Economic Analysis of Air Pollution
Regulations:
Miscellaneous Organic Chemicals
(MON)
Final Report
Prepared for
John L. Sorrels
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Innovative Strategies and Economics Group (ISEG)
(MD-15)
Research Triangle Park, NC 27711
Prepared by
Katherine B. Heller
Brooks M. Depro
Virginia A. Perry
Research Triangle Institute
Center for Economics Research
Research Triangle Park, NC 27709
EPA Contract Number 452/R-02-006
RTI Project Number 7647-001-004-002
March 2002
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EPA Contract Number 452/R-02-006
RTI Project Number 7647-001-004-002
Economic Analysis of Air Pollution
Miscellaneous Organic Chemicals
(MON)
Final Report
March 2002
Prepared for
John L. Sorrels
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Innovative Strategies and Economics Group (ISEG)
(MD-15)
Research Triangle Park, NC 27711
Prepared by
Katherine B. Heller
Brooks M. Depro
Virginia A. Perry
Research Triangle Institute
Center for Economics Research
Research Triangle Park, NC 277090
-------
CONTENTS
Section Page
1 Introduction 1-1
1.1 Agency Requirements for an EIA 1-1
1.2 Summary of EIA Results 1-2
1.3 Organization of this Report 1-3
2 Industry Profile 2-1
2.1 Paints and Allied Products 2-3
2.1.1 Supply Side of the Industry 2-4
2.1.1.1 Production Processes 2-4
2.1.1.2 Types of Output 2-4
2.1.1.3 Costs of Production 2-5
2.1.1.4 Capacity Utilization 2-5
2.1.2 Demand Side of the Industry 2-5
2.1.3 Organization of the Industry 2-6
2.1.3.1 Firm Characteristics 2-6
2.1.3.2 Geographic Distribution 2-6
2.1.4 Markets and Trends 2-6
2.2 Industrial Organic Chemicals 2-6
2.2.1 Supply Side of the Industry 2-7
2.2.1.1 Major By-products and Co-products 2-7
2.2.1.2 Types of Output 2-8
2.2.1.3 Costs of Production 2-8
2.2.1.4 Capacity Utilization 2-9
2.2.2 Demand Side of the Industry 2-9
2.2.2.1 Product Characteristics 2-9
2.2.2.2 Uses and Consumers of Products 2-10
2.2.3 Organization of the Industry 2-11
2.2.3.1 Firm Characteristics 2-11
2.2.3.2 Geographical Distribution 2-11
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2.2.4 Markets and Trends 2-12
2.3 Soaps and Cleaners 2-12
2.3.1 Supply Side of the Industry 2-13
2.3.1.1 Production Processes 2-13
2.3.1.2 Major By-products and Co-products 2-13
2.3.1.3 Types of Output 2-13
2.3.1.4 Costs of Production 2-14
2.3.1.5 Capacity Utilization 2-15
2.3.2 Demand Side of the Industry 2-15
2.3.2.1 Product Characteristics 2-15
2.3.2.2 Uses and Consumers of Products 2-15
2.3.2.3 Substitution Possibilities 2-15
2.3.3 Organization of the Industry 2-16
2.3.3.1 Firm Characteristics 2-16
2.3.4 Markets and Trends 2-16
2.3.4.1 Production 2-16
2.3.4.2 Consumption 2-16
2.4 Agricultural Chemicals 2-17
2.4.1 Supply Side of the Industry 2-18
2.4.1.1 Production Processes 2-18
2.4.1.2 Major By-products and Co-products 2-18
2.4.1.3 Types of Output 2-18
2.4.1.4 Costs of Production 2-19
2.4.1.5 Capacity Utilization 2-20
2.4.2 Demand Side of the Industry 2-20
2.4.2.1 Product Characteristics 2-20
2.4.2.2 Uses and Consumers of Products 2-20
2.4.2.3 Substitution Possibilities 2-21
2.4.3 Organization of the Industry 2-21
2.4.3.1 Firm Characteristics 2-21
2.4.4 Markets and Trends 2-21
2.5 Photographic Equipment and Supplies 2-22
2.5.1 Supply Side of the Industry 2-23
2.5.1.1 Major By-products and Co-products 2-24
2.5.1.2 Types of Output 2-24
2.5.1.3 Costs of Production 2-24
IV
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2.5.1.4 Capacity Utilization 2-25
2.5.2 Demand Side of the Industry 2-25
2.5.2.1 Product Characteristics 2-25
2.5.2.2 Uses and Consumers of Products 2-25
2.5.2.3 Substitution Possibilities 2-25
2.5.3 Organization of the Industry 2-26
2.5.3.1 Firm Characteristics 2-26
2.5.4 Markets and Trends 2-26
2.5.4.1 Production 2-26
2.5.4.2 Consumption 2-27
2.6 Adhesives, Sealants, and Printing Ink 2-27
2.6.1 Supply Side of the Industry 2-28
2.6.1.1 Production Processes 2-28
2.6.1.2 Major By-products and Co-products 2-28
2.6.1.3 Types of Output 2-29
2.6.1.4 Costs of Production 2-29
2.6.1.5 Capacity Utilization 2-30
2.6.2 Demand Side of the Industry 2-30
2.6.2.1 Product Characteristics 2-30
2.6.2.2 Uses and Consumers of Products 2-30
2.6.2.3 Substitution Possibilities 2-31
2.6.3 Organization of the Industry 2-31
2.6.3.1 Firm Characteristics 2-31
2.6.4 Markets and Trends 2-31
2.6.4.1 Production 2-32
2.6.4.2 Consumption 2-32
2.7 Man-Made Fibers, Noncellulosic 2-33
2.7.1 Supply Side of the Industry 2-33
2.7.1.1 Production Processes 2-33
2.7.1.2 Major By-products and Co-products 2-34
2.7.1.3 Types of Output 2-34
2.7.1.4 Costs of Production 2-34
2.7.1.5 Capacity Utilization 2-35
2.7.2 Demand Side of the Industry 2-35
2.7.2.1 Product Characteristics 2-35
2.7.2.2 Uses and Consumers of Products 2-35
2.7.2.3 Substitution Possibilities 2-36
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2.7.3 Organization of the Industry 2-36
2.7.3.1 Firm Characteristics 2-36
2.7.4 Markets and Trends 2-36
2.7.4.1 Production 2-36
2.7.4.2 Consumption 2-37
2.8 Plastics Materials, Synthetic Resins, and Nonvulcanizable
Elastomers 2-37
2.8.1 Supply Side of the Industry 2-39
2.8.1.1 Production Processes 2-39
2.8.1.2 Types of Output 2-39
2.8.1.3 Costs of Production 2-39
2.8.1.4 Capacity Utilization 2-39
2.8.2 Demand Side of the Industry 2-40
2.8.2.1 Uses and Consumers of Products 2-40
2.8.2.2 Substitution Possibilities 2-41
2.8.3 Organization of the Industry 2-41
2.8.3.1 Firm Characteristics 2-41
2.8.3.2 Geographic Distribution 2-43
2.8.4 Markets and Trends 2-43
2.8.4.1 Production 2-43
2.8.4.2 Consumption 2-45
2.8.4.3 Trends 2-45
2.9 Industry Organization 2-45
2.9.1 Production Facilities 2-45
2.9.2 Quantities of MON Commodities Produced 2-47
3 Engineering Cost and Emission Reduction Estimates 3-1
3.1 Control Costs 3-1
3.2 National Emissions Reductions and Compliance Costs 3-1
4 Economic Impact Analysis: Methods and Results 4-1
4.1 Conceptual Approach 4-1
4.2 Operational Model 4-3
VI
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4.2.1 Market Supply 4-3
4.2.2 Market Demand 4-3
4.2.3 Control Cost Inputs and With-Regulation Equilibrium 4-3
4.3 Market Model Results 4-4
4.3.1 Market-Level Impacts 4-5
4.3.2 Industry-Level Impacts 4-5
4.4 Additional Firm-Level Analysis 4-6
4.5 Social Costs 4-7
4.5.1 Engineering Compliance Costs 4-7
4.5.2 Estimated Social Cost 4-7
5 Small Business Impact Analysis 5-1
5.1 Identifying Small Businesses 5-2
5.2 Screening-Level Analysis 5-2
5.2.1 Effects of the Regulation of Coatings Manufacturers 5-3
5.2.2 Effects of the Regulation of Chemical Manufacturers 5-3
5.3 Summary Assessment 5-12
References R-l
Appendices
A MON Economic Model A-l
B Sensitivity Analysis of Assumed Elasticities of Demand and Supply B-l
C Sensitivity Analysis of Assumed Quantity of MON Chemicals Produced
Using Continuous Processes C-l
D Model Results, Including Batch Chemical Producers Only D-l
E Small Business Screening Sensitivity Analysis E-l
F Industry Profile of Affected SIC Codes F-l
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LIST OF FIGURES
Number Page
2-1 Worldwide Pigment Consumption by Industry 2-10
2-2 Worldwide Photographic Equipment and Supplies Consumption by Country 2-23
5-1 Distribution of Cost-to-Sales Ratios 5-5
5-2 Distribution of Profit Margins 5-7
5-3 Distribution of Cost-to-Sales Ratios 5-9
5-4 Distribution of Profit Margins With Regulation 5-11
Vlll
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LIST OF TABLES
Number Page
2-1 Industry Groups Profiles and Related SIC Codes 2-2
2-2 Value of Shipments (1998 $106) 2-38
2-3 Inputs Used in Plastic Materials and Resins Industry 2-40
2-4 Total Resin Sales and Captive Use by Major Market (millions of pounds,
dry weight basis) 2-41
2-5 Size of Establishments and Value of Shipments for SIC 2821, 1997 2-42
2-6 Measures of Market Concentration by SIC: 1992 2-43
2-7 Industry Statistics for the Top Five States for SIC 2821, 1992 2-44
2-8 Production and Consumption Trends for SIC 2821, 1992 to 1997 2-44
2-9 Number of MON Facilities by State 2-46
2-10 Number of Facilities by SIC Code by Industry Segment 2-47
3-1 Estimated Baseline HAP Emissions, Emission Reductions, and Cost of
Compliance for Facilities Affected by the MON 3-2
4-1 Estimated Baseline Quantities and Prices for the MON Markets: 1998 4-5
4-2 U.S. Industry-Level Impacts (106 1998$/yr) 4-6
4-3 Distribution of the Social Costs (106 1998$/yr) 4-8
5-1 Total Annual Costs for Complying with MON: February 1999 5-2
5-2 Summary Statistics for SBREFA Screening Analysis: MON—Regulation of
Coating Facilities: 1998 5-4
5-3 Profit Margins With and Without Regulation of Coatings Manufacturers .... 5-6
5-4 Summary Statistics for SBREFA Screening Analysis: Impacts of the
Regulation of Other Miscellaneous Organic Chemical Manufacturers using
Batch and/or Continuous Production Processes 5-8
5-5 Profit Margins With and Without Regulation of Manufacturers of Other
Miscellaneous Organic Chemicals using Batch and/or Continuous
Production Processes 5-10
IX
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SECTION 1
INTRODUCTION
The U.S. Environmental Protection Agency (EPA) is developing a maximum achievable
control technology (MACT) standard to reduce hazardous air pollutants (HAPs) from the coatings
manufacturing and chemical manufacturing source categories. EPA estimates that 370 facilities
produce miscellaneous organic NESHAP (MON) products, including 207 that produce MON
organic chemicals using batch processes, 140 that produce MON chemicals using continuous
processes, and 127 that produce MON coatings. Of the 370 facilities, 64 use both batch and
continuous processes to produce organic chemicals; 15 produce both coatings and continuous-
process MON chemicals; 12 produce both coatings and batch-process organic chemicals; and two
produce coatings, batch-process chemicals, and continuous-process chemicals.
To support EPA's development of the MACT standards, hereafter referred to as the
Miscellaneous Organic NESHAP or MON, EPA's Innovative Strategies and Economic Group
(ISEG) has conducted an economic impact analysis (EIA) to assess the potential costs of the rule.
This report documents the methods and results of this EIA.
1.1 Agency Requirements for an EIA
Congress and the Executive Office have imposed statutory and administrative requirements
for conducting economic analyses to accompany regulatory actions. Section 317 of the CAA
specifically requires estimation of the cost and economic impacts for specific regulations and
standards proposed under the authority of the Act.1 ISEG's Economic Analysis Resource
Document provides detailed instructions and expectations for economic analyses that support
In addition, Executive Order (EO) 12866 requires a more comprehensive analysis of benefits and costs for
proposed significant regulatory actions. Office of Management and Budget (OMB) guidance under EO
12866 stipulates that a full benefit-cost analysis is required only when the regulatory action has an annual
effect on the economy of $100 million or more. Other statutory and administrative requirements include
examination of the composition and distribution of benefits and costs. For example, the Regulatory
Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996
(SBREFA), requires EPA to consider the economic impacts of regulatory actions on small entities.
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rulemaking (EPA, 1999a). In the case of the Miscellaneous Organic NESHAP, these requirements
are fulfilled by examining the effect of the regulatory alternatives on the following:
• market-level impacts,
• industry-level impacts, and
• societal-level impacts.
1.2 Summary of EIA Results
The proposed MON rule will impose small production costs and therefore generate small
economic impacts in the form of small increases in market prices and decreases in MON chemicals
and coatings produced. The impacts of these price increases will be borne largely by other
manufacturers that use the MON chemicals as inputs and to some extent by some domestic
producers in terms of lower profits. The behavioral responses and adjustments by consumers and
producers to changes in market conditions will ensure that, by and large, the social costs of the
regulation are lower than the pure financial or "engineering" costs. The key results of the EIA for
MON are as follows:
• Engineering Costs: Total annual costs measure the costs incurred by affected
industries annually. Batch producers of organic chemicals incur the largest share,
approximately $55.9 million, while continuous producers of organic chemicals incur an
estimated $22.3 million, and coating manufacturers incur an estimated $16 million. The
average annual costs for the chemical manufacturers totaled $78.2 million.
• Price and Quantity Impacts: These impacts are small.
- The average prices for MON chemicals and coatings are projected to increase by
less than 0.5 percent, or less than $0.01 per pound.
- The quantity of regulated coatings is estimated to decline by 3.7 million pounds, and
the quantity of MON chemicals is estimated to decline by approximately 36 million
pounds. Both of these declines represent less than 0.2 percent of baseline
production.
• Small Businesses: EPA performed a screening analysis for impacts on small businesses,
by comparing compliance costs to baseline company revenues. Of the 148 companies
owning MON chemical facilities, EPA estimates that 12 businesses, all small
businesses, will incur costs exceeding 1 percent of baseline sales.
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• Social Costs: The economic model estimates a slightly smaller total social cost of the
rule of $94.1 million. Consumers (domestic and foreign) are projected to lose $62.8
million, and directly affected producers lose $31.5 million. (Note that in the case of the
market for MON commodities, consumers are generally other producers of
intermediate or final goods.) Within the coatings sector, EPA estimates that eight
businesses, including seven small businesses, will incur costs to comply with MON that
exceed 1 percent of their baseline sales. Of the 148 companies owning MON chemical
facilities, EPA estimates that 12 businesses, all small businesses, will incur costs
exceeding 1 percent of baseline sales.
1.3 Organization of this Report
The remainder of this report supports and details the methodology and the results of the
EIA of the Miscellaneous Organic NESHAP.
• Section 2 presents a profile of the affected industry.
• Section 3 describes the estimated costs of the regulation.
• Section 4 describes the EIA methodology and reports market-, industry-, and societal-
level impacts.
• Section 5 presents estimated impacts on companies owning MON facilities, including
small businesses.
• Appendix A provides a description of the operational model used to develop
quantitative estimates of the economic impacts.
• Appendices B, C, and D report the results of sensitivity analyses of impact estimates to
changes in key model parameters.
• Appendix E includes results from the initial screening analysis performed to estimate
economic impacts and inform the development of the economic model.
• Appendix F is a profile of the affected industry segments.
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SECTION 2
INDUSTRY PROFILE
The proposed MON rulemaking will affect facilities and companies producing
miscellaneous organic chemical products and coatings. EPA's data do not permit clearly identifying
the marketed commodities produced by these facilities or the production processes used. EPA is
able to determine the general types of products produced, based on the Standard Industrial
Classification (SIC) code identified for each facility. This section summarizes profiles of several
industries as identified by their SIC codes. These SIC codes represent the industries for the
majority of potentially affected facilities. The detailed SIC code profiles are provided in Appendix
F.
SIC codes potentially affected by the MON rulemaking include the following:
• 2851 Paints and Allied Products,
• 2865 Cyclic Organic Crudes and Intermediates, and Organic Dyes and Pigments,
• 2869 Industrial Organic Chemicals, Not Elsewhere Classified,
• 2841 Soaps and Other Detergents,
• 2842 Polishes and Sanitation Goods,
• 2843 Surface Active Agents,
• 2873 Nitrogenous Fertilizers,
• 2874 Phosphatic Fertilizers,
• 2875 Mixing-Only Fertilizers,
• 3861 Photographic Equipment and Supplies,
• 2891 Adhesives and Sealants,
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• 2893 Printing ink,
• 2899 Chemical Preparations,
• 2824 Organic Fibers, and
• 2821 Plastic Materials, Synthetic Resins, and Nonvulcanizable Elastomers.
To understand the context for the regulation, EPA prepared industry profiles for related groups of
these SIC codes. Appendix F contains these eight profiles. The industry groups for which profiles
were prepared are shown in Table 2-1.
Table 2-1. Industry Groups Profiled and Related SIC Codes
Industry Group
Related SIC Codes
NAICS Codes
Paints and Allied Products
Industrial Organic Chemicals
Soaps and Cleaners
Agricultural Chemicals
Photographic Equipment and Supplies
Adhesives, Sealants, and Printing Ink
Organic Fibers (Noncellulosic)
2851
2865, 2869
2841, 2842, 2843
2873, 2874, 2875
3861
2891, 2893, 2899
2824
Plastics Materials, Synthetic Resins, and 2821
Nonvulcanizable Elastomers
32551
32511,325132,325192,
325188,325193,32512,
325199
325611,325612,325613
325311,325312,325314
333315, 325992
32552, 32591, 32551, 31942,
325199,325998
325222
325211
The following eight sections provide short summary profiles of these industry groups.
Section 2.9 describes the organization of the MON industries and summarizes data on regulated
facilities based on EPA's database.
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2.1 Paints and Allied Products
The paint and allied products industry is relatively small when compared to other
manufacturing industries. In 1997, the sector (SIC 2851, NAICS 32551) shipped $19,221.7
million dollars worth of products. All dollar values are 1998 dollars unless otherwise indicated.
This industry supplies essential products to major manufacturing and consumer industries from
automobiles to home furnishings.
Typical products manufactured by the industry include paints (ready-made and paste),
varnish, lacquers, enamels and shellac putties, wood filters and sealers, paint and varnish removers,
paint brush cleaners, and other allied paint products.
Three market segments account for the vast majority of output: architectural coatings (SIC
28511), original equipment manufacturer (OEM) product coatings (SIC 28512), and special
purpose coatings (SIC 28513). While SIC 2851 grew 16.4 percent over the period 1987 to
1995, architectural coatings grew 20.9 percent, OEM grew 18.2 percent, and special purpose
coatings grew 24.0 percent in real terms. Overall, despite the recession in the early 1990s, the
value of shipments increased 25.8 percent from 1987 to $19,221.7 million in 1997.
Architectural coatings accounted for 33.7 percent of this industry's total value of shipments
in 1995. Commonly referred to as house paint, the architectural coatings sector generates nearly
half of the industry's revenue. In 1995, sales of OEM constituted 29.3 percent of the industry's
total value of shipments. OEM products are often custom formulated to meet applications specified
by the end user. Primary users of OEM paints are automobile, appliance, equipment
manufacturing, and furniture industries. Special purpose coatings shipments amounted to 17.3
percent of the 1995 industry receipts. While similar to architectural coatings in that this sector
could be classified as stock or shelf goods, the special purpose coatings sector formulates its
product for specific applications and/or environmental conditions and typically sells directly to the
end user. The primary markets for its products are automotive, machine refinishing, industry
maintenance, bridge and traffic markings, and marine.
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2.1.1 Supply Side of the Industry
2.1.1.1 Production Processes
Paints primarily comprise pigments, resins, and solvents. The industry purchases the
majority of its inputs from other manufacturers in the chemical industry (SIC 28). Most paints
comprise four basic groups of chemical raw materials: binders and resins, pigments and extenders,
solvents, and additives. When a paint is applied to a surface, the solvents begin to evaporate while
the binder, pigments, and additives remain on the surface and harden to form a solid film. The
chemical and physical properties of paints are directly related to the choice and concentration of
raw materials determined during the production process. Paints are divided into two categories:
water- and solvent-based paints and powder paint.
2.1.1.2 Types of Output
The various products produced by the paint and allied products industry can be divided and
described as follows:
• Architectural coatings: Protective and decorative coatings applied onsite to the interior
or exterior surfaces of industrial, commercial, institutional, or residential buildings for
ordinary use and exposure. Architectural coatings include clear finishes and spar
varnishes, enamels, primers, paints, stains, and lacquers.
• OEM coatings: Coatings designed specifically for an OEM to meet application and
product requirements to be applied during the manufacturing process. OEM coatings
include both powder coatings and electrical insulating coatings.
• Special purpose coatings: These coatings differ from architectural coatings in that they
are formulated for special applications and/or environmental conditions such as extreme
temperatures, chemicals, and fumes. Types include:
- industrial new construction and maintenance paints,
- marine paints including ships and offshore facilities,
- traffic paints,
- refmish paints, and
- aerosol paints.
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2.1.1.3 Costs of Production
The inputs for paints and allied products include various resins, solvents, pigments,
extenders, binders, and other additives. In constant 1998 dollars, the cost of materials rose 27
percent over the period 1987 to 1997 to $9,948 million. The higher cost of materials reflects the
changing content of paint products. The use of higher solids content and environmental concerns
necessitated using more expensive ingredients and using epoxies in paint. Prices for acetone,
benzene, chlorine, and fiber-grade increased; however, phenol prices remained steady. The
increasing cost of raw materials has been a concern for the industry.
The amount of labor employed by the industry dropped from 55,200 in 1987 to 52,700 in
1997, while the industry's payroll increased by $289.5 million (1998 dollars), indicating that the
manufacturing process became increasingly mechanized and required skilled labor. In 1992, energy
costs were $129.4 million, which is a 1.02 percent increase over 1992 figures.
2.1.1.4 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is the
ratio of the actual operations to the full production levels. From 1993 to 1998, the capacity
utilization rates fell from 67 to 59 percent. Capacity utilization rates typically fall near 70 percent
for the industry.
2.1.2 Demand Side of the Industry
Modern chemistry has produced coatings that add aesthetic value and are also resistant to
natural elements, or electrical conduction, or wear and tear by vehicles. The paint and allied
products industry is able to formulate a coating to fulfill almost any request a client may have. In the
last 20 years, the industry has made major advances in the durability and quality of coatings.
The coatings industry is essential to nine other major U.S. industries: automobiles, trucks
and buses, metal cans, farm machinery and equipment, construction machinery and equipment,
metal furniture and fixtures, wood furniture and fixtures, major appliances, and coil coating (high
speed application of industrial coatings to continuous sheets, strips, and coils of aluminum or steel)
(U.S. Department of Commerce, 1995f).
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There are few substitutes for coatings. Within the industry, the 20 percent growth of
powdered paints in the 1980s quelled the demand for liquid products. Powdered paints are
popular because of environmental concerns.
2.1.3 Organization of the Industry
2.1.3.1 Firm Characteristics
In 1997, the majority (61 percent) of facilities producing paints and allied products were
small facilities with fewer than 20 employees. However, these facilities contributed only 8.2 percent
to the total value of shipments. In 1992, the five largest coatings companies accounted for 31.1
percent of 1992 sales of coatings.
Based on concentration ratios and the Herfindahl-Hirschmann index (HHI), paints and
allied coatings is not a concentrated industry. This indicates that the paint and allied products
market is fairly competitive.
2.1.3.2 Geographical Distribution
Facilities involved in the coatings industry are concentrated in states with heavy involvement
in manufacturing. Ohio, California, and Illinois alone accounted for 35.3 percent of the total value
of shipments and 33 percent of total employment in the industry.
2.1.4 Markets and Trends
There has been mild growth in the percentage of domestic production of paints and allied
products being exported. Domestic consumption of paints and allied products increased by 10.7
percent, while domestic production increased by 14.1 percent over the period 1987 to 1994.
2.2 Industrial Organic Chemicals
SICs 2865 and 2869 are divisions of the greater Industrial Organic Chemicals category,
representing cyclic crudes and intermediates and industrial organic chemicals not elsewhere
classified (N.E.C.), respectively. These are major sectors within the U.S. chemical industry, and
had a combined annual value of shipments of $83,323.4 million ($1998) in 1997. All values in this
report are in 1998 dollars.
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Products produced by cyclic crudes and intermediates are divided into three sectors. First,
the aromatic chemical production sector produces benzene, toluene, mixed xylenes, and
napthalene. The second and third sectors produce synthetic organic dyes and synthetic organic
pigments, respectively. Dyes are colored substances that are fully soluble in the vehicle or medium.
Pigments are colored, colorless, or flourescent finely divided solids that are usually insoluble in (and
unaffected by) the vehicle or medium in which they are placed. Both provide color by absorbing or
reflecting selected light rays.
The cyclic crudes and intermediates industry was affected by the early 1990s' recession.
In 1989, the value of shipments reached $10,657.1 million but fell to $10,409.3 million in 1992.
The industry began to recover and shipped $12,264 million worth of goods in 1997, an increase of
nearly 17.9 percent over 1987's value.
The miscellaneous industrial organic chemicals group includes establishments producing
chemicals that cannot be classified in other SIC categories. Product groupings range from chemical
warfare gases to synthetic perfumes and flavoring chemicals. This industry suffered from the same
recessionary effects as SIC 2865, although in terms of percentages, the effects were not as
significant. In 1997, its shipments were valued at $71,059.4 million, an increase of 40 percent over
1987's value.
2.2.1 Supply Side of the Industry
Production processes vary, but generally involve reacting (through a variety of methods)
raw materials and chemicals together in vats or tanks to form a product, then cooling, refining, and
for solids, drying, and packaging. Between the 1992 and the 1997 Census of Manufactures,
expenditures on new capital in the dyes and pigments industry increased from $17.5 billion to $19.2
billion (U.S. Department of Commerce, 1995f; U.S. Department of Commerce, 1999h; U.S.
Bureau of Labor Statistics, 2000).
2.2.1.1 Major By-products and Co-products
The chemical industry produces a significant amount of waste. Even a small amount of
discharge is noticeable because of the color or aroma of the emissions. For environmental and
public health reasons, facilities clean their waste before discharge. Acidic and alkaline liquors are
neutralized, and the waste is filtered to remove heavy materials before leaving the facility.
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2.2.1.2 Types of Output
Dyes and pigments are available in a variety of forms: dry powders (both surface treated
or untreated), presscakes, flushed colors (thick pastes), fluidized dispersions (pourable), resin
predispersed pigments, and plastic color concentrates or master batches (granules). Pigment types
include azo pigments, lakes, copper phthalocyanines, quinacridones, diaryl pyrrolopyrroles, and
dioxazine.
Aromatic chemicals include products such as benzene and toluene. Cyclic crudes include
light oils and light oil products and products of medium and heavy oil such as napthalene.
Miscellaneous industrial organic chemicals comprise nine general categories of products:
• aliphitic and other acyclic organic chemicals (ethylene); acetic, chloroaceptic, adipic,
formic, oxalic, and tartaric acids and their metallic salts; chloral, formaldehyde, and
methylamine;
• solvents (ethyl alcohol etc.); methanol; amyl, butyl, and ethyl acetates; ethers; acetone,
carbon disulfide and chlorinated solvents;
• polyhydric alcohols (synthetic glycerin, etc.);
• synthetic perfume and flavoring materials (citral, methyl, oinone, etc.);
• rubber processing chemicals, both accelerators and antioxidants (cyclic and acyclic);
• cyclic and acyclic plasticizers (phosphoric acid, etc.);
• synthetic tanning agents;
• chemical warfare gases; and
• esters, amines, etc., of polyhydric alcohols and fatty and other acids.
2.2.1.3 Costs of Production
Cyclic crudes and intermediates have long been a mature industry. Until 1996, employment
varied little, holding steady at an average of 23,000 workers for the years 1987 to 1996.
However, between 1996 and 1997, employment fell by 15 percent. Payroll remained around the
same level during this period. It is notable that while the level of employment in the industry fell by
15 percent between 1996 and 1997, the payroll increased by almost 37 percent. The cost of
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materials does appear to trend upward, but only slightly. The cost of materials only increased 7.4
percent between 1987 and 1997. New capital investment averaged $724.8 million per year.
Employment in miscellaneous organic chemicals, SIC 2869 (NAICS 32511, 325188,
325193, 32512, 325199), averaged 97,890 for the 1987 to 1997 time period. Between 1987 and
1994, employment fell 10 percent to 89,800, after a high of 101,000 in 1991. Most jobs lost were
at the production level. Facilities became far more computerized, incorporating advanced
technologies into the production process. Since 1994, employment in the industry has increased to
reach 100,100 in 1997. Even though 1997 employment was about the same as that in 1987,
payroll was $1,060.8 million more in 1997 than in 1987. The cost of materials has increased over
past years, rising from about $29 billion in 1987 to almost $41 billion in 1997. New capital
investment averaged $3,955 million a year.
2.2.1.4 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is the
ratio of actual production level to the full production capacity level. The capacity utilization ratio for
the cyclic crudes and intermediaries industry and the miscellaneous industrial organic chemicals
industry generally range between 80 and 90 percent.
2.2.2 Demand Side of the Industry
2.2.2.1 Product Characteristics
Dyes and pigments are popular for their ability to color materials. Dyes' properties are
much the same as pigments, except they are soluble in the vehicle. Pigments are available in varied
qualities. Pigments are rated using the following attributes: tinctorial strength, durability, hiding
power, transparency, and heat and solvents resistance. Other properties used to judge pigments are
brightness (saturation), gloss, rheology, dispersability, crystal stability, bleed resistance, and other
properties associated with specialized applications. These attributes vary greatly, from poor to
outstanding. Quality depends on the quality of the raw materials and the process and equipment
used to create the pigment. Aromatic chemicals are formulated to affect the smell of various
products and are used in cosmetics and household products.
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Miscellaneous industrial organic chemicals' properties are as varied as the chemicals
themselves; some are valued for their ability to affect our foods in a positive manner, others are used
in war.
2.2.2.2 Uses and Consumers of Products
Dyes and pigments are used for decorative and/or functional purposes. Pigments and dyes
are used in a great many light and durable goods and add aesthetic value to the products into which
they are incorporated. Dyes are most commonly used to color polyester and cotton, the two most
popular fibers. The textile industry and individual consumers both use dyes. However, the textile
industry consumes more dyes in terms of volume and value.
Pigments are used in a variety of products ranging from printing inks to plastics. Pigments
have a more varied customer base because of their use in plastics, household products, printing,
paints of all kinds, cements, waxes, artist materials, and wall paper (to name a few industries), as
well as textiles. The worldwide printing ink industry consumes 41 percent of the total value of
pigments, paints 29 percent, plastics 23 percent, and special applications 7 percent (see Figure 2-1).
Special /^ ^Printing Ink
Applications ^ ^ 41%
7%
Figure 2-1. Worldwide Pigment Consumption by Industry
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Miscellaneous industrial organic chemicals uses and consumers are as varied as their
products. Common uses and consumers include food products, plastics additives, the flavor and
fragrance industry, and others.
2.2.3 Organization of the Industry
2.2.3.1 Firm Characteristics
Both SIC codes are dominated by large, multinational firms. Many of the largest firms
operating in the market are subsidiaries of major European conglomerates, such as Hoechst. In the
cyclic crudes and intermediates industry, 150 companies controlled 206 facilities, 143 of which
employed more than 20 employees in 1992. In the miscellaneous industrial organic chemicals
industry, 489 companies controlled 705 facilities, 428 of which employed more than 20 employees
in 1992.
To assess the competitiveness of a market, economists often estimate four- and eight-firm
concentration ratios (CR4 and CR8) and HHI. The CR4 and CR8 concentration ratio indicates the
percentage of the industry's total sales that is accounted for by its top four (eight) firms. HHI
measures indicate that the two industries are relatively unconcentrated. Firms in less-concentrated
industries are more likely to be price takers, while firms in more-concentrated industries are more
likely to be able to influence market prices.
2.2.3.2 Geographical Distribution
Companies choose plant locations because of their access to raw materials and proximity to
major transportation networks and customers. Available data indicate that, apart from South
Carolina, the northern mid-Atlantic states and Illinois dominate cyclic crudes and intermediates
production. South Carolina is the state with the largest value of shipments, $864.4 million in 1992.
The top five states (by value of shipments) shipped 34 percent of the industry's total value of
shipments.
Texas dominates the miscellaneous industrial organic chemicals. Texas alone shipped
$26,615.6 million worth of product in 1992, 45.1 percent of the national total. The top five states
also include Louisiana, New Jersey, Illinois, and West Virginia. These five states were responsible
for 72.1 percent of the nation's total value of shipments in 1992.
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2.2.4 Markets and Trends
The market for cyclic crudes, intermediates, and miscellaneous industrial organic chemicals
grew steadily through 1989, but then dropped in the early 1990s. The market began rebounding in
1994. From 1987 to 1995, there was a net increase in production of 7.1 percent, while
consumption grew by 6.8 percent.
The United States remains an important exporter of organic chemical products, selling nearly
$17.2 billion (1998) dollars worth of chemical products to foreign countries in 1995. The chemicals
were sold predominantly to NAFTA, the EU, and Japan.
2.3 Soaps and Cleaners
SIC 284 consists of cleaning products, a medium-sized American industry. Soaps and other
detergents (SIC 2841), polishes and sanitation goods (2842), and surface active agents (2843)
encompass a wide variety of cleaning agents. The largest market served by these industries is the
one for bar soap for personal bathing. In 1997, the total value of this industry's shipments was
$32,387.3 million. All dollar values are 1998 dollars unless otherwise indicated.1
The soap and other detergents industry is nearly twice as large, in terms of value of
shipments, as the next largest four-digit SIC code grouping, polishes and sanitation goods. Over the
period 1987 to 1997, the soap and other detergents industry grew 21.2 percent in real terms. The
industries comprising this SIC produce soap, synthetic organic detergents, and inorganic alkaline
detergents in addition to crude and refined glycerin from vegetable and animal fats.
The polishes and sanitation goods industry shipped $8,434.4 million worth of goods in 1997,
an increase of 25.3 percent since 1987. Firms engaged in this industry produce polishes for metals
and furniture; household bleaches; waxes; and household, institutional, and industrial disinfectants.
The surface active agents industry's value of shipments was fairly steady between 1987 and
1996. In 1997, the industry experienced significant growth, shipping $7,046.6 million dollars worth
of product that year, 45 percent more than in 1996. Surface active preparations are used as
emulsifiers, wetting agents, and penetrants in soaps and detergents.
Values adjusted using the plant cost index published in Chemical Engineering, various years.
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2.3.1 Supply Side of the Industry
2.3.1.1 Production Processes
Soap and detergent manufacturing differs depending on the final form of the product: liquid
(including gel), powdered, or bar. However, the first step in the manufacturing process, choice of
inputs, is similar in theory across all three processes. Soap and allied products inputs are chosen
using the following guidelines: human and environmental safety, cost, compatibility with other
ingredients, and the form and characteristics of the final product.
The basic ingredients are surfactants(or surface active agents) and builders. Surfactants
change the properties of water, effectively reducing the surface tension of water to enable the
cleaning solution to wet a surface more quickly so dirt and oils can be more easily and quickly
removed. Surfactants also work to keep oils and dirts from settling back into their previous
positions.
There are four categories of surfactants, based on their ionic properties: aionic, nonionic,
cationic, and amphoteric. Aionic are used in laundry, hand dishwashing, and personal cleansing
products. They create the greatest amount of suds. Nonionic surfactants are used in low-suds
products such as laundry and dishwasher detergents. Cationic surfactants are used primarily by
fabric softening companies. Finally, amphoteric surfactants are used primarily in personal cleansing
and cleaning products because their charges change depending on the pH level of the water, making
them very flexible.
2.3.1.2 Major By-products and Co-products
The most significant co-product of cleaning products manufacturing is glycerine. Glycerine
producers are grouped under SIC 2841. An important industrial material, glycerine is removed from
the production line after saponification. It is then treated and refined for use in foods, cosmetics,
drugs, and other products.
2.3.1.3 Types of Output
The following products are produced by these industries:
• personal cleaning products: bars, soaps, liquid cleaning products, heavy-duty hand
cleaners:
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• laundry detergents and aids: liquids, powders, gels, sticks, powders, pastes, sheets, and
sprays; bleaches; bluings, enzyme presoaks, fabric softeners, starches, water softeners;
• dishwashing products: automatic detergents, rinse agents, film removers; lime and rust
removers;
• household, institutional, and industrial cleaning products and polishes: all-purpose
cleansers, abrasive cleansers, clear-surface cleaners, metal cleaners and polishes, tile
cleaners, oven cleaners, rug and other surface shampoos, drain openers, and toilet
cleaners; and
• cleanser ingredients: wetting agents, emulsifiers, and penetrants.
2.3.1.4 Costs of Production
During the late 1980s and early 1990s, the soaps and other detergents industry (SIC 2841)
grew, adding nearly 5,000 workers, an increase of 15.5 percent, between 1987 and 1991. After
the recession, however, the industry begun reducing its quantity of labor inputs. Even though the
value of shipments was 21.6 percent higher in 1997 than in 1987, employment was 8.5 percent
lower. For the 1987 to 1997 period, payroll rose 3.7 percent and the cost of materials by only
3.3 percent. Energy costs also dropped noticeably during the mid-1990s. New capital investment
for the 10 years presented averaged $506.6 million a year.
SIC 2842, polishes and sanitation goods, followed a more conventional pattern from 1987
to 1997. The 25.3 percent increase in the real total value of shipments was accompanied by
increases in costs of production. From 1987 to 1997, employment increased 6.7 percent to reach
22,000. Payroll grew to $730.2 million, an increase of 21.3 percent. The largest increase was in
the area of raw materials cost; increasing 37.5 percent from 1987 to 1997. Energy costs were $4.5
million higher in 1997 than in 1987. New capital investment averaged $136.3 million a year.
From 1987 to 1995, surface active agents manufacturers, SIC 2843, experienced a general
rise in costs, indicating that the 95 percent rise in the value of shipments may not have been
accompanied by a commensurate rise in industry profits. In 1997, employment was 4.3 percent
higher than in 1987. The payroll was 29 percent higher in 1997 than 1987. Such significant
increases in payroll indicate that labor become may have become productive over this time period.
Over this same time period, the costs of materials rose by 45 percent. New capital investment
averaged $156.2 million over these 9 years. Energy expenditures rose 36.3 percent.
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2.3.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is the ratio
of actual production level to the full production capacity level. Over the period 1992 to 1997, the
capacity utilization rates for the three four-digit SIC codes in this industry have varied widely, from
57 percent to 85 percent. In 1997, capacity utilization was between 60 and 67 percent.
2.3.2 Demand Side of the Industry
2.3.2.1 Product Characteristics
Soaps and allied products can be used to remove dirts and oils from a variety of surfaces
including plastic, tile, metal, fabric, concrete, Formica, stone, and wood. More recently, they have
been combined with antibacterial elements to disinfect as they clean. Cleaning products can also be
formulated to suit a particular consumer's needs.
At the household level, soaps are one of the key components of personal hygiene. In
addition to being able to remove dirt and oil off bodies, these products also fight bacteria. They are
available in powder, liquid, or solid form, and their versatility in application boosts their popularity.
2.3.2.2 Uses and Consumers of Products
There are four general categories of consumers and users of these products: personal,
household, commercial, and industrial. SIC 2843, surfactants, produces intermediate goods used in
soaps and polishes. The consumers of these products are the corporations involved with
manufacturing products for the consumer groups listed above. Many goods are used by more than
one category. For instance, car manufacturers may be industrial consumers when using cleaners
during the production process, but they are also institutional users when using these products to
clean their offices.
2.3.2.3 Substitution Possibilities
In many respects, no products can substitute for cleaning agents. Within the industry itself,
however, liquids, solids, and powders are substitutes. One medium, or vehicle, can substitute for
another; however, both individual and industrial consumers purchase more products in liquid and
solid form.
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2.3.3 Organization of the Industry
2.3.3.1 Firm Characteristics
In the soaps and detergents industry, less than 739 companies controlled 760 facilities in
1997. Only 676 companies controlled 728 establishments. In the surfactants industry, 184
companies operated 211 establishments in 1997. In all three industries, facilities with more than 50
employees produce the majority of product (over 80 percent).
To assess the competitiveness of a market, economist often estimate CR4 and CR8 and
HHI. Based on concentration ratios, the soaps and detergents industry appears to be the most
concentrated of the three industries studied in this profile. Firms in more-concentrated industries are
more likely to be able to influence market prices. In 1992, the HHI for soaps and detergents was
1,584; therefore, the industry is considered to be only moderately competitive. The HHI for
polishes and sanitation goods was 817 (i.e., more competitive). The surface active agents industry is
also more competitive, with an HHI of 471 (U.S. Department of Commerce, 1995a).
2.3.4 Markets and Trends
2.3.4.1 Production
Between 1987 and 1995, domestic production of soap and other detergent increased by
10.8 percent (in terms of value of shipments) to meet a 7.5 percent increase in domestic
consumption, and a dramatic 545 percent increase in net exports. A similar trend was evident in the
polishes and sanitation goods industry. Production increased by 19.3 percent between 1987 and
1995, while consumption went up by 18.5 percent, and net exports by 653 percent. Note that net
exports appear to increase dramatically because they are small relative to total production. Although
production and consumption of surface active agents declined over the same period, production did
not decline as much as consumption partly because of strong sales to foreign markets.
2.3.4.2 Consumption
Domestic. Demand for soaps and other detergents has been changing; both household and
industrial consumers' preferences have shifted toward liquid products. Analysts at Chemical Week
project that liquids will soon comprise 50 percent of the market (D'Amico, 1996). Liquid products
currently comprise 43 percent of the soap and detergent market. Consumption of surfactants for
home use is expected to increase 4.5 percent a year through 2005. Bleaches and other cleaning
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compounds (SIC 2842) are not predicted to penetrate the U.S. market any further. Although
2.9 percent growth is expected through 2000, the industry is mature. Future growth should match
the growth in gross domestic product.
Foreign. In 1996, the United States exported $1.3 billion (in nominal terms) worth of soap,
cleansing, and polishing products and preparations. The United States's main trading partners are
NAFTA members, the European Union, and East Asia.
2.4 Agricultural Chemicals
Nitrogenous (SIC 2873), phosphatic (SIC 2874), and mixing-only (SIC 2875) fertilizers
account for an increasingly large portion of the U.S. agricultural chemical industry's revenue each
year. In 1992, the value of shipments of the entire agricultural chemicals industry (SIC 287) was
$20,494.5 million in 1998 dollars. The fertilizer industry contributed $11,000.7 million
(53.7 percent) to that total; the rest was contributed by agricultural chemicals not-elsewhere-
classified (SIC 2879). In 1997, the value of fertilizer shipments was $12,927.2 million in 1998
dollars. The phosphatic fertilizer industry accounted for 45 percent of those shipments. The
nitrogenous and mixing-only fertilizer industries accounted for 29 and 26 percent, respectively.
Unless otherwise indicated, all values cited in this report are in 1998 dollars.
Companies in SIC 2873, nitrogenous fertilizers, produce fertilizers from nitrogenous
materials produced in the same establishment. Manufacturers produce ammonia fertilizer
compounds, anhydrous ammonia, nitric acid, ammonium nitrate, ammonium sulfate and nitrogen
solutions, urea, and natural organic fertilizers (except compost), and mixtures. Ammonium nitrate,
created by reacting nitric acid with anhydrous ammonium, is highly combustible and was for many
years the world's most popular fertilizer. But urea with its higher nitrogen content and ability to be
stored more safely has eclipsed ammonium nitrate.
Phosphatic fertilizer plants (SIC 2874) produce a host of complementary products such as
phosphoric acid; normal, enriched, and concentrated superphosphates; ammonium phosphates;
nitrophosphates; and calcium metaphosphates. The most popular phosphatic fertilizer is
diammonium phosphate (DAP).
SIC 2875, mixing-only fertilizers, comprises establishments that purchase fertilizer materials
and then mix them. Lately, preferences have been shifting away from mixing fertilizers. Some
people have argued that mixing fertilizers are inappropriate because they are not adaptable to
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varying soil quality. Many governments prefer single-nutrient fertilizers applied in appropriate
quantities.
2.4.1 Supply Side of the Industry
2.4.1.1 Production Processes
Nitrogenous Fertilizers. Almost all nitrogenous fertilizers are derived from synthetic
ammonia. A purified hydrogen-nitrogen mixture undergoes catalytic reaction under high pressure
and temperature. The catalyst is specially activated iron. Unreacted gases are recycled, but the
ammonia that forms is condensed with liquefied ammonia, creating synthetic ammonia.
Phosphatic Fertilizers. All phosphatic fertilizers are derived from mineral phosphates.
Phosphate ore is mined, washed, and pulverized. It can then be applied directly as a fertilizer, or it
can undergo further production to create other kinds of fertilizer.
Mixing-Only Fertilizers. The single-nutrient fertilizers produced by the processes
described above are mixed to produce various combinations of mixing-only fertilizers. The resultant
multinutrient fertilizers use phosphorus, nitrogen, or potash as active agents. These fertilizers are
available in liquid, solid, or powdered form.
2.4.1.2 Major By-products and Co-products
The by-products of production (sulfur and ammonia) are captured to produce ammonium
sulfate fertilizer. Dry blending produces a granulated product that is increasingly marketed on the
global market. Another by-product is sulfuric acid (from phosphatic fertilizer production).
2.4.1.3 Types of Output
The main nitrogenous fertilizers in the United States are
• anhydrous ammonia,
• synthetic urea,
• aqua ammonia,
• ammonium nitrate,
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• nitrogen solutions, and
• ammonium sulfate.
The main phosphatic fertilizers are
• direct application rock,
• normal superphosphate,
• wet-process phosphoric acid,
• triple (concentrated) superphosphate,
• diammonium phosphate,
• monoammonium phosphate,
• ammonium polyphosphate, and
• nitric phosphate.
Mixing-only fertilizers are available in any stable combination of the above in either granulated or
fluid form.
2.4.1.4 Costs of Production
The most important input for nitrogenous fertilizer production is natural gas. Natural gas aids
in the production of ammonia and is a preferred source of hydrogen for the fertilizer industry. The
price of natural gas in the United States has increased significantly over the past decade, putting
inflationary pressure on fertilizer prices. However, the cost of materials in general has only increased
by 14 percent from 1987 to 1997. Labor inputs increased 78 percent from 1987 to 1994, but then
dropped 31 percent by 1997. The overall increase in employment from 1987 to 1997 was 22
percent. Despite an overall increase in employment, payroll was actually 2.6 percent lower in 1997
than in 1987. Stricter environmental regulations have spurred an increase in research and
development, which averaged $143.2 million a year over the 1987 to 1995 period.
In the phosphatic fertilizer industry, employment dropped 5.3 percent, but payroll rose by
11 percent between 1987 and 1997. Research and development expenditures followed the same
trend as those for nitrogenous fertilizers.
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The mixing-only fertilizer industry's costs and trends are affected by trends in the nitrogen
and phosphatic fertilizer industries. A 16 percent increase in employment is matched by a 35
percent increase in payroll expenses between 1987 and 1997. Increased production was
accompanied by increases in the cost of raw materials and vice versa. Because this industry mixes
nitrogenous and phosphatic fertilizer products, their trends and costs have a direct impact on this
industry.
2.4.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is the ratio
of actual production level to the full production capacity level. The data indicate that plants
manufacturing nitrogenous fertilizers (SIC 2873) and phosphatic fertilizers (SIC 2874) have been
operating near full capacity, whereas plants manufacturing mixing-only fertilizers (SIC 2875) have
been operating below capacity.
2.4.2 Demand Side of the Industry
2.4.2.1 Product Characteristics
Fertilizers deliver nutrients to soils that lack them, increasing the land's productivity. It is
estimated that without fertilizers, the world would need to place 30 percent more land under
cultivation to create an adequate food supply. Fertilizers are available in solid, granulated, and liquid
form. Versatility of application is desirable because certain environments and soil types require
liquids, while in other areas solids are better. Some fertilizers are combustible and therefore must be
stored with care.
2.4.2.2 Uses and Consumers of Products
Fertilizers are used to increase crop yields per acre and restore nutrients to leeched soils.
The principal consumers are individual farmers, agribusinesses, and government and quasi-
government agencies. .
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2.4.2.3 Substitution Possibilities
The principal substitutes for synthetic fertilizers are more traditional fertilizers-manure and
compost. Although these natural fertilizers excel in many soil types, their quantity is not great enough
to support modern agriculture.
2.4.3 Organization of the Industry
2.4.3.1 Firm Characteristics
Large corporations dominate the small ones in terms of output share in all three industries.
The staying power of large companies is attributed to their ability to gather and spend resources on
research and development in a political environment that favors increased environmental regulation
(Sawinski, 1995).
The competitive nature of an industry can be broadly assessed by looking at the number of
players in the industry. In 1992, 103 companies controlled 152 facilities in SIC 2875, 54 companies
operated 75 facilities in SIC 2874, and 313 companies operated 401 facilities in SIC 2875. The
large number of players in SIC 2875 indicates that it is a competitive industry.
Economists also estimate CR4 and CR8 and HHI to evaluate the competitiveness of a given
industry. The four-firm concentration ratio for phosphatic fertilizers in 1992 was 62, meaning that
the top four firms accounted for 62 percent of the industry's total sales. The phosphatic fertilizer
industry is therefore considered to be less competitive, because a big share of the market is
concentrated in the hands of a few large firms. On the other hand, the CR4 and CR8 for mixing-
only fertilizers were 19 and 31 respectively, in 1992, indicating the presence of a competitive
market. In 1992, the HHI for nitrogenous fertilizers was 792, so it is a less concentrated industry
(i.e., more competitive). The HHI for phosphatic fertilizers was 1,528 (moderately competitive),
and mixing-only fertilizers was 187 (more competitive).
Firms in these industries are either large public or private corporations or small private
companies engaged in producing other chemicals in addition to fertilizers. Many of the other
products produced by these companies are classified as industrial organic or inorganic chemicals.
2.4.4 Markets and Trends
Fertilizer production increased by 19.9 percent over the period 1989 to 1995.
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Real growth in nitrogenous fertilizer production is not expected to exceed 1 or 2 percent a
year in the future, partly because of the difficulty in handling gaseous anhydrous ammonia.
Phosphatic fertilizers are predicted to follow a similar trend (Department of Justice and Federal
Trade Commission, 1992).
The United States's decline in these industries relative to other countries is due to relatively
less expensive natural gas in countries such as Russia, Canada, and Mexico for producing
nitrogenous fertilizers. For phosphatic fertilizers, the emergence of Morocco as a significant
producer will impact the United States's export markets. Morocco has four times the phosphatic
ore deposits of the Unites States. The United States imported $1.4 billion worth of fertilizers in
1996, leaving net exports of $1.7 billion.
Domestic consumption of fertilizers is not expected to exceed the 1 to 2 percent growth in
production in the foreseeable future.
The U.S. net exports of fertilizers in 1995 were valued at $1,831.6 million. The largest
export markets are in South and East Asia. Foreign consumption of fertilizers produced by the
United States has declined because of an oversupply caused by Morocco flooding the fertilizer
market in attempts to gain foreign exchange.
2.5 Photographic Equipment and Supplies
All photographic chemicals, equipment, and supplies are classified under SIC 3861,
photographic equipment. Establishments are divided into two groups, photographic apparatus and
sensitized film and chemicals. Photographic apparatus include all cameras, both still and motion
picture; tripods; editing equipment; photocopiers; and projectors. This industry profile focuses on
photographic film, plates, and the chemicals used in the photographic process.
Shipments of photographic equipment declined 7.5 percent between 1987 and 1997. The
overall photographic equipment industry (SIC 3861) grew through 1989. Subsequently, increased
foreign competition and the early 1990s recession brought down the value of shipments. The
industry went from a high of $24,919.4 million in 1989 to a low of $21,403.5 million in 1997. All
values in this report are presented in 1998 dollars.2
Values adjusted using the plant cost index published in Chemical Engineering, various years.
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The United States consumes 40 percent of the world's photographic chemicals and
equipment, followed by Japan (27.8 percent), Western Europe (10.9 percent; excluding Germany),
Germany (6.6 percent), Eastern Europe (10.3 percent), and Africa and Asia combined (2.8
percent) (see Figure 2-2).
Africa and
Asia
3%
Germany
7%
Eastern
Europe
10%
Western
Europe (exc
Germany)
11%
United States
41%
Figure 2-2. Worldwide Photographic Equipment and Supplies Consumption by Country
2.5.1 Supply Side of the Industry
Photographic materials are produced by coating film, plates, or paper with chemicals that
hold latent images after exposure. The process begins with the growth of silver halide crystals, often
in vessels as large as 2,000 liters in large commercial facilities. Silver ions from a silver nitrate
solution and halide ions from alkali halide salt solution come together to form the silver halide. The
crystals are suspended in a gelatin then washed to remove unwanted elements. Next, the silver
halide is once again suspended in a gelatin, but it is cooled soon thereafter to form a gel. The silver
halide is kept in gel form until further processing.
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Once the manufacturer decides to take the process to the next step, the emulsion is melted
and dyes may be added to increase sensitivity for one spectrum or another. After further
sensitivization, the material is coated onto a support, usually paper, glass, film, or plates.
Antifoggants, dye-release materials (for color film), and hardeners are added beforehand. Once the
support is coated, the photographic materials are ready to be exposed.
The chemicals used to develop these photographic materials and toners are produced by
mixing intermediate chemicals with necessary additives. The process depends on which of the over
60 chemicals is used in photographic materials development.
2.5.1.1 Major By-products and Co-products
The industry is inventing new techniques for reusing the film canisters and collecting and
reusing the silver and gold used in production and from post-consumer products. The drying and
disposal of photochemicals during the production and development of the product are on-going
concerns.
2.5.1.2 Types of Output
SIC 3861 produces the following relevant products: sensitized blueprint cloth and paper;
sensitized brownprint cloth and paper; sensitized diazo cloth and paper; sensitized motion-picture, x-
ray, still camera, and special purpose films; sensitized graphic arts plates; heat sensitized paper made
from purchased paper; sensitized latern slide plates; photographic metallic emulsion sensitized paper
and cloth; packaged photographic chemicals; sensitized photographic paper and cloth; sensitized
photographic plates; prepared and packaged photographic toners; and x-ray plates.
2.5.1.3 Costs of Production
The photographic equipment and supplies industry has invested heavily in new capital
equipment to increase production efficiency. The early 1980s saw the industry employing over
100,000 employees. By 1997, that figure had dropped to 63,700. Most jobs lost have been at the
production and distribution level. Total employment and payroll decreased approximately 28 and
15 percent, respectively. The cost of materials stayed fairly constant from 1987 to 1995 but rose to
a new high of $8,143.0 million dollars in 1997. New capital investment averaged $924.0 million a
year and energy costs averaged $203.3 million a year during this period.
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2.5.1.4 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is the ratio
of actual production level to the full production capacity level. The capacity utilization ratio for the
photographic equipment and supplies industry was 83 percent in 1997.
2.5.2 Demand Side of the Industry
2.5.2.1 Product Characteristics
Photographic films, plates, and papers are available in different forms: disc format,
cassettes, reels, 35 mm, 70 mm, and a variety of others. They can hold both color and black and
white latent images.
Photochemicals and toners are used to develop the latent images captured by the
photographic material and to enhance certain characteristics, such as color and texture.
2.5.2.2 Uses and Consumers of Products
The largest consumer group of photographic films is individual consumers. Photographic
materials are used to capture images from holidays, ceremonies, vacations, religious days, national
days, and other events deemed significant by the end user.
The motion picture and television industries of New York and California are the largest
consumers of motion picture film. These films are used in the production of programs to be viewed
in cinemas and on television.
Other significant user groups include photographers, hospitals (x-ray plates), commercial
outfits, publishers, and all levels government agencies. Chemicals and toners are consumed
predominantly by those who develop photographic materials.
2.5.2.3 Substitution Possibilities
For years, the only substitute for photographic products was videotape. However, many
companies are currently developing products that capture images digitally. To date, digital products
do not have the same quality and clarity as chemical products. But the medical industry is leading
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the push towards digital photography because of its advantages in storage, archiving, and electronic
transport from one hospital to another.
2.5.3 Organization of the Industry
2.5.3.1 Firm Characteristics
Most firms in this industry are small and are involved in small-scale, specialized product
production. Market-leaders are large, multinational firms that have just emerged from a period of
corporate austerity and are streamlined and more efficient. In the early 1990s, many firms spun off
subsidiaries and maneuvered themselves to become more vertically integrated (U.S. Department of
Commerce, International Trade Administration, 1993). Eight hundred thirty-one companies
controlled 904 facilities by 1992. In 1997, 694 firms controlled 738 facilities.
In both 1992 and 1997, firms with more than 100 employees dominated the market (in
terms of value of shipments). This is not surprising because of the presence of the three largest
companies in the photographic supplies and chemicals industry in America: Eastman Kodak,
Polaroid, and DuPont. Establishments with more than 100 employees accounted for 86 percent of
the industry's total value of shipments in 1992 and 90 percent of the industry's total value of
shipments in 1997.
To assess the competitiveness of a market, economists often estimate CR4 and CR8 and
HHI. The CR4 for photographic equipment in 1992 was 78, meaning that the top four firms
accounted for 78 percent of the industry's total sales. The CR8 for the same year was 83 (U.S.
Department of Commerce, 1995a). These high concentration ratios indicate that market share is
concentrated in the hands of a few companies. Firms in less-concentrated industries are more likely
to be price takers, while firms in more-concentrated industries are more likely to be able to influence
market prices. The HHI for photographic equipment was 2,408, more concentrated (i.e., less
competitive) (U.S. Department of Commerce, 1995a).
2.5.4 Markets and Trends
2.5.4.1 Production
From 1987 to 1994, net imports of photographic equipment and supplies increased 27.6
percent. Imports supplied a greater fraction of the domestic market. Domestic production of these
products decreased by 7.16 percent, outpacing the 3.8 percent decline in domestic consumption.
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The United States is the largest producer of photographic chemicals and equipment in the
world. Increasingly, Southeast Asia dominates still-camera hardware production. The United
States has not, however, relinquished its control as the world market leader in photographic
chemicals and films, plates, and papers production. Film, papers, and chemicals production is
projected to increase an average of 2 percent a year through the end of the century.
Seventy-one percent of the United States' imports come from Asia, 62 percent of which are
from Japan. Nearly all imports from Asia are produced by Japanese companies either in Japan
proper or from overseas production facilities in Hong Kong, the Philippines, China, and ROC on
Taiwan.
2.5.4.2 Consumption
Domestic consumption patterns are serviced by both American and foreign firms, mostly
Japanese. In 1996, the U.S. trade deficit in this product category widened to $4,600 million, upon
receipt of nearly $10,900 million in imports (all in actual dollars).
The largest foreign markets for U.S. photographic chemicals and films, paper, and plates are
Europe, Asia, NAFTA members, and Latin America. In 1994, the United States exported $5,900
million worth of product.
2.6 Adhesives, Sealants, and Printing Ink
SIC 289 is reserved for industries that produce chemicals and allied products that are not
classified in any of the other chemical subcategories (SIC 28). In 1995, adhesives and sealants
(SIC 2891), printing ink (SIC 2893), and chemical preparations (SIC 2899) accounted for only 7
percent of the chemical industry shipments. Still they provide the U.S. economy with important
products for automobiles and publishing houses, for instance. Shipments were valued at $25,382.2
million in 1997. All dollar values used in the subsequent analysis are 1998 dollars unless otherwise
noted.3
The adhesives and sealants industry (SIC 2891, NAICS 325520) comprises establishments
engaged in manufacturing adhesives for industrial and manufacturing uses. The industry has
Values adjusted using the plant cost index published in Chemical Engineering, various years.
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experienced an increase of 31 percent in the value of shipments from 1987 to 1997. Most of the
increase is due to a sharp 12 percent rise in shipments between 1996 and 1997.
The printing ink industry (SIC 2893, NAICS 325910) comprises establishments engaged in
manufacturing printing inks such as gravure ink, screen process ink, and lithographic ink. The value
of industry shipments grew 45 percent between 1987 and 1997, despite the recession of the early
1990s. In 1997, the industry's shipments were valued at $4172.4 million.
The chemical preparations industry (SIC 2899) shipped $13,821.9 million worth of product,
more product(in terms of dollar value) than the adhesives and sealants and printing ink industries
combined. This industry is diverse, with a wide range of products, including bluing, writing ink,
industrial compounds, and fatty acids.
2.6.1 Supply Side of the Industry
2.6.1.1 Production Processes
Adhesives and Sealants. The manufacturing process for adhesives and sealants involves
combining raw materials in the production apparatus. After the mixing and heating processes have
been completed, the mixture is prepared for packaging. Colorants and other additives are added to
the mixture during the later stages of production.
Printing Ink. To manufacture ink, the producer subjects dry components to two general
processes: mixing and milling. Mixing involves wetting the dry pigments and additives with a liquid
vehicle (resins and solvents), until there is no discernible dry pigment remaining. Ideally, a finished
ink is produced during this stage or after subsequent dilution. Milling can be used to break
components down further to create a finer solution, if desired. The most important aspect of ink
manufacture is the proper dispersion of pigments in the vehicle. For liquid inks, the paste is placed
into a dissolver and more resins and solvents are added to create an ink with the desired
consistency.
2.6.1.2 Major By-products and Co-products
There are no significant by- or co-products generated during the manufacture of adhesives
and sealants or printing ink.
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2.6.1.3 Types of Output
The adhesives and sealants industry produces the following products: adhesives, caulking
compounds, both linoleum and mending cements, epoxy adhesives, all glues (except dental),
household iron cement, joint compounds, laminating compounds, mucilage, adhesive paste,
household porcelain cement, sealing compounds for pipe threads and joints as well as for synthetic
rubber and plastics, and sealing wax.
The printing ink industry produces lithographic inks, screen process ink, bronze ink,
flexographic ink, gold ink, duplicating ink, letterpress ink, offset ink, base and finished printing ink,
and gravure ink. Writing and drawing inks are not included in this classification.
2.6.1.4 Costs of Production
The adhesives and sealants industry was seemingly stagnant over the period 1987 to 1992.
However, growth in the industry has since been spurred by product innovations and new
applications or the adaptation of adhesives and sealants to existing manufacturing technologies.
Investment in research and development and falling labor costs due to increased mechanization have
allowed the industry to become more efficient. Most of the 3,600 jobs eliminated from the industry
from 1987 to 1996 have been at the production level. There was substantial growth in the industry
between 1996 and 1997, which was accompanied by a 20 percent increase in employment (20
percent) between 1996 and 1997. Over 1987 to 1997, the cost of materials fell by 18 percent.
Adhesives and sealants manufacturers are counting on proactive research and development
to keep them one step ahead of environmental regulators and market demands. In particular, the
Clean Air Act motivates them to develop new products (Tollefson, 1994).
Unlike the adhesives and sealants industry, the printing ink industry's growth has been
matched by an equivalent growth in input costs. From 1987 to 1997, the printing industry's value of
shipments increased 45 percent in real terms. Accompanying this increase, payroll costs have risen
by 36 percent, materials by 48 percent, and energy by 16 percent. The industry anticipated the
rising costs of raw materials and labor. However, environmental initiatives are a growing concern,
specifically those pertaining to air permit compliance for volatile organic compounds (VOCs) and
hazardous air pollutants (HAPs).
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2.6.1.5 Capacity Utilization
Capacity utilization for the industry has generally fallen between 70 and 80 percent between
1992 and 1997. From 1993 to 1998, the capacity utilization rates for adhesives and sealants (SIC
2891), printing ink (SIC 2893), and chemical preparations (SIC 2899) fell on average from 81
percent to 68.3 percent (U.S. Department of Commerce, 2000).
2.6.2 Demand Side of the Industry
2.6.2.1 Product Characteristics
Adhesives and sealants are as varied as printing inks in terms of viscosity and physical
characteristics. Those differences aside, all adhesives help to distribute pressure and stress over a
wide area and resist vibration, in addition to joining two surfaces. Sealants prevent the passage of
air, water, or chemicals between two surfaces. Sealants, however, do not have the same cohesive
power as adhesives.
The adhesives and sealants industry is in a state of transition; products are being
reformulated to better serve consumers and adjust to current and pending environmental regulations.
Printing inks are available in two forms, pastes and liquids. Although all inks share the ability
to be applied to a variety of surfaces, inks differ in their viscosity, composition, method of drying,
and physical appearance. These differences are largely the result of differing applications and uses.
However, they all color a surface to produce a desired effect. In the 1990s, inks became
increasingly water-based, a shift away from the traditional resins and solvent-based inks.
2.6.2.2 Uses and Consumers of Products
Adhesives and sealants are used by individual consumers and the construction, packaging,
furniture, appliance, textile, aircraft, and other industries. Technological advances have contributed
to their use by the automotive industry to help build lighter and more fuel-efficient cars. Adhesives
have replaced metal fasteners and spot welds because adhesives do not suffer from the same
traditional bonding corrosion that metals often do. Automotive applications of adhesives have
experienced the largest growth rates.
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Printing inks are used by publishing, printing, and copy houses and are the most essential
input in that process. Writing and drawing inks are not included in this SIC code. Common
consumers include publishers, newspapers, copy centers, and the technology industry.
2.6.2.3 Substitution Possibilities
Substitutes for adhesives and sealants vary depending on their use. For instance, in the
automotive industry, two steel surfaces can be welded together rather than attached using an
adhesive. Currently, there are no substitutes for printing inks. However, within the industry,
powders, pastes, and liquids are interchangeable, depending on the nature of their application.
2.6.3 Organization of the Industry
2.6.3.1 Firm Characteristics
The number of companies in the adhesives and sealants industry (SIC 2891) decreased from
537 to 517 over the 1987 to 1992 period (U.S. Department of Commerce, 1995e; U.S.
Department of Commerce, 1990d). The number of facilities in this industry also decreased from
714 to 685 during the same period.
The number of companies in the printing ink industry (SIC 2893) decreased from 224 to
220, while the number of facilities increased from 504 to 519 between 1987 and 1992. The printing
ink industry is dominated by medium-sized firms. Firms with between 20 and 250 employees
accounted for 71.25 percent of all shipments in 1987. This percentage increased to 77.2 percent in
1992. However, most facilities have fewer than 50 employees.
Most facilities are located in states with significant publishing and printing sectors for printing
ink and near key durable goods production centers for adhesives and sealants.
Measures of market concentration are often used as empirical guides to assess the
competitiveness of a market. Typical measures include CR4 and CR8 and HHI. According to all
these measures, the industry is relatively unconcentrated.
2.6.4 Markets and Trends
In the adhesives and sealants industry, production (as measured by value of shipments)
declined by 0.5 percent, while consumption fell by 2.8 percent during the period 1987 to 1994.
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There was an accompanying increase (445.9 percent) in net exports of adhesives and sealants
during the same period.
Reliable net export statistics are unavailable for the printing ink industry for the period prior
to 1990. Data for subsequent periods indicate the increase in foreign competition faced by the
printing ink industry. Domestic production grew by 17.3 percent and consumption grew by 20.9
percent between 1990 and 1995. Domestic printing ink demand was increasingly supplied by
foreign producers, especially those from East Asia. The United States moved from being a net
exporter in 1990 to a net importer by 1995, because of a major import surge.
2.6.4.1 Production
In 1997 the adhesives and sealants industry was valued at $25 billion (1997 dollars) and is
expected to grow at 3.0 percent for the next few years. But growth as high as 10 percent is
expected by Chemical Marketing Reporter Magazine for some niche markets (Tollefson, 1994).
The printing ink industry is not anticipating any further growth until publishing houses recover
from the recessionary effects of the 1995 paper price increases.
Adhesives and sealants imports were valued at $112.0 million in 1996 (actual dollars).
Most of these imports came from the European Union and NAFTA countries.
In 1996, the United States imported $272.7 million (actual dollars) worth of printing inks,
the bulk of which came from Asia and Europe (DRI McGraw Hill, 1998).
2.6.4.2 Consumption
Domestic adhesives and sealants' demand is projected to match production and imports.
Certain sectors, like the automotive and dental industries, will demand a larger quantity than they
currently do. U.S. consumption of printing inks is not expected to increase in the coming years (DRI
McGraw Hill, 1998).
Total global demand for adhesives and sealants was estimated to reach 1.3 million tons
annually by the year 2000 (DRI McGraw Hill, 1998). In 1996, the domestic adhesives and sealants
industry exported $202 million (actual dollars) worth of products to the rest of the world. Canada
and Mexico remain the largest export markets.
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In 1996, the United States exported $212.8 million (actual dollars) worth of printing ink
products. The fastest growing international market for this industry is Asia (DRI McGraw Hill,
1998).
2.7 Man-Made Fibers, Noncellulosic
The synthetic materials industry in the United States accounts for nearly 25 percent of the
$300 billion a year chemical industry; while man-made fibers contributed 6.25 percent to that total.
SIC 2824 (NAICS code 325222), Organic Fibers (Noncellulosic), comprises 90 percent of total
man-made fiber production. Organic fibers are used in products as varied as clothing and tires
(Mote, 1994). These fibers are largely intermediate goods and are shipped to other manufacturers
in the form of yarn, tow, staple, or monofilament. Thereafter, they are transformed into consumer
and industrial products. In addition to being less expensive than natural fibers, synthetic fibers are
also more durable, hold their shape better, and are more uniform.
The non-cellulosic, man-made organic fibers industry has experienced a mild roller coaster
effect on its revenues in the last year. During the late 1980s, the synthetic fiber industry experienced
steady growth. Between 1987 and 1989 the value of shipments grew 6.3 percent. However, that
growth was negated during the recession in 1991 and 1992. The industry began recovering in 1993,
and value of shipments rose by approximately 10.3 percent between 1991 and 1996, only to fall
again in the following 2 years to reach $12,004.8 million in 1997. All dollar values cited in this
report are in constant 1998 dollars, unless otherwise indicated.4
2.7.1 Supply Side of the Industry
2.7.1.1 Production Processes
Man-made synthetic fibers are derived from both natural and petroleum-based ingredients
that are melted together to form liquids containing free-moving molecules. The liquid passes through
small holes in vats called spinnerets. As the liquid exits the vats, it hardens to form long filaments.
In all these processes, as the fiber is being spun it is manipulated to adopt various physical
properties, such as drapability, softness, elasticity, stiffness, roughness, and resilience. After the
All values inflated using the plant cost index published in Chemical Engineering, various years.
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spinning process, the fibers are stretched and oriented in preparation for dyeing, water resistance,
stretch ability, and strength treatment. The product is then prepared for packaging and shipping.
2.7.1.2 Major By-products and Co-products
SIC 2824 has no co-products. Few by-products are associated with man-made fibers.
Emissions from man-made fiber production are largely recovered by using activated carbon.
However, no stringent air pollution controls are used, meaning that some carbon disulfide and
hydrogen sulfide escape during production.
2.7.7.3 Types of Output
The man-made fiber industry produces fibers derived from molecules containing
combinations of carbon, hydrogen, nitrogen, and oxygen. The output includes polyester, nylon,
olefms, and acrylics.
These fibers are sold to manufacturers in four forms: yarn, monofilament, staple, and tow.
Monofilaments are single, long strands used in toothbrushes and nylon stockings. Staple comprises
fibers that are cut short. Staple is usually blended with other materials to form yarns. Tow is much
like staple, but it is kept in long, rope-like form before being cut at a later time.
2.7.1.4 Costs of Production
New capital investments, increased productivity, and technology improvements have
allowed the industry to cut its labor costs (Mote, 1994). The number of people employed by the
man-made fiber industry has been reduced drastically over the past 15 years. In 1982, SIC 2824
employed over 60,000 people. By 1990, employment had dropped to 48,100. Since 1990,
employment has further decreased by 11,000 jobs (23 percent) to level out at 37,100 jobs in 1997.
Job-loss was concentrated in two areas: production-level positions and middle management.
Increased automation, foreign competition, and new information technologies replaced human labor
in these two areas. Over the period 1987 to 1997, the industry reduced its payroll 9.8 percent,
from $1,602.0 million to $1,445.3 million. By comparison, the costs of materials fell by only 6.5
percent during the same period. The drop in costs is most likely because of the decline in the level
of production. New capital investments averaged $762.8 million a year from 1987 to 1995.
Investments contributed to the creation of new production strategies to help minimize increasing
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costs and make the production process more efficient (Mote, 1994). Energy costs averaged $455.8
million during the 1987 to 1997 period.
2.7.7.5 Capacity Utilization
utilization for the man-made fibers industry. The full production capacity utilization ratio for
the noncellulosic man-made fibers industry was 92 in 1997. Thus, plants manufacturing these fibers
(SIC 2824) have been operating near full capacity.
2.7.2 Demand Side of the Industry
2.7.2.1 Product Characteristics
Man-made fibers are valued for their versatility and variety. They are less expensive than
most natural fibers and are more durable and uniform. Used predominantly by the apparel and
textile industry, synthetic fibers are flexible and resist aging and do not react to exposure to the
elements. The fibers can be manipulated during the manufacturing process to become softer,
rougher, stronger, or more resilient. They can be dyed and are easily woven to form other materials.
Polyester and nylon are two key fibers produced by this industry. Polyester does not retain
moisture, provides excellent electrical insulation, and is highly resistant to solvents. Nylon has a high
strength-to-weight ratio, is not easily permanently deformed, and is resistant to abrasion.
2.7.2.2 Uses and Consumers of Products
The largest consumer of synthetic fibers is the floor-coverings industry. This sector
consumes roughly 32 percent of all fibers produced to make floor coverings for residential,
institutional, and industrial purposes. The apparel and various household textile industries consume
about 25 percent and 10 percent respectively. The remainder is used in such varied industries as
tires (for reinforcement), rope, surgical and sanitary supplies, fiberfill, electrical insulation, and
plastics reinforcements.
Polyester fibers are used predominantly by the home furnishings and apparel industries, as
well as general textile facilities. Nylon is mostly used in carpeting, but also in apparel, noncarpet
home furnishings, ropes, and miscellaneous industrial products. Acrylics and olefms are used in
apparel and highly durable carpeting, respectively. In response to increasing pressure from both the
government and environmental groups, the industry is seeking methods for recycling fibers such as
polyester into new fabrics and carpet materials.
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2.7.2.3 Substitution Possibilities
Synthetic fibers were originally invented to provide the strength and durability that was
lacking in natural fibers such as cotton and wool. Man-made fibers are also less expensive to
produce. Natural fibers may be substituted for man-made ones in apparel, but these fibers do not
have the same resistance to wear and tear that is necessary for use in tires, carpeting, meshes, and
other products. Within the industry, polyester, acrylic, olefm, and nylon fibers have their own market
segments. There is very little substitution between fibers because each fiber is valued for its unique
properties. However, substitutions can occur between varying levels of quality and producers within
each market segment.
2.7.3 Organization of the Industry
2.7.3.1 Firm Characteristics
Traditionally, the nature of the technology and capital costs associated with the manufacture
of noncellulosic organic fibers permitted few firms to break into the market. However, between
1992 and 1997, some of those barriers broke down and the number of facilities in the industry
increased.
Market structure can affect the size and distribution of regulatory impacts; therefore, we
examine the structure of the man-made fiber industry next. The highly concentrated nature of the
man-made noncellulosic fibers industry is also indicated by its HHI of 2,158, and by the fact that the
largest 8 companies account for 90 percent of the value of shipments.
2.7.4 Markets and Trends
2.7.4.1 Production
Between 1987 and 1994, production slowed by 3.9 percent in terms of value of shipments,
accompanying a 0.5 percent drop in consumption and a 61.9 percent drop in net exports. Domestic
output fell by 3.9 percent between 1987 and 1994 in the face of competition from producers in
emerging markets such as Asia and Latin America. However, U.S. corporations still control about
90 percent of the domestic market despite foreign competition.
U.S. corporations controlled roughly 18 percent of the global market for man-made fibers in
1992. That figure was as high as 50 percent in 1950. In 1992, the United States imported nearly
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$900 million worth of man-made fibers. Fifty percent of the present worldwide capacity for
polyester production is in Asia, compared to 13 percent in the United States.
2.7.4.2 Consumption
The U.S. Department of Commerce expects the man-made fiber market to grow by 19
percent between 1995 and 2000. Consumption of polyester, the most popular fiber, is expected to
increase 16 percent over the same period.
The United States is the world's largest exporter of synthetic fibers, followed by Taiwan and
Japan. Other significant exporters are Austria, Canada, and the Southeast Asian nations. The
United States exported $1.7 billion (in nominal terms) in 1992, but producers from emerging
countries such as Indonesia and China are increasing their share of the global market.
2.8 Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers
The Plastic Materials, Synthetic Resins, and Nonvulcanizable Elastomers industry is a
relatively small organic chemical sector. In 1997, the sector (SIC 2821, NAICS 325211) shipped
$49,282 million dollars worth of products. All dollar values are 1998 dollars unless otherwise
indicated. This industry supplies essential products to major manufacturing and consumer industries
from automobiles to home furnishings. Table 2-2 shows value of shipments for SIC 2821. Over the
period 1987 to 1997, shipments grew at an average rate of 8 percent per year.
Typical products manufactured by the industry include cellulose plastics materials, phenolic
and other tar acid resins, urea and melamine resins, vinyl resins, styrene resins, alkyd resins, acrylic
resins, poolyethylene resins, polypropylene resins, rosin modified resins, and other miscellaneous
resins. SIC 2821 produces resins that are inputs into the production of fabricated plastics products
or plastics film, sheet, rod, and other products. Production of fabricated plastic products and
compounding of resins are classified as separate industries.
Plastic materials were first developed in the mid-1800s, with new resins being developed at
an accelerated pace during the first half of the twentieth century. Most of the primary thermoplastic
resins currently in use were developed during the period between 1900 and 1940. The advent of
World War II brought plastics into great demand as substitutes for other materials that were in short
supply, such as natural rubber.. During the decades following World War II, additional new resins
were developed, and the introduction of alloys and blends of various polymers made it possible to
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Table 2-2. Value (1998 $106) of Shipments
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2821
$22,173
$33,217
$35,192
$31,393
$29,290
$29,640
$29,982
$36,566
$49,634
$43,093
$49,282
Prices adjusted using the PPI for SIC 2821.
Sources: U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures, Industry
Series: Paints and Allied Products. Washington, DC: Government Printing Office.
U. S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U. S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U. S. Department of Commerce, Bureau of the Census. August 1997b. 1996 Current Industrial
Reports: Paint, Varnish, and Lacquer. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999h. 1997Economic Census. Washington,
DC: Government Printing Office.
U. S. Bureau of Labor Statistics, Producer Price Index Revision—Current Series. Series ID PCU2821 #.
. Obtained August 18, 2000
tailor properties to fit specific performance requirements. The demand for plastics increased
steadily, as designers and engineers began to substitute plastics for other more traditional materials in
production of automobiles, producer goods, and consumer goods (SPI History, 2000).
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2.8.1 Supply of Plastic Materials and Resins
2.8.1.1 Production Processes
Polymers and resins are generally produced through a polymerizing chemical reaction, with
the specific chemical reagents depending on the specific resin to be produced. Acetal resins are
produced by the polymerization of purified formaldehyde into both homo polymer and copolymer
types. Amino resins include both melamine and urea resins. Melamine resins are formed by the
condensation reaction of formaldehyde and melamine. Urea resins are formed by the condensation
reaction of formaldehyde and urea. Phenolic resins were the first commercialized wholly synthetic
polymer of plastic. The basic raw materials are formaldehyde and phenol.
2.8.1.2 Types of Output
Plastic resins can be divided, generally, into thermoset resins, which first liquify then harden
in the presence of heat, and thermoplastic resins, which become pliable in the presence of heat.
Thermosets include epoxy, polyester (unsaturated), urea and melamine, and phenolic resins.
Thermoplastics include low density polyethylene, high density polyethylene, polypropylene,
acrylonitrile-butadiene -styrene (ABS), Styrene-Acrylonitrile (SAN), polystyrene, nylon, polyvinyl
chloride, thermoplastic polyester, and engineering resins. In 1997, total value of shipments for the
industry (in 1998 dollars) was $49,282 million. Of that total, approximately $40,615 million (82
percent) were shipments of thermoplastic resins, and $8,229 million (18 percent) were shipments of
thermosetting resins.
2.8.1.3 Costs of Production
The inputs for plastic materials and resins include raw materials, especially petrochemicals.
Other inputs include labor and energy. In constant 1998 dollars, the cost of materials more than
doubled over the period 1987 to 1997, as output also more than doubled (see Table 2-3).
2.8.1.4 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio measures
the ratio of actual operations to the full capacity production levels. Capacity utilization ranged
between 84 percent and 89 percent over the period 1993 to 1998.
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Table 2-3. Inputs Used in Plastic Materials and Resins Industry
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(io3)
56.3
58.3
62
62.4
60.5
60.4
62.2
69.2
70
58.6
61.035
Payroll
(1998 $106)
1,695
2,245
2,522
2,491
2,457
2,530
2,661
3,116
3,783
3,078
3,465
Materials
(1998 $106)
13,019
20,001
21,474
19,433
18,420
17,838
18,534
21,701
29,967
26,684
28,090
New Capital
Investment
(1998 $106)
1,054
1,661
2,081
2,442
2,231
1,617
1,830
2,527
2,654
2,992
NA
Energy
(1998 $106)
NA
NA
NA
NA
NA
1,067
1,177
1,267
1,408
1,482
1,690
Prices adjusted using the PPI for SIC 2821.
2.8.2 Demand for Plastic Materials and Resins
Individual plastic materials and resins are valued because they have specific product
characteristics that make them well suited for particular uses. Typically, plastic materials may be
lighter, stronger, and/or more durable than some other traditional materials.
2.5.2.1 Uses and Consumers of Plastics
Plastic resins are processed by plastic fabricators into plastic materials, which them may be
further processed prior to incorporation into final products. Major markets for plastic materials and
resins include transportation, packaging, building and construction, electrical/electronics, furniture
and finishings, consumer and institutional users, Industrial/machinery, adhesives/inks/coatings. Table
2-4 shows total resin use by major market over the period 1992 to 1996. Overall, plastic sales and
use grew by an average of five percent per year over the period, with even faster growth occurring
in the transportation, building and construction, furniture and furnishings, and industrial/machinery
markets.
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Table 2-4. Total Resin Sales and Captive Use by Major Market (millions of pounds, dry
weight basis)
Major Market
Transportation
Packaging
Building and Construction
Electrical/electronic
Furniture and Furnishings
Consumer and Institutional
Uses
Industri al/machinery
Adhesives/Inks/Coatings
All Other
Exports
Total
1992
2,817
18,284
11,876
2,766
2,559
6,093
671
1,723
6,877
6,950
60,562
1993
3,221
19,569
12,885
2,981
2,759
6,015
768
1,572
7,234
6,632
63,636
Year
1994
3,795
19,551
14,715
3,325
3,118
9,266
836
1,789
7,515
6,889
70,799
1995
3,916
19,334
14,321
2,966
3,198
9,054
818
1,795
8,050
7,742
71,194
(
1996
3,964
21,271
16,199
3,137
3,477
9,804
980
1,833
9,361
8,722
78,748
Growth Rates
(%)
6.8
3.0
6.2
2.5
6.1
9.5
7.6
1.2
6.1
4.5
5.3
Prices adjusted using the PPI for SIC 2821.
2.8.2.2 Substitution Possibilities
Substitutes for plastics include all traditional materials. Substitutes for specific resins include
other resins as well as traditional materials. Because plastics are formulated and compounded to
have specific properties demanded for particular uses, other materials are imperfect substitutes for
specific resins. Holding other things equal, this would tend to make demand for specific plastic
resins somewhat inelastic.
2.8.3 Organization of the Industry
2.8.3.1 Firm Characteristics
As shown in Table 2-5, in 1997 and in 1992, the largest number of plastics establishments
had between 20 and 49 employees. However, the largest share of the industry's value of shipments
was produced by establishments with between 100 and 249 employees. More than 75 percent of
the value of shipments is produced by establishments having more than 100 employees. This
suggests that the industry is somewhat dominated by large plants.
2-41
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Table 2-5. Size of Establishments and Value of Shipments for SIC 2821,1997
1992
Employment Size Category
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 1,000 employees
over 1 ,000 employees
Total
Number of
Establishments
26
36
47
110
101
72
30
19
8
449
Value of
1997
Shipments by
Employment Size Number of
(1998 $106) Establishments
27.26897
86.44641
266.0618
1,376.325
3,888.289
6,627.684
5,150.71
6,657.131
a
29,639.76
21
38
56
160
114
94
28
14
7
532
Value of
Shipments by
Employment Size
(1998 $106)
13.59
186.32
539.03
3,417.65
5,958.24
13,837.61
8,971.34
7,968.88
a
49,282.185
Prices adjusted using the PPI for SIC 2821.
a Not shown to avoid revealing company-specific data. Data are included in totals.
The four- and eight-firm concentration ratios (CR4 and CR8) and HHI are used to assess
the market structure of an industry. The CR4 for the plastic materials and resins industry was 24 in
1992, meaning that the top four firms accounted for only 24 percent of the industry's total sales.
The CR8 for the same year was 39 (U.S. Department of Justice, 1992). This indicates that the
plastic materials and resins market is fairly competitive. Furthermore, the HHI for the plastic
materials and resins industry was 284 in 1992. According to the Department of Justice's (1992)
Horizontal Merger Guidelines, industries with HHIs below 1,000 are considered to be
unconcentrated (i.e., more competitive). Therefore, firms in the plastics and resins industry are more
likely to be price takers. Table 2-6 shows the CR4, CR8, HHI, number of companies, and number
of facilities data for SIC 2821 for 1992.
2-42
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Table 2-6. Measures of Market Concentration by SIC: 1992
SIC
SIC 2821
Description
Plastic materials
and resins
CR4
24
CR8
39
HHI
284
Number of
Companies
241
Number of
Facilities
449
Source: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in Manufacturing.
Washington, DC: Government Printing Office.
2.8.3.2 Geographical Distribution
Texas dominates the production of plastic materials and resins. As shown in Table 2-7,
Texas has more than twice as many facilities, twice as much output, and twice as many employees in
the industry as the next largest states. With 68 plants, Texas has more than 12 percent of the total
532 plastic materials facilities in the country. Other states with a large number of facilities or a large
value of shipments include two of Texas' neighbors, Oklahoma and Louisiana, as well as Kentucky
and Indiana.
2.8.4 Markets and Trends
Table 2-8 shows production and consumption trends for the period 1992 to 1997. There
has been considerable growth in the production and consumption of plastics during the period.
From 1992 to 1997, both production and consumption grew at an average rate exceeding 9 percent
per year. Exports and imports both more than doubled during the period, with net exports being
positive and growing, so that domestic production exceeded domestic consumption by a growing
margin.
2.8.4.1 Production
Domestic. Domestic production grew from $31.5 billion to $50.5 billion during the 5 years
from 1992 to 1997. Production grew at an annual rate of more than 9 percent over the 5-year
period, with a 1-year downturn in 1996.
2-43
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Table 2-7. Industry Statistics for the Top Ten States for SIC 2821,1997
State
Texas
Louisiana
Kentucky
Oklahoma
Indiana
Value of
Shipments
(1998 $106)
$16,050.4
$6,617.3
$2,822.0
$1,834.5
$1,656.7
Number of
Facilities
68
21
14
34
15
Facilities With
Fewer Than 20
Employees
53
19
13
29
13
Number of
Employees
12,920
5,152
2,986
3,088
2,711
Prices adjusted using the PPI for SIC 2821.
Source: U.S. Department of Commerce, Bureau of the Census. 1999h. 1997 Economic Census. Washington,
DC: Government Printing Office.
Table 2-8. Production and Consumption Trends for SIC 2821,1992 to 1997 (1998 $106)
Year
1992
1993
1994
1995
1996
1997
Domestic
Production
31,529
31,924
37,633
50,278
45,945
50,493
Value of Imports
2,033
2,477
3,344
4,797
4,633
5,294
Value of Exports
6,714
6,919
8,437
11,949
11,505
13,139
Apparent
Consumption
26,848
27,482
32,540
43,126
39,073
42,648
Prices adjusted using the PPI for SIC 2821.
Foreign. Foreign plastic materials producers increased their sales to the United States
during the period. In 1997, U.S. imports were $5.2 billion.
2-44
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2.8.4.2 Consumption
Domestic. Domestic consumption grew at an annual rate of more than 9 percent over the
period from 1992 to 1997, with a 1-year downturn in 1996.
Foreign. In 1997, U.S. plastic materials producers exported $13.1 billion of plastic resins
to NAFTA countries, western Europe, and Asia.
2.8.4.3 Trends
For the near term, 2000-2004, the outlook for plastics will continue to be favorable, with
constant dollar shipments growing between 3 and 4 percent per year. A somewhat weaker
domestic economy is projected to reduce consumption in some key end-use markets, including
construction and transportation. However, economic recoveries in Asia and Latin America are
projected to somewhat offset the slowing domestic demand (McGraw-Hill, U.S. Department of
Commerce, 2000).
2.9 Industry Organization
This section provides information for describing firm behavior within markets for
miscellaneous organic chemicals, describes the location of facilities producing miscellaneous organic
chemicals within each market segment, and characterizes the companies owning miscellaneous
organic chemicals plants.
Market structure is of interest because it determines the behavior of producers and
consumers in the industry. If an industry is perfectly competitive, then individual producers are
unable to influence the price of the output they sell or the inputs they purchase. Competitive
conditions are most likely in industries with a large number of firms, homogeneous inputs and
outputs, and few barriers to entry or exit. Of the industries profiled above, the vast majority are
considered not concentrated according to concentration ratios and the HHI. Inputs and outputs are
typically industrial organic chemicals or coatings, which are fairly homogeneous. Thus, we are
modeling the industry as perfectly competitive.
2.9.1 Production Facilities
EPA estimates that 370 facilities produce MON products, including 207 that produce MON
chemicals using batch processes, 140 that produce MON chemicals using continuous processes,
2-45
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and 127 that produce MON coatings. Of the 368 facilities, 64 use both batch and continuous
processes to produce organic chemicals; 15 produce both coatings and continuous-process MON
chemicals; 12 produce both coatings and batch-process organic chemicals; and two produce
coatings, batch-process chemicals, and continuous-process chemicals.
MON facilities are located in 35 states, with the largest number of facilities concentrated in
Texas, Illinois, Louisiana, and Ohio. Table 2-9 shows the geographic distribution of MON facilities.
Table 2-9. Number of MON Facilities by State
State
AL
AR
CA
CT
DE
FL
GA
IA
IL
IN
KS
KY
LA
MA
MD
MI
MN
MO
MS
Number of Facilities
8
5
20
3
2
6
7
4
52
8
4
4
27
1
6
9
2
13
2
State
NC
NJ
NV
NY
OH
OK
OR
PA
RI
SC
TN
TX
VA
WA
WI
WV
None
Total
Number of Facilities
14
17
1
12
26
2
2
18
1
6
10
57
6
1
4
6
4
370
Many of the MON facilities are characterized by SIC codes that indicate the primary
industrial activity at that site. Table 2-10 shows SIC codes for facilities in each industry segment.
2-46
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Table 2-10. Number of Facilities by SIC Code by Industry Segment
SIC Code
2812
2813
2819
2821
2822
2823
2824
2833
2841
2843
2851
2861
2865
2869
2873
2879
2891
2893
2899
2911
3081
None
Total
Paints and Coatings Batch Organic Chemicals
1
3 40
1
1
1
2
6
96 14
4
16
56
1
13 2
14
15
1 47
127 207
Continuous Organic
Chemicals
2
2
3
26
3
1
2
36
1
4
38
7
2
4
2
5
1
1
140
2.9.2 Quantities ofMON Commodities Produced
EPA has data on quantities of MON coatings produced and quantities of MON organic
chemicals produced using the batch process for many affected facilities. Because many of these
data have been claimed by the companies as confidential business information (CBI), and because
2-47
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the product descriptions given by the companies were company-specific and difficult to interpret,
EPA has for modeling purposes aggregated across all products within each of these two sectors to
estimate the total market quantity of MON organic chemicals and MON coatings. EPA estimates
that production of MON coatings totals 1,190,674 metric tons and that production of MON organic
chemicals using batch production processes totals 4,351,289 metric tons (refer to Section 4 for
further analysis). EPA does not have data on the quantity of MON organic chemicals produced
using continuous production processes. To model the impacts of the proposed rule on the market
for MON organic chemicals, EPA assumed that the quantity produced using continuous processes
is equal to the quantity produced using batch processes. EPA therefore estimates that the total
quantity of MON organic chemicals produced is 19,186,000,000 pounds. Because of the
uncertainty about the quantity of chemicals produced using continuous processes, EPA performed a
sensitivity analysis, assuming that continuous MON chemical production is half that of batch
processes (14,390,000,000 pounds) and also that it is 1.5 times that of batch processes
(23,983,000,000 pounds).
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SECTION 3
ENGINEERING COST AND EMISSION REDUCTION ESTIMATES
This section presents the Agency's estimates of the compliance costs associated with the
proposed NESHAP on the production of miscellaneous organic chemicals, including coatings and
other organic chemicals. This regulation will affect all 127 facilities producing paints and allied
products and all 107 facilities producing batch chemicals. The Agency estimated facility-specific
costs for these two industry segments. The Agency is not certain how many of the 127 facilities
producing organic chemicals using continuous processes will incur costs. The Agency has
estimated the total costs for this industry segment but was not able to assign costs to individual
facilities.
3.1 Control Costs
Estimated costs of control include the following types of costs:
• total capital costs, an estimate of the cost of investment in new plant and equipment
required to comply with the proposed regulation;
• operating and maintenance costs, which include the annual costs of compliance such as
additional labor, materials, or energy used for compliance activities, monitoring,
recordkeeping, and reporting;
• product recovery credits; and
• total annual costs, which include annual capital costs, annual operating and
maintenance costs, and recovery credits.
3.2 National Emissions Reductions and Compliance Costs
EPA's estimated costs of control are shown in Table 3-1, along with baseline emissions and
estimated emission reductions. For each market segment, the proposed MACT standard would
result in substantial reductions in HAP emissions. The emission reductions range from
approximately 38 percent for continuous process organic chemical producers to nearly 73 percent
5-1
-------
Table 3-1. Estimated Baseline HAP Emissions, Emission Reductions, and Cost of Compliance for Facilities Affected
by the MON
to
Costs for Batch Chemical
Producers
Minimum
Mean
Maximum
Total, Batch Facilities
Total, Continuous
Facilities
Total, Organic Chemical
Producers
Costs for Coating
Producers
Minimum
Mean
Maximum
Total, Coating Producers
National Total
Baseline
HAP
Emissions
(tn/yr)
—
237.3
2,557.5
49,120.8
13,805.3
62,926.1
1.7
61.4
454.2
7,792.3
70,719.1
HAP
Reduction
(tn/yr)
—
110.0
1,667.1
22,774.7
5,234.5
28,009.2
0.4
44.7
312.9
5,674.1
33,683.3
Total Annual
Cost ($/yr)
—
270,194
3,579,843
55,930,257
22,288,551
78,218,808
6,048
126,092
418,429
16,013,704
94,232,512
Total Capital
Cost ($/yr)
-1,697
413,657
3,042,470
85,626,995
33,244,471
118,871,466
5,148
452,893
2,238,111
57,517,432
176,388,898
Operating &
Maintenance
($)
—
234,247
3,254,441
48,489,182
19,577,187
68,066,369
5,394
85,909
238,826
10,910,495
78,976,864
Annualized
Capital Costs
($/yr)
-186
45,420
334,064
9,401,865
3,650,272
13,052,137
733
49,990
246,618
6,348,699
19,400,836
Cost-
Recovery effectiveness
Credit ($) ($/tn HAP)
—
9,469
150,788
1,960,135
938,233
2,898,368
79
9,808
68,986
1,245,640
4,144,008
2,447
4,255
2,800
2,822
2,800
-------
for coating producers. Nationwide, emissions are expected to decline by approximately 47.6
percent.
The final column in Table 3-1 shows the cost-effectiveness of the regulation for each
market segment. Overall, it costs between $2,205 and $24,410 per metric ton of HAPs removed.
Total annual costs measure the costs incurred by the industry annually. For the industry as
a whole, they total approximately $94.2 million.
For batch producers of organic chemicals, the total annual cost ranges from $0 per year to
$3.58 million, averaging $270,000. EPA has not estimated facility-specific costs of control for
facilities producing organic chemicals using continuous processes, but the average total annual cost
for the 127 facilities in the chemical manufacturing segment (assuming all incur costs) is $175,500.
Estimated total annual cost for coating manufacturers ranges from $6,050 to $418,000 and
averages $126,000.
-------
SECTION 4
ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS
The proposed MACT standard requires miscellaneous organic chemical and coatings
manufacturers to meet emission standards for the release of HAPs into the environment. To meet
these standards, firms will have to install control devices on process vents, storage tanks, and waste
water systems and to regularly search equipment components for leaks. These changes result in
higher capital and operating costs for the affected producers. They also have broader societal
implications because these effects are transmitted through market relationships to consumers of
these products.
To measure the size and distribution of these economic impacts, the Agency compared the
baseline conditions for two affected aggregate MON commodities with those for the with-regulation
conditions expected to result from implementing the MACT standard. The main elements include
• a general description of the conceptual approach consistently used in previous
economic analyses to estimate the impacts of MACT regulations and
• development of an economic model that characterizes aggregate baseline supply and
demand for each commodity and evaluates the behavioral responses of economic
agents to the regulation.
The economic model projects a price increase of MON commodities of 0.29 percent for
coatings and by 0.38 percent for chemicals. Coatings manufacturers are expected to see a 0.38
percent decrease in profit. Consumers (domestic and foreign) are expected to lose $62.8 million;
directly affected producers are expected to lose $31.5 million.
4.1 Conceptual Approach
The Agency conducted a market-level rather than the facility-level characterization for two
markets—MON chemicals and MON coatings. The analysis was restricted to the market-level for
three reasons:
4-1
-------
• data limitations: The Section 114 survey responses showed a wide array of
commodities potentially impacted by the regulation. However, sufficient commodity
information (i.e., descriptions and particularly prices) was not available to appropriately
model these markets at this level of detail.
• use of confidential business information: Lower levels of aggregation were not used
in order to avoid disclosure of confidential business information.
• per-unit cost screening analysis: EPA computed the per-unit cost of regulation for
each facility and this analysis suggested these costs are small and similarly distributed
across industries.
Given this conclusion, the Agency considered whether producers and consumers act as
price-takers in these markets (i.e., perfect competition), or whether they have some degree of
market power (i.e., monopoly or oligopoly). For this analysis, EPA modeled both markets as
competitive. The Agency concluded this assumption is appropriate given the following information:
• product characteristics and substitution possibilities: Limited commodity
descriptions were available. However, similar SIC industry groupings were reported
and used as the next best alternative to infer that the grouped products could be
considered homogeneous or close substitutes.
• empirical measures of market concentration: The degree of competition in a market
is often addressed by looking at census statistics such as the sum of the squared market
shares of all firms (Herfindahl Hirschmann Index). Although definitive conclusion about
market concentration cannot be drawn from this measure, HHI indices for the industry
groups with the most facility observations (SIC 2851 and SIC 2869) are below 1,000.
Therefore, these industries could be considered "unconcentrated" using the Department
of Justices's horizontal merger guidelines.
In competitive markets, buyers and sellers exert no individual influence on market prices.
Price is set by the collective actions of producers and consumers, who take the market price as a
given in making their production and consumption choices. The baseline consists of a market price
and quantity that are determined by the intersection of the downward-sloping market demand curve
and the upward-sloping market supply curve. With the regulation, the cost of production increases
for suppliers costs associated with the installation of pollution control equipment and associated
operating costs. Incorporating these costs is represented by an upward shift of the aggregate supply
4-2
-------
curve by the per-unit compliance cost. At the new equilibrium with the regulation, the market price
increases and market output declines.
4.2 Operational Model
To develop quantitative estimates of economic impacts, the Agency developed an
operational model using spreadsheet software. As described below and in Appendix A, this model
characterizes baseline supply and demand in these two markets and the behavioral responses to
changes in costs and/or market prices.
4.2.1 Market Supply
The Agency modeled these markets as having one aggregate supplier with upward-sloping
supply curves, reflecting increasing marginal costs as output increases. For this analysis, the simple
specification (Cobb-Douglas) was used to derive the supply curves for the aggregate producer
subject to the regulation. The supply function parameters are calibrated using baseline production,
price data, and assumptions about the responsiveness of supply to changes in price (supply
elasticity). Absent literature estimates, EPA used a supply elasticity of 1 (i.e., a 1 percent change in
the price of the commodity would result in a 1 percent increase in the supply). Sensitivity analysis
was conducted in order to assess the impact of this assumption on impact estimates (see
Appendix B).
4.2.2 Market Demand
EPA modeled one aggregate consumer with a downward-sloping demand curve that is
consistent with the theory of demand (i.e., consumption of the commodity is high at low prices and
low at high prices, reflecting the opportunity costs of purchasing these products). The Agency
developed this curve using baseline quantity, price data, and assumptions about the responsiveness
to changes in price (demand elasticity). For domestic demand, a demand elasticity of-0.5 was
used (i.e., a 1 percent increase in the price of the commodity would result in a 0.5 percent decrease
in quantity demanded, and vice versa). Sensitivity analysis was also conducted for this assumption,
which is presented in Appendix B.
4.2.3 Control Cost Inputs and With-Regulation Equilibrium
Incorporating the control costs into the market model shifts the market supply curve
upward by the per-unit compliance cost. In other analyses performed for the Agency, only
4-3
-------
compliance costs that vary with output levels are included in computing this shift under the
assumption that only these costs affect the firm's decision regarding how much to produce. The
fixed cost component of compliance costs is typically assumed to only influence a firm's decision
regarding whether to operate or to exit the market. Nonetheless, an argument can be made that,
prior to investing in compliance capital, the scale of these expenditures could, at least in principle,
vary with the level of output. Therefore, EPA computed a parallel shift in the supply curve using the
average annual total compliance costs for each market.
4.3 Market Model Results
The theory presented above suggests that producers attempt to mitigate the impacts of
higher-cost production by shifting the burden onto other economic agents to the extent the market
conditions allow. As expected the model projects upward pressure on prices as producers reduce
output rates in response to higher costs. Higher prices reduce quantity demanded and output for
the commodity, leading to changes in economic surplus to consumers and profitability of firms.
These market adjustments determine the social costs of the regulation and its distribution across
stakeholders (producers and consumers).
The model estimates impacts separately for the coatings and chemicals markets. The
coatings market includes all the facilities identified as affected by EPA. Market quantity is
computed by summing the quantities of MON coatings they produce. The chemicals market
includes both batch chemical producers and continuous chemical producers. EPA has facility-
specific quantities of MON chemicals produced by batch producers, but has no data on quantities
of MON organic chemicals produced using continuous processes. In the absence of such data,
EPA assumes that the quantity of MON organic chemicals produced using continuous processes is
equal to the quantity using batch processes. Sensitivity analysis is performed on this assumption,
and the results are presented in Appendix C. Because the data for batch producers is more
complete, EPA also estimated the impacts of the proposed rule on batch processors only. These
results are shown in Appendix D. An average price for each of these markets was computed
based on SIC-level customs value of imports and import quantities1 reported by the U.S.
International Trade Commission (USITC, 2000).
'Import quantities for these industries include different units of measure (i.e., weight [kilograms] and volume
[liters]). The Section 114 responses report quantities in pounds; thus, these values were used for price
calculations.
4-4
-------
EPA believes that all domestic producers of the MON organic chemicals and coatings will
be affected by the regulation. Thus, there are no domestic suppliers that would be indirectly
affected by the rulemaking through changes in market price. Because EPA has only limited
information on the specific products being affected by the proposed rulemaking, it was not possible
to compile data on imports and exports of those commodities. Thus the market analyzes only
impacts on directly regulated facilities.
4.3.1 Market-Level Impacts
The increased cost of production due to the regulation is expected to increase the price of
MON commodities and reduce their production/consumption from baseline levels. As shown in
Table 4-1, the regulatory alternative is projected to increase prices of coatings by less than one-half
percent, 0.29 percent. The model projects chemical prices will increase by 0.38 percent. Coatings
output declines by 0.14 percent, or 3.7 million pounds. Chemical output also declines by 0.19
percent, or 36.7 million pounds.
Table 4-1. Estimated Baseline Quantities and Price for the MON Markets: 1998
Market price ($/lb)
Market quantity (106 Ibs)
Domestic
Market price ($/lb)
Market quantity (106lbs)
Domestic
Baseline
$1.43
2,625
2,625
$0.71
19,186
19,186
With
Regulation
$1.43
2,622
2,622
$0.71
19,149
19,149
Absolute
Change
$0.004
-3.7
-3.7
$0.003
-36.7
-36.7
Relative
Change
0.29%
-0.14%
-0.14%
0.38%
-0.19%
-0.19%
4.3.2 Industry-Level Impacts
Revenue, costs, and profitability of the affected industries also change as prices and
production levels adjust to increased control costs. For these producers, operating profits are
projected to decline by $31.3 million (see Table 4-2), or 0.36 percent. In the coatings industry
sector, revenues are estimated to increase by $5.3 million, or 0.14 percent, while costs are
estimated to increase by $10.7 million, or 0.57 percent. Thus, coating manufacturers are estimated
4-5
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Table 4-2. U.S. Industry-Level Impacts (106 1998 $/yr)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$13,622
$6,811
NA
$6,811
$6,811
$17,376
$8,688
NA
$8,688
$8,688
With
Regulation
$3,760
$1,888
$16
$1,872
$1,872
$13,648
$6,863
$78
$6,785
$6,785
$17,408
$8,751
$94
$8,657
$8,657
Absolute
Change
$5.3
$10.7
$16.0
-$5.3
-$5.3
$26.1
$52.1
$78.1
-$26.0
-$26.0
$31.4
$62.7
$94.1
-$31.3
-$31.3
Relative
Change
0.142%
0.568%
NA
-0.284%
-0.284%
0.191%
0.765%
NA
-0.382%
-0.382%
0.181%
0.722%
NA
-0.361%
-0.361%
to experience a decline in profits of approximately $5.3 million. In the organic chemicals sector of
the industry, revenues are estimated to increase by 26.1 million, while costs are estimated to
increase by $52.1 million. Thus, overall, producers of MON organic chemicals are estimated to
experience decreases in profits of $26 million, or 0.38 percent.
4.4 Additional Firm-Level Analysis
Although facility-specific impacts (i.e. closures) cannot be estimated using the aggregate
model described above, the Agency did conduct a screening analysis that develops limited
quantitative estimates of the economic impacts on individual firms. Using this approach, producers
"fully absorb" the compliance costs and their production choice is limited to compliance at the
4-6
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current operating rates. For each firm, the Agency computed a "sales" and "profit" test statistic to
measure economic impacts of the rule. The "sales" test compares the annual compliance costs to
baseline sales of the firm. The "profit" test compares annual compliance costs and baseline profit
margins. Note, however, this approach excludes behavioral responses (i.e. changes in
production/consumption rates and prices) that economic theory suggests will occur with changes in
costs of production. Results of the firm-level analysis are presented in Section 5, and a screening
analysis of small business impacts is presented in Appendix E.
4.5 Social Costs
The value of a regulatory action is traditionally measured by the change in economic welfare
that it generates. The regulation's welfare impacts, or the social costs required to achieve
environmental improvements, will extend to consumers and producers alike. Consumers
experience welfare impacts due to changes in market prices and consumption levels associated with
the rule. Producers experience welfare impacts resulting from changes in profits corresponding with
the changes in production levels and market prices. However, it is important to emphasize that this
measure does not include benefits that occur outside the market, that is, the value of reduced levels
of air pollution with the regulation.
4.5.1 Engineering Compliance Costs
The national compliance cost estimates are often used as an approximation of the social
cost of the rule. The engineering analysis estimated annual costs of $94.2 million, including $55.9
million in total annual costs for batch organic chemical facilities, $22.3 million in total annual costs
for continuous organic chemical producers, and $16.0 in costs for MON coating producers. Using
engineering compliance costs to estimate social costs assumes the burden of the regulation falls
solely on the MON facilities that experience a profit loss exactly equal to the cost estimate. Thus,
the entire loss is a change in producer surplus with no change (by assumption) in consumer surplus.
This is typically referred to as a "full-cost absorption" scenario in which all factors of production are
assumed to be fixed and firms are unable to adjust their output levels when faced with additional
costs.
4.5.2 Estimated Social Cost
In contrast, the economic analysis accounts for behavioral responses by producers and
consumers to the regulation (i.e., shifting costs to other economic agents). This approach may
4-7
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Table 4-3. Distribution of the Social Costs (106 1998 $/yr)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$62.8
-$10.7
-$52.1
-$31.3
-$5.3
-$26.0
-$94.1
67%
33%
result in a social cost estimate that differs from the engineering estimate and also provides insights
on how the regulatory burden is distributed across stakeholders. As shown in Table 4-3, the
economic model estimates a slightly smaller total social cost of the rule of $94.1 million.
Consumers (domestic and foreign) are projected to lose $62.8 million, and directly affected
producers lose $31.5 million. (Note that in the case of the market for MON commodities,
consumers are generally other producers of intermediate or final goods.)
4-8
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SECTION 5
SMALL BUSINESS IMPACT ANALYSIS
This regulatory action will potentially affect the economic welfare of owners of facilities that
manufacture coatings and other miscellaneous organic chemicals. The ownership of these facilities
ultimately falls on private individuals who may be owners/operators that directly conduct the
business of the firm (i.e., single proprietorships or partnerships) or, more commonly, investors or
stockholders that employ others to conduct the business of the firm on their behalf (i.e., privately
held or publicly traded corporations). The individuals or agents that manage these facilities have the
capacity to conduct business transactions and make business decisions that affect the facility. The
legal and financial responsibility for compliance with a regulatory action ultimately rests with these
agents; however, the owners must bear the financial consequences of the decisions. Environmental
regulations like this rule potentially affect all businesses, large and small, but small businesses may
have special problems in complying with such regulations.
The Regulatory Flexibility Act (RFA) of 1980 requires that special consideration be given
to small entities affected by federal regulation. The RFA was amended in 1996 by the Small
Business Regulatory Enforcement Fairness Act (SBREFA) to strengthen the RFA's analytical and
procedural requirements. Prior to enactment of SBREFA, EPA exceeded the requirements of the
RFA by requiring the preparation of a regulatory flexibility analysis for every rule that would have
any impact, no matter how minor, on any number, no matter how few, of small entities. Under
SBREFA, however, the Agency decided to implement the RFA as written and that a regulatory
flexibility analysis will be required only for rules that will have a significant impact on a substantial
number of small entities (SISNOSE). In practical terms, the amount of analysis of small entities'
impacts has not changed, for SBREFA required EPA to increase involvement of small entity
stakeholders in the rulemaking process. Thus the Agency has made additional efforts to consider
small entity impacts as part of the rulemaking process.
5-1
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5.1 Identifying Small Businesses
As described in Section 2 of this report, the Agency identified a substantial number of small
businesses potentially affected by the proposed rule. Based on SBA employee size definitions, 72
(40 percent) of the 181 affected companies can be classified as small.
5.2 Screening-Level Analysis
Prior to completing the economic analysis, the Agency completed a preliminary screening-
level analysis to assist in determining whether this rule is likely to impose a significant impact on a
substantial number of small businesses. The analysis employed a "sales test," which computed the
annualized compliance costs as a share of sales for each company. The annual compliance costs
were defined as the engineering control costs imposed on facilities owned by these companies (see
Table 5-1). Only costs imposed on facilities producing coatings or producing chemicals using batch
processes were calculated by facility. Costs imposed on continuous production processes were
estimated as a lump sum cost. Since the Miscellaneous Organic Chemicals NESHAP will consist
of two regulations, one for coatings manufacturers and one for manufacturers of other miscellaneous
organic chemicals, the Agency has estimated the small business impacts of those regulations
separately.
Table 5-1. Total Annual Costs for Complying with MON: February 1999
Number of
Facilities Type of Facility Total Annual Costs ($)
127 Coatings manufacturing $16,013,704
207 Batch process manufacturing of $55,930,257
miscellaneous organic chemicals other
than coatings
140a Continuous process manufacturing of $22,288,551
miscellaneous organic chemicals other
than coatings
Note: Some facilities are engaged in more than one type of production process, so the total number of
facilities above is greater than the actual number of facilities.
a Based on the number of facilities in the database designated as producing chemicals using continuous
processes.
5-2
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Appendix E presents two sensitivity analyses, one that considers the combined impacts of
the two regulations and another that examines the effects of the regulation of batch production
processes only.
5.2.1 Effects of the Regulation of Coatings Manufacturers
Table 5-2 reports total compliance costs of the regulation on facilities that manufacture
coatings, the number of companies affected at the 1 percent and 3 percent levels, and summary
statistics of the cost-to-sales ratios (CSRs) of small companies. Figures 5-l(a) and 5-l(b) illustrate
the distribution of these ratios across small and large companies with sales data.
The aggregate compliance costs of the regulation for facilities producing coatings total $3.8
million for small businesses (see Table 5-2). Thirty-two (44 percent) of the 72 small companies
affected by the miscellaneous organic chemical NESHAP own facilities that manufacture coatings.
RTI obtained sales data for 30 of the 32 small companies that own coating facilities, or 94 percent.
For these companies, the annual compliance costs for small businesses range from 0.08 to 7.74
percent of sales. The average (median) compliance CSR is 1.02 (0.50) percent for the identified
small businesses with sales data. As shown, five small companies are affected at the 1 percent to 3
percent level and two small companies are affected at the 3 percent level. In contrast, only one out
of the 26 large companies that own facilities affected by this regulation will find compliance costs to
be greater than 1 percent of sales.
The effect of cost increases is best understood in the context of the change in profit margin
that will result from the regulation. Table 5-3 shows that the average and median profit margins of
firms owning facilities that produce coatings will decrease more for small firms than for large firms.
Figures 5-2(a) and (b) show the distribution of profit margins for small and large firms under
regulation.
5.2.2 Effects of the Regulation of Chemical Manufacturers
As specified in the introduction to this section, there are two different types of production
processes for miscellaneous organic chemicals—batch processes and continuous processes.
Engineers itemized the compliance costs applicable to batch production processes by facility.
However, the compliance costs applicable to continuous production processes
5O
-------
Table 5-2. Summary Statistics for SBREFA Screening Analysis: MON—Regulation of Coating Facilities: 1998
Total number of companies
Annual compliance costs ($106/yr)
Companies with sales data
Compliance costs are <1% of sales
Compliance costs are > 1 to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios
Average
Median
Maximum
Minimum
Small
32
$3.8
Number Share3
30
23 77%
5 17%
2 7%
1.02%
0.50%
7.74%
0.08%
Large
26
$12.2
Number Share
26
25 96%
1 4%
0 0%
0.10%
0.03%
1.45%
0.00%
All Companies
58
$16.0
Number Share3
56
48 86%
6 11%
2 4%
0.60%
0.17%
7.74%
0.00%
Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
a Total is greater than 100 due to rounding.
-------
100% -,
80%
I 60%
20%
1% 15% 20%
CSR Range
(a) Small Companies
80%
o 60% -
20%
1% 15% 20%
CSR Range
(b) Large Companies
Figure 5-1. Distribution of Cost-to-Sales Ratios
5-5
-------
Table 5-3. Profit Margins With and Without Regulation of Coatings Manufacturers
Small Large
Companies Companies
Profit margins without regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
Profit margins with regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
2.74%
2.70%
5.10%
-0.24%
1
1.71%
2.70%
5.10%
-0.24%
4
4.92%
3.85%
15.05%
1.59%
0
4.82%
3.85%
15.05%
1.59%
0
All
Companies
3.75%
2.70%
15.05%
-0.24%
1
3.16%
2.70%
15.05%
-0.24%
4
were estimated as a lump sum cost to be borne by a total of 140 facilities. To estimate the total
effects of the regulation of chemical manufacturers, the Agency divided the compliance costs
imposed on continuous production processes ($22,288,551) among the 140 facilities.
Table 5-4 reports total compliance costs of the regulation of facilities that manufacture
miscellaneous organic chemicals not used as coatings. The table also shows the number of
companies affected at the 1 percent and 3 percent levels and summary statistics of the CSRs of
small companies. Figures 5-3(a) and 3(b) illustrate the distribution of these ratios across small and
large companies with sales data.
The aggregate compliance costs of the regulation of facilities producing miscellaneous
chemicals total $8.9 million for small businesses (see Table 5-4). Forty-six (64 percent) of the 72
small companies affected by the miscellaneous organic chemical NESHAP own facilities that
manufacture organic chemicals other than coatings. RTI obtained sales data for 41 of the 46 small
companies owning chemical facilities, or 89 percent. For these companies, the annual compliance
costs for small businesses range from
5-6
-------
100%
80%
I" 60%
0)
£ 40%
LL
20%
0%
<0
n
0 - 0.05 - 1-3% 3 - 5% 5-7% 7-1 0% 1 0 - >1 5%
.05% 1 % 1 5%
Profit Margin Range
(a) Small Companies
Frequency
80% -
B0% -
40% -
20% -
n% -
r-,
1 1
1 1 1 1 I 1
<0% 0% 0 - 0.05 - 1-3% 3 - 5% 5-7% 7-10% 10 - >15%
.05% 1 % 15%
Profit Margin Range
(b) Large Companies
Figure 5-2. Distribution of Profit Margins
5-7
-------
oo
Table 5-4. Summary Statistics for SBREFA Screening Analysis: Impacts of the Regulation of Other Miscellaneous
Organic Chemical Manufacturers using Batch and/or Continuous Production Processes
Total number of companies
Annual compliance costs ($106/yr)
Companies with sales data
Compliance costs are <1% of sales
Compliance costs are > 1 to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios
Average
Median
Maximum
Minimum
Small
46
$8.9
Number Share
41
29 71%
7 17%
5 12%
1.13%
0.37%
9.32%
0.00%
Large
102
$69.8
Number Share
102
102 100%
0 0%
0 0%
0.04%
0.02%
0.51%
0.00%
All Companies
148
$78.7
Number Share
143
131 92%
7 5%
5 3%
0.36%
0.03%
9.32%
0.00%
Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
-------
100%
80%
« 60%
20%
20%
100%
20%
0%
0% 0 - .05% 0.05 - 1-3% 3 - 5% 5-7% 7-10% 10 -
1% 15%
CSR Range
(b) Large Companies
15- >20%
20%
Figure 5-3. Distribution of Cost-to-Sales Ratios
5-9
-------
0 to 9.32 percent of sales. The average (median) compliance CSR is 1.13 (0.37) percent for the
identified small businesses with sales data. As shown, seven small companies are affected at the 1
percent to 3 percent level and five small companies are affected at the 3 percent level. In contrast,
none of the 102 large companies that own facilities affected by the chemical manufacturing
regulation will find compliance costs to be greater than 1 percent of sales.
Table 5-5 shows that the average and median profit margins of firms owning facilities that
produce coatings will decrease more for small firms than for large firms. Figure 5-4(a) and (b)
show the distribution of profit margins for small and large firms under the regulation.
Table 5-5. Profit Margins With and Without Regulation of Manufacturers of Other
Miscellaneous Organic Chemicals using Batch and/or Continuous Production Processes
Small Large All
Companies Companies Companies
Profit margins without regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
Profit margins with regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
4.30%
4.00%
18.53%
2.70%
0
3.17%
3.43%
18.52%
-6.62%
2
5.96%
4.50%
82.74%
-13.92%
4
5.91%
4.48%
82.73%
-13.95%
4
5.48%
4.50%
82.74%
-13.92%
4
5.13%
4.20%
82.73%
-13.95%
6
5-10
-------
100%
80%
51 60%
D
£ 40%
LL
20%
0%
<0 0% 0- 0.05- 1-3% 3-5% 5-7% 7-10% 10- >15%
.05% 1% 15%
Profit Margin Range
(a) Small Companies
80% -
o 60% -
0)
C7
® 40% -
LL
20% -
n% -
1 1
n a
<0% 0% 0- 0.05- 1-3% 3-5% 5-7% 7-10% 10- >15%
.05% 1% 15%
Profit Margin Range
(b) Large Companies
Figure 5-4. Distribution of Profit Margins With Regulation
5-11
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5.3 Summary Assessment
The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule
subject to notice and comment rulemaking requirements under the Administrative Procedure Act or
any other statute, unless the agency certifies that the rule will not have a significant economic impact
on a substantial number of small entities. Small entities include small businesses, small organizations,
and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small entities, small entity is
defined as (1) a small business according to Small Business Administration size standards by 4-digit
SIC of the owning entity (in this case, ranging from 500 to 1,000 employees); (2) a small
governmental jurisdiction that is a government of a city, county, town, school district, or special
district with a population of less than 50,000; and (3) a small organization that is any not-for-profit
enterprise which is independently owned and operated and is not dominant in its field.
After considering the economic impact of today's proposed rule on small entities, I certify
that this action will not have a significant impact on a substantial number of small entities. In
accordance with the RFA, as amended by the SBREFA, 5 U.S.C. 601, et. seq., EPA conducted
an assessment of the proposed standard on small business within the industries affected by the rule.
Based on SBA size definitions for the affected industries and reported sales and employment data,
the Agency identified 32 of the 58 companies, or 55 percent, owning affected coating
manufacturing facilities as small businesses. Although small businesses represent 55 percent of the
companies within the source category, they are expected to incur only 24 percent of the total
industry compliance costs of $16 million. There are only two small firms with compliance costs
equal to or greater than 3 percent of their sales. In addition, there are only five small firms with
cost-to-sales ratios between 1 and 3 percent.
An economic impact analysis was performed to estimate the changes in product price and
production quantities for the coating manufacturing firms affected by this rule. The analysis shows
that of the 70 facilities owned by affected small firms, only three are expected to shut down in
response to the implementation of the proposed rule. Hence, it seems reasonable to conclude that
the closures will not lead to a significant economic impact due to the small reduction in facilities
owned by affected small firms.
5-12
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This analysis indicates that the proposed rule should not generate a significant impact on a
substantial number of small entities for the coatings manufacturing source category for the following
reasons. First, there are only seven small firms (or 22 percent of all affected small firms) with
compliance costs equal to or greater than 1 percent of their sales. In addition, there are only two
small firms (or 6 percent of all affected small firms )with compliance costs equal to or greater than 3
percent of their sales. Second, the results of the economic impact analysis show that only three
facilities owned by a small business may close due to the implementation of this rule. It should be
noted that the baseline economic condition of the facility predicted to close affects the closure
estimate provided by the economic model (i.e., facilities that are already experiencing adverse
economic conditions will be more severely impacted than those that are not, and that the facility
predicted to close appears to currently have low profitability). This analysis therefore allows us to
certify that there will not be a significant impact on a substantial number of small entities from the
implementation of this proposed rule. For more information, consult the docket for this project.
As for the chemical manufacturing source category, based on SBA size definitions for the
affected industries and reported sales and employment data, the Agency identified 27 of the 113
companies, or 24 percent, owning affected chemical manufacturing facilities as small businesses.
Although small businesses represent 24 percent of the companies within the source category, they
are expected to incur only 6 percent of the total industry compliance costs of $78 million. There is
only one small firm with compliance costs equal to or greater than 3 percent of its sales. In
addition, there are only three small firms with cost-to-sales ratios between 1 and 3 percent.
An economic impact analysis was performed to estimate the changes in product price and
production quantities for the firms affected by this rule. The analysis shows that of the 49 facilities
owned by affected small firms, only two are expected to shut down in response to the
implementation of the proposed rule. Hence, it seems reasonable to conclude that the closure will
not lead to a significant economic impact due to the small reduction in facilities owned by affected
small firms.
This analysis indicates that the proposed rule should not generate a significant impact on a
substantial number of small entities for the chemical manufacturing source category for the following
reasons. First, there are only four small firms (or 15 percent of all affected small firms) with
compliance costs equal to or greater than 1 percent of their sales. In addition, there is only one
small firm (or 4 percent of all affected small firms)with compliance costs equal to or greater than 3
5-13
-------
percent of its sales. Second, the results of the economic impact analysis show that only two facilities
may close due to the implementation of this rule. It should be noted that the baseline economic
condition of the facility predicted to close affects the closure estimate provided by the economic
model (i.e., facilities that are already experiencing adverse economic conditions will be more
severely impacted than those that are not, and that the facility predicted to close appears to
currently have low profitability). This analysis therefore allows us to certify that there will not be a
significant impact on a substantial number of small entities in the chemical manufacturing source
category from the implementation of this proposed rule. For more information, consult the docket
for this project.
Although this proposed rule will not have a significant economic impact on a substantial
number of small entities, the EPA nonetheless has tried to limit the impact of this rule on small
entities. We continue to be interested in the potential impacts of the proposed rule on small entities
and welcome comments on issues related to such impacts.
5-14
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U.S. Department of Commerce, Bureau of the Census. 1997 NAICS and SIC Correspondence
Tables, . As obtained March 6, 2000.
U.S. Department of Commerce, International Trade Administration. 1989. 7959 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1990. 7990 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1991. 7997 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
R-5
-------
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Justice and the Federal Trade Commission. April 2, 1992. Horizontal
Merger Guidelines. Washington, DC: Government Printing Office.
U.S. International Trade Commission (USITC). 2000. Interactive Tariff and Trade Data Web.
. Obtained June 29, 2000.
R-6
-------
Appendix A
MON Economic Model
-------
RTI will develop an economic model for two MON markets (chemicals and coatings)
to estimate the economic impacts of the proposed rule. This appendix describes the proposed
model in detail and discusses how RTI will
• characterize the supply of the affected commodities at the market level,
• characterize demand, and
• use a solution algorithm to determine the new with-regulation equilibrium.
A.I Baseline Data Set
RTI collected the following information in order to characterize the baseline:
• market quantities: Data for more than 300 facilities were aggregated to develop
baseline market quantities for the chemical and coatings markets (see Table A-l).
• market prices: An average price for each of these markets was computed based
on SIC-level customs value of imports and import quantities1 reported by the U.S.
International Trade Commission (USITC, 2000).
Table A-l. Baseline Data Set: 1998
Market Average Price ($/lb) Quantity (109 Ibs)
Chemical $0.71 9.59
Coatings $1.43 2.63
A.2 Market Supply
Chemical and coatings producers subject to the regulation have some ability to vary
output in the face of production cost changes. Their production cost curves, coupled with the
market price, could be used to determine the optimal production rate. RTI will model supply
as a single representative supplier with the following supply characterization:
Import quantities for these industries include different units of measure (i.e., weight [kilograms] and volume
[liters]). The Section 114 responses report quantities in pounds; thus, these values were used for price
calculations.
A-l
-------
In this Cobb-Douglas specification, p; is the market price for the ith market, esi is the
domestic supply elasticity (assumed value = 1), and Asi is a multiplicative supply parameter
that calibrates the supply equation to replicate the aggregate production obtained from survey
responses.
Regulation-Induced Shift in the Supply Function. The control costs associated with
the proposed NESHAP total $78.2 million for the chemical market and $16.0 for the coatings
market (see Table A-2). The estimated annual compliance cost per pound (c;) enters the
supply equation as a net price change (i.e., p; - c;). Thus, the supply function from Eq. (A.I)
becomes:
(A.2)
Table A-2. Computing Regulatory-Induced Shift in Supply Function: 1998
Market
Chemical
Coatings
Total Annual Costs ($106)
$78.2
$16.0
Per-Unit "Cost-Shifter"
$0.008
$0.006
% Shift
1.14%
0.43%
A.3 Market Demand
Demand will be expressed as
QDl ~ ADi [pj" (A.3)
A-2
-------
where p; is the market price, eDi is the demand elasticity, and ADi is a multiplicative demand
parameter that calibrates the demand equation, given data on price and the demand elasticity
to replicate the observed baseline year level of consumption (assumed to equal production).
A.4 With-Regulation Market Equilibrium
Supply/demand responses can be conceptualized as an interactive feedback process.
Producers face increased production costs due to compliance and respond with output
reduction. This leads to an increase in the market price that both types of producers (directly
affected and indirectly affected) and consumers face. This increase leads to further responses
by all producers and consumers and, thus, new market prices. The new with-regulation
equilibrium is the result of a series of these iterations between producer and consumer
responses and market adjustments until a stable market price equilibrium is reached in which
total market supply equals total market demand (i.e., Qs = QD).
A.5 Economic Welfare Impacts
The economic welfare implications of the market price and output changes with the
regulation can be examined as changes in the net benefits of consumers and producers based
on the price changes. This analysis focuses on the changes in the net benefits of consumers
and producers. Figure A-l depicts the change in economic welfare by first measuring the
change in consumer surplus and then the change in producer surplus. In essence, the demand
and supply curves previously used as predictive devices are now being used as a tool to
measure changes in economic welfare.
In a market environment, consumers and producers of the good or service derive
welfare from a market transaction. The difference between the maximum price consumers
are willing to pay for a good and the price they actually pay is referred to as "consumer
surplus." Consumer surplus is measured as the area under the demand curve and above the
price of the product. Similarly, the difference between the minimum price producers are
willing to accept for a good and the price they actually receive is referred to as "producer
surplus" or profits. Producer surplus is measured as the area above the supply curve and
below the price of the product. These areas can be thought of as consumers' net benefits of
consumption and producers' net benefits of production, respectively. In Figure A-l, baseline
equilibrium occurs at the intersection of the demand curve, D, and supply curve, S. Price is
P! with quantity Q,. The increased cost of production with the
A-3
-------
$/Q
P2
Q2 Q1 Q/t
(a) Change in Consumer Surplus with Regulation
$/Q
Q2 Q1 Q/t
(b) Change in Producer Surplus with Regulation
$/Q
P2
p.
Q2 Q1 Q/t
(c) Net Change in Economic Welfare with Regulation
Figure A-l. Economic Welfare Changes with Regulation: Consumer and Producer
Surplus
A-4
-------
regulation will cause the market supply curve to shift upward to S'. The new equilibrium
price of the product is P2. With a higher price for the product, there is less consumer welfare,
all else being unchanged as real incomes are reduced. In Figure A-l(a), area A represents the
dollar value of the annual net loss in consumers' benefits with the increased price. The
rectangular portion represents the loss in consumer surplus on the quantity still consumed,
Q2, while the triangular area represents the foregone surplus resulting from the reduced
quantity consumed, Ci-Q2.
In addition to the changes in consumer welfare, producer welfare also changes with
the regulation. With the increase in market price, producers receive higher revenues on the
quantity still purchased, Q2. In Figure A-l(b), area B represents the increase in revenues due
to this increase in price. The difference in the area under the supply curve up to the original
market price, area C, measures the loss in producer surplus, which includes the loss
associated with the quantity no longer produced. The net change in producer welfare is
represented by area B-C. The change in economic welfare attributable to the compliance
costs of the regulation is the sum of consumer and producer surplus changes, that is, - (A) +
(B-C). Figure A-l(c) shows the net (negative) change in economic welfare associated with
the regulation as area D. However, this analysis does not include the benefits that occur
outside the market (i.e., the value of the reduced levels of air pollution with the regulation).
Including this benefit will reduce the net social cost of the regulation.
A-5
-------
Appendix B
Sensitivity Analysis of Assumed Elasticities of
Demand and Supply
-------
EPA has estimated that the elasticity of demand for MON chemicals and coatings is
-0.5. The Agency expects the demand to be relatively inelastic because the commodities
being produced are typically inputs to other production processes, and may be relatively small
cost shares of the final products they are ultimately embodied in. EPA has assumed that the
elasticity of supply is 1.
This Appendix presents a sensitivity analysis of these assumptions, varying the
demand elasticity and the supply elasticity by 25 percent in either direction.
B-l
-------
Table B-l. Market Level Impacts (continuous product = batch production, demand
elasticity = -0.6, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table B-2. Industry-Level Impacts
elasticity = -0.6, supply elasticity =
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
19,186
19,186
(continuous
1)
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$13,622
$6,811
NA
$6,811
$6,811
$17,376
$8,688
NA
$8,688
$8,688
With Reg
$1.43
2,621
2,621
$0.71
19,144
19,144
product = batch
With Reg
$3,758
$1,887
$16
$1,871
$1,871
$13,640
$6,859
$78
$6,781
$6,781
$17,398
$8,746
$94
$8,652
$8,652
Absolute
$0.004
-4.3
-4.3
$0.003
-42.3
-42.3
production,
Absolute
$3.7
$9.8
$16.0
-$6.1
-$6.1
$18.1
$48.0
$78.0
-$30.0
-$30.0
$21.7
$57.9
$94.0
-$36.1
-$36.1
Relative
0.263%
-0.164%
-0.164%
0.354%
-0.220%
-0.220%
demand
Relative
0.098%
0.524%
NA
-0.327%
-0.327%
0.133%
0.705%
NA
-0.440%
-0.440%
0.125%
0.666%
NA
-0.416%
-0.416%
B-2
-------
Table B-3. Distribution of Social Costs ($) (continuous product = batch production,
demand elasticity = -0.6, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$58.0
-$9.9
-$48.1
-$36.1
-$6.1
-$30.0
-94.1
62%
38%
Table B-4. Market Level Impacts (continuous product = batch production, demand
elasticity = -0.4, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
19,186
19,186
With Reg
$1.43
2,622
2,622
$0.71
19,156
19,156
Absolute
$0.004
-3.0
-3.0
$0.003
-30.0
-30.0
Relative
0.310%
-0.116%
-0.116%
0.418%
-0.156%
-0.156%
B-3
-------
Table B-5. Industry-Level Impacts (continuous product = batch production, demand
elasticity = -0.4, supply elasticity = 1)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$13,622
$6,811
NA
$6,811
$6,811
$17,376
$8,688
NA
$8,688
$8,688
With Reg
$3,762
$1,889
$16
$1,873
$1,873
$13,658
$6,868
$78
$6,790
$6,790
$17,419
$8,757
$94
$8,663
$8,663
Absolute
$7.3
$11.6
$16.0
-$4.4
-$4.4
$35.6
$56.8
$78.1
-$21.3
-$21.3
$42.8
$68.5
$94.1
-$25.6
-$25.6
Relative
0.194%
0.620%
NA
-0.232%
-0.232%
0.261%
0.834%
NA
-0.312%
-0.312%
0.246%
0.788%
NA
-0.295%
-0.295%
Table B-6. Distribution of Social Costs ($) (continuous product = batch production,
demand elasticity = -0.4, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$68.5
-$11.6
-$56.9
-$25.6
-$4.4
-$21.3
-94.2
73%
27%
B-4
-------
Table B-7. Market Level Impacts (continuous product = batch production, demand
elasticity = -0.5, supply elasticity = 1.25)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table B-8. Industry-Level Impacts
elasticity = -0.5, supply elasticity =
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
19,186
19,186
(continuous
1.25)
Baseline
$3,754
$2,086
NA
$2,086
$1,669
$13,622
$7,568
NA
$7,568
$6,054
$17,376
$9,654
NA
$9,654
$7.723
With Reg
$1.43
2,621
2,621
$0.71
19,147
19,147
product = batch
With Reg
$3,760
$2,096
$16
$2,080
$1,664
$13,650
$7,618
$78
$7,540
$6,032
$17,410
$9,714
$94
$9,620
$7.696
Absolute
$0.004
-4.0
-4.0
$0.003
-39.3
-39.3
production,
Absolute
$5.7
$10.3
$16.0
-$5.7
-$4.6
$27.9
$50.2
$78.1
-$27.8
-$22.3
$33.6
$60.5
$94.0
-$33.6
-$26.8
Relative
0.305%
-0.152%
-0.152%
0.410%
-0.205%
-0.205%
demand
Relative
0.152%
0.493%
NA
-0.274%
-0.274%
0.205%
0.663%
NA
-0.368%
-0.368%
0.194%
0.627%
NA
-0.348%
-0.348%
B-5
-------
Table B-9. Distribution of Social Costs ($) (continuous product = batch production,
demand elasticity = -0.5, supply elasticity = 1.25)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$67.3
-$11.4
-$55.9
-$26.8
-$4.6
-$22.3
-94.1
71%
29%
Table B-10. Market Level Impacts (continuous product = batch production, demand
elasticity = -0.5, supply elasticity = 0.75)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
19,186
19,186
With Reg
$1.43
2,622
2,622
$0.71
19,153
19,153
Absolute
$0.004
-3.4
-3.4
$0.002
-33.0
-33.0
Relative
0.256%
-0.128%
-0.128%
0.345%
-0.172%
-0.172%
B-6
-------
Table B-ll. Industry-Level Impacts (continuous product = batch production, demand
elasticity = -0.5, supply elasticity = 0.75)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,609
NA
$1,609
$2,145
$13,622
$5,838
NA
$5,838
$7,784
$17,376
$7,447
NA
$7,447
$9,929
With Reg
$3,759
$1,620
$16
$1,604
$2,139
$13,646
$5,893
$78
$5,815
$7,753
$17,405
$7,513
$94
$7,419
$9,892
Absolute
$4.8
$11.2
$16.0
-$4.8
-$6.4
$23.5
$54.7
$78.1
-$23.4
-$31.2
$28.3
$65.9
$94.1
-$28.2
-$37.6
Relative
0.128%
0.696%
NA
-0.298%
-0.298%
0.172%
0.937%
NA
-0.401%
-0.401%
0.163%
0.885%
NA
-0.379%
-0.379%
Table B-12. Distribution of Social Costs ($) (continuous product = batch production,
demand elasticity = -0.5, supply elasticity = 0.75)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$56.6
-$9.6
-$46.9
-$37.6
-$6.4
-$31.2
-94.2
60%
40%
B-7
-------
Appendix C
Sensitivity Analysis of Assumed Quantity of MON
Chemicals Produced Using Continuous Processes
-------
EPA has no data on the quantity of MON organic chemicals produced using continuous
production processes. In the main body of the report, EPA has assumed that the quantity of MON
organic chemicals produced using continuous production processes is exactly equal to that
produced using batch processes.
This Appendix presents a sensitivity analysis of these assumptions, varying the quantity of
MON organic chemicals produced using continuous processes by 50 percent in either direction.
The results of the sensitivity analysis are shown in the following tables. Tables C-l through C-5
present the results of the model assuming that continuous chemical production is half that of batch
production, and varying the supply and demand elasticities as discussed in Appendix B. Tables C-
6 through C-10 show the model results assuming that continuous chemical production is 1.5 times
that of batch processes, and varying the supply and demand elasticities as discussed in Appendix B.
C-l
-------
Table C-l. Market Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table C-2. Industry-Level Impacts
elasticity = -0.5, supply elasticity =
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
14,390
14,390
(continuous
1)
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$10,217
$5,108
NA
$5,108
$5,108
$13,971
$6,985
NA
$6,985
$6,985
With Reg
$1.43
2,622
2,622
$0.71
14,353
14,353
product = 0.5
With Reg
$3,760
$1,888
$16
$1,872
$1,872
$10,243
$5,160
$78
$5,082
$5,082
$14,002
$7,048
$94
$6,954
$6,954
Absolute
$0.004
-3.7
-3.7
$0.004
-36.6
-36.6
Relative
0.285%
-0.142%
-0.142%
0.511%
-0.255%
-0.255%
* batch production, demand
Absolute
$5.3
$10.7
$16.0
-$5.3
-$5.3
$26.1
$52.0
$78.0
-$26.0
-$26.0
$31.4
$62.7
$94.0
-$31.3
-$31.3
Relative
0.142%
0.568%
NA
-0.284%
-0.284%
0.255%
1.019%
NA
-0.508%
-0.508%
0.225%
0.898%
NA
-0.448%
-0.448%
C-2
-------
Table C-3. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -0.5, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$62.8
-$10.7
-$52.1
-$31.3
-$5.3
-$26.0
-$94.1
67%
33%
Table C-4. Market Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.6, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
14,390
14,390
With Reg
$1.43
2,621
2,621
$0.71
14,347
14,347
Absolute
$0.004
-4.3
-4.3
$0.003
-42.3
-42.3
Relative
0.263%
-0.164%
-0.164%
0.472%
-0.294%
-0.294%
c-:
-------
Table C-5. Industry-Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.6, supply elasticity = 1)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$10,217
$5,108
NA
$5,108
$5,108
$13,971
$6,985
NA
$6,985
$6,985
With Reg
$3,758
$1,887
$16
$1,871
$1,871
$10,235
$5,156
$78
$5,078
$5,078
$13,993
$7,043
$94
$6,949
$6,949
Absolute
$3.7
$9.8
$16.0
-$6.1
-$6.1
$18.1
$48.0
$78.0
-$30.0
-$30.0
$21.7
$57.9
$94.0
-$36.1
-$36.1
Relative
0.098%
0.524%
NA
-0.327%
-0.327%
0.177%
0.940%
NA
-0.587%
-0.587%
0.156%
0.828%
NA
-0.517%
-0.517%
Table C-6. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -0.6, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$58.0
-$9.9
-$48.1
-$36.1
-$6.1
-$30.0
-$94.1
62%
38%
C-4
-------
Table C-7. Market Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.4, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table C-8. Industry-Level Impacts
elasticity = -0.4, supply elasticity =
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
14,390
14.390
(continuous
1)
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$10,217
$5,108
NA
$5,108
$5,108
$13,971
$6,985
NA
$6,985
$6.985
With Reg
$1.43
2,622
2,622
$0.71
14,360
14.360
product = 0.5
With Reg
$3,762
$1,889
$16
$1,873
$1,873
$10,252
$5,165
$78
$5,087
$5,087
$14,014
$7,054
$94
$6,960
$6.960
Absolute
$0.004
-3.0
-3.0
$0.004
-30.0
-30.0
Relative
0.310%
-0.116%
-0.116%
0.557%
-0.208%
-0.208%
* batch production, demand
Absolute
$7.3
$11.6
$16.0
-$4.4
-$4.4
$35.6
$56.8
$78.1
-$21.3
-$21.3
$42.8
$68.4
$94.1
-$25.6
-$25.6
Relative
0.194%
0.620%
NA
-0.232%
-0.232%
0.348%
1.112%
NA
-0.416%
-0.416%
0.307%
0.980%
NA
-0.367%
-0.367%
C-5
-------
Table C-9. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -0.4, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$68.5
-$11.6
-$56.9
-$25.6
-$4.4
-$21.3
-$94.1
73%
27%
Table C-10. Market Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1.25)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
14,390
14,390
With Reg
$1.43
2,621
2,621
$0.71
14,350
14,350
Absolute
$0.004
-4.0
-4.0
$0.004
-39.2
-39.2
Relative
0.305%
-0.152%
-0.152%
0.547%
-0.273%
-0.273%
C-6
-------
Table C-ll. Industry-Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1.25)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$2,086
NA
$2,086
$1,669
$10,217
$5,676
NA
$5,676
$4,541
$13,971
$7,762
NA
$7,762
$6,209
With Reg
$3,760
$2,096
$16
$2,080
$1,664
$10,244
$5,726
$78
$5,648
$4,518
$14,005
$7,822
$94
$7,728
$6,182
Absolute
$5.7
$10.3
$16.0
-$5.7
-$4.6
$27.9
$50.2
$78.0
-$27.8
-$22.3
$33.6
$60.5
$94.0
-$33.5
-$26.8
Relative
0.152%
0.493%
NA
-0.274%
-0.274%
0.273%
0.884%
NA
-0.490%
-0.490%
0.241%
0.779%
NA
-0.432%
-0.432%
Table C-12. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -0.5, supply elasticity = 1.25)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-67.3
-$11.4
-$55.6
-$26.8
-$4.6
-$22.3
-$94.1
72%
28%
C-7
-------
Table C-13. Market Level Impacts (continuous product = 0.5 * batch production, demand
elasticity = -0.5, supply elasticity = 0.75)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table C-14. Industry-Level Impacts
elasticity = -0.5, supply elasticity = 0.
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
14,390
14,390
(continuous
75)
Baseline
$3,754
$1,609
NA
$1,609
$2,145
$10,217
$4,379
NA
$4,379
$5,838
$13,971
$5,988
NA
$5,988
$7,983
With Reg
$1.43
2,622
2,622
$0.71
14,357
14,357
product = 0.5
With Reg
$3,759
$1,620
$16
$1,604
$2,139
$10,240
$4,433
$78
$4,355
$5,807
$13,999
$6,053
$94
$5,959
$7,946
Absolute
$0.004
-3.4
-3.4
$0.003
-33.0
-33.0
Relative
0.256%
-0.128%
-0.128%
0.460%
-0.229%
-0.229%
* batch production, demand
Absolute
$4.8
$11.2
$16.0
-$4.8
-$6.4
$23.5
$54.7
$78.0
-$23.4
-$31.2
$28.3
$65.9
$94.0
-$28.2
-$37.6
Relative
0.128%
0.696%
NA
-0.298%
-0.298%
0.230%
1.248%
NA
-0.534%
-0.534%
0.202%
1.100%
NA
-0.471%
-0.471%
-------
Table C-15. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -0.5, supply elasticity = 0.75)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$56.6
-$9.6
-$46.9
-$37.6
-$6.4
-$31.2
-$94.1
60%
40%
Table C-16. Market Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
23,983
23,983
With Reg
$1.43
2,622
2,622
$0.71
23,946
23,946
Absolute
$0.004
-3.7
-3.7
$0.002
-36.7
-36.7
Relative
0.285%
-0.142%
-0.142%
0.306%
-0.153%
-0.153%
C-9
-------
Table C-17. Industry-Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
ODeratina Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$17,028
$8,514
NA
$8,514
$8,514
$20,782
$10,391
NA
$10,391
$10.391
With Reg
$3,760
$1,888
$16
$1,872
$1,872
$17,054
$8,566
$78
$8,488
$8,488
$20,813
$10,454
$94
$10,360
$10.360
Absolute
$5.3
$10.7
$16.0
-$5.3
-$5.3
$26.1
$52.1
$78.1
-$26.0
-$26.0
$31.4
$62.7
$94.1
-$31.3
-$31.3
Relative
0.142%
0.568%
NA
-0.284%
-0.284%
0.153%
0.612%
NA
-0.306%
-0.306%
0.151%
0.604%
NA
-0.302%
-0.302%
Table C-18. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,
demand elasticity = -0.5, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$62.8
-$10.7
-$52.1
-$31.3
-$5.3
-$26.0
-$94.2
67%
33%
C-10
-------
Table C-19. Market Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.6, supply elasticity = 1)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
23,983
23,983
Table C-20. Industry-Level Impacts (continuous
elasticity = -0.6, supply elasticity =
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
1)
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$17,028
$8,514
NA
$8,514
$8,514
$20,782
$10,391
NA
$10,391
$10,391
With Reg
$1.43
2,621
2,621
$0.71
23,940
23,940
product = 1.5
With Reg
$3,758
$1,887
$16
$1,871
$1,871
$17,046
$8,562
$78
$8,484
$8,484
$20,804
$10,449
$94
$10,355
$10.355
Absolute
$0.004
-4.3
-4.3
$0.002
-42.3
-42.3
Relative
0.263%
-0.164%
-0.164%
0.283%
-0.176%
-0.176%
* batch production, demand
Absolute
$3.7
$9.8
$16.0
-$6.1
-$6.1
$18.1
$48.1
$78.1
-$30.0
-$30.0
$21.7
$57.9
$94.1
-$36.2
-$36.2
Relative
0.098%
0.524%
NA
-0.327%
-0.327%
0.106%
0.565%
NA
-0.353%
-0.353%
0.105%
0.557%
NA
-0.348%
-0.348%
C-ll
-------
Table C-21. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,
demand elasticity = -0.6, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-58.0
-$9.9
-$48.1
-$36.1
-$6.1
-$30.0
-$94.1
62%
38%
Table C-22. Market Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.4, supply elasticity = 1)
Change
Baseline With Reg Absolute Relative
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
$1.43
2,625
2,625
$1.43
2,622
2,622
$0.004
-3.0
-3.0
0.310%
-0.116%
-0.116%
Chemicals
Price ($/lb) $0.71 $0.71 $0.002 0.334%
Quantity (Ib) 23,983 23,953 -30.0 -0.125%
Directly Affected: Domestic 23,983 23,953 -30.0 -0.125%
C-12
-------
Table C-23. Industry-Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.4, supply elasticity = 1)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$17,028
$8,514
NA
$8,514
$8,514
$20,782
$10,391
NA
$10,391
$10,391
With Reg
$3,762
$1,889
$16
$1,873
$1,873
$17,063
$8,571
$78
$8,493
$8,493
$20,825
$10,459
$94
$10,365
$10,365
Absolute
$7.3
$11.6
$16.0
-$4.4
-$4.4
$35.6
$56.8
$78.1
-$21.3
-$21.3
$42.8
$68.5
$94.1
-$25.6
-$25.6
Relative
0.194%
0.620%
NA
-0.232%
-0.232%
0.209%
0.668
NA
-0.250%
-0.250%
0.206%
0.659%
NA
-0.247%
-0.247%
Table C-24. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,
demand elasticity = -0.4, supply elasticity = 1)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-68.5
-$11.6
-$56.9
-$25.6
-$4.4
-$21.3
-$94.2
73%
27%
C-13
-------
Table C-25. Market Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -0.5, supply elasticity = 1.25)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table C-26. Industry-Level Impacts
elasticity = -0.5, supply elasticity = 1.
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
23,983
23,983
(continuous
25)
Baseline
$3,754
$2,086
NA
$2,086
$1,669
$17,028
$9,460
NA
$9,460
$7,568
$20,782
$11,546
NA
$11,546
$9.236
With Reg
$1.43
2,621
2,621
$0.71
23,943
23,943
product = 1.5
With Reg
$3,760
$2,096
$16
$2,080
$1,664
$17,056
$9,510
$78
$9,432
$7,546
$20,816
$11,606
$94
$11,512
$9,210
Absolute
$0.004
-4.0
-4.0
$0.002
-39.3
-39.3
Relative
0.305%
-0.152%
-0.152%
0.328%
-0.164%
-0.164%
* batch production, demand
Absolute
$5.7
$10.3
$16.0
-$5.7
-$4.6
$27.9
$50.2
$78.1
-$27.9
-$22.3
$33.6
$60.5
$94.1
-$33.6
-$26.9
Relative
0.152%
0.493%
NA
-0.274%
-0.274%
0.164%
0.531%
NA
-0.295%
-0.295%
0.162%
0.524%
NA
-0.291%
-0.291%
C-14
-------
Table C-27. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,
demand elasticity = -0.5, supply elasticity = 1.25)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$67.3
-$11.4
-$55.9
-$26.9
-$4.6
-$22.3
-$94.2
71%
29%
Table C-28. Market Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -1.5, supply elasticity = 0.75)
Change
Baseline With Reg Absolute Relative
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
$1.43
2,625
2,625
$1.43
2,622
2,622
$0.004
-3.4
-3.4
0.256%
-0.128%
-0.128%
Chemicals
Price ($/lb) $0.71 $0.71 $0.002 0.276%
Quantity (Ib) 23,983 23,949 -33.0 -0.138%
Directly Affected: Domestic 23,983 23,949 -33.0 -0.138%
C-15
-------
Table C-29. Industry-Level Impacts (continuous product = 1.5 * batch production, demand
elasticity = -1.5, supply elasticity = 0.75)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,609
NA
$1,609
$2,145
$17,028
$7,298
NA
$7,298
$9,730
$20,782
$8,907
NA
$8,907
$11,875
With Reg
$3,759
$1,620
$16
$1,604
$2,139
$17,051
$7,352
$78
$7,274
$9,699
$20,810
$8,972
$94
$8,878
$11,838
Absolute
$4.8
$11.2
$16.0
-$4.8
-$6.4
$23.5
$54.7
$78.1
-$23.4
-$31.2
$28.3
$65.9
$94.1
-$28.2
-$37.6
Relative
0.128%
0.696%
NA
-0.298%
-0.298%
0.138%
0.749%
NA
-0.321%
-0.321%
0.136%
0.740%
NA
-0.317%
-0.317%
Table C-30. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,
demand elasticity = -1.5, supply elasticity = 0.75)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$56.6
-$9.6
-$46.9
-$37.6
-$6.4
-$31.2
-$94.2
60%
40%
C-16
-------
Appendix D
Model Results, Including Batch Chemical
Producers Only
-------
EPA has no data on the quantity of MON organic chemicals produced using continuous
production processes. In the main body of the report, EPA has assumed that the quantity of MON
organic chemicals produced using continuous production processes is exactly equal to that
produced using batch processes.
Because EPA is uncertain about the quantity of organic chemicals produced using
continuous processes but has detailed data for organic chemicals produced using batch processes,
this appendix presents model results for batch chemical producers only, varying the elasticities of
demand and supply as described in Appendix B.
D-l
-------
Table D-l. Market Level Impacts (does not include costs for continuous process
facilities; supply elasticity = 1, demand elasticity = -0.5)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table D-2. Industry-Level Impacts
Baseline
$1.43
2,625
2,625
$0.71
9,593
9,593
With Reg
$1.43
2,622
2,622
$0.71
9,567
9,567
(does not include costs for
facilities; supply elasticity = 1, demand elasticity
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$6,811
$3,406
NA
$3,406
$3,406
$10,565
$5,283
NA
$5,283
$5,283
= -0.5)
With Reg
$3,760
$1,888
$16
$1,872
$1,872
$6,830
$3,443
$56
$3,387
$3,387
$10,589
$5,331
$72
$5,259
$5,259
Absolute
$0.004
-3.7
-3.7
$0.004
-26.2
-26.6
continuous
Absolute
$5.3
$10.7
$16.0
-$5.3
-$5.3
$18.6
$37.2
$55.8
-$18.6
-$18.6
$24.0
$47.9
$71.8
-$23.9
-$23.9
Relative
0.285%
-0.142%
-0.142%
0.548%
-0.273%
-0.273%
process
Relative
0.142%
0.568%
NA
-0.284%
-0.284%
0.274%
1.093%
NA
-0.545%
-0.545%
0.227%
0.906%
NA
-0.452%
-0.452%
D-2
-------
Table D-3. Distribution of Social Costs ($) (does not include costs for continuous process
facilities; supply elasticity = 1, demand elasticity = -0.5)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$48.0
-$10.7
-$37.3
-$23.9
-$5.3
-$18.6
-$71.9
67%
33%
Table D-4. Market Level Impacts (continuous costs not included; demand elasticity =
(1.25 * -0.5)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
9,593
9,593
With Reg
$1.43
2,621
2,621
$0.71
9,563
9,563
Absolute
$0.004
-4.3
-4.3
$0.004
-30.2
-30.2
Relative
0.263%
-0.164%
-0.164%
0.506%
-0.315%
-0.315%
D-3
-------
Table D-5. Industry-Level Impacts (continuous costs not included; demand elasticity
(1.25 * -0.5)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$6,811
$3,406
NA
$3,406
$3,406
$10,565
$5,283
NA
$5,283
$5,283
With Reg
$3,758
$1,887
$16
$1,871
$1,871
$6,824
$3,440
$56
$3,384
$3,384
$10,582
$5,327
$72
$5,255
$5,255
Absolute
$3.7
$9.8
$16.0
-$6.1
-$6.1
$12.9
$34.3
$55.8
-$21.4
-$21.4
$16.6
$44.2
$71.7
-$27.6
-$27.6
Relative
0.098%
0.524%
NA
-0.327%
-0.327%
0.189%
1.008%
NA
-0.629%
-0.629%
0.157%
0.836%
NA
-0.522%
-0.522%
Table D-6. Distribution of Social Costs ($) (continuous costs not included; demand
elasticity = (1.25 * -0.5)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$44.3
-$9.9
-$34.4
-$27.6
-$6.1
-$21.4
-$71.8
62%
38%
D-4
-------
Table D-7. Market Level Impacts (continuous costs not included; demand
elasticity = -0.4)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table D-8. Industry-Level Impacts
elasticity = -0.4)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
9,593
9,593
(continuous
Baseline
$3,754
$1,877
NA
$1,877
$1,877
$6,811
$3,406
NA
$3,406
$3,406
$10,565
$5,283
NA
$5,283
$5,283
With Reg
$1.43
2,622
2,622
$0.71
9,572
9,572
Absolute
$0.004
-3.0
-3.0
$0.004
-21.4
-21.4
Relative
0.310%
-0.116%
-0.116%
0.598%
-0.223%
-0.223%
costs not included; demand
With Reg
$3,762
$1,889
$16
$1,873
$1,873
$6,836
$3,446
$56
$3,390
$3,390
$10,598
$5,335
$72
$5,263
$5,263
Absolute
$7.3
$11.6
$16.0
-$4.4
-$4.4
$25.4
$40.6
$55.8
-$15.2
-$15.2
$32.7
$52.3
$71.8
-$19.5
-$19.5
Relative
0.194%
0.620%
NA
-0.232%
-0.232%
0.373%
1.193%
NA
-0.446%
-0.446%
0.310%
0.989%
NA
-0.370%
-0.370%
D-5
-------
Table D-9. Distribution of Social Costs ($) (continuous costs not included; demand
elasticity = -0.4)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$52.3
-$11.6
-$40.7
-$19.5
-$4.4
-$15.2
-$71.9
73%
27%
Table D-10. Market Level Impacts (continuous costs not included; supply elasticity =
1.25)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Baseline
$1.43
2,625
2,625
$0.71
9,593
9,593
With Reg
$1.43
2,621
2,621
$0.71
9,565
9,565
Absolute
$0.004
-4.0
-4.0
$0.004
-28.0
-28.0
Relative
0.305%
-0.152%
-0.152%
0.587%
-0.292%
-0.292%
D-6
-------
Table D-ll. Industry-Level Impacts (continuous costs not included; supply elasticity
1.25)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$3,754
$2,086
NA
$2,086
$1,669
$6,811
$3,784
NA
$3,784
$3,027
$10,565
$5,870
NA
$5,870
$4,696
With Reg
$3,760
$2,096
$16
$2,080
$1,664
$6,831
$3,820
$56
$3,764
$3,011
$10,591
$5,916
$72
$5,844
$4,675
Absolute
$5.7
$10.3
$16.0
-$5.7
-$4.6
$20.0
$35.9
$55.8
-$19.9
-$15.9
$25.7
$46.2
$71.8
-$25.6
-$20.5
Relative
0.152%
0.493%
NA
-0.274%
-0.274%
0.293%
0.948%
NA
-0.526%
-0.526%
0.243%
0.786%
NA
-0.436%
-0.436%
Table D-12. Distribution of Social Costs ($) (continuous costs not included; supply
elasticity = 1.25)
Consumer Surplus
Coatings
Chemicals
Producer Surplus
Coatings
Chemicals
Total Social Cost
-$51.4
-$11.4
-$39.9
-$20.5
-$4.6
-$15.9
-$71.8
72%
28%
D-7
-------
Table D-13. Market Level Impacts (continuous costs not included; supply elasticity =
0.75)
Change
Coatings
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Chemicals
Price ($/lb)
Quantity (Ib)
Directly Affected: Domestic
Table D-14. Industry-Level Impacts
0.75)
Coatings
Revenue
Costs
Control
Production
Operating Profit
Chemicals
Revenue
Costs
Control
Production
Operating Profit
Total
Revenue
Costs
Control
Production
Operating Profit
Baseline
$1.43
2,625
2,625
$0.71
9,593
9,593
(continuous
Baseline
$3,754
$1,609
NA
$1,609
$2,145
$6,811
$2,919
NA
$2,919
$3,892
$10,565
$4,528
NA
$4,528
$6,037
With Reg
$1.43
2,622
2,622
$0.71
9,569
9,569
Absolute
$0.004
-3.4
-3.4
$0.004
-23.6
-23.6
costs not included; supply
With Reg
$3,759
$1,620
$16
$1,604
$2,139
$6,828
$2,958
$56
$2,902
$3,870
$10,587
$4,578
$72
$4,507
$6,009
Absolute
$4.8
$11.2
$16.0
-$4.8
-$6.4
$16.8
$39.1
$55.8
-$16.7
-$22.3
$21.6
$50.3
$71.8
-$21.5
-$28.7
Relative
0.256%
-0.128%
-0.128%
0.494%
-0.246%
-0.246%
elasticity =
Relative
0.128%
0.696%
NA
-0.298%
-0.298%
0.246%
1.339%
NA
-0.573%
-0.573%
0.204%
1.110%
NA
-0.475%
-0.475%
D-8
-------
Table D-15. Distribution of Social Costs ($) (continuous costs not included; supply
elasticity = 0.75)
Consumer Surplus -$43.2
Coatings -$9.6 60%
Chemicals -$33.6
Producer Surplus -$28.7
Coatings -$6.4 40%
Chemicals -$22.3
Total Social Cost -$719
D-9
-------
Appendix E
Small Business Screening Sensitivity Analyses
-------
The small business screening analysis presented in Section 5 is based on two premises
that, when dropped, may alter the results of the analysis somewhat. First, consider the
assumption that the compliance costs applicable to continuous production processes were
distributed evenly among 140 chemical manufacturing facilities. If small businesses own
small facilities, their compliance cost burden is likely to be overestimated in the analysis
presented in Section 5. Section E. 1 of this appendix presents a screening analysis based only
on the compliance costs borne by facilities as a result of their batch production processes. In
addition to presenting the effects of the regulation on the batch producers of chemicals alone,
this section presents a sensitivity analysis in which the effects of the coating and chemical
regulations are combined. Because they are likely to own multiple facilities, large firms are
more likely than small firms to be affected by both the coatings and other miscellaneous
organic chemicals regulations. The combined impact of both regulations, then, may result in
no difference between the impacts of the MON regulation on large and small firms. The
combined analysis, presented in Section E.2 of this appendix, leads to the same basic
conclusion as the analysis in the main body of this report: large businesses will experience
slightly milder effects from the regulation than small businesses.
E.I Impact of the Regulation of the Manufacture of Miscellaneous Organic
Chemicals using Batch Production Processes
Table E-l reports the compliance costs of the regulation of batch production
processes at facilities that manufacture miscellaneous organic chemicals. The table also
shows the number of companies affected at the 1 percent and 3 percent levels and summary
statistics of the CSRs of small companies. Figures E-l (a) and (b) illustrate the distribution of
these ratios across small and large companies with sales data. There is no definite difference
in the relative effects of the regulation on small and large businesses when the effects of the
compliance costs applicable to continuous production processes are removed.
The aggregate compliance costs of the regulation of batch production of
miscellaneous organic chemicals total $4.7 million for small businesses (see Table E-l). RTI
obtained sales data for 24 of the 27 small companies that own affected facilities, or 89
percent. For small companies, the annual compliance costs for small businesses range from 0
to 6.23 percent of sales. The average (median) compliance CSR is 0.74 (0.22) percent for the
identified small businesses with sales data. As shown, three small companies are affected at
the 1 percent to 3 percent level and one small company is affected at the 3 percent level. In
E-l
-------
Table E-l. Summary Statistics for SBREFA Screening Analysis: Impact of the Regulation of the Batch
Production of Miscellaneous Organic Chemicals other than Coatings
Small Large All Companies
Total number of companies
Annual compliance costs ($106/yr)
27 85 112
$4.7 $51.3 $56
Number Share Number Share Number Share
Companies with sales data
Compliance costs are <1% of sales
Compliance costs are > 1 to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios
W
to Average
Median
Maximum
Minimum
24 85 109
20 83% 85 100% 105 96%
3 13% 0 0% 3 3%
1 4% 0 0% 1 1%
0.74% 0.04% 0.19%
0.22% 0.01% 0.02%
6.23% 0.51% 6.23%
0.00% 0.00% 0.00%
Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
-------
100%
80%
60%
0)
£ 40%
20%
0%
~~l T~
0% 0-.05% 0.05-
1%
1-3% 3-5% 5-7% 7-10% 10-
15%
CSR Range
(a) Small Companies
15- >20%
20%
100%
80%
o 60%
20%
1 % 15% 20%
CSR Range
(b) Large Companies
Figure E-l. Distribution of Cost-to-Sales Ratios
E-3
-------
contrast, none of the 85 large companies that own facilities, affected by one or both of the
regulations will find compliance costs to be greater than 1 percent of sales.
Table E-2 shows that the average and median profit margins of firms owning facilities
that produce coatings will decrease more for small firms than for large firms. Figures E-2(a)
and (b) show the distribution of profit margins for small and large firms under regulation.
Table E-2. Profit Margins With and Without Regulation of Batch Production of
Miscellaneous Organic Chemicals
Small Large All
Companies Companies Companies
Profit margins without regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
Profit margins with regulation
Average
Median
Maximum
Minimum
Number of firms with profit margin less
than zero
5.07%
4.50%
18.53%
2.70%
0
4.33%
4.00%
18.52%
-1.13%
1
5.34%
4.55%
18.27%
-13.92%
4
5.30%
4.55%
18.21%
-13.95%
4
5.28%
4.50%
18.53%
-13.92%
4
5.09%
4.48%
18.52%
-13.95%
5
E.2 Combined Impact of the Regulation of the Manufacture of Coatings and Other
Miscellaneous Organic Chemicals
Table E-3 reports the combined total compliance costs of the regulation of facilities
that manufacture miscellaneous organic chemicals of any kind, including those that produce
coatings and those that produce other chemicals using batch and/or continuous processes.
The table also shows the number of companies affected at the 1 percent and 3 percent levels
and summary statistics of the CSRs of small companies. As Table E-3 shows, the combined
E-4
-------
80% -
>,
o so% -
40%
Li.
20% -
I — I I I
I — I I — I
<0 0% 0- 0.05- 1-3% 3-5% 5-7% 7-10% 10- >15%
.05% 1% 15%
Profit Margin Range
(a) Small Companies
100%
80%
o 60%
15%
.05% 1% 15%
Profit Margin Range
(b) Large Companies
Figure E-2. Distribution of Profit Margins With Regulation
E-5
-------
Table E-3. Summary Statistics for SBREFA Screening Analysis: Combined Impact of the Regulation of the
Manufacture of Coatings and Other Miscellaneous Organic Chemicals
Small Large All Companies
Total number of companies
Annual compliance costs ($106/yr)
72 109 181
$12.6 $82.3 $94.9
Number Share Number Share Number Share
Companies with sales data
Compliance costs are <1% of sales
Compliance costs are > 1 to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios
W
o\ Average
Median
Maximum
Minimum
65 109 174
46 71% 108 99% 154 89%
12 18% 1 1% 13 7%
7 11% 0 0% 7 4%
1.19% 0.07% 0.49%
0.51% 0.02% 0.06%
9.32% 1.45% 9.32%
0.00% 0.00% 0.00%
Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
-------
impact of both the regulation of coatings manufacturers and of other miscellaneous organic
chemicals manufacturers does not appear more significant than the individual impacts of the
regulation did, largely because small firms are less likely than large firms to own facilities
affected by both regulations. Figures E-3(a) and (b) illustrate the distribution of these ratios
across small and large companies with sales data.
The aggregate compliance costs of the regulation of facilities producing
miscellaneous organic chemicals total $12.6 million for small businesses (see Table E-3).
RTI obtained sales data for 65 of the 72 small companies that which own affected facilities,
or 90 percent. Six small companies (8 percent) own facilities that will be affected by both
regulations. For small companies, the annual compliance costs for small businesses range
from 0 to 9.32 percent of sales. The average (median) compliance CSR is 1.19 (0.51) percent
for the identified small businesses with sales data. As shown, 12 small companies are
affected at the 1 percent to 3 percent level and seven small companies are affected at the 3
percent level. In contrast, only one of the 109 large companies that own facilities affected by
one or both of the regulations will find compliance costs to be greater than 1 percent of sales.
Table E-4 shows that the average and median profit margins of firms owning facilities
that produce coatings will decrease more for small firms than for large firms. Figures E-4(a)
and (b) show the distribution of profit margins for small and large firms under regulation.
Three small coatings businesses are projected to incur costs exceeding their estimated
baseline profits. Two small businesses owning MON chemical facilities are estimated to
incur costs exceeding their baseline profits.
E-7
-------
80% -
« 60% -
20%
.05% 1% 15% 20%
CSR Range
100% -,
80% -
o 60% -
20%
1% 15% 20%
CSR Range
(b) Large Companies
Figure E-3. Distribution of Cost-to-Sales Ratios
E-8
-------
Table E-4. Profit Margins With and Without Combined Regulation of Coatings
Manufacturers and Manufacturers of Other Miscellaneous Organic Chemicals
Small Large All
Companies Companies Companies
Profit margins without regulation
Average 3.69% 5.81% 5.02%
Median 3.00% 4.50% 4.00%
Maximum 18.53% 82.74% 82.74%
Minimum -0.24% -13.92% -13.92%
Number of firms with profit margin less 145
than zero
Profit margins with regulation
Average 2.50% 5.74% 4.53%
Median 2.37% 4.42% 3.69%
Maximum 18.52% 82.73% 82.73%
Minimum -6.62% -13.95% -13.95%
Number of firms with profit margin less 6 4 10
than zero
E-9
-------
100%
80%
« 60%
15%
(a) Small Companies
Frequency
80%
60%
40%
90%
0% -
n n n „
<0% 0% 0- 0.05- 1-3% 3-5% 5-7% 7-10% 10- >15%
.05% 1% 15%
Profit Margin Range
(b) Large Companies
Figure E-4. Distribution of Profit Margins With Regulation
E-10
-------
Appendix F
Industry Profile of Affected SIC Codes
-------
The proposed MON rulemaking will affect facilities and companies producing
miscellaneous organic chemical products and coatings. EPA's data do not permit clearly
identifying the marketed commodities produced by these facilities or the production
processes used. EPA is able to determine the general types of products produced, based on
the Standard Industrial Classification (SIC) code identified for each facility. This section
presents profiles of several industries as identified by their SIC codes. These SIC codes
represent the industries for the majority of potentially affected facilities.
F.I Paints and Allied Products
The paint and allied products industry is relatively small when compared to other
manufacturing industries. In 1997, the sector (SIC 2851, NAICS 32551) shipped $19,221.7
million dollars worth of products. All dollar values are 1998 dollars unless otherwise
indicated. This industry supplies essential products to major manufacturing and consumer
industries from automobiles to home furnishings.
Typical products manufactured by the industry include paints (ready-made and paste),
varnish, lacquers, enamels and shellac putties, wood filters and sealers, paint and varnish
removers, paint brush cleaners, and other allied paint products.
Three market segments account for the vast majority of output: architectural coatings
(SIC 28511), original equipment manufacturer (OEM) product coatings (SIC 28512), and
special purpose coatings (SIC 28513). While SIC 2851 grew 16.4 percent over the period
1987 to 1995, architectural coatings grew 20.9 percent, OEM grew 18.2 percent, and special
purpose coatings grew 24.0 percent in real terms. Overall, despite the recession in the early
1990s, the value of shipments increased 25.8 percent from 1987 to $19,221.7 million in 1997
(see Table F-l).
F-l
-------
Table F-l. Value (1998 $106) and Quantity of Shipments (106 gallons)
Year
SIC 2851
SIC 28511
SIC 28512
SIC 28513
Value of Shipments
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
15,279.7
15,388.7
14,966.5
15,508.8
15,367.5
16,282.1
17,382.6
18,415.5
18,338.2
18,630.5
19,221.7
5,106.8
5,034.3
4,959.4
5,351.9
5,283.1
5,615.6
6,089.1
6,230.7
6,174.6
NA
NA
4,549.9
4,667.8
4,624.9
4,392.3
4,318.0
4,657.4
5,192.2
5,364.7
5,379.7
NA
NA
2,557.2
2,560.7
2,732.7
3,029.6
3,138.0
3,047.0
3,185.5
3,383.2
3,171.4
NA
NA
Quantity of Shipments
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1,183.6
1,229.0
1,239.7
1,281.9
1,226.8
1,270.5
1,336.5
1,431.1
1,408.3
NA
NA
527.0
535.9
537.5
558.4
537.9
562.3
608.1
644.8
621.1
NA
NA
340.2
365.7
359.9
338.6
320.4
334.0
356.6
372.9
376.2
NA
NA
145.5
154.4
179.0
195.6
179.5
169.5
179.0
193.8
195.1
NA
NA
NA = not available
Sources: U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paints and Allied Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. August 1997b. 1996 Current Industrial
Reports: Paint, Varnish, and Lacquer. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999h. 1997 Economic Census. Washington,
DC: Government Printing Office.
F-2
-------
Architectural coatings accounted for 33.7 percent of this industry's total value of
shipments in 1995. Commonly referred to as house paint, the architectural coatings sector
generates nearly half of the industry's revenue.
In 1995, sales of OEM constituted 29.3 percent of the industry's total value of
shipments. OEM products are often custom formulated to meet applications specified by the
end user. Primary users of OEM paints are automobile, appliance, equipment manufacturing,
and furniture industries.
Special purpose coatings shipments amounted to 17.3 percent of the 1995 industry
receipts. While similar to architectural coatings in that this sector could be classified as stock
or shelf goods, the special purpose coatings sector formulates its product for specific
applications and/or environmental conditions and typically sells directly to the end user. The
primary markets for its products are automotive, machine refinishing, industry maintenance,
bridge and traffic markings, and marine.
F.I.I Supply Side of the Industry
F. 1.1.1 Production Processes
Paints primarily comprise pigments, resins, and solvents. The industry purchases the
majority of its inputs from other manufacturers in the chemical industry (SIC 28). At one
time, lead was a primary component of paint; however, its use was banned in the 1980s
because of concerns over lead poisoning from paint chips. Most paints comprise four basic
groups of chemical raw materials: binders and resins, pigments and extenders, solvents, and
additives. When a paint is applied to a surface, the solvents begin to evaporate while the
binder, pigments, and additives remain on the surface and harden to form a solid film. The
chemical and physical properties of paints are directly related to the choice and concentration
of raw materials determined during the production process.
The particular raw material ingredients used in paints are chosen not only for their
appearance and performance attributes, but also for their compatibility with each other and
the ease with which they are mixed together to create a stable and homogenous paint product
without undergoing significant chemical reactions during the process. Although some
chemical reactions occur during the mixing process, the manufacturing process results in a
near 100 percent yield. No reactions take place that produce unwanted chemical by-products.
The manufacturing of paints is concerned with the proper blending and mixing of raw
materials to ensure that the ingredients are evenly dispersed in the finished paint.
F-3
-------
Paints are divided into two categories: water- and solvent-based paints and powder
paint.
Water- and Solvent-Based Paints Production. The manufacturing process for both
water- and solvent-based paints begins with weighing-out and premixing batch ingredients.
Next, the pigment particles are wet with resins and then dispersed in the paint system. For
water-based paints, surfactants must be added to prevent flocculation. This process may take
from 10 minutes to 48 hours to complete.
After the pigment has dispersed through the resin, the paste is thinned with a solvent
(such as toluene or xylene) or more resin. After a second run through the system, the thinned
paste is transferred to a let-down tank to receive more additives. The primary difference
between solvent- and water-based paints is that solvent-based paints receive the binder during
the dispersion process. Water-based paints receive the binder while in the let-down tank.
After leaving the let-down tank, the paint undergoes further thinning and filtration before
flowing into the canning apparatus.
When the manufacturer decides to change the color or content of the product, the
tanks and equipment are washed with solvents to remove residue and any buildup that may
adversely affect the quality of the paint.
Powder-Based Paints. To manufacture powdered paints, the dry components of
powder-based paints (40 to 50 percent binder, 40 to 50 percent pigments and filler, and 1 to 2
percent additives) are transferred from holding areas, weighed-out, and then placed into a
mixer. After being mixed, the material is then transferred to a double screw extruder where it
is processed at 100°C to 120°C. The components exit the machine in sheet form. The sheet
is allowed to cool before being chipped and eventually pulverized and sieved into a fine
powder with a mean size of 50 |im. The powder is then bagged for shipment.
The most significant development in the modern paint industry is the development of
waterborne paints, or latex paint. Prior to the 1950s, the majority of paint sold was solvent-
or oil-based. By the 1990s, waterborne paints accounted for over 75 percent of gallonage.
Other industry trends include high solids that contain more resins and pigments than solvents,
and the aforementioned powder paints that are sprayed on dry and electrically adhere to the
surface, almost eliminating the need for organic solvents.
F-4
-------
F. 1.1.2Major By-products and Co-products
The chemical by-products associated with manufacturing paints and allied products
are few because the manufacturing process does not involve chemical reactions. In those
instances where a minor chemical reaction does occur, chiefly during the mixing stage, the
resultant reaction is not significant enough to reduce the yield. However, chemical emissions
do result from the transportation and handling of the product.
Half of the chemical by-products are generated during the manufacturing process
when the ingredients used to create the product change. The tanks are cleaned with solvents
that produce volatile organic compounds (VOCs) as they evaporate. Any solvents gathered
after the cleansing process is complete are distilled onsite. Wastewater is filtered to remove
solids before being discharged to a publicly owned treatment works (POTW) as
nonhazardous waste. Still bottoms and filters are collected and dried before being sent offsite
for treatment and disposal as nonhazardous waste.
The remaining emissions associated with paints and allied products result during the
application process. After the product is applied, the solvents and other ingredients evaporate
to leave behind the protective or decorative film. During evaporation, VOCs and hazardous
air pollutants (HAPs) are emitted, constituting the second half of chemical by-products
associated with this industry.
Co-products of paints and allied products are caulking and spackling compounds.
F. 1.1.3 Types of Output
The various products produced by the paint and allied products industry can be
divided and described as follows:
• Architectural coatings: Protective and decorative coatings applied onsite to the
interior or exterior surfaces of industrial, commercial, institutional, or residential
buildings for ordinary use and exposure.
- Clear finishes and spar varnishes: Transparent protective and/or decorative
films, including urethane coatings, natural varnishes, and shellac varnishes.
- Eggshell finish: Low sheen (semimatte) surface that exhibits its surface
reflectance (gloss) similar to that of an eggshell, between flat and semigloss.
- Enamels: Normally high gloss, but increasingly less glossy, these topcoats are
used for their ability to form a smooth surface.
F-5
-------
- Primer: A paint designed to provide adequate adhesion to new surfaces and to
meet special requirements such as absorption and/or corrosion control.
- Stains: Transparent and semitransparent solutions or suspensions of coloring
matter in a vehicle designed to color a surface without hiding it or to color a
material into which it was incorporated.
- Solvent: A volatile nonaqueous liquid used to dissolve or disperse the coating
constituents. This liquid evaporates during the drying process and does not
become part of the dried coating.
- Lacquers: Coatings composed of synthetic thermoplastic materials dissolved
in organic solvent and dried primarily by solvent evaporation. Typical
lacquers include those based on nitrocellulose and other cellulose derivations,
vinyl resins, and acrylic resins.
- Undercoat: A coat of paint applied on a new wood, over a primer or previous
coat of paint, to improve the seal and to serve as a base for a topcoat.
- Exterior coatings: Coatings that are expected to possess reasonable durability
when exposed to natural weathering.
OEM coatings: Coatings designed specifically for an OEM to meet application
and product requirements to be applied during the manufacturing process.
- Powder coatings: 100 percent solid coatings applied as dry powders and
subsequently formed into a film with heat.
- Electrical insulating coatings: Often used in conjunction with mica and
fabrics, these coatings provide insulation for electrical equipment and have a
high resistance to electrical conduction.
Special purpose coatings: These coatings differ from architectural coatings in that
they are formulated for special applications and/or environmental conditions such
as extreme temperatures, chemicals, and fumes.
- Industrial new construction and maintenance paints: High-performance
coatings formulated to withstand extreme uses, such as environmental
elements, abrasion, fungi, chemicals, corrosion, electrical, or solvent
exposure. They are also used to protect public utilities' facilities, railroads,
roads and highways, and industrial interiors and exteriors.
- Marine paints including ships and offshore facilities: Paints and coatings
designed to withstand water immersion and exposure to marine atmosphere.
F-6
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- Traffic paints: Marking paints formulated to withstand the wear of vehicular
traffic and to be highly visible at night. These paints are used to mark traffic
lanes and crosswalks, for example. Also includes shelf goods and paints
designed for the highway departments.
- Refmish paints: Coatings formulated specifically to meet certain product and
application requirements and sold to the refmishing trade.
- Aerosol paints: Paints packaged in an aerosol can under pressure.
F. 1.1.4 Costs of Production
The inputs for paints and allied products include various resins, solvents, pigments,
extenders, binders, and other additives. In constant 1998 dollars, the cost of materials rose 27
percent over the period 1987 to 1997 to $9947.9 million (see Table F-2). The higher cost of
materials reflects the changing content of paint products. The use of higher solids content
and environmental concerns necessitated using more expensive ingredients and using epoxies
in paint. Prices for acetone, benzene, chlorine, and fiber-grade increased; however, phenol
prices remained steady. The increasing cost of raw materials has been a concern for the
industry.
The amount of labor employed by the industry dropped from 55,200 in 1987 to 52.7
in 1997, while the industry's payroll increased by $289.5 million (1998 dollars), indicating
that the manufacturing process became increasingly mechanized and required skilled labor.
The rise in the level of employment from 1995 to 1997 is expected to be temporary. Industry
analysts expect the number of jobs at the manufacturing level to decrease by a minimum of
30 percent by the year 2005 (Gale Research, 1995). Energy costs averaged $118.5 million a
year during the period 1987 to 1997.
F.I. 1.5Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of the actual operations to the full production levels. Table F-3 presents historical
trends in capacity utilization in this industry. The capacity utilization ratio for the paints and
allied products industry was 66 in 1997, indicating that plants were operating below potential.
F-7
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Table F-2. Inputs Used in Paints and Allied Products Industry
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
55.2
56.9
55.0
53.9
51.1
51.2
50.2
50.0
52.4
51.1
52.7
Payroll
(1998 $106)
1,794.2
1,779.5
1,761.7
1,772.8
1,690.6
1,860.9
1,839.2
2,020.5
2,024.7
1,979.4
2,083.7
Materials
(1998 $106)
7,830.8
8,061.3
7,991.1
8,077.8
8,014.9
8,488.3
8,985.9
9,579.4
9,796.7
10,050.6
9,947.9
New Capital
Investment
(1998 $106)
330.9
287.3
263.9
295.5
275.6
315.6
277.9
295.9
426.4
411.9
NA
Energy
(1998 $106)
122.1
133.4
120.6
117.6
117.3
117.4
124.7
104.7
109.4
110.6
129.7
NA = Not available
Sources: U.S. Department of Commerce, Bureau of the Census. 1990f. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paints and Allied Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures,
Industry Series. Washington, DC: Government Printing Office.
F-8
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Table F-3. Capacity Utilization Ratios for SIC 2851
1992 1993 1994 1995 1996 1997
SIC 2851 75 67 69 68 69 66_
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999i. Survey of Plant Capacity: 1997.
Washington, DC: Government Printing Office.
F.I. 2 Demand Side of the Industry
F. 1.2.1 Product Characteristics
Modern chemistry has produced coatings that add aesthetic value and are also
resistant to natural elements, or electrical conduction, or wear and tear by vehicles. The paint
and allied products industry is able to formulate a coating to fulfill almost any request a client
may have. In the last 20 years, the industry has made major advances in the durability and
quality of coatings.
F.I. 2.2 Uses and Consumers of Products
The coatings industry is essential to nine other major U.S. industries: automobiles,
trucks and buses, metal cans, farm machinery and equipment, construction machinery and
equipment, metal furniture and fixtures, wood furniture and fixtures, major appliances, and
coil coating (high speed application of industrial coatings to continuous sheets, strips, and
coils of aluminum or steel) (U.S. Department of Commerce, 1995 f).
The quantity of architectural coatings demanded is directly related to the number of
building sales and starts for a given period. When construction slows on residential,
commercial, and industrial structures, the demand for architectural coatings slows down as
well, albeit much later because of lag effects. Special purpose coatings are used in much the
same way as architectural coatings, but they are formulated for special applications. Typical
consumers and uses of these coatings include highway departments for road markings and
bridges, ship builders for hulls, automakers for cars, and refinishers for refmishing.
F-9
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OEM coatings are predominantly used during the manufacturing process of a product.
Powder coatings and electrical insulating coatings are the most common products
manufactured by this industrial sector. The demand for powder coats is expected to drop off
due to a slowdown in durable goods production, such as home appliances (the largest market
for powdered products), and a drop in conversion from liquid to powder paints. Table F-7 in
Section F.I.4 presents historical data on paint production, consumption, and net exports.
F.I.2.3Substitution Possibilities
There are few substitutions for coatings. Within the industry, the 20 percent growth
of powdered paints in the 1980s quelled the demand for liquid products. Powdered paints are
popular because of environmental concerns. The Clean Air Act and other regulations favored
powdered paints because they do not emit any VOCs during the application process.
Manufacturers of liquid coatings responded to both the regulations and the popularity of
powdered coatings by increasing the amount of pigments and resins in their product and
reducing the amount of solvents added. Subsequently, the demand for powdered paints
decreased somewhat.
F.I. 3 Organization of the Industry
F.I.3.1 Firm Characteristics
In 1997, the majority (61 percent) of facilities producing paints and allied products
were small facilities with fewer than 20 employees (see Table F-4). However, these facilities
contributed only 8.2 percent to the total value of shipments. As Table F-4 indicates, 907
facilities had fewer than 20 employees. These small entities are typically regional paint
companies that supply local hardware stores or home repair centers.
Ownership concentration in this industry decreased from 1987 to 1992, but increased
again from 1992 to 1997. In 1987, 1,121 companies operated 1,426 facilities in SIC 2851.
By 1992, 1,130 companies operated 1,418 facilities in this industry. In 1997, less than 1,206
companies operated 1,486 facilities. To remain competitive, many producers have invested
in research and development to develop a better product.
In 1992, the five largest coatings companies were Sherman-Williams Co. ($2,747.8
million in sales), Valspar ($683.5 million), RPM ($552.1 million), Grow Group ($416.2
million), and Standard Brands Paint ($253.0 million). These companies accounted for 31.1
percent of 1992 sales of coatings.
F-10
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Table F-4. Size of Establishments and Value of Shipments for SIC 2851
1992
Establishments With an
Average of
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,499 employees
Total
Number of
Facilities
329
247
264
306
146
100
23
1
2
1,418
Value of
Shipments
(1998 $106)
170.7
368.1
882.8
2,378.8
3,389.8
5,537.4
3,554.4
D
D
16,282.1
1997
Number of
Facilities3
412
245
250
296
153
105
20
3
2
1,486
Value of
Shipments3
(1998 $106)
220.9
438.9
920.8
2,495.3
3,948.2
6,723.8
D
935.0
D
19,221.7
D = undisclosed
a Data are estimates based on the 1997 Economic Census Report for the NAICS-coded industry 325510.
Estimates based on the fact that 99.47% of the value of shipments for the NAICS-coded industry are derived
from firms classified under SIC code 2851.
Sources: U.S. Department of Commerce, Bureau of the Census. 1990e. 1987 Census of Manufactures,
Industry Series: Paints and Allied Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paints and Allied Products. Washington, DC: Government Printing Office.
The four- and eight-firm concentration ratios (CR4 and CR8) and Herfindahl-
Hirschmann indexes (HHI) are used to assess the market structure of an industry. The CR4
for the paints and allied products industry was 29 in 1992, meaning that the top four firms
accounted for only 29 percent of the industry's total sales. The CR8 for the same year was 43
(U.S. Department of Justice, 1992). This indicates that the paint and allied products market
is fairly competitive. Furthermore, the HHI for paints and allied products was 305 in 1992.
According to the Department of Justice's (1992) Horizontal Merger Guidelines, industries
with HHIs below 1,000 are considered to be unconcentrated (i.e., more competitive).
F-ll
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Therefore, firms in the paints industry are more likely to be price takers. Table F-5 shows the
CR4, CR8, HHI, number of companies, and number of facilities data for SIC 2851 for 1992.
Table F-5. Measures of Market Concentration by SIC: 1992
SIC
SIC 2851
Description
Paints and Allied
Products
CR4
29
CR8
43
HHI
305
Number of
Companies
1,130
Number of
Facilities
1,418
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paints and Allied Products. Washington, DC: Government Printing Office.
F.I. 3.2 Geographical Distribution
Facilities involved in the coatings industry are concentrated in states with heavy
involvement in manufacturing. Ohio, California, and Illinois alone accounted for 35.3
percent of the total value of shipments and 33 percent of total employment in the industry
(see Table F-6).
F.I.4 Markets and Trends
F. 1.4.1 Production
Table F-7 shows production and consumption trends for the period 1987 to 1994.
There has been mild growth in the percentage of domestic production of paints and allied
products being exported. Domestic consumption of paints and allied products increased by
10.7 percent, while domestic production increased by 14.1 percent.
Domestic. In 1996, the U.S. coatings industry produced 1,438.6 million gallons of
product worth $18,630.5 million in 1998 dollars. Growth is projected to be roughly 2 to 3
percent a year through the year 2000. Markets slated for the most growth are product finishes
and specialty coatings (DRI McGraw Hill, 1998).
Foreign. In 1996, foreign producers exported $1,215.6 million worth of pigments,
paints, varnishes, and related materials (Standard International Trade Classification, SITC
F-12
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Table F-6. Industry Statistics for the Top Ten States for SIC 2851,1992
State
Ohio
California
Illinois
Michigan
Texas
Pennsylvania
New Jersey
Georgia
Kentucky
Maryland
USA
Value of
Shipments
(1998 $106)
2,014.7
1,912.3
1,821.9
1,012.9
997.6
952.4
827.9
693.0
639.5
504.2
16,282.1
Number of
Facilities
79
189
125
76
84
65
91
45
26
20
1,418
Facilities With
Fewer Than 20
Employees
36
127
60
49
55
34
52
25
10
10
840
Number of
Employees
6,000
5,400
5,500
3,200
2,500
3,000
2,800
1,500
1,200
1,200
51,200
Sources: U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paint and Allied Products. Washington, DC: Government Printing Office.
533) to the United States. Major exporters to the United States include NAFTA members,
Germany, Japan, and Belgium.
F. 1.4.2 Consumption
Domestic. Domestic consumption of foreign products is increasing, particularly since
the liberalization that occurred because of NAFTA. Another significant factor affecting
domestic consumption of paints is the do-it-yourself orientation of Americans. Due to this
factor, the consumption of architectural coatings was expected to remain steady and possibly
increase through the year 2000.
Foreign. In 1996, U.S. producers exported $2,392.2 million worth of paints,
varnishes, pigments, and related materials (SITC 533). Asian, South American, and Western
European markets have improved in the past 5 years, helping to stabilize the North American
industry.
F-13
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Table F-7. Production and Consumption Trends for SIC 2851,1987 to 1994 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
Domestic Production
14,180.4
14,260.2
14,415.9
14,894.3
14,325.0
14,792.2
15,680.4
16,183.0
Domestic Consumption
14,037.0
14,031.3
14,046.4
14,394.3
13,724.9
14,172.4
15,053.3
15,539.6
Net
Exports
143.4
228.9
369.5
500.0
600.1
619.8
627.0
643.4
Note: Consumption = Domestic Production - Exports + Imports
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995f. 1992 Census of Manufactures,
Industry Series: Paint and Allied Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
F.2 Industrial Organic Chemicals
SICs 2865 and 2869 are divisions of the greater Industrial Organic Chemicals
category, representing cyclic crudes and intermediates and industrial organic chemicals not
elsewhere classified (N.E.C.), respectively. These industries correspond to North American
Industry Classification System (NAICS) manufacturing codes as shown in Table F-8. These
are major sectors within the U.S. chemical industry, and both industries had a combined
F-14
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Table F-8. The Correspondence Between SIC Codes 2865 and 2869 and the NAICS
SIC
Code
Description
NAICS
Code(s)
Description
2865
Cyclic organic crudes and
intermediates, and organic dyes
and pigments
2869
Industrial organic chemicals, not
elsewhere classified
32511 Petrochemical manufacturing (pt)
325132 Synthetic organic dye and pigment
manufacturing
325192 Cyclic crude and intermediate
manfacturing
32511 Petrochemical (pt)
325188 All other basic inorganic chemical
manufacturing
32512 Industrial gas manufacturing
325199 All other basic organic chemical
manufacturing
pt = The NAICS industry described only partially comprises the SIC code industry shown to correspond with
that NAICS industry.
Source: U.S. Department of Commerce, Bureau of the Census. 1997 NAICS and SIC Correspondence Tables.
. As obtained March 6, 2000.
annual value of shipments of $83,323.4 million ($1998) in 1997 (see Table F-9). All values
in this report are in 1998 dollars.
Products produced by cyclic crudes and intermediates are divided into three sectors.
First, the aromatic chemical production sector produces benzene, toluene, mixed xylenes, and
napthalene. The second and third sectors produce synthetic organic dyes and synthetic
organic pigments, respectively. Dyes are colored substances that are fully soluble in the
vehicle or medium. Pigments are colored, colorless, or flourescent finely divided solids that
are usually insoluble in (and unaffected by) the vehicle or medium in which they are placed.
Both provide color by absorbing or reflecting selected light rays.
The cyclic crudes and intermediates industry was affected by the early 1990s'
recession. In 1989, the value of shipments reached $10,657.1 million but fell to $10,409.3
F-15
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Table F-9. Value of Shipments (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2865
Cyclic Crudes and Intermediates
10,657.1
11,715.6
11,849.3
11,864.2
11,483.1
10,409.3
11,032.7
12,082.0
12,692.9
12,371.6
12,264.0
SIC 2869
Industrial Organic Chemicals, N.E.C.
50,749.4
55,842.0
59,742.5
58,991.0
57,210.9
58,995.0
57,788.9
61,429.2
64,699.1
56,273.4
71,059.4a
a Excludes data on two firms for which data were not available.
Sources: U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures,
Industry Series. Washington, DC: Government Printing Office.
million in 1992. The industry began to recover and shipped $12,264 million worth of goods
in 1997, an increase of nearly 17.9 percent over 1987's value. All dollar values are in
constant 1998 dollars unless otherwise indicated.
The miscellaneous industrial organic chemicals group includes establishments
producing chemicals that cannot be classified in other SIC categories. Product groupings
range from chemical warfare gases to synthetic perfumes and flavoring chemicals. This
industry suffered from the same recessionary effects as SIC 2865, although in terms of
F-16
-------
percentages, the effects were not as significant. In 1997, its shipments were valued at
$71,059.4 million, an increase of 40 percent over 1987's value.
F. 2.1 Supply Side of the Industry
F.2.1.1 Production Processes
Dyes. The ingredients used in dye manufacture are varied. Both liquid and dry
materials are sent to vats where they are reacted together. Vats are made out of stainless steel
in the United States and Europe and sometimes of wood in developing nations. The dyes exit
the vats through a system of pipes to cooling tanks. Solid dyes will either be filtered or
separated by centrifuge to remove them from the liquid. Solids are pressed by plates and
frames. Also at this stage, intermediates are removed and reused or manufactured. If the
dyes need to be dried, air or vacuum ovens, rotary dryers, or spray dryers are used. The final
stage is grinding or milling. These processes create a large amount of dust that is gathered
using advanced control methods.
Pigments. Various ingredients are required to produce pigments. After choosing a
hue, a manufacturer collects the necessary ingredients. The process is usually conducted in
large, secured vats and involves numerous steps ranging from coupling and condensation to
salt formation.
The manufacturing processes for some popular pigments are briefly described below:
• Blue 60 (Indanthrone): intermolecular condensation of F-aminoanthraquinone in
the presence of a strong inorganic base and oxidizing agent.
• Red 38 (Pyrazolone Red): coupling of tetrazotized 3,3'-dichlorobenzidine with
l-phenyl-3-carbethoxy-5-pyrazolone.
• Yellow 139 (Isoindoline): reaction of l-amino-3-iminoisoindolenine with
barbituric acid.
The pigments can be heated or cooled. After the reactions, they are isolated and prepared for
shipping.
Aromatic and Miscellaneous Industrial Organic Chemicals. The process by which
aromatic and other industrial organic chemicals are manufactured is similar to the two
processes described above. Production entails reacting (through a variety of methods)
different chemical and natural raw materials together to form a product.
F-17
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F.2.1.2Major By-products and Co-products
The chemical industry produces a significant amount of waste. Even a small amount
of discharge is noticeable because of the color or aroma of the emissions. For environmental
and public health reasons, facilities clean their waste before discharge. Acidic and alkaline
liquors are neutralized, and the waste is filtered to remove heavy materials before leaving the
facility.
F.2.1.3 Types of Output
Dyes and pigments are available in a variety of forms: dry powders (both surface
treated or untreated), presscakes, flushed colors (thick pastes), fluidized dispersions
(pourable), resin predispersed pigments, and plastic color concentrates or master batches
(granules). Pigment types include azo pigments, lakes, copper phthalocyanines,
quinacridones, diaryl pyrrolopyrroles, and dioxazine.
Dyes are best classified by their chemical structure, but manufacturers prefer to
classify them by their use or application method. Dye categories include reactive dyes, direct
dyes, vat dyes, sulfur dyes, disperse dyes, basic dyes, solvent dyes, and acid dyes.
Aromatic chemicals include products such as benzene and toluene. Cyclic crudes
include light oils and light oil products and products of medium and heavy oil such as
napthalene.
Miscellaneous industrial organic chemicals comprise nine general categories of
products:
• aliphitic and other acyclic organic chemicals (ethylene); acetic, chloroaceptic,
adipic, formic, oxalic, and tartaric acids and their metallic salts; chloral,
formaldehyde, and methylamine;
• solvents (ethyl alcohol etc.); methanol; amyl, butyl, and ethyl acetates; ethers;
acetone, carbon disulfide and chlorinated solvents;
• polyhydric alcohols (synthetic glycerin, etc.);
• synthetic perfume and flavoring materials (citral, methyl, oinone, etc.);
• rubber processing chemicals, both accelerators and antioxidants (cyclic and
acyclic);
• cyclic and acyclic plasticizers (phosphoric acid, etc.);
F-18
-------
• synthetic tanning agents;
• chemical warfare gases; and
• esters, amines, etc., of polyhydric alcohols and fatty and other acids.
F.2.1.4 Costs of Production
Cyclic crudes and intermediates have long been a mature industry. Until 1996,
employment varied little, holding steady at an average of 23,000 workers for the years 1987
to 1996. However, between 1996 and 1997, employment fell by 15 percent. Payroll
remained around the same level during this period. It is notable that while the level of
employment in the industry fell by 15 percent between 1996 and 1997, the payroll increased
by almost 37 percent. The cost of materials does appear to trend upward, but only slightly.
The cost of materials only increased 7.4 percent between 1987 and 1997. New capital
investment averaged $724.8 million per year (see Table F-10).
Employment in miscellaneous organic chemicals, SIC 2869, averaged 97,890 for the
1987 to 1997 time period. Between 1987 and 1994, employment fell 10 percent to 89,800,
after a high of 101,000 in 1991. Most jobs lost were at the production level. Facilities
became far more computerized, incorporating advanced technologies into the production
process. Since 1994, employment in the industry has increased to reach 100,100 in 1997.
Even though 1997 employment was about the same as that in 1987, payroll was $1060.8
million more in 1997 than in 1987. The cost of materials has increased over past years, rising
from about $29 billion in 1987 to almost $41 billion in 1997. New capital investment
averaged $3,955 million a year.
F.2.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of actual production level to the full production capacity level. Table F-l 1 presents
the capacity utilization ratios from 1991 to 1997 for the industrial organic chemicals industry.
The capacity utilization ratio for the cyclic crudes and intermediaries industry was 82 percent
in 1997. The corresponding ratio for the miscellaneous industrial organic chemicals industry
was 78 percent.
F-19
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Table F-10. Inputs: Industrial Organic Chemicals
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
22.8
23.9
22.8
23.0
23.5
22.2
23.3
22.7
22.6
22.8
19.3
Labor
Payroll
(1998 $106)
SIC 2865 Cyclic
946.2
998.3
957.4
992.2
1,037.1
1,016.3
1,114.8
1,077.6
1,046.1
1,108.9
1,298.9
Materials
(1998 $106)
New Capital
Investment
(1998 $106)
Energy3
(1998 $106)
Crudes and Intermediates
6,619.1
6,961.7
7,694.3
7,654.5
7,326.8
6,862.9
7,000.4
7,376.4
7,315.0
7,517.0
7,110.9
SIC 2869 Industrial Organic Chemicals,
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997b
100.3
97.1
97.9
100.3
101.0
100.1
97.8
89.8
92.1
100.3
100.1
4,447.4
4,227.3
4,323.3
4,592.4
4,746.6
4,898.4
4,882.6
4,783.8
4,906.9
5,704.2
5,508.2
29,141.0
30,821.4
32,257.0
32,775.1
33,064.9
34,644.6
33,124.4
35,142.0
36,137.7
39,990.5
40,784.2
455.7
487.1
641.0
1,040.1
769.6
587.9
726.1
623.2
863.2
1,054.0
NA
N.E.C.
2,388.9
3,131.5
3,818.4
4,527.0
4,891.8
4,585.1
3,643.8
3,089.5
4,153.5
5,316.0
NA
506.5
556.1
563.5
516.6
512.4
460.1
522.6
492.6
415.5
566.2
514.7
2,683.0
2,649.2
2,697.6
2,776.5
2,542.9
2,773.4
3,120.8
3,023.2
2,755.5
3,417.1
2,940.7
a Where NAICS code is only partially composed of SIC-coded industry, 1997 statistics on energy use are
estimated based on the percentage of NAICS-industry shipments due to the SIC-industry of interest
b Excludes 2 firms for which data were unavailable
Sources: U.S. Department of Commerce, Bureau of the Census. 1990g. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufacturers,
F-20
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Table F-ll. Capacity Utilization Ratios for SICs 2865 and 2869
SIC 2865
SIC 2869
1991
85
86
1992
89
81
1993
86
91
1994
88
89
1995
84
84
1996
85
84
1997
82
78
Sources: U.S. Department of Commerce, Bureau of the Census. 1999L Survey of Plant Capacity: 1997.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
F. 2.2 Demand Side of the Industry
F. 2.2.1 Product Characteristics
Dyes and pigments are popular for their ability to color materials. Dyes' properties
are much the same as pigments, except they are soluble in the vehicle. Pigments are available
in varied qualities. Pigments are rated using the following attributes: tinctorial strength,
durability, hiding power, transparency, and heat and solvents resistance. Other properties
used to judge pigments are brightness (saturation), gloss, rheology, dispersability, crystal
stability, bleed resistance, and other properties associated with specialized applications.
These attributes vary greatly, from poor to outstanding. Quality depends on the quality of the
raw materials and the process and equipment used to create the pigment. Aromatic chemicals
are formulated to affect the smell of various products and are used in cosmetics and
household products.
Miscellaneous industrial organic chemicals' properties are as varied as the chemicals
themselves; some are valued for their ability to affect our foods in a positive manner, others
are used in war.
F.2.2.2 Uses and Consumers of Products
Dyes and pigments are used for decorative and/or functional purposes. Pigments and
dyes are used in a great many light and durable goods and add aesthetic value to the products
into which they are incorporated. Dyes are most commonly used to color polyester and
F-21
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cotton, the two most popular fibers. The textile industry and individual consumers both use
dyes. However, the textile industry consumes more dyes in terms of volume and value.
Pigments are used in a variety of products ranging from printing inks to plastics.
Pigments have a more varied customer base because of their use in plastics, household
products, printing, paints of all kinds, cements, waxes, artist materials, and wall paper (to
name a few industries), as well as textiles. The worldwide printing ink industry consumes 41
percent of the total value of pigments, paints 29 percent, plastics 23 percent, and special
applications 7 percent (see Figure F-l).
Special /^ ^\ Printirjj Ink
Applications ^ \ 41%
Plastics
23%
Figure F-l. Worldwide Pigment Consumption by Industry
Miscellaneous industrial organic chemicals uses and consumers are as varied as their
products. Common uses and consumers include food products, plastics additives, the flavor
and fragrance industry, and others.
F-22
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F.2.2.3 Substitution Possibilities
Within this industry, there are possible substitutions (e.g., natural flavors rather than
artificial flavorings) but for a great many items classified under these two SIC codes
substitutes are limited. Substitution possibilities vary depending on the ingredients, tastes
and preferences, and customer specifications for each individual product. Historical trends in
domestic and foreign consumption of these products are presented in Table F-15 in
Section F.2.4.
F.2.3 Organization of the Industry
F.2.3.1 Firm Characteristics
Table F-12 presents data on the number of facilities and value of shipments in these
industries. There was a net decrease of 11 percent in the total number of facilities operating
in the cyclic crudes industry between 1992 and 1997. However, the decrease in facilities was
accompanied by an increase in the real value of shipments. The real value of shipments
increased by 18 percent.
Miscellaneous industrial organic chemicals (SIC 2869) experienced a 22 percent
increase in the value of shipments between 1992 and 1997. SIC 2869's total value of
shipments grew by nearly $13 billion.
Both SIC codes are dominated by large, multinational firms. Many of the largest
firms operating in the market are subsidiaries of major European conglomerates, such as
Hoechst. In the cyclic crudes and intermediates industry, 150 companies controlled 206
facilities, 143 of which employed more than 20 employees in 1992. In the miscellaneous
industrial organic chemicals industry, 489 companies controlled 705 facilities, 428 of which
employed more than 20 employees in 1992.
To assess the competitiveness of a market, economists often estimate four- and eight-
firm concentration ratios (CR4 and CR8) and Herfmdahl-Hirschmann indices (HHI). The
four- (eight-) firm concentration ratio indicates the percentage of the industry's total sales
that is accounted for by its top four (eight) firms. The closer the concentration ratios are to
100, the more concentrated the industry (more market share concentrated with fewer
companies). For SIC 2865, the largest four firms only controlled 31 percent of the total
market, indicating the presence of a fairly competitive market. The 1992 Department of
Justice's Horizontal Merger Guidelines also provide criteria for interpreting market structure
F-23
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Table F-12. Size of Establishments and Value of Shipments
Establishments With
an Average of
SIC
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,500 employees
Total
1992
Number of
Facilities
1997
Value of Value of
Shipments Number of Shipments
(1998 $106) Facilities (1998 $106)
2865 Cyclic Crudes and Intermediates
26
15
22
40
34
43
18
7
1
206
21.1
37.9
87.9
468.6
790.1
3,370.2
2,901.0
2,732.5
D
10,409.3 184 12,264.0
SIC 2869 Industrial Organic Chemicals, N.E.C.
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,499 employees
2,500 or more employees
Total
100
80
97
125
106
111
41
30
10
5
705
111.6
226.9
580.6
1,850.2
3,763.3
9,629.7
10,842.4
14,956.9
9,841.9
7,191.4
58,994.9 738 72,220.3a
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. 1990b. 1987 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
F-24
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based on HHIs. According to these criteria, industries with HHIs below 1,000 are considered
unconcentrated (i.e., more competitive), those with HHIs between 1,000 and 1,800 are
considered moderately concentrated (i.e., moderately competitive), and those with HHIs
above 1,800 are considered highly concentrated (i.e., less competitive). Firms in less-
concentrated industries are more likely to be price takers, while firms in more-concentrated
industries are more likely to be able to influence market prices. The HHI for cyclic crudes
and intermediates was 428, less concentrated (i.e., more competitive) (U.S. Department of
Justice and Federal Trade Commission, 1992). The HHI for industrial organic chemicals was
336. Table F-13 summarizes the different measures of market structure in the industrial
organic chemicals industry.
Table F-13. Measures of Market Concentration by SIC: 1992
SIC
2865
SIC
2869
Description
Cyclic Grades and
Intermediates
Industrial Organic
Chemicals, N.E.C.
CR4
31
29
CR8
45
43
HHI
428
336
Number of
Companies
150
489
Number of
Facilities
206
705
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
The largest producers in the United States for SIC 2865 are Hoescht Celanese,
Occidental Chemical Group ($5,410.0 million), Ciba-Geigy Group ($4,800.0 million),
Huntsman Corporation ($4,300 million), and Amoco Chemical Company ($3,723.0 million).
For SIC 2869, the largest producers in the United States are E.I. DuPont de Nemours
and Company ($45,193.0 million), Amoco Corporation ($36,112.0 million), Dow Chemical
Company, Phillips Petroleum Company ($13,521.0 million), and Ashland Inc. ($12,167.0
million).
F-25
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F. 2.3.2 Geographical Distribution
Companies choose plant locations because of their access to raw materials and
proximity to major transportation networks and customers. Available data indicate that, apart
from South Carolina, the northern mid-Atlantic states and Illinois dominate cyclic crudes and
intermediates production. South Carolina is the state with the largest value of shipments,
$864.4 million in 1992. The top five states (by value of shipments) shipped 34 percent of the
industry's total value of shipments (see Table F-14).
Table F-14. Industry Statistics for the Top Five States, 1992
State
Value of
Shipments
(1998 $106)
Facilities With
Number of Fewer Than 20
Facilities Employees
Number of
Employees
SIC 2865 Cyclic Crudes and Intermediates
South Carolina
New Jersey
New York
Pennsylvania
Illinois
USA
Texas
Louisiana
New Jersey
Illinois
West Virginia
USA
864.4
847.9
670.6
632.0
493.1
10,409.3
SIC 2869 Industrial
26,615.6
8,350.1
3,062.3
2,667.7
1,835.9
58,995.0
10
39
11
17
11
206
Organic Compounds,
97
31
69
37
13
705
1
14
1
7
2
63
N.E.C.
21
4
23
11
0
277
1,500
2,400
1,900
1,700
1,300
22,200
30,700
11,100
8,300
3,300
4,600
100,100
Source: U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
Texas dominates the miscellaneous industrial organic chemicals. Texas alone
shipped $26,615.6 million worth of product in 1992, 45.1 percent of the national total. The
top five states also include Louisiana, New Jersey, Illinois, and West Virginia. These five
states were responsible for 72.1 percent of the nation's total value of shipments in 1992.
F-26
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F.2.4 Markets and Trends
The market for cyclic crudes, intermediates, and miscellaneous industrial organic
chemicals grew steadily through 1989, but then dropped in the early 1990s. The market
began rebounding in 1994. From 1987 to 1995, there was a net increase in production of 7.1
percent, while consumption grew by 6.8 percent. Table F-15 presents production,
consumption, and international trade data for these two industries. We computed apparent
domestic consumption to be the difference between domestic production and net exports.
F. 2.4.1 Production
Domestic. The miscellaneous industrial organic chemicals industry in recent years
has experienced varied performance. The plastics additives industry is going through
acquisitions, mergers, investments, and disinvestments that are dragging profits down.
Production was projected to grow at a rate of 3 percent a year through 1999 once the
consolidations have settled. In contrast, the food additives industry has seen growth due to
the emergence of the low-fat foods industry, and the fragrance and flavorings industry has
seen the highest rate of growth in SIC 2869 (DRI McGraw Hill, 1998).
Foreign. Almost two-thirds of global dyestuffs exports originate in Western Europe.
The United States, Asia, and Brazil make up the remaining 35 percent. Asia is becoming
more successful because companies there offer a range of products for relatively low prices.
The United States remains the largest market for organic chemicals in the world, importing
$15.3 billion (1996) worth of organic chemical products in 1996, nearly $260 million more
than it exported that same year.
F. 2.4.2 Consumption
Domestic. The quantity of SIC 2865 demanded in 1995 and 1996 rose because of
increased light goods and low-fat foods consumption. Some aromatics were stagnant (e.g.,
xylenes) while other products experienced a booming business (toluene and napthalene). The
performance of miscellaneous industrial organic chemicals was understandably mixed,
depending on the product.
Foreign. In cyclic crudes and intermediates, the global demand for benzene (aromatic
chemicals) doubled in the last 15 years. Toluene and xylene also remain popular. This
division of petrochemicals, among others, is growing most in Asia and is being serviced
increasingly by the Middle East.
F-27
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Table F-15. Trends in Domestic Production, Consumption, and Net Exports: SICs 2865
and 2869 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
Domestic Production
SICs 2865
64,367.7
71,576.4
76,390.9
75,119.1
70,164.7
64,645.9
63,548.5
67,489.2
68,936.4
Domestic Consumption
and 2869 Combined
59,704.3
69,854.6
75,342.0
71,161.9
64,632.6
61,506.6
60,161.7
63,571.0
63,789.9
Net
Exports
4,663.4
1,721.8
1,048.9
3,957.3
5,532.1
3,139.3
3,386.8
3,918.2
5,146.6
Note: Domestic Consumption = Domestic Production - Exports + Imports.
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1991. 1991 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995c. 1992 Census of Manufactures,
Industry Series: Industrial Organic Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
F-28
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The United States remains an important exporter of organic chemical products, selling
nearly $17.2 billion (1998) dollars worth of chemical products to foreign countries in 1995.
The chemicals were sold predominantly to NAFTA, the EU, and Japan.
F.3 Soaps and Cleaners
SIC 284 consists of cleaning products, a medium-sized American industry. Soaps and
other detergents (SIC 2841), polishes and sanitation goods (2842), and surface active agents
(2843) encompass a wide variety of cleaning agents. The largest market served by these
industries is the one for bar soap for personal bathing. In 1997, the total value of this
industry's shipments was $32,387.3 million (see Table F-16). All dollar values are 1998
dollars unless otherwise indicated.1
The soap and other detergents industry is nearly twice as large, in terms of value of
shipments, as the next largest four-digit SIC code grouping, polishes and sanitation goods.
Over the period 1987 to 1997, the soap and other detergents industry grew 21.2 percent in
real terms. The industries comprising this SIC produce soap, synthetic organic detergents,
and inorganic alkaline detergents in addition to crude and refined glycerin from vegetable and
animal fats.
The polishes and sanitation goods industry shipped $8,434.4 million worth of goods
in 1997, an increase of 25.3 percent since 1987. Firms engaged in this industry produce
polishes for metals and furniture; household bleaches; waxes; and household, institutional,
and industrial disinfectants.
The surface active agents industry's value of shipments was fairly steady between
1987 and 1996. In 1997, the industry experienced significant growth, shipping $7,046.6
million dollars worth of product that year, 45 percent more than in 1996. Surface active
preparations are used as emulsifiers, wetting agents, and penetrants in soaps and detergents.
F. 3.1 Supply Side of the Industry
F. 3.1.1 Production Processes
Soap and detergent manufacturing differs depending on the final form of the product:
liquid (including gel), powdered, or bar. However, the first step in the manufacturing
process, choice of inputs, is similar in theory across all three processes. Soap and allied
Values adjusted using the plant cost index published in Chemical Engineering, various years.
F-29
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Table F-16. Value of Shipments (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2841
Soap and Other
Detergents
13,903.8
13,995.1
14,554.9
16,744.7
16,492.4
16,050.7
16,798.3
15,452.2
16,487.5
16,100.9
16,906.3
SIC 2842
Polishes and
Sanitation Goods
6,728.9
6,661.6
6,561.9
6,369.6
6,653.2
7,259.6
8,783.2
9,206.1
8,590.2
8,777.4
8,434.4
SIC 2843
Surface Active
Agents
3,611.4
3,864.8
3,243.2
3,450.9
4,087.5
3,114.3
3,974.7
5,170.8
3,802.7
4,838.2
7,046.6
Totals
24,244.0
24,521.5
24,359.8
26,565.1
27,233.1
26,424.6
29,556.0
29,829.1
28,880.4
29,716.6
32,387.3
Sources: U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures,
Industry Series: Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999e. 1997 Census of Manufactures,
Industry Series: Polish and Other Sanitation Goods Manufacturing. Washington, DC: Government
Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999f. 1997 Census of Manufactures,
Industry Series: Surface Active Agent Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999g. 1997 Census of Manufactures,
Industry Series: Soap and Other Detergent Manufacturing. Washington, DC: Government Printing
Office.
F-30
-------
products inputs are chosen using the following guidelines: human and environmental safety,
cost, compatibility with other ingredients, and the form and characteristics of the final
product.
The basic ingredients are surfactants(or surface active agents) and builders.
Surfactants change the properties of water, effectively reducing the surface tension of water
to enable the cleaning solution to wet a surface more quickly so dirt and oils can be more
easily and quickly removed. Surfactants also work to keep oils and dirts from settling back
into their previous positions.
There are four categories of surfactants, based on their ionic properties: aionic,
nonionic, cationic, and amphoteric. Aionic are used in laundry, hand dishwashing, and
personal cleansing products. They create the greatest amount of suds. Nonionic surfactants
are used in low-suds products such as laundry and dishwasher detergents. Cationic
surfactants are used primarily by fabric softening companies. Finally, amphoteric surfactants
are used primarily in personal cleansing and cleaning products because their charges change
depending on the pH level of the water, making them very flexible.
Builders are used to reduce water hardness to allow the surfactants to function more
efficiently. They also help prevent oils and dirt from resettling.
Solids (Nonpowder). Solid products are produced by mixing fatty acids with
inorganic water-soluble bases. Most fats are extracted from beef and mutton tallow or palm,
coconut, and palm kernel oils. The fats and oils undergo a process called saponification
(heating fats and oils and reacting them with liquid alkali to produce soap, water, and
glycerine).
There are two general processes of making soap; continuous and batch processing.
Continuous processing is most often used because of its flexibility and speed relative to the
time-consuming and inefficient batch process. Both processes initially produce soap in a
liquid form (referred to as neat soap). Liquid soap is separated from glycerine through
saponification. Vacuum spray drying is used to reduce the neat soap into dry soap pellets.
The amount of moisture allowed to remain in the soap pellets varies. Manufacturers
determine the consistency of the soap at this stage. The pellets then pass through a mixer and
are blended together with fragrances and other additives. Next, the mixture is homogenized
and refined through rolling mills before being sliced into bars and molded into its final shape
with a soap press.
F-31
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Powdered Deter gents. Manufacturers can produce powdered detergents using three
processes: spray drying, agglomeration, or dry mixing.
In spray drying, the liquid and dry components of the detergent are combined in a
machine known as a crutcher. The mass is then heated and sprayed under high pressure to
produce small droplets. The droplets form small granules as they fall and dry. Fragrances
and other additives are added before the product is packaged for shipment.
In agglomeration, high density powders are produced by mixing together dry raw
materials with liquid ingredients. Next, a liquid binder is added. The mixture is then rolled
and mixed, forcing the materials to adhere to each other. The large particles are then broken
down to a finer dust.
In dry mixing, the materials are simply mixed together using only minor amounts of
liquid.
Liquids. The process by which a manufacturer creates liquid detergents is similar to
that used to manufacture solid product. The materials are blended together in the same
fashion; however, they are not allowed to dry, and stabilizers are often added to maintain
proper dispersion of active ingredients in the liquid or gelled matter.
F.3.1.2Major By-products and Co-products
The most significant co-product of cleaning products manufacturing is glycerine.
Glycerine producers are grouped under SIC 2841. An important industrial material, glycerine
is removed from the production line after saponification. It is then treated and refined for use
in foods, cosmetics, drugs, and other products.
F. 3.1.3 Types of Output
The following products are produced by these industries:
• personal cleaning products: bars, soaps, liquid cleaning products, heavy-duty
hand cleaners;
• laundry detergents and aids: liquids, powders, gels, sticks, powders, pastes,
sheets, and sprays; bleaches; bluings, enzyme presoaks, fabric softeners, starches,
water softeners;
• dishwashing products: automatic detergents, rinse agents, film removers; lime
and rust removers;
F-32
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• household, institutional, and industrial cleaning products and polishes: all-
purpose cleansers, abrasive cleansers, clear-surface cleaners, metal cleaners and
polishes, tile cleaners, oven cleaners, rug and other surface shampoos, drain
openers, and toilet cleaners; and
• cleanser ingredients: wetting agents, emulsifiers, and penetrants.
F. 3.1.4 Costs of Production
During the late 1980s and early 1990s, the soaps and other detergents industry (SIC
2841) grew, adding nearly 5,000 workers, an increase of 15.5 percent, between 1987 and
1991 (see Table F-17). After the recession, however, the industry begun reducing its quantity
of labor inputs. Even though the value of shipments was 21.6 percent higher in 1997 than in
1987, employment was 8.5 percent lower. For the 1987 to 1997 period, payroll rose
3.7 percent and the cost of materials by only 3.3 percent. Energy costs also dropped
noticeably during the mid-1990s. New capital investment for the 10 years presented
averaged $506.6 million a year.
SIC 2842, polishes and sanitation goods, followed a more conventional pattern from
1987 to 1997. The 25.3 percent increase in the real total value of shipments (shown in
Table F-16) was accompanied by increases in costs of production. From 1987 to 1997,
employment increased 6.7 percent to reach 22,000. Payroll grew to $730.2 million, an
increase of 21.3 percent. The largest increase was in the area of raw materials cost;
increasing 37.5 percent from 1987 to 1997. Energy costs were $4.5 million higher in 1997
than in 1987. New capital investment averaged $136.3 million a year.
From 1987 to 1995, surface active agents manufacturers, SIC 2843, experienced a
general rise in costs, indicating that the 95 percent rise in the value of shipments may not
have been accompanied by a commensurate rise in industry profits. In 1997, employment
was 4.3 percent higher than in 1987. The payroll was 29 percent higher in 1997 than 1987.
Such significant increases in payroll indicate that labor become may have become productive
over this time period. Over this same time period, the costs of materials rose by 45 percent.
New capital investment averaged $156.2 million over these 9 years. Energy expenditures
rose 36.3 percent.
F. 3.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
F-33
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Table F-17. Inputs: Soaps and Cleaners
Labor
Year
Quantity
(103)
Payroll
(1998 S106)
Ni
Materials I
(1998 S106) (I
ew Capital
tivestment
L998 S106)
Energy
(1998 S106)
SIC 2841 Soap and Other Detergents
987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
31.7
33.3
34.8
36.3
36.6
32.9
31.4
31.3
32.1
30.3
29.0
1,149.6
1,150.7
1,198.0
1,304.6
1,315.9
1,278.7
1,246.2
1,237.8
1,258.7
1,196.5
1,191.9
6,824.5
6,818.7
7,441.5
8,178.8
7,717.5
7,568.3
7,799.4
7,497.6
7,069.8
6,845.6
7,051.3
407.5
418.9
434.1
518.2
680.0
621.3
557.2
523.0
371.6
435.6
NA
126.6
137.0
130.7
127.4
126.8
130.2
132.9
117.0
102.0
100.5
101.8
SIC 2842 Polishes and Sanitation Goods
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
20.6
20.5
21.2
19.6
19.6
22.0
22.9
21.4
23.0
24.2
22.0
9.1
9.0
9.0
9.1
9.3
8.2
8.6
8.1
8.0
8.8
9.5
601.9
571.0
609.0
579.7
618.1
720.3
689.2
691.9
717.7
752.2
730.2
SIC 2843
348.6
337.2
341.7
361.8
366.0
348.3
388.9
368.6
351.0
408.5
466.3
2,338.2
2,399.3
2,520.1
2,361.2
2,462.1
2,678.7
3,222.0
3,108.1
3,273.9
3,218.5
3,215.0
Surface Active Agents
2,025.4
2,326.1
1,941.7
2,119.3
2,182.9
1,837.1
2,267.2
2,247.3
2,476.1
2,584.2
3,051.4
141.6
81.5
154.7
103.4
147.7
132.1
141.4
131.1
158.1
176.3
NA
124.4
218.0
141.6
179.7
169.6
100.5
220.6
237.6
125.2
164.4
NA
37.6
37.1
36.7
34.6
36.1
37.7
42.5
40.2
43.5
45.1
42.1
105.3
103.8
75.8
78.1
77.9
72.1
104.2
103.9
96.2
129.6
143.5
NA = not available.
Sources: U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures, Industry Series:
Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures, Industry Series.
Washington, DC: Government Printing Office.
F-34
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the ratio of actual production level to the full production capacity level. Table F-18 presents
the historical trends in the capacity utilization rates for the soaps and detergents (SIC 2841),
the polishes and sanitation goods (SIC 2842), and the surface active agents (SIC 2843)
industries.
Table F-18. Capacity Utilization Ratios for Sics 2841, 2842, and 2843
SIC 2841
SIC 2842
SIC 2843
1992
74
68
85
1993
70
75
71
1994
72
76
82
1995
57
57
68
1996
58
69
72
1997
66
60
67
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
F. 3.2 Demand Side of the Industry
F. 3.2.1 Product Characteristics
Soaps and allied products can be used to remove dirts and oils from a variety of
surfaces including plastic, tile, metal, fabric, concrete, Formica, stone, and wood. More
recently, they have been combined with antibacterial elements to disinfect as they clean.
Cleaning products can also be formulated to suit a particular consumer's needs.
At the household level, soaps are one of the key components of personal hygiene. In
addition to being able to remove dirt and oil off bodies, these products also fight bacteria.
They are available in powder, liquid, or solid form, and their versatility in application boosts
their popularity.
F.3.2.2 Uses and Consumers of Products
There are four general categories of consumers and users of these products: personal,
household, commercial, and industrial. SIC 2843, surfactants, produces intermediate goods
used in soaps and polishes. The consumers of these products are the corporations involved
with manufacturing products for the consumer groups listed above. Many goods are used by
more than one category. For instance, car manufacturers may be industrial consumers when
F-35
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using cleaners during the production process, but they are also institutional users when using
these products to clean their offices.
Individuals use personal soaps and cleaning products for hygienic reasons. Bar soaps
remove dirt and oils and have recently been formulated to neutralize bacteria.
At the household level, cleaners and polishes are produced for a variety of surfaces,
such as glass, leather, rugs, tile, cast iron, fiber glass, furnishings (both wood and metal), and
carpeting. A significant portion of these products is devoted to cleaning fabrics or increasing
the softness of these products.
At the commercial level, these goods are produced in concentrations and quantities
for large outfits such as hospitals, clinics, and other entities. The commercial laundering
sector, such as dry cleaners and other such institutions, are also large consumers.
The industry also uses these products for cleaning vats, industrial surfaces, or
products during the intermediate and final stages of production. For instance, the paint
industry cleans its vats and system after deciding on a color change. Another example is the
automobile industry, which must clean the body of its product before and after the paint and
enameling process.
Historical statistics on domestic and foreign production and consumption of these
products are presented in Table F-22 in Section F.3.4.
F.3.2.3 Substitution Possibilities
In many respects, no products can substitute for cleaning agents. Within the industry
itself, however, liquids, solids, and powders are substitutes. One medium, or vehicle, can
substitute for another; however, both individual and industrial consumers purchase more
products in liquid and solid form.
F.3.3 Organization of the Industry
F.3.3.1 Firm Characteristics
In the soaps and detergents industry, less than 739 companies controlled 760 facilities
in 1997, up from 635 companies controlling 710 facilities in 1992. In 1992, 694 companies
controlled 749 facilities producing polishes and sanitation goods. By 1997, only 676
companies controlled 728 establishments. In the surfactants industry, 184 companies
operated 211 establishments in 1997, a slight increase over 1992 when 176 companies
F-36
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operated 205 facilities. In all three industries, facilities with more than 50 employees produce
the majority of product. For soaps and detergents, firms with between 50 and 999 employees
shipped $15,311.3 million in product in 1997, or 91 percent of the industry total (see Table
F-19). Facilities with more than 50 employees involved in polishes and sanitation goods
accounted for 84.3 percent of the industry total. The same trend is true of surfactants where
facilities with more than 50 employees accounted for 83.3 percent of the industry's total
value of shipments.
To assess the competitiveness of a market, economist often estimate four- and eight-
firm concentration ratios (CR4 and CR8) and Herfindahl-Hirschmann indices (HHI). The
CR4 for soaps and detergents in 1992 was 63, meaning that the top four firms accounted for
63 percent of the industry's total sales. The CR8 for the same year was 77. The CR4 and
CR8 for polishes and sanitation goods were 52 and 59, respectively. For surfactants, the CR4
was 37 and the CR8 53 (U.S. Department of Commerce, 1995a). Based on concentration
ratios, the soaps and detergents industry appears to be the most concentrated of the three
industries studied in this profile. Firms in more-concentrated industries are more likely to be
able to influence market prices.
The 1992 Department of Justice's Horizontal Merger Guidelines also provides criteria
for determining market structure based on HHIs. According to these criteria, industries with
HHIs below 1,000 are considered unconcentrated (i.e., more competitive), those with HHIs
between 1,000 and 1,800 are considered moderately concentrated (i.e., moderately
competitive), and those with HHIs above 1,800 are considered highly concentrated (i.e., less
competitive). In 1992, the HHI for soaps and detergents was 1,584; therefore, the industry is
considered to be only moderately competitive. The HHI for polishes and sanitation goods
was 817 (i.e., more competitive). The surface active agents industry is also more
competitive, with an HHI of 471 (U.S. Department of Commerce, 1995a). Table F-20
summarizes the various measures of market structure for the industries in question.
The largest producers for SIC 2841 in the United States are Proctor and Gamble
Company ($35,800.0 million in sales), Dow Chemical Company ($20,053.0 million),
Unilever United States Inc. ($9,000.0 million), Colgate-Palmolive ($8,749.0 million), and
Amway Corporation ($6,800.0 million).
F-37
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Table F-19. Size of Establishments and Value of Shipments
1992
Establishments With an
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1000 employees or more
Total
Number of
Average of Facilities
SIC 2841 Soaps and
234
140
108
108
53
37
20
9
1
710
Value of
Shipments
(1998 S106)
Other Detergents
108.0
230.1
325.6
924.8
1,178.4
2,058.6
5,873.2
5,352.2
D
16,050.8
1997
Number of
Facilities
274"
151a
124"
107a
46a
34a
18a
4a
T
760a
Value of
Shipments
(1998 S106)
126.2a
247.2a
394. la
827.4a
l,186.8a
3,232.1a
6,785.3a
D
D
16,906.2a
SIC 2842 Polishes and Sanitation Goods
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 900 employees
1,000 to 2,500 employees
Total
289
125
110
121
50
41
11
1
1
749
141.0
166.8
264.5
965.8
1,112.6
1,723.3
2,885.7
D
D
7,259.7
294
127
95
100
62
35
12
2
1
728
106.8
145.5
332.9
740.2
1,465.8
2,497.0
1,068.3
D
D
8,434.4
SIC 2843 Surface Active Agents
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
Total
50
33
32
44
24
16
6
0
205
34.1
76.1
159.6
492.9
695.2
815.3
841.1
0
3,114.4
47
26
35
52
28
18
3
2
177.4
92.6
198.6
709.1
1,007.5
1,248.2
D
D
7,068.5
Estimated based on the composition of NAICS coded industry 325611
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. 1989. 1987 Census of Manufactures, Industry Series:
Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures, Industry Series:
Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures, Industry Series.
Washington, DC: Government Printing Office.
F-38
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Table F-20. Measures of Market Concentration by SIC: 1992
Number of Number of
Description CR4 CR8 HHI Companies Facilities
SIC 2841 Soaps and 63 77 1,584 635 710
Detergents
SIC 2842 Polished and 52 59 817 694 749
Sanitation Goods
SIC 2843 Surface Active 37 53 471 176 205
Agents
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures,
Industry Series: Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
For SIC 2842, the largest producers in the United States are Dow Chemical, S.C.
Johnson and Son Inc. ($3,000 million), DuPont Automotive Products ($3,000.0 million),
Olin Corporation ($2,637.9 million), and Modern Bionics ($2,230.0 million).
For SIC 2843, the largest producers in the United States are BF Goodrich Company
($2,238.0 million), Akzo Nobel Inc. ($1,700.0 million), Stephan Company ($536.6 million),
Henkel Corporation Chemical Group ($300.0 million), and Milpark Drilling Fluids ($210.0
million).
F. 3.3.2 Geographical Distribution
In 1992, the soaps and other detergents industry was dominated by firms in Ohio,
Michigan, California, Georgia, and Missouri. The total value of shipments in 1992 for firms
located in these states was $8,608.1 million, or 53.6 percent of the national total (see Table
F-21).
Ohio, Georgia, and Missouri join Illinois and New Jersey as the top five states for
polishes and sanitation goods. In 1992, these states' total value of shipments accounted for
41.7 percent of the national value, or $3,030.5 million.
F-39
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Table F-21. Industry Statistics for the Top Five States, 1992
State
Value of
Shipments
(1998 $106)
Facilities With
Number of Fewer Than 20
Facilities Employees)
Number of
Employees
SIC 2841 Soaps and Other Detergents
Ohio
Michigan
California
Georgia
Missouri
USA
3,070.5
1,802.1
1,505.9
1,118.3
1,111.3
16,050.7
43
42
99
29
26
710
22
34
62
13
19
482
4,000
5,000
3,000
2,200
1,800
32,900
SIC 2842 Polishes and Sanitation Goods
Illinois
New Jersey
Ohio
Georgia
Missouri
USA
Illinois
South Carolina
Texas
North Carolina
New Jersey
USA
814.1
629.7
576.0
526.7
484.0
7,259.6
SIC
684.6
299.5
287.1
266.4
265.8
3,114.3
53
35
34
28
24
749
2843 Surface Active Agents
16
20
12
25
23
205
31
23
17
18
12
524
5
8
6
16
13
115
2,200
1,300
1,900
1,300
1,100
22,000
1,500
800
600
900
800
8,200
Source: U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures,
Industry Series: Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
F-40
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Illinois was the dominant manufacturing state in the surfactants industry with $684.6
million in shipments in 1992. Along with South Carolina, Texas, North Carolina, and New
Jersey, Illinois contributed 57.9 percent of the nation's total value of shipments for that
year—$1,803.4 million.
F.3.4 Markets and Trends
F. 3.4.1 Production
Table F-22 depicts the trends in U.S. production and consumption of soaps, cleaners,
polishes, and other goods. The last column shows the net exports (exports minus imports) of
these industries. Between 1987 and 1995, domestic production of soap and other detergent
increased by 10.8 percent (in terms of value of shipments) to meet a 7.5 percent increase in
domestic consumption, and a dramatic 545 percent increase in net exports. A similar trend
was evident in the polishes and sanitation goods industry. Production increased by 19.3
percent between 1987 and 1995, while consumption went up by 18.5 percent, and net exports
by 653 percent. Note that net exports appear to increase dramatically because they are small
relative to total production. Although production and consumption of surface active agents
declined over the same period, production did not decline as much as consumption partly
because of strong sales to foreign markets.
Domestic. Domestic producers are continuing to adapt to the increasingly global
markets for all three industries. Supply and distribution networks, like the corporations that
maintain them, have become more integrated internationally.
Another issue facing domestic producers is concentrated products. Europe, Australia,
and Japan have switched to concentrated products; however, American household and
industrial consumers have been slow to respond to new products. Manufacturers believe that
Americans must be educated before they will accept changes in the use and nature of their
everyday products.
Shipments of soaps and detergents are expected to grow 2 percent annually through
the end of the century. Polishes and sanitation goods are expected to grow at 1 percent over
the same period, and surfactants by 1 to 2 percent annually (DRI McGraw Hill, 1998).
Foreign. In 1996, the United States imported roughly $561.35 million (in nominal
terms) worth of soap, cleansing, and polishing products and preparations, mainly from
NAFTA countries and the European Union.
F-41
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Table F-22. Production and Consumption Trends, 1987 to 1995 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
Domestic Production
SIC 2841
14,682.6
14,827.6
15,530.6
17,752.4
16,845.5
16,050.7
16,603.4
15,105.1
16,279.2
Domestic Consumption
Soaps and Detergents
14,758.0
14,887.6
15,386.7
17,528.3
16,480.0
15,648.4
16,182.2
14,711.1
15,868.4
Net Exports
75.3
60.0
143.8
224.1
365.5
402.3
421.2
394.0
410.7
SIC 2842 Polishes and Sanitation Goods
1987
1988
1989
1990
1991
1992
1993
1994
1995
1987
1988
1989
1990
1991
1992
1993
1994
1995
7,105.9
7,057.9
7,001.7
6,752.9
6,795.6
7,259.6
8,681.3
8,999.4
8,481.6
SIC 2843
3,813.7
4,094.7
3,460.6
3,658.5
4,175.0
3,114.3
3,928.6
5,054.6
3,754.6
7,038.6
6,964.9
6,947.3
6,665.8
6,689.3
7,153.0
8,563.5
8,877.6
8,337.3
Surface Active Agents
3,433.8
3,866.5
3,157.7
3,276.4
3,817.2
2,690.2
3,546.0
4,567.4
3,256.1
67.3
92.9
54.3
87.1
106.3
106.6
117.8
121.7
144.3
379.8
228.2
302.9
382.2
357.8
424.1
382.6
487.2
498.5
Note: Domestic Consumption = Domestic Production - Exports + Imports
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial Outlook.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995h. 1992 Census of Manufactures, Industry Series:
Soaps, Toilet Goods, and Cleaners. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial Outlook.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's, and U.S. Department of Commerce, International Trade Administration.
1998. U.S. Industry and Trade Outlook 1998. New York, McGraw Hill.
F-42
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F. 3.4.2 Consumption
Domestic. Demand for soaps and other detergents has been changing; both household
and industrial consumers' preferences have shifted toward liquid products. Analysts at
Chemical Week project that liquids will soon comprise 50 percent of the market (D'Amico,
1996). Liquid products currently comprise 43 percent of the soap and detergent market.
Consumption of surfactants for home use is expected to increase 4.5 percent a year through
2005. Bleaches and other cleaning compounds (SIC 2842) are not predicted to penetrate the
U.S. market any further. Although 2.9 percent growth is expected through 2000, the industry
is mature. Future growth should match the growth in gross domestic product.
Foreign. In 1996, the United States exported $1.3 billion (in nominal terms) worth of
soap, cleansing, and polishing products and preparations. The United States's main trading
partners are NAFTA members, the European Union, and East Asia.
F.4 Agricultural Chemicals
Nitrogenous (SIC 2873), phosphatic (SIC 2874), and mixing-only (SIC 2875)
fertilizers account for an increasingly large portion of the U.S. agricultural chemical
industry's revenue each year. In 1992, the value of shipments of the entire agricultural
chemicals industry (SIC 287) was $20,494.5 million in 1998 dollars. As shown in Table
F-23, the fertilizer industry contributed $11,000.7 million (53.7 percent) to that total; the rest
was contributed by agricultural chemicals not-elsewhere-classified (SIC 2879). In 1997, the
value of fertilizer shipments was $12,927.2 million in 1998 dollars. The phosphatic fertilizer
industry accounted for 45 percent of those shipments. The nitrogenous and mixing-only
fertilizer industries accounted for 29 and 26 percent, respectively. Unless otherwise
indicated, all values cited in this report are in 1998 dollars. The Standard Industrial
Classification (SIC) codes of the fertilizer industries correspond exactly to North American
Industry Classification System (NAICS) manufacturing codes as shown in Table F-24.
Companies in SIC 2873, nitrogenous fertilizers, produce fertilizers from nitrogenous
materials produced in the same establishment. Manufacturers produce ammonia fertilizer
compounds, anhydrous ammonia, nitric acid, ammonium nitrate, ammonium sulfate and
nitrogen solutions, urea, and natural organic fertilizers (except compost), and mixtures.
Ammonium nitrate, created by reacting nitric acid with anhydrous ammonium, is highly
combustible and was for many years the world's most popular fertilizer. But urea with its
higher nitrogen content and ability to be stored more safely has eclipsed ammonium nitrate.
F-43
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Table F-23. Value of Shipments (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2873 Nitrogenous
Fertilizers
2,943.7
3,129.6
3,108.5
3,377.8
3,609.2
3,645.3
4,016.7
4,853.7
4,859.9
4,465.1
3,793.3
SIC 2874
Phosphatic Fertilizers
4,594.2
5,071.5
4,541.7
5,029.9
5,554.9
4,975.3
4,230.1
5,254.3
5,857.2
5,800.6
5,793.9
SIC 2875 Fertilizers,
Mixing Only
2,046.3
2,120.0
2,007.3
2,198.9
2,106.8
2,380.1
2,461.4
2,561.5
2,699.4
2,442.0
3,340.0
Sources: U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC, Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufacturers,
Industry Series. Washington DC, Government Printing Office.
Phosphatic fertilizer plants (SIC 2874) produce a host of complementary products
such as phosphoric acid; normal, enriched, and concentrated superphosphates; ammonium
phosphates; nitrophosphates; and calcium metaphosphates. The most popular phosphatic
fertilizer is diammonium phosphate (DAP).
SIC 2875, mixing-only fertilizers, comprises establishments that purchase fertilizer
materials and then mix them. Lately, preferences have been shifting away from mixing
fertilizers. Some people have argued that mixing fertilizers are inappropriate because they
are not adaptable to varying soil quality. Many governments prefer single-nutrient fertilizers
applied in appropriate quantities.
F-44
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Table F-24. The Correspondence Between SIC Codes 2873, 2874, and 2875 and the
NAICS
SIC
Code
2873
2874
2875
Description
Nitogenous fertilizers
Phosphatic fertilizers
Fertilizers, mixing-only
NAICS
Code(s)
325311
325312
325314
Description
Nitrogenous fertilizer manufacturing
Phosphatic fertilizer manufacturing
Fertilizer (mixing-only) manufacturing
Source: U.S. Department of Commerce, Bureau of the Census. 1997 NAICS and SIC Correspondence Tables.
. As obtained March 6, 2000.
F. 4.1 Supply Side of the Industry
F. 4.1.1 Production Processes
Nitrogenous Fertilizers. Almost all nitrogenous fertilizers are derived from synthetic
ammonia. A purified hydrogen-nitrogen mixture undergoes catalytic reaction under high
pressure and temperature. The catalyst is specially activated iron. Unreacted gases are
recycled, but the ammonia that forms is condensed with liquefied ammonia, creating
synthetic ammonia.
Directly applied synthetic ammonia is known as anhydrous ammonia. Further
processing produces the following products:
• Aqua ammonia is anhydrous ammonia in a water solution.
• Ammonium nitrates are either straight ammonium nitrates, ammonium sulfate
nitrates, or calcium ammonium nitrates. They begin as solutions that are then
heated and cooled to form granulated solids. Manufacturers may use a heated
dryer to spur the production process along.
• Synthetic urea is produced by reacting ammonia with cyanuric acid. It is less
expensive to produce because nitric acid is not required in its production.
• Nitrogen solutions (soluble products) and ammonium sulfate (ammonia combined
with sulfur) are also produced.
F-45
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Phosphatic Fertilizers. All phosphatic fertilizers are derived from mineral
phosphates. Phosphate ore is mined, washed, and pulverized. It can then be applied directly
as a fertilizer, or it can undergo further production to create other kinds of fertilizer.
Further production processes include
• reacting phosphate rock with sulfuric acid to produce normal superphosphate;
• solubizing ore in sulfuric acid, then filtering the solution to produce wet-process
phosphoric acid with some benign impurities;
• reacting ore with phosphoric acid to produce the more-concentrated triple
superphosphates; and
• reacting wet-process phosphoric acid and anhydrous ammonia together to form
diammonium phosphate.
Other variations include drying wet-process acid to form monoammonium phosphate,
increasing the amount of feed acid in production to yield ammonium polyphosphate, and
reacting nitric acid with phosphate rock to produce nitric phosphate.
Mixing-Only Fertilizers. The single-nutrient fertilizers produced by the processes
described above are mixed to produce various combinations of mixing-only fertilizers. The
resultant multinutrient fertilizers use phosphorus, nitrogen, or potash as active agents. These
fertilizers are available in liquid, solid, or powdered form.
F.4.1.2Major By-products and Co-products
The by-products of production (sulfur and ammonia) are captured to produce
ammonium sulfate fertilizer. Dry blending produces a granulated product that is increasingly
marketed on the global market. Another by-product is sulfuric acid (from phosphatic
fertilizer production).
F. 4.1.3 Types of Output
The main nitrogenous fertilizers in the United States are
• anhydrous ammonia,
• synthetic urea,
• aqua ammonia,
F-46
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• ammonium nitrate,
• nitrogen solutions, and
• ammonium sulfate.
The main phosphatic fertilizers are
• direct application rock,
• normal superphosphate,
• wet-process phosphoric acid,
• triple (concentrated) superphosphate,
• diammonium phosphate,
• monoammonium phosphate,
• ammonium polyphosphate, and
• nitric phosphate.
Mixing-only fertilizers are available in any stable combination of the above in either
granulated or fluid form.
F. 4.1.4 Costs of Production
The most important input for nitrogenous fertilizer production is natural gas. Natural
gas aids in the production of ammonia and is a preferred source of hydrogen for the fertilizer
industry. The price of natural gas in the United States has increased significantly over the
past decade, putting inflationary pressure on fertilizer prices. However, the cost of materials
in general has only increased by 14 percent from 1987 to 1997. Labor inputs increased
78 percent from 1987 to 1994, but then dropped 31 percent by 1997 (see Table F-25). The
overall increase in employment from 1987 to 1997 was 22 percent. Despite an overall
increase in employment, payroll was actually 2.6 percent lower in 1997 than in 1987. Stricter
environmental regulations have spurred an increase in research and development, which
averaged $143.2 million a year over the 1987 to 1995 period.
In the phosphatic fertilizer industry, employment dropped 5.3 percent, but payroll rose
by 11 percent between 1987 and 1997. Research and development expenditures followed the
same trend as those for nitrogenous fertilizers.
F-47
-------
Table F-25. Inputs: Agricultural Chemicals
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
4.5
4.4
4.4
4.8
4.7
4.7
7.0
8.0
7.3
7.5
5.5
Payroll
(1998 S106)
SIC 2873
268.0
252.5
253.8
276.2
280.5
280.1
293.2
326.0
306.9
320.0
271.4
Materials
(1998 S106)
Nitrogenous Fertilizers
1,808.6
1,849.6
1,889.8
2,075.3
2,136.8
2,035.3
2,297.5
2,382.1
2,042.4
2,152.9
2,066.8
New Capital
Investment
(1998 S106)
44.3
54.8
134.5
108.3
237.4
227.0
201.6
184.7
179.6
310.9
NA
Energy
(1998 S106)
503.6
509.9
522.3
510.4
478.9
414.9
467.3
499.2
432.9
649.4
483.4
SIC 2874 Phosphatic Fertilizers
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
9.4
10.4
10.8
10.5
10.3
9.5
9.4
8.5
8.6
7.8
8.9
7.5
7.5
6.4
7.1
6.7
6.9
6.7
7.8
8.4
7.7
8.7
342.2
369.3
381.9
396.5
397.1
372.0
361.0
358.7
367.9
343.2
380.2
SIC 2875
174.6
166.0
151.2
178.2
169.6
197.8
193.9
214.5
269.4
278.4
235.9
3,139.0
5,088.1
4,589.1
3,771.2
3,901.8
3,345.2
2,850.1
3,181.6
3,566.4
3,675.8
3,667.6
Fertilizers, Mixing Only
1,492.1
1,563.9
1,504.9
1,596.0
1,556.5
1,699.3
1,705.0
1,684.9
1,618.3
1,556.4
2,334.2
76.5
152.1
144.8
149.8
212.5
334.6
162.5
168.6
199.2
203.6
NA
31.7
18.4
29.1
33.9
28.4
47.5
36.7
40.3
92.4
58.4
NA
155.3
172.6
146.7
153.3
142.7
129.5
146.9
125.2
115.1
130.8
159.8
20.2
26.1
17.6
23.0
21.3
30.4
31.6
27.4
31.9
43.8
30.6
Sources: U.S. Department of Commerce, Bureau of the Census. 1990g. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of'Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures, Industry Series:
Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC, Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures, Industry Series.
Washington, DC: Government Printing Office.
F-48
-------
The mixing-only fertilizer industry's costs and trends are affected by trends in the
nitrogen and phosphatic fertilizer industries. A 16 percent increase in employment is
matched by a 35 percent increase in payroll expenses between 1987 and 1997. Increased
production was accompanied by increases in the cost of raw materials and vice versa.
Because this industry mixes nitrogenous and phosphatic fertilizer products, their trends and
costs have a direct impact on this industry.
F. 4.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of actual production level to the full production capacity level. Table F-26 presents
the historical trends in capacity utilization for the fertilizer industry. The data indicate that
plants manufacturing nitrogenous fertilizers (SIC 2873) and phosphatic fertilizers (SIC 2874)
have been operating near full capacity, whereas plants manufacturing mixing-only fertilizers
(SIC 2875) have been operating below capacity.
Table F-26. Capacity Utilization Ratios for SICs 2873, 2874, and 2875
SIC 2873
SIC 2874
SIC 2875
1991
91
89
54
1992
92
94
56
1993
90
84
77
1994
93
87
77
1995
97
99
70
1996
96
98
71
1997
92
94
50
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
F. 4.2 Demand Side of the Industry
F. 4.2.1 Product Characteristics
Fertilizers deliver nutrients to soils that lack them, increasing the land's productivity.
It is estimated that without fertilizers, the world would need to place 30 percent more land
under cultivation to create an adequate food supply. Fertilizers are available in solid,
granulated, and liquid form. Versatility of application is desirable because certain
F-49
-------
environments and soil types require liquids, while in other areas solids are better. Some
fertilizers are combustible and therefore must be stored with care.
F.4.2.2 Uses and Consumers of Products
Fertilizers are used to increase crop yields per acre and restore nutrients to leeched
soils. The principal consumers are individual farmers, agribusinesses, and government and
quasi-government agencies. Data on historical trends in production, consumption, and net
exports are presented in Table F-30 in Section F.4.4.
F. 4.2.3 Substitution Possibilities
The principal substitutes for synthetic fertilizers are more traditional fertilizers--
manure and compost. Although these natural fertilizers excel in many soil types, their
quantity is not great enough to support modern agriculture.
F. 4.3 Organization of the Industry
F.4.3.1 Firm Characteristics
Large corporations dominate the small ones in terms of output share in all three
industries. The staying power of large companies is attributed to their ability to gather and
spend resources on research and development in a political environment that favors increased
environmental regulation (Sawinski, 1995). Table F-27 provides the size of establishments
and value of shipments in these industries.
The competitive nature of an industry can be broadly assessed by looking at the
number of players in the industry. In 1992, 103 companies controlled 152 facilities in SIC
2875, 54 companies operated 75 facilities in SIC 2874, and 313 companies operated 401
facilities in SIC 2875. The large number of players in SIC 2875 indicates that it is a
competitive industry.
Economists also estimate four- and eight-firm concentration ratios (CR4 and CR8)
and Herfmdahl-Hirschmann indexes (HHI) to evaluate the competitiveness of a given
industry. The four-firm concentration ratio for phosphatic fertilizers in 1992 was 62,
meaning that the top four firms accounted for 62 percent of the industry's total sales. The
phosphatic fertilizer industry is therefore considered to be less competitive, because a big
share of the market is concentrated in the hands of a few large firms. On the other hand, the
F-50
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Table F-27. Size of Establishments and Value of Shipments
Establishments With
an Average of
1992
Number of
Facilities
1997
Value of
Shipments
(1998 $106)
Number of
Facilities
Value of
Shipments
(1998 $106)
SIC 2873 Nitrogenous Fertilizers
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
Total
41
19
15
32
22
21
1
1
227
32.3
34.5
39.7
447.5
634.8
2,263.2
D
D
3,451.9
50
21
17
24
10
19
1
1
143
41.9
50.0
47.6
498.5
494.5
D
D
D
3,793.3
SIC 2874 Phosphatic Fertilizers
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,500 employees
Total
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
Total
11
16
7
15
5
10
6
3
2
75
SIC 2875 Fertilizers
109
96
97
69
21
9
0
0
401
5.7
37.5
27.2
719.3
D
648.3
1,341.7
1,931.7
D
4,332.8
, Mixing Only
68.6
216.0
501.4
677.7
426.8
489.6
0.0
0.0
2,380.1
14
8
1
9
6
12
7
3
1
61
135
94
96
87
26
4
2
1
445
15.0
48.8
D
171.3
220.2
1,233.3
2,232.7
D
D
5,793.9
167.4
285.9
427.2
1,018.7
700.8
271.4
D
D
3,339.7
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. 1990a. 1987 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures,
Industry Series. Washington, DC: Government Printing Office.
F-51
-------
CR4 and CR8 for mixing-only fertilizers were 19 and 31 respectively, in 1992, indicating the
presence of a competitive market.
The 1992 Department of Justice's Horizontal Merger Guidelines also provide criteria
for assessing market power based on HHIs. According to these criteria, industries with HHIs
below 1,000 are considered unconcentrated (i.e., more competitive), those with HHIs
between 1,000 and 1,800 are considered moderately concentrated (i.e., moderately
competitive), and those with HHIs above 1,800 are considered highly concentrated (i.e., less
competitive). Firms in less-concentrated industries are more likely to be price takers, while
firms in more-concentrated industries are more likely to be able to influence market prices.
In 1992, the HHI for nitrogenous fertilizers was 792, so it is a less concentrated industry (i.e.,
more competitive). The HHI for phosphatic fertilizers was 1,528 (moderately competitive),
and mixing-only fertilizers was 187 (more competitive). Table F-28 summarizes data on
various metrics for assessing the market structure of the fertilizer industries.
Table F-28. Measures of Market Concentration by SIC: 1992
SIC 2873
SIC 2874
SIC 2875
Description
Nitrogenous
Fertilizers
Phosphatic
Fertilizers
Mixing Only
Fertilizers
CR4
48
62
19
CR8
67
83
31
HHI
792
1,528
187
Number of
Companies
103
54
313
Number of
Facilities
152
75
401
Sources: U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office
Firms in these industries are either large public or private corporations or small
private companies engaged in producing other chemicals in addition to fertilizers. Many of
the other products produced by these companies are classified as industrial organic or
inorganic chemicals. For SIC 2873, the largest American companies are Farmland Industries
($9,800.0 million in sales), Unocal Corporation ($9,599.0 million), Land O'Lakes
F-52
-------
Corporation ($3,013.6 million), Chevron Chemical Company ($2,872.0 million), and Terra
Industries Inc. ($1,468.2 million).
For SIC 2874, the largest American manufacturers are CF Industries Inc. ($1,468.2
million), Arcadian Corporation ($1,100.3 million), Freeport-McMoran Resource Partners LP
($957.0 million), Comico Fertilizers Division ($800.0 million), and J.R. Simplot Mineral and
Chemicals Division ($750.0 million).
For SIC 2875, the largest American producers are Cenex/Land O'Lakes Agricultural
Services ($2,200.0 million), Scotts Company ($751.8 million), O.M. Scott and Sons
Company ($466.0 million), Tennessee Farmers Cooperative ($427.7 million), and Vigoro
Industries Inc., Kaiser-Etech Division ($400.0 million).
F. 4.3.2 Geographical Distribution
Florida is the only state listed as a top five producer in all three industries and is the
number one producer of phosphatic and mixing-only fertilizers. In SIC 2873, Florida was
fifth in 1992 production, far behind Louisiana which accounted for 22.7 percent of the
national total (see Table F-29). The Midwestern states of Iowa, Nebraska, and Illinois filled
the gap between the two southern states.
In the phosphatic fertilizer industry, Florida accounts for nearly 60 percent of the
nation's total value of shipments and employs an equal percentage of the industry's labor.
North Carolina is the nation's leader in gypsum production. Although the small number of
firms in the state requires that business information remain undisclosed, North Carolina is
arguably the second largest producer with companies such as Union Carbide operating in
Charlotte. Florida led this industry with $418.5 million in shipments in 1992, but Ohio,
Texas, Washington, and California were also key states for this industry. These top five
states produced 48 percent of the nation's total in 1992. These states are prime locations for
the fertilizer industry because of proximity to raw material, ports, and product markets.
F.4.4 Markets and Trends
F. 4.4.1 Production
Table F-30 presents the trends in production, consumption, and net exports of
nitrogenous and phosphatic fertilizers between 1989 and 1995. Fertilizer production
increased by 19.9 percent over this period. Consumption is estimated to be the difference
between domestic production and net exports.
F-53
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Table F-29. Industry Statistics for the Top Five States, 1992
State
Value of
Shipments
(1998 $106)
Facilities With
Number of Fewer Than 20
Facilities Employees
Number of
Employees
SIC 2873 Nitrogenous Fertilizers
Louisiana
Iowa
Nebraska
Illinois
Florida
USA
784.9
143.8
105.4
90.8
71.0
3,452.0
8
5
3
7
5
152
1
1
0
4
2
77
900
300
200
200
200
7,000
SIC 2874 Phosphatic Fertilizers
Florida
North Carolina
Idaho
Louisiana
Georgia
USA
Florida
Ohio
Texas
Washington
California
USA
2,748.8
(D)
(D)
(D)
67.6
4,711.4
SIC 2875
418.5
254.2
234.8
138.2
107.7
2.380.1
15
9
3
4
5
75
Fertilizers, Mixing Only
42
31
26
16
25
401
2
7
1
0
2
34
25
17
21
12
19
302
5,900
500-999
500-999
500-999
200
9,500
1,000
900
500
300
500
6.900
D = undisclosed
Source: U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
Domestic. Real growth in nitrogenous fertilizers is not expected to exceed 1 or 2
percent a year in the future, partly because of the difficulty in handling gaseous anhydrous
ammonia. Phosphatic fertilizers are predicted to follow a similar trend (Department of
Justice and Federal Trade Commission, 1992).
Foreign. The United States's decline in these industries relative to other countries is
due to relatively less expensive natural gas in countries such as Russia, Canada, and Mexico
F-54
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Table F-30. Production and Consumption of Fertilizers, 1989-1995 (1998 $106)
Year
1989
1990
1991
1992
1993
1994
1995
Domestic Production
SIC 2873 and
8,248.2
8,948.8
9,053.4
8,163.4
7,629.4
9,146.6
9,893.7
Domestic Consumption
SIC 2874 Combined
6,116.4
5,799.9
6,762.0
6,601.9
6,897.3
7,680.8
8,062.1
Net
Exports
2,131.9
3,148.9
2,291.4
1,561.5
732.1
1,465.7
1,831.6
Note: Consumption = Domestic Production - Exports + Imports
Sources: U.S. Department of Commerce, International Trade Administration. 1990. 1990 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1991. 1991 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995b. 1992 Census of Manufactures,
Industry Series: Agricultural Chemicals. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
for producing nitrogenous fertilizers. For phosphatic fertilizers, the emergence of Morocco
as a significant producer will impact the United States's export markets. Morocco has four
times the phosphatic ore deposits of the Unites States. The United States imported $1.4
billion worth of fertilizers in 1996, leaving net exports of $1.7 billion.
F. 4.4.2 Consumption
Domestic. Domestic consumption of fertilizers is not expected to exceed the
1 to 2 percent growth in production in the foreseeable future.
F-55
-------
Foreign. The U.S. net exports of fertilizers in 1995 were valued at $1,831.6 million.
The largest export markets are in South and East Asia. Foreign consumption of fertilizers
produced by the United States has declined because of an oversupply caused by Morocco
flooding the fertilizer market in attempts to gain foreign exchange.
F.5 Photographic Equipment and Supplies
All photographic chemicals, equipment, and supplies are classified under SIC 3861,
photographic equipment. Establishments are divided into two groups, photographic
apparatus and sensitized film and chemicals. Photographic apparatus include all cameras,
both still and motion picture; tripods; editing equipment; photocopiers; and projectors. This
industry profile focuses on photographic film, plates, and the chemicals used in the
photographic process. In 1997, the Census Bureau began reporting industry statistics based
on the new North American Industry Classification System (NAICS). Under the new NAICS
system, the two sectors of SIC-coded industry 3861 are now separated into industry 333315,
photographic and photocopying equipment manufacturing and industry 325992, photographic
film, paper, plate, and chemical manufacturing.
Shipments of photographic equipment declined 7.5 percent between 1987 and 1997.
The overall photographic equipment industry (SIC 3861) grew through 1989. Subsequently,
increased foreign competition and the early 1990s recession brought down the value of
shipments. The industry went from a high of $24,919.4 million in 1989 to a low of
$21,403.5 million in 1997 (see Table F-31). All values in this report are presented in 1998
dollars.2
Value of shipments for subsectors SIC 38615 (photographic sensitized film and
plates; silver halide type), and SIC 38617 (sensitized photographic paper and cloth; silver
halide type) declined over the period 1987 to 1995. Although the American photographic
equipment industry has been experiencing a downward trend since 1990, the prepared
photographic chemicals subsector (SIC 38618) has fared well. SIC 38618 contributed 12.7
percent to the total value of shipments for SIC 2861 in 1995, up from a 6.6 percent
contribution in 1987. Increased sales of photographic still camera film is attributed to new
disposable cameras that are essentially film surrounded by a recyclable body with buttons,
lenses, and a flash. New products such as these are spurring the demand for other
complementary products.
Values adjusted using the plant cost index published in Chemical Engineering, various years.
F-56
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Table F-31. Value of Shipments, Photographic Equipment, 1987 to 1997 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 3861
23,144.5
23,365.3
24,919.4
22,893.0
23,067.7
24,085.3
24,198.7
24,613.8
22,059.5
22,752.2
21,403.5
SIC 38615
5,467.5
5,607.0
5,587.0
5,612.5
5,701.4
6,090.2
5,750.2
5,849.3
5,781.4
NA
NA
SIC 39617
1,501.0
1,487.7
1,513.4
1,543.9
1,381.4
1,451.7
1,633.8
1,503.4
1,495.5
NA
NA
SIC 38618
1,473.4
1,589.3
1,485.0
1,624.7
1,762.8
2,014.4
2,440.5
2,672.6
2,808.7
NA
NA
NA = not available
Sources: U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufactures,
Industries Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks,
Watches, and Watchcases. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 1997 Census of Manufactures,
Industries Series: Photographic Film, Paper, Plate and Chemical Manufacturing. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 1997 Census of Manufactures,
Industries Series: Photographic and Photcopying Equipment. Washington, DC: Government Printing
Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
The United States consumes 40 percent of the world's photographic chemicals and
equipment, followed by Japan (27.8 percent), Western Europe (10.9 percent; excluding
Germany), Germany (6.6 percent), Eastern Europe (10.3 percent), and Africa and Asia
combined (2.8 percent) (see Figure F-2).
F-57
-------
Africa and
Asia ^^^^^^^^^^^
3% ^H United States
Germany ^^^^^^^^^^^ 41%
7%
Eastern
Europe
10%
Western
Europe (exc. Japan
Germany) 28%
11%
Figure F-2. Worldwide Photographic Equipment and Supplies Consumption by
Country
F. 5.1 Supply Side of the Industry
F.5.1.1 Production Processes
Photographic materials are produced by coating film, plates, or paper with chemicals
that hold latent images after exposure. The process begins with the growth of silver halide
crystals, often in vessels as large as 2,000 liters in large commercial facilities. Silver ions
from a silver nitrate solution and halide ions from alkali halide salt solution come together to
form the silver halide. The crystals are suspended in a gelatin then washed to remove
unwanted elements. Next, the silver halide is once again suspended in a gelatin, but it is
cooled soon thereafter to form a gel. The silver halide is kept in gel form until further
processing.
Once the manufacturer decides to take the process to the next step, the emulsion is
melted and dyes may be added to increase sensitivity for one spectrum or another. After
F-58
-------
further sensitivization, the material is coated onto a support, usually paper, glass, film, or
plates. Antifoggants, dye-release materials (for color film), and hardeners are added
beforehand. Once the support is coated, the photographic materials are ready to be exposed.
The chemicals used to develop these photographic materials and toners are produced
by mixing intermediate chemicals with necessary additives. The process depends on which
of the over 60 chemicals is used in photographic materials development.
F.5.1.2Major By-products and Co-products
The industry is inventing new techniques for reusing the film canisters and collecting
and reusing the silver and gold used in production and from post-consumer products. The
drying and disposal of photochemicals during the production and development of the product
are on-going concerns.
F.5.1.3 Types of Output
SIC 3861 produces the following relevant products: sensitized blueprint cloth and
paper; sensitized brownprint cloth and paper; sensitized diazo cloth and paper; sensitized
motion-picture, x-ray, still camera, and special purpose films; sensitized graphic arts plates;
heat sensitized paper made from purchased paper; sensitized latern slide plates; photographic
metallic emulsion sensitized paper and cloth; packaged photographic chemicals; sensitized
photographic paper and cloth; sensitized photographic plates; prepared and packaged
photographic toners; and x-ray plates.
F.5.1.4 Costs of Production
The photographic equipment and supplies industry has invested heavily in new capital
equipment to increase production efficiency. The early 1980s saw the industry employing
over 100,000 employees. By 1997, that figure had dropped to 63,700. Table F-32 depicts the
decline in the number of workers employed by the industry over the period 1987 to 1997.
Most jobs lost have been at the production and distribution level. Total employment and
payroll decreased approximately 28 and 15 percent, respectively. The cost of materials
stayed fairly constant from 1987 to 1995 but rose to a new high of $8,143.0 million dollars in
1997. New capital investment averaged $924.0 million a year and energy costs averaged
$203.3 million a year during this period.
F-59
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Table F-32. Inputs: Photographic Equipment and Supplies
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
88.0
87.5
87.0
79.3
78.0
77.5
75.7
63.9
61.1
60.7
63.7
Payroll
(1998 $106)
3,462.3
3,370.0
3,435.0
3,199.4
3,281.6
3,337.5
3,124.0
2,837.1
2,780.3
2,855.2
2,960.8
Materials
(1998 $106)
7,498.3
7,548.9
7,600.8
7,013.6
7,208.2
7,675.5
7,320.1
7,385.6
7,298.0
8,280.0
8,934.4
New Capital
Investment
(1998 $106)
819.2
920.8
1,104.9
1,098.6
1,174.2
878.7
840.9
796.7
762.6
738.9
NA
Energy
(1998 $106)
203.6
199.0
204.7
208.3
204.6
215.2
210.1
211.8
189.3
199.9
189.6
Sources: U.S. Department of Commerce, Bureau of the Census. 1990g. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufactures,
Industry Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks, Watches,
and Watchcases. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 1997 Census of Manufactures,
Industries Series: Photographic Film, Paper, Plate and Chemical Manufacturing. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999d. 1997 Census of Manufactures,
Industries Series: Photographic and Photcopying Equipment. Washington, DC: Government Printing
Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
F-60
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F.5.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of actual production level to the full production capacity level. Table F-33 presents
the historical trends in the capacity utilization for the photographic equipment and supplies
industry. The full capacity utilization ratio for the photographic equipment and supplies
industry was 83 in 1997, indicating that plants in this industry are operating near full capacity
but have room to increase their production
Table F-33. Capacity Utilization Ratios for SIC 3861
1992 1993 1994 1995 1996 1997
SIC 3861 88 85 92 83 82 83
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999L Survey of Plant Capacity: 1997.
Washington, DC: Government Printing Office.
F. 5.2 Demand Side of the Industry
F. 5.2.1 Product Characteristics
Photographic films, plates, and papers are available in different forms: disc format,
cassettes, reels, 35 mm, 70 mm, and a variety of others. They can hold both color and black
and white latent images.
Photochemicals and toners are used to develop the latent images captured by the
photographic material and to enhance certain characteristics, such as color and texture.
F.5.2.2 Uses and Consumers of Products
The largest consumer group of photographic films is individual consumers.
Photographic materials are used to capture images from holidays, ceremonies, vacations,
religious days, national days, and other events deemed significant by the end user.
F-61
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The motion picture and television industries of New York and California are the
largest consumers of motion picture film. These films are used in the production of programs
to be viewed in cinemas and on television.
Other significant user groups include photographers, hospitals (x-ray plates),
commercial outfits, publishers, and all levels government agencies. Chemicals and toners are
consumed predominantly by those who develop photographic materials. Table F-37 in
Section F.5.4 presents data on historical trends in consumption of photographic products.
F. 5.2.3 Substitution Possibilities
For years, the only substitute for photographic products was videotape. However,
many companies are currently developing products that capture images digitally. To date,
digital products do not have the same quality and clarity as chemical products. But the
medical industry is leading the push towards digital photography because of its advantages in
storage, archiving, and electronic transport from one hospital to another.
F. 5.3 Organization of the Industry
F.5.3.1 Firm Characteristics
Most firms in this industry are small and are involved in small-scale, specialized
product production. Market-leaders are large, multinational firms that have just emerged
from a period of corporate austerity and are streamlined and more efficient. In the early
1990s, many firms spun off subsidiaries and maneuvered themselves to become more
vertically integrated (U.S. Department of Commerce, International Trade Administration,
1993). Eight hundred thirty-one companies controlled 904 facilities by 1992. In 1997, 694
firms controlled 738 facilities.
As Table F-34 shows, in both 1992 and 1997, firms with more than 100 employees
dominated the market (in terms of value of shipments). This is not surprising because of the
presence of the three largest companies in the photographic supplies and chemicals industry
in America: Eastman Kodak, Polaroid, and DuPont. Establishments with more than 100
employees accounted for 86 percent of the industry's total value of shipments in 1992 and 90
percent of the industry's total value of shipments in 1997.
F-62
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Table F-34. Size of Establishments and Value of Shipments, SIC 3861
1992
Establishments With
an Average of
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,499 employees
2,500 or more employees
Total
Number of
Facilities
324
178
138
122
54
56
16
7
5
4
904
Value of
Shipments
(1998 $106)
92.6
162.0
294.8
579.7
778.2
1,563.8
1,719.6
18,894.6
D
D
24,085.3
1997
Number of
Facilities
295
100
105
112
61
32
19
8
3
3
738
Value of
Shipments
(1998 $106)
77.7
86.5
209.1
594.0
857.5
1,119.5
D
D
D
D
21,403.5
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. 1990c. 1987 Census of Manufactures,
Industry Series, Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks, Watches,
and Watchcases. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufactures,
Industry Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks, Watches,
and Watchcases. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 1997 Census of Manufactures,
Industries Series: Photographic Film, Paper, Plate and Chemical Manufacturing. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999d. 1997 Census of Manufactures,
Industries Series: Photographic and Photcopying Equipment. Washington, DC: Government Printing
Office.
The largest American firms in SIC 3861 are Xerox Corporation ($16,611.0 million in
sales in 1992), Eastman Kodak Company ($14,980.0 million), Polaroid Corporation
($2,275.2 million), and Imation Corporation ($2,245.2 million).
F-63
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To assess the competitiveness of a market, economists often estimate four- and eight-
firm concentration ratios (CR4 and CR8) and Herfmdahl-Hirschmann indexes (HHI). The
CR4 for photographic equipment in 1992 was 78, meaning that the top four firms accounted
for 78 percent of the industry's total sales. The CR8 for the same year was 83 (U.S.
Department of Commerce, 1995a). These high concentration ratios indicate that market
share is concentrated in the hands of a few companies. The 1992 Department of Justice's
Horizontal Merger Guidelines also provide criteria for evaluating the degree of
competitiveness in a given industry based on HHIs. According to these criteria, industries
with HHIs below 1,000 are considered unconcentrated (i.e., more competitive), those with
HHIs between 1,000 and 1,800 are considered moderately concentrated (i.e., moderately
competitive), and those with HHIs above 1,800 are considered highly concentrated (i.e., less
competitive) (U.S. Department of Justice, 1992). Firms in less-concentrated industries are
more likely to be price takers, while firms in more-concentrated industries are more likely to
be able to influence market prices. The HHI for photographic equipment was 2,408, more
concentrated (i.e., less competitive) (U.S. Department of Commerce, 1995a). Table F-35
summarizes the various criteria for assessing the market structure of the photographic
industry.
Table F-35. Measures of Market Concentration for SIC 3861: 1992
SIC 3861
Description
Photographic
Equipment
CR4
78
CR8
83
HHI
2,408
Number of
Companies
831
Number of
Facilities
904
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufacturers,
Industry Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks; Watches,
and Watchcases. Washington, DC: Government Printing Office.
F.5.3.2 Geographic Distribution
It is generally accepted that New York is the U.S. leader in value of shipments and
employment (see Table F-36). However, value of shipments data were withheld to prevent
the disclosure of confidential business information.
F-64
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Table F-36. Industry Statistics for the Top Five States for SIC 3861,1992
State
New York
Massachusetts
California
New Jersey
Illinois
Pennsylvania
USA
Value of
Shipments Number of
(1998 $106) Facilities
(D)
2,021.0
807.9
801.1
505.5
413.5
24,085.3
112
50
142
67
76
40
904
Facilities With
Fewer Than 20
Employees
72
21
103
48
51
27
640
Number of
Employees
25,000
to 49,999
7,800
6,800
2,900
3,000
1,400
39,400
D = undisclosed
Source: U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufactures,
Industry Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks, Watches,
and Watchcases. Washington, DC, Government Printing Office.
Massachusetts has long been one of the main states in this industry because of the
presence of Polaroid. The photographic industry in California has experienced high growth,
largely because of the presence of the motion picture industry and the state's proximity to the
emerging markets of Asia and Oceana.
F.5.4 Markets and Trends
F. 5.4.1 Production
Table F-37 depicts the trends in consumption and production for this industry,
inclusive of international trade. From 1987 to 1994, net imports of photographic equipment
and supplies increased 27.6 percent. Imports supplied a greater fraction of the domestic
market. Domestic production of these products decreased by 7.16 percent, outpacing the 3.8
percent decline in domestic consumption.
F-65
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Table F-37. Production and Consumption of Photographic Materials3 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
Domestic Production
24,441.1
24,755.3
26,589.8
24,270.5
23,561.7
24,085.3
23,579.3
23,377.0
Domestic Consumption
27,030.8
27,686.7
29,527.3
26,547.5
25,784.3
26,954.9
26,714.3
26,780.0
Net
Exports
-2,589.7
-2,931.5
-2,937.5
-2,277.1
-2,223.2
-2,869.6
-3,135.0
-3,403.0
Note: Consumption = Domestic Production - Exports + Imports
aNumbers do not add up because of rounding.
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995d. 1992 Census of Manufactures,
Industry Series: Medical Instruments; Opthalmic Goods; Photographic Equipment; Clocks, Watches,
and Watchcases. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's, and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
Domestic. The United States is the largest producer of photographic chemicals and
equipment in the world. Increasingly, Southeast Asia dominates still-camera hardware
production. The United States has not, however, relinquished its control as the world market
leader in photographic chemicals and films, plates, and papers production. Film, papers, and
chemicals production is projected to increase an average of 2 percent a year through the end
of the century.
F-66
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Foreign. Seventy-one percent of the United States' imports come from Asia, 62
percent of which are from Japan. Nearly all imports from Asia are produced by Japanese
companies either in Japan proper or from overseas production facilities in Hong Kong, the
Philippines, China, and ROC on Taiwan.
F. 5.4.2 Consumption
Domestic. Domestic consumption patterns are serviced by both American and foreign
firms, mostly Japanese. In 1996, the U.S. trade deficit in this product category widened to
$4,600 million, upon receipt of nearly $10,900 million in imports (all in actual dollars).
Foreign. The largest foreign markets for U.S. photographic chemicals and films,
paper, and plates are Europe, Asia, NAFTA members, and Latin America. In 1994, the
United States exported $5,900 million worth of product (see Figure F-3).
Other
Europe
40%
Canada
17%
Figure F-3. U.S. SIC 3861 Export Markets, 1994
F-67
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F.6 Adhesives, Sealants, and Printing Ink
SIC 289 is reserved for industries that produce chemicals and allied products that are
not classified in any of the other chemical subcategories (SIC 28). In 1995, adhesives and
sealants (SIC 2891), printing ink (SIC 2893), and chemical preparations (SIC 2899)
accounted for only 7 percent of the chemical industry shipments. Still they provide the U.S.
economy with important products for automobiles and publishing houses, for instance. As
shown in Table F-38, shipments were valued at $25,382.2 million in 1997. All dollar values
used in the subsequent analysis are 1998 dollars unless otherwise noted.3
Table F-38. Value of Shipments (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2891
Adhesives and Sealants
5,627.3
5,526.7
5,792.8
5,974.4
5,997.2
6,153.5
6,370.1
6,045.6
5,930.7
6,597.6
7,387.9
SIC 2893
Printing Ink
2,877.0
2,783.0
2,890.2
3,000.1
3,046.2
3,343.8
3,486.4
3,608.9
3,803.0
4,104.8
4,172.4
SIC 2899
Chemical Preparations
9,653.3
9,924.1
9,686.3
10,258.2
9,892.1
10,836.6
11,861.9
11,965.2
13,435.5
12,114.8
13,821.9a
a Excludes 7 firms which produce chemical preparations, not elsewhere classified
Sources: U.S. Department of Commerce, Bureau of the Census. 1995e. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
Values adjusted using the plant cost index published in Chemical Engineering, various years.
F-68
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The adhesives and sealants industry (SIC 2891, NAICS 325520) comprises
establishments engaged in manufacturing adhesives for industrial and manufacturing uses.
The industry has experienced an increase of 31 percent in the value of shipments from 1997
to 1987. Most of the increase is due to a sharp 12 percent rise in shipments between 1996
and 1997.
The printing ink industry (SIC 2893, NAICS 325910) comprises establishments
engaged in manufacturing printing inks such as gravure ink, screen process ink, and
lithographic ink. The value of industry shipments grew 45 percent between 1987 and 1997,
despite the recession of the early 1990s. In 1997, the industry's shipments were valued at
$4172.4 million.
The chemical preparations industry (SIC Code 2899) shipped $13,821.9 million worth
of product, more product(in terms of dollar value) than the adhesives and sealants and
printing ink industries combined. This industry is diverse, with a wide range of products,
including bluing, writing ink, industrial compounds, and fatty acids. The industry has
recently been broken up into four groups and combined with other industries in the North
American Industry Classification System (NAICS). Because of the broad nature of the
chemical preparation industry, it has been omitted from later sections of this profile.
NAICS codes partially composed of segments of the old chemical preparations
industry (SIC code 2899) include paint and coating manufacturing (NAICS code 32551);
spice and extract manufacturing (NAICS code 311942); all other basic organic chemical
manufacturing (NAICS code 325199); and all other miscellaneous chemical products and
preparation manufacturing (NAICS code 325998).
F. 6.1 Supply Side of the Industry
F. 6.1.1 Production Processes
Adhesives and Sealants. The manufacturing process for adhesives and sealants
involves combining raw materials in the production apparatus. After the mixing and heating
processes have been completed, the mixture is prepared for packaging. Colorants and other
additives are added to the mixture during the later stages of production.
Printing Ink. To manufacture ink, the producer subjects dry components to two
general processes: mixing and milling. Mixing involves wetting the dry pigments and
additives with a liquid vehicle (resins and solvents), until there is no discernible dry pigment
F-69
-------
remaining. Ideally, a finished ink is produced during this stage or after subsequent dilution.
Milling can be used to break components down further to create a finer solution, if desired.
The most important aspect of ink manufacture is the proper dispersion of pigments in the
vehicle. For liquid inks, the paste is placed into a dissolver and more resins and solvents are
added to create an ink with the desired consistency.
F. 6.1.2Major By-products and Co-products
There are no significant by- or co-products generated during the manufacture of
adhesives and sealants or printing ink.
F. 6.1.3 Types of Output
The adhesives and sealants industry produces the following products: adhesives,
caulking compounds, both linoleum and mending cements, epoxy adhesives, all glues (except
dental), household iron cement, joint compounds, laminating compounds, mucilage, adhesive
paste, household porcelain cement, sealing compounds for pipe threads and joints as well as
for synthetic rubber and plastics, and sealing wax.
The printing ink industry produces lithographic inks, screen process ink, bronze ink,
flexographic ink, gold ink, duplicating ink, letterpress ink, offset ink, base and finished
printing ink, and gravure ink. Writing and drawing inks are not included in this
classification.
F. 6.1.4 Costs of Production
As Table F-39 suggests, the adhesives and sealants industry was seemingly stagnant
over the period 1987 to 1992. However, growth in the industry has since been spurred by
product innovations and new applications or the adaptation of adhesives and sealants to
existing manufacturing technologies. Investment in research and development and falling
labor costs due to increased mechanization have allowed the industry to become more
efficient. Most of the 3,600 jobs eliminated from the industry from 1987 to 1996 have been
at the production level. There was substantial growth in the industry between 1996 and 1997,
which was accompanied by a 20 percent increase in employment (20 percent) between 1996
and 1997. Over 1987 to 1997, the cost of materials fell by 18 percent.
Adhesives and sealants manufacturers are counting on proactive research and
development to keep them one step ahead of environmental regulators and market demands.
In particular, the Clean Air Act motivates them to develop new products (Tollefson, 1994).
F-70
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Table F-39. Inputs: Adhesives, Sealants, and Printing Ink
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
20.9
21.2
21.9
21.4
20.9
21.1
20.9
19.2
18.8
17.3
21.7
11.1
11.1
11.3
11.4
10.8
12.3
12.0
13.3
14.2
13.1
13.0
Payroll Materials
(1998 $106) (1998 $106)
SIC 2891
664.9
658.5
671.5
689.8
695.9
737.0
744.9
727.3
658.9
670.6
833.6
SIC
371.6
382.9
391.0
386.0
386.1
439.4
438.2
485.0
517.7
502.4
505.4
Adhesives and Sealants
3,241.6
3,270.2
3,429.0
3,450.5
3,429.6
3,280.5
3,389.5
3,538.3
3,582.3
3,909.8
3,982.1
2893 Printing Ink
1,695.8
1,719.3
1,756.2
1,932.2
1,899.2
2,145.4
2,261.9
2,277.6
2,228.0
2,347.6
2,513.0
New Capital
Investment
(1998 $106)
134.4
134.6
149.3
138.5
150.2
206.2
202.7
216.1
201.3
192.0
NA
45.5
39.2
51.0
48.2
31.5
50.0
60.5
58.6
59.3
84.4
NA
Energy
(1998 $106)
69.2
67.7
67.4
68.8
69.4
75.9
76.5
72.9
66.0
71.6
89.2
23.8
24.5
26.5
26.6
26.5
27.8
27.5
30.5
29.9
30.4
27.6
Excludes seven firms for which data are undisclosed.
Sources: U.S. Department of Commerce, Bureau of the Census. 1990g. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995e. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
F-71
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Unlike the adhesives and sealants industry, the printing ink industry's growth has
been matched by an equivalent growth in input costs. From 1987 to 1997, the printing
industry's value of shipments increased 45 percent in real terms. Accompanying this
increase, payroll costs have risen by 36 percent, materials by 48 percent, and energy by 16
percent (see Table F-39). The industry anticipated the rising costs of raw materials and labor.
However, environmental initiatives are a growing concern, specifically those pertaining to air
permit compliance for volatile organic compounds (VOCs) and hazardous air pollutants
(HAPs).
F. 6.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of actual production level to the full production capacity level. Table F-40 presents
the historical trends in the capacity utilization for the adhesives and sealants (SIC 2891) and
the printing ink (SIC 2893) industries. The data indicate that plants in SIC 2891 and SIC
2893 have been operating below full capacity.
Table F-40. Capacity Utilization Ratios for SICs 2891 and 2893
SIC 2891
SIC 2893
1992
75
79
1993
78
79
1994
82
77
1995
71
64
1996
71
72
1997
67
66
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
F. 6.2 Demand Side of the Industry
F. 6.2.1 Product Characteristics
Adhesives and sealants are as varied as printing inks in terms of viscosity and
physical characteristics. Those differences aside, all adhesives help to distribute pressure and
stress over a wide area and resist vibration, in addition to joining two surfaces. Sealants
prevent the passage of air, water, or chemicals between two surfaces. Sealants, however, do
not have the same cohesive power as adhesives.
F-72
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The adhesives and sealants industry is in a state of transition; products are being
reformulated to better serve consumers and adjust to current and pending environmental
regulations. The industry is developing products that have built-in primers. Primers are used
because they help create the best possible adhesion to a surface, but they are flammable and
highly volatile. Another change is the reduction in solvents used because of environmental
regulations on chloroflourocarbons, VOCs, and other ecological considerations. Solvents
emit VOCs when they dry. The industry is researching how to create durable and water-
resistant products without using solvents. Currently, many industrial adhesives are 100
percent solids, epoxies, and urethane.
Printing inks are available in two forms, pastes and liquids. Although all inks share
the ability to be applied to a variety of surfaces, inks differ in their viscosity, composition,
method of drying, and physical appearance. These differences are largely the result of
differing applications and uses. However, they all color a surface to produce a desired effect.
In the 1990s, inks became increasingly water-based, a shift away from the traditional resins
and solvent-based inks.
F.6.2.2 Uses and Consumers of Products
Adhesives and sealants are used by individual consumers and the construction,
packaging, furniture, appliance, textile, aircraft, and other industries. Technological advances
have contributed to their use by the automotive industry to help build lighter and more fuel-
efficient cars. Adhesives have replaced metal fasteners and spot welds because adhesives do
not suffer from the same traditional bonding corrosion that metals often do. Automotive
applications of adhesives have experienced the largest growth rates.
Printing inks are used by publishing, printing, and copy houses and are the most
essential input in that process. Writing and drawing inks are not included in this SIC code.
Common consumers include publishers, newspapers, copy centers, and the technology
industry.
Table F-44 in Section F.6.4 presents statistics on production, consumption, and net
exports for the adhesives and sealants, and printing ink industries.
F-73
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F. 6.2.3 Substitution Possibilities
Substitutes for adhesives and sealants vary depending on their use. For instance, in
the automotive industry, two steel surfaces can be welded together rather than attached using
an adhesive.
Currently, there are no substitutes for printing inks. However, within the industry,
powders, pastes, and liquids are interchangeable, depending on the nature of their application.
F. 6.3 Organization of the Industry
F. 6.3.1 Firm Characteristics
The number of companies in the adhesives and sealants industry (SIC 2891)
decreased from 537 to 517 over the 1987 to 1992 period (U.S. Department of Commerce,
1995e; U.S. Department of Commerce, 1990d). The number of facilities in this industry also
decreased from 714 to 685 during the same period.
For SIC 2891, the largest producers in the United States are Illinois Tool Works Inc.
($4,996.7 million in sales), Borden Inc. ($3,861.0 million), Morton International Inc.
($3,612.5 million), Avery Dennison Corporation ($3,222.5 million), and Sonoco Products
Inc. ($2,706.0 million).
The number of companies in the printing ink industry (SIC 2893) decreased from 224
to 220, while the number of facilities increased from 504 to 519 between 1987 and 1992.
The printing ink industry is dominated by medium-sized firms. Firms with between 20 and
250 employees accounted for 71.25 percent of all shipments in 1987. This percentage
increased to 77.2 percent in 1992. However, most facilities have fewer than 50 employees
(see Table F-41).
For SIC 2893, the largest producers in the United States are Sun Chemical
Corporation ($2,500 million), BASF Corporation Coatings and Colorants Division ($982.0
million), Sun Chemical Corporation General Printing Ink Division ($845.0 million), Flint Ink
Corporation ($600.0 million), and Inx International Ink Co. ($252.0 million).
Most facilities are located in states with significant publishing and printing sectors for
printing ink and near key durable goods production centers for adhesives and sealants.
Measures of market concentration are often used as empirical guides to assess the
competitiveness of a market. Typical measures include four- and eight-firm concentration
F-74
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Table F-41. Size of Establishments and Value of Shipments
1987
Establishments With
an Average of
Number of
Facilities
Value of
Shipments
(1998 $106)
1992
Number of
Facilities
Value of
Shipments
(1998 $106)
SIC 2891 Adhesives and Sealants
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
Total
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
Total
166
143
131
163
64
39
7
1
714
SIC 2893
77
102
140
140
31
14
504
87.6
312.6
507.8
1,569.7
1,444.3
1,478.5
542.1
D
5,942.7
Printing Ink
71.9
194.6
606.9
1,098.0
592.2
474.6
3,038.2
183
122
109
162
68
33
6
2
685
60
96
149
155
49
10
519
92.9
205.9
426.6
1,708.2
1,531.0
1,570.5
673.9
D
6,209.1
49.8
186.7
533.6
1,431.7
802.3
369.8
3,373.9
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. January 1990d. 1987 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1993a. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
ratios (CR4 and CR8) and Herfmdahl-Hirschmann indices (HHI). The CR4 for adhesives
and sealants in 1992 was 25, meaning that the top four firms accounted for 25 percent of the
industry's total sales. The CR8 for the same year was 37 (U.S. Department of Commerce,
1995a). For printing ink, the CR4 was 45 and the CR8 57. Therefore, the adhesives and
F-75
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sealants market is more competitive than the printing and ink market. The 1992 Department
of Justice's (1992) Horizontal Merger Guidelines also provide criteria for evaluating market
structure based on HHIs. According to these criteria, industries with HHIs below 1,000 are
considered unconcentrated (i.e., more competitive), those with HHIs between 1,000 and
1,800 are considered moderately concentrated (i.e., moderately competitive), and those with
HHIs above 1,800 are considered highly concentrated (i.e., less competitive) (U.S.
Department of Justice, 1992). The HHI for adhesives and sealants was 245, less concentrated
(i.e., more competitive). The HHI for printing ink was 688 (more competitive). Table F-42
summarizes the various measures of market concentration for the adhesives and sealants and
the printing ink industries.
Table F-42. Measures of Market Concentration by SIC: 1992
SIC 2891
SIC 2893
Description
Adhesives and
Sealants
Printing Ink
CR4
25
45
CR8
37
57
HHI
245
688
Number of
Companies
517
220
Number of
Facilities
685
519
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995e. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
F. 6.3.2 Geographical Distribution
The adhesives and sealants industry is concentrated in Ohio (14.44 percent) (see
Table F-43). Illinois, New Jersey, California, and Kentucky join Ohio in controlling 47.3
percent of the industry nationwide. The concentration of the industry is not surprising
because those states' respective regions are intimately involved in durable goods
manufacturing.
The top five producers of printing ink are Illinois, California, Indiana, Ohio, and
North Carolina. These top five states are responsible for 38.2 percent of the nation's total
value of shipments, or $1,275.9 out of $3,343.8.
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Table F-43. Industry Statistics for the Top Ten States, 1992
State
Ohio
Illinois
New Jersey
California
Kentucky
USA
Value of Facilities With
Shipments Number of Fewer Than 20
(1998 $106) Facilities Employees)
SIC
888.6
651.2
496.9
435.9
435.7
6,153.5
2891 Adhesives and Sealants
53
48
53
75
9
685
26
25
28
45
3
414
Number of
Employees
3,100
1,700
1,500
2,100
800
21,100
SIC 2893 Printing Ink
Illinois
California
Indiana
Ohio
North Carolina
USA
410.9
292.1
226.4
215.1
131.4
3,343.8
47
50
7
42
21
519
24
23
2
24
12
305
1,500
1,300
300
900
600
12,300
Source: U.S. Department of Commerce, Bureau of the Census. 1995e. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
F. 6.4 Markets and Trends
Table F-44 presents data on historical trends in production, consumption, and net
exports for the adhesives and sealants, and printing ink industries. In the adhesives and
sealants industry, production (as measured by value of shipments) declined by 0.5 percent,
while consumption fell by 2.8 percent during the period 1987 to 1994. There was an
accompanying increase (445.9 percent) in net exports of adhesives and sealants during the
same period.
Reliable net export statistics are unavailable for the printing ink industry for the
period prior to 1990. Data for subsequent periods indicate the increase in foreign
competition faced by the printing ink industry. Domestic production grew by 17.3 percent
and consumption grew by 20.9 percent between 1990 and 1995. Domestic printing ink
F-77
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Table F-44. Domestic Consumption, Production and Net Exports (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
1990
1991
1992
1993
1994
Domestic Production
SIC 2891
5,942.6
5,855.6
6,181.1
6,333.8
6,125.6
6,153.5
6,296.3
5,909.8
SIC
3,355.9
3,227.4
3,508.3
3,724.6
3,780.5
Domestic Consumption
Adhesives and Sealants
5,913.1
5,771.8
6,119.1
6,254.0
6,043.0
6,055.6
6,159.1
5,744.3
2893 Printing Ink
3,321.2
3,193.3
3,481.6
3,699.9
3,778.5
Net Exports
29.4
83.8
62.0
79.9
82.5
97.9
137.2
165.6
34.7
34.1
26.7
24.8
2.0
Notes: Consumption = Domestic Production - Exports + Imports
Reliable net export data are not available for the printing ink industry for the period prior to 1990.
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial
Outlook. Washington, DC, Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1991. U.S. Merchandise Trade: Exports,
General Imports, and Imports for Consumption 1990. FT925/90-A. Washington, DC: Government
Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992b. U.S. Merchandise Trade: Exports,
General Imports, and Imports for Consumption 1991. FT925/91-A. Washington, DC: Government
Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1993b. U.S. Merchandise Trade: Exports,
General Imports, and Imports for Consumption 1992. FT925/9F-A. Washington, DC: Government
Printing Office.
F-78
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Table F-44. Domestic Consumption, Production and Net Exports (1998 $106)
(continued)
Sources: U.S. Department of Commerce, Bureau of the Census. 1995e. 1992 Census of Manufactures,
Industry Series: Miscellaneous Chemical Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1994. U.S. Merchandise Trade: Exports,
General Imports, and Imports for Consumption 1993. FT925/93-A. Washington, DC: Government
Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995J. U.S. Merchandise Trade: Exports,
General Imports, and Imports for Consumption 1994. FT925/94-A. Washington, DC: Government
Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
demand was increasingly supplied by foreign producers, especially those from East Asia.
The United States moved from being a net exporter in 1990 to a net importer by 1995,
because of a major import surge.
F. 6.4.1 Production
Domestic. In 1997 the adhesives and sealants industry was valued at $25 billion
(1997 dollars) and is expected to grow at 3.0 percent for the next few years. But growth as
high as 10 percent is expected by Chemical Marketing Reporter Magazine for some niche
markets (Tollefson, 1994).
The printing ink industry is not anticipating any further growth until publishing
houses recover from the recessionary effects of the 1995 paper price increases.
Foreign. Adhesives and sealants imports were valued at $112.0 million in 1996
(actual dollars). Most of these imports came from the European Union and NAFTA
countries.
F-79
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In 1996, the United States imported $272.7 million (actual dollars) worth of printing
inks, the bulk of which came from Asia and Europe (DRI McGraw Hill, 1998).
F. 6.4.2 Consumption
Domestic. Domestic adhesives and sealants' demand is projected to match
production and imports. Certain sectors, like the automotive and dental industries, will
demand a larger quantity than they currently do. U.S. consumption of printing inks is not
expected to increase in the coming years (DRI McGraw Hill, 1998).
Foreign. Total global demand for adhesives and sealants was estimated to reach 1.3
million tons annually by the year 2000 (DRI McGraw Hill, 1998). In 1996, the domestic
adhesives and sealants industry exported $202 million (actual dollars) worth of products to
the rest of the world. Canada and Mexico remain the largest export markets.
In 1996, the United States exported $212.8 million (actual dollars) worth of printing
ink products. The fastest growing international market for this industry is Asia (DRI
McGraw Hill, 1998).
F.7 Man-Made Fibers, Noncellulosic
The synthetic materials industry in the United States accounts for nearly 25 percent of
the $300 billion a year chemical industry; while man-made fibers contributed 6.25 percent to
that total. SIC 2824 (NAICS code 325222), Organic Fibers (Noncellulosic), comprises 90
percent of total man-made fiber production. Organic fibers are used in products as varied as
clothing and tires (Mote, 1994). These fibers are largely intermediate goods and are shipped
to other manufacturers in the form of yarn, tow, staple, or monofilament. Thereafter, they are
transformed into consumer and industrial products. In addition to being less expensive than
natural fibers, synthetic fibers are also more durable, hold their shape better, and are more
uniform.
The non-cellulosic, man-made organic fibers industry has experienced a mild roller
coaster effect on its revenues in the last year. As shown in Table F-45, during the late 1980s,
the synthetic fiber industry experienced steady growth. Between 1987 and 1989 the value of
shipments grew 6.3 percent. However, that growth was negated during the recession in 1991
and 1992. The industry began recovering in 1993, and value of shipments rose by
approximately 10.3 percent between 1991 and 1996, only to fall again in the following 2
F-80
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Table F-45. Value of Shipments (1998 $106)
SIC 2824
Year Man-Made Organic Fibers, Noncellulosic
1987 12,163.4
1988 12,430.3
1989 12,928.0
1990 12,446.3
1991 11,948.8
1992 12,084.1
1993 12,524.6
1994 12,922.7
1995 13,095.9
1996 13,175.5
1997 12,004.8
Sources: U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufacturers,
Industry Series: Noncellulosic Organic Fiber Manufacturing, .
years to reach $12,004.8 million in 1997. All dollar values cited in this report are in constant
1998 dollars, unless otherwise indicated.4
4A11 values inflated using the plant cost index published in Chemical Engineering, various years.
F-81
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F. 7.1 Supply Side of the Industry
F. 7.1.1 Production Processes
Man-made synthetic fibers are derived from both natural and petroleum-based
ingredients that are melted together to form liquids containing free-moving molecules. The
liquid passes through small holes in vats called spinnerets. As the liquid exits the vats, it
hardens to form long filaments.
Manufacturers produce synthetic organic fibers using four variations of the process
described above: dry, wet, melt, and core spinning. In dry spinning, the raw materials are
dissolved in solvents. After passing through the spinnerets, the fibers-to-be are exposed to
hot air. The solvents evaporate, leaving behind a solid filament.
Wet spinning is quite similar to dry spinning. The main difference between the two is
that after the stream exits the vat through the spinneret, it falls into a coagulating chemical
bath. As the stream enters the bath, it hardens, leaving a solid filament as the product.
Melt and core spinning are simple processes. In melt spinning, the raw materials are
blended together and extruded. They dry upon contact with air to form the filaments. Core
spinning involves spinning together a continuous filament yarn with a short-length hard fiber
to form a composite. This is the newest method of production.
In all these processes, as the fiber is being spun it is manipulated to adopt various
physical properties, such as drapability, softness, elasticity, stiffness, roughness, and
resilience. After the spinning process, the fibers are stretched and oriented in preparation for
dyeing, water resistance, stretch ability, and strength treatment. The product is then prepared
for packaging and shipping.
F. 7.1.2Major By-products and Co-products
SIC 2824 has no co-products. Few by-products are associated with man-made fibers.
Emissions from man-made fiber production are largely recovered by using activated carbon.
However, no stringent air pollution controls are used, meaning that some carbon disulfide
and hydrogen sulfide escape during production.
F-82
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F. 7.1.3 Types of Output
The man-made fiber industry produces fibers derived from molecules containing
combinations of carbon, hydrogen, nitrogen, and oxygen. The output includes polyester,
nylon, olefins, and acrylics.
These fibers are sold to manufacturers in four forms: yarn, monofilament, staple, and
tow. Monofilaments are single, long strands used in toothbrushes and nylon stockings.
Staple comprises fibers that are cut short. Staple is usually blended with other materials to
form yarns. Tow is much like staple, but it is kept in long, rope-like form before being cut at
a later time.
F. 7.1.4 Costs of Production
New capital investments, increased productivity, and technology improvements have
allowed the industry to cut its labor costs (Mote, 1994). The number of people employed by
the man-made fiber industry has been reduced drastically over the past 15 years. In 1982,
SIC 2824 employed over 60,000 people. By 1990, employment had dropped to 48,100.
Since 1990, employment has further decreased by 11,000 jobs (23 percent) to level out at
37,100 jobs in 1997 (see Table F-46). Job-loss was concentrated in two areas: production-
level positions and middle management. Increased automation, foreign competition, and new
information technologies replaced human labor in these two areas. Over the period 1987 to
1997, the industry reduced its payroll 9.8 percent, from $1,602.0 million to $1,445.3 million.
By comparison, the costs of materials fell by only 6.5 percent during the same period. The
drop in costs is most likely because of the decline in the level of production. New capital
investments averaged $762.8 million a year from 1987 to 1995. Investments contributed to
the creation of new production strategies to help minimize increasing costs and make the
production process more efficient (Mote, 1994). Energy costs averaged $455.8 million
during the 1987 to 1997 period.
F. 7.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio is
the ratio of actual production level to the full production capacity level. Table F-47 presents
the historical trends in the capacity
F-83
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Table F-46. Inputs: Man-Made Fibers, Noncellulosic
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
SIC
45.4
45.8
48.0
48.1
46.9
44.4
42.3
40.7
38.6
38.5
37.1
Payroll
(1998 $106)
2824 Man-Made
1,602.0
1,591.2
1,644.6
1,676.6
1,691.1
1,680.2
1,600.0
1,551.2
1,469.9
1,481.5
1,445.3
Materials
(1998 $106)
Organic Fibers,
6,142.6
6,271.1
6,445.5
5,626.9
5,299.6
5,803.5
6,016.9
6,115.0
6,508.0
6,297.0
5,743.9
New Capital
Investment
(1998 $106)
Noncellulosic
552.2
719.4
756.8
887.4
873.4
784.3
999.1
596.7
696.3
D
NA
Energy
(1998 $106)
491.4
444.2
467.1
475.1
446.8
465.7
516.2
508.7
478.9
496.3
259.03
Sources: U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1990g. 1988 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1992a. 1990 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufacturers,
Industry Series: Noncellulosic Organic Fiber Manufacturing, .
F-84
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Table F-47. Capacity Utilization Ratios for SIC 2824
1992 1993 1994 1995 1996 1997
SIC 2824 86 88 91 89 92 92_
Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.
Washington, DC: Government Printing Office.
utilization for the man-made fibers industry. The full production capacity utilization ratio for
the noncellulosic man-made fibers industry was 92 in 1997. Thus, plants manufacturing
these fibers (SIC 2824) have been operating near full capacity.
F. 7.2 Demand Side of the Industry
F. 7.2.1 Product Characteristics
Man-made fibers are valued for their versatility and variety. They are less expensive
than most natural fibers and are more durable and uniform. Used predominantly by the
apparel and textile industry, synthetic fibers are flexible and resist aging and do not react to
exposure to the elements. The fibers can be manipulated during the manufacturing process to
become softer, rougher, stronger, or more resilient. They can be dyed and are easily woven to
form other materials. Polyester and nylon are two key fibers produced by this industry.
Polyester does not retain moisture, provides excellent electrical insulation, and is highly
resistant to solvents. Nylon has a high strength-to-weight ratio, is not easily permanently
deformed, and is resistant to abrasion.
F. 7.2.2 Uses and Consumers of Products
The largest consumer of synthetic fibers is the floor-coverings industry. This sector
consumes roughly 32 percent of all fibers produced to make floor coverings for residential,
institutional, and industrial purposes. The apparel and various household textile industries
consume about 25 percent and 10 percent respectively. The remainder is used in such varied
industries as tires (for reinforcement), rope, surgical and sanitary supplies, fiberfill, electrical
insulation, and plastics reinforcements.
Polyester fibers are used predominantly by the home furnishings and apparel
industries, as well as general textile facilities. Nylon is mostly used in carpeting, but also in
apparel, noncarpet home furnishings, ropes, and miscellaneous industrial products. Acrylics
F-85
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and olefms are used in apparel and highly durable carpeting, respectively. In response to
increasing pressure from both the government and environmental groups, the industry is
seeking methods for recycling fibers such as polyester into new fabrics and carpet materials.
F. 7.2.3 Substitution Possibilities
Synthetic fibers were originally invented to provide the strength and durability that
was lacking in natural fibers such as cotton and wool. Man-made fibers are also less
expensive to produce. Natural fibers may be substituted for man-made ones in apparel, but
these fibers do not have the same resistance to wear and tear that is necessary for use in tires,
carpeting, meshes, and other products. Within the industry, polyester, acrylic, olefm, and
nylon fibers have their own market segments. There is very little substitution between fibers
because each fiber is valued for its unique properties. However, substitutions can occur
between varying levels of quality and producers within each market segment. Table F-51 in
Section 2.7.4 presents data on historical trends in consumption of man-made fibers.
F. 7.3 Organization of the Industry
F. 7.3.1 Firm Characteristics
Traditionally, the nature of the technology and capital costs associated with the
manufacture of noncellulosic organic fibers permitted few firms to break into the market.
However, between 1992 and 1997, some of those barriers broke down and the number of
facilities in the industry increased. As shown in Table F-48, 67 companies operated 100
facilities producing noncellulosic organic fibers in 1997. By way of comparison, 42
companies produced noncellulosic organic fibers and operated 71 facilities in 1992, and
47 companies controlled 72 facilities in 1987.
The top five firms' sales was nearly four times that of the next five largest firms in
1992 (U.S. Department of Commerce, 1990f). However, facilities with 250 to nearly 2,500
employees experienced a decrease in their share of the total value of shipments from 95.4
percent in 1995 to 92.8 percent in 1997. During that period the number of firms employing
fewer than 20 employees rose from three to 29.
The largest producers of man-made fibers are DuPont ($7,204.0 million), Hoescht
Celanese ($6,906.0 million), Monsanto Company Chemical Group ($3,726.2 million),
Mobile Chemical Company Inc. ($3,408.0 million), and ICI Americas ($3,300.0 million).
F-86
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Table F-48. Size of Establishments and Value of Shipments for SIC 2824
1992
Establishments With
an Average of
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 999 employees
1,000 to 2,499 employees
2,500 or more employees
Total
Number of
Facilities
1
0
2
7
8
14
13
6
19
1
71
Value of
Shipments
(1998 $106)
52.0
0.0
D
D
114.7
386.8
1,331.2
989.4
9,210.9
D
12,929.6
1997
Number of
Facilities
17
3
9
6
10
17
12
12
14
-
100
Value of
Shipments
(1998 $106)
7.5
6.3
19.0
41.6
157.8
574.9
1,307.5
2,665.7
7,221.9
D
12,004.8
D = undisclosed
Sources: U.S. Department of Commerce, Bureau of the Census. 1990f. 1987 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufacturers,
Industry Series: Noncellulosic Organic Fiber Manufacturing, .
Market structure can affect the size and distribution of regulatory impacts; therefore,
we examine the structure of the man-made fiber industry next. Concentration ratios are often
used to evaluate the degree of competition in a market, with low concentration indicating the
presence of a competitive market, and higher concentration suggesting less competitive
markets. Firms in less-concentrated industries are more likely to be price takers, while firms
in more-concentrated industries are more likely to be able to influence market prices. Typical
measures include four- and eight-firm concentration ratios (CR4 and CR8) and Herfindahl-
Hirschmann indices (HHI). The CR4 for this industry in 1992 was 74, meaning that the top
F-87
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four firms accounted for 74 percent of the industry's total sales. The CR8 for the same year
was 90. These ratios indicate that a few firms control a large share of the market. The highly
concentrated nature of the man-made noncellulosic fibers industry is also indicated by its
HHI of 2,158. According to the Department of Justice's (1992) Horizontal Merger
Guidelines, industries with HHIs above 1,800 are considered highly concentrated (i.e., less
competitive). Table F-49 presents various measures of market concentration in the man-
made fiber (noncellulosic) industry.
Table F-49. Measures of Market Concentration for SIC 2824: 1992
SIC
SIC 2824
Description
Man-Made Organic
Fibers, Noncellulosic
CR4
74
CR8
90
HHI
2,158
Number of
Companies
42
Number of
Facilities
71
Sources: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
F. 7.3.2 Geographical Distribution
Table F-50 lists the top states in fiber production. The table lists only three states,
illustrating the small number of players in this industry. While some small facilities also
operate in other states, data were withheld from the 1992 Census of Manufactures to protect
confidential business information. Among the states for which no information is disclosed,
Delaware is the most notable. A DuPont facility in Delaware has the nation's largest share of
the man-made fiber market and employs between 2,000 and 2,500 people.
The South is a major producer of man-made fibers. The two Carolinas alone account
for 51.4 percent of the industry's total value of shipments and 47.5 percent of the industry's
total employment. Of the 32 facilities in the Carolinas, only one has fewer than 20
employees. The average value of shipments of a fiber facility in Alabama is $158.8 million.
F-88
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Table F-50. Industry Statistics for the Top Three States3 for SIC 2824,1992
State
South Carolina
North Carolina
Alabama
USA
Value of
Shipments
(1998 $106)
3,438.0
2,773.6
793.8
12,084.8
Number of
Facilities
18
14
5
71
Facilities With
Fewer Than 20
Employees
0
1
0
3
Number of
Employees
11,900
9,200
3,000
44,400
a Data for other states, namely Delaware, are unavailable to protect confidentiality.
Source: U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
F. 7.4 Markets and Trends
F. 7.4.1 Production
Table F-51 presents statistics on the production and consumption of U.S. cellulosic
fibers (SIC 2823) and noncellulosic fibers (SIC 2824), inclusive of the effects of international
trade. Between 1987 and 1994, production slowed by 3.9 percent in terms of value of
shipments, accompanying a 0.5 percent drop in consumption and a 61.9 percent drop in net
exports.
Domestic. Domestic output fell by 3.9 percent between 1987 and 1994 in the face of
competition from producers in emerging markets such as Asia and Latin America. However,
U.S. corporations still control about 90 percent of the domestic market despite foreign
competition.
Foreign. U.S. corporations controlled roughly 18 percent of the global market for
man-made fibers in 1992. That figure was as high as 50 percent in 1950. In 1992, the United
States imported nearly $900 million worth of man-made fibers. Fifty percent of the present
F-89
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Table F-51. Production and Consumption of All Man-made Fibers: SICs 2823 and
2824 (1998 $106)
Year
1987
1988
1989
1990
1991
1992
1993
1994
Domestic Production
14,383.2
14,799.5
15,513.4
14,876.7
13,853.3
13,883.7
14,087.6
13,825.6
Domestic Consumption
13,591.5
13,728.4
14,494.8
13,809.7
12,851.2
13,340.0
13,604.2
13,523.6
Net
Exports
791.8
1,071.1
1,018.6
1,067.0
1,002.1
543.7
483.4
302.0
Note: Consumption = Domestic Production - Exports + Imports
Sources: U.S. Department of Commerce, International Trade Administration. 1989. 1989 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995L 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, International Trade Administration. 1993. 1994 U.S. Industrial
Outlook. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
DRI McGraw Hill, Standard and Poor's and U.S. Department of Commerce, International Trade
Administration. 1998. U.S. Industry and Trade Outlook 1998. New York: McGraw Hill.
F-90
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worldwide capacity for polyester production is in Asia, compared to 13 percent in the United
States.
F. 7.4.2 Consumption
Domestic. The U. S. Department of Commerce expects the man-made fiber market to
grow by 19 percent between 1995 and 2000. Consumption of polyester, the most popular
fiber, is expected to increase 16 percent over the same period.
Foreign. The United States is the world's largest exporter of synthetic fibers,
followed by Taiwan and Japan. Other significant exporters are Austria, Canada, and the
Southeast Asian nations. The United States exported $1.7 billion (in nominal terms) in 1992,
but producers from emerging countries such as Indonesia and China are increasing their share
of the global market.
F.8 Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers
The Plastic Materials, Synthetic Resins, and Nonvulcanizable Elastomers industry is a
relatively small organic chemical sector. In 1997, the sector (SIC 2821, NAICS 325211)
shipped $49,282 million dollars worth of products. All dollar values are 1998 dollars unless
otherwise indicated. This industry supplies essential products to major manufacturing and
consumer industries from automobiles to home furnishings. Table F-52 shows value of
shipments for SIC 2821. Over the period 1987 to 1997, shipments grew at an average rate of
8 percent per year.
Typical products manufactured by the industry include cellulose plastics materials,
phenolic and other tar acid resins, urea and melamine resins, vinyl resins, styrene resins,
alkyd resins, acrylic resins, poolyethylene resins, polypropylene resins, rosin modified resins,
and other miscellaneous resins. SIC 2821 produces resins that are inputs into the production
of fabricated plastics products or plastics film, sheet, rod, and other products. Production of
fabricated plastic products and compounding of resins are classified as separate industries.
Plastic materials were first developed in the mid-1800s, with new resins being
developed at an accelerated pace during the first half of the twentieth century. Most of the
primary thermoplastic resins currently in use were developed during the period between 1900
and 1940. The advent of World War II brought plastics into great demand as substitutes for
other materials that were in short supply, such as natural rubber.. During the decades
following World War U, additional new resins were developed, and the introduction of alloys
F-91
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Table F-52. Value (1998 $106) of Shipments
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
SIC 2821
$22,172.92
$33,217.03
$35,191.90
$31,393.31
$29,289.68
$29,639.76
$29,981.92
$36,566.27
$49,634.27
$43,092.97
$49,282.18
Prices adjusted using the PPI for SIC 2821.
Sources: U.S. Department of Commerce, Bureau of the Census. 1995g. 1992 Census of Manufactures,
Industry Series: Plastics Materials, Synthetic Rubber, and Man-made Fibers. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995i. 1993 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997a. 1995 Annual Survey of Manufactures.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. August 1997b. 1996 Current Industrial
Reports: Paint, Varnish, and Lacquer. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999h. 1997 Economic Census.
Washington, DC: Government Printing Office.
U.S. Bureau of Labor Statistics, Producer Price Index Revision—Current Series. Series ID
PCU2821*. Obtained August 18, 2000
and blends of various polymers made it possible to tailor properties to fit specific
performance requirements. The demand for plastics increased steadily, as designers and
engineers began to substitute plastics for other more traditional materials in production of
automobiles, producer goods, and consumer goods (SPI, 1997).
F-92
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F. 8.1 Supply of Plastic Materials and Resins
F.8.1.1 Production Processes
Polymers and resins are generally produced through a polymerizing chemical
reaction, with the specific chemical reagents depending on the specific resin to be produced.
Acetal resins are produced by the polymerization of purified formaldehyde into both homo
polymer and copolymer types. Amino resins include both melamine and urea resins.
Melamine resins are formed by the condensation reaction of formaldehyde and melamine.
Urea resins are formed by the condensation reaction of formaldehyde and urea. Phenolic
resins were the first commercialized wholly synthetic polymer of plastic. The basic raw
materials are formaldehyde and phenol.
F.8.1.2 Types of Output
Plastic resins can be divided, generally, into thermoset resins, which first liquify then
harden in the presence of heat, and thermoplastic resins, which become pliable in the
presence of heat. Thermosets include epoxy, polyester (unsaturated), urea and melamine, and
phenolic resins. Thermoplastics include low density polyethylene, high density polyethylene,
polypropylene, acrylonitrile-butadiene -styrene (ABS), Styrene-Acrylonitrile (SAN),
polystyrene, nylon, polyvinyl chloride, thermoplastic polyester, and engineering resins. In
1997, total value of shipments for the industry (in 1998 dollars) was $49,282 million. Of that
total, approximately $40,615 million (82 percent) were shipments of thermoplastic resins,
and $8,229 million (18 percent) were shipments of thermosetting resins.
F.8.1.4 Costs of Production
The inputs for plastic materials and resins include raw materials, especially
petrochemicals. Other inputs include labor and energy. In constant 1998 dollars, the cost of
materials more than doubled over the period 1987 to 1997, as output also more than doubled
(see Table F-53).
F.8.1.5 Capacity Utilization
Full production capacity is broadly defined as the maximum level of production an
establishment can obtain under normal operating conditions. The capacity utilization ratio
measures the ratio of actual operations to the full capacity production levels. Capacity
utilization ranged between 84 percent and 89 percent over the period 1993 to 1998.
F-93
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Table F-53. Inputs Used in Plastic Materials and Resins Industry
Labor
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Quantity
(103)
56.3
58.3
62
62.4
60.5
60.4
62.2
69.2
70
58.6
61.035
Payroll
(1998 $106)
1,694.555
2,244.724
2,521.878
2,491.057
2,456.74
2,529.575
2,660.542
3,116.056
3,782.761
3,078.084
3,464.973
Materials
(1998 $106)
13,019.13
20,000.48
21,473.74
19,432.69
18,419.75
17,838.26
18,533.98
21,701.4
29,966.59
26,684.04
28,089.96
New Capital
Investment
(1998 $106)
1,053.669
1,661.1724
2,080.6125
2,441.8513
2,230.6712
1,616.5384
1,830.4351
2,527.3688
2,654.4547
2,991.5701
NA
Energy
(1998 $106)
NA
NA
NA
NA
NA
1,066.804
1,177.299
1,267.493
1,408.269
1,482.459
1,689.944
Prices adjusted using the PPI for SIC 2821.
F. 8.2 Demand for Plastic Materials and Resins
Individual plastic materials and resins are valued because they have specific product
characteristics that make them well suited for particular uses. Typically, plastic materials
may be lighter, stronger, and/or more durable than some other traditional materials.
F.8.2.1 Uses and Consumers of Plastics
Plastic resins are processed by plastic fabricators into plastic materials, which them
may be further processed prior to incorporation into final products. Major markets for plastic
materials and resins include transportation, packaging, building and construction,
electrical/electronics, furniture and finishings, consumer and institutional users,
Industrial/machinery, adhesives/inks/coatings. Table F-54 shows total resin use by major
market over the period 1992 to 1996. Overall, plastic sales and use grew by an average of
five percent per year over the period, with even faster growth occurring in the transportation,
building and construction, furniture and furnishings, and industrial/machinery markets.
F-94
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Table F-54. Total Resin Sales and Captive Use by Major Market (millions of pounds,
dry weight basis)
Major Market
Transportation
Packaging
Building and Construction
Electrical/electronic
Furniture and Furnishings
Consumer and Institutional
Uses
Industrial/machinery
Adhesives/Inks/Coatings
All Other
Exports
Total
1992
2,817
18,284
11,876
2,766
2,559
6,093
671
1,723
6,877
6,950
60,562
1993
3,221
19,569
12,885
2,981
2,759
6,015
768
1,572
7,234
6,632
63,636
Year
1994
3,795
19,551
14,715
3,325
3,118
9,266
836
1,789
7,515
6,889
70,799
1995
3,916
19,334
14,321
2,966
3,198
9,054
818
1,795
8,050
7,742
71,194
1996
3,964
21,271
16,199
3,137
3,477
9,804
980
1,833
9,361
8,722
78,748
Growth
Rates
0.0683162
0.0302637
0.062086
0.0251729
0.0613107
0.09513
0.0757567
0.0123774
0.0616739
0.0454214
0.052517
Prices adjusted using the PPI for SIC 2821.
F. 8.2.2 Substitution Possibilities
Substitutes for plastics include all traditional materials. Substitutes for specific resins
include other resins as well as traditional materials. Because plastics are formulated and
compounded to have specific properties demanded for particular uses, other materials are
imperfect substitutes for specific resins. Holding other things equal, this would tend to make
demand for specific plastic resins somewhat inelastic.
F. 8.3 Organization of the Industry
F. 8.3.1Firm Characteristics
As shown in Table F-55, in 1997 and in 1992, the largest number of plastics
establishments had between 20 and 49 employees. However, the largest share of the
industry's value of shipments was produced by establishments with between 100 and 249
F-95
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Table F-55. Size of Establishments and Value of Shipments for SIC 2821,1997
1992
Employment Size
Category
1 to 4 employees
5 to 9 employees
10 to 19 employees
20 to 49 employees
50 to 99 employees
100 to 249 employees
250 to 499 employees
500 to 1,000 employees
over 1,000 employees
Total
Number of
Establishments
26
36
47
110
101
72
30
19
8
449
Value of
Shipments by
Employment Size
(1998 $106)
27.26897
86.44641
266.0618
1,376.325
3,888.289
6,627.684
5,150.71
6,657.131
a
29,639.76
1997
Number of
Establishments
21
38
56
160
114
94
28
14
7
532
Value of
Shipments by
Employment
Size
(1998 $106)
13.586761
186.31629
539.03364
3,417.6524
5,958.2407
13,837.611
8,971.3418
7,968.8801
a
49,282.185
Prices adjusted using the PPI for SIC 2821.
a Not shown to avoid revealing company-specific data. Data are included in totals.
employees. More than 75 percent of the value of shipments is produced by establishments
having more than 100 employees. This suggests that the industry is somewhat dominated by
large plants.
The four- and eight-firm concentration ratios (CR4 and CR8) and HHI are used to
assess the market structure of an industry. The CR4 for the plastic materials and resins
industry was 24 in 1992, meaning that the top four firms accounted for only 24 percent of the
industry's total sales. The CR8 for the same year was 39 (U.S. Department of Justice, 1992).
This indicates that the plastic materials and resins market is fairly competitive. Furthermore,
the HHI for the plastic materials and resins industry was 284 in 1992. According to the
Department of Justice's (1992) Horizontal Merger Guidelines, industries with HHIs below
1,000 are considered to be unconcentrated (i.e., more competitive). Therefore, firms in the
plastics and resins industry are more likely to be price takers. Table F-56 shows the CR4,
CR8, HHI, number of companies, and number of facilities data for SIC 2821 for 1992.
F-96
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Table F-56. Measures of Market Concentration by SIC: 1992
SIC
SIC 2821
Description
Plastic materials
and resins
CR4
24
CR8
39
HHI
284
Number of
Companies
241
Number of
Facilities
449
Source: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in
Manufacturing. Washington, DC: Government Printing Office.
F. 8.3.2 Geographical Distribution
Texas dominates the production of plastic materials and resins. As shown in Table
F-57, Texas has more than twice as many facilities, twice as much output, and twice as many
employees in the industry as the next largest states. With 68 plants, Texas has more than 12
percent of the total 532 plastic materials facilities in the country. Other states with a large
number of facilities or a large value of shipments include two of Texas' neighbors, Oklahoma
and Louisiana, as well as Kentucky and Indiana.
Table F-57. Industry Statistics for the Top Ten States for SIC 2821,1997
State
Texas
Louisiana
Kentucky
Oklahoma
Indiana
Value of
Shipments
(1998 $106)
$16,050.4
$6,617.3
$2,822.0
$1,834.5
$1,656.7
Number of
Facilities
68
21
14
34
15
Facilities With
Fewer Than 20
Employees
53
19
13
29
13
Number of
Employees
12,920
5,152
2,986
3,088
2,711
Prices adjusted using the PPI for SIC 2821.
Source: U.S. Department of Commerce, Bureau of the Census. 1999h. 1997 Economic Census. Washington,
DC: Government Printing Office.
F-97
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F.8.4 Markets and Trends
Table F-58 shows production and consumption trends for the period 1992 to 1997.
There has been considerable growth in the production and consumption of plastics during the
period. From 1992 to 1997, both production and consumption grew at an average rate
exceeding 9 percent per year. Exports and imports both more than doubled during the period,
with net exports being positive and growing, so that domestic production exceeded domestic
consumption by a growing margin.
Table F-58. Production and Consumption Trends for SIC 2821,1992 to 1997
(1998 $106)
Year
1992
1993
1994
1995
1996
1997
Domestic
Production
31,528.795
31,924.028
37,633.054
50,278.039
45,945.04
50,492.909
Value of Imports
2,032.864
2,476.823
3,343.578
4,797.414
4,633.086
5,293.629
Value of Exports
6,714.036
6,919.138
8,437.093
11,948.99
11,504.8
13,138.99
Apparent
Consumption
26,847.622
27,481.713
32,539.539
43,126.466
39,073.328
42,647.547
Prices adjusted using the PPI for SIC 2821.
F. 8.4.1 Production
Domestic. Domestic production grew from $31.5 billion to $50.5 billion during the 5
years from 1992 to 1997. Production grew at an annual rate of more than 9 percent over the
5-year period, with a 1-year downturn in 1996.
Foreign. Foreign plastic materials producers increased their sales to the United States
during the period. In 1997, U.S. imports were $5.2 billion.
F. 8.4.2 Consumption
Domestic. Domestic consumption grew at an annual rate of more than 9 percent over
the period from 1992 to 1997, with a 1-year downturn in 1996.
F-98
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Foreign. In 1997, U.S. plastic materials producers exported $13.1 billion of plastic
resins to NAFTA countries, western Europe, and Asia.
F. 8.4.3 Trends
For the near term, 2000-2004, the outlook for plastics will continue to be favorable,
with constant dollar shipments growing between 3 and 4 percent per year. A somewhat
weaker domestic economy is projected to reduce consumption in some key end-use markets,
including construction and transportation. However, economic recoveries in Asia and Latin
America are projected to somewhat offset the slowing domestic demand (McGraw-Hill, U.S.
Department of Commerce, 2000).
F-99
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TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
1. REPORT NO.
EPA-452/R-02-006
2.
4. TITLE AND SUBTITLE
Economic Impact Analysis of the Miscellaneous Organic NESHAP
7. AUTHOR(S)
John L. Sorrels, Innovative Strategies and Economics Group
9. PERFORMING ORGANIZATION NAME AND ADDRESS
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies and Standards Division
Research Triangle Park, NC 2771 1
12. SPONSORING AGENCY NAME AND ADDRESS
John Seitz, Director
Office of Air Quality Planning and Standards
Office of Air and Radiation
U.S. Environmental Protection Agency
Research Triangle Park, NC 2771 1
3. RECIPIENT'S ACCESSION NO.
5. REPORT DATE
March 2002
6. PERFORMING ORGANIZATION CODE
8. PERFORMING ORGANIZATION REPORT NO.
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
13. TYPE OF REPORT AND PERIOD COVERED
14. SPONSORING AGENCY CODE
EPA/200/04
15. SUPPLEMENTARY NOTES
16. ABSTRACT
This report presents a technical analysis of the economic impacts associated with the proposed Miscellaneous
Organic NESHAP (MON). The analysis evaluates adjustments in the markets for various organic chemical
and coating products (through price and production changes), social cost, and the resulting affects on
employment and small businesses.
17.
KEY WORDS AND DOCUMENT ANALYSIS
a. DESCRIPTORS
Economic Impact Analysis (EIA)
Regulatory Flexibility Analysis (RE A)
18. DISTRIBUTION STATEMENT
Release Unlimited
b. IDENTIFIERS/OPEN ENDED TERMS
Air Pollution control
economic analysis
small business analysis
19. SECURITY CLASS (Report)
Unclassified
20. SECURITY CLASS (Page)
Unclassified
c. COSATI Field/Group
21. NO. OF PAGES
243
22. PRICE
EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE
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