ECONOMIC IMPACT ANALYSIS OF
ALTERNATIVE POLLUTION CONTROL
TECHNOLOGY FOR THE WET PROCESS
HARDBOARD AND INSULATION BOARD
SUBCATEGORIES OF
THE TIMBER PRODUCTS INDUSTRY
report to
U.S. ENVIRONMENTAL PROTECTION AGENCY
CONTRACT NO. 67-O1-4194
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ECONOMIC IMPACT ANALYSIS OF
ALTERNATIVE POLLUTION CONTROL TECHNOLOGY
FOR THE INSULATION BOARD AND
WET PROCESS HAKDBOAKD SUBCATEGORIES
OF THE TIMBER PRODUCTS INDUSTRY
U.S. ENVIRONMENTAL PROTECTION AGENCY
NOVEMBER 1978
Submitted by:
Arthur D. Little, Incorporated
Acorn Park
Cambridge, Massachusetts 02140
Contract No. 68-01-4194
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TABLE OF CONTENTS
PAGE
I EXECUTIVE SUMMARY 1-1
II. INDUSTRY CHARACTERIZATION - INSULATION BOARD II-l
A. INDUSTRY DEFINITION II-l
B. TYPES OF FIRMS II-l
1. Size of Firms II-l
2. Integration/Diversification II-2
C. PRODUCT DESCRIPTION II-4
1. Types of Products II-4
2. Market Size and Future Growth II-5
D. PLANT CHARACTERISTICS OF THE EXISTING INDUSTRY 11-11
1. Process Technology 11-11
2. Size of Plants 11-13
3. Age Distribution 11-13
A. Location 11-13
5. Employment 11-16
E. CHARACTERISTICS OF NEW PLANTS 11-16
F. COMPETITIVE STRUCTURE 11-16
1. Market Structure 11-16
2. Pricing Mechanism 11-18
3. Price Elasticity of Demand 11-21
4. Barriers to Entry of New Firms 11-23
5. Other Regulatory Factors 11-23
G. FINANCIAL PROFILE 11-24
III. INDUSTRY CHARACTERIZATION - WET PROCESS HARDBOARD III-l
A. INDUSTRY DEFINITION III-l
B. TYPES OF FIRMS III-l
1. Size of Firm III-l
2. Ownership/Integration/Product Diversification III-3
C. PRODUCT DESCRIPTION III-5
1. Types of Hardboard Products III-5
2. Market Size and Future Growth III-7
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TABLE OF CONTENTS (CONTINUED)
D. PLANT CHARACTERISTICS OF THE EXISTING INDUSTRY
1. Process Technology
2. Size/Age/Location
3. Employment
E. CHARACTERISTICS OF NEW CAPACITY
1. Recent Capacity Additions
2. Process Economics of New Capacity
F. COMPETITIVE STRUCTURE
1. Market Structure
2. Pricing Mechanism
3. Price Elasticity of Demand
4. Barriers to Entry of New Firms
5. Other Regulatory Factors
G. FINANCIAL PROFILE
IV. COST OF COMPLIANCE WITH REVISED WATER EFFLUENT
REGULATIONS
A. INTRODUCTION
B. CURRENT EFFLUENT STATUS
C. POLLUTION CONTROL OPTIONS - EXISTING PLANTS
1. Cost Models
2. Costs of Compliance
D. POLLUTION CONTROL OPTIONS - NEW SOURCES
1. Cost Models
2. Costs of Compliance
V. ECONOMIC IMPACT OF COMPLIANCE WITH REVISED WATER
EFFLUENT REGULATIONS
A. INTRODUCTION
B. PRICE INCREASES
1. Level of Increases
2. Obtainability of Increase
C. FINANCIAL CONSIDERATION
PAGE
III-ll
III-ll
111-15
111-17
111-17
111-17
111-18
111-20
111-20
111-20
111-23
111-25
111-25
111-25
IV-1
IV-1
IV-1
IV-3
IV-3
IV-5
IV-5
IV-5
IV-7
V-l
V-l
V-2
V-2
V-4
V-7
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TABLE OF CONTENTS (CONTINUED)
PAGE
D. PLANT CLOSURE v~9
E. CAPACITY EXPANSION V'11
F. MARKET STRUCTURE v-12
G. EMPLOYMENT AND COMMUNITY IMPACTS V-12
APPENDIX A - Supplementary Data
APPENDIX B - EPA Financial 308 Survey
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TABLE
II-l
II-2
II-3
II-4
II-5
II-6
II-7
II-8
II-9
III-l
III-2
III-3
III-4
III-5
III-6
III-7
III-8
III-9
111-10
IV-1
IV-2
IV-3
IV-4
IV-5
LIST OF TABLES
PAGE
SALES BY INSULATION BOARD MANUFACTURERS II-3
PRODUCTION OF INSULATION BOARD 1965-1976 II-6
INSULATION BOARD PLANTS IN THE UNITED STATES,
1977 II-14
AGE DISTRIBUTION OF INSULATION BOARD PLANTS 11-15
EMPLOYMENT LEVEL OF INSULATION BOARD PLANTS 11-15
CONCENTRATION IN THE INSULATION BOARD INDUSTRY 11-17
PRICES OF SELECTED INSULATION BOARD PRODUCTS 11-19
PRICE INDEXES FOR SELECTED INSULATION BOARD
PRODUCTS 11-22
FINANCIAL PROFILES IT-25
1977 HARDBOARD PRODUCTION CAPACITY III-2
1977 HARDBOARD SALES III-4
SHIPMENTS, IMPORTS, AND APPARENT CONSUMPTION--
1964-1976 III-8
CAPACITY UTILIZATION BY HARDBOARD INDUSTRY -
1967-1976 III-9
DISTRIBUTION OF HARDBOARD PLANTS BY PLANT AGE 111-16
EMPLOYMENT IN WET PROCESS HARDBOARD PLANTS 111-16
PROCESS ECONOMICS OF NEW WET PROCESS
HARDBOARD CAPACITY 111-19
HARDBOARD INDUSTRY CAPACITY 111-21
TEMPERED HARDBOARD PRICES 111-22
FINANCIAL PROFILE 111-27
INSULATION BOARD AND WET PROCESS HARDBOARD
CURRENT METHOD OF WATER EFFLUENT DISPOSAL IV-2
MODEL PLANT TREATMENT OPTIONS IV-4
COST OF COMPLIANCE FOR PLANTS IMPACTED BY
REVISED EFFLUENT REGULATIONS IV-6
MODEL PLANTS FOR NEW SOURCE PERFORMANCE
STANDARDS-INSULATION BOARD AND WET PROCESS
HARDBOARD IV-8
COST OF COMPLIANCE NEW INSULATION BOARD AND
WET PROCESS HARDBOARD MILLS IV-9
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LIST OF TABLES (CONTINUED)
TABLE PAGE
V-l REVENUE REQUIRED TO RECOVER THE COST OF
COMPLYING WITH REVISED REGULATIONS FOR
HARDBOARD PLANTS V-3
V-2 DISTRIBUTION OF HARDBOARD CAPACITY IMPACTED
VS. NON-IMPACTED PLANTS - OPTION 3 V-5
V-3 COST OF NEW HARDBOARD CAPACITY-NEW MILL VERSUS
INCREMENTAL EXPANSION V-13
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LIST OF FIGURES
FIGURE PAGE
II-l INSULATION BOARD PRODUCTION II-8
II-2 INSULATION BOARD DEMAND, 1976-1982 11-12
III-l HARDBOARD CONSUMPTION AND CONSTRUCTION
EXPENDITURES - 1964-1976 111-12
III-2 TOTAL HARDBOARD DEMAND, 1976-1982 111-13
V-l POST-COMPLIANCE PROFITABILITY WITH NO PRICE
INCREASE V-8
V-2 INVESTMENT REQUIRED FOR COMPLIANCE WITH REVISED
EFFLUENT REGULATIONS COMPARED WITH PLANT CASH
FLOW V-10
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I EXECUTIVE SUMMARY
(Not included in this Final Draft)
1-1
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II INDUSTRY CHARACTERIZATION - INSULATION BOARD
A. INDUSTRY DEFINITION
The insulation board industry (a subset of the building board indus-
try, SIC 2261) is comprised of establishments engaged in the production
of structural and decorative fiberboard products constructed from inter-
felted ligno-cellulosic fibers and having a density of less than 31
pounds per cubic foot.
B. TYPES OF FIRMS
1. Size of Firms.
Twelve companies, one of which is privately held, operate the 17
insulation board plants in the United States (the plants are identified
in Table II-3). Eleven of these companies are large diversified corpora-
tions, five have major interests in forest products and six have major
interests in other building products. There are only two multi-plant
companies; Celotex, the largest producer operates four plants and
U.S. Gypsum operates three.
The percentage of sales revenues contributed to each company by
insulation board products is quite variable. Although they may hold
sizeable insulation board capacity, most of the companies are involved
in many other businesses and cannot be considered to have significant
capital committed to the industry relative to their total businesb.
Annual sales of the 12 companies, including sales from other operations
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such as lumber, plywood, and non-wood products, range from $2 million to
over $3.6 billion as shown in Table II-l. This table also shows each
company's sales derived from insulation board.
2. Integration/Diversification.
The major forest products firms are normally fully integrated back
to timber ownership or control and forward to distribution systems.
Insulation board is usually manufactured to take advantage of the
volumes of locally available waste from other wood products mills and
to broaden the company's product line.
Four of the forest products firms (Abitibi, Boise Cascade, Georgia
Pacific, and Weyerhaeuser) have major capital interests in various
segments of the paper industry as well as a full spectrum of building
products. Temple Industries, a subsidiary of Time, Inc., is a producer
of a wide range of solid wood products.
Five of the building products firms involved in the insulation
board industry (U.S. Gypsum, National, Kaiser Gypsum, Flintkote and
Celotex, a Division of Jim Walter Corporation) are highly diversified
into both residential and nonresidential building materials. Armstrong
Cork has major interests in both residential and commercial interior
finishing materials including floor coverings, wall coverings, and
furniture. The general building products firms produce insulation board
to complement their product line. While these firms are characterized
by well-developed captive distribution systems, they generally are not
integrated back to timber control. The remaining company, Huebert Fiber-
board, is privately held and insulation board apparently constitutes the
major business of the company.
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TABLE II-l
SALES BY INSULATION BOARD MANUFACTURERS
(1977; $ Million)
DRAFT
Company
Abitibi Paper Co., Ltd.
Armstrong Cork
Boise Cascade
Celotex/Jim Walter1
Flintkote
Georgia Pacific
Huebert Fiberboard
Kaiser Gypsum
National Gypsum
Temple/Time Inc.
U.S. Gypsum
Weyerhaeuser
Total
Corporate
880
981
2316
525/1422
587
3675
2
212
748
340/1038
1177
3283
Insulation
Board2
12
31
16
59
16
16
2
12
15
17
21
23
year ended August 31
2At 80% of capacity and $97/MSF, 1/2"
Source: Dun and Bradstreet Directory, 1978
Directory of Corporate Affiliates, 1978
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C. PRODUCT DESCRIPTION
1. Types of Products.
Insulation board is known in the marketplace under many different
names including fiberboard, sheathing board, backer board, and asphalt
board. There are seven principal types of insulation board products
that can be described as follows:
1. Building Board — general purpose product for interior
construction.
2. Insulating Roof Deck — a three-in-one component which
provides roof deck, insulation, and a finished interior
ceiling surface. Insulation board sheets are laminated
together with waterproof adhesives.
3. Roof Insulation — insulation board designed for use on
flat roof decks.
4. Ceiling Tile — insulation board embossed and decorated
for interior use. It is also valued for acoustical
qualities.
5. Lay-in-Panel — a finished tile board used in suspended
ceilings.
6. Sheathing — a board used in exterior construction due to
its insulative, bracing strength, and noise control qualities
and its low price.
7. Sound Deadening Insulation Board — a special product
designed for use in buildings to control noise levels.
The American Society for Testing and Materials, American National
Standards Institute, U.S. National Bureau of Standards, and other agencies
set standard specifications for the above product categories and others.
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2. Market Size and Future Growth.
Since 1965, total U.S. production as reported by the Bureau of the
Census, has fluctuated between a low of 1.16 million tons (3.0 billion
square feet, 1/2" basis) in 1970 to a high of 1.55 million tons (3.9
billion square feet) in 1973. (Table II-2). In 1971 and 1972 it appeared
that the insulation board industry was slowly losing its market and
steadily becoming more unprofitable as plants continued to close. Six
plants have closed since 1960 and operations at two more plants were
severely cut back in 1977. Since 1975 per capita consumption of insula-
tion board has fluctuated between 11.3 and 13.5 pounds per person while
total U.S. production in 1976 was still below the 1973 peak, as shown in
Table II-2. While the future trend for Insulation board is a declining
one, the current (1978) high levels of housing construction and the
demand for insulation stabilized production levels.
Currently, trade directories indicate that 64% of the world's insula-
tion board capacity is located in the United States. Government data on
insulation board imports and exports are unreliable; the volumes are small
and offsetting hence data are not shown. However, imports have generally
been less than 2.5% of domestic production according to U.S. Forest
Service data.
Interior products account for 30% of the total production (on a 1/2
inch basis) and are mainly prefinished building board and ceiling tile.
Exterior products, principally sheathing board and roof Insulation board,
represent 58% of production. The remaining 12% includes insulation board
used in industrial applications, principally trailer (mobile home) board.
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TABLE 11-2
PRODUCTION OF INSULATION BOARD 1965-1976
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
Total2
(OOP Tons)
1258
1155
1176
1133
1352
1219
1446
1529
1547
1295
1240
1450
Per Capita
(Pounds)
12.9
11.7
11.8
11.3
13.3
11.9
14.0
14.6
14.7
12.2
11.7
13.5
Production
Per $ Billion of
New Construction1
(000 Tons)
15.9
14.5
15.1
13.8
16.4
15.5
16.9
16.6
16.6
16.2
17.9
19.8
Constant 1967 dollars.
2Annual growth rate 1.6%
Note: Government import/export data are unreliable. The
volumes are generally offsetting and less than 2.5%
of sales; therefore, the data are not shown.
Source: "The Demand and Price Situation for Forest
Products 1976-1977"
USDA, Forest Service Miscellaneous
Publication 1357
TI-6
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Production of insulation board in these three product classes and housing
starts is shown in Figure II-l1.
The largest of interior products market has traditionally been non-
acoustical ceiling tile and lay-in panels. This particular market has
dropped from 530 million square feet in 1972 to 321 million square feet
in 1976, largely as a result of stricter flame spread requirements adopted
in building codes. The product, which had been widely used in nonresiden-
tial construction, is now limited to the residential repair and remodeling
market. Improvements in some fire resistance qualities have helped the
acoustical tile market grow from 172 million square feet to 201 million
square feet over the 1972-1976 period and kept regular tile products from
losing even more of their market. Sound deadening board has suffered
heavy market losses with volume slipping from 114 million square feet to
46 million square feet over the same period. The future of the interior
products markets is highly dependent on the ability of the manufacturers
to develop a better fire resistant board. Arthur D. Little forecasts
the interior products market will decline 5-6% annually through 1982.
The largest of the exterior products markets is sheathing. In this
application, insulation board is frequently used as a backup to brick
veneer. Sheathing volume decreased from 1,608 million square feet to
1,368 million square feet over the period 1972 to 1976; however, it should
be noted that 1972 insulation board sheathing production was the highest
in the past nine years. The availability of price-competitive products
and the fact that many building codes permit exterior wood sidings to
1
For a more detailed breakdown, see Appendix Table A-l.
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DRAFT
6
-2 "«
1 §
r
CO O
1800
1600
1400
1200
•2 £ 1000
| | 800
"2 I
| t 600
g
j« 400
200
Housing Starts
Total Production
Exterior
Products
Interior
Products
I ndustrial
Products
2400
2200
2000
1800 -
1600
5
1400 |
1200
1000
1969 1970
1971
1972
1973
Year
T974 1975
1976
1977
— — — Housing Starts
Source: U.S. Department of Commerce, Current Industrial Reports, M26A.
FIGURE 11-1 INSULATION BOARD PRODUCTION
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provide rack1 resistance, previously provided by plywood sheathing or
brick, are acting to cut back the insulation board sheathing market.
Also, insulation board sheathing products have an R-value of approximately
2.64 (°F ft2. Btu/inch). This is considerably lower than most true insu-
lation products like fiberglass and foams. Furthermore, the sheathing
panels are usually 1/2 inch thick with a resulting R-value of only 1.32,
which is below what is being required in energy conserving construction.
Gypsum sheathing is insulation board's chief competitor in the
sheathing market. The 1977-1978 housing boom, however, has caused a
shortage of gypsum with the result being more insulation board is currently
used than would otherwise have been the case. Gypsum is a good example
of a preferred cost competitive product. New products such as foil
backed structural foams are also competing in the sheathing market. On
the other hand, roof insulation board has made a recovery with production
going from a nine-year low of 261 million square feet in 1972 to 549
million square feet in 1976. As a result, the total exterior products
market volume has increased 1.6% over the 1972-1976 period. The exterior
product demand will weaken as housing construction slows and as capacity
comes on stream from competing products (approximately 10 plywood mills
and at least two foam panel plants are currently under construction).
In view of these downward pressures on demand, Arthur D. Little forecasts
the exterior products market to drop by 2.5-3.0 percent annually through 1982.
lacking strength — the ability of the structural unit to withstand shear
and bending stresses resulting from various building loads.
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The industrial market for insulation board has dropped from a nine-
year high of 718 million square feet in 1972 to 418 million square feet
in 1976. Most of this loss is due to a drop of 243 million square feet
over the 1972-1976 period in the trailer board market, which was largely
a result of flame spread requirements in mobile homes. The use of
insulation board for expansion joint strips has also fallen off dramatically.
Arthur D. Little estimates that the industrial market will decrease 7-8
percent annually through 1982.
The insulation board industry is indirectly affected by the level of
hardboard imports; should the hardboard demand growth require more domestic
capacity, existing insulation board capacity can, in specific cases, be
converted to produce hardboard. A general conversion from hardboard to
insulation board capacity, although it is not likely, may also occur on a
limited basis during periods of weak demand for hardboard.
In evaluating the overall growth rate, it should be remembered that
most insulation board is used in remodeling or new construction and is
thus cyclical in demand. Various historic growth rates were calculated,
based on data in Table A-l, using a least squares time trend line to
minimize the influence of cyclicality. The market for exterior insulation
board products grew at 0.74% per year over the 1969-1976 period while
interior and industrial products grew at an annual rate of 0.55% and -1.6%
respectively. The annual growth rate for total production over the 1969-
1976 period was 0.35%. At the same time, the economy in general has expe-
rienced real growth of about 3.0% per year, which reflects the fact that
insulation board has been losing market share to competitive products for
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a long time due to the reasons discussed earlier. The factors which
have contributed to the current favorable supply/demand balance for
insulation board are temporary; a strong housing market combined with
the shortage of gypsum sheathing will not persist. Further competition
from competing products will become more intense. In view of these
considerations, the aggregated market for insulation board is projected
to decline at an average rate of 5% annually through 1982 as shown in
Figure II-2. However, the cyclical nature of construction activity
will cause short-term growth and contraction in demand typical of most
building materials.
D. PLANT CHARACTERISTICS OF THE EXISTING INDUSTRY
1. Process Technology•
The basic operating technology of the industry is very similar to
the fourdrinier paper process and has not changed substantially since
its inception. A cylinder screen type of mat forming system is also
used and has had some impact on the volume of process water required.
Some improvements have also taken place in the fiber refining stage of
the production process.
Technical developments that have a significant impact on the
industry will arise from the market in terms of product substitution
or requirements for changes in product characteristics rather than
minor production process improvements.
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DRAFT
3800
2200 -
2000
1976 1977 1978
Source: Arthur D. Little, Inc..estimates.
1979
1980
1981
1982
FIGURE 11-2 INSULATION BOARD DEMAND. 1976-1982
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2. Size of Plants.
Table II-3 lists each plant in the industry by owner, location and
capacity. Existing plant capacities range from 54 million to 400 million
square feet (on a 1/2 inch thick basis). The mix of structural
and tile products at a given mill can have a substantial impact on the
stated mill capacity figure; a mill that produces interlocking ceiling
tile will produce 20% less board than an identical mill producing sheathing
due to trim losses and product configuration. Plants producing pre-
finished building board and lay-in ceiling tile will also have trim
losses considerably in excess of sheathing mills. Stated capacity
figures must be considered with this in mind.
3. Age Distribution.
Table 11-4 contains an age distribution of plants.1 Age is a factor
in overall plant efficiency. Twelve of the plants are over 20 years old
and all but one are over ten years old.
4. Location.
Ten of the 17 plants are located in the South and the remainder are
in Maine, Michigan, Minnesota, Pennsylvania, and Oregon. This distribu-
tion developed because of the availability of wood fiber close to the
market and insignificant competition for wood resources in the South at
the time the plants were constructed. The sites are evenly distributed
between rural, suburban, and urban areas.
1§rhe Celotex plant in Marrero is excluded from this analysis because it
does not use wood fiber as a raw material but is included in the discus-
sion in order to present a complete picture of the industry.
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TABLE I1-3
INSULATION BOARD PLANTS IN THE UNITED STATES. 1977
DRAFT
Company
Location
Abitibi
Armstrong Cork
Boise Cascade
Celotex
Celotex
Celotex
Celotex
Flintkote
Georgia Pacific
Huebert Fiberboard
Kaiser Gypsum
National Gypsum
Temple Industries
U.S. Gypsum
U.S. Gypsum
U.S. Gypsum
Weyerhaeuser
Blountstown, FL3
Macon, GA
International Falls, MN
Dubuque, IA
Marrero, LA1*
L'Anse, MI
Sunbury, PA3
Meridan, MS
Jarratt, VA
Boonville, MO
St. Helens, OR
Mobile, AL
Diboll, TX
Lisbon Falls, ME
Pilot Rock, OR
Greenville, MS
Broken Bow(Craig), OK
Total
Annual1
Capacity
(MMSF-1/2")
150
4002
210
737
200
210
50
150
192
220
271
300
3090
Other
Products
Manufactured
Hardboard
Hardboard(l978)
Hardboard
Hardboard
(all facilities)
Hardboard
are approximate capacities as they depend upon product mi::. Figures
quoted are for mills operating 24 hours/day, 6-2/3 days/week, 50 weeks/year.
Understated due to heavy tile production. If operated as a sheathing mill,
capacity would increase 20%.
3No effluent.
''Not considered in this analysis
Sources: 1976 Directory of the Forest Products Industry, American Board
Products Association, and Arthur D. Little, Inc. estimates.
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TABLE II-4
DRAFT
AGE DISTRIBUTION OF INSULATION BOARD PLANTS
Age (Years)
0-19
20-29
30+
Total
Number of Plants
5
5
_7
17
TABLE II-5
EMPLOYMENT LEVEL OF INSULATION BOARD PLANTS
Number of Employees Number of Plants
0-199
200-299
300-399
400+
Total
5
5
3
_4
17
Source: EPA financial 308 survey data
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Wood resources that are owned or controlled under long-term contracts
typically supply 30-50% of the plants' raw fiber needs. The balance
of each plant's fiber requirement is made up by open market purchases.
Four of the mills are part of multi-plant forest products production
complexes and derive a substantial portion of their fiber requirements
from the waste of other operations.
5. Employment.
The 1972 Census of Manufactures indicates the industry supported
6,100 employees on a payroll of $59 million. As shown in Table II-5
most of the plants operate with over 200 employees; however, relative
to the more basic wood products, such as lumber and plywood production,
it is one of the less labor-intensive segments of the industry.
E. CHARACTERISTICS OF NEW PLANTS
In the past nine years, only one new insulation board plant has
opened. Since 1960, six plants have shut down. In 1976 and 1977 two
large plants announced major cutbacks in their operations. In 1978
Georgia Pacific is expected to divert some of the wet process capacity
in Jarratt, Virginia from insulation board to hardboard siding but will
operate both production lines. No companies have announced any inten-
tions, plans, or desires to build additional insulation board capacity.
F. COMPETITIVE STRUCTURE
1. Market Structure.
The industry has become more concentrated since 1960 when 23 insula-
tion board plants were operated by 17 firms. Currently, as Table II-6
shows, the top three firms control 47% of industry capacity and the top
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TABLE I1-6
CONCENTRATION IN THE INSULATION BOARD INDUSTRY
DRAFT
Firm
Celotex
Armstrong Cork
Weyerhaeuser
U.S. Gypsum
Temple
All Others (7)
Total
% Capacity
24
13
10
37
100
Sources: American Board Products Association,
and Arthur D. Little, Inc. estimates
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DRAF'
five firms control 63%. As product demand declines and plants close or
convert to other products, the industry is expected to become more
concentrated.
2. Pricing Mechanism.
The economic justification for construction of insulation board
plants was based on the use of waste from other forest products mills
as the basic raw material supply. While this raw material was initially
very inexpensive, increased competition for wood chips, as well as rising
energy, labor and pollution control costs have increased insulation
board costs since 1972. Table II-7 exhibits the price history for
three insulation board products for the period 1965-1976.
Insulation board prices are usually quoted on a dollar per thousand
square feet basis, f.o.b. shipping point with full freight allowed to the
destination. Insulation board sheathing prices increased 57% between 1965
and 1976 with a 30% increase occurring since 1973. The price of ceiling
tile has also increased 57% since 1965, but registered only a 15% increase
since 1973. It should be noted that ceiling tile prices reflect the
higher value-added manufacturing steps and are more than double the price
of sheathing; therefore, while the percentage increases for the 1965-1976
period are equal, the absolute dollar price increases for ceiling tile
are more than double the price increases for sheathing.
The major pricing constraint for insulation board is created by
price levels of substitute products rather than intra-industry competi-
tion. The price comparisons must be made on the basis of performance
value, not unit costs. The triple role of insulation board as a structural,
11-18
Arthur D Little, Inc
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DRAFT
TABLE II-7
PRICES OF SELECTED INSULATION BOARD PRODUCTS1
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
(dollars
1/2 Inch2
Sheathing
37.09
36.45
36.01
38.17
40.73
36.91
37.78
42.06
44.98
49.23
50.20
58.31
66.05
ir.) 74.87
per thousand square
Roof Insulation3
Board
63.78
65.15
65.02
64.17
65.15
67.16
66.06
66.19
67.56
84.59
100.13
107.80
N/A
N/A
feet)
Ceiling Tile1*
83.05
83.75
87.24
91.78
97.88
103.38
109.14
112.28
113.32
117.16
121.87
130.42
N/A
N/A
^.o.b. mill with freight allowed to destination.
2standard density, 1/2" x2' x8' to 4' x 9" with asphalt impregnation
or water resistant coating, manufacturer to wholesaler.
31" x 21 x 4", asphalt treated, manufacturer to roofing contractor.
**l/2" x I1 x I1, 1x2', or 1 x 3', factory painted plain surface,
beveled edges, manufacturer to wholesaler or retailer.
Source: U.S. Bureau of Labor Statistics
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DRAFT
decorative, and insulation product make price comparisons particularly
difficult. To illustrate, the March 1977 price for 1/2 inch insulation
board sheathing was $58.71 per thousand square feet, while the price of
1/2 inch plywood sheathing was $190. On this basis, the insulation
board appears to be a better value. However, in use, a siding material
must be applied over the sheathing. An alternative wall construction
is to use fiber glass insulation and a plywood or hardboard siding
product that provides both the strength of the sheathing, a finished
outside wall, and a better R-value for the complete wall. The construc-
tion costs of the fiber glass/siding wall are lower than a sheathing/
siding wall and the higher quality insulation will result in lower long-
term heating costs. Ultimately, what appeared to be a major price
advantage for insulation board becomes insignificant. Gypsum sheathing
has been very competitive with insulation board on a price/utility basis
for years and has established itself as the preferred sheathing material
in many areas. Structural foams are also beginning to appear on the
market and will also compete strongly on a performance value basis with
insulation board.
Commercial structures have used large quantities of insulation board
in the past for ceiling tile, lay-in panels, and roof deck insulation.
Fire code restrictions have severely cut back the use of the material
in these applications. The insulation board roof decking has also met
with strong competition from perlite and rigid fiber glass boards. Until
a fire retardant insulation board ceiling tile is on the market and
widely accepted in building codes, the price of insulation will not
stimulate demand and plastic or mineral board substitutes will dominate
the nonresidential market.
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DRAFT
3. Price Elasticity of Demand.
Price changes in insulation board from 1965-1976 have been moderate
compared to price changes of lumber, plywood, and other wood products
with which it competes. Evidence of this situation, as shown in Table
II-8, appears in the fact that while the 1976 wholesale price index (WPI)
for insulation board products was 160.8, (1967=100) the WPI for all con-
struction products had risen to 187.7 but the general inflation index
was at 159.0. Thus, while insulation board prices have lagged behind
those for other construction materials, they have kept pace with general
inflation and thus have experienced no real price increases. There are
several factors that contribute to this situation.
First, there is a cost-price relationship which may have allowed
the industry to maintain its accepted level of profitability without
increasing prices due to improved plant efficiency and the resulting
lower costs. However, given the recent history of wood costs, compe-
tition for fiber, and costs of finishing materials, it is not likely
that this will continue to be a major factor.
Secondly, the industry may have absorbed the impact of lower margins
per unit by increasing production volumes with added shifts at the same
facilities and low cost incremental investments to increase capacity.
The closure of six plants since 1960 while production continued to
increase slightly is an indication this has happened, to a limited degree,
in the remaining plants. This course of action could, depending on
volume-price relationships, result in level rates of return as a con-
sequence of lower per unit margins on greater volumes produced at the
same facility.
11-21
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TABLE II-8
PRICE INDEXES FOR SELECTED INSULATION BOARD PRODUCTS1'5
(1967 = 100)
All Construction
Materials Price 1/2 inch2
Year Index Sheathing
M
hH
1
N>
KJ
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978 (March)
95.8
98.8
100.0
105.6
111.9
112.5
119.5
126.6
138.5
160.9
174.0
187.7
204.9
221.9
103.0
101.2
100.0
106.0
113.1
102.5
104.9
116.8
124.9
136.7
139.4
161.9
183.4
207.9
Roof Insulation3 Ceiling4
Board Tile
98.1
100.2
100.0
98.7
100.2
103.3
101.6
101.8
103.9
130.1
154.0
165.8
N/A
N/A
95.2
96.0
100.0
105.2
112.2
118.5
125.1
128.7
129.9
134.3
139.7
149.5
N/A
N/A
All
Insulation
Board
98.2
98.4
100.0
103.0
108.8
110.5
114.4
119.0
121.7
133.9
144.0
161.0
177.9
196.8
5See footnootes 1,2,3, and 4 on Table 6
6Changes in composite index for all insulation
Source: U.S. Bureau of Labor Statistics
board products
Percentage
Change Over
Previous Year
0.2
1.6
3.0
5.6
1.6
3.6
3.9
2.3
10.0
7.5
11.8
10.5
10.6
3
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DRAFT
Finally, there is a market-price relationship. Insulation board may
have to keep down its prices to meet competition from substitute products
such as gypsum and maintain its market shares. While there is probably
some cross-elasticity of demand between insulation board and competing
products, price is not the principal reason for utilizing insulation
board.
4. Barriers to Entry of New Firms.
Insulation board is capital intensive compared with the production
of other solid wood products such as plywood and lumber. Other than
capital requirements, significant barriers include securing a wood
source and, depending on the product line, the scale of the required
marketing effort. Tile products would require a larger sales effort
than sheathing because of the proprietary nature of the product.
5. Other Regulatory Factors.
It should also be noted that a result of government timber policy
restricting the harvest of federal timber on the West Coast would be to
lower supplies and push up prices of lumber and plywood. This would
probably result in increasing demand for fiberboard and would allow sub-
stantial price increases. An easing of government timber policy that
would allow a higher level of removals from West Coast forests, which
is equally likely at this time, would have the opposite effect.
11-23
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C. FINANCIAL PROFILE
The range of sales and plant book values for insulation board plants
is shown in Table II-9, as well as the pro-forma cost of manufacture.
Plant sales vary directly with production. However, plant book values
differ for similar size plants due to plant age and other factors.
While the distribution of manufacturing cost differs by size of
plant, there appear to be significant differences in relative cost due
to other factors. A number of insulation board plants appear to be
operating at a loss and operating margins overall are small compared
with hardboard plants. The future outlook for insulation board demand
indicates that the financial condition of some insulation board plants
will worsen as capacity utilization rates fall. It is also likely that
insulation board plants will shut down or convert to other products in
the face of falling demand.
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TABLE II-9
FINANCIAL PROFILES
($000)
INSULATION
BOARD
SALES (1976) $8,500,000 (range $3-30 Million)
CAPACITY 125 Million Square Feet
CAPACITY BASE 1/2"
Pro-forma Cost of Manufacture Median Value Range of Values
Sales 100% 100%
Cost of Sales
Labor 25 15-31
Materials 35 30-50
Depreciation 4 2-8
Other Expenses 20 2-44
Total Cost of Sales 84
Gross Margin 16 8-24
Selling G&A 10 7-18
Interest Expense
Profit Before Tax 6 <0-13
Tax 3
Profit After Tax 3% <0-7
Plant Book Value ($000) 7,000 500-25,000
SOURCE: EPA Financial 308 Survey data.
Excludes plants producing both insulation board and hardboard.
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III INDUSTRY CHARACTERIZATION - WET PROCESS HARDBOARD
A. INDUSTRY DEFINITION
In characterizing the wet process segment of the hardboard industry,
it should be emphasized that wet process mills are only one segment of
the hardboard production capacity. The industry1 is composed of two
segments, wet process and dry process, that serve the same markets with
similar products and are largely operated by the same companies. The
wet process hardboard industry is comprised of establishments producing
hardboard in densities generally between 31-65 pounds per cubic foot
from inter-felted wood fiber using a wet forming and either a wet or dry
pressing process. The dry process segment of the industry uses a dry
forming and pressing process to manufacture hardboard.
B. TYPES OF FIRMS
1. Size of Firm.
There are 15 producers operating 28 wet and dry process plants.
(These are identified in Table III-l) The industry is composed of three
private firms and several large corporations. Seven of the 15 hardboard
producers operate more than one hardboard plant. Wet process plants
represent 16 of the 28 facilities and are operated by eleven producers;
four of these producers operate more than one wet process plant.
Standard Industrial Classification 2499, "Wood Products Not Elsewhere
Classified" includes, among other industries, medium density fiber-
board, wet process hardboard, and dry process hardboard. SIC data
does not distinguish among these three industries.
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Arthur D Little: Inc
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TABLE III-l
1977 HARDBOARD PRODUCTION CAPACITY
(million square feet - 1/8" basis)
WET-WET PLANTS1
DRAFT
Company
Abitibi2
Abitibi
Evans Products
Forest Fiber
Masonite
Masonite
Superior Fiber
Superwood
Superwood
Champion International
Abitibi2
Boise Cascade
Temple
Weyerhaeuser
U.S. Gypsum
U.S. Gypsum
U.S. Gypsum
Location
Annual Capacity
Alpena, MI
Roaring River, NC
Corvallis, OR
Forest Grove, OR
Laurel, MS
Ukiah, CA
Superior, WI
Duluth, MN
N. Little Rock, AK
Dee, OR
Subtotal
WET-DRY PLANTS2
Alpena, MI
International Falls, MN
Diboll, TX
Craig, OK
Danville, VA
Pilot Rock, OR
Greenville, MS
Subtotal
Total - Wet Process
329
700
244
175
230
86
155
1919
5812
Boise Cascade
Celotex
Champion International
Champion International
Georgia Pacific
Georgia Pacific
Louisiana Pacific
Masonite
Publishers Forest Prods.
Superwood
Weyerhaeuser
Weyerhaeuser
Total
Total
DRY PLANTS3
Phillips, WI
Paris, TN
Catawba, SC
Lebanon, OR
Convay, NC
Coos Bay, OR
Oroville, CA
Tovanda, PA
Anacortes, WA
Bemidji, MN
Doswell, VA
Klamath Falls, OR
Dry Process Capacity
Hardboard Capacity
80
195
225
107
265
201
150
490
52
90
315
290
2460
8272
Masonite mills and the Abitibi mill in Alpena, MI use combinations
of the wet-wet and wet-dry processes.
2There are wet-wet and wet-dry operations at this location.
3Does not include medium density fiberboard (MDF) plants as it is a
different product used in different applications.
Sources: 1976 Directory of the Forest Products Industry. American
Board Products Association, and Arthur D. Little, Inc.
estimates.
Arthur 01 Jttklnc
III-2
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DRAFT
The larger corporations involved in the wet process board industry
include Masonite, Champion International, Weyerhaeuser, and U.S. Gypsum.
In terms of production capacity, the largest private company, Superwood,
is the fourth ranked producer in the industry while the two remaining
private firms are among the smallest producers.
Available information shows that total annual sales for companies in
the wet process segment of the hardboard industry, including sales from
operations such as lumber, plywood, paper, chemicals, and others, range
from $25 million to over $3.6 billion as shown in Table III-2. The
relative importance of a particular plant to a particular firm is thus
a unique factor in each case, as also shown in Table III-2.
2. Ownership/Integration/Product Diversification.
Twelve of the wet process hardboard mills are owned by 8 publicly
held corporations; the four remaining mills are owned by three private
companies.
The public corporations are frequently integrated back to raw
material sources as owners of woodlands and they typically supply 35-45
percent of their raw material needs from these captive sources. The
private companies are also likely to own limited woodlands but do not
typically derive as large a percentage of their wood requirements from
these sources.
Six of the parent companies operate captive distribution systems
that handle a portion of their output. The remaining producers sell
their products through independent wholesalers or through the captive
distribution systems of other companies.
III-3
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DRAFT
TABLE III-2
1977 HARDBOARD SALES
(All Producers, $MM)
Company
Abitibi Paper Co. Ltd.
Boise Cascade
Celotex/Jim Walter1
Champion International
Evans Products
Forest Fiber
Georgia Pacific
Louisiana Pacific
Masonite2
Publishers/
Times Mirror Co.
Superior Fiber/
Carlson Companies Inc.
Superwood
Temple/Time Inc.
U.S. Gypsum
Weyerhaeuser
Total
Corporate
Sales*
800
2316
525/1422
3127
941
N/A
3675
794
445
NA/976
NA/650
N/A
340/1038
1177
3283
Total**
Hardboard
Sales
72
66
17
34
9
9
40
13
247
5
13
-
21
40
66
Wet Process**
Hardboard
Sales
72
60
7
9
9
206
13
44
21
40
15
fiscal year ends August 31
2Fiscal year ends October 31
Sources: *Dun and Bradstreet Directory, 1978,
Directory of Corporate Affiliations, 1978
**Arthur D. Little estimates, based upon an operating
rate of 100% and the prices shown in Table III-7.
III-4
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DRAFT
In addition to hardboard products, all of the parent companies are
involved in the production and distribution of a wide range of other
competing and non-competing wood products and various building
materials. Many hardboard operations are parts of forest products
production complexes that may produce various combinations of lumber,
plywood, particleboard, fiberboard, pulp, or paper. The parent com-
panies generally have a strong orientation towards forest products (five
are involved in the paper industry) and may produce other building
materials such as gypsum board. Three of the firms are significantly
diversified beyond building materials businesses.
C. PRODUCT DESCRIPTION
1. Types of Hardboard Products.
Hardboard products can be divided into five classes on the basis of
water resistance, modulus of rupture, and tensile strength. The five
classes listed in order of decreasing strength properties, include:
tempered
standard
service-tempered
service
industrial!te
The hardboard products described serve four general markets:
interior paneling, exterior siding, industrial and do-it-yourself.
Most of the mills have fabricating facilities associated with them to
produce prefinished paneling, panel stock, siding, perforated board,
embossed, molded, and/or cut-to-size products.
111-5 Arthur DLittklnc
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DRAFT
Hardboard serves a very wide range of end uses requiring an
estimated 800 different sets of specifications. Marketing efforts
have usually been aimed at displacing traditional products such as
gypsum, plaster, stucco, and plywood in specific applications.
Hardboard is challenging and being challenged by these products and
others in various markets and applications.
Interior paneling may be manufactured from any of the five classes
of hardboard in thicknesses of 1/8 to 1/4 inch. Panels up to 5 feet
wide and 12 feet long are available. It is estimated that hardboard
was used as the substrate in 20-40% of the interior paneling sold in
1973, with its major competition being inexpensive lauan plywood,
domestic hardwood plywood, and thin particleboard. It is used for
both wood-grain prints and tileboard panels. The surface of the panel
may be embossed to provide a surface texture or pattern before the
desired finish is applied. The hardboard manufacturer may produce and
sell prefinished paneling, unfinished paneling stock, or both.
Siding is manufactured specifically for exterior use. Lap siding
is manufactured in thicknesses of 3/8 inch and greater, widths of 4 to
12 inches, and lengths up to 16 feet in two-foot increments. Panel
siding is fabricated in sheets 4 feet wide, 4 to 12 feet long and is
usually 1/4 inch thick or thicker. Hardboard was introduced to the
siding market in the late 1940's and now competes against PVC, aluminum,
brick, stucco, plywood, and other wood siding materials. Textures simu-
lating most other siding materials, as well as improved finishes, have
increased hardboard's market share in residential siding and will probably
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DRAFT
continue to do so. Hardboard siding is now also gaining market share in
mobile home applications and Arthur D. Little expects this trend to
continue.
The industrial market for hardboard encompasses a very wide range of
end-user and OEM (original equipment manufacturer) applications
including: displays, furniture, transportation, electronics, interior
construction, factory equipment, and toys. The list of actual and
possible uses is extremely diversified. Most industrial markets require
the hardboard manufacturer to meet a unique set of specifications per-
taining to board characteristics and/or fabrication requirements. The
industrial market is so diversified that competition from substitute
products in any one segment has only minimal impact on the overall
hardboard market.
2. Market Size and Future Growth.
Recent economic trends have been generally favorable to the industry.
Per capita consumption has increased 3.7% annually since 1964. Tables
III-3 and III-4 show production and consumption data for the years 1964-
1976. Shipments from domestic plants totalled 7.1 billion square feet
in 1976 reflecting an average annual growth rate of 9.4% since 1964.
The industry slowdown in 1974 and 1975 was followed by a strong
recovery in 1976.
Import data from Table III-3 indicate that imports are very sensitive
to economic conditions. It is apparent that imports suffered a severe
market share setback in 1974-1976 and are only beginning to recover; in
1976 imports were only 6.5% of consumption. Brazil is by far the largest
Arthur D Little Inc
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DRAFT
TABLE III-3
SHIPMENTS, IMPORTS. AND APPARENT CONSUMPTION — 1964-1976
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
(million
U.S. Shipments
2689
2921
3083
3038
3710
4247
4384
5225
5798
6475
6057
6238
7066
square feet
Imports
471
572
443
426
648
708
457
634
1070
1039
750
277
494
- 1/8" basis)
Apparent
Consumption
3160
3493
3526
3464
4358
4955
4841
5859
6868
7514
6807
6515
7560
Imports as a
% of Consumption
14.9
16.4
12.6
12.3
14.9
14.3
9.4
10.8
15.6
13.8
11.0
4.3
6.5
Source: American Board Products Association
III-8
Arthur D Little, Inc
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DRAFT
TABLE
CAPACITY UTILIZATION BY HARDBOARD INDUSTRY - 1967-1976
(million square feet - 1/8" basis)
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
Annual
Capacity
4555
4648
5019
5335
6000
7791
77811
77711
7771
8272
U.S.
Shipments
3038
3710
4247
4384
5225
5798
6475
6057
6238
7066
Capacity
Utilization
(%)
67
80
85
82
87
74
83
78
80
85
Arthur D. Little, Inc. estimates.
Source: American Board Products Association
Arthur D Little. Inc
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DRAF"
source of hardboard imported by the United States; the USSR, Sweden, and
Canada are also of significance with Poland, Romania, Korea, and a
number of other countries selling hardboard in U.S. markets in varying
quantities. Reliable export data are unavailable but levels are believed
to be below 2% of domestic production. The United States will remain a
net importer of hardboard, despite the recent drop in imports, due to
the relatively low cost of hardboard purchased from foreign sources.
Operating rates for the domestic producers are shown in Table III-4.
Capacity utilization declined significantly in 1972 due to a 30% increase
in capacity in that year, and again in 1974 due to market conditions.
Precise data on 1977/1978 are unavailable but the industry is believed
to have operated at 85-95% rates.
Historically, losses in one market have been offset to a greater or
lesser extent by gains in another. For example, hardboard continues to
lose automotive markets; the technological trend toward light automo-
biles has resulted in the use of lightweight plastics in applications
where hardboard was formerly the dominant material. On the other hand,
the minimal quantities of petrochemical adhesives and relatively low
energy intensity required in hardboard manufacture protect the industry
from what could be a severely negative impact of increased resin costs
on plastics and other siding products such as brick and have helped to
stimulate demand for hardboard siding.
In evaluating the overall growth rate, it should be remembered that
roughly 60% of hardboard is used directly in construction or is affected
111-10 Arthur D Little Inc
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DRAFT
by construction demand, while most of the remainder is used in indus-
trial applications. Shipments of hardboard do follow the trends of the
construction industry but the volatility of hardboard shipments is
dampened somewhat by its industrial market. This relationship is shown
graphically in Figure III-l. Analysis of 1964-1976 shipments and con-
sumption using a least squares linear-time trend results in annual
growth rates of 9.4% and 8.5%, (standard error of estimates were 7% and
10%) respectively. Growth rates in the 1972 to 1976 period for ship-
ments and consumption were roughly 4% and 1.5% respectively due to an
industry slowdown in 1974 and 1975. The slower growth rates for consump-
tion are a result of changes in the level of imports which vary widely
and have recently decreased substantially.
The consumption growth rates indicate that hardboard's share of the
construction materials market has increased. The economy in general
experienced a growth rate of about 3.0% per year for the period, and
construction in 1976 remained below 1972 levels. This market share
growth trend can be expected to continue, and long-term growth in con-
sumption will average 2.5-3.0% annually through 1982 with short-term
trends following the construction cycle (see Figure III-2).
D. PLANT CHARACTERISTICS OF THE EXISTING INDUSTRY
1. Process Technology.
Wet process mills are those operations that use a pulping process
that requires large amounts of water and a wet mat forming system similar
in some respects to the fourdrinier paper forming process. In wet-wet
111-11 Arthur D Little Inc
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DRAFT
7500
.1 j 6500
s. r
5500
s I
f I
4500
CO =
=) E
3500
Construction
Expenditures
y——
j I
i i i i
95
90
i
85 | _
80 ||
75 t 5
o o
•£ -D
70
65
60
•
C
X
LU
1964
1966
1968
1970
Year
1972
1974
1976
Source: U.S. Department of Commerce, American Board Product Association.
FIGURE 111-1 HARDBOARD CONSUMPTION AND CONSTRUCTION EXPENDITURES - 1964-1976
111-12
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DRAFT
8°
1977
1978
1979
1980
1981
1982
Source: Arthur D. Little, Inc., forecasts.
FIGURE III-2 TOTAL HARDBOARD DEMAND, 1976-1982
111-13
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DRAFT
mills, the wet mat is pressed between a flat hot platen and a rigid
screen that will allow steam to escape from the board. The board pro-
duced in this manner is called an SIS or screen back board. In wet-dry
mills, the same mat described above is dried before pressing so it can
be pressed between two flat hot platens producing a board with a smooth
surface on both sides (S2S). In dry process mills, the mat is formed
from dry fibers in an air inter-felting process. The dry mat is pressed
between two flat hot platens thus producing an S2S board. One mill uses
a dry-wet process in which the mat is dry formed, as described above,
then water is added and it is pressed between a flat hot platen and a
screen resulting in an SIS board. Furthermore, insulation board capacity
may be converted to produce wet process hardboard (and vice versa).
Technical developments in wet process hardboard have been limited
and slow. As a result of design changes in caul plates used in wet
pressing operations, wet-wet mills can produce a S2S hardboard with
minimal sanding. This development allows wet-wet mills to compete in
S2S markets against wet-dry and dry-dry mills.
Developments that hold potential for lower costs are important to
this industry because of the product substitution possible in most
markets; likewise, adverse cost developments are of equal significance.
The full impact of energy costs, for example, on energy-intensive
pulping processes (e.g., the explosion process) may affect hardboard's
cost effectiveness relative to substitute products in the future.
There are no foreseeable technical developments that will have a
major impact on the hardboard industry. The technology of the wet
Arthur D Little Inc
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DRAFT
process hardboard industry has remained generally static since the de-
velopment of dry process mills eliminated many of the water pollution
problems facing the industry. Dry process technology is a threat to the
wet process mills to the extent that it makes possible the manufacturing
of hardboard which competes with the products of the wet process mills
without incurring water pollution abatement costs. This problem will
be partially offset by air pollution control expenditures that will be
required for dry process mills. It is, of course, theoretically possible
to convert a wet process mill to a dry process mill; however, the
capital costs involved would make the operation both uneconomic and
uncompetitive; thus, conversion to dry processes is an unlikely response
to revised effluent regulations.
2. Size/Age/Location.
A typical wet process plant produces 230 million square feet (MMSF -
1/8 inch) annually, while individual plant capacities range from 52-1850
MMSF. (Table III-l) Although the largest plant is also the oldest
(Masonite started operations in Laurel, Mississippi in 1926), generally,
the older plants tend to be smaller.
Table III-5 shows the age distribution of wet process hardboard
plants. Prior to 1948 only three hardboard plants were in operation in
the United States and they all used a wet process. Of the six plants
built in the 1948-1957 period, five were wet process mills and one was
a dry process mill. The next decade brought six wet and five dry process
mills. Since 1968 two wet process mills have been built (both in 1970)
while six dry process mills have started production. Currently there are
111-15 A , IAI . .
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DRAFT
TABLE III-5
DISTRIBUTION OF HARDBOARD PLANTS BY PLANT AGE
Year of Start-up Number of Plants
Wet* Dry**
Prior to 1948 3 0
1948-1957 5 1
1958-1967 6 5
1968 to present _2 _£
Total 16 12
TABLE III-6
EMPLOYMENT IN WET PROCESS HARDBOARD PLANTS
Number of Employees Number of Plants
0-199 8
200-399 5
400+ _3
Total 16
Source: *EPA financial 308 survey.
**Arthur D. Little estimates
111-16 . . _. . .
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DRAFT
sixteen wet process mills (including seven wet-wet, six wet-dry, and
three operations using both processes) and twelve dry process mills in
the United States. Additions to existing mills did not necessarily
use the same process; three mills are actually a combination of wet
forming and both dry and wet press lines. This gives these mills
additional flexibility in meeting market demands by producing either
SIS or S2S hardboard. Most of the older plants have been continually
expanded and modernized so age is not a valid indication of efficiency.
The first two plants were constructed in Mississippi and used
roundwood as their fiber source. Later expansion of the industry in
the North Central states depended on inexpensive hardwoods while mills
in the Pacific states used wastes from softwood lumber and plywood
operations as fiber sources. The fact that hardboard mills are evenly
spread throughout these regions is indicative of the wide range of wood
species being used in hardboard and the significance of low cost fiber
to the producer. Most of the plants are located on rural sites but
several are in urban and suburban areas.
3. Employment.
Most plants employ between 100 and 300 workers and staff as shown
in Table III-6. Employment figures for each mill are dependent upon the
size and product mix of the facility.
E. CHARACTERISTICS OF NEW CAPACITY
1. Recent Capacity Additions.
No new wet hardboard plants have come on stream since 1970; however,
several locations have added substantial capacity. In addition to large
irl-17 Arthur D Little Inc
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DRAFT
capacity expansions in 1972, Masonite completed a 175 MMSF expansion of
its wet process plant in Ukiah, California in 1977. Abitibi also com-
pleted small expansions of the Alpena and Roaring River facilities. The
100 MMSF addition to the Weyerhaeuser plant in Doswell, Virginia was the
only dry process expansion. Boise Cascade diverted some of the insulation
board capacity at International Falls, Minnesota, to add 100 MMSF to
its hardboard capacity. At least five plants added incremental volumes
to their siding production capacity.
Announced plans for capacity additions in 1979 include construction
of a 66 MMSF of 7/16 inch wet process hardboard siding mill at Georgia
Pacific's insulation board plant in Jarratt, Virginia. Temple Industries
has also announced a $21 million addition to its wet process facility to
produce hardboard siding. No further information has been made public
about these projects or any others.
2. Process Economics of New Capacity.
It is extremely unlikely that anyone would build a wet process S2S
mill. Capacity addition would most likely take the form of incremental
expansion of existing facilities or perhaps the conversion of insulation
board capacity. However, process economic models were constructed for
greenfield expansion, conversion of an insulation board plant and incre-
mental expansion.
Table III-7 contains the capital investment and the operating cost
for each of the wet process hardboard expansion methods. The parameters
of any expansion or conversion are extremely variable and unique to
every case. Thus the data shown in Table III-7 are not applicable to any
specific situation. Incremental operating costs per thousand square feet
TI1-18 Arthur D Little Inc
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TABLE 111-7
PROCESS ECONOMICS OF NEW WET PROCESS HARDBOARD CAPACITY
M
Design Production (MMSF, 1/8")
Capital Investment
Operating Cost ($ millions)
Labor
Wood
Other Materials
Energy
Other Costs
Operating Cost/MSF
Investment/ MSF
Greenfield Mill
293
$50 million
Conversion of
Insulation Board Mill
234
$25-28 million
Incremental Expansion
117
$15-20 million
10.2
4.2
4.2
3.6
2.0
24.2
$82.59
$170.65
9.0
3.4
3.4
3.2
1.6
20.6
$88.03
$113.70
3.7
1.7
1.7
1.3
0.8
9.2
$78.63
$149.57
Source: Arthur D. Little estimates. See Appendix A-2 for assumptions underlying costs.
c
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DRAFT
are lowest for capacity added through incremental expansion, followed
by that for a greenfield mill and insulation board plant conversion.
Investment cost per thousand square feet are highest for a greenfield
plant and lowest for an insulation board plant conversion.
F. COMPETITIVE STRUCTURE
1. Market Structure.
The five largest firms control 70.5% of the total hardboard pro-
duction capacity. Masonite Corporation, by far the largest firm in
the industry, controls 35.1% of the total hardboard capacity and 41.5%
of the wet process hardboard capacity, as shown in Table III-8. Wet
process mills represent 70.3% of the total U.S. hardboard capacity.
2. Pricing Mechanism.
Table III-9 exhibits the price history for tempered hardboard. The
ability of the industry to pass increases in production costs on to the
marketplace is of major importance in considering the question of whether
or not hardboard producers will be able to continue operations with the
burden of additional pollution control costs.
Prices are quoted on a dollars per thousand square feet basis and
are usually based on standard units and sizes. Prices are generally f.o.b.
mill with full rail freight allowed to the destination. Due to the wide
range of end uses, prices, and customer categories, hardboard prices are
set at a number of levels depending on the class of trade of the purchaser.
Frequently specific hardboard prices involve a complicated schedule of
discounts and extras dependent upon the size of the load, packaging, style
of the product, degree of fabrication, quality, etc.
in-20 Arthur D Little. Inc
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DRAFT
TABLE III-8
HARDBOARD INDUSTRY CAPACITY
Wet Process
Firm
Masonite
Abitibi
Weyerhaeuser
Boise Cascade
Superwood
U.S. Gypsum
Champion
Temple
Superior Fiber
Evans
Forest Fiber
Percent of
Total Capacity
35.1
10.2
9.4
8.5
7.3
5.7
4.9
2.9
1.9
1.3
1.4
88. 61
Percent of
Capacity
41.5
14.5
3.0
12.0
8.8
8.1
1.3
4.2
2.7
1.9
2.0
100.0
Percent of Firm's
Hardboard Capacity
83.1
100.0
22.4
89.7
85.0
100.0
18.6
100.0
100.0
100.0
100.0
81. 72
1Four other firms are operating only dry process mills.
^Average
Source: American Board Products Association
IH-21
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DRAFT
TABLE III-9
TEMPERED HARDBOARD PRICES
All
Construction
Materials
Price Index
93.6
94.7
95.8
98.8
100.0
105.6
111.9
112.5
119.5
126.6
138.5
160.9
174.0
187.7
204.9
221.9
*Manufacturers' price to jobber or wholesaler delivered to
destination or f.o.b. mill with freight allowed
21967 = 100
Source: U.S. Bureau of Labor Statistics, Wholesale Price Indices.
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978(March)
Price1
MSF - 1/8"
61.956
61.001
60.941
60 ..822
59.688
58.633
59.969
61.001
60.345
'61.001
62.792
70.432
70.253
78.430
85.175
91.562
Percent Increase
Over Previous Year
—
1.6
0.1
(.2)
(1.9)
(1.8)
2.3
1.7
(1.1)
1.1
2.9
12.5
0.3
11.6
8.6
7.5
Price2
Index
103.8
102.2
102.1
101.9
100.0
98.3
99.8
102.2
101.1
102.2
105.2
118.0
117.0
131.4
142.7
153.4
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DRAFT
It should be noted that the largest producer does exert some control
over product design trends, frequency of price changes, and price leadership.
As explained earlier, the industry serves a very wide range of end uses
requiring an estimated 800 different sets of specifications; this makes
direct competition between manufacturers selling to the industrial market
uncommon in practice and unlikely to occur in the future. Hardboard
marketing efforts have traditionally been aimed at displacing entrenched
products such as lumber and plywood in specific applications using pricing
as an incentive; now, hardboard is challenging and being challenged by
plastics and metals for various applications. Consequently, a major
pricing factor is the possibility of substitution of competitive materials
by and for hardboard. Price competition can be a factor in sales to retail
yards handling large volumes of hardboard.
3. Price Elasticity of Demand.
Price changes in hardboard from 1967 to 1976 have been far less
frequent and quite moderate compared with price changes of lumber, ply-
wood, and other products with which it competes. Evidence of this
situation appears in the fact that while the wholesale price index for
construction materials in 1976 was 187.7, the wholesale price index for
tempered hardboard was only 131.4, as shown in Table 111-9. It should be
noted that the GNP deflator for 1976 was 1.59 of the 1967 level which
shows hardboard prices have failed to keep pace with general economic
conditions. There are several factors that contribute to this situation.
First, cost of production have not increased as rapidly as general
inflation, which may have allowed the industry to maintain its accepted
in-23 Arthur D Little he
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DRAFT
level of profitability without increasing prices. This situation will
probably not continue given the likely real increases in wood costs and
increased competition for fiber in the future. However, the costs of
producing substitute materials are likely to increase even faster than
hardboard production costs.
Secondly, the incremental additions taking place in 1976, 1977 and
1978 suggest that the industry may have absorbed the anticipated impact
of lower margins per unit by adding shifts. This course of action would
result in stabilized rates of return as a consequence of lower per unit
margins on greater volumes produced at any individual facility.
Finally, there is a market-price relationship. Hardboard producers
may have to keep down their prices to meet competition from substitute
products and maintain market shares. Price apparently varies somewhat
independently of consumption and in different magnitudes as shown in
the random pattern of price-consumption correlations. Obviously, demand
is not totally price inelastic, but within reasonable bounds prices can
be adjusted without adverse impact on overall demand.
The ability of hardboard manufacturers to pass on the additional
costs of pollution abatement depends on the amounts involved. Any
increase in costs will result in higher levels of competition from
substitute products and a more cautious approach to the commitment of
capital for capacity expansions. Decreases in market share, if they
occur, would be slow in industrial applications, since products must be
redesigned, and relatively fast in construction applications.
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4. Barriers to Entry of New Firms.
Relative to other solid wood products mills, hardboard is a
capital intensive industry. The most significant barriers to the entry
of new firms, however, are the market structure, the magnitude of the
sales effort required, and securing a fiber source. A new company would
have to develop new markets or "buy" market share from competitors;
given the recognition of the existing producers in the marketplace, it
could be a costly and difficult task at best. There is the alternative
of selling the production of a new producer through the existing pro-
ducers distribution systems, as is done in the case of other wood products.
This would be an undesirable position for a new producer for both produc-
tion and marketing reasons.
5. Other Regulatory Factors.
It should also be noted that a result of government policy restric-
ting the cut of federal timber on the West Coast will be to push prices
of lumber and plywood upward, thereby relieving some pressure against
hardboard price increases. An easing of government timber policy that
would allow a higher level of removals from West Coast forests, which is
equally likely, would have the opposite effect.
G. FINANCIAL PROFILE
The range of sales and plant book values for wet process hardboard
plants are shown in Table 111-10. While sales vary directly with produc-
tion, plant book values will differ for plants of similar size, primarily
because of age of plant.
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The pro-forma costs of production for wet process hardboard are
also shown in Table 111-10. There was no observable difference in the
distribution of costs between plants that will be required to undertake
pollution control expenditures for BAT-Toxic regulations and plants that
will be in compliance. Differences in the distribution of cost arise in
part from plant size differences and plant location (local cost) factors.
111-26 A , r,. . .
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DRAFT
TABLE 111-10
FINANCIAL PROFILE
WET PROCESS HARDBOARD PLANTS
1976 SALES ($000)
1976 CAPACITY
CAPACITY BASE
WET PROCESS
HARDBOARD
$16,000 (range $6,000 - >$120,000^
200 Million square feet
1/8"
Pro-Forma Cost of Manufacture
Sales
Cost of Sales
Labor
Materials
Depreciation
Other Expenses
Total Cost of Sales
Gross Margin
Selling G&A
Interest Expense
Profit Before Tax
Tax
Profit After Tax
Plant Book Value ($000)
Median Value
100%
. 20
30
5
20
75
25
11
14
7
7
10,000
100%
15-50
19-50
2-5
5-28
15-36
7-25
0-4
8-24
1-13
900 - >$40,000
Source: Derived from the EPA Financial 308 Survey.
111-27
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IV COST OF COMPLIANCE WITH
REVISED WATER EFFLUENT REGULATIONS
A. INTRODUCTION
The purpose of this chapter is to describe the current water effluent
method of disposal used by insulation board and wet process hardboard
plants, and to summarize the cost of compliance developed by the tech-
nical contractor. These data were used to estimate the economic impact
of the revised water effluent regulations described in Chapter V. Also
described are the control options for new sources and their associated
costs of compliance.
B. CURRENT EFFLUENT STATUS
Table IV-1 depicts the current method of water effluent disposal
used by wet process hardboard and insulation board plants. Plants pro-
ducing both insulation board and wet process hardboard are classified
according to the predominant product volume and are referred to through-
out as "combination" plants.
Most (8) of the wet process hardboard plants discharge into navigable
water, while two plants discharge into municipal sewers and two plants
recycle their waste water. The insulation board plants are distributed
across all categories with three discharging into navigable water, five
into municipal sewers, three disposing on site (e.g., spray irrigation)
and two recycling their waste water.
IV-1
Arthur D Little. Inc
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TABLE IV-1
INSULATION BOARD AND
WET PROCESS HARDBQARD
CURRENT METHOD OF WATER EFFLUENT DISPOSAL
Current Water
Effluent
Disposal
Navigable Water
Insulation Beard Only
Number of Plants % Total
2 16%
Wet Process Hardboard Only
Number of Plants % Total
8
66%
Combination
Number of Plants % Total
75
Municipal Sewer
42
17
No-Discharge
42
17
25
<
to
Total
12
100%
1 combination insulation board/hardboard plant.
12
100%
100%
**
2 combination hardbcard/insulation board plants.
SOURCE: Derived from Financial 308 data.
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C. POLLUTION CONTROL OPTIONS - EXISTING PLANTS
1. Cost Models
Many plants presently have pollution control equipment in place and
for several plants, current treatment will be sufficient to meet revised
effluent guidelines.1 However, six plants producing wet process hard-
board alone may be required to install new equipment to meet revised
water effluent regulations.
Since there are so few plants in the wet process hardboard sector
that must undertake compliance activities, costs of compliance were
generated by the technical contractor for each impacted plant. The cost
estimation method was to use one or more of the plants that have higher
levels of water effluent treatment in place as models. The cost of in-
stalling the model treatment process was then estimated for impacted
plants. Table IV-2 depicts the relationship between the pollution con-
trol options and model treatment plant. The plant indicated as a "special
case" in Table IV-2 has a pollution control system in the process of
construction, which may or may not be similar to the model treatment
plants.
The wet process hardboard control options represent different degrees
of stringency. Option 1, modelled on plant 2099, calls for a screen,
first settling basin, an aerated lagoon, and second settling basin.
Option 2, modelled on plant 2006, consists of two consecutive aerated
lagoons followed by a settling basin. Option 3, modelled on plant 2010,
consists of a screen, an equilization basin, a primary clarifier, activated
Economic Impact Analysis of Alternative Pollution Control Technology
for the Wood Preserving Subcategories of the Timber Products Industry,
Draft Report to the U.S. Environmental Protection Agency, November 1978.
IV-3
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TABLE IV-2
MODEL PLANT TREATMENT OPTIONS
DRAFT
IMPACTED PLANT
WET PROCESS HARDBOARD
Option 1
Option 2
Option 3
Plant 2002
Plant 2003
Plant 2004
Plant 2006
Plant 2013
Plant 2099
MODEL TREATMENT
PLANT
2099
2006
2010
Special Case
CURRENT
DISCHARGE
METHOD
Direct
Direct
*
Direct
Direct
Indirect
*
Direct
PROPOSED
DISCHARGE
METHOD
Direct
Direct
Direct
Direct
Pretreatment
Direct
Some useable treatment equipment in place.
IV-4
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DRAFT
sludge removal, a secondary clarifier, an aerated lagoon and a faculative
lagoon; in addition, the sludge is processed through an aerobic digester,
a sludge thickener and a vacuum filter, prior to disposal.
2. Costs of Compliance
As indicated in Table IV-3, the differences among the control option
costs for wet process hardboard plants are significant, and this appears
to be due to differences in the size of facilities. Plant 2013 is
currently in the process of installing a pollution control system, and
it is shown as having equal cost under each option. Under the least
stringent EPA option, only two plants (2003 and 2004) would be impacted.
Under Option 2, plant 2099 would be added to the list of impacted plants
while plants 2002 and 2006 would be added to the list under Option 3.
D. POLLUTION CONTROL OPTIONS - NEW SOURCES
1. Cost Models
A candidate new source performance standard for insulation board
and wet process hardboard plants calls for zero discharge. The control
technology is the same for mechanical refining insulation board, and
thermo-mechanical insulation board, while that for SIS wet process
hardboard and S2S wet process hardboard is similar. It consists of
the following steps:1
IV-5
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DRAFT
TABLE IV-3
COST OF COMPLIANCE FOR PLANTS
IMPACTED BY REVISED EFFLUENT REGULATIONS
($000)
Option 1
Plant 2003
2004
Investment
Total Land
$2,165.0
198.0
Other
Investment
$2,165.0
198.0
Operating
Costs
$1,116.7
87.1
Option 2
Plant 2003
2004
2099
$2,307.8
346.5
373.5 $ 8.5
$2,307.8
346.5
365.0
$1,195.3
144.2
98.1
Option 3
Plant 2002
2003
2004
2006
2099
$3,904.6 $25.0
7,027.1 40.0
2,674.7 25.0
3,243.3 25.0
2,773.9 25.0
$3,879.6
6,987.1
2,649.7
3,218.3
2,748.9
$ 884.6
2,102.2
469.0
642.7
517.7
IV-6
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DRAFT
• Screening;
• Neutralization;
• Nutrient addition;
• Aerated lagoon (two aerated lagoons for hardboard);
• Faculative lagoon; and
• Spray irrigation.
The characteristics of the model insulation board and hardboard
plants are shown in Table IV-4.
2. Costs of Compliance
The costs of compliance for new insulation board and wet process
hardboard plants are summarized in Table IV-5. The total investment
required includes the cost of land at about $2,200 per acre.
IV-7
Arthur DI jttlelnc
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TABLE IV-4
MODEL PLANTS FOR NEW SOURCE
PERFORMANCE STANDARDS INSULATION
BOARD AND WET PROCESS HAfiDBOARD
DRAFT
PLANT TYPE
DESIGN
PRODUCTION
(tons/day)
WASTEWATER
FLOW
(OOP gal./day)
RAW BOD
WASTELOAD
(Ibs./day)
RAW TSS
WASTELOAD
(Ibs./day)
Mechanical Refining
Insulation Board
Plant 1
Plant 2
250
600
0.5
1.2
7,510
18,000
9,170
22,000
Thermo-mechanical
Refining
Insulation Board
Plant 1
Plant 2
200
400
0.5
1.0
22,400
44,800
6,410
12,800
SIS
Wet Process Hardboard
Plant 1
Plant 2
100
300
0.3
0.8
7,710
23,100
3,040
9,110
S2S
Wet Process Hardboard
Plant 1
250
1.5
32,500
7,510
IV-8
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DRAFT
TABLE IV-5
COST OF COMPLIANCE
NEW INSULATION BOARD AND
WET PROCESS HARDBOARD MILLS
($000)
PLANT TYPE
Mechanical Refining
Insulation Board
Plant 1
Plant 2
TOTAL
INVESTMENT
$2,336
4,044
OPERATING
COST
$ 690
1,304
ACRES OF LAND
REQUIRED
245
575
Thermo-me chani cal
Refining
Insulation Board
Plant 1
Plant 2
$2,862
5,491
$1,366
2,976
245
575
SIS Wet
Process Hardboard
Plant 1 $1,953
Plant 2 2,915
668
848
135
405
S2S Wet
Process Hardboard
Plant 1
$5,075
2,005
720
IV-9
Arthur DLttlelnc
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DRAFT
V ECONOMIC IMPACT OF COMPLIANCE
WITH REVISED WATER EFFLUENT REGULATIONS
A. INTRODUCTION
The cost of compliance estimates generated by the technical con-
tractor (summarized in Chapter IV) were combined with plant financial
profiles and economic characteristics of the industry (see Industry
Description, Chapter III) to produce an estimate of the economic impact
of revised water effluent regulations on the insulation board and wet
process hardboard sectors of the timber industry.
Since there are so few plants in the insulation board and wet process
hardboard sectors, and only six wet process hardboard plants must incur
costs to comply with revised water effluent regulations, an analysis of
economic impact was performed for each affected plant. No combination
plants will incur costs.
The potential economic impacts discussed in this chapter include:
• price increases;
• demand shifts;
• financial considerations;
• plant closure;
• capacity expansion;
• market structure;
• employment and community impacts.
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ArthurDLittleJnc
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DRAFT
B. PRICE INCREASES
1. Level of Increases
Table V-l contains estimates for each affected plant of the long-run
price increases required to recover the incremental costs of compliance
with revised regulations as well as 1976 revenue and production for each
plant. In most cases the 1977 price indicated in Table V-l represents
the average for wet process hardboard as of year-end 1977.
The price increase required to recover the cost of compliance varies
widely among wet process hardboard plants. For the wet process hard-
board plants, Options 1 and 2 will produce a substantially lower impact
>
upon costs than Option 3. Since plant 2013 is currently in the process
of installing a pollution control system, its required revenue is the
same under all options.
Plants 2003 and 2004 are required to make expenditures for pollution
control under all three options. The required price increase to recover
costs for Option 3 is two times as high for plant 2003 and eight times
as high for plant 2004 than that for Option 1.
The differences in required price increase from plant to plant for
a given model treatment can be explained by a combination of in-place
treatment, production scale or special circumstances. Generally, smaller
plants and plants with less adequate treatment equipment will incur dis-
proportionate compliance costs for a given model treatment. Plant 2013
is installing equipment appropriate for its specific situation.
V-2
Arthur DLittklnc
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TABLE V-l
REVENUE REQUIRED TO RECOVER
THE COST OF COMPLYING WITH REVISED REGULATIONS
FOR HARDBOARD PLANTS
Plant Type/Code
(1)
1976
Revenue ($000)
1977
Price
/MSF
Recovery of Compliance Cost
Required % A 1977
A Revenue/MSF Price
3-
Option 1
Plant 2003
Plant 2004
'Plant 2013*
Option 2
Plant 2003
Plant 2004
Plant 2013*
Plant 2099
Option 3
Plant 2002
Plant 2003
Plant 2004
Plant 2006
Plant 2013*
Plant 2099
$29,900
8,400
20,400
$29,900
8,400
20,400
5,500
$20,000
29,900
8,400
9,400
20,400
5,500
$73
73
73
$73
73
73
73
$73
73
73
73
73
73
3.80
1.10
6.10
$ 4.20
1.80
6.10
2.60
$ 7.30
8.85
9.60
11.60
6.10
16.20
5%
2
8
6%
3
8
4
10%
12
13
16
8
22
*This plant is in the process of installing a pollution control system, and those specific costs
were used in the analysis.
SOURCE: Arthur D. Little, Inc. estimates.
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DRAFT
The relative difference between the highest cost and lowest cost
options also differs from plant to plant. This reflects the differences
in control equipment in place from plant to plant.
2. Obtainability of Increase
Thus far, the discussion has focused on what long-run price increases
are necessary to recover the cost of compliance with revised water efflu-
ent regulations. An important consideration in evaluating economic impact
is determining if and when price increases can be obtained.
The first step in the evaluation of whether or not price increases
can be obtained was to compare the productive capacity in plants that
are required to make expenditures for revised regulations with those that
are not. Table V-2 showed the capacity of plants impacted by Option 3
compared with that of plants currently in compliance. Wet process hard-
board plants impacted by revised regulations represent 27% of the 1976
total hardboard (wet and dry) capacity and 28% of the total 1976 produc-
tion. This fact alone would indicate potential difficulties in obtaining
price increases. However, wet process and other hardboard plants have
enjoyed high operating rates from 1976 to 1978. The total hardboard
segments had an operating rate of 92% in 1976 while the impacted plants
operated at 95% of capacity.
Under the less stringent control options for wet process hardboard,
fewer plants are impacted and thus less capacity is controlled by im-
pacted plants. The impacted plants represent 14% of hardboard capacity
under Option 1, and 15% of capacity under Option 2.
V-4
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DRAFT
TABLE V-2
DISTRIBUTION OF HARDBOARD CAPACITY
IMPACTED VS. NON-IMPACTED PLANTS
OPTION 3
WET PROCESS
Impacted Plants(6)
Plants in Complianc
' Total Wet Process
DRY PROCESS 12
TOTAL HARDBOARD
1976
Capacity
(1/8" - MMSF)
1,650
[lO) 4.156
16) 5,812
2.460
8,272
% 1976 Production
Total
20%
^50
70%
30
100%
1/8" - MMSF
1,375
3.550
4,925
2f141
7,066
% Total
20%
-5J)
70
J1D
100%
1976
Capacity
Utilization
83%
8_5
85
87_
85%
Includes two combination plants.
SOURCE: Derived from Financial 308 Letter data and Table III-4.
V-5
Arthur D Little Inc
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DRAFT
While current operating rates are important, future growth in demand
and capacity expansion will indicate the probable supply/demand balance
likely at the time the plants are required to make the pollution control
investments. As discussed in the industry description, hardboard demand
will continue to grow at an average rate of 5% a year, while fluctuating
with the business cycle for the construction industry. Insulation board,
on the other hand, is a product in long-term decline. By 1984, demand
for insulation board will be 65% of the 1976 level and the industry
operating rate would be at about 60% if all plants were in operation.
The demand for hardboard will be about 25% higher in 1983 than in 1976
and an additional 1100-1200 MMSF of capacity will be required to meet
the demand.
It is not contemplated that any greenfield plants will be constructed
to add to hardboard capacity. The probable method of expansion is
incremental increases in capacity at existing plants and conversion of
insulation board capacity to hardboard capacity. (Coincidentally, the
increased hardboard capacity required by 1984 is about the same in MMSF
as the slack insulation board capacity that will exist by then (1,200 MMSF),
although only a small proportion of this capacity can practicably be con-
verted to hardboard.) The total cost of production and derived selling
prices based upon long-run total cost indicate that the price of hardboard
must rise to a level substantially higher than the levels indicated in
Table V-l.l
Section F, CAPACITY EXPANSION.
V-6
Arthur D Little Inc
-------
DRAFT
Since hardboard is expected to be in tight supply on average over
the next five to ten years, and the cost of new capacity cannot be
supported by current market prices,1 then prices can be expected to
eventually cover the increased costs of existing hardboard producers.
The increases in hardboard price (measured in 1976 dollars) under
Options 1 and 2 will not be sufficient to negate its competitive advan-
tage over plywood. However, even when demand is price inelastic, some
reductions in demand can occur. Under Option 3, while hardboard will
still be lower in cost than some substitutes, the price increases required
will be large enough so that some substitution could occur.
C. FINANCIAL CONSIDERATION
When an industry can recover cost increases through price increases
without impacting demand, the economic impact is less severe than would
otherwise be the case. However, plants may suffer adverse economic
impact if price increases lag cost increases and if companies are unable
to finance the compliance investment.
The profitability of wet process hardboard plants impacted by revised
regulations was analyzed as if price increases did not occur and the
results of this evaluation are shown in Figure V-l. In general, plant
profitability will be reduced, but a plant will still cover its cash
costs and depreciation, assuming the 1976 operating results are repre-
sentative of cost conditions likely to prevail in 1984. Under Option 3
for wet process hardboard, two plants would just about break even as
shown in Figure V-l.
Section F, CAPACITY EXPANSION.
V-7
Arthur D Little. Inc
-------
<
CO
>
c
FIC.URE V-l
POST-COMPLIANCE PROFITABILITY
WITH NO PRICE INCREASE
(1976 COST STRUCTURE)
22.0 -i
20.0 -
18.0 -
16.0 -
14.0 -
12.0 -
10.0 -
8.0 -
6.0 -
4.0 -
2.0 -
0.0 -
V
>
•
I
f
\
r
\
>
t
f
\
t
\
i
>
f
f \
i
r
f
(
\
Option 1
Option 2
Option 3
Wet Process Hardboard
SOURCE: Arthur D. Little, Inc. estimates.
Current
Profitability
Before Tax
Post-Conpliance
Profitability
Before Tax
-------
DRAFT
Most of the insulation board and wet process hardboard plants are
parts of larger corporations which generate cash flow in excess of the
required pollution control investment and which also have some ability
to generate external funds. However, a parent company might be reluc-
tant to divert funds from other operations to hardboard plants. For
this reason and the fact that a few plants are part of smaller copora-
tions, it is advisable to examine the relationship between plant cash
flow and the required compliance investment.
For the impacted plants not currently in the process of installing
a pollution control system, the investment required for revised effluent
regulations was divided by cash flow to construct the percentages shown
in Figure V-2. For wet process hardboard plants, the investment associ-
ated with Options 1 and 2 are less than or equal to 1976 cash flow,
while the investment associated with Option 3 is over three times cash
flow.
The impacted wet process hardboard plants will eventually recover
the costs of compliance through higher prices which will probably also
provide a sufficient rate of return on investment. However, Option 3
will cause a cash drain from other operations.
D. PLANT CLOSURE
The evaluation of whether or not a plant will close down as a
result of pollution control regulation (or any other event) is at best
an imprecise estimate based upon an external view of a plant's situation.
V-9
Arthur D Little. Inc
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DRAFT
FIGURE V-2
INVESTMENT REQUIRED FOR
COMPLIANCE WITH REV-ISED EFFLUENT REGULATIONS
COMPARED WITH PLANT CASH FLOW
400 --
300
% Annual
Cash Flow
200 --
100 - -
Option 1
Option 2
Option 3
Wet Process Hardboard
SOURCE: Arthur D. Little, Inc. estimates.
V-10
Arthur HI ittlp Inr
-------
DRAFT
Of necessity, the evaluation is based upon financial criteria without
knowledge and consideration of a corporation's policies and goals. To
illustrate, a corporation nay decide to close or sell off an apparently
profitable plant if the plant's business does not meet its long-term
objectives. On the other hand, a corporation may elect to invest in
and operate a marginal plant which provides a source of equipment or
materials for its other operations, to retain control over the source
of supply.
Under Options 1 and 2, no plant closures are foreseen for the two
or three plants not presently installing a pollution control system.
Under Option 3, no closures are foreseen, provided the plants can obtain
external financing.
E. CAPACITY EXPANSION
In Chapters II and III, the discussion of the hardboard and insula-
board industry segments indicated that no greenfield mills are likely
to be built for either of the two product types. Insulation board
demand is facing a long-term decline and faces significant excess capa-
city by the 1980's, and thus no new capacity will be built.
Capacity expansion for hardboard will most likely occur through in-
cremental expansion of existing hardboard mills and secondly from con-
version of insulation board capacity. The reason for this is primarily
related to the high cost of new capacity compared with current market
prices, and while this relationship would be exacerbated by pollution
control costs, they are of secondary importance.
V-ll
Arthur D Little. Inc
-------
DRAFT
Table V-3 depicts the long-run price required to recover the incre-
mental pollution control cost for a new mill, an insulation board plant
conversion and an incremental expansion. The required increment to
cover pollution control costs does not differ for the new source compared
to conversion and expansion, under a total recycle option. However, the
baseline plant cost translates into a higher, long-run required price-
per-ton for a new facility.
All expansion methods shown in Table V-3 require a higher product
price than the current market prices, suggesting that capacity increases
will lag demand growth such that market price will rise to cover the costs
of new capacity. The March 1978 market price was 91.56 per MSF; prices
must rise by 28% to support an incremental expansion by the lowest cost
method. This increase is greater than that required by impacted hard-
board plants to recover costs of pollution control costs under all of
the options studied.
F. MARKET STRUCTURE
The number and size of insulation board plants will be unaffected
by revised regulations. The number of hardboard plants will remain
unchanged as a result of revised regulations. New capacity will be
built at existing plants and will not be influenced significantly by
revised regulations.
G. EMPLOYMENT AND COMMUNITY IMPACTS
No plant closures are anticipated and thus no unemployment will
result from revised regulations for insulation board and hardboard
segments.
V-12
Arthur D Little: Inc
-------
TABLE V-3
COST OF NEW HARDBOARD CAPACITY
NEW MILL VERSUS INCREMENTAL EXPANSION
1. New Plant
Baseline Plant
Water Effluent Control
2. Conversion of
Insulation Board Plant
Baseline Conversion
Cost
Water Effluent Central
(Option 3)1
ANNUAL
INCREMENTAL OPERATING LONG-RUN
CAPACITY INVESTMENT COSTS PRICE
MMSF
234
($000)
$27,000
($000)
$20,440
($/MSF)
293
$57,000
5,075
$24,300
2,005
$136
11
$147
$117
7-11
$124 - $128
3. Incremental Expansion
Baseline Expansion
Water Effluent Control
(Option 3)1
117
$17,500
$ 8,370
$106
9-12
$115 - $118
1Based on range for similar size plants.
SOURCE: Arthur D. Little, Inc. estimates.
V-13
Arthur I) Little Inc
-------
DRAFT
APPENDIX A
SUPPLEMENTARY DATA
Arthur D Little Inc
-------
PAGE NOT
AVAILABLE
DIGITALLY
-------
DRAFT
TABLE A-2
DERIVATION OF UNIT COST
WET PROCESS HARDBOARD NEW CAPACITY
LABOR HOURS
1. Greenfield Mill
Manhours/Ton
Logging 2.72
Manufacture 14.72
Transportation 2.08
19.52
2. Conversion of Insulation Board to Hardboard
Increase manhours by 10%: 21.42 manhours/incremental ton
3. Incremental Expansion
Decrease manhours by 10%: 17.57 manhours/incremental ton
ENERGY REQUIREMENTS
1. Greenfield Mill Million BTU's
Gross Manufacturing Requirements 21.551
Energy Generated from Residue .797
20.754
2. Conversion of Insulation Board to Hardboard
Increase BTU's by 10%: 22.829 million BTU's
3. Incremental Expansion
Decrease BTU's by 10%: 18.679 million BTU's
WOOD REQUIREMENTS
300 tons of chips/day = 107 MBF/day
.84 MSF/day
Arthur D Little Inc
-------
DRAFT
APPENDIX B
EPA FINANCIAL 308 SURVEY
Arthur D Little Inc
-------
DRAFT
308 QUESTIONNAIRE
INSULATION BOARD
i. Name of Plant
ii. Address of Plant
Street
City
iii. Name of Respondent*
State
Zip
Title
iv. Address of Respondent
Street
v. Telephone No. of Respondent
City
State
Zip
Area Code
Number
vi. Parent Company
vii. Is this plant engaged in the manufacture of insulation board?
Yes D Continue with Questionnaire
No D Do not fill out the questionnaire but return after completing this
page, through Question vii.
viii. To assert your claim of confidentiality, please check off the box corresponding to the
questions that in the company's opinion require confidential treatment.
1 D 5
2 D 6
3D 7
4 D 8
NOTE: Upon receip
the questionnaire so
D 9 D
D 10 D
D 11 D
D 12 D
13 D
14 D
15 D
18 D
19 D
20 D
21 D
22 D
t by EPA, this page will be separated from the remainder of
that data processing and use is conducted on a coded basis.
For Use by EPA
Code Number
"Person to be contacted in case of questions.
-------
DRAFT
308 QUESTIONNAIRE
INSULATION BOARD
Company Code
(For EPA Use)
A. GENERAL INFORMATION
1. Is this insulation board (IB) plant a stand-alone operation or part of a multi-plant complex?
Stand-Alone D Multi-plant Complex D
If part of a multi-plant complex, approximately what percentage of total complex sales revenue was
represented by insulation board in the fiscal year ending 1976? %
2. Is this plant at an urban, suburban or rural location?
Urban D Suburban D Rural D
3. What year did the plant begin operation? ___
B. SALES AND PRODUCT MIX
4. What were total sales for this insulation board (IB) plant during 1976?
Under
$8 Million $8-12 Million $13-20 Million $21-28 Million Over $28 Million
D D D D D
5. Which of the following product types were produced at this IB plant during 1976?
Insulation Board
a.
b.
c.
Structural
Decorative
Other
Produced
At Plant
D
D
D
Approximate Percent of Sales
<10
D
D
D
10-30
D
D
D
31-50
D
D
D
51-70
D
D
D
71-90
D
D
D
>90
D
D
n
6. Are any changes (other than normal business fluctuations) planned over the next five years in IB
production process or product mix7
Yes D No D Of no, go to Part C)
If yes, please describe •
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DRAFT
C. PLANT CAPACITY AND PRODUCTION
7. Annual Capacity The amount or thousands of square feet of insulation board which could have been
produced in this plant during 1976 if the IB plant was operated fully 6-2/3 days/week, 24 hours/day,
(350 days or 8400 hours/yr.).
Thousands of Square Feet
Insulation
Board
(1/2" Basis)
< 100,000
D
300,001-
350,000
D
100,000-
150,000
D
350,001-
400,000
D
150,001-
200.000
D
400.001-
450.000
D
200.001-
250,000
D
450,001-
500,000
D
250,001-
300,000
D
> 500,000
D
8. Actual Production in 1976: The amount of thousands of square feet of insulation board which were
produced in this IB plant during 1976:
Insulation Board (1/2" basis)
thousands of square feet
9. Did this IB plant have any unusual downtime during 1976, e.g., labor strikes, accidents, et cetera?
Number of Weeks of Unusual Downtime
No D (Go to 10)
Yes D
<1
D
1 0. Average number of employees during
Production Workers
Other Employees
11. a. Typical number of p
<25
D
D
iroduction (
1-2
D
1976:
26-50
D
D
lays per we
3-4
D
51-75
D
D
ek:
5-6
D
76-100
D
D
7-8
D
101-150
a
D
>8
a
>150
D
D
b.
(1)
(2)
(3)
(4)
(5)
1-4 D 5 D 6 D 7 D
Please state number of weeks at each shift level (the total should add to 52 weeks)
No. of Weeks
at 0 shifts (shut down or no insulation board production)
at 1 shift
at 2 shifts
at 3 shifts
at 4 shifts
52 weeks Total [(1) + (2) + (3) + (4) + (5)]
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DRAFT
D. REVENUES AND EXPENSES
12. Income Statement
Please check the box which most closely approximates your costs as a percentage of sales. (Use an
approximate allocation of data are available at the plant level.)
Approximate Percent of Sales
a. Direct Wages, Salaries
and Related
b. Materials (logs, wood,
other materials,
inventory charges)
c. Depreciation
d. Other Plant Expenses
(Including rent, fuel
and energy)
e. Operating Margin
f. Selling, General and
Administration
(Including allocation
from Parent)
g. Interest Expense
h. Other Income (Expense)
\. Profit Before Tax
j. Taxes
k. Profit After Tax
< 16
D
<40.0
D
< 1
D
< 1
D
< 10
D
< 8
D
0
D
D
< 3
D
<1
a
<2
a
16-20
a
41-45
a
1-2
a
1-2
a
10.0-20.0
a
8-10
a
1-2
D
D
3-9
D
2-3
a
2-4
n
21-25
a
46-50
D
3-4
a
34
D
26-30
a
51-55
D
4-5
a
4-5
a
21.0-25.0
a
11-13
D
3-4
a
a
10-12
D
4-5
a
5-10
a
5-6
a
a
13-15
a
6-7
a
11-15
a
31-35
D
5640
a
6-7
a
6-7
a
25.1-30.0
D
>14
D
7-8
a
D
16-17
a
8-9
a
>15
D
>35
a
>60
a
> 7
a
> 7
a
>30
a
>8
D
a
>17
a
>9
a
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DRAFT
13. How representative is 1976 profit before tax compared to the 1971-1975 period:
Much Better than Average D
Better than Average D
About the Same D
Worse than Average D
Much Worse than Average D
14. What Depreciation Method is used?
a. Book Basis: Straight-Line
Double-declining Balance
Sum or Year's Digits
Other:
b. Tax Basis:
(Please Specify)
Straight Line
Double-declining Balance
Sum of Year's Digits
Other:
(Please Specify)
c. Pollution Control Expenditures:
Accelerated Over 5 Years
Same as Other Equipment
Equipment
D
D
D
D
D
D
D
D
D
D
Buildings
D
D
D
D
D
D
D
D
D
D
IS. Annual Cost of Pollution Control and other Regulations Affecting Insulation Board Production Process
and Costs at this IB Plant:
Don't
Know
None
Fiscal Year Ending
1976
1977"
a. Direct Costs
(1) Water Pollution Regulations:
(a) Annual Operating Costs**
(b) Annual Depreciation Charges**
(c) Obligations to Municipalities
(2) Air Pollution Regulations:
(a) Annual Operating Costs
(b) Annual Depreciation Charges
D
D
D
D
D
D
D
D
D
D
•Please estimate the 1977 value if unknown at this time.
"Include the cost associated with shared facilities, including Industrial Waste Recovery Systems.
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DRAFT
(3) Solid Waste Disposal (Total,
including waste water sludge
and wood waste):
(a) Annual Operating Costs
(b) Annual Depreciation Charges
(4) Other Regulations Affecting Pro-
duction Processes and Produc-
tion Costs (Please Specify)
Don't
Know
D
D
D
None
D
D
D
Fiscal Year Ending
D
D
(a) Annual Operating Costs D
(b) Annual Depreciation Charges D
b. Indirect Costs (e.g., environ-
mental research, consultants,
litigation) D D
16. How does this plant discharge of process waste water?
a. Discharge into navigable water D
b. Discharge into municipal sewer D
c. Disposed on plant site D
d. Disposed off plant site D
e. Process waste is recycled (no discharge) D
f. Other D Please specify
1976
1977"
17a. If you do not discharge process waste water into a municipal sewer, do you have the option to
connect?
Yes D No D
Don't Know D
b. If you do have the option to connect to a municipal sewer, what is the initial capital invest-
ment cost?
S Don't Know D
c. If you discharge any wood treating process waste water into a sewer system, on what basis
are your sewer charges made?
Flat annual fee D
Gallon of effluent D
Other D Please specify
•Please estimate the 1977 value if unknown at this time.
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DRAFT
d. If you discharge into a municipal sewer, what were your total sewer charges in 1976?
$
e. If you discharge process waste water into navigable waters, do you have an NPDES permit"!
Yes D No D Don't Know D
f. Do you own or have available for purchase about one acre of land at or adjacent to this facility
that could be used for an effluent treatment system?
Yes D No D
If yes, what is the current market value per acre? $
18. Unusual Production Costs
Are there any circumstances peculiar to this plant which result in unusual production costs (other
than unusual downtime described in Q. 9)?
Yes D No D
If Yes, please describe:
19. Distribution of Corporate Assets and Liabilities
a. What was the value of the company's total assets at the end
of the 1976 fiscal year? $
b. What was the value of the company's total liabilities and net
worth at the end of the 1976 fiscal year (accounts payable,
debt due within the year, etc.)? $
c. What was the value of debt maturing in one year? S
b. Accumulated depreciation
c. Net Fixed Assets (Gross Fixed Assets less cumulative
depreciation = Current Book Value)
d. Total Assets: Net Fixed Assets, Cash Receivables,
inventory, other costs)
d. What was the corporation's debt/equity ratio? : 1
20 Value of Assets for this Insulation Board Plant
a. Gross Fixed Assets: Original Cost (Book Value) of plant
and equipment dedicated to insulation board $
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DRAFT
21. Capital Investment Criteria for IB Plant
a. What basis is used to evaluate the IB plant's profitability (return on investment)!
D Total Assets (As above, 20.d) less current liabilities
D Book Value of Net Fixed Assets (As above, 20.c)
D Replacement Cost
D Salvage Value
D Other (Specify)
b. What is the target internal pre-tax rate of return on capital required for investment in this plant?
% At what ROI would you consider closing the plant? %
c. If rate of return criteria are not used, what is the required payback period for investment?
Years or D Useful Life. At what payback period would you consider clos-
ing the plant? Years
22. Capital Investment for IB Plant (including capitalized maintenance)
(1) (2) (3) (4)
Plant Capitalized Water Other Environmental
Total Maintenance of Pollution Regulation Impacting
Investment Major Expansion Control Production Processes
Planned 1977
Total Actual 1972-76
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DRAFT
308 QUESTIONNAIRE
WET PROCESS HARDBOARD
i. Name of Plant
ii. Address of Plant.
Street
City State Zip
iii. Name of Respondent* Title
iv. Address of Respondent
Street City State Zip
v. Telephone No. of Respondent
Area Code Number
vi. Parent Company
vii. Is this plant engaged in the manufacture of wet process hardboard?
Yes D Continue with Questionnaire
No D Do not fill out the questionnaire but return after completing this
page through Question vii.
viii. To assert your claim of confidentiality, please check off the box corresponding to the
questions that in the company's opinion require confidential treatment.
ID 5D 9D 13 D 19 D
2 D 6 D 10 D 14 D 20 D
3D 7 D 11 D 15 D 21 D
4 D 8 D 12 D 18 D 22 D
NOTE: Upon receipt by EPA, this page will be separated from the remainder of
the questionnaire so that data processing and use is conducted on a coded basis.
For Use by EPA
Code Number
'Person to be contacted in case of questions.
-------
DRAFT
PLANT CAPACITY AND PRODUCTION
7. Annual Capacity: The amount of thousands of square feet of the product which could have been
produced in this plant during 1976 if the plant was operated fully 6-2/3 days/week, 24 hours/day
(350 days or 8400 hours/yr.).
Thousands of Square Feet
Wet Process
Hardboard
(1/8" Basis)
< 100,000
D
300,001-
350,000
D
100,000-
150,000
D
350.001-
400.000
D
150,001-
200,000
D
400,001-
450,000
D
200,001-
250,000
D
450,001-
500,000
D
250,001-
300,000
D
> 500,000
D
8. Actual Production in 1976: The amount of thousands of square feet of the product which were
produced in this plant during 1976:
Wet Process Hardboard (1/8" basis).
. thousands of square feet
9. Did this WPH plant have any unusual downtime during 1976, e.g., labor strikes, accidents, etc?
Number of Weeks of Unusual Downtime
No D (Go to 10) <1 1-2 34
Yes D D D D
10. Average number of employees during 1976:
< 25 26-50 51-75
Production Workers
Other Employees
5-6
D
76-100
D
D
D
D
D
D
D
D
101-150
D
D
>8
D
>150
D
D
11. a. Typical number of production days per week:
1-4 D 5 D 6 D 7 D
b. Please state number of weeks at each shift level (the total should add to 52 weeks):
No. of Weeks
(1) at 0 shifts (shut down or no wet process hardboard production)
(2) at 1 shift
(3) at 2 shifts
(4) at 3 shifts
(5) at 4 shifts
52 Weeks Total [(1) + (2) + (3) + (4) + (5)]
-------
DRAFT
308 QUESTIONNAIRE
WET PROCESS HARDBOARD
A. GENERAL INFORMATION
1 . Is this wet process hardboard (WPH)
Stand- Alone Q Multi-plant C
If part of a complex, approximately
process hardboard in the 1976 fiscal >
2. Is this plant at an urban, suburban or
Urban D Suburban D I
3. What year did the plant begin operatii
B. SALES AND PRODUCT MIX
4. What were total sales (net f.o.b.) for t
Under $5 Million $5-10 Million
Company Code
(For EPA Use)
plant a stand-alone operation or part of
'omplex D
' what percentage of total sales at this
-ear? %
a multi-plant complex?
complex was from wet
rural location?
tural D
in?
his wet process hardboard (WPH) plant during 1976?
More than
$1 1-20 Million $21-30 Million $30 Million
D D D D
5. Which of the following product types were produced at this WPH plant during
Produced
SIS Products At Plant
a. Siding
b. Panelling
c. Industrial Board
d. Other SIS
S2S Products
e. Siding
d. Panelling
g. Industrial Board
h. Other S2S
D
D
D
D
D
D
D
D
1 976?
D
Approximate Percent of Safes
<10
D
D
D
D
D
D
D
D
10-30
D
D
D
D
D
D
D
D
31-50
D
n
D
D
D
D
D
D
6. Are any changes (other than normal business fluctuations) planned
duction process or product mix at this WPH plant?
Yes D No D
If yes, please describe
(If no, go
to Part C)
51-70
a
a
a
a
a
a
a
D
over the
70-90
D
D
D
D
D
D
D
D
next five
>90
D
D
D
D
D
D
D
D
years in pro-
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DRAFT
D. REVENUES AND EXPENSES
12. Income Statement
Please check the box which most closely approximates your costs as a percentage of sales. (Use an
approximate allocation if data are unavailable at the plant level.)
This WPH Plant's Cost as an Approximate Percent of Sales
a. Direct Wages, Salaries
and Related
b. Materials (logs, wood,
other materials plus
inventory charges)
c. Depreciation
A. Other Plant Expenses
(Including rent, fuel
and energy)
e. Operating Margin
f. Selling General and
Admin. (Including
Allocation from
Parent)
g. Interest Expense
h. Other Income (expense)
i. Profit Before Tax
j. Taxes
k. Pro fit After Tax
<16
D
<20
D
<1
D
<1
D
<30
D
<5
D
0
D
D
<10
D
<4
D
<4
a
17-19
D
21-27
a
1-2
a
1-2
a
31-35
a
6-7
a
1-2
a
D
11-14
a
5-6
a
54
a
20-23
D
28-33
a
34
a
3-4
a
3640
a
8-10
D
34
a
a
15-19
a
7-9
G
7-9
a
24-26
a
3440
a
4-5
a
4-5
a
4145
a
11-12
a
5-6
a
a
19-24
D
10-12
a
10-12
a
27-29
a
4147
a
6-7
D
5-6
a
46-50
a
13-15
a
>6
a
a
25-30
a
13-15
D
13-15
a
>29
a
>47
a
>7
a
>7
a
>50
D
>15
a
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DRAFT
13. How representative is 1976 profit before tax compared to the 1971-1975 period:
Much Better than Average D
Better than Average D
About the Same D
Worse than Average D
Much Worse than Average D
14. What depreciation method is used?
a. Book Basis: Straight-Line
Double-declining Balance
Sum of Year's Digits
Other.
b. Tax Basis
(Please Specify)
Straight Line
Double-declining Balance
Sum of Year's Digits
Other.
(Please Specify)
c. Pollution Control Expenditures:
Accelerated Over 5 Years
Same as Other Equipment/Bldgs.
Equipment
D
D
D
D
D
D
D
D
D
D
Buildings
D
D
D
D
D
D
D
D
D
D
IS Annual Cost of Pollution Control and other Regulations Affecting WPH Production Process and
Production at this Plant:
a. Direct Costs
(1) Water Pollution Regulations:
(a) Annual Operating Costs**
(b) Annual Depreciation Charges*
(c) Obligations to municipalities
(2) Air Pollution Regulations
(a) Annual Operating Costs
(b) Annual Depreciation Charges
Don't
Know
D
D
D
D
D
Fiscal Year Ending
None
D
D
D
D
D
1976
1977*
* Please estimate 1977 expenditures if they are not known.
*'Include the cost associated with shared facilities, including Industrial Waste Recovery Systems.
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DRAFT
(3) Solid Waste Disposal (Total,
including waste water sludge
and wood waste):
(a) Annual Operating Costs
(b) Annual Depreciation Charges
(4) Other Regulations Affecting Pro-
duction Processes and Produc-
tion Costs (Please Specify):
Don't
Know
D
D
D
Fiscal Year Ending
(a) Annual Operating Costs D
(b) Annual Depreciation Charges D
b. Indirect/Overhead Costs (Environ-
mental research, consulting fees,
litigation, etc.) D
16. How does this plant dispose of process waste water!
a. Discharge into navigable water
b. Discharge into municipal sewer
c. Disposed on plant site
d. Disposed off plant site
e. Process waste water is recycled (no discharge)
f. Other D Please specify
None
D
D
n
1976
1977*
D
D
n
D
n
n
n
n
17 a If you do not discharge process waste water into a municipal sewer, do you have the option to
connect?
Yes D No D Don't Know D
b. If you do have the option to connect to a municipal sewer, what is the initial capital invest-
ment cost?
S Don't Know D
c. If you discharge any process waste water into a sewer system, on what basis are your sewer
charges made7
Flat annual fee D
Gallon of effluent D
Other D Please specify
•Please estimate the 1977 value if unknown at this time
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DRAFT
d. If you discharge into a municipal sewer, what were your total sewer charges in 1976?
$
e. If you discharge process waste water into navigable waters, do you have an NPDES Permit1*.
Yes D No D Don't Know D
f. Do you own or have available for purchase about one acre of land at or adjacent to this facility
that could be used for an effluent treatment system?
Yes D No D
If yes, what is the current market value per acre? $
18. Unusual Production Costs
Are there any circumstances peculiar to this plant which result in unusual production costs (other
than unusual downtime described in Q. 9)?
Yes D No D
If Yes, please describe:
19. Distribution of Corporate Assets and Liabilities
a. What is the value of the corporation's total accounts receivable? S
b. What is the value of the corporation's total current liabilities
(accounts payable, debt due within the year, etc.)? $
c. What is the value of debt maturing in the current fiscal year? S '_
d. What is the corporate debt/equity ratio? :1
20. Value of Assets (Wet Process Hardboard Plant):
a. Gross Fixed Assets • Original Cost (Book Value) of plant
equipment dedicated to wet process hardboard S
b. Accumulated depreciation
c. Net Fixed Assets (Gross Fixed Assets less cumulative
depreciation—Cunent Book Value) $ .
d. Total A ssets: Net Fixed Assets, Cash Receivables,
inventory, other costs) $ .
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DRAFT
21. Capital Investment Criteria for WPH Plant
a. What basis is used to evaluate the plant's profitability (return on investment)?
D Net Assets (Total Assets, as above in 20.d, less Current Liabilities)
O Book Value or Net Fixed Assets (as above in 20.c)
D Replacement Cost
D Salvage Value
D Other (Specify)
b. What is the target internal pre-tax rate of return on capital required for investment in this plant?
% At what ROI would you consider closing the plant? %
c. If rate of return criteria are not used, what is the required payback period for investment?
Years or D Useful Life
22. Capital Investment for WPH Plant (including capitalized maintenance)
(D (2) (3) (4)
Plant Capitalized Water Other Environmental
Total Maintenance of Pollution Regulation Impacting
Investment Major Expansion Control Production Processes
Planned 1977
Total Actual 1972-76
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DRAFT
RESPONSES TO EPA FINANCIAL SURVEY
Questionnaires Mailed to 18 Companies;
19 Wet Process Hardboard
16 Insulation Board
Response Rate: 100%
Applicable Responses:
17 Wet Process Hardboard
16 Insulation Board
Arthur D Little, Inc
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