Ib.
gal.
kwh
mhr
MM Btu
gal.
Ib.
$
$
$
S
$
1
.0180
.0075
-1.3120
1.0000
.0090
.0380
.0370
-42.0000
-.0170
-.0001
-.0066
-.0500
-4.3000
-.0068
-.0064
-.0068
-.0149
-.0298
*The coefficients in the upper portion of the table (1-3 Butadiene through
steam) have units of pounds, gallons, kwh (or some other physical unit) per pound
of output. The coefficients in the lower portion of the table have units of
dollars per pound of output. A minus sign designates an input, otherwise an
output.
2B-6
-------
5. Prices for the different factor inputs which contribute to produc-
tion costs (e.g. utilities/ wages/ basic feedstocks, etc.). These are '
estimated from cost indices provided by the DRI macro model.
6. Effective capacity levels {a fraction of nameplate capacity) for
each process-product combination. These have been estimated as part of
each set of process economics. The nameplate capacity estimates for a
given process are summations of the individual plant capacity estimates.
The sources used to determine individual plant capacities include: the
DRI Chemical Service, the SRI Directory of Chemical Producers, Chemical
Marketing Reporter, the industry survey conducted by EPA, the different
sources of process economics,* reports in the various chemical industry
periodicals**.
Capacity Expansion. Two methods are used to add new plant capacity to
the supply model to project the 1985 Base Case. Announced new capacity is
treated in the same manner as existing capacity, with adjustments in pro-
cess economics necessary only for the depreciation cost estimate. In this
instance, the plant is the newest plant using the specified process, and
becomes the model plant represented in the process economics. The second
method involves unannounced capacity expansion that is necessary to meet
the demand for a product. This capacity is represented in most instances
as an infinitely elastic supply of a product, given the costs associated
with the new construction. If demand is sufficient to make the new capa-
city profitable (i.e. to allow market rate of return on the investment)
then unannounced capacity will be added.
Economics for the unannounced capacity expansion are developed from
existing and/or announced plants with comparable process economics, modified
if necessary to reflect future costs and technological changes that can be
identified. For example, the supply model contains two sets of process
economics for ethylene derived from ethane. One set, X1ETYL, represents
existing or announced ("X" process) capacity, the other set, designated
Y1ETYL, represents a potential new but as yet unannounced ("Y* process)
capacity that could be built if needed to meet long-term production require-
ments. The set of *Y" process economics in the long-term models differs from
the "X" economics in the following manner:
a. The "Y" processes contain a depreciation coefficient relevant
to the year in question (e.g., 1985). The "X* processes have
a depreciation coefficient associated with the latest plant
built or announced using the process.
b. The "Y" processes incorporate any known technological
improvements such as improved yield factors.
c. Additional "Y" processes were added to reflect potential new
processes or process alternatives.
* The Pace Company, Chem Systems, inc., JRB Associates, Inc.
** Chemical Week, Hydrocarbon Processing, Chemical Engineering News
2B-7
-------
Unlike the existing processes, the *Y" processes have no capacity
constraints, with the exception of those processes that use feedstocks which
have limited availability. For example, the availability of propane to make
ethylene in future years might be limited due to declining production of
natural gas and high demand for alternate uses of propane. Therefore, it is
necessary to constrain the use of propane in both the "X" and "Y" processes.
To meet projected final product demands and production requirements at
minimal cost, the supply model can select and test different amounts of
existing plus announced capacity and/or unrestrained amounts of new capacity.
Generally, where only one process Eor a given product is represented, the
model will use all of the "X" process capacity before using the "Y" process,
because capital costs for existing and announced plants are lower than for
new, unannounced plants using the same prpcess.
Where more than one process can be used to produce a chemical, the model
will select processes on the basis of relative factor prices in order to
minimize costs. In this situation, all the existing and announced capacity
need not be used before new capacity is incorporated into the model solution.
Calibration
Prior to its use as a forecasting tool, the supply model is calibrated
with historical prices, costs, capacities, production, and international
trade. Using the average contract prices and production levels for 1979
(the most recent year with complete price information) and considering all
production costs, depreciation and selling expenses, the model is solved
for before-tax return on investment (r.o.i.) for each process in the
model. These estimates of r.o.i. are then examined relative to capacity
utilization, market competitiveness, and known market conditions . If
r.o.i. estimates are not reasonable, adjustments are made in the other
elements of the process economics.
The estimates of r.o.i. are ussd as the basis for setting initial prices
in the baseline forecast for those products where price is not determined by
the costs of unannounced new capacity (see below).
Baseline Forecasts
The baseline forecast provides a set of prices, outputs, capacity
utilization and production costs which are consistent with the demand and
supply model, including forecasts of exogenous demand variables. Figure
2B-2 shows the steps of the analysis. The determination of the initial
estimates of product prices and end-use demands was described above in the
subsection on the demand forecast.
Costs are minimized by the supply model (described earlier) in rela-
tion to the end-use demands and the specifications of the technologies.
Process costs are adjusted from the calibration year on the basis of
projected energy and other input costs. The forecast accounts for both
2B-8
-------
Figure 2B-2
Demand/Supply Solution Procedure
Initial Demand,
Price Forecast
Solve Demand
Equations
End-Use Demands
Solve Meta/DRI
Supply Model
1
r
Price Estimates
No / Price/
Output
Converg
Yes
Process
Treatment
Costs
Calibration
to 1985
2B-9
-------
announced and unannounced changes in capacity. Depreciation and r.o.i. are
adjusted from the calibration year to account for inflation. As noted
previously, although the process economics include r.o.i. and depreciation,
the model should not be interpreted as being long-run. Rather, the amount
above variable cost should be interpreted as reflecting the current level of
profitability for new plants.
Given the above constraints, the supply model is solved to determine the
production levels and prices of all chemicals and the activity levels of all
processes in the model. The resulting prices of the end-use chemicals are
then compared with the initial estimates used to derive the final demands for
these chemicals. If they differ, the new prices are used to generate a new
set of final demands, and the procedure is continued until prices and outputs
converge. This process is rapid because the supply curve is actually a step
function, with each step representing the costs of a certain process and the
length of the step equal to effective capacity. (See Figures 2-5 and 2-6 in
Section 2.)
Development of 1985 Base Case
This section describes the methodology and assumptions that were used to
develop a base case for 1985. (The base case estimates are presented in
Section 4.) The base case includes estimates of price and output for indi-
vidual chemicals and for fourteen major product groups. The forecast for the
chemical industry is driven by DRI's macroeconomic forecast, particularly by
the prices of feedstocks and other energy inputs, wages and capital costs,
and the growth rates of the industrial sectors which consume the end-use
products. However, the forecasts for the major product groups include a
number of groups not covered in the LP model. Forecasts; of the chemicals
included in the LP model are based on a solution derived from DRI's fall 1982
forecast for 1985. Forecasts of the remaining product groups are derived
from a revised methodology and are consistent with DRI forecasts.
The subsections below describe the DRI macroeconomic forecast, the
forecast for chemicals in the LP model, the methodology and results of
extending this forecast to the rest, of the industry.
Macroeconomic Forecast
As stated above, the future demand for organic chemicals is obtained
from a long-range forecast of the nation's economy. That forecast is
generated by a macro model of the economy which, in turn, is driven by a
set of demographic, policy, and energy cost assumptions. Table 2B-3 lists
the assumptions made about different variables driving the macro model.
The specific forecast used is DRI's TRENDLONG0682 scenario, a 15-year
projection which incorporates the Economic Recovery Tax Act of August 1981
and the recent revisions of the National Income and Product Accounts.
2B-10
-------
Table 2B-3
Capsule Summary of the Long-Term Forecast
I. Principal Assumptions
Demographic
Foreign oil
Natural gas
II. Principal Policy Dimensions
Taxes
Personal tax cuts
Social Security
Corporate tax cuts
Budget deficit
Monetary policy
Energy policy
"Superfund" for waste
site clean-up
Assumes slower population growth
which decreases labor force growth
rate and curtails expansion of
potential output. Also results in
an older population.
Real prices of foreign oil to
decline by 12 percent in 1982 and
3 percent in 1983, followed by an
annual average rate of increase of
3.7 percent.
Prices reflect natural gas pricing
legislation passed in November of
1978 and assume controls will be
extended through 1990. After
1990, prices equivalent to No. 2
fuel oil.
Personal taxes cut by 25 percent
between end of 1981 and end of
1983, followed by further cuts due
to CPI indexing in 1985.
1985 increase foregone.
Progressive liberalization of
depreciation allowances.
Large deficits of 4.5 percent of
GNP in 1982, falling to 1 percent
of GNP in 1995.
Continuation of the Fed's New
Monetary Policy, targeting the
growth of both Ml and M2; while
fairly constrictive it will result
in a highly volatile financial
atmosphere.
President's timetable for
decontrol assumed.
Costs were not included in the
forecast, since structure of taxes
will likely change.
2B-11
-------
TRENDLONG0682 assumes that the U.S. economy will be relatively free of major
external shocks over the forecast Interval. In a scenario free from the
threat of war and large scale energy embargoes/ a smooth long-term growth
path is projected. The forecast incorporates a personal tax cut of five
percent in late 1981, with subsequent 10 percent cuts in personal tax rates
in the third quarter of the following two years. Federal Reserve policy is
expected to remain fairly constrictive and cause a highly volatile financial
atmosphere. The unemployment rate is assumed to be close to 9 percent in
1983, and after a slow deceleration in the early 1980's will hover about the
6 percent level between 1988 and 1995. The implicit price deflator averages
6.5 percent per year over the forecast.
In the long run, output can be viewed as supply-determined, such that
real GNP growth will be ultimately limited by the rate of growth of potential
output. In the short run, actual output (GNP) is generally below potential.
In the relatively smooth shock free world of TRENDL.ONG0682, real GNP averages
a 2.7 percent annual rate of increase between 1979 and 1995. This projection
is 0.8 percent lower than the 3.5 growth recorded in the previous 15-year
period. Table 2B-4 shows the forecast of major components of GNP and some
other important economic indicators.
Energy policies are important to the organic chemical industry for two
reasons. First, energy costs are part of the overall costs of production.
Second, refinery products derived from crude oil and natural gas are the
principal feedstocks used to produce organic chemicals. Table 2B-5 shows the
details of the energy product price forecast used as input to the macro model
and also as input to the chemical Industry supply model to derive the
feedstock costs. The latest DRI forecast assumes prices of domestic crude
will be decontrolled in 1981 and that foreign oil prices (in current dollars)
will remain stable for the next year and increase slowly after that. Natural
gas prices are assumed to be controlled until 1990 in a further extension of
the Natural Gas Price Act of 1978.
The econometric demand models developed by DRI are a set of equations
relating the national economic forecast to the consumption of 19 major
products in the three dominant groaps of end chemicals: Plastics and Resins,
Synthetic Fibers, and Elastomers. The demands generated by these equations
account for only part of the demand for the chemicals covered by the linear
programming model. Therefore it was necessary to supplement the econometric
demand equation with less sophisticated forecasts based on published fore-
casts and historical trends.
Given the final demands, the linear programming model is solved to find
prices and outputs of primary and intermediate chemicals. The solution is
iterated with the demand equations to obtain consistent price and output
estimates.
2B-12
-------
Table 2B-4
Capsule Summary of the Economy: TRENDLONG0682
GNP and Its Components (Billions $72)
1979
History
1980
Forecast
1985
Consumption
Investment
Government
Net exports
Gross National Product
Rate of change
927.6
236.3
278.3
37.2
1,479.4
2.8
930.5
208.4
284.6
50.6
1,474.0
-0.4
1,064.6
256.7
301.2
45.8
1,668.3
2.6
Other Key Measures
Industrial Production Index
(1967 - 1)
Rate of change
Capacity Utilization
(Total Mfg.)
GNP deflator (percent change)
Unemployment rate
1.525 1.470
4.4 -3.6
0.856 0.791
8.7 9.3
5.9 7.2
1.714
3.2
0.810
6.3
7.3
Source: DRI Chemical Review, Fall 1982, page 19.
2B-13
-------
Table 2B-5
Energy Product Price Forecast
(Gulf Coast, Contract Basis)
I Benchmarks |
Crude oil*
Light naphtha
Full range naphtha
Gasoline - regular
No. 6 fuel oil
Natural gas
Ethane
Propane
N-butane
I-butane
Butylenes
I (Current
1 1980 I
$/Bbl 27.9
tt/Ib 13.9
tf/lb 13.6
jrf/gal 87.6
jrf/lb 7.3
ef/MMBTU 274.0
«f/lb 9.3
ft/lb 9.9
izf/lb 13.7
tl/lb 18.7
Jf/lb , 12.5 {
$) 1
1981 1
35.6
17.1
16.7
100.4
8.9
310.6
7.4
11.2
14.0
15.5
17.9 .
Forecast
(1980 3)
1985
31.6
15.3
15.0
93.0
8.5
387.0
10.4
12.6
14.4
16.3
13.7
*Average U.S. refiner acquisition cost (foreign and domestic crude),
Source: DRI Chemical Review, Fall 1982, page 33.
2B-14
-------
Product Group Forecasts
The LP model has good coverage of organic chemicals in the following
product groups: Primary and Intermediates (both Aliphatics and Aromatics),
Plastics and Resins, Elastomers, and Synthetic Fibers. Table 2B-6 shows the
shares of production of each product group covered in the DRI model.
Forecasts for these groups were extrapolated directly from the overall
average result for each group. Overall 1979 production figures for each
product group were taken from the International Trade Commission (ITC) and
projected to 1985 using the overall growth rate for LP model chemicals in
that group. 1979 ITC prices for the overall product groups were inflated to
1985 levels using the production weighted price increase for model chemicals
in each group (see Figure 2B-3A).
The LP forecast is also used as a basis for forecasting price and output
in those product groups which are not covered in the DRI model. These
groups include Dyes and Pigments, Flavors and Fragrances, Rubber Processing
Chemicals, Surfactants and Miscellaneous End-Use Chemicals. There is only
spotty coverage for plasticizers within the DRI model, so they are included
with these product groups as well. The forecasts for these product groups
are constructed from four main elements: 1979 production and price levels
from ITC; cost shares for various inputs developed primarily from data in
the U.S. Census of Manufactures; forecasts of input cost indices from the
DRI model; and assessments of output growth rates from a variety of sources,
particularly the Kline Guide.
Figure 2B-3B also shows the procedure followed. Price and production in
1979 from the ITC are the baseline. Cost shares attributable to labor,
materials, fuel, purchased electricity and capital are developed for each
product group from 1977 Census of Manufactures data. Prices in 1985 for each
product group are calculated by taking the weighted average of the increases
in the cost indices for each input group forecast by DRI between 1979 and
1985. The weights are the cost shares of each input in each product group.
Increases in output are forecasted based on assessments of demand and supply
prospects for each product group.
For a variety of reasons, prices are not adjusted to account for elasti-
city of demand or changes in capacity utilization. First of all, there is
not enough information to determine how our price estimates compare with the
implicit prices underlying other output growth rate projections. Second, the
resulting price adjustment would be well within the band of uncertainty
surrounding the price estimate. Finally, small changes in the base price
will not significantly affect the estimate of the change in price due to the
proposed regulation.
The following sections describe the procedures and intermediate results
used to derive the base case forecasts. Lastly, the results for the model
and nonmodel product groups are described and compared.
2B-15
-------
2B-6
Share of Total Production Covered by LP Model
Percent of ; Production in
Product Group I Model
Primary Aliphatics* 45
Primary Aromatics 89
Intermediate Aliphatics 70
Intermediate Aromatics 88
Plastics and Resins 88
Elastomers 91
Synthetic Fibers 81
*Model does not include ethane, propane, C5 hydrocarbons, and "all
other" categories in ITC.
Source: Meta Systems estimates.
2B-16
-------
Figure 2B-3
Information Flows for Base Case Forecast of Model
and Nonmodel Product Groups
A. Model Product Groups
LP Model
1985 Solution
1979 ITC
Prices and
Outputs
Average Price and
Output Increases
1985 Prices
and Outputs
B. Nonmodel Product Groups
LP
1985
Model
1
w
Input
Cost
Indices
Census
Data
ITC 1979
Prices
and Outputs
Input
Cost
Shares
Market
Assessments
2B-17
-------
Input Cost Shares. Cost data from the 1977 U.S. Census of Manufactures
were used to develop cost shares for the nonmodel chemical groups. The
categories are labor (including both production and overhead labor), raw
materials (primarily chemical feedstocks), fuel consumption, purchased
electricity, and fixed costs.* This breakdown corresponds very closely to
the way that cost increases between 1979 and 1985 are allocated in model
processes. For example, in the model, overhead labor is a linear function of
production labor costs, and both are inflated using the Petrochemical Wage
Index.** Nonlabor fixed costs in the model, including taxes and insurance,
general and administrative, depreciation and return on investment, are all
inflated using the Petrochemical Construction Index.**
Table 2B-7 shows the cost shares developed for the nonmodel product
groups. In general, products with higher prices tend to have lower cost
shares due to feedstocks, which have a higher value added resulting from
their specialized characteristics. Three of the product: groups (Flavors and
Fragrances, Rubber Processing Chemicals and Plasticizers) are grouped
together in the same 5-digit SIC group 28692. Therefore, separate cost
shares could not be derived for them. Because plasticizers dominate the
group with 80 percent of production and their price is significantly lower
than those of the other two product groups, the share of raw materials costs
for Flavors and Fragrances and Rubber Processing Chemicals is probably
overestimated.
Input Cost Indices. To make the price forecasts for the nonmodel product
groups consistent with those for the model groups, the cost indices from the
LP model were used. The cost indices for labor, fuel, purchased electricity
and fixed assets are, respectively, the Petrochemical Wage Index, the price
index for No. 6 fuel oil, the index of Industrial Electrical Power, and the
Petrochemical Construction Index. Table 2B-8 shows DRI's forecasts of the
increases of these indices in real terms between 1979 and 1985.
The cost index for raw materials was the weighted average of the
forecast's real cost increase of Intermediate Aliphatics and Intermediate
Aromatics. The weights for each product group were the shares of total sales
of aromatics and aliphatics for each product group given in the 1979 ITC
report.
*Fixed cost is set equal to the residual between the other cost items
and the total value of sales. This assumption creates some problems,
since it makes this item very sensitive to short-term fluctuations in
sales and prices.
**Data Resources, Inc., Chemical Review, Fall 1982, p. 31.
2B-18
-------
Table 2B-7
Input Cost Shares for Nonmodel Product Groups
I Raw
Labor I Materials
I Purch. | Fixed
Fuel I Elec. | Costs
Dyes and Pigments .164
Flavors and Fragrances .110
Rubber Processing .110
Plasticizers .110
Surfactants .112
Medicinals .121
Pesticides .086
Miscellaneous end-use .094
.488
.529
.529
.529
.595
.337
.370
.527
.044
.061
.061
.061
.020
.027
.043
.057
.016
.018
.018
.018
.009
.013
.013
.018
.288
.281
.281
.281
.264
.502
.488
.306
Source: U.S. Census of Manufactures, Meta Systems estimates.
2B-19
-------
Table 2B-8
Forecasts of Cost Indices, 1979 to 1985
Petrochemical Wage Index
Price of No. 6 fuel oil
Industrial Electricity Index
Petrochemical Construction Index
Intermediate Aliphatics
Intermediate Aromatics
Ratio of 1985
to 1979 Value
(in constant dollars)
1.16
1.33
1.55
1.04
0.98
0.92
Source: DRI Chemical Review, Fall, 1982, Meta Systems estimates.
2B-20
-------
Market Growth Assessments. The growth prospects for each product group
were assessed in the Industry Profile. An average annual growth rate was
chosen for each product group based on these assessments and applied to the
1979 ITC production levels.
Resource Conservation and Recovery Act (RCRA)
RCRA costs were supplied by EPA for 36 establishments in the SIC-defined
industry data base. Industry-wide costs were developed by Meta Systems for
an additional 815 establishments based on the average establishment-level
costs for the off-site disposers.*
BPT Methodology
This section describes the procedure used to assess the economic impacts
of Best Practicable Technology (BPT) regulations on the Organic Chemicals
Industry. The goals of this part of the work are: 1) to estimate the likely
costs incurred at each establishment due to BPT regulations; 2} to determine
the effect of BPT costs on each model chemical and all major product groups
(model and non-model); and 3) with the information provided by the other
two, to evaluate the impact of the BPT regulations on individual
establishments and the industry as a whole.
The major steps of the methodology are summarized in Figure 2B-4. Prices
and production levels for 1985 are estimated as a point of reference for
computing incremental costs. The costs of complying with new BPT regu-
lations (including costs due to higher prices for feedstocks purchased from
other establishments in the industry) are estimated and assigned to each
plant. The contribution by individual model chemicals and by model and non-
model product groups to these costs are then estimated. Finally/ these data
and the assigned BPT costs are used to assess the effects of the effluent
regulations on the production and prices in the organic chemicals market as
well as the effects on particular establishments.
Base Case Extension: Establishment Sales Estimates
First, the methodology must provide a reference point to compare the
industry in the presence of BPT regulations with the situation in their
absence for the year 1985. Since establishment sales is the primary measure
used to assess the size of the impact of BPT costs, it is necessary to
describe the procedure for projecting our estimates of establishment-level
sales to 1985.
There are several major assumptions involved in the 1985 sales
estimates. First, although forecast changes in industry production between
* EPA, Office of Analysis and Evaluation, Guidance Manual for Estimating
RCRA Subtitle C compliance Costs, July 1981.
2B-21
-------
Figure 2B-4
Flow Chart of BPT Methodology
Price and Output
Forecasts for Non-
Model Product Groups
Meta Model for Price
and Output Forecasts
of Model Chemicals
and Product Groups
Estimation of 1985
Base Case
Assignment of Direct
BPT Costs to Each
Establishment
Assignment of
BPT Costs to
Model Processes
Meta Model for
Price and Output
Forecasts: BPT
Induced Price
Changes for
Model Chemicals
Allocation of
Total BPT Costs
to Model and Non-
model Product
Groups
Establishment
Level Impacts
Estimate Price
and Output
Changes For
Non-model
Product Groups
2B-22
-------
1979 and 1985, assume that production remains constant at existing establish
ments with all growth occurring at new facilities. Consequently, 1985 sales
and BPT cost estimates apply to current output. This was done because the
wastewater flow and pollutant loading data used to assign BPT costs to estab
lishments are taken from data based on current (1979) production levels,
The volume of sales of a particular product group at a particular
establishment is unknown. Lacking more complete data, sales are assumed to
be distributed equally among product groups known to be produced at the
establishment. Given this assumption, establishment sales in 1985 can be
estimated based on the price increases of existing production according to
the following equation:
ni 1 Pk
SJ85 = Sj79
where:
= 1979 sales* of establishment j (1979 $);
Sj85 = 1985 sales of establishment j (1979 $);
HJ = number of product groups produced at establishment j;
P79jj = average 1979 price of product group k ($/lb);
P^ = change in price between 1979 and 1985 ($/lb).
Establishment sales are estimated by EIS by the following method: For each
4-digit SIC group, using Census of Manufactures data, total establishment
sales are divided by total establishment employment to obtain an average
sales/employment ratio for that SIC group; sales at each establishment in
that SIC group are then obtained by multiplying employment at that
establishment by this average ratio. Because the Census of Manufactures
definition of establishment sales does not include the value of production
consumed internally at an establishment, the average sales to employment
ratio reflects the average degree of integration of that SIC group as a whole.
An alternative assumption is to allocate sales to each product group in
proportion to total industry sales. For example, an establishment producing
chemicals in two product groups would be assigned sales in proportion to
total sales for the corresponding groups. If the dollar volume of one
product group is twice that of the other at the industry level, that same
relationship would be applied at the establishment level. This method is
used as part of the sensitivity analysis. The differences in impact
estimates are not large.
* Estimates of 1979 establishment sales are taken from the Economic
Information Systems, Inc. (EIS) X/Market Data Base.
2B-23
-------
Estimation of BPT Costs for Products and Processes
Establishment level cost estimation is discussed in some detail in
Section 4. These establishment costs are converted into costs imposed on
individual model chemicals and major product groups. Then, the relative
effects of BPT costs on prices and output of different products are compared
and cost increases for producers of a given product group are examined.
BPT costs for individual model chemicals produced at an establishment are
allocated on an equal dollar per unit of wastewater flow basis, given the
capacity of each process and the relationship between pounds of output and
wastewater flow. Let:
DCj = direct BPT costs at the jtn establishment;
E^ = average flow per unit of production for process i;
FJ = .total flow at establishment j;
c^ = unit BPT costs for production by process i at establishment j.
Then:
E.
Ci ' = DCj F1 * (2B-2)
Several assumptions are implied by the above equation. First, the
industry-wide capacity utilization rate is assumed to apply to each estab-
lishment that has a given process. Although the capacity of each process is
known at every plant we do not know how much of that capacity is actually
used. Second, each plant is assumed to have an effluent per unit production
that is characteristic to the particular product made and process used at
that plant. In fact, the ratio of effluent to unit production varies some-
what among the different plants using the same product/process. A third
assumption implicit in our equation is that the sum of model process flows
for every establishment is less than or equal to the total flow (Fj), i.e.,
m .
4* E.X. . < F. (2B-3)
1=1 i 13 D
where:
ij - volume of production Eor process i at establishment j,
xij = uiKij' in 1985 with BPT in Place?
^ = average industry-wide capacity utilization of process i;
IJ = capacity of process i at establishment j;
2B-24
-------
There are three possible situations where this may not be true. First, the
standard process values of E^ may not apply to the particular establishment
in question. Second, the total wasteflow at an establishment may not simply
be the sum of each process1 wasteflow. Finally, since the flow, Fj, was
chosen out of a range in many cases, it may not be consistent with the
process flows.
In those cases where the sum of the model process flows is greater than
the total flow (i.e., equation 2B-3 is not true), the following alternative
formula is used. (This adjustment was required for roughly 25 percent of the
establishments):
E.
i
^ = DC. m_. (2B-4)
£ E.X..
1 13
where mj is the number of model processes at establishment j. This ensures
that no more than total direct BPT costs are assigned to model processes.
The next step is to aggregate the establishment level c^j's to a single
value for each process which will be used in the linear programming model.
This can be done in two waysa production weighted mean and a production
weighted median for each process. The values produced by both methods were
compared, and found to be very close. The mean was used in the analysis. We
calculate the production weighted mean according to the following equation:
Vi X..
C. = ^-r c v. (2B-5)
-
where X^j is the production by process i at establishment j and Vj_ is the
number of establishments using model process i.
The production-weighted median is computed as follows:
1. Rank all plants producing by process i in ascending order of unit
treatment costs
For each plant, calculate the cumulative production of all plants
with unit treatment costs less than or equal to that plant.
Select the plant with lowest unit costs which has cumulative
production greater than half of total production. This plant's unit
cost is the one chosen for the aggregate (i.e., all plants) process.
2B-25
-------
-Given the unit costs c^ for each process described above, the linear
programming model is solved to obtain price increases for all model chemicals.
These are used to calculate average price increases for primary and inter-
mediate aromatics and aliphatics which are used in the later steps. Indirect
costs of BPT, i.e./ treatment cost induced feedstock price increases, were
considered and found to be negligible.
BAT and PSES Analysis Methodology
Figure 2B-5 shows the flows of information in the detailed product study
impact analysis. The BAT/PSES base case solution of the supply model
includes weighted average BPT costs for each product/process. Unit BAT costs
and unit PSES costs (described in Section 4) are added to each product/
process. The supply model is solved again, including an iteration with the
demand side, to yield the effects of BAT costs on prices, production, product
value and cash flow of the chemicals in the supply model. Overall average
price and production impacts for the major product groups, as well as changes
in the activity levels and profitability of the processes in the model are
also computed. Prom these the cash flow impact ratio is calculated for each
process. A revised capacity expansion forecast, which is used in the NSPS
and capital availability analyses, is developed from the BAT model solution.
The next step is to calculate plant-level impacts. These are converted
to individual establishments based on plant capacity data. The cash flow
impact ratio assesses the effect of the regulation on cash flow. The overall
impacts for all model chemicals at an establishment are the sum of the impact
for each process multiplied by the activity level of that process.
Because unit BAT cost increases are sometimes large and the industry
structure is integrated, many processes and establishments experience
increased costs of inputs from upstream producers in addition to their own
direct costs of compliance. The integrated characterization of chemical
processes in the linear programming model makes it a very appropriate tool
to analyze these relationships.
Processes will vary in their ability to pass on price increases due to
the derived elasticity of demands for their products. Products with low
elasticity of demand will be able to pass the full increase with little
fall in output, while those with close substitutes may face significant
losses in output, or a particular process may close down entirely. One
measure of the net impact on a given process is the change in total cash
flow, and hence profitability, borne by the process resulting from BAT
costs. (See Appendix 2C).
NSPS/PSNS Regulations
Since treatment requirements for new plants will not be higher than for
existing planes, it is not necessary to investigate in detail the effect of
the regulations on the relative profitability of new capacity. There will be
no incremental compliance costs above BAT and PSES for new capacity. The
2B-26
-------
Figure 2B-5
Information Flows of Toxic Pollutant Analysis
NSPS/PSNS
Costs
BAT/PSES
Unit Process
Costs
Capacity
Expansion
Forecast
Analysis
Base
Case
Individual
Plant
Capacity
Data
Solve Aggregate j
Model )
Price/ Output
Capacity Utilization
after toxics regulation
Determine share
of new capacity
subject to
NSPS/PSNS
Calculate Establishment
.Level BAT/PSES Costs J
Establishment BAT/PSES
Costs
NSPS/PSNS Costs
of Compliance
Qlvaluate Impacts,
'otential Closures,/
2B-27
-------
overall effects of production cost increases on investment in new capacity
are discussed in the context of Capital Availability Analysis. The amount of
new capacity in 1985 (assuming proposal in 1982), the share of new capacity
subject to NSPS and PSES, and the unit capital costs of compliance for NSPS
and PSNS are estimated.
As mentioned above, the inclusion of BAT and PSES costs in the supply
model leads to a revised capacity expansion forecast for each process. The
structure of the model implies that, in response to an increase in the costs
of new capacity, there will be a sufficient reduction in capacity expansion
so that the remaining new capacity earns a competitive rate of return. The
estimate of new capacity determines the total costs of compliance which is
borne by new capacity. (The remaining share will be subject to BAT/PSES
regulations.) The change in the capacity forecast also measures the effect
of NSPS regulations on investment in the industry.
The 1985 Base Case forecast pravides the basis for the capacity expansion
estimate over the period 1979-1985, which is used in turn to develop the one
year new capacity estimate for 1985. Because year-to-year capacity expansion
will fluctuate with anticipated market conditions, it is preferable to look
at average annual capacity expansion assuming a steady long-term growth trend
for the industry.
Let X79^ and X85i represent the total production levels of process i
in 1979 and 1985, respectively. Then the average annual compounded growth
rate is:
r.
i
X85.
X79.
- 1
(2B-6)
The increment to the activity level in 1985, assuming this growth rate, is:
A X . = X85. - X84.
i i i
1 -
1 + r.
X85. ,
i
(2B-7)
The assumption is made that the capacity utilization for new capacity is 1.0,
so that the change in capacity equals the change in production.
AKGROSS. = AX. +6 .K84.
11 11
AX. + 6 . K85. (1 + r.)
111 i
-1
(2B-8)
2B-28
-------
where A KGROSS^ is the gross increment to capacity, Ui the average
capacity utilization, and 6^ the physical rate of depreciation of existing
capacity.
Given an overall estimate of capacity expansion, it is necessary to
determine both the fraction of that capacity which will be classified as a
new source, and the split of that share between direct and indirect dis-
chargers. There is a great deal of uncertainty about the amount of new
capacity which will occur as greenfield plants or major expansions of
existing establishments.
The relative shares of direct and indirect dischargers are determined for
each process based on data for existing sources on discharge status and
capacity.
2B-29
-------
-------
Appendix 2C
Methods of Estimating Impacts
The impacts of the treatment costs are measured at the industry level in
terms of total cost of compliance, product group price changes, and closure
as well as impacts on processes, establishments/ employment, capital
availability, balance of trade, and small businesses, based on the detailed
product study. The following paragraphs review the methods used to estimate
the impacts and discuss their implementation.
Total Costs of Compliance
The total capital and annual costs of installing and operating the
pollution control equipment required by the regulations is estimated by
summing up costs estimated for each establishment over all establishments.
This is done for the BPT, BAT, and PSES regulations.
Total cost of compliance for NSPS and PSNS are calculated based on the
detailed product study. As part of the detailed product study, the amount of
activity for each process expected to be covered by NSPS and PSNS regulations
is estimated. These activities are multiplied by the corresponding unit
treatment cost for each process. This product is then summed over all
processes for total annualized and capital cost of compliance.
Product Impacts
Specific products and product groups may sustain price changes and
production shifts as a result of treatment costs. The price changes are
estimated as a function of direct and indirect treatment costs (with indirect
costs reflecting the price increase in feedstock chemicals). Assuming
complete pass-through of production cost increase to price, the conservative
(or maximum) price increase is calculated as the manufacturing cost increase.
Resulting production changes are estimated for specific products using price
elasticity estimates.
For the product groups, treatment costs assigned to establishments are
allocated to each of the fourteen groups to estimate treatment-induced pro-
duction cost increases and subsequent price and production changes. The
methodology is based on the groups of products manufactured at each estab-
lishment, the industry-wide production of each product group, and the
treatment costs for each establishment.
Since the data relating to production at each establishment are not
available and the relative strength and volume of wasteflow for the product
groups are not well documented, it is assumed that the treatment cost is
divided equally among product groups known to exist at the establishment.*
* This assumption implicitly allocates production to the product groups
over all the establishments. For product groups where this implicit industry
production exceeds total industry production, its relative weighting was
reduced until implicit production was less than total production.
-------
For example, if three product groups are manufactured at an establishment,
the cost of treatment allocated to each group is one-third of the total
establishment cost.
Let:
DCj = direct cost at establishment j;
HJ = number of product groups produced at establishment j;
Cfcj = direct cost at establishment j allocated to product group k.
Then:
DC.
Ck. = ^ (2C-1)
' "j
The direct cost, C^j, is summed over all establishments and divided by total
industry production to estimate the cost increase. The calculation is
performed for each product group.
Let:
Zfc = total industry production in product group k;
cj( = unit cost increase of product group k due to treatment costs,
Then:
Ck " ^ C kj / \ (2C-2)
In the calculation, both the treatment cost and industry production are
adjusted to reflect 1985 conditions. The final step is to estimate price and
production changes resulting from the regulatory induced cost increases.
This determination is based on qualitative information about the strength of
demand for the product group in the market.
Closure Analysis
Closure analyses are performed for establishments for all levels of
regulation and are based on the detailed product study for plants as a result
of the toxic pollutant regulations. Each analysis consists of a preliminary
screening followed by a more detailed investigation of those production
facilties identified in the screening.
Establishment Closure
The basis for screening establishment closures is the establishment sales
figure as reported by EIS. (The definition of establishment sales used by
2C-2
-------
EIS excludes production consumed internally at the establishment, and is
based on the average level of integration for the SIC group as a whole.
Therefore, for a highly integrated establishment, sales may underestimate its
size.) The impact ratio is total costs of compliance for an establishment
divided by establishment sales. The cutoff value for screening is four
percent.*
Closure candidates are examined for: 1) treatment-in-place; 2)
diversity of production (diversity was determined by whether or not the
establishment had production in more than one of the production categories);
and 3) the size of the parent company measured in terms of yearly chemical
sales, greater or less than $150 million. When two of the three factors were
negative the establishment was considered a closure.
Plant Closure
Plant closure is analyzed for plants in the detailed product study.
Screening Procedure. The first step is to eliminate from consideration
those plants which will remain open by comparing the production level at each
plant with the total drop in production of that plant's process.** Plants
with a production level greater than twice the total process production drop
are eliminated from consideration. This is a conservative assumption because
it is likely that a drop in production will be spread among several plants.
Determining Likelihood of Closure. The second step is to conduct careful
examination of plant and process specific information.*** Five criteria are
examined. Three of these are related to plant-specific information: 1)
scale of the plant; 2) unit cost of compliance; and 3) the presence or
absence of vertical integration. The other two criteria are related to
process information the production decline due to the regulation and the
level of announced capacity expansion. If the regulation has little effect
on the production for a process, plants using that process are unlikely to
close. If considerable capacity expansion has been announced for a process,
that process must enjoy a strong market position and plants using that
process are less likely to close.
* The establishments included in the five SIC categories are screened
using the ratio. The remaining establishments can not be included in the
establishment screening because the sales for the organic chemical portion
can not be determined from the total sales.
** The production level was estimated by applying the capacity utilization
rate of that process to the plant's capacity.
*** According to microeconomic theory, in the short-run, a plant will
remain open as long as revenues exceed variable costs. Because plant level
data on variable costs was not available, a straighforward quantitative
comparison of revenues with variable costs was not possible. Therefore, a
more qualitative assessment was adopted.
2C-3
-------
A scoring scheme is used to consistently assess the relative likelihood
of closure for each closure candidate. The weights used for the five
criteria are an attempt to reflect the relative importance of that criterion
to the possibility of closure. For example, the plant's cost of
compliance relative to the cost experienced by other plants using that same
process is considered more important than vertical integration.
A plant Closure Index is calculated by adding the scores of each
category. A plant Closure Index greater than zero indicates a likely closure
candidate. The criteria and their weights are as follows:
Treatment Cost Ratio: the ratio of plant treatment costs to average
process treatment costs.
If the plant cost is:
1. above the average, weight equals 5;
2. below the average, weight equals -6.
If the process and plants experience no treatment costs, then the plant under
consideration is assigned a zero for this category.
Relative Scale: the ratio of plant capacity to the median capacity of
all plants using the process.
If the plant capacity is:
1. smaller than median, weight equals 2;
2. equal to median, weight equals -1;
3. greater than median, weight equals -3.
Vertical Integration: if the establishment also operates processes which
are either upstream or downstream of the plant, then the plant is defined as
vertically integrated.
If a plant is:
1. not vertically integrated , weight equals 2;
2. vertically integrated, weight equals -3.
Production Decline: if the production decline of the process due to the
regulation is:
1. greater than 10%, weight equals 3;
2. between 1% and 10%, weight equals -1;
3. less than 1%, weight equals -4.
Capacity Changes: if announced capacity increase for the process between
1979 and 1985 is:
2C-4
-------
1. less than zero, weight equals 3;
2. greater than zero and less than 10%, weight equals -1;
3. greater than 10%, weight equals -4.
The final step in the closure analysis involves the determination of the
actual number of closures. The production drop estimated for each process is
converted to the comparable drop in capacity by dividing the utilization
rate. For each process/ plants are closed in order of descending "closure
index" until closing an additional plant exceeds the target closed capacity.
When two or more plants have the same closure index, the smallest plants are
closed first to avoid underestimating the number of closures. The following
provides an example of the methodology.
Production drop due to regulation = 50 M Ibs;
Capacity Utilization = 70 percent;
Possible Closed Capacity = 50/0.7 = 71 M Ibs.
Plant
A
B
C
D
E
F
Capacity
(M Ibs)
12
15
10
10
20
30
Closure
Score
5
5
3
3
1
1
Cumulative
Closed Capacity
12
27
37
47
67
Plants A, B, C, D, and E would be closed. Plant F would remain open.
The remaining four million pounds of capacity shutdown (71-67) is assumed to
be spread among several plants with none of them closing. In addition, all
plants with a low likelihood of closure (zero or negative Closure Index)
would remain open.
Process Impacts
Process impacts are calculated as part of the analysis of BAT, PSES,
NSPS, and PSNS proposed regulations based on the detailed product study. If
a certain product is produced with more than one process, and costs of com-
pliance vary significantly among competing processes, the impact on a partic-
ular process may be much more severe than the overall impact on the product.
Impact measures examined are direct costs due to compliance and changes in
cash flow.
The cash flow impact is a net measure of impact adjusted for an increase
in revenues due to price increases of the chemical produced. The cash flow
impact measures the effect of the regulation on cash flow, taking into
account the combined effects of cost and revenue changes and the elasticity
2C-5
-------
of demand. It indicates the ability of a particular process to pass on
treatment costs, and by implication, the effect of the regulation on the
attractiveness of new investments in that process.
Cash flow is defined here as the differenc-e between product value and
variable costs. In the supply model, each process is represented as a linear
activity, where unit variable cost does not depend on the level of the
activity. For a given price, cash flow is the product of the activity level
and the unit cash flow. Let VCi = unit variable costs, PVi = unit
product value, B^ unit cash flow for process i, and CFi total cash flow
for process i. We then have:
CF^^ = Xi( pvi- VCi) (2C-3)
= Xi Bi (2C-4)
A change in cash flow can result from either a change in the activity level
or the unit cash flow, i.e.,
ACF. = B. AX. + AB. (X. + Ax-)' (2C-5)
Or,
(2C_6)
Xi Bi Xi Bi
Since the last term is second order (product of two small numbers) and
negligible the approximation becomes
(2C_7)
X. B.
i i
The change in cash flow is the sum of the changes in output and unit cash
flow. A direct implication of this formula is that even if price rises
enough to offset the amount of the treatment costs, profitability will
decrease if there is some elasticity of demand which causes demand to fall.
In that case, the impact is just proportional to the change in output.
2C-6
-------
It should be noted that the linear structure of the supply model implies
that if a process is marginal and hence is the price-setting process in both
the base case and the regulated case, then the unit cash flow for that
process will not change. The price rise will just cover the increase in
direct and indirect costs. This is an effect of the way prices are set by
linear programming models.
Establishment Impacts
The ratio of treatment cost to sales is estimated using treatment costs
for each establishment. This ratio gives the relative burden of the
regulation in terms of a measure of financial size (sales). These costs are
accumulated for the different regulations (BPT, BAT and PSES) to generate a
measure of total cumulative impact at each establishment.
The treatment cost/sales ratio is a good indicator of two impacts,
profitability and product price change. The ratio is a conservative, in
effect worst case, indicator of the impact of treatment costs on profits of
the establishment, assuming treatment costs cannot be passed on. The ratio
is also a conservative indicator of the impact of treatment costs on product
group prices, in this case, assuming full pass through of costs.
Employment Impacts
The results of the closure analysis of BPT and BAT/PSES impacts are used
directly to calculate employment changes due to closure. For those
establishments identified as closures, the employment figures from the Dun &
Bradstreet data base are used as the impact, where available. Otherwise,
employment data from EIS is used.
Plant closures due to BAT/PSES (based on the detailed product study) are
assumed to affect individual plants or combinations of plants, because
BAT/PSES costs are defined on a process level (a plant analysis was not done
for BPT). Labor requirements for a given process are obtained from the
process economics in the model. The total employment impact due to BAT/PSES
for a process is the labor requirement per unit level of the process,
multiplied by the total production level lost due to closure, i.e., the
amount of capacity closed, K^, multiplied by the average capacity
utilization, u^. Thus, for process i
Employment. = L. * u. * K. (2C-8)
i i i i
where L^ is the unit labor requirement.
2C-7
-------
Capital Availability
I
The capital availability analysis examines the ability of the industry to
finance investments in new capacity and pollution controls required by the
proposed regulations. Two different approaches are used in the analysis. In
the first approach/ total capital costs of compliance are compared with
annual costs of capacity expansion and estimates of industry cash flow. This
indicates the total added burden of the regulation compared to the industry's
normal demand for capital and its supply of internally generated funds. The
second approach examines the effect of the imposition of treatment costs on
the amount of new capacity predicted by the supply model. This impact
reflects the fact that higher production costs will reduce demand and hence
industry growth.
Figure 2C-1 shows the steps and information flows of the detailed product
study capital availability analysis. The BPT and BAT/PSES model solutions
supply estimates of pre- and post-treatment cash flow, capacity expansion,
and total capital costs of compliance. Process economics for new capacity
are used to derive the costs of capacity expansion.
Costs of Capacity Expansion. The development of estimates of 1985
capacity expansion for each process are discussed in the section on NSPS
methodology. As noted there, these estimates are based on the assumption
that capacity expansion over the period of 1979-85 will occur at a constant
rate. Total capital costs of this expansion are calculated by multiplying
the 1985 gross increment in capacity for each process (including replacement
of existing capacity) by the unit capital cost for that process. The unit
capital cost is based on the cost of a new world-scale plant in 1985. Let
AKGROSSi be the increment to capacity of process i in 1985 and KCAP^ the
unit capital cost.* The total capital costs of capacity expansion are:
EXPCOSTi = KCAPi * AKGROSSi (2C-9)
where EXPCOST^ is the total capacity expansion cost for process i. Total
expansion costs for the industry are obtained by summing over all processes.
Capital Costs of Proposed Regulations. Capital costs of compliance for
the detailed product study are obtained by multiplying the unit capital costs
of compliance for each discharge category (direct and indirect) by the
production level of each process that has been classified under that
discharge category. As noted before, although the assignment of capacity
between existing and new sources is rather arbitrary, this does not affect
total costs of compliance since the treatment requirements for each category
are the same.** Total capital costs for each process for BAT are given by:
* See the earlier discussion of process costs under the Supply Model
(Appendix 2B).
** This neglects possible cost advantages of designing new plants as
opposed to retrofitting existing ones.
2C-8
-------
Figure 2C-1
Capital Availability Analysis
BAT Aggregate
Model Solution
Calculate
Post-BAT
Cash Flow
for
Product/
Process
Capacity
Expansion
Forecast,
Change from
Base Case
BAT/PSES
Costs of
Compliance
Capital Req'ts
for Capacity
Expansion
Capital Availability
Assessment
2C-9
-------
CAPBAT = KCBAT. * XBAT. (2C-10)
where KCBAT^ is the unit capital cost of treatment for the BAT discharge
and XBATi is the activity level for BAT. Similarly, capital costs for PSES
are calculated and summed for total capital cost in the detailed product
study. The capital costs include those borne by new capacity in each case.
Cash Flow. The methodology for estimating cash flow for each process and
the industry as a whole is described in Appendix 2C. In general/ the cash
flow is obtained by multiplying the activity level of each process in the
model by the unit cash flow. Unit cash flow is defined as the difference
between product value and variable costs for the process. Cash flow
estimates for the Base Case and the proposed regulation.'; are developed.
Investment. Investment for capacity expansion in each process is assumed
to adjust sufficiently to changes in demand and profitability so that the
incremental profitability of new capacity in that process does not change.
Therefore the change in the level of that process activity due to the
proposed regulations corresponds to a change in the amount of new capacity.
This change can be taken as an indicator of the effect of the proposed
regulations on the profitability of that process. The specific measure used
in the impact analysis is the change of capacity expansion between the BPT
case and the BAT/PSES case:
KI. = AKi (2C-11)
1 Ki
Assuming a constant rate of utilization for new capacity, which is
consistent with the assumption of constant profitability, the change in
capacity is proportional to the change in activity level, i.e.,
(2C-12)
If the base case does not include any new capacity for a given process,
then the capacity of that process in 1985 is assumed to be unaffected by the
proposed regulations. The only impact is to reduce the profitability of the
existing capacity. Therefore the cash flow impact ratio (CFIR^) developed
for the BAT/PSES analysis is also appropriate here,, assuming that all plants
using that process operate at the same capacity utilization. If older
plants suffer a disproportionate amount of the reduction in output, the
profitability of new plants will be affected correspondingly less.
2C-10
-------
Balance of Trade Impacts
A qualitative assessment of foreign trade susceptibility is based on
three indicators: 1) DRI's 1985 Base Case estimates of the ratio of exports
or imports to total U.S. production for each chemical; 2) the difference
between projected 1985 U.S. and European chemical prices; and 3) a
qualitative assessment of world market conditions based on trade literature.
These indicators identify chemicals sensitive to increased production costs
and ones where exports are or would be an important part of production. The
impact of the treatment regulations is assessed by comparing this set of
chemicals to those which experience a significant price increase.
Small Business Impacts
The Regulatory Flexibility Act requires an examination of the differen-
tial impact of the proposed regulations on small businesses. Separate
analyses are made for BPT, BAT and PSES costs. Small firms are defined in
terms of the size of the firm, not the individual establishment. The
definition of small businesses used in this analysis is any firm with less
than 50 employees. This differs from guidelines developed by the Small
Business Administration (SBA). The SBA definition of small businesses which
qualify for loans ranges from maximums of 750 to 1000 employees for SIC
groups 2821, 2823, 2824, 2865, and 2869.* This definition would classify
about half the firms in our data base as small businesses. We believe it is
more appropriate to define the small business cutoff as 20 percent of the
firms in the industry with the smallest employment. Using a cutoff value of
50 employees yields a subset of 80, or 21.0 percent, of the 381 firms for
which firm employment data were available.
The analysis is made only at the establishment level. Establishments are
divided into two groups, large and small, based on the size of the parent
firm. Impact ratios for the different regulations are calculated and aver-
ages computed for small firms and the rest of the industry. These averages
are compared to determine whether small firms bear a disproportionate
burden.
* SBA, Part 121, SBA Rules and Regulations, August 1, 1980, pg. 23.
2C-11
-------
-------
Appendix 3A
Industrial Profile
-------
-------
Section 1
Introduction
Project Orientation
Our starting point for describing the focus of this study of the
chemical industry is the set of definitions used in the Standard
Industrial Classification (SIC) system.* The system is used widely on a
continuing basis to gather statistical information from all sectors of the
national economy. It was developed by the federal government to promote
the collection and analysis of data on a uniform basis and it prescribes a
comprehensive method for classifying industrial establishments based on
the dominant activity in which they are engaged. Industry information
organized by the SIC system is published periodically by the U.S.
Department of Commerce, Bureau of Census in the Census of Manufactures.
The subject of this study is the chemical industry, defined as all
establishments in five SIC groups. These are: SIC 2821 (Plastics
Materials and Resins), SIC 2823 (Cellulosic Manmade Fibers), SIC 2824
(Organic Fibers Noncellulosic) SIC 2865 (Cyclic Crudes and Intermediates)
and SIC 2869 (Industrial Organic Chemicals, not elsewhere classified).
These establishments manufacture some products that are classified outside
the five designated SIC groups and such products are included in our
analysis.
Because of the establishment orientation of the SIC system, some
important characteristics relevant to our definition of the organic
chemicals industry cannot be described without resorting to classification
methods and data sources that supplement the SIC system. In particular,
SIC data on establishments are not adequate for describing types and sizes
of companies which produce chemicals. Many firms cannot be classified by
a single SIC code designation because they operate multiple establishments
that make different products, and furthermore, the chemical manufacturing
operations often are not their primary business. Also, the SIC system is
not a convenient way to characterize manufacturing establishments by
general classes of chemicals e.g., basic, intermediates, and end-uses
chemicals and these distinctions are desirable for the evaluation of
pollution control costs. Finally, a description of the organic chemical
industry by product types such as Dyes and Pigments, Fibers, Flavors
and Fragrances is needed in order to understand the current and future
demand for the different products in different markets. For the above
reasons, an industry profile cannot be developed using only the
information developed for the SIC system. Therefore, other sources were
*Standard Industry Classification Manual, prepared by the Statistical
Policy Division, Executive Office of the President, Office of Management
and Budget.
-------
used and include publications by Dun and Bradstreet, EIS (Economic
Information Systems Inc.), DRI (Data Resources Inc.), C. H. Kline & Co.,
ITC (International Trade Commission) and 10-K reports filed by some firms
with the SEC (Securities and Exchange Commission).
Report Organization
The remainder of this Industry Profile report is presented in seven
sections. Following this introductory section, a brief overview is
presented in Section 3 and discusses the chemicals industry as a component
of the manufacturing sector of the economy.
Sections 4 and 5 describe three major categories of chemicals produced
by manufacturers. In Section 4, basic and intermediate chemicals are
described. In Section 5 finished chemicalsderived from the basics and
intermediatesare discussed with respect to the markets in which they are
used.
Section 6 describes the five SIC groups addressed in this project.
Summary information from the U.S. Census of Manufactures is presented for
each of the SIC groups.
Section 7 describes a sample of firms in the chemical industry.
Sixteen company groups are used to show the distribution of firm sizes.
Section 8 is a financial profile of large publicly owned firms that
make chemicals. The profile does not include privately owned firms
because they are not required to file 10-K forms with the SEC. The
privately owned firms are generally much smaller than the publicly owned
firms.
Section 9 describes 1,167 establishments that manufacture chemicals.
Five establishment groups are defined and used to present distributions
that describe sales, -employment, geographical location, discharger status,
types of products and ownership.
3A-1-2
-------
Section 2
Overview of the Chemical Industry
The companies, establishments and chemicals markets that are of
central interest to this study are just a part of a large, interdependent
group of diverse production activities. The activities include the
extraction and processing of natural raw materials into a succession of
organic and inorganic intermediate materials and finished products. The
Department of Commerce definition of the Chemicals and Allied Products
(SIC 28) sector of manufacturing does not include some industries that are
important participants in organic chemical production; these other
industries include mineral extraction, petroleum refining, primary metal
industries and the photographic equipment and supplies industry. The
Kline Guide* has developed a description of the chemicals industry that
includes portions of these participating industry sectors that are
relevant to organic chemicals. While this description excludes several
industries classified within the SIC 28 sector as Allied Products (e.g.,
paints, Pharmaceuticals, toiletries), the Kline Guide description is used
in this overview discussion to describe the chemicals industry with
respect to the total manufacturing sector of the nation's economy.
In 1979, the chemical industry was ranked fourth in sales among 20
manufacturing industries, behind food, transportation equipment, and non-
electrical machinery. In 1980, its total shipments (about $122 billion)
accounted for over 6.5 percent of overall output of the combined U.S.
manufacturing industries.
Many different industries, including steel, petroleum and agriculture,
have access to, or control of, raw materials used in making the chemicals
which, in turn, have varied uses in many sectors of manufacturing.
Forward (or downstream) integration has been attractive to some feedstock
and chemical producers. In particular, several major petroleum companies
have integrated forward to use their hydrocarbon feedstock and refinery
products to capture the attractive profits from manufacturing intermediate
and finished chemicals. Other firms have sought backward (or upstream)
integration to better control their access to raw materials.
Prior to 1950, most chemicals were made by "true" chemical companies
defined as those firms with chemical sales in excess of 50 percent of
total sales. In 1979, however, in the group of 100 top chemical pro-
ducers, only 37 could be labeled as traditional chemical companies and
their aggregate sales accounted for only about 50 percent of the total
sales of the group. By contrast, 32 petroleum companies were in the top
*The Kline Guide to the Chemical Industry, Fourth Edition, Industrial
Marketino Guide IMG 13-80.
-------
100 and their Gales were 28 percent of the total. Moreover, five of the
top ten chemical producers were oil companies in 1979. Other firms with
an important component of sales from chemicals are manufacturers of metals
and minerals, machinery and fabricated metals, food and beverages, health
care products, and highly diversified companies with no single dominant
product line. A number of non-chemical companies make chemicals primarily
for use in their various end products (e.g., the food and beverage sector
makes flavor chemicals and the health care industry makes surfactants).
Unlike other capital intensive industries, the chemical industry shows
a relatively low concentration. The top four companies in the chemical
industry account for 23 percent of total sales and the top eight account
for 33 percent. By contrast, in other sectors of manufacturing, the top
eight companies account for 99 percent of the motor vehicles and car
bodies, 98 percent of primary copper shipments, and 56 percent of
petroleum refining.
Segments of the chemical industry show considerable variation in their
concentration ratios. The most concentrated are cellulosic fibers,
synthetic fibers, and carbon black, and for these, the top four companies
account for over 70 percent of merchant shipments. The least concentrated
segments are fertilizers, cyclic crudes and intermediates, adhesives,
plastics materials and synthetic resins and surfactants, and for these,
the top ten companies account for less than 40 percent of total merchant
shipments.
By emphasizing research and development, the chemical industry has
shown sustained and dramatic growth over a span of fifty years. The
industry was among the first to support in-house research laboratories,
and with the exception of the electrical and communications equipment
industry, the chemical industry invests more of its corporate funds
(versus federal funds) for R & D than any other industry.
The chemical industry also is unusual compared to other manufacturing
sectors in its support of basic research. In 1977, the manufacturing
sector overall invested 2.7 percent of the corporate R&D in basic research
compared to 10.1 percent for the chemical industry. In 1977, the chemical
industry accounted for 36.9 percent of all the funds spent on basic
research in the manufacturing sector. Attention to basic research is in
part responsible for a continuing pattern in the chemical industry whereby
new market opportunities are found for existing products and new products
are discovered which generate new demand.
The industry's R & D efforts have resulted in new chemical products
and new manufacturing processes. These innovations result in high capital
requirements. Continual and frequent innovation results in rapid
obsolescence of plant and equipment, therefore annual rates of capital
investment typically are high if a company is to remain competitive. The
amount of capital expenditures varies within the industry. The cyclic
crudes and intermediates sector oi: the industry and the synthetic fibers
sector invest the most (17.4 percent and 12.1 percent of sales,
3A-2-2
-------
respectively) while the elastomers and adhesives sectors spend the least
(2.2 percent and 2.1 percent).
Since 1950, profitability, measured with respect to sales, has been
above average for the chemical industry relative to other manufacturing
sectors. In 1979, the profit margin on sales was 6.2 percent compared to
5.5 percent for all of manufacturing. However, profitability for the
chemical industry measured by return on net worth (stockholder's equity),
was below average between 1949 and 1966. In more recent years/ between
1975 to 1977, the return on net worth for the chemical industry was higher
than for most other manufacturers. It then declined in 1978 and continues
to be below the average return on net worth.
Within the chemical industry, different firms and different chemicals
reveal a wide range of profitability. For example, the large volume
commodity chemicals supplied by several producers for multiple uses tend
to show lower profitability than the speciality chemicals.
In 1977, the chemical industry employed 2.8 percent of the total work
force of the manufacturing sector. Within the chemical manufacturing
sector, sales per employee varied among different industry groups, with
agricultural chemicals having the highest ($174,000) and cellulosic fibers
having the lowest ($63,000). The average sales per chemical industry
employee for 1977 was $143,000 compared to $73,000 for all manufacturing.
The chemical industry makes a significant contribution to the nation's
balance of payments. The industry is one of the largest net exporters.
In 1979, the industry accounted for $17.4 billion, or 9.8 percent of total
merchandise exports and $7.5 billion, or 3.7 percent of all goods imported
for domestic consumption. Exports are also important in terms of the
chemical industry itself and account for 16 percent of total shipments.
Basic and intermediate chemicals are the largest group of exported
chemicals and accounted for 35 percent of the industry's exports in 1979.
Polymers and plastics materials accounted for another 31 percent of the
1979 exports. In 1979, the only chemical types for which imports
outweighed exports were flavors and fragrances and surfactants.
3A-2-3
-------
-------
Section 3
Basic and Intermediate Chemicals
Chemicals are often described with respect to three major categories/
1) basic, or primary, chemicals, 2) intermediates and 3) finished, or
end-use chemicals. This classification is useful for discussing the
industry outputs in light of the vast number of chemicals manufacturered
(about 10,000 chemicals are listed in the SRI directory*.) Basic
chemicals are those obtained from the conversion of raw materials such as
natural gas, naphtha and gas oil. Further downstream processing converts
the basic chemicals into intermediate chemicals which, in turn, are used
to produce finished chemicals. (In some cases a chemical is used both as
an intermediate and a finished chemical; e.g. ethylene glycol). Finished
chemicals are used in processes such as molding, extruding, mixing and
weaving to manufacture products for the consumer market or to use in other
industrial sectors. The chemical characteristics of finished chemicals
usually are not changed in these final stages of manufacturing.
The major chemicals from which finished chemicals are derived are the
subject of this section. There is considerable variability in the mix of
intermediate and finished chemicals that can be produced from the basic
chemicals. The mix is based primarily on market demands, production and
process technology and feedstock characteristics. The intent of this
section is twofold: 1) to provide a simplified overview using typical, or
average, values describing how basic chemicals are used to produce
intermediate and final products, and 2) to present quantitative
information on production capacity, prices and foreign trade for current
and projected conditions. The next section of the report will describe
finished chemicals and their end-uses.
Basic Chemicals
Table 3-1 presents production, consumption, capacity and other
information for six of the most important basic chemicals, both aromatics
and aliphatics. The data are for 1979 and for 1985 based on projections
by the Data Resources Inc. (DRI) Chemical Service. Production of ethylene
was greater than any of the others and more than double the output of
benzene which ranked second in 1979. Also, consumption of ethylene was
greater than for the other basic chemicals. As a group, the aliphatics
were almost twice the production of the aromatics. Quantities of basic
chemicals imported or exported were less than 10 percent of U.S.
production except for butadiene in which case imports were 15 percent of
*SRI International 1979 Directory of Chemical Producers, United States
of America.
-------
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production. Merchant shipments of the basic chemicals ranged from 38 to
70 percent of total production.
The industry concentration, defined as the percent of production
captured by the top 4 manufacturing firms, ranged from 22 to 49 percent in
1979 with butadiene exhibiting the highest ratio. Capacity utilization
was 82 percent for both ethylene and benzene; however, the yield of basic
chemicals will vary based on the properties of the feedstocks and the
market demands for the chemicals.
The 1985 projection shows an increase in production capacity for
benzene of 27 percent over 1979 and a projected utilization of 74
percent. For ethylene, capacity is projected to increase by 17 percent,
and projected utilization is 87 percent. By 1985, unit prices are
projected to increase, in constant dollars, by 82 percent over 1979 prices
for ethylene and 21 and 24 percent for benzene and butadiene,
respectively.
Intermediate Chemicals
Figures 3-1 through 3-6 show the major intermediate chemicals and the
products derived from the six major basic chemicals. The figures identify
the approximate proportions in which the basic chemicals are consumed for
production of the intermediates and also, how the intermediates are used
for some of the important finished chemicals.
Benzene Derivatives. Figure 3-1 shows the downstream derivatives of
benzene. Seventeen percent of the benzene consumed in 1979 was for
production of cyclohexane, 15 percent for cumene, and 50 percent for
ethylbenzene. These intermediates in turn, are used to synthesize
styrene, phenol, acetone and nylon. Styrene accounts for 96 percent of
ethylbenzene consumption. Ethylbenzene and styrene account for the major
consumption of benzene, therefore, if market changes occur in the end-uses
for styrene (e.g., styrene plastics), the effect on demand for benzene
will be high relative to changes in markets for other end-use products
derived from benzene.
Table 3-2 shows production, consumption, sales and other data for the
major benzene derivatives. Production and consumption of ethylbenzene in
1979 was about 8.5 billion pounds, more than double that of cumene, the
second largest intermediate derived directly from benzene.
There is considerable variation in import and export volumes as
percentages of total production. No ethylbenzene was imported in 1979,
and one percent of total production was exported. Exports of cyclohexane,
on the other hand, amounted to almost 20 percent of U.S. production.
Merchant market shipments show a wide variation with ethylbenzene sales of
only 4.3 percent of total production and cyclohexane amounting to about 99
percent of total production.
3A-3-3
-------
Fjgurc 3-1 - Derivatives of Dunicno
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The concentration ratio/ expressed as the percent of production
capacity accounted for by the four largest producers, ranges from 36
percent to 60 percent with styrene and phenol (respectively) at the
extremes.
Capacity utilization in 1979 for ethylbenzene, cumene and cyclohexane
was below 80 percent; the capacity utilization for both phenol and styrene
was about 90 percent that year. The DRI forecast projects that the
capacity for ethylbenzene will increase by 12 percent by 1985, but also
projects a shortfall of 732 million pounds in the same year. A shortfall
in 1985 is projected for both cumene and phenol, estimated to be 50
million pounds and 66 million pounds respectively. Capacity utilization
for cyclohexane and styrene is expected to be below 85 percent in 1985.
Overall price increases of 17 percent for styrene and 66 percent for
phenol are projected (in constant dollars) by 1985.
Xylene and Toluene Derivatives. Figures 3-2 and 3-3 show the
intermediate and end uses of toluene and xylene. These two basic
chemicals are used primarily in gasoline blending over 90 percent. The
extent to which they are employed for other end uses is determined mainly
by the requirements of gasoline producers.
Depending on market demand and the price of benzene, toluene may be
used to produce additional benzene if desired. Mixed xylenes are used as
a gasoline additive and separated into para-, ortho- and meta-xylene.
Table 3-3 shows production, consumption and capacity for the two major
xylene derivatives. In 1979, the production of para-xylene was more than
four times that of ortho-xylene. Exports of ortho-xylene, shown by a
percent of total U.S. production, were more than twice those of
para-xylene.
Capacity for para-xylene in 1979 was 5.2 billion pounds (89 percent
utilization) and is expected to be almost constant over the next six
years. The projected growth in production should result in essentially no
change from the 1979 level of capacity utilization in 1985. Capacity for
ortho-xylene production was 1.4 billion pounds {77 percent utilization) in
1979. Projected growth in production and capacity should result in a 1985
capacity utilization of 74 percent. Overall price increases of 27 percent
and 30 percent are projected (in constant dollars) for para- and
ortho-xylene, respectively by 1985.
The primary uses for toluene are as a gasoline additive and as a
feedstock for benzene; no tabular data are presented for these uses which
are considered "non-chemical uses" by the industry.
Ethylene Derivatives. Figure 3-4 illustrates that 45 percent of the
ethylene is consumed in the production of polyethylene, which is an end
3A-3-11
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use product. Fifteen percent of the ethylene is used to make ethylene
dichloride, 60 percent of which is consumed for vinyl chloride
production. The downstream use patterns for ethylbenzene and ethylene
oxide are more complicated and are affected by several end-use markets
(e.g., antifreeze and polyester fibers are made from ethylene oxide).
Twenty percent of ethylene is used for ethylene oxide, 60 percent of
which is used to make ethylene glycol. Ethylbenzene, derived from
ethylene and benzene (discussed earlier), consumes about 10 percent of the
ethylene production.
Table 3-4 shows that production of low density and high density
polyethylene amounts to 13 billion pounds, or 41 percent of the total
quantity of the major ethylene derivatives. Ethylene dichloride
production is the next largest derivative of ethylene, about 12 billion
pounds. Ethylene derivatives were not imported in 1979. About 11 percent
of the polyethylenes and ethylene dichloride and one percent of ethylene
oxide were exported. Industry concentration ratios ranged from 32 to 47
percent for the various derivatives.
Capacity utilization in 1979 for the various ethylene derivatives
ranged from 90 to 99 percent and by 1985 is forecast to range from 73 to
87 percent depending on the specific product.
Overall price increases of 44 and 59 percent are projected (in
constant dollars) for high density polyethylene and ethylene oxide
respectively by 1985.
Propylene Derivatives. Figure 3-5 identifies the numerous and diverse
end-uses for propylene. Polypropylene, accounting for 25 percent of
propylene consumption, is the largest single use for this basic chemical.
The four intermediates derived from propylene (isopropanol, acrylonitrile,
propylene oxide, and cumene) account for between 10 and 15 percent of
propylene consumption. The diagram shows the different end-uses that are
of major economic importance.
Table 3-5 shows that polypropylene accounts for about 40 percent of
the production volume of all propylene derivatives. Acrylonitrile,
propylene oxide, and isopropanol each accounts for about 20 percent of
production of all derivatives.
Imports for all propylene derivatives were less than 5 percent of U.S.
production in 1979. Exports, as percent of production, ranged from 10
percent to 20 percent with acrylonitrile at the upper end of this range.
Merchant market sales ranged from 40 percent to 72 percent of total
production.
The concentration ratio ranges from 41 percent for acetone to 91
percent for isopropanol. Each of the three chemicals with the highest
concentration ratios is manufactured by only six firms.
3A-3-13
-------
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Capacity utilization in 1979 ranged from 65 percent for isopropanol to
87 percent for acrylonitrile. The production requirements for
polypropylene are forecast to increase 47 percent overall between 1979 and
1985 while capacity is expected to increase by 3.6 percent. This is
anticipated to cause a shortfall of 1.2 billion pounds by 1985. Acetone
production requirements are expected to exceed capacity in 1985 by 42
million pounds.
Overall production growth for the other propylene derivatives is
expected to range from 8 percent for acrylonitrile to 20 percent for
propylene oxide by 1985. Overall price increases of 26 and 44 percent are
forecast (in constant dollars) for propylene oxide and acrylonitrile
respectively by 1985.
Butadiene Derivatives. Figure 3-6 indicates that nearly all butadiene
consumption is for the manufacture' of synthetic elastomers. Forty-five
percent of butadiene is for the production of styrene-butadiene-rubber
(SBR) with polybutadiene the next largest consumer of this basic
chemical.
Table 3-6 shows that SBR accounts for 78 percent of the total
production volume of all butadiene derivatives while polybutadiene
accounts for about 22 percent of derivative production.
Imports of SBR were about 4 p>rcent of the 1979 production and imports
of polybutadiene were 11 percent. Exports of SBR were 9 percent of total
production and those of polybutadiene were about 7 percent.
In 1979/ the capacity utilization for SBR production was 81 percent.
Little, if any, change is anticipated in production, but capacity is
expected to decline by 1985 resulting in a utilization of 89 percent.
Production requirements for polybutadiene (with 88 percent capacity
utilization in 1979) are expected to increase 12 percent by 1985 and with
no capacity additions anticipated,, a shortfall of 33 million pounds is
projected.
Overall price increases of 18 and 30 percent are projected (in
constant dollars) for SBR and polybutadiene respectively for 1985.
3A-3-16
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3A-3-17
-------
-------
Section 4
Finished Chemicals: Market Characteristics
The economic impacts of pollution controls will depend in large part on
the response of chemical markets to price changes induced by the costs of the
improved controls. If the markets for finished chemicals are affected, then
the intermediate and basic chemicals from which the finished chemicals are
manufactured will also be affected. These linkagesbetween basic,
intermediate, and finished chemicalsare incorporated explicitly in the
Meta/DRI model developed for the study and discussed in Volume I.
This discussion will identify some of the major end-uses and markets for
finished chemicals and, where possible, the trends that will influence future
production. Where information is available, market and production levels are
projected for 1985 and in some cases, two sources may be cited. Data
Resources Inc. (DRI) has made six year projections of production from 1979
to 1985 for some major chemical groups. The Kline Guide has projected
1985 value of shipments for some of the finished chemicals.
We define nine markets for finished chemicals. The nine chemical markets
are listed in Table 4-1.
Table 4-1
Identification of Chemical Markets
1. Dyes and Organic Pigments
2. Flavors and Fragrances
3. Plastics and Resins
4. Rubber Processing Chemicals
5. Elastomers
6. Plasticizers
7. Surface Active Agents
8. Manmade Fibers
9. Miscellaneous End-Use Chemicals*
* We have included Medicinals and Pesticides under the Miscellaneous
market group because they are the subject of other EPA agencies.
These specific market groups were selected because information about the
products of individual establishments is presented by these groups in
the SRI Directory.** The classification is also quite similar to that used
by the U.S. International Trade Commission. These two documents are primary
data sources for the study.
**SRI International, 1979 Directory of Chemical Producers.
-------
Descriptions of the nine market categories in this section will not be
limited to the finished chemicals associated .with the five SIC groups
discussed in the following section. This is reasonable because a change in
the production of a specific finished chemical should be anticipated based on
the entire market in which the chemical is involved. For example, synthetic
chemicals are only a part of the flavors and fragrances industry, and natural
substances are used to complement or substitute for synthetics. Therefore,
to forecast changes in production of the synthetics, the entire market should
be analyzed.
Information describing ultimate uses of finished chemicals is available
primarily from the International Trade Commission,* and the Kline Guide.
Table 4-2 summarizes the information on number of manufacturers, production,
sales and uses of the finished products. With the exception of Manmade
Fibers, the production and sales data in Table 4-2 are for synthetic
chemicals, i.e., the data do not include the natural chemicals that are used
in conjunction with the synthetics in some end-use applications. For Manmade
Fibers, synthetic and cellulosic fibers are listed because both are included
in our definition of the chemical industry; i.e., SIC 2823 and SIC 2824. For
Flavors and Fragrances, the data shown are only for the synthetic chemicals,
however, the later discussion of the Flavors and Fragrances market includes
both natural and synthetic chemicals. For Pesticides, the data shown are
only for the chemicals that are 100 percent active materials and do not
include materials such as diluents and emulsifiers. However, the discussion
of Pesticides includes formulated products as well as active chemicals.
Differences between sales quantities and total production in Table 4-2
are attributable to inventory changes, processing losses and, perhaps most
importantly, captive consumption. That is, the sales data shown in the table
pertain only to the amounts sold outside the manufacturer's firm, on what is
often called the merchant market. Merchant sales exclude the chemicals
consumed by the same corporate entity or a wholly owned subsidiary.
We can observe from Table 4-2 that Plastics and Resin Materials is the
category with greatest production volume accounting for 58 percent of the
nine group total production of 71.8 billion pounds and is about 4.5 times
the production for the second largest category, Manmade Fibers. The third
and fourth ranked categories based on production are the Miscellaneous group
and Elastomers, respectively. The total value of all merchant shipments in
1979 was $35.8 billion and Plastics and Resin Materials accounted for 43
percent of that total, followed by Manmade Fibers with 23 percent. If number
of manufacturers is the ranking criterion, then Plastics and Resins again is
first.
For finished products that are sold outside the manufacturing company,
average unit value of sales ranges from 40 cents per pound (for Surface
Active Agents) to $4.62 per pound (for Medicinal Chemicals). However, within
a category there can be wide variation; for example, organic pigments range
International Trade Commission, Synthetic Organic Chemicals USITC
Publication 1099.
3A-4-2
-------
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from $2.54 per pound (for miscellaneous toners) to over $14.00 per pound
(for some of the red pigments).
Table 4-3 summarizes the historical and projected growth rates of
value of shipments (in constant dollars) for the finished chemicals, which
are discussed later in this section. The value of Medicinal Chemicals
grew at the highest rate (10.2 percent) during the 1970s but is
anticipated to grow at a reduced rate (5.0 percent) between 1980 and
1985. Plastics and resins, the second fastest growing product type
between 1970 and 1979 (9.1 percent), are expected to grow at an increased
rate (9.8 percent) from 1980 to 1985. The slowest growing product type
during the 1970s was the dyes (0.6 percent) and their position of slowest
growing, relative to the other products, is expected to continue through
1985 with a growth rate of 1.9 percent.
Table 4-3
Growth Rates of Value of Shipments (in constant dollars)
Product Type
Historical
(1970-1979)
Projected
. (1980-1985)
Dyes 0.6%
Organic Pigments 3.2%
Flavors & Fragrances 5.5%*
Plastics & Resins 9.1%
Rubber Processing Chemicals 3.9%
Elastomers 1.9%
Plasticizers **
Manmade Fibers 6.7%
Surfactants 3.8%*
Miscellaneous
Pesticides 3.8%
Medicinal Chemicals , 10.2%
1.9%
5.0
4.0%
9.8%
5.9%
3.0%
5.0%
6.5%
2.9%
**
5.0%
Note: Growth rates are for total shipments unless rated by *, in which case
rate is based on merchant shipments.
**insufficient data
Source: Kline Guide
3A-4-5
-------
Dyes and Organic Pigments
Historical View. The end-uses for dyes and organic pigments are
primarily textiles (76 percent of dyes) and printing inks (45 percent of
organic pigments). Other uses for dyes are in the paper industry (20
percent), plastics, leather, food, gasoline, and the manufacture of organic
pigments; organic pigments are used in paints (35 percent) and plastics (10
percent) as well as the printing inks mentioned above. There is very little
captive consumption of dye materials, while between 15 and 20 percent of
organic pigments production is consumed captively.
Production of dyes in 1979 was 266 million pounds compared to 235 million
pounds in 1970, an overall increase of 13 percent. During the same period the
value of total shipments rose from $397 to $795 million which amounts to an 8
percent average annual increase. In constant dollars, this is a .64 percent
annual increase. A shift to synthetic fibers, which require more expensive
dyes, and an increase in unit prices explain most of the difference between
volume and dollar growth rates. Using a 1967 base of 100, the average
manufacturers price index for synthetic organic dyes was 197.6 in 1979.
Organic pigments have displayed a stronger growth performance than dyes
over the past decade. Production increased by 54 percent overall between 1970
and 1979, from 57 to 88 million pounds, and the value of total shipments
increased from $147 million in 1970 to $415 million in 1979. This represented
an average annual increase of 12 percent in current dollars, but a 3.0 percent
average annual increase in constant dollars. The 1979 price index for organic
pigments increased to 222.9 from the 1967 base of 100.
Unlike many high volume organic chemicals, the colorants are both imports
and exports for the United States. Dyes have traditionally shown trade
deficits which reached an all-time high of $84 million in 1978. Organic
pigments, on the other hand, have traditionally shown trade surpluses which
reached $51 million in 1979.
Outlook. In general, the consumption of dyes and organic pigments will
follow the growth trends of the textile, printing, and paint manufacturing
industries. However, the outlook for U.S. manufacturers is mediocre. Costs
are rising at the same time that the market is softening, and competition is
becoming more intense. The outlook for organic pigments is for an average
annual growth rate of 5 percent in total shipments between 1980 and 1985 when
total shipments are expected to reach $925 million; this estimate, derived
from the Kline Guide, is based on constant 1980 dollars. The growth rate for
dyes, again in 1980 constant dollars and is expected to be about 1.9 percent
annually until 1985 when total shipments should be $550 million.
Flavors and Fragrances
Historical view. The flavors and fragrance industry accounts for one
percent of total chemical industry sales and a very small part of the
3A-4-6
-------
industry's total production. The industry is involved in the production of
flavors and fragrances, flavor enhancers and synthetic sweeteners/ with
flavors and fragrances accounting for the bulk of the production and sales.
Flavors and fragrances are ultimately blends of different substances and a
company may be involved in (1) synthesis of aroma or flavor chemicals,
(2) production or purchase of natural oils and other products, and (3)
blending the synthetic and the natural substances to achieve the desired
flavor or aroma. Table 4-4 shows the merchant shipments of the various
end-use products in the industry and includes natural and synthetic chemicals
and blended compounds. The total flavors and fragrances merchant sales of
$890 million is almost four times the value of the synthetic chemical
component of those shipments listed in Table 4-4.
Table 4-4
End-Use of Flavors, Fragrances and Related Products 1970 and 1979
End-Use Product
Merchant Sales
(million $)
1970 1979
Flavors and fragrances
Flavor enhancers (MSG)
Synthetic sweeteners
Total
320
20
10
350
830
33
27
890
Source: Kline Guide.
The primary enduse for flavors is soft drinks, with 60 percent of the
total volume going to that market. About two thirds of the fragrances
produced are used in cosmetics and toiletries and the remaining third is
used in scented candles, household cleansers and industrial deodorizers.
Monosodium glutamate (MSG) is the only flavor enhancer of economic
significance and in 1979 it had sales of $33 million. Saccharin is the only
commercially important synthetic sweetener since cyclamates were removed
from the market in 1969. In 1979, sales of saccharin were $27 million. In
1979, production of the synthetic chemicals was 194.5 million pounds of
which 69 percent was sold on the merchant market for $236.4 million.
Table 4-4 indicates that the flavors and fragrances industry overall has
shown considerable growth over the past decade with its individual
components growing at different rates. In current dollars, merchant
3A-4-7
-------
shipments of flavors and fragrances have increased from $320 to $830 which
represents an average annual growth rate of 11 percent,, Merchant sales of
MSG and synthetic sweeteners have grown at average annual rates of 5.7
percent and 12 percent, respectively. The average annual rate of growth of
the industry overall is 11 percent which translates into a constant dollar
growth rate of 5.5 percent.
According to the ITC, there aire 39 firms producing flavors and
fragrances. The top five companies account for 40 percent of industry
shipments and the top nine, for 56 percent. The industry is uncommon in the
large number of successful small privately owned companies it accommodates.
These firms tend to specialize in raw materials, while the larger companies
tend to integrate vertically and compound the materials as well as supply
them. Several large end-users (e..g., Colgate-Palmolive/ Proctor and Gamble)
develop their own fragrances.
In 1979, U.S. foreign trade in flavors and fragrance amounted to $219
million in imports and $197 million in exports. The majority of the imports
are in essential oils and other natural products and are important to the
industry because very few of the plant materials used for fragrances are
grown on this continent. U.S. exports are composed primarily of blended
compounds and synthetic aroma chemicals.
Outlook. The demand for flavors and fragrances and their related
products is expected to increase through 1985. Increased consumption of
fragrances for toiletries and cosmetics is -likely because, in addition to
increasing sales, the average fragrance content of those products is also
increasing. The soft drink market has increased 50 percent since 1970 and
the continued increase in consumption means an increase in production of
both flavorings and synthetic sweetners. The major markets for the
industry's output (cosmetics and toiletries, soft drinks, and flavors and
flavor enhancers) are projected to grow at a rate of about 4 percent
annually based on Kline Guide information, with shipments of $1.14 billion
in 1985 (in constant 1980 dollars).
Plastics Materials & Synthetic Resins
Historical View. Plastics materials and synthetic resins manufacturers
make up a large and profitable part of the chemical industry. While the
terms "plastics" and "resins" are often used interchangeably, the products
are different in that plastics can be formed into solid shapes with good
mechanical properties while resins are used in coatings, adhesives and for
other uses where binding properties are needed. The polymers used to make
plastics are similar to those used for fibers and several of the polymers
are used for both finished products. Shipments of plastics and resins have
grown at an average annual rate of almost 17 percent since 1970 and now
account for about 17 percent of all shipments of the chemical industry. In
1979, 42.1 million pounds of plastics and resins were produced, of which
3A-4-8
-------
36.8 million pounds (or 94 percent) were oold on the merchant market with
sales equalling $15.6 million.
These finished chemicals are extremely versatile in both mechanical
properties and potential end-uses. Much of the growth in the plastics and
resins industry is a consequence of these products 'being acceptable
replacements for natural materials such as metals, glass/ wood, and paper.
While there are about forty different plastic materials with commerical
applications, four major types accounted for 75 percent of total sales (in
pounds) in 1979. These major types are polyethylene, vinyls, styrenes, and
polypropylene.
Table 4-5 shows that polyethylene, both in terms of production and
sales, is the most important plastic produced. It accounted for 31 percent
of the quantity and 25 percent of the value of all plastics sold on the
merchant market in 1979. Polyethylene production has increased at an
average annual rate of 8.5 percent the past ten years. End products made
from polyethylene tend to be strong, flexible and resistant to extremes in
temperature and moisture. The major end products are rigid containers,
flexible wraps, and trash bags. In 1979, nine percent of the total
polyethylene produced- was used in trash bags.
Table 4-5
Production and Sales Statistics for Plastics 1979
1 Production 1 Merchant Shipments
Plastics
Type
polyethylene
vinyl resins
styrene resins*
polypropylene
other plastics
Total
(nun Ib)
1
12,408
7,624
6,329
3,824
11,937
42,124
Quantity Value
(mm Ib) (nun $)
1 1
11,588 $3,844
6,558 2,520
6,121 2,673
3,494 1,006
9,056 5,544
36.817 15,587
(% of Merchant
Quantity
1 1
31%
18%
17%
9%
25%
1 10°% 1
Shipments)
Value
1
25%
16%
17%
6%
36%
100% .
*Figures for styrene include
acrylonitrile-butadiene-styrene (ABS)
styrene-acrylonitrile (SAN)
straight polystyrene and other styrenes
Source: Kline Guide.
3A-4-9
-------
Vinyl-resins accounted for 16 percent of the value of merchant ship-
ments in 1979 and total production has grown 7.5 percent annually over the
past ten years. Polyvinyl chloride (PVC) is an old and versatile plastic
that accounted for 81 percent of the vinyl production :Ln 1979. It is used
primarily in construction; PVC pleistic pipes represent one of the fast-
est growing end products of any chemical. Packaging and adhesives are
other end-uses for vinyl resins.
Styrene resins are an important plastic group because they can be
easily modified and custom made to fabricator's specifications. They
accounted for 17 percent of the 1979 value of merchant shipments of all
plastics and total production. This group has grown at an average annual
rate of 6.6 percent over the past decade. Currently, the primary uses for
styrene are in packaging (styrofoam cups), housewares, and construction
(drain pipes), and given the plastic's versatility, other markets can be
expected to open up.
Polypropylene, while ranking fourth of the top four plastics in
production and sales, is the fastest growing of the plastics materials.
In 1979 polypropylene accounted for only 9 percent of total plastics
production (in pounds) and 6 percent of the value of merchant shipments.
However, in the ten years from 1959-1979, polypropylene production grew at
an average annual rate of 13.4 percent. The major end-uses for
polypropylene are packaging and automobile parts.
Table 4-6 shows the amount of each type of plastic consumed in 1979 by
different end-uses. Total consumption of 46.4 billion pounds exceeded
production by approximately 10 percent. The table is useful in showing
the mix of plastics consumed for each end-use (read vertically) as well as
the distribution of end-uses for each type of plastic (read horizon-
tally). For example, of a total of 10.107 billion pounds of plastics
consumed in 1979 for packaging, 50 percent (5.0 billion pounds) was
polyethylene, 5 percent (530 million pounds) was vinyl, 14 percent (1.39
billion pounds) was styrene, and 6 percent (625 million pounds) was
polypropylene. Also Table 4-6 shows that of the 12.841 billion pounds of
polyethylene consumed, 39 percent was used for packaging, 6 percent in
construction, 36 percent for housewares and other domestic uses, and 13
percent was exported.
The plastics industry, with over 200 firms, is the largest sector of
the synthetic chemical industry. The top four companies account for about
36 percent of the shipments and the next four account for an additional
13.2 percent. The top 30 producers account for 75 percent of the total
shipments. There is considerable vertical integration in the industry,
with the majority of the processing companies being at. least partially
owned by end-users or materials suppliers.
Plastics and resins account iior close to 20 percent of the value of
total chemical industry exports of S3.24 billion in 1979. Polyethylene
accounted for about 40 percent oi: the total amount of plastics exports.
The quantity of polypropylene, while accounting for only 9 percent of
total plastics production, was 13 percent of the total amount exported in
3A-4-10
-------
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1979. Imports are about one fifth the dollar value of exports and are
growing at a slower rate .than exports.
Outlook. The Kline Guide forecasts a growth rate for value of total
value of basic plastic products shipments of 4.0 percent annually out to
1986, when projected sales reach $26 billion in teems of 1981 constant
dollars. This growth rate will undoubtedly vary among the four major
plastics types as some markets are more affected by a downturning economy
than others. Polypropylene, used extensively in the faltering automotive
industry, may experience a decline; in growth, as may the vinyl resins that
are used in the construction industry. The DRI projections indicate a 5.7
percent average annual growth in the volume of domestic demand of plastics
and resins over the period from 1981 to 1985.
Rubber Processing Chemicals
Historical View. Rubber-processing chemicals are used to facilitate
processing, or to improve the finished rubber product, for example, by
retarding rubber's deterioration by oxygen. Tires and related products
consumed almost 65 percent of all production, followed by mechanical goods
(18.5 percent), footwear (6 percent), latex foam products (3.5 percent),
and wire and cable (1 percent).
Production in 1979 was 395 million pounds, up 33 percent overall from
298 million pounds in 1970. Total shipments in 1979 were valued at $495
million. This represents an average annual growth rate of 12.6 percent
since 1970, when the value of total shipments was $170 million. In
constant dollars, this is an average annual growth rate of 3.9 percent.
Volume of merchant shipments increased 23 percent overall from 228 million
pounds to 280 million pounds between 1970 and 1979.
The three largest producers of rubber processing chemicals, which
account for 50 percent of total production, are major tire manufacturers
who use a large part of their production captively.
Outlook. In 1985 the value of total shipments is projected in the
Kline Guide to be $700 million (in constant 1980 dollars) compared to $495
million in 1979. Production is expected to grow at an average rate of 5.5
percent annually according to DRI. The combination of lower average auto
speeds, fewer miles driven and the record low sales for the U.S. auto
industry will likely have an effect on the rubber-processing chemicals
market. Also, manufacturers are increasing the life of tires and thereby
decreasing the consumption of both rubber and rubber-processing
chemicals. In addition, if, following the example of U.S. tire makers,
foreign tire manufacturers begin to make and consume these chemicals
captively, then foreign production can be expected to reduce the need for
U.S. exports and hence, U.S. production.
3A-4-12
-------
Elastomers
Historical View. Elastomers are organic polymers used in place of
natural rubber. Table 4-7 shows the major end-uses in 1979. The auto-
mobile industry is by far the largest consumer of synthetic rubber/ using
64.3 percent of total production for tires, 5.5 percent for molded auto-
motive parts, and lesser amounts for belts, gasoline hose, gaskets, etc.
Table 4-7
U.S. Consumption of Synthetic
Rubber by Major End-Use-1979
Percentage of tonnage
Tires, tubes and tire products 64.3%
Molded goods
Industrial rubber 9.2
Automotive 5.5
Footwear 2.5
Plastic impact modifiers 2.4
Belting hoses and gaskets, etc. 2.1
Wire and cable 1.7
Adhesives 1.5
Coatings 1.5
Other 9.3
TOTAL 100.0%
Source: Kline Guide.
Table 4-8 shows that production of elastomers in 1979 was 5,860
million pounds compared to 4,438 million pounds in 1970, an overall
increase of 32 percent. Value of total shipments was $2,835 million in
1979, compared to $1,114 million in 1970. In constant dollars this
amounts to a 1.9 percent average annual growth rate.
Table 4-8
U.S. Production and Shipments of
Synthetic Elastomers
Production Merchant Shipments Total Shipments
million Ibs million Ibs million $ million $
1970 1979 1970 1979 1970 1979 1970 1979
4,438 5,860 3,820 4,002 1,032 2,325 1,114 2,835
Source: Kline Guide.
3A-4-13
-------
Merchant shipments of 4,002 million pounds in 1979^ were up 5 percent
overall over the 1970 shipments (3,820 million pounds) and the value of
these merchant shipments rose at an average annual rate of 5.2 percent in
current dollars or 0.5 percent in constant dollars.
Exports of elastomers have been about 550 to 650 million pounds in
recent years. In 1957, United States exports of 451 million pounds were
18 percent of U.S. production; in 1964, exports were 719 million pounds or
21 percent of total production. By 1979 exports had decreased to 643
million pounds or 11 percent of the total produced. In that year the
exports were valued at $416 million. Imports have increased from 242
million pounds valued at $54 million in 1972 to 465 million pounds valued
at $125 million in 1979. This represents a 92 percent increase in the
amount imported and a 13 percent average annual growth rate.
Outlook. The elastomer industry's growth rate is expected to slow
down. As noted above, exports have declined and this situation is
expected to continue as foreign capacity grows. Two other reasons to
expect a decline in growth are the saturation of elastomers in the natural
rubber markets (82 percent) and the tire manufacturer's continued ability
to increase the wearlife of tires. However, nontire applications are
expected to grow 10 percent a year and the value of total elastomer
shipments should reach $3.7 billion by 1985 (in constant 1980 dollars)
according to the Kline Guide. DRI projections of production quantities
indicate an average annual growth rate of 1.3 percent from 1979 to 1985.
Plasticizers
Historical View. Plasticizers are organic chemicals that are mixed
with plastic polymers to alter the latter's physical qualities. They can
be used to improve processability or to modify the final product, mainly
by increasing flexibility. Roughly 85 percent of total plasticizer
shipments are used in plastics, the remainder being utilized in rubber
compounding and in applications unrelated to the plastics market.
Production of plasticizers in 1979 was 2,134 million pounds compared
to 1,257 million pounds in 1970, an overall production increase of 70
percent. Merchant shipments were.' 1,814 million pounds in 1979 and were
valued at $827 million. Data are not available for dollar value of
shipments in 1970. Data shown in Table 4-9 include most of the chemicals
primarily used as plasticizers, however some of the chemicals,
particularly phosphates and adipates, also have non-plasticizer
applications.
3A-4-14
-------
Table 4-9
U.S. Production and Shipments of Plasticizers
Production
million Ibs
Merchant Shipments
Total Shipments
million Ibs
million $
million $
Antholates
Phosphates
Epoxies
1970
839
44
95
1979
1977
1979
1977
Adipates and
Sebacates 63
Polymeric 47
169
Total 1,257
Source: Kline Guide.
1,291 1,155
125 88
120 114
76 69
56 37
466 194
2,134 1,657
1,233 341
105 61
122 53
1,
65
48
241
814
36
36
99
626
1979
456
82
65
36
36
152
827
1979
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
1,025
N.A. Not available in Kline Guide,
Outlook. The growth prospects of plasticizer chemicals are tied to the
growth of the plastics additives industry. Plasticizers account for 58
percent of the total volume of plastics additives consumed. Value of
plastics additives consumed is estimated to increase 5 percent annually
according to the Kline Guide and we assume that growth in the value of
Plasticizers will be at the same rate.
Manmade Fibers
Historical view. Finished chemicals in this market category include
synthetic fibers and cellulosics such as rayon and acetate that are de-
rived from wood pulp and cotton. The major synthetics are nylon, poly-
ester, acrylics and polypropylene. Manmade fibers (including glass fibers)
accounted for almost 66 percent of all fibers consumed in U.S. textile mills
in 1979. Cotton ranks second to manmade fibers, accounting for about 30
percent with wood being less than 2 percent. Table 4-10 summarizes value of
shipments and production data for 1979 for the manmade fibers.
3A-4-15
-------
Table 4-10
U.S. Production and Shipments of Manmade Fibers
Nylon
Other
Polyester
Rayon
Acetate
Value of U.S.
million $
6,785
2,500
4,285
11
) 1,280
270
710
Shipments in 1979 Production
% of total
84
31
53
11
16
7
9
million Ibs
8,438
2,721
5,717
4,179
930
606
324
Average
Annual Growth
1970-79
10%
8%
11%
12.6%
-4%
-3.5%
-4.0%
Total 8,065
Source: The Kline Guide.
100%
9,368
7.3%
In 1979, polyester was almost 45 percent of the total manmade fibers
production compared to nylon with a 29 percent share. Polyester production
passed that of nylon in 1970. Over the last decade the synthetics group has
grown 10 percent a year on the average while the cellulosic group declined 4
percent. Industry shipments of all manmade fibers in 1979 ($8.1 billion)
were 260 percent of the 1970 value. Most of the growth has been in the
synthetic fibers which have averaged 12.6 percent annually over the decade.
Consumption of manmade fibers in the U.S was about 9.9 billion pounds in
1979. Table 4-11 shows some of the major end-use products which utilize
manmade fibers.
3A-4-16
-------
Table 4-11
Uses of Manmade Fibers1 - 1979
% of 1979
U.S. Consumption
Industrial and Other Consumer Goods 36
Reinforced plastics and electrical 14
- Tires 6
Other (e.g., medical, surgical products
rope, coated fabrics) 16
Home Furnishings 32
- Carpet, rugs 22
- Other (e.g., draperies, upholstery, curtains
sheets blankets) 10
Apparel 32
- Bottom weight fabrics . '11
Topweight fabrics 6
- Other apparel 15
Source: Kline Guide.
Includes glass fibers which are not separable from available data.
There were 75 producers of manraade fibers in 1977 and, of these, only
10 were cellulosic manufacturers. In the 1950's, patents on nylon,
polyester and acrylics limited the number of firms. The expiration of the
patents and the development of new fibers brought new producers into the
industry. Nevertheless, in 1979 the top three firms had two thirds of the
market in terms of value of shipments. DuPont alone captured about one
third of the value.
Because of raw material shortages, prices for synthetic and cellulosic
fibers began to increase in 1973. Prior to that date, synthetic fiber
prices were in decline and cellulosics had been constant for several
years. Between 1974 and 1979 the price index for synthetics went from
81.9 to 102.6 (based on 1967 = 100) while the index for cellulosic fibers
rose from 218.8 to 268.9; the composite index went from 103.7 to 129.8
over the same interval.
Balance of trade in manmade fibers and apparel was negative in the
early 1970's, but has changed, and reached a positive trade balance of
$1.280 billion in 1979. The shift from deficit to surplus was due
3A-4-17
-------
primarily to agreements with Asian Governments to limit their exports in
the U.S.
Outlook. Production of textiles traditionally has been cyclical with
volume of dollar sales declining us fiber producers have added capacity.
When demand increases/ this formerly excess capacity is no longer idle and
prices have risen. Nevertheless, synthetic fibers are expected to
continue to displace natural fibers. Total consumption of all fibers
should increase due to increasing textile consumption. In particular,
home furnishings should continue to be a large volume market. Between
1980 and 1985 shipments of manmade fibers are projected to increase about
6.5 percent annually according to the Kline Guide, reaching a level in
1985 of $13.065 billion (in constant 1980 dollars). Domestic demand
between 1981 and 1985 as projected by DRI will increase at an average rate
of 3.2 percent annually.
Surface-Active Agents
Historical View. Surface-active agents often referred to as
surfactants are organic chemicals that reduce the surface tension of
water and other solvents. Solutions with surfactants added may remove and
suspend dirt, penetrate porous materials, emulsify oil and grease and/or
act as foaming agents. While end-use products may possess more than one
of the above attributes, the finished chemicals usually are developed and
marketed for one particular purpose. On a weight basis, about half of the
surfactants produced are used in household cleaning preparations and
cosmetic products, and half are used for industrial purposes. Table 4-12
shows the pattern of consumption for surfactants.
Table 4-12
Surfactant Consumption by End-Use - 1979
Production % of total
End-Use (million Ibs. ) Surfactant Production
Soaps and detergents;
household and industrial 2173 56%
Diverse industrial 961 25%
Textiles 600 15%
Food 141 4%
Total 3,875 100%
Source: Kline Guide.
3A-4-18
-------
The retail products containing surfactants include dry synthetic
detergents (used for laundry and dish washing purposes), and liquid
detergents and soaps (toilet, bar and laundry soap). Industrial uses are
more difficult to specify because the market is fragmented, consisting of
many different formulations and end-uses, however, the cleaning compounds
category is the most important. Cleaning compounds are used in products
for firms such as commercial laundries, firms providing maintenance
services, car washes and in dairies. Surfactants are also used in oil
drilling operations and oil recovery, ore flotation, pesticide formulation
and textile and metal processing operations. Other end-uses of
surfactants include foods, paints, elastomers, other polymers and
lubricants. In recent years, about half of the total production has been
consumed within the surfactant manufacturer's firm.
In 1979, 5.9 billion pounds of surfactants were produced, of which 58
percent were sold on a merchant market for $1.1 billion. Between 1970 and
1979, the production of surfactants rose 2.7 percent annually, while the
sales value of merchant shipments rose 12.8 percent annually in current
dollars. The substantial rise in sales value stems from climbing prices
which characterize most sectors of the synthetic organic chemicals
industry. Using a 1967 base of 100, the average manufacturer's price
index for surfactants in 1979 was 222.2. The average annual growth rate
(in constant dollars) was 3.8 percent between 1970 and 1979.
The surfactants industry has several tiers with many companies
operating on multiple levels. In 1979 there were 163 surfactant
producers. The group of producers responsible for the highest volume of
surfactants are those with captive uses (ie: soap companies - Proctor &
Gamble, Colgate-Palmolive). According to the Kline Guide, 36 percent of
total surfactant production is consumed captively.
Outlook. It is difficult to predict an overall rate of growth in an
industry that is so varied in both chemical output and end-use
consumption. The chemicals that have experienced the highest growth rates
over the past decade have tended to be components of soaps and detergents
and this trend will probably continue. The Kline Guide estimates that
merchant sales for surfactants in 1985 will reach $1.5 billion (in
constant 1980 dollars), an annual average growth rate of 2.9 percent.
Miscellaneous Chemicals
This category includes medicinals, pesticides, and other miscellaneous
chemicals.
Medicinals. These are complex compounds used in Pharmaceuticals, or
food and animal feed supplements. The industry is closely related to the
drug industry, and most of the largest producers are drug companies which
use much of their products captively. Chemical firms manufacture the
simpler compounds that do not require the complex techniques and equipment
3A-4-19
-------
used by the drug companies. The chemical producers have no captive
outlets.
Production of medicinals was 313 million pounds in .1979, up 34 percent
overall from 1972. Total shipments were valued at $3.7 billion in 1979,
which represented a 14.4 percent average annual increase over 1970. In
constant dollars, the 1970-1979 growth rate was 10.2 percent. Exports of
medicinals in 1979 were 42.8 percent of total production value while
imports were 22.6 percent of total U.S.consumption. The balance of trade
has been positive over the last decade and in 1979 exports exceeded
imports by $780 million.
The outlook for medicinals is for an annual growth rate of 5 percent
to 1985, with the value of shipments reaching $5.4 billion, in constant
1980 dollars according to the Kline Guide. This projected rate compares
to an average annual rate of 14.5 percent during the 1970's.
Pesticides. Pesticides control destructive plants and animals that
interfere with agricultural crops and livestock and are also used in the
maintenance of landscapes, and preservation of wood, paint, and other
industrial products. The pesticide group is comprised of synthetic
organic basic toxicants and formulated products. Production of basic
toxicants was 1.3 billion pounds in 1979 and merchant shipments by basic
producers was $3.3 billion. According to the Kline Guide, some of the
basic toxicant producers sell toxicants as unformulated active ingredients
and others sell the toxicants as formulated products; the figure for
merchant shipments is a combination of both. Safe and effective use of
the toxicants usually requires miscing or compounding with nontoxic
ingredients.
The production of toxicants and the formulation of end products are
carried out by two tiers in the industry. The toxicants producers are
mainly large chemical firms, and in 1979 there were 79 producers of which
8 accounted for $2.88 billion (or 74 percent of the total) in sales. The
formulation business includes independents, cooperatives, and captive
formulators. About 80 percent of the formulating business is controlled
by the basic toxicant manufacturers. The value of shipments of formulated
pesticides in 1979 was approximately $3 billion according to the Kline
Guide. This $3 billion value represents a 16 percent eiverage annual
growth rate. In constant dollars, the growth rate was 3.8 percent.
Exports have exceeded imports over the past decade and the net balance of
payments grew from $209 million in 1970 to $804 million in 1979.
The outlook for the value of shipments of formulated products is for a
growth rate of 5 percent per year according to the Kline Guide^ This
growth rate is reasonable because although environmental problems have
resulted in the banning of some toxicants, substitutes will be developed
to fill what is perceived to be an essential role in U.S. agriculture.
Since foreign markets are far from saturated, pesticide exports can be
expected to grow.
3A-4-20
-------
Others. There are a number of end-use synthetic chemicals that are
not included above. These include gasoline and oil additives, tanning
agents, enzymes, paint driers, and photographic chemicals. In 1979, their
aggregate production was approximately 5.0 million pounds of which 2.3
million pounds were sold on the merchant market at a value of $1.7
billion.
3A-4-21
-------
Section 5
Description of SIC Groups
The five major SIC groups, specified at the 4-digit level in the SIC
hierarchy, that are the subject of this project are:
Primary Products of
SIC Manufacturing Establishments
2821 Plastics Materials and Resins
2823 Cellulosic Manmade Fibers
2824 Organic Fibers, Noncellulosic
2865 Cyclic Crudes and Intermediates
2869 Industrial Organic Chemicals,
not elsewhere classified
In all, there are about 150 SIC groups defined at the 4-digit level for
the manufacturing sector of the national economy. Based on information
collected and published in the Census of Manufactures by the federal govern-
ment, all establishments engaged in manufacturing are classified by the SIC
code. A company operating at more than one location is required to report on
each of the establishments.
An establishment is classified in a particular industry (i.e., SIC group)
if its shipments of primary products defined for that industry are greater
than the value of its shipments of products defined for any other single
industry. The total value of an establishment's shipments include those
products assigned in the SIC code to an industry (primary products), those
considered primary to other industries (secondary products), and receipts for
miscellaneous non-manufacturing activities such as merchandising and resales.
Tables 5-1 through 5-5 summarize important characteristics associated
with each of the five SIC groups. The summary data are excerpts or deriva-
tions from the Census of Manufactures* for the year 1977. The information is
presented for primary and secondary products only and excludes miscellaneous
receipts. The tables are divided into three major parts. The top part
describes the sales value of primary products of the establishments in the
4-digit SIC group and the portion of that value generated by the SIC group
designated in the title of the table. The middle part of the table describes
the establishments that are classified in the designated 4-digit SIC group.
The bottom of the table identifies other establishments (i.e., not in the
designated 4-digit SIC group) which produce primary products of the desig-
nated SIC group as secondary outputs.
From an overview of the information presented in the five tables, impor-
tant characteristics of the different industry groups can be compared. Note,
for example, the value of primary products range from a high of $19 billion
1977 Census of Manufacturers, U.S. Department of Commerce.
-------
Table 5-1
Product! and I «t »b)J m*v»e nt « A«ioel«trd
SIC
N=.
2821
Name
Plastic
Materials k
Resins
PRIMARY PRODUCTS
VALUE Or SHIPMENTS
Total, All
Establishment!
5
12,181
by Litablithmentt
Deilonated SIC 2871
$
8,968
% of Total
(coverage
ratio)
74
By Other Eitabll ihntents
$
3,213
t of Total
26
For Establishments Designated as SIC 2821
VXLUE OF SHIPMENTS
Primary t
Secondary
Products
$
10.557
* That Is
Pr unary
Products
(Speciali-
zation Ratio)
BS
NO. OF ESTAE LISHXTNTS
Total in
This SIC
397
Vlth Spe>
cialization
Fatio 75%
Or More
312
SECONDARY PRODUCTS SHIPPED
Name
Miscellaneous Plastic
Products
Cyclic Crudes t
Intermediates
Others e.g., msdicin-
als, soaps, surfactants.
fertilizerSf syntJietic
rubber, etc.
SIC
Product
Croup
3079
2865
2295, 2298
2621, 2649
2822, 2813
2819, 2822
2824, 2933
2841. 2B43
2861, 2869
2873, 2879
2911, 3231
3861
;
Value of
Shipments
406
110
B23
For Other EstablLshmgnts That MaXe SIC 2823 Primary Products
SIC Classification a:'.
Other Establishment:;
No.
2869
2865
7851
2412
Jlhezs: 2819
2322. 2824,
2943. 2861,
2879. 2891
2892. 2899.
2911. 3079.
3229
Name
Industrial Organic Chemicals n.e.c
Cyclic Crudes t Intermediates
Paints s. Allied Products
Alkalies (. Chlorine
Others
Value ot Primary Products of SIC 2821
Shipped By Other Establishments
5
1,320
384
138
109
7S2
\ of Total
of. All Establishments,
Making Primary Products
15
3
-1
-1
6
Notes: J are v\ millions; n.e.c. not elsewhere classified) Data are for 1977.
3A-5-2
-------
Table 5-2
fludu.tl «n<3 L>t abl 1 lIuM-nt » »t>ocl«lid With SIC /'H.'j
S2C
K3
2B2J
PRIMARY PRODUCTS
Nam*.-
Cellulosic
Man-Made
Tiber
VALUC Or SHIPMENTS
Total. AJ)
Eitabl lihments
5
851
By E«t.aLlJiniT.cnti
Deiiqnaled SIC 7623
$
(D)
» of Tot*)
(coverage .
ratio)
_
By Other Eitabli ihment i
I
(D)
* of Total
For Establishments Designated as SIC 2823
VALUE OF SHIP.".ENTS
Primary I
Secondary
Products
5
( D)
960*
» That Is
Prm»ry
Products
(Speciali-
sation Ratio)
(D)
NO. OF ESTABLISHMENTS
Total in
This SIC
10
With Spe-
cialization
Ratio 75%
Or More
9
SECONDARY PRODUCTS SHIPPED
Name
Organic fibers,
noncellulosic
Industrial inorganic
chemicals n.e.c.
Surface-active agents
Industrial organic
chemicals n.e.c.
SIC
Product
Group
2824
2819
2843
2864
$
Value of
Shipment!
(0)
(D)
(D)
( D)
For Other Establishments That Hake SIC 2B23 Primary Products
SIC Classif ication oi
Other Establishments
No.
2824
Name
Organic fibers, noncellulosic
Value of Primary Products of SIC 2823
Shipped By Other Establishments
$
( 0}
\ of Total
of All Establishments
Making Primary Products
Estimated from Census
of Manufactures, based
on total receipt less
2* for miscellaneous
receipts derived from
data for SIC 2821 and
2824.
Notet: $ are in millions; n.e.c. - not elsewhere classified; Data are for 1977.
(D) - Withheld to avoid disclosing operations of individual firms.
3A-5-3
-------
Tablo 5-3
jnd t >i Jl-l < shi»rnt i AnucJaUd Witli SJCTM.'J
SIC
Nc.
2824
PK1J'/LK* pR-1rri~- " ' ""
K«mp
Organic
fiber*, norr
cellulosic
VALUr Or SHIPMENTS
Total, All
Establishments
S
5,472
B,- Lilubl ishnenis
Deuonatrd SIC 2824
$
5,309
% OS Total
(coverage
ratio)
97
By Other Establishments
S
163
% of Total
3
Tor Establishments Designated as SIC 2824
VW.UT OF SHIPMENTS
Primary I
Secondary
Products
$
6.411
» That Is
Prinary
Products
(Speciali-
zation Ratio)
84
NO. OF ESTABLISHMENTS
Total in
This SIC
66
With Spe-
cialization
Ratio 75%
Or More
53
SECONDARY PRODUCTS SHIPPED
Name
Plastic materials C
Resins
Cellulosic man-made fiber
Non-woven fabrics
Other yarns excl. wool
Textile goods, n.e.c.
Industrial Organic
Chemicals, n.e.c.
Adheaives t Sealants:
Misc. Plastic Products
Industrial Inorganic:
Chemicals, n.e.c.
Cyclic Crudes s Intermeds.
SIC
Prod uct
Croup
2821
2823
2297
2281
2299
2869
2991
3079
2819
2B65
$
Value of
Shipments
(D)
(0)
(D)
(D)
(D)
(0)
(D)
(D)
(D )
(D )
For Other Establishments That Malte SIC 2824 Primary Products
SIC Classification of
Other Establishments
No.
22B4
2869
Nan?
Thread Hills
Industrial Organic Chemicals,
n.e.c.
Value of Primary Products of SIC 2834
Shipped By Other Establishments
$
(D)
( D)
» of Total
of All Establishments
Making Primary Products
Notes: S are in millions: n.e.c. - not elceuhere classified) Data are for 1977.
(D) Withheld to avoid disclosing operations of individual firms.
3A-5-4
-------
Piodurti «r,d 1
Table 5-4
l li,)v»rnt t At.i.e>cl«trd
SIC ?N<
si;
No.
286!>
FRJPIAXr PRODUCT:
Name
Cyclic Crudes
I Intermed-
iates
vM.ur or SHIPMENT!.
Total, All
Establishments
$
1. 514
By Establishments
Drsionstrd EIC 2865
$
3,700
» of Total
(coverage
ratio)
67
By Other Establishments
{
1,814 '
% of Total
33
Tor Establishments Designated as SIC 266S
VM.UE OF SHIPMENTS
Primary t
Secondary
Products
$
5470
» That is
Primary
Products
(Speciali-
zation Ratio)
68
NO. OF ESTABLISR1ENTS
Total in
This SIC
191
With Spe-
cialization
Ratio 75%
Or More
145
SECONDARY PRODUCTS SHIPPED
Name
Plastic Materials t Resins
Synthetic Org. Chcm. n.e.c
Inorganic pigments
Paints ( Allied Products
Others, e.g.: Alkalies C
Chlorine, Industrial gases.
Synthetic rubber, nedici-
nals. Surface active
agents. Polishes, Toilet
Preparations, Ag. Chemi-
icals n.e.c., etc.
SIC
Product
Croup
2821
2869
2816
2S51
2869, 2812
2813, 281?
2822, 2833
2842, 2843
2844, 2873
2879, 2891
2893, 2899
2911, 2952
3072, 3291
3679
$
Value of
Shipment!
384
121
1 67
17
For Other Establishments That Make SIC 2865 Primary Products
SIC Classification of
Other Establishments
No.
2821
2911
2869
Others:
2812, .2816
2819. 2824
2834, 2843
2873, 2879
Name
Plastic Materials t Resins
Petroleum Refining
Industrial Organic Chemicals n.e.c
Alkalies & Chlorine, Inorganic pig-
Bents, Industrial inorganic chem-
icals n.e.c., Orgaoac. fibers, non-
cellulosic, pharmaceutical prep-
arations, surface active agents.
agricultural chemicals and
fertilizers
Value of Primary Products of SIC 2865
Shipped By Other Establishments
$
110
110
54
1,540
% of Total
of All Establishments
Makina Primary Products
2
2
1
28
NOUS; $ are In millions; n.e.c.
not elsewhere classified: Data are fnr 1977.
3A-5-5
-------
Tabier'5-5
lroduct» »nd tn «bl I »hr»*nt « A«»ocl t y
SIC
NO.
2869
PHlMARr PKOnUCTS
Nary?
Industrial
Oi9anic
Chenical*
n.e.c.
VJU.UC OF SHIfMXNTS
Total, All
E»t abl 1 hmor.t
S
19,378
By C«ta£l nhjrw.net
Deilonatcd SJC 2869
S
K.,240
% of Total
(coverage
ratio)
84
By Other E«t «bli invents
S
3,139
% of Total
16
For Establishments Designated in STC 3869
VMUT or SHIPMENTS
Primary t
Secondary
Product!
5
\ That Is
Prisvary
products
(Speciali-
zation Ratio)
NO. OF ESTABLISHMENTS
Total in
This SIC
With Spe-
cialization
Ratio 75»
Or More
SECONDARY PRODUCTS SHIPPED
Name
Plastic materials t Itesins
Petroleum Refining
Cyclic Crudes t Interned.
Synthetic Rubber
Surface Active Agents
Others:
SIC
Product
Croup
2821
2911
2865
2S22
2843
1321, 2022
2035, 2048
2085, 2611
2812, 2813
2816, 2819
2824, 2831
2833, 2834
2842, 2844
2851, 2873
2874, 2879
2891, 2892
2992, 3079
3551. 3693
3832
$
Value of
Shipments
1,820
1,329
1,167
405
251
2,354
For Other Establishments That Make SIC 2S69 Primary Producta
SIC Classification of
Other Establishments
No.
2911
2873
2819
2822
2046, 2812
2816, 2821
2823, 2824
2833, 2834
2841, 2842
2843, 2844
2861. 2865
2379, 2891
2899, 3311
J079. 3861
Name
Petroleum Refining
Nitrogenous fertilizers.
Industrial Cheaucals. n.e.c
Synthetic Rubber
Wet corn Billing, alkalie t chlor-
ine, inorganic pigments, plastic
aterials t resins, cellulosic f.
organic fibers, nedicirals, phar-
oaceuticals, surface active agent:
adhesive* & sealants, tires, etc.
Value of Primary Product* of SIC 2869
Shipped By Other Establishments
S
242
16S
163
109
2.180
% of Total
of All Establishment*
Making Primary Products
1
1
1
1
12
Notes: $ are in millions; n.e.c. not elsewhere claisified; Data are for 1977
3A-5-6
-------
for SIC 2869 (Industrial organics, n.e.c.), down to $851 million for SIC 2823
(Cellulosic Manmade Fibers), a ratio of twenty one to one. These two SIC
groups also account for the greatest and fewest number of establish- ments
and companies; there are 548 establishments owned by 388 firms in SIC 2869
and only 10 establishments owned by 5 firms in SIC 2823.
Establishments classified within a specific SIC group do not manufacture
all the primary products defined for that SIC group. For example, the top
part of Table 5-5 shows that establishments classified in SIC group 2865 only
account for 67* percent of the total value of Cyclic Crudes and Intermediates
manufactured while 33 percent is contributed by other establishments (i.e.
not classified as SIC 28695) which make Cyclic Crudes and Intermediates as
secondary products. These other establishments are identified by their SIC
at the bottom of the table and the value of their products that are primary
for SIC 2865 are listed. In all, there are eleven other establishment groups
that make primary products of SIC 2865 with shipments valued at $1.8 billion
which is 33 percent of the total. Of these eleven groups, three are SIC
groups included in the study scope; i.e., SIC's 2821, 2823, 2824.
Compared to the lowest coverage ratio of 67 percent for SIC 2865, the
highest ratio is 97 percent for SIC 2824, Organic Fibers Noncellulosic.
(Note that this observation, and some of the subsequent comparisons, omits
consideration of SIC 2823 because data for that industry are withheld in the
Census of Manufactures to avoid disclosing operations of individual com-
panies. )
A chemical manufacturing establishment usually produces a variety of
chemicals in addition to the primary products identified by its SIC code and
the total value of its shipments is made up of primary and secondary pro-
ducts; the fraction of that total value that is primary products is the
specialization ratio. As an industry group, establishments in SIC 2821 and
2824 have the highest specialization ratio, about 85 percent.** The least
specialized are SIC 2865 and 2869 with primary products accounting for about
two thirds of the value shipments. Considering the specialization of indi-
vidual establishments within a SIC group, 90 percent of the ten establish-
ments in SIC 2823 have a specialization ratio of 75 percent or more. In each
of the other four SIC groups, establishments having such a specialization
ratio account for only 75 to 80 percent of the total establishments in their
group.
* This percent is the coverage ratio as defined in the Census of
Manufactures.
** As noted in Table 5-2, some of the information on value of shipments
for SIC 2823 is not published because it could identify specific firms.
While we have approximated the value of shipments of primary and secondary
products, we do not have sufficient information to estimate specialization
ratio for SIC 2823. However, we know that establishments in only one othet
SIC group (2824) make primary products of SIC 2823 from information in the
Census of Manufactures.
3A-5-7
-------
The number of secondary products of a SIC group may be few or many.
Relatively few secondary productsdefined at the 4-digit SIC code level of
detailare made by establishments in SIC 2823, (establishments that manu-
facture Cellulosic Manmade Fibers) and SIC 2824 (Organic Fibers Noncellu-
losic). That is, for SIC 2823 there are only four and for SIC 2824 there are
ten secondary products. In contrast, establishments designated as SIC 2869
produce 34 types of secondary products; SIC 2821 and SIC 2865 produce 24 and
22 secondary products, respectively.
Table 5-6 summarizes the above information for the year 1977. Overall,
the five SIC groups include 1233 establishments. (The number of firms owning
establishments cannot be totaled for the five SIC groups because one firm may
own establishments in more than one group). The value of shipments by all
establishments of all primary and secondary products is $47 billion. Of the
1233 establishments 953 have a specialization ratio of 75 percent or greater.
For the five SIC groups considered individually, their secondary products
total 94. This figure includes some double counting, e.g., both SIC 2865 and
SIC 2869 produce inorganic pigments (SIC 2816) as a secondary output.
Other industriesi.e., outside a designated 4-digit SIC groupalso
manufacture primary products of the designated group. For the five SIC
groups considered individually, these other industries total 55 (again, this
total includes some double counting). Of the 55, twelve are accounted for in
one (or more) of the four other SIC groups in the study scope and 43 are
industries outside the study scope.
3A-5-8
-------
Table 5-6
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-------
Section 6
Description of Companies
There are about 1/500 firms that produce chemicals and allied products.*
These include producers of chemicals, both organic and inorganic, and manu-
facturers of productssuch as paints, synthetic rubber, plastic pipein
which the chemicals are constituent ingredients. The companies represent a
diverse group of participants. Some firms are engaged solely in the produc-
tion of chemicals which are sold to the outside, or merchant market. Some
manufacture chemicals only for their own consumption (captive use) in pro-
ducts they market or for use in their manufacturing processes. Other firms
produce important chemicals, but as by-products of their main manufacturing
activity (e.g. steel producers) and some multi-product line firms make chem-
icals in relatively large plants dedicated to chemicals, but the chemical
product is not the dominant business of the corporation (e.g. General
Electric). Firms also vary in the degree of vertical integration, for
example some large oil companies have organizational divisions or subsidiary
companies that make and market chemicals utilizing their refinery products
as feedstocks. In these oil firms, sales of chemical products may be very
large compared to large chemical firms but a minor part of total corporate
sales.
These are the main reasons why it is difficult to describe the chemical
industry by a simple, unambiguous classification method. One useful descrip-
tion of firms is presented in Table 6-1. The classification of sixteen
company groups was adapted from the classification scheme developed by
Chemical Week** to describe 300 major firms. In Table 6-1, the last three
firm groupsPlastics and Resins, Colors and Dyestuffs, and firms Not Else-
where Classifiedwere added for the purposes of this project.
We developed a sample of firms to describe the wide variety of businesses
engaged in chemical manufacturing. The sample was developed from the EIS
(Economic Information Systems, Inc.) file which includes private and publicly
owned firms. This file is an establishment oriented data base and includes
all those establishments with 20 employees or more, and/or with sales of $0.5
million or more. Each establishment is assigned to one SIC group. All
establishments in the EIS file that were identified with one of the five SIC
groups discussed earlier were selected. The parent companies for each
establishment were noted and in all, 600 firms were identified. These firms
are listed by company group in Table 6-2. Sales and employment information
for the firms were obtained from Dun and Bradstreet*** listings which include
private and public companies. However, where available, sales data from 10-K
reports made by publicly owned firms for 1980 were used in preference to the
Dun and Bradstreet information.
* SRI International, 1979 Directory of Chemical Producers.
** Chemical Week, April 22, 1981.
Dun and Bradstreet Million Dollar Directory, 1980 edition.
-------
Table 6-1
Classification of. Company Groups*
1. Industrial Chemicals and Synthetic Materials
2. Pulp, Paper, Packaging
3. Specialty Chemicals
4. Petroleum, Natural Gas, Chemicals
5. Steel, Coke, Chemicals
6. Food and Dairy Companies with Chemical-Process Operations
7. Multi-Industry Companies with Chemical-Process Operations
8. Glass, Cement, Gypsum, Abrasives, Refractories
9. Fertilizers and Pesticides
10. Pharmaceuticals, Other Medical and Hospital Supplies
11. Detergents, Other Sanitation Products, Toiletries and Cosmetics
12. Paints, Printing Inks, Adhesives and Sealants
13. Tires, Other Rubber and Plastic Products
14. Plastics and Resins
15. Colors and Dyestuffs
16. Firms Not Elsewhere Classified
*Company and Firm are synonymous.
3A-6-2
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Of the 600 firms selected from the EIS file, sales data were not avail-
able for 205 firms. Employment data were not available for 219 firms.
Therefore the statistical tabulations used to present a profile of the
industry are based on a reduced sample; 395 firms are used for sales inform-
ation and 381 for employment information.
Table 6-3 shows the number of companies by firm group for six cate-
gories of company sales. Considering the size distribution of the total
sample, the greatest number 142 (35.95 percent*) have less than $25 million
in annual sales. The fewest number of firms, 20 firms, are in the highest
sales category of $10 billion and over.
The firm group designated as Industrial Chemicals and Synthetic Materials
accounts for the greatest number of firms and there are 72 in this group
(18.23 percent of the 395). The fewest number, three firms, are in the
Fertilizers and Pesticides group.
Forty-three of the 395 firms could not be classified by firm group based
on the information available and 26 of these are relatively small with sales
of $25 million or less; an additional 91 firms whose sales category could
not be ascertained are also in this unclassified firm group.
Table 6-4 displays the total firm sales by company group and indicates
how sales are distributed among six different sizes of firm. Combined sales
of the 395 firms total $847 billion. The 20 firms identified earlier as
very large with sales exceeding $10 billion, account for $524 billion or
61.82 percent of total sales.
*In this discussion percentages are shown to the same degree of accuracy
as in the tables only to assist the reader in using the tables in conjunc-
tion with the text.
3A-6-7
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Table 6-3
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The firm group with greatest share of total sales is Petroleum, Natural
Gas and Chemicals. This group (which includes less than 10 percent of all
firms) has sales of $450 billion, accounting for 53.16 percent of total
sales. This group includes some of the nation's largest oil companies with
major sales stemming from refining and other oil related businesses that are
not classified as part of the chemicals industry in the SIC system. How-
ever, the sales of chemicals by some of these firms are very large even
though they are a relatively minor part of a corporation's total sales.
Table 6-5 shows the number o£ firms in each firm group by six categories
of employment. The greatest number of firms, 94 (24.67 percent) fall into
the category of 10,000 employees or more. This category is followed closely
by firms with 50 to 250 employees; there are 89 (or 23.36 percent) in this
employment group.
3A-6-10
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Table 6-5
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3A-6-11
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Section 7
Financial Profile
This section presents 1980 financial information for publicly owned
firms. The financial profile is based on 10-K reports which publicly-owned
companies are required to file with the SEC. Similar data are not available
for privately held firms. The 10-K reports include information on sales,
profits, assets, net worth, debt-equity ratio and capital expenditures.
The financial profile describes 178 U.S. firms compared to 395 firms in
the industry sample discussed earlier. The group of 178 firms is not a
representative industry sample because small firms and privately owned firms
are not included; there is no source of financial data comparable to the 10-K
report for these companies. The financial profile is based on a subset of
the industry representing large companies; for example average sales of the
178 firms is $4.7 billion compared to a $2.1 billion average for the 395
firms. Also, the number of firms; in the financial profile with sales less
than $25 million per year is four* while in the industry sample this category
of sales accounted for the greatest proportion, 36 percent, of the 395
firms. Table 7-1 lists the 178 ifirras by the sixteen company groups.
The financial information is presented by the sixteen firm groups and by
four categories of annual sales: $1 to $250 million, $250 to $1000 million,
$1 to $10 billion and over $10 billion. The specific financial data
presented in this firm group and sales category format are sales, profits,
profit/net worth ratio, assets, average debt/equity ratio, capital
expenditures and average capital expenditure sales ratio.
Table 7-2 shows the number of firms in each firm group and sales
category. The sales category $1 to 10 billion accounts for 82 firms, or
nearly half of the total. The largest category of salesover $10 billion
has the fewest number of firms, .20 (11.24 percent, of the total).
The company group with the greatest number of firms is the Multi-Industry
group, with 33 firms (18.54 percent). This firm group is followed by the
Industrial Chemicals and Synthetics group which accounts for 32 firms (17.98
percent). The fewest number of firms is in the Color and Dyestuffs group,
which shows only one firm (.56 percent). It is interesting to note that
eleven of the sixteen firm groups have no firms in the; largest sales group.
Tables 7-2 and 7-3 reveals the same pattern that was seen using the
larger industry sample. Very large firms (sales over $10 billion) account
for 62.27 percent of the total $841 billion sales but only 11.24 percent of
the firms. Twelve of the 20 firms in the very large category are in the
Petroleum, Natural Gas and Chemicals group and account for 48.65 percent of
the $841 billion total sales.
* Not revealed in the tables presented in this section.
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The firm group with greatest sales volume (considering all categories of
sales) is Petroleum, Natural Gas and Chemicals with $464 billion; thus 55.18
percent of total sales are attributed to one firm group which accounts for
12.92 percent of the 178 companies. The Multi-Industry group shows the
second greatest amount of sales with $144 billion (17.15 percent). The firm
group/ Colors and Dyestuffs/ accounts for the least sales with $341 million
(.04 percent).
High profits generally correlate with a high volume of sales. Table 7-4
shows that firms in the sales category over $10 billion account for the
greatest profit, almost $30 billion of the $47 billion total. As noted
earlier, there are 20 firms in this sales category, thus 11.24 percent of all
the firms account for 62.83 percent of total profits and, as noted above,
62.27 percent of total sales. Table 7-4 also shows profits for the firm
group Petroleum and Natural Gas and Chemicals of $28 billion or 59.35 per-
cent, of the $47 billion for the total sample. This one firm group with
12.92 percent of the firms accounts for 59.35 percent of total profits. The
Multi-Industry group ranks second with $7.9 billion (16.90 percent) of total
profits. The Colors and Dyestuff firm group shows the least profits, with
$11 million (.02 percent).
Table 7-5 shows the average ratio of profit to net worth. It would be
misleading in calculating an average profit to net worth ratio to treat a
firm with low sales volume the same as one with a large sales volume. There-
fore, the average ratio shown in each cell represents the sales weighted
average of the ratios for each firm in that cell. While no general pattern
is observed with respect to firm groups or size, the following observations
are noted. Firm groups showing a relatively high ratio are Fertilizers and
Pesticides, Pharmaceuticals, and Paints, Inks, Adhesives and Sealants. Firm
groups showing a low ratio are Steel and Coke, Glass, Cement, Gypsum, etc.,
Tires and Other Rubber, and Colors and Dyestuffs. The lowest ratio is -13
and appears in the Multi-Industry firm group (sales from $250 million to $1
billion). This value is due to negative total profits reported in 1980 for
the four firms in this firm/sales group.
Total assets, shown in Table 7-6, in general correlates with sales and
profits. The largest category of salesover $10 billionshows the greatest
assets amounting to $358.5 billion; the 20 firms in this sales category
account for 59.23 percent of the total assets of the 178 firms. Table 7-6
also shows the firm group Petroleum and Natural Gas and Chemicals firms has
the greatest share of assets, with $299.2 billion (49.42 percent) of the
total $605.3 billion in assets. The Multi-Industry group ranks second and
has $124.0 billion (20.49 percent) in assets. Colors and Dyestuffs has the
least assets with $170 million (.03 percent).
A firm's debt to equity ratio is often used to gauge its riskiness or
financial soundness. Table 7-7 shows average debt/equity ratio and the ratio
in each cell is a sales weighted average. The data presented was reviewed to
see if there is a pattern between size of firms (in terms of sales) and debt/
equity ratio. We see that more firm groups have their highest debt/equity
3A-7-6
-------
Table 7-4
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ratio in the $250-$!,000 million category than in any other sales category
(eight out of 16 firm groups).
Table 7-8 shows capital expenditures, which totaled $73.3 billion. The
sales category $1 to $10 billion has more firms than any other (82 or 46
percent of the total number of firms), and accounted for 31.47 percent ($23.1
billion) of the total capital expenditures. Capital expenditures are
greatest in the largest sales category where 20 firms (11.24 percent of the
178) account for 65.54 percent of the total. The Petroleum, Natural Gas and
Chemicals Industry invested the most with $45.6 billion (62.17 percent) of
the total. The Multi-Industry group ranks second with investments of $10.3
billion (14.05 percent), and the Colors and Dyestuffs group ranked lowest
with $11 million (.02 percent).
Table 7-9 shows the sales-weighted average ratio of capital expenditures
to sales. A high ratio suggests high growth and/or capital intensiveness of
the firm. More firm groups show their highest capital expenditure/sales
ratio in two sales categories; $250-$!,000 million and $1 billion to $10
billion (five firm groups in each).
3A-7-11
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Table 7-9
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-------
Section 8
Establishments
In this section, 1167 chemical manufacturing establishments are described
by several important characteristics including type of manufacturing estab-
lishment, size of employment, sales, geographical location, discharger
status, product type and parent company ownership.
Establishments are classified by important manufacturing characteristics
to facilitate evaluation of pollution control measures. Three major
establishment groupsbasic, intermediate, end-use or finished chemicalsare
defined. Establishments producing end-use chemicals are, in turn, divided
into three groups based on the production (or lack of produc- tion) of
plastics and resins. In total, five groups are used to classify individual
establishments and these are defined in Table 8-1. The five are mutually
exclusive and thus a single establishment can be classified in only one group
as noted in the table.
Three employment categories are used to describe size of the establish-
ments. Small plants are defined as having fewer than 50 employees. Medium
establishments have 50 to 500 and large establishments have 500 or more em-
ployees. The combination of three employment categories and five establish-
ment groups define 15 segments of the organic chemical industry. (Employment
is also treated in a more detailed breakdown in one of the later data dis-
plays) .
Eight categories are used to describe establishment sales. These
categories are expressed in millions of dollars, which are distinguished at
the following intervals: 0, 5, 10, 25, 50, 100, 250, 500 and over.
Table 8-1
Definition of Establishments Groups
1. Basic Chemicals: establishments with some production of basic-
chemicals.
2. Intermediate Chemicals: establishments with some production of
intermediate chemicals but no production of basic chemicals.
3. End-use Chemicals, Plastics: establishments producing only plastics
and resins.
4. End-use, Chemicals, Other: establishments producing only end-use
chemicals other than plastics and resins.
5. End-use, Chemicals, Both: establishments producing both plastics and
resins and other end-use chemicals but no basic or intermediate
chemicals.
Note: With these definitions, each establishment falls into only one
group. For example, an establishment producing some basic, some
intermediate, and some end-use chemicals falls into 41.
-------
Number of Establishments, Sales and Employment
Tables 8-2 and 8-3 show the distribution of the 1167 establishments with
respect to establishment groups, sales categories and employment. The
primary source of information is the EIS file, which primarily consists of
1979 data. Those establishments in the EIS file identified by one of the
five SIC codes defining the scope of study yielded a sample of 1175 estab-
lishments. However, for eight of these, employment data were missing. (The
1167 establishments based on 1979 data is about 5 percent less than the 1233
establishment count obtained from the Census of Manufactures for 1977 that
was discussed in Section 6).
Total sales of the 1167 establishments is $50.6 billion. Of the total
number of establishments, about 84 percent (984 establishments) are in the
three End-Use Chemical groups with 55 percent ($28 billion) of total sales.
Approximately 11 percent (126 establishments) of the establishments are in
the Intermediate Chemicals group and account for 30 percent ($15.2 billion)
of total sales. The Basic Chemicals establishment group has about 5 percent
of the establishments and accounts for 15 percent ($7.4 billion) of total
sales.
Average annual sales per establishment are $130 million in the Basic
Chemical group and $120 million in the Intermediate Chemicals group. The
average is $30 million for the three End-Use Chemical groups combined.
Tables 8-2 and 8-3 demonstrate several important characteristics of the
industry. Considering first a comparison of the sales categories (for all
establishment groups and employment sizes), we observe that eleven percent of
the establishments have annual sales in excess of $100 million and account
for 60 percent of total sales. Sixty seven percent of the establishments
have annual sales less than $25 million and account for 14 percent of total
sales.
3A-8-2
-------
Table 8-2
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3A-8-4
-------
Considering next a comparison of establishment groups and employment
categories (for all sales categories) we observe that establishment sales are
greatest for the Intermediate Chemicals with large employment; this one
group, with about 4 percent of the establishments, has $12.5 billion in
annual sales (24.58 percent of total sales). If the small/ medium large
employment categories are aggregated within an establishment group, the End-
Use Chemicals, Other group, with 46 percent of the establishments, has the
greatest share of total sales, about 36 percent.
Sales of two establishment groupsBasic Chemicals and Intermediate
Chemicalsare predominated by establishments with relatively large sales
volume. For each of these, about 83 percent of the group's sales (aggregated
for small, medium and large employment categories) are by establishments in
the $100 million or more category. In contrast, aggregate establishment
sales for the three End-Use Chemical groups are less concentrated in the
higher sales categories; establishments over $100 million in sales account
for 43 percent of the aggregate sales of the three End-Use Chemical group.
Establishment employment in both the Basic and the Intermediate Chemicals
groups is predominantly made up of establishments in the large and medium
size employment categories. For the Basic Chemicals group, only seven of 57
establishments (12 percent) have small employment; none of the seven shows
annual sales over $50 million. For the Intermediate Chemicals group, 26 of
the 126 establishments (21 percent) are in the small employment category;
none of the 26 exceeds $25 million in annual sales.
In contrast to the Basic and Intermediate establishment groups, a sub-
stantial share of the establishments in the three End-Use Chemical groups are
in the small employment category. Considering the aggregate of 984 establish-
ments in the three End-Use groups, 404 small employment establishments account
for 41 percent of the total.
The single largest establishment group/employment combination is the
End-Use, Other establishment group with medium size employment which accounts
for 265 (or 22.71 percent) of all establishments. Sales for this segment are
16.39 percent of total sales.
Table 8-4 shows the distribution of number of establishmentsagain
broken down into the five establishment groupswith respect to a more
detailed breakdown of employment. The three (small, medium, large) cate-
gories of employment are subdivided into nine and the boundaries defining
those categories are 0, 20, 50, 100, 250, 500, 1,000, 2,500 and 10,000
employees. The greatest number of establishments, 435, have 20 to 50
employees and account for 37.28 percent of all establishments. There are 144
establishments with employment of 500 or more; the 144 represents 12 percent
of the total number of establishments.
3A-8-5
-------
Table 8-4
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3A-8-6
-------
Establishment Locations
Establishment locations are identified by five geographical regions and
these are the northeast, the north central states, the southeast, the western
states of the south central region and the western states. Table 8-5 lists
the states in each region.
Table 8-6 and 8-7 show the number and sales of establishments by region,
broken down by the five establishment groups and three employment cate-
gories. The region with the greatest number of establishments is the north-
east with 393 (33.68 percent of the total) followed by the north central
region with 260 establishments (22.28 percent). However, sales are greatest
in the southeast with 33.68 percent of the total $50.6 billion in establish-
ment sales. The northeast has 24.62 percent and the north central region has
17.07 percent of total sales.
For reasons of economic efficiency, production of end-use chemicals and
manufacture of final products tend to be located near major consumer markets.
By contrast, the earlier stages of manufacture tend to locate near raw
material sources. The establishments in the northeast are predominantly
producers of finished chemicals and the 374 establishments in the three End-
Use Chemical groups account for 95 percent of the 393 establishments in that
region. The 374 establishments in the End-Use Chemical groups located in the
northeast account for 38 percent of all 984 of the End-Use Chemical establish-
ments and 35 percent of the $28 billion aggregate sales (all regions) for the
three End-Use Chemical establishment groups. The southeast region has almost
the same volume of sales (33 percent of the End-Use Chemical sales) but has
only 20 percent of the establishments in that establishment group; the average
size is greater for establishments in the southeast than in the northeast.
Establishments in the Intermediate Chemical group are concentrated in the
southeast and west south central region which together have 80 establish-
ments, or 63 percent of the total 126 in that establishment group. Combined
sales by southeast and west south central establishments in the Intermediate
Chemical group account for 72 percent of the $15.2 billion sales for that
establishment group. Considering all regions, the large employment
establishments have over 80 percent of the Intermediate Chemical group's
$15.2 billion in sales.
Establishments that make some basic chemicals are relatively few in total
number (five percent of the total) , and concentrated in the west south cen-
tral region, which includes states that both produce and import hydrocarbon
feedstocks. Thirty seven of 57 establishments (65 percent) in the Basic
Chemical group are in this region and account for 68 percent of the $7.4
billion sales for the establishment group. The large employment establish-
ments are the major producers and have 74 percent of the $7.4 billion sales
for the Basic Chemical establishment group, considering all regions.
3A-8-7
-------
Table 8-5.
Definition of Regions
Northeast
Maine Vermont
New Hampshire . Massachusetts
Rhode Island Connecticut
New York Pennsylvania
New Jersey
Korth Central
Ohio Indiana
Illinois Michigan
Wisconsin Minnesota
Iowa Missouri
North Dakota South Dakota
Nebraska Kansas
Southeast
Delaware Maryland
Virginia West Virginia
North Carolina South Carolina
Georgia Florida
Kentucky Tennessee
Alabama Mississippi
Puerto Rico
West South Central
Oklahoma Arkansas
Texas Louisiana
West
Montana Idaho
Colorado Wyoming
Utah New Mexico
Arizona California
Nevada Oregon
Washington Alaska
Hawaii
3A-8-8
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3A-8-10
-------
Discharger Status
Considering only those establishments that are direct dischargers of
wastewater reduces the number of establishments from 1167 to 405* and total
establishment sales from $50.6 billion to $33.7 billion. Thus, direct dis-
chargers constitute 35 percent of all establishments but account for 67 per-
cent of total sales. Of the 405 direct dischargers, 256 are in the three
End-Use Chemicals establishment group and account for 41.8 percent of all
direct discharger sales, 102 are in the Intermediate Chemicals group with
39.6 percent of the sales and 47 are in the Basic Chemicals group with 18.6
percent of sales.
Tables 8-8 and 8-9 display number of direct discharging establishments
and sales for the five geographical regions by establishment group and
employment size category. The greatest number, 130, or 32.10 percent of all
direct dischargers, is in the southeast and they account for 41.09 percent of
the $33.7 billion total sales. The next greatest number, of direct dis-
chargers, 107, is in the west south central region followed by 90 in the
northeast with approximately 27 percent and 19 percent of direct discharger
establishment sales respectively. The fewest number of direct dischargers
are in the west which has 25 (6.17 percent) establishments and only 1.22
percent of total sales.
The geographical distribution of direct dischargers for the different
establishment groups shows the following pattern. Direct discharger
establishments in the three End-Use Chemicals groups are concentrated in the
southeast (with 87) and northeast (with 79); together these two regions have
65 percent of all 256 establishments in the End-Use groups. Direct dis-
chargers in the Intermediate Chemicals group are concentrated in the south-
east (with 39) and west south central region (with 33); together these two
regions have 71 percent of all 102 establishments in the Intermediate
Chemicals establishment groups. For the Basic Chemical group, direct
dischargers are primarily located in the west south central region with 34 of
the 47 establishments (72 percent) in that establishment group.
Comparison of the economic importance of direct dischargers and indirect
dischargers in different regions is relevant to the potential impacts of
pollution control measures on the different establishments. As stated
earlier, direct dischargers account for about one third of the total number
of establishments and two thirds of the total sales. Within each region, the
same general pattern is observed; i.e., direct dischargers account for a
greater share of regional sales than is indicated by the number of such
establishments. For example, in the northeast, of all 393 establishments
(direct and indirect dischargers), 23 percent are direct dischargers but they
account for 50 percent of regional sales. In the west south central
* Identification of direct discharges was made from the National Pollutant
Discharge Elimination System (NPDES) permit rating file maintained by the
Denver regional office of the EPA.
3A-8-11
-------
Table 8-8
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region, 69 percent of the establishments are direct dischargers and have 86
percent of sales; this is the highest proportion of regional sales by direct
dischargers in any of the five regions. Table 8-10 shows the comparison for
all the regions.
A more detailed comparison of direct and indirect dischargers can be con-
structed with relative ease from the existing data base, i.e., number and sales
of direct and indirect discharger:; can be compared for the different establish-
ment groups and size categories on a regional basis. This level of description
may be desirable to facilitate the economic impact analysis of pollution controls
for the two types of dischargers, but it is not presented here.
Table 8-10
Relative Importance of Direct Dischargers by Region
(Numbers are rounded)
Total
West
North North South South
East Central East Central West
Number of Establishments
Number of Direct
Dischargers
% of Establishments that
are Direct Dischargers
1167 393 260
405 90 53
35 23 20
246 154
130 107
chargers (Billion $)
% of sales that are
Direct Dischargers
53
67 50
45
81
69
86
114
25
22
Total Sales (Billion $)
Sales of Direct Dis-
50.6
33.7
12.5
6.3
8.6
3.9
17.0
13.8
10.7
9.2
1.7
0.4
24
Type of Products
A single establishment usually manufactures a number of chemical products.
(This was explained in the discussion of SIC groups in. Section 6). To
describe the wide variety of outputs from the 1167 establishments in the
industry sample a comprehensive List of fourteen product types, shown in
Table 8-11, is employed.
3A-8-14
-------
Table 8-11
Identification of Product Types
1. Basic Aliphatics
2. Basic Aroraatics
3. Intermediate Large Volume Aliphatics
4. Intermediate Large Volume Aromatics
5. Dyes and Organic Pigments
6. Flavors and Fragrances
7. Plastics and Resins
8. Rubber Processing Chemicals
9. Elastomers
10. Plasticizers
11. Surface Active Agents
12. Synthetic Fibers
13. Miscellaneous End-Use Chemicals
14. Generalized Compounds/Inorganics
This list was selected because information about individual establishments
is presented by these product types in the SRI Directory*. Also, the
classification is quite similar to that used by the ITC.** These
documents are primary data sources for the study. The list of product
types bears some resemblance to the five establishment groups defined
earlier in this section. However, there are important differences. The
establishment groups are used to classify each of the 1167 establishments
on a mutually exclusive basis. For example, if an establishment produces
any amount of an intermediate chemical, but no basic chemicals, the
Intermediate Chemicals establishment group is appropriate even though the.
establishment also produces finished chemicals. In contrast to the
establishment group classification, the list of product types is used to
identify outputs of an establishment. As discussed in Section 6, an
establishment produces primary products associated with its SIC
classification and other secondary products. An overview of the
relationship of the product types listed in Table 8-11 to the five major
SIC groups addressed in this study is shown in Table 8-12.
Some of the fourteen product groups are closely identified with func-
tional end-uses, or markets, for finished chemicals, e.g., Flavors and Fra-
grances, Synthetic Fibers, Rubber Processing chemicals. Also note the list
*SRI International 1979 Directory of Chemical Producers.
**Synthetic Organic Chemicals, U.S. Production and Sales, 1979, U.S. Inter-
national Trade Commission, Publication 1099.
3A-8-15
-------
Table 8-12.
Relationship of Product Types to Major SIC Groups
SIC Product *|
No. I Type Number I Product Type
2821 7 Plastics materials and synthetic resins
9 Elastomers, nonvulcanizable
2823 12 Cellulosic manmade fibers
2824 12 Organic fibers, noncellulosic
2865 2 Basic aromatic chemicals (from coal tar)
4 Intermediate aromatic chemicals (from coal tar)
5 Synthetic dyes and pigments
13 Other chemicals (e.g., light oils, creosote oil)
2869 1 Basic aliphatic chemicals
3 Intermediate aliphatic chemicals
6 Flavor and fracranee materials
8 Rubber processing chemicals
10 Plasticizers
13 Miscellaneous (e.g., tanning agents, enzymes, paint
driers, lube oj.ls)
Secondary products of establishments classified as one of the above SIC
groups
9 Elastomers, vuLcanizable
11 Surface active agents
13 Pesticides
2 Basic aromatics (Benzene, toluene, xylene from
petroleum)
13 Medicinals
14 Others (including inorganics)
*Number refers to the listing in Table 8-11.
3A-8-16
-------
distinguishes two major types of basic and intermediate chemicals; these two
are aromatics and aliphatics. The intermediates identified in Table 8-11 are
those produced in large volume; the small volume intermediates are classified
under Miscellaneous End-Use Chemicals because they are used both as end-use
and intermediate chemicals.
Table 8-13 shows the number of establishments by product type and
establishment group. In total, there are 1932 outputs from the 1167
establishments; an average of 1.7 product types per establishment. The two
most frequently manufactured product types are Miscellaneous End-Use
Chemicals (produced by 530 establishments) and Plastics and Resins (produced
by 521). There are six product types which are manufactured by fewer than 50
establishments; these six are numbered in Table 8-11 as Product Types 1, 2,
6, 8, 9 and 10. Establishments in the several End-Use Chemicals establish-
ment groups do not manufacture any Basic Chemicals or Large Volume Inter-
mediate Chemical product types.
Establishments in the Intermediate Chemicals establishment group make
none of the Basic Chemical product types. However, some establishments in
the Intermediate Chemicals group (particularly those in the medium and large
employment size category) make product types other than Basics and Inter-
mediates; four product types with a significant number of establishments
participating are Plastics and Resins (made by 54 establishments), Synthetic
Fibers (made by 16), Miscellaneous End-Use Chemicals (made by 53) and
Generalized Compounds/Inorganics (made by 52).
Few establishments in the Basic Chemicals group make end-use product
types except for the Plastics and Resins (made by 25 establishments),
Miscellaneous End-Use Chemicals (made by 27) / and Generalized Compounds/
Inorganics product types (made by 36).
Ownership of Establishments
Table 8-14 shows the number of establishments by establishment group and
ownership by firm group. (Firm groups are those defined in Section 7.) The
Industrial Chemicals and Synthetic Materials firm group has the highest
number of establishments (considering the aggregate of three employment cate-
gories) with 361 (30.9 percent of the 1167 total). The firm group with
fewest establishments is the Fertilizer and Pesticides group which has only
eight establishments (.69 percent).
Ownership of establishments is concentrated in different firm groups.
Ownership of establishments in the Basic Chemicals group is concentrated in
the Petroleum, Natural Gas and Chemicals firm group with 25 establishments
(43.8 percent of all the Basic Chemical establishments) and in the Industrial
Chemicals and Synthetic Materials firm group with 18 establishments (31.6
percent) .
3A-8-17
-------
Table B-l
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Ownership of establishments in the Intermediate Chemicals group is con-
centrated in the Industrial Chemicals and Synthetic Materials firm group
which owns 72 establishments (57 percent of the 126 in the Intermediate
Chemicals establishment group).
Ownership of two of the three End-Use Chemical groups is also concen-
trated in the Industrial Chemicals and Synthetic Materials firm group; these
two are End-Use Chemicals, Other and End-Use Chemicals, Both. Ownership of
the End-Use Chemicals, Plastics and Resins establishments is less concen-
trated; of the 325 establishments in this group, 17.2 percent is in the
Industrial Chemicals and Synthetic Materials firm group and about 14 percent
is in each of three other firm groups (i.e., Tires and Rubber, Plastics and
Resins and Not Elsewhere Classified).
3A-8-22
-------
Appendix 3A
Bibliography for Industry Profile of
Organic Chemicals Industry
Curry, Susan and Rich, Susan, eds. The Kline Guide to the Chemical Industry,
4th edition. Fairfield, N.J.: Charles H. Kline and Co. Inc., 1980.
Data Resources, Inc. Chemical Review. Vol. 6, No. 1. Lexington, MA:
Data Resources/ Inc., 1981.
Data Resources, Inc. Chemical Review. Vol. 6, No. 3. Lexington, MA:
Data Resources, Inc., 1981.
Data Resources, Inc. Chemical Review. Vol. 7, No. 1. Lexington, MA:
Data Resources, Inc., 1982.
Dun and Bradstreet. Million Dollar Directory, 1980 edition.
Economic Information Systems, Inc.; 301 Madison Avenue, New York, New
York 10017.
Lowenheim, Frederick A., and Moran, Marguerite K. Faith, Keyes, and
Clark's Industrial Chemicals/ 4th edition. New York: John Wiley and
Sons, 1975.
SRI International. 1979 Directory of Chemical Producers, United States
of America. Menlo Park, CA: SRI International, 1979.
U.S. Department of Commerce. Bureau of the Census. 1977 Census of
Manufactures: Industrial Organic Chemicals. Washington, D.C.:
Government Printing Office, 1980.
U.S. Executive Office of the President. Office of Management and Budget.
Statistical Policy Division. Standard Industrial Classification Manual,
1972. Washington, D.C.: Government Printing Office, 1972.
U.S. International Trade Commission. Synthetic Organic Chemicals.
Washington, D.C.: Government Printing Office, 1970-1980.
Financial data for individual firms obtained from 10-K reports filed with
the U.S. Securities and Exchange Commission.
Periodicals used:
Chemical Week. Several issues.
-------
Appendix 4A
Modification of Original GPC Costs
This Appendix describes the procedures used to develop BAT and PSES
costs consistent with the long-term average effluent limitations.
Modification of Original Effluent Targets
Each GPC was compared with the new BAT and PSES targets to determine if
additional treatment would be required. Treatment was required whenever the
GPC exceeded one or more of the new targets. The targets used in the
evaluation were:
Pollutant Group Effluent Target
Acids .025 mg/1
Base/Neutrals .060 mg/1
Metals .075 mg/1
Volatiles .050 mg/1
For the BAT regulation (which is applicable to direct dischargers),
concentrations found in the wastestream emerging from the BPT system* were
compared to the BAT targets to determine if further treatment would be
required before discharge to receiving waters. For the PSES regulation, the
raw waste load of each GPC was compared with the target concentrations for a
subset of the 129 priority pollutants to be controlled by the PSES
regulation.
Modification of Treatment Systems
If additional treatment was required, the original treatment systems
were modified. Since the lists of pollutants controlled by BAT and PSES
were different, the selected systems might not be the same. The following
are the guidelines by which the original treatment trains were adjusted:
o Treatment units treating only pollutants meeting the
proposed targets could be removed from the train.
o Treatment units treating pollutants in a segregated stream
could be removed if/ when that stream was combined with
others before discharge, its final concentration would be
below target by virtue of dilution.
* In situations where no reduction in concentration was reported for the
BPT system although it was expected, these concentrations were adjusted by an
average POTW removal efficiency. This frequently occurred with metals.
-------
Except in situations where several metals were present in
excessive concentrations, ion exchange units following
coagulation/flocculation units were removed since the
targets would be reached with the coagulation/flocculation
unit.
Final filters/ second stage activated sludge, or other
"polishing* units were removed if it was judged that the
remaining units alone would meet the targets.
Where intermediate concentrations were given between various
treatment units, it was sometimes possible to remove the
latter units when intermediate concentrations met the new
targets.
When treatment units were shown to be ineffective in
removing pollutants in excess of the new targets, as
demonstrated by influent and effluent concentrations of the
unit, they were removed.
Many of the units in the treatment trains, such as
clarifiers, dual media filters, et cetera, served only to
protect subsequent units. When the main unit was removed,
the corresponding pretreatment units were also removed.
After the new treatment trains were defined, an adjustment was made to
miscellaneous direct costs". Originally, these costs were based on the
number of treatment units in the train and the power requirements of each
unit. For the modified trains, this was approximated by 23.7 percent of
total capital cost plus $85,000 (third quarter, 1977). This formula is based
on a regression of miscellaneous direct costs on total capital cost for the
original BAT treatment systems.
-4A-
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