Economic Impact Analysis of the Clay Ceramics Manufacturing NESHAP


&EPA

United States

Environ mental Protection

Agency

Economic Impact Analysis of the
Clay Ceramics Manufacturing
NESHAP

U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards (OAQPS)
Air Economics Group
Research Triangle Park, NC 27711

August 2015
Docket ID No. EPA-HQ-OAR-2013-0290

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CONTACT INFORMATION

This document has been prepared by staff from the Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency. Questions related to this document should be
addressed to Tom Walton (C445-K), U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards, Research Triangle Park, North Carolina 27711
(email: Walton.tom@epa.gov).

ACKNOWLEDGEMENTS

Personnel from RTI International and Kapur Energy Environment Economics, LLC
contributed significant data, analysis, and writing to this document under contract number EP-W-
11-029.

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CONTENTS

Section	Page

1.	Introduction	1-1

1.1 Executive Summary	1-1

2.	Profile of the Affected Industry	2-1

2.1	Supply	2-3

2.1.1	What Types of Products Does the Industry Provide?	2-3

2.1.2	What Factors Influence Market Supply?	2-3

2.1.3	What Factors Influence the Relationship Between Output Prices

and the Quantity Supplied?	2-4

2.2	Demand	2-5

2.2.1	Who Uses Ceramic Products?	2-5

2.2.2	What Factors Influence the Market Demand?	2-5

2.2.3	What Factors Influence the Relationship Between Prices and the
Quantity Demanded?	2-6

2.3	Firm Behavior and Organization of Industry	2-7

2.3.1	Market Definition	2-7

2.3.2	Firm Pricing Behavior	2-7

2.3.3	Affected Facilities and Ultimate Parent Companies	2-8

2.4	Market Data and Trends	2-9

2.4.1 Market Prices	2-11

3.	Costs of the Affected Industry	3-1

4.	Economic Impact Analysis	4-1

4.1	Description of Entities Affected	4-1

4.2	Economic Screening Analysis	4-1

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5.	Conclusion	5-1

6.	References	6-1

Appendixes

A: Historical Data for Ceramic Wall and Floor Tile Manufacturing	A-l

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LIST OF FIGURES

Number	Page

2-1. Capacity Utilization for Nonmetallic Mineral Products (NAICS 327)	2-2

2-2. Real Price Trends for Ceramic Products	2-12

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LIST OF TABLES

Number	Page

2-1. Types of Products by the Ceramics Manufacturing Industry	2-4

2-2. Number of Establishments by Census Region	2-8

2-3. Affected Production Facilities by Census Region: Ceramic Tile and Sanitary

Ware	2-9

2-4.	Parent Company Size Information	2-9

3-1.	Summary of Testing and Monitoring Costs	3-1

4-1.	Summary Statistics for Economic Impact Analysis	4-2

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SECTION 1
INTRODUCTION

The Environmental Protection Agency (EPA) promulgated Maximum Achievable
Control Technology (MACT) standards for hazardous air pollutants emitted by clay ceramics
manufacturing companies in 2003. These standards were vacated by the D.C. Circuit Court of
Appeals in 2007. The Agency is now aiming to sign proposed standards to replace the vacated
rule by August 28, 2014 and a final rule for promulgation by June 30, 2015.

1.1 Executive Summary

The purpose of this report is to evaluate the economic impacts of pollution control
requirements on ceramic wall and floor tile and sanitary ware manufacturing businesses to help
the Agency develop updated MACT standards for these businesses. The key results of the
Economic Impact Analysis (EIA) are as follows:

¦ Engineering Costs: Kohler Co., a Sanitary Ware company, is a major source and
will incur costs as a result of the rule. EPA estimates that the total annualized costs as
a result of this rule for Kohler Co. will be $92,358 (2011$).

¦ Economic Impacts: The economic impact of compliance costs is less than 0.002% of
sales for Kohler Co. Hence, the economic impact for compliance is minimal.

1.2 Organization of the Report

The report is organized as follows: Section 2 provides a profile of the industry, which
includes a description of the supply and demand of clay ceramic products. This section also
presents information on industry organization and available market data and trends in the
industry. Market data on manufacturers' shipments, foreign trade, and apparent consumption for
ceramic wall and floor tiles is included in Appendix A. Section 3 describes the company-level
costs that businesses will face to comply with the updated rule. Section 4 explains the economic
impacts of complying with this rule and Section 5 provides conclusions.

1-1

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SECTION 2
PROFILE OF THE AFFECTED INDUSTRY

Ceramic wall and floor tiles and sanitary wares are inputs to build different types of
structures, including homes, buildings, and office facilities (U.S. EPA, 2003). Floor and wall tile
serve a decorative purpose and are used to add character to homes and buildings; sanitary ware
and bathroom accessories are products installed in bathrooms (or kitchens, when it comes to
sinks) and are primarily used for cleansing (U.S. EPA, 2003). Ceramic Tile's end use break down
in 2010 was 56.4% in residential sales dollars and 43.6% in commercial sales dollars (Ceramic
Tile and Stone Consultants, 2013).

To provide a general overview of current conditions in the affected industry, we used the
U.S. government's official measures reported in the Annual Survey of Manufacturers (ASM),
County Business Patterns, and Current Industrial Reports. Because the latest year of data (2010)
differs from historical industry trends, it is unclear whether the industry without the proposed
rule would be similar to the industry today. As a result, the profile provides information on a
range of factors that may influence how the ceramic floor and wall tile and sanitary ware markets
may evolve.

Federal statistical agencies classify business establishments in this industry using two
North American Industry Classification System (NAICS) codes:1

¦ 327111 Vitreous china plumbing fixture and china and earthenware bathroom
accessories manufacturing

¦ 327122 Ceramic wall and floor tile manufacturing

In the rest of the industry profile section, we use the term "sanitary ware" to refer to
products produced by the NAICS 327111 industry, and the term "ceramic wall and floor tile" to
refer to products produced by the NAICS 327122 industry. We also use the term "ceramic
products" to refer to both ceramic floor and wall tile and sanitary ware products.

1 In 2012, the sanitary ware industry (327111) was classified under NAICS 327110 Pottery, Ceramics, and
Plumbing Fixture Manufacturing. See http://www.census.gov/cgi-

bin/sssd/naics/naicsrch?code=327110&search=2012. In 2012, the ceramic tile industry (327122) was classified
under NAICS 327120 Clay Building Material and Refractories Manufacturing. See htto://www.census.gov/cgi-
bin/sssd/naics/naicsrch?code=327120&search=2012.

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In 2011, the value of products shipped in the two industries was approximately $1.1
billion (U.S. Census Bureau, 2013f). The value from NAICS 327122 was about twice of that
from NAICS 327111. The ASM and the County Business Patterns reported that 151
establishments (24 in 327111 and 127 in NAICS 327122) employed 5,980 people with a total
annual payroll of about $243 million in 2011. (U.S. Census Bureau, 2013a, b).

During 2010, approximately 700 million square feet of tiles were produced by the
ceramic wall and floor tile industry (U.S. Department of Commerce, Census Bureau, 2011).
Federal Reserve data suggest the capacity utilization rate for the industries under the broad 327
NAICS is close to 56% (Board of Governors of the Federal Reserve System, 2013) (see Figure
2-1).

Nonmetallic mineral product (NAICS = 327); n.s.a. CAPUTL

Figure 2-1. Capacity Utilization for Nonmetallic Mineral Products (NAICS 327)

Source: Federal Reserve Board. 2013. Industrial Production and Capacity Utilization—G. 17.
littp://www.federalreserve.gov/datadownload/Chart.aspx?rel=G17&series=a0ccc54490f3fll4f44928eb9cb9ec98
&lastObs=20&from=&to=&filetype=spreadsheetinl&label=include&layout=seriescoluinn&pp=Download
(December 20, 2013).

The current observed conditions are influenced by the recent steep declines in the
residential construction market. For example, 2011 new privately owned housing starts (608,800)
units are well below levels observed in 2000 (1.6 million) and 1990 (1.2 million) (U.S. Census
Bureau, 2013c). Since 2010, new residential housing starts have begun to grow again, but levels

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are still much lower than the previous two decades. New privately owned housing starts in July
2013 were at a seasonally adjusted annual rate of 852,000 (U.S. Census Bureau, 2013d).

2.1 Supply

To better understand the markets for affected products, we consider the group of sellers
that provide goods to the market and common factors that influence supply (e.g., input prices)
and quantity of goods supplied (e.g., output prices).

2.1.1	What Types of Products Does the Industry Provide?

Table 2-1 lists categories of sanitary ware (NAICS 327111) and ceramic wall and floor
tile (NAICS 327122) products.

2.1.2	What Factors Influence Market Supply ?

The general process steps used in the production of ceramics include raw material
processing, mixing, forming, shape drying, glazing, firing, and finishing (U.S. EPA, 2003; U.S.
EPA, 1996). Census data for NAICS 327122 ceramic wall and floor tile manufacturing and for
NAICS 327111 sanitary ware manufacturing suggest that in both industries around 70% of the
product's value is associated with value-added activities (i.e., labor and capital earnings and
energy costs) (U.S. Census Bureau 2013 (a)). During the last 5 years, labor costs have remained
flat in the nonmetallic mineral products sector. The U.S. Bureau of Labor Statistics reports that
average annual hourly earnings (adjusted for inflation) of all employees was about $20 per hour
(U.S. Bureau of Labor Statistics, 2013a, b).

The value of intermediate goods used in these processes (i.e., raw materials including
clays and other minerals mined from natural deposits, and high purity powders prepared by
chemical synthesis [U.S. EPA, 2003; U.S. EPA, 1996]) make up the remaining 30% of the
ceramics' total product value. Intermediate production costs can be influenced by changes in raw
clay material prices, but the prices of these materials have not fluctuated recently. Ball clay
prices primarily used in floor and wall tile, (consuming 38% of ball clay production in 2011) and
sanitary ware (consuming 20% of ball clay production in 2011) were $45 per metric ton in 2010
and $46 per metric ton in 2011; the average free alongside ship value for exported ball clay and
the average customs value for imported ball clay were, respectively, $59 per metric ton and $318
per metric ton (U.S. Geological Survey [USGS], 2013).

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Table 2-1. Types of Products by the Ceramics Manufacturing Industry

2007 NAICS

2012 NAICS

Product

327111

327110

Bathroom accessories, vitreous china and earthenware, manufacturing

327111

327110

Bidets, vitreous china, manufacturing

327111

327110

Drinking fountains, vitreous china, non-refrigerated, manufacturing

327111

327110

Faucet handles, vitreous china and earthenware, manufacturing

327111

327110

Handles, faucet, vitreous china and earthenware, manufacturing

327111

327110

Lavatories, vitreous china, manufacturing

327111

327110

Plumbing fixtures, vitreous china, manufacturing

327111

327110

Sinks, vitreous china, manufacturing

327111

327110

Soap dishes, vitreous china and earthenware, manufacturing

327111

327110

Tanks, flush, vitreous china, manufacturing

327111

327110

Toilet fixtures, vitreous china, manufacturing

327111

327110

Towel bar holders, vitreous china and earthenware, manufacturing

327111

327110

Urinals, vitreous china, manufacturing

327111

327110

Water closet bowls, vitreous china, manufacturing

327122

327120

Ceramic tiles, floor and wall, manufacturing

327122

327120

Floor tile, ceramic, manufacturing

327122

327120

Mosaic tile, ceramic, manufacturing

327122

327120

Quarry tiles, clay, manufacturing

327122

327120

Tile, ceramic wall and floor, manufacturing

327122

327120

Wall tile, ceramic, manufacturing

Source: U.S. Census Bureau 2013. 2012 NAICS definition, 327110 Pottery, Ceramics, and Plumbing Fixture
Manufacturing, http://www.census.gov/cgi-

bin/sssd/naics/naicsrch?code=327110&search=2012%20NAICS%20Search

2.1.3 What Factors Influence the Relationship Between Output Prices and the Quantity
Supplied?

All other things equal, wall and floor tile and sanitary ware manufacturers are likely to
offer to sell more when the prices of wall and floor tile and sanitary ware rise. The price
elasticity of supply measures how much the quantity of wall and floor tile/sanitary ware supplied
responds to changes in its price.2 If manufacturers have a significant amount of flexibility to
change the amount they produce when the price rises, the supply is elastic. In contrast, if the

2 The measure is computed as the percentage change in quantity supplied divided by the percentage change in
price.

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quantity produced and supplied only changes by small amounts when the price rises, the supply
is inelastic. A key determinant of the price elasticity of supply is the length of the time period
over which the product choices can be made. During shorter periods, it is more difficult for the
firm to adjust inputs and increase production, because quantities of some factors are fixed in the
short run.

2.2 Demand

Ceramic wall and floor tiles and sanitary wares are inputs to build different types of
structures, including homes, buildings, and office facilities, and are influenced by overall
macroeconomic trends and conditions in the residential housing industry.

2.2.1 Who Uses Ceramic Products?

Sanitary ware and ceramic floor and wall tile are used in the construction of homes,
buildings, and structures: floor and wall tile serve a decorative purpose and are used to add
character to homes and buildings. Sanitary wares (and bathroom accessories) are products
installed in bathrooms and are primarily used for cleansing (U.S. EPA, 2003). In the case of
sinks, sanitary wares are also installed in kitchens (U.S. EPA, 2003). These products are
purchased by construction companies to be used as inputs for the production of homes, buildings,
and office facilities. Once these structures are built, consumers then purchase these structures
from the construction companies. However, if consumers build homes or make improvements to
existing structures themselves, they may directly purchase and install sanitary ware (bathroom
accessories,) and ceramic tiles (U.S. EPA, 2003).

2.2.2 What Factors Influence the Market Demand?

Ceramics are designed for specific commercial or industrial applications to withstand
high temperatures and electrical voltage, or to resist chemical attack, fatigue failure, or rapid
wear (Midwest Research Institute, 1999).

2.2.2.1 Price of Related Goods

There are similar-use products made from materials other than clay. Below we discuss
sanitary ware and ceramic wall and floor tile separately.

2.2.2.1.1 Sanitary Ware

As EPA (2003) mentions:

"Bathroom accessories such as soap dishes, towel racks, toothbrush holders, and faucet
fixtures come in an array of materials, including plastic, brushed or polished metal, and glass.

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Consumers usually base their choice of bathroom accessories on their specific tastes and the type
of look they want to create as they decorate the bathroom. Generally plastic accessories are
relatively inexpensive, though when higher quality plastics are used, producers can charge prices
in the same range as those for bathroom accessories made from glass, ceramics, or metal."

"Clay is the most common material used for the manufacture of sanitary ware, but sinks
and toilets can also be made out of stainless or enameled steel, fiberglass, or enameled cast iron.
These materials all possess similar characteristics to ceramic sanitary ware, but to differing
degrees. For example, steel may be less subject to cracking than ceramic material; however it is
not as heat resistant. Another material used to produce sanitary ware is marble, which is one of
the most expensive materials available for sanitary ware production."

2.2.2.1.2 Ceramic Wall and Floor Tile

The substitutes for ceramic floor tile are other floor covering materials including
laminate, hardwood, stone, vinyl sheet & floor tile, carpet & area rug, and other resilient flooring
(Floor Covering Weekly, 2013). In 2012, Ceramic wall and floor tile accounted for 12.5% of
U.S. Floor Covering Sales, on the same level with hardwood (10.4%) and vinyl sheet & floor tile
(12.6%) but far less than carpet & area rug (52.1%) (Floor Covering Weekly, 2013). Among
these different types of materials, natural stone is the most expensive, having an average value of
around $4 per square foot during the years between 2008 and 2012. Hardwood has an average
price of around $2. All other types, including ceramic tile, have a price of around $1 per square
foot, except vinyl sheet & floor tile that has a price of around $0.7 per square foot (Floor
Covering Weekly, 2013).

2.2.3 What Factors Influence the Relationship Between Prices and the Quantity Demanded?

All other things equal, consumers will likely buy fewer ceramic products when the price
of the product rises. The price elasticity of demand measures the size of the price response.3
Several factors influence how sensitive consumers are to price changes. If consumers can easily
switch from one product to another because there are many close substitutes, demand tends to be
more elastic. This is particularly true for more narrow market definitions (mosaic versus quarry
tile) and over longer time horizons for the consumption decision (months versus years).

3 The measure is computed as the percentage change in quantity demanded divided by the percentage change in
price.

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2.3 Firm Behavior and Organization of Industry

2.3.1 Market Definition

Market definition boundaries are commonly defined in two dimensions: product
substitution and geography. Based on product substitution characteristics and available data, we
rely on the Census definitions to define two groups of markets in which buyers are more likely to
view products as substitutes:

¦ Sanitary ware

¦ Ceramic wall and floor tile

We found that international trade represented a large fraction of economic activity for
ceramic wall and floor tile (see Section 2.4).

2.3.2 Firm Pricing Behavior

Economists have developed a system for grouping markets that helps describe the pricing
behavior of firms. At one end of the spectrum, firms have little control over pricing for their
products. Put another way, firms are price takers, and price is determined by supply and demand
conditions. This basic model is more likely to hold when the industry has a large number of
sellers, goods are identical, and barriers for entry and exit (laws, high capital requirements, or
patents) are low. At the other end of the spectrum, there is a single firm that searches for the
price-output combination that maximizes its profit. This basic model is more likely to hold when
there are significant barriers to entry (industries with economies of scale or ownership of a
patent).

When markets have a small number of firms selling identical products, firms may not
necessarily be price takers; instead, they may be able to determine their price while considering
how competitors respond to their own decisions. To assess the extent to which affected markets
may be concentrated among a small number of sellers we compiled and estimated Table 2-2.

The latest 5-year Census statistics describing U.S. concentration at the 6-digitNAICS
code level, found that the ceramic wall and floor tile manufacturing industry has a Herfindahl
index level (a measurement of concentration) that government agencies consider moderately
concentrated (U.S. Census Bureau, 2013e; U.S. Department of Justice and the Federal Trade
Commission, 1997). This index is not available for the sanitary ware industry. However, the data
suggest that the sanitary ware industry is even more concentrated. The 4 largest ceramic wall and
floor tile manufacturing companies account for 59.8% of the industry's total shipment value,

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while the 4 largest sanitary ware manufacturing companies account for 87.2% of the industry's
shipment (U.S. Census Bureau, 2013e).

Table 2-2. Number of Establishments by Census Region

Census Region

Number of Establishments, NAICS
327111

Number of Establishments, NAICS
327122

East North Central

East South Central

Mid-Atlantic

Mountain

New England

Pacific

South Atlantic

West North Central

West South Central

Note: In County Business Pattern, an "establishment" is defined as follows -

"An establishment is a single physical location at which business is conducted or services or industrial operations
are performed. It is not necessarily identical with a company or enterprise, which may consist of one or more
establishments. When two or more activities are carried on at a single location under a single ownership, all
activities generally are grouped together as a single establishment. The entire establishment is classified on the
basis of its major activity and all data are included in that classification."

Sources: U.S. Census Bureau. 2013; Geography Area Series: County Business Patterns: 2011;
http://censtats.census.gov/cgi-bin/cbpnaic/cbpcomp.pl (17 Dec 2013);

U.S. Census Bureau. 2013; Geography Area Series: County Business Patterns: 2011:

Definitions; http://www.census.gov/econ/cbp/definitions.htm

U.S. Census Bureau (undated), Census Regions and Divisions of the United States,
http://www.census.gov/geo/maps-data/maps/pdfs/reference/us_regdiv.pdf

2.3.3 Affected Facilities and Ultimate Parent Companies

RTI has identified the major source facilities that are expected to be covered by the rule
in Table 2-3. One company owns three facilities in the east north central, south atlantic and west
south central regions. Since 2014, all major source wall and floor tile manufacturers have
become synthetic minor sources and thus are not financially impacted by this rule

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Table 2-3. Affected Production Facilities by Census Region: Sanitary Ware

Company - Sanitary Ware

Facility Location

Region

Kohler Co.

Kohler, WI

East North Central

Kohler Co.

Spartanburg, SC

South Atlantic

Kohler Co.

Brownwood, TX

West South Central

2.3.3.1 Small Businesses

The Regulatory Flexibility Act (RFA) as amended by the Small Business Regulatory
Enforcement Fairness Act (SBREFA) requires federal departments and agencies to evaluate if
and/or how their regulations affect small business entities. Specifically, the Agency must
determine if a regulation is expected to have a significant economic impact on a substantial
number of small entities. Small entities include small businesses, small organizations, and small
governmental jurisdictions. The business is defined as the owner company, rather than the
facility; the size of the owner company determines the resources it has available to comply with
the rule. The Small Business Administration website specifies the criteria for a company to be
considered a small business. The size standards for NAICS 327111 (which in 2012 was changed
to NAICS 327110) and NAICS 327122 (which in 2012 was changed to NAICS 327120) is any
company with 750 or fewer employees. Thus, as shown in Table 2-4, the affected owner-
company is not a small entity.

Table 2-4. Parent Company Size Information

Parent Company

Sales (million $)

Employment*

Small

Kohler Co.

4,680*

30,000

*2011 data

Sources: Kohler: Forbes.com

http://www.forbes.com/companies/kohler
2.4 Market Data and Trends

This section presents historical market data for Ceramic wall and floor tiles and sanitary
ware. Historical market data include U.S. volumes for manufacturers' shipments,4 foreign trade,

4 The source reports list both shipment and production quantities. Here we have chosen shipment quantities over
production quantities, even though these do not differ by much in each year nor show different trends over time.
The reason to choose shipment numbers over production numbers is that shipment quantity is the number that is

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and apparent consumption. Data for ceramic wall and floor tile, obtained from various years of
Current Industrial Reports published by the U.S. Census Bureau, are shown in Appendix A.

These data reveal that the clay floor and wall tile market has two characteristics. First, the
historical shipment levels have been stable with mild fluctuations. Second, imports account for
much larger proportion of the apparent consumption than do shipments. Imports of wall and
floor tiles experienced declines starting in 2007, the year the recent economic crisis set in, and
continued to decline post-crisis. The shipments also experienced a decline in 2007, although it
was mild compared to the drastic drop of imports. The level of shipments has come back to its
pre-2007 levels as of 2010. The decline in imports since 2007 is due to the decreased demand
resulting from the 2007-2008 recession rather than to structural changes within the industry. We
expect both overall demand and imports to come back to prerecession levels in the future. This
projection is also supported by the recent annual report of a large company producing these
products. The annual report of Mohawk Industries shows the company recovering after
exhibiting declines during the recession.

Kohler Co. manufactures sanitary ware, in addition to other products. There is evidence
that the sanitary ware industry will see rising domestic production in the coming years. Toilets
are one of the major sanitary ware products. According to an article from the Wall Street Journal
by James R. Hagerty, Kohler Co. is the biggest toilet supplier in the U.S., with an estimated 24%
of the U.S. market. The article mentions that making toilets requires lots of manual labor and for
this reason most production moved over the past two decades to lower-cost countries, mostly
China and Mexico. It was estimated that three quarters of the 10.6 million residential and
commercial toilets sold in the U.S. in the year 2012 were imports; there are just 7 toilet plants in
the U.S. now, compared with 48 in the late 1970s. However, because of high shipping costs and
increasing wages in China and Mexico, U.S. manufacturing of toilets is making a comeback
(Hagerty, 2013).

Kohler Co. has four toilet plants, three in the U.S. and one in Mexico. Its revenues rose
from $4.68 billion in 2011 (Forbes, 2011) to $5 billion in 2012 (Forbes, 2013). David Kohler, the
president of Kohler Co., says in an interview that "the economy definitely is on stronger footing
and national and regional businesses are doing better" (Kirchen, 2013). The likely increase in

relevant for final consumption. In fact, when the data source reports calculate "apparent consumption," they use
shipment numbers, not production numbers.

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residential building during the economy's recovery should lead to an increased demand for
sanitary ware.

The above company-specific information supports the recovery since 2007 we see in the
Current Industrial Reports' information for the ceramic tile industry. The Current Industrial
Reports do not provide data for the sanitary ware industry. However, based on the above
company-specific information and the fact that sanitary ware is demanded by residential and
commercial building, we believe that the sanitary ware industry, similar to the ceramic tile
industry, will recover as the building and construction industry revives. In addition, our
prediction that the ceramic tile industry is only experiencing a temporary setback and will come
back to prerecession levels also is supported by recent reports for the clay and shale industry,
which is upstream of the ceramic products industry. One of the most common types of clays used
to produce ceramic products is common clay and shale (U.S. EPA, 2003). A recent advance
report published in 2013 by U.S. Department of the Interior, U.S. Geological Service, suggests
that once statistical data become available, the country may see a moderate growth in common
clay sales in 2012 (U.S. Department of the Interior, 2013). In their analysis, the factors
supporting the growth are increases in housing starts and construction spending for commercial
buildings, which are the sources of demand for ceramic tile and sanitary ware.

2.4.1 Market Prices

In 2010, the average price of clay floor and wall tile was approximately $1.30 per square
foot (U.S. Department of Commerce, Census Bureau, 2011). Since 2005, the average nominal
price for clay floor and wall tile has remained flat, while the price for sanitary ware has risen
moderately (Figure 2-2).

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140
120

100
80

Price
Index

60
40
20

0 H	1	1	1	1	1	1	1	1	1	1	1	1	1	1	1	1	1	1

1995 1996 1997 19981999 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 20112012

Year

—	Vitreous china plumbing fixture and china and earthenware bathroom accessories

—	Clay floor and wall tile, glazed and unglazed

Figure 2-2. Real Price Trends for Ceramic Products

Sources:

U.S. Bureau of Labor Statistics. 2013. Employment, Hours, and Earnings from the Current Employment Statistics
survey (National) Series ID: CEU3132700003.

U.S. Bureau of Labor Statistics. 2013. Producer Price Index—Clay building material and refractories manufacturing
Clay floor and wall tile, glazed and unglazed Series ID: PCU3271203271202.

U.S. Bureau of Labor Statistics. 2013. Producer Price Index—Pottery, ceramics, and plumbing fixture
manufacturing Vitreous china plumbing fixture and china and earthenware bathroom accessories Series ID:
PCU3271103271101.

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SECTION 3
COSTS OF l lll AFFECTED INDUSTRY

RTI has identified the major source facilities that are expected to be covered by the rule
in Section 2, Table 2-3. There is one company that owns three facilities. Kohler Co., a sanitary
ware company, is a major source and will incur costs as a result of the rule. However, the
company will not incur any control costs, only emissions testing and monitoring costs. Table 3-1
shows the costs for this company. As shown in Table 3-1 the costs for this company are
extremely low, so economic impacts are expected to be small.

Table 3-1. Summary of Testing and Monitoring Costs

Company

Annualized
Testing Cost
(thousand 2011 $)
$)

Annual Monitoring

Cost
(thousand 2011 $)

Total Annualized
Compliance Costs
(thousand 2011 $)

Sanitary Ware Company

Kohler-Spartanburg Plant
Kohler-Brownwood Plant
Kohler-Wisconsin Plant
Kohler - All Plants Combined

65.5

35.0

17.3

13.2

26.9

17.9

6.0

3.0

23.3

92.4

52.9

16.2

Source: Annual Testing and Monitoring Cost for Kohler Co., 2011 $, RTI International

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SECTION 4
ECONOMIC IMPACT ANALYSIS

4.1	Description of Entities Affected

As stated in Section 3, there is only one major source. This is the company that has not
installed controls, thus incurring compliance costs: Kohler Co., a sanitary ware company.

4.2	Economic Screening Analysis

In order to determine the effects of the regulatory program on the company, we compared
pollution control costs to total sales for the ultimate parent company of this business. We
calculated the cost-to-sales ratio, by dividing the ultimate parent company's total annual
compliance cost by its reported revenue:

where

CSR = cost-to-sales ratio,

TACCi = total annualized compliance costs,

i = index of the number of affected plants owned by company j,

n = number of affected plants, and

TRj = total revenue from all operations of ultimate parent company j.

71

4-1

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Table 4-1. Summary Statistics for Economic Impact Analysis

Company

Parent Company

CSR (Cost-to-Sales Ratio, %)

Company - Sanitary Ware





Kohler - All Plants Combined

Kohler Co.

<0.002%

Sources: http://www.forbes.com/companies/kohler
Annual Testing and Monitoring Cost for Kohler Co., 2011 $, RTI International

Forbes database was used to obtain the total revenue for Kohler Company, which is
privately held. Forbes.com was founded in 1996 and is part of Forbes Digital, a division of
Forbes Media LLC. Forbes is a leading source for reliable business news and financial
information.

The results of the screening analysis in Table 4-1 show that the economic impact of
compliance costs is less than 0.002% of sales for Kohler Co. Hence, the economic impact for
compliance is minimal. Also, as noted in Section 2, Kohler Co. is not a small business. Because
no small firms face significant control costs, there is no significant impact on small
entities. Thus this regulation is not expected to have significant impact on a substantial number
of small entities.

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SECTION 5
CONCLUSION

The Agency has considered the economic impacts of this rule on companies and found
that this rule will have minimal economic impact on the entity affected by the rule. The rule will
impact one ultimate parent company of a sanitary ware manufacturing company. Kohler Co.
would have annualized cost of less than .002% of sales associated with meeting the
requirements. Hence, the burden of this rule on this business is very small.

5-1

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SECTION 6
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fll4f44928eb9cb9ec98&lastObs=20&from=&to=&filetype=spreadsheetml&label=inclu
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Hagerty, James R. (Sep 24, 2013). America's Toilet Turnaround. The Wall Street Journal.

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Ho, M., R. Morgenstern, J. Shih. 2008. Impact of Carbon Price Policies on U.S. Industry.
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Kirchen, Rich (Oct 15, 2013). PGA at Whistling Straits to offer 'on-course' suites. The Business
Journal Serving Greater Milwaukee.

http://www.bizjournals.com/milwaukee/news/2013/10/15/pga-at-whistling-straits-to-
offer.html?page=all. (Dec 23 2013)

Kohler Co. http://www.forbes.com/companies/kohler and

http://www.forbes.com/lists/2011/21/private-companies-ll_Kohler_O87B.html

Midwest Research Institute. 1999. Characterization of the Ceramic Manufacturing Industry. Page
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Mohawk Industries, Inc. 2012. 2011 Annual Report. http://phx.corporate-

ir.net/External.File?item=UGFyZW50SUQ9MTMzMjElfENoaWxkSUQ9LTF8VHlwZ
T0z&t=l

Mohawk Industries, Inc. 2012 Form 10-K

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83B6709C3 5E312765F11526DA34F90DA

Mohawk Industries, Inc. 2012 Annual Report. http://www.annualreports.com/Company/3634

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6-1

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Rutherford, T.F. 2002. Lecture Notes on Constant Elasticity Functions.
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U.S. Bureau of Labor Statistics. 2013a. Employment, Hours, and Earnings from the Current
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U.S. Bureau of Labor Statistics. 2013b. Consumer Price Index—All Urban Consumers Series ID:
CUUR0000SA0.

U.S. Bureau of Labor Statistics. 2013c. Producer Price Index—Clay building material and
refractories manufacturing Clay floor and wall tile, glazed and unglazed Series ID:
PCU3271203271202.

U.S. Bureau of Labor Statistics. 2013d. Producer Price Index—Pottery, ceramics, and plumbing
fixture manufacturing Vitreous china plumbing fixture and china and earthenware
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http://factfinder2.census.gOv/faces/tableservices/j sf/pages/productview.xhtml?pid=ASM_
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U.S. Census Bureau. 2013(c). Historical New Residential Construction Started.

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U.S. Census Bureau. 2013(d). New Residential Construction Press Release August 16, 2013.
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U.S. Census Bureau. 2013 (e); Manufacturing: Subject Series: Concentration Ratios: Share of
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U.S. Census Bureau. 2013 (h). Geography Area Series: County Business Patterns: 2011:
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U.S. Department of Commerce, Census Bureau, 2000: Current Industrial Reports for Clay
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6-3

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http://www.sba.gov/sites/default/files/files/size_table_07222013.pdf

6-4

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APPENDIX A

HISTORICAL DATA FOR CERAMIC WALL AND FLOOR TILE MANUFACTURING

A-l

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Table A-l. Historical Data for Ceramic Wall and Floor Tile Manufacturing (thousands of
square feet): 1993-2010

Year

Shipments of Clay
Floor and Wall
Tile

Exports"

Imports3

Apparent
Consumption1"

1993

558,700

43,307°

641,615

1,157,008

1994

604,408

40,107°

711,193

1,275,494

1995

568,094

42,649°

774,571

1,300,016

1996

580,392

41,789°

884,051

1,422,655

1997

618,978

42,442

1,022,852

1,599,388

1998

636,805

41,635

1,232,974

1,828,144

1999

636,242

30,731

1,494,031

2,099,542

2000

650,483

36,188

1,669,677

2,283,972

2001

591,080

33,304

1,716,360

2,274,137

2002

649,480

41,699

2,034,617

2,642,397

2003

614,850

28,933

2,231,166

2,817,082

2004

695,386

34,854

2,488,165

3,148,698

2005

658,198

37,017

2,638,332

3,259,513

2006

629,672

45,101

2,732,194

3,316,765

2007

544,988

47,469

1,191,974

1,689,494

2008

484,956

50,515

1,685,532

2,119,973

2009

571,255

42,428°

l,221,085d

1,749,911

2010

649,057

36,982°

l,293,726d

1,905,801

Average Annual Growth Rates

1993-20086

-0.64%

2.33%

9.35%

5.85%

1997-20086

-1.87%

3.32%

8.24%

4.89%

1997-2010e

0.83%

0.59%

5.31%

3.48%

1993-2010e

1.28%

0.36%

6.98%

4.66%

Note: Table 2-6 presents data for clay floor and wall tile, which, by 2007 NAICS definition, is associated with NAICS 327122,
Ceramic Wall and Floor Tile Manufacturing.

Calculation rules used when computing numbers from the Industrial reports for this table are 1 thousand of square feet =

0.092903 thousand of square meters and 1 million square feet = 1,000 thousand square feet

a The export quantities for 1993-1996 are not available in the source reports (marked as (X)). The export and import quantities
for 2009 and 2010 are not available in the source report; only the export and import values are given.

b Apparent Consumption = Shipments of Clay Floor and Wall Tile - Exports + Imports

(continued)

A-2

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Table A-l. Historical Data for Clay Floor and Wall Tile (thousands of square feet): 1993-
2010 (continued)

c Because the export quantity data for clay floor and wall tile are not available for 1993-1996, and 2009 and 2010, the numbers
for 1993-1996 and 2009 and 2010 are estimates for clay floor and wall tile exports. The export numbers for clay floor and wall
tile seem to be significantly and negatively correlated to shipment numbers. So we have estimated the numbers for 1993-1996
and 2009 and 2010 based on the regression exports = a + b*shipments, using 1997 to 2008 data. The estimate for b is
significant at the 5% level.

d Because import quantity data for clay floor and wall tile are not available for 2009 and 2010, the numbers here are based on
estimates. (Only import values are available.) The import quantities exhibit a steady increasing pattern between 1993 and
2006, a drastic drop in 2007, and a significant increase in 2008. So estimating 2009 and 2010 levels builds on the basic
judgment of whether the 2009 and 2010 levels remained at the 2007 and 2008 low or rose quickly toward the 2006 level after
the increase in 2008. Numbers of import values suggest that the former case is more likely to be true. Specifically, the import
values also experienced a similar drastic drop in 2007 and a significant increase in 2008. But the import values in 2009 and
2010 are between 2007 and 2008 values and closer to the 2007 value. The import values suggest that the import quantities in
2009 and 2010 remained at the 2007 and 2008 low instead of coming back. Further, the yearly average price, computed as the
import value divided by the import quantity in a year, remained stable and at about $10 per square meter (Specifically, the
import quantities in 2005,2006,2007, and 2008 are, respectively, 245109, 253829, 110738, and 156591, all in thousand sq.
meters, and the import values in 2005, 2006,2007, and 2008 are, respectively, 2257926, 2365930, 1074328, and 1624960, all
in thousands of dollars. Dividing values by quantities yield the four yearly prices as $9.2, $9.3, $9.7, and $10.4), suggesting
that it is indeed safe to infer the rise and fall in quantities with values. Finally, to estimate, we computed the average of the
average prices in 2007 and 2008 to be $10.04 per square meter and used this estimated price and reported 2009 and 2010
import values to obtain the estimated 2009 and 2010 import quantities.

e The growth rates have been computed for 1993-2008, 1997-2008,1997-2010, and 1993-2010, because import data for 2009
and 2010 are estimates and export quantities for 1993-1996,2009, and 2010 are also estimates.

Sources: U.S. Department of Commerce, Census Bureau. 2011. Current Industrial Reports for Clay Construction Products—
Summary 2010.

U.S. Department of Commerce, Census Bureau. 2009. Current Industrial Reports for Clay Construction Products—Summary
2008.

U.S. Department of Commerce, Census Bureau. 2007. Current Industrial Reports for Clay Construction Products—Summary
2006.

U.S. Department of Commerce, Census Bureau. 2005. Current Industrial Reports for Clay Construction Products—Summary
2004.

U.S. Department of Commerce, Census Bureau. 2004. Current Industrial Reports for Clay Construction Products—Summary
2003.

U.S. Department of Commerce, Census Bureau. 2003. Current Industrial Reports for Clay Construction Products—Summary
2002.

U.S. Department of Commerce, Census Bureau. 2002. Current Industrial Reports for Clay Construction Products—Summary
2001.

U.S. Department of Commerce, Census Bureau. 2000. Current Industrial Reports for Clay Construction Products—Summary
1999.

U.S. Department of Commerce, Census Bureau. 2000. Current Industrial Reports for Clay Construction Products—Summary
1998.

U.S. Department of Commerce, Census Bureau. 1998. Current Industrial Reports for Clay Construction Products—Summary
1997.

U.S. Department of Commerce, Census Bureau. 1996. Current Industrial Reports for Clay Construction Products—Summary
1995.

U.S. Department of Commerce, Census Bureau. 1995. Current Industrial Reports for Clay Construction Products—Summary
1994.

A-3

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References:

U.S. Census Bureau. 2013 (b); Geography Area Series: County Business Patterns: 1995-2011;

generated by RTI International; using American Factfinder, http://factfinder2.census.gov.
(August 16, 2013).

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