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
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
iii

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
iv

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
v

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
vi

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
vii

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-1

Appendices

A MON Economic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

B Sensitivity Analysis of Assumed Elasticities of Demand and Supply . . . . . . . . B-1

C Sensitivity Analysis of Assumed Quantity of MON Chemicals Produced

Using Continuous Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

D Model Results, Including Batch Chemical Producers Only . . . . . . . . . . . . . . . D-1

E Small Business Screening Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . E-1

F Industry Profile of Affected SIC Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
viii

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
ix

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
1

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. 

1-1

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 continuousprocess 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
1-2

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.
1-3

 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 societallevel 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.
2-1

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,
2-2

Table 2-1. Industry Groups Profiled and Related SIC Codes

Industry Group Related SIC Codes NAICS Codes

Paints and Allied Products 2851 32551

Industrial Organic Chemicals 2865, 2869 32511, 325132, 325192,

325188, 325193, 32512,

325199

Soaps and Cleaners 2841, 2842, 2843 325611, 325612, 325613

Agricultural Chemicals 2873, 2874, 2875 325311, 325312, 325314

Photographic Equipment and Supplies 3861 333315, 325992

Adhesives, Sealants, and Printing Ink 2891, 2893, 2899 32552, 32591, 32551, 31942,

325199, 325998

Organic Fibers (Noncellulosic) 2824 325222

Plastics Materials, Synthetic Resins, and

Nonvulcanizable Elastomers

2821 325211

 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.

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.
2-3

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.
2-4

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,

– refinish paints, and

– aerosol paints.
2-5

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). 
2-6

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.
2-7

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.
2-8

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
2-9

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.
2-10

Paints

29%

Plastics

23%

Printing Ink

41% Special 

Applications

7%

Figure 2-1. Worldwide Pigment Consumption by Industry

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).
2-11

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.
1

Values adjusted using the plant cost index published in Chemical Engineering, various years.

2-12

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. 
2-13

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;
2-14

 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. 
2-15

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.
2-16

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
2-17

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-elsewhereclassified (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
2-18

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,
2-19

 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.
2-20

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 quasigovernment agencies. .
2-21

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 mixingonly 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. 
2

Values adjusted using the plant cost index published in Chemical Engineering, various years.

2-22

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
2-23

Western 

Europe (exc. 

Germany)

11%

Eastern 

Europe

10%

United States

41% Germany

7%

Africa and 

Asia

3%

Japan

28%

Figure 2-2. Worldwide Photographic Equipment and Supplies Consumption by Country

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).

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. 
2-24

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, xray, 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
2-26

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.
3

Values adjusted using the plant cost index published in Chemical Engineering, various years.

2-27

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
2-28

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.
2-29

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).
2-30

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. 
2-31

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. 
2-32

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.
4

All values inflated using the plant cost index published in Chemical Engineering, various years.

2-33

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
2-34

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.

2.7.1.3 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.

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
2-35

costs and make the production process more efficient (Mote, 1994). Energy costs averaged $455.8

million during the 1987 to 1997 period.

2.7.1.5 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 olefins 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.
2-36

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, olefin, 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
2-37

$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 
2-38

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).

Table 2-2. Value (1998 $106) of Shipments

Year SIC 2821

1987 $22,173

1988 $33,217

1989 $35,192

1990 $31,393

1991 $29,290

1992 $29,640

1993 $29,982

1994 $36,566

1995 $49,634

1996 $43,093

1997 $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. 1997 Economic Census. Washington,

DC: Government Printing Office.

U.S. Bureau of Labor Statistics, Producer Price Index Revision—Current Series. Series ID PCU2821#. 

<http://www.bls.gov>. Obtained August 18, 2000
2-39

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.
2-40

Table 2-3. Inputs Used in Plastic Materials and Resins Industry

Labor

Year

Quantity

(103

)

Payroll

(1998 $106)

Materials

(1998 $106)

New Capital

Investment

(1998 $106

)

Energy

(1998 $106)

1987 56.3 1,695 13,019 1,054 NA

1988 58.3 2,245 20,001 1,661 NA

1989 62 2,522 21,474 2,081 NA

1990 62.4 2,491 19,433 2,442 NA

1991 60.5 2,457 18,420 2,231 NA

1992 60.4 2,530 17,838 1,617 1,067

1993 62.2 2,661 18,534 1,830 1,177

1994 69.2 3,116 21,701 2,527 1,267

1995 70 3,783 29,967 2,654 1,408

1996 58.6 3,078 26,684 2,992 1,482

1997 61.035 3,465 28,090 NA 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. 

2.8.2.1 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

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.
2-41

Table 2-4. Total Resin Sales and Captive Use by Major Market (millions of pounds, dry

weight basis)

Year Growth Rates

Major Market 1992 1993 1994 1995 1996 (%)

Transportation 2,817 3,221 3,795 3,916 3,964 6.8

Packaging 18,284 19,569 19,551 19,334 21,271 3.0

Building and Construction 11,876 12,885 14,715 14,321 16,199 6.2

Electrical/electronic 2,766 2,981 3,325 2,966 3,137 2.5

Furniture and Furnishings 2,559 2,759 3,118 3,198 3,477 6.1

Consumer and Institutional

Uses

6,093 6,015 9,266 9,054 9,804 9.5

Industrial/machinery 671 768 836 818 980 7.6

Adhesives/Inks/Coatings 1,723 1,572 1,789 1,795 1,833 1.2

All Other 6,877 7,234 7,515 8,050 9,361 6.1

Exports 6,950 6,632 6,889 7,742 8,722 4.5

Total 60,562 63,636 70,799 71,194 78,748 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.
2-42

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.

Table 2-5. Size of Establishments and Value of Shipments for SIC 2821, 1997

1992 1997

Employment Size Category

Number of

Establishments

Value of

Shipments by

Employment Size

(1998 $106

)

Number of

Establishments

Value of

Shipments by

Employment Size

(1998 $106

)

1 to 4 employees 26 27.26897 21 13.59

5 to 9 employees 36 86.44641 38 186.32

10 to 19 employees 47 266.0618 56 539.03

20 to 49 employees 110 1,376.325 160 3,417.65

50 to 99 employees 101 3,888.289 114 5,958.24

100 to 249 employees 72 6,627.684 94 13,837.61

250 to 499 employees 30 5,150.71 28 8,971.34

500 to 1,000 employees 19 6,657.131 14 7,968.88

over 1,000 employees 8 a 7 a

Total 449 29,639.76 532 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.
2-43

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.

Table 2-6. Measures of Market Concentration by SIC: 1992

SIC Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2821 Plastic materials

and resins

24 39 284 241 449

Source: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in Manufacturing. 

Washington, DC: Government Printing Office. 
2-44

Foreign. Foreign plastic materials producers increased their sales to the United States

during the period. In 1997, U.S. imports were $5.2 billion.

Table 2-7. Industry Statistics for the Top Ten States for SIC 2821, 1997

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

Texas $16,050.4 68 53 12,920

Louisiana $6,617.3 21 19 5,152

Kentucky $2,822.0 14 13 2,986

Oklahoma $1,834.5 34 29 3,088

Indiana $1,656.7 15 13 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

Domestic

Production Value of Imports Value of Exports

Apparent

Consumption

1992 31,529 2,033 6,714 26,848

1993 31,924 2,477 6,919 27,482

1994 37,633 3,344 8,437 32,540

1995 50,278 4,797 11,949 43,126

1996 45,945 4,633 11,505 39,073

1997 50,493 5,294 13,139 42,648

Prices adjusted using the PPI for SIC 2821.
2-45

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,
2-46

Table 2-9. Number of MON Facilities by State

State Number of Facilities State Number of Facilities

AL 8 NC 14

AR 5 NJ 17

CA 20 NV 1

CT 3 NY 12

DE 2 OH 26

FL 6 OK 2

GA 7 OR 2

IA 4 PA 18

IL 52 RI 1

IN 8 SC 6

KS 4 TN 10

KY 4 TX 57

LA 27 VA 6

MA 1 WA 1

MD 6 WI 4

MI 9 WV 6

MN 2 None 4

MO 13

MS 2 Total 370

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.

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.
2-47

Table 2-10. Number of Facilities by SIC Code by Industry Segment

SIC Code Paints and Coatings Batch Organic Chemicals Continuous Organic

Chemicals

2812 2

2813 2

2819 1 3

2821 3 40 26

2822 3

2823 1

2824 1

2833 1 1

2841 2

2843 6 2

2851 96 14 36

2861 4 1

2865 16 4

2869 56 38

2873 7

2879 1 2

2891 13 2 4

2893 14 2

2899 15 5

2911 1

3081 1

None 1 47

Total 127 207 140

2.9.2 Quantities of MON 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
2-48

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).
3-1

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 
3-2

Table 3-1. Estimated Baseline HAP Emissions, Emission Reductions, and Cost of Compliance for Facilities Affectedby the MON

Baseline

HAP

Emissions

(tn/yr)

HAP

Reduction

(tn/yr)

Total Annual

Cost ($/yr)

Total Capital

Cost ($/yr)

Operating &

Maintenance

($)

Annualized

Capital Costs

($/yr)

Recovery

Credit ($)

Costeffectiveness

($/tn HAP)

Costs for Batch ChemicalProducers

Minimum — — — –1,697 — –186 —Mean 237.3 110.0 270,194 413,657 234,247 45,420 9,469Maximum 2,557.5 1,667.1 3,579,843 3,042,470 3,254,441 334,064 150,788

Total, Batch Facilities 49,120.8 22,774.7 55,930,257 85,626,995 48,489,182 9,401,865 1,960,135 2,447Total, ContinuousFacilities

13,805.3 5,234.5 22,288,551 33,244,471 19,577,187 3,650,272 938,233 4,255

Total, Organic ChemicalProducers

62,926.1 28,009.2 78,218,808 118,871,466 68,066,369 13,052,137 2,898,368 2,800

Costs for CoatingProducers

Minimum 1.7 0.4 6,048 5,148 5,394 733 79Mean 61.4 44.7 126,092 452,893 85,909 49,990 9,808Maximum 454.2 312.9 418,429 2,238,111 238,826 246,618 68,986

Total, Coating Producers 7,792.3 5,674.1 16,013,704 57,517,432 10,910,495 6,348,699 1,245,640 2,822National Total 70,719.1 33,683.3 94,232,512 176,388,898 78,976,864 19,400,836 4,144,008 2,800
3-3

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.
4-1

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:
4-2

 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
4-3

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
1

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

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 facilityspecific 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). 
4-5

Table 4-1. Estimated Baseline Quantities and Price for the MON Markets: 1998

Baseline

With

Regulation

Absolute

Change

Relative

Change

Market price ($/lb) $1.43 $1.43 $0.004 0.29%

Market quantity (106

 lbs) 2,625 2,622 –3.7 –0.14%

Domestic 2,625 2,622 –3.7 –0.14%

Market price ($/lb) $0.71 $0.71 $0.003 0.38%

Market quantity (106

 lbs) 19,186 19,149 –36.7 –0.19%

Domestic 19,186 19,149 –36.7 –0.19%

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.

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
4-6

Table 4-2. U.S. Industry-Level Impacts (106 1998 $/yr)

Baseline

With

Regulation

Absolute

Change

Relative

Change

Coatings

Revenue $3,754 $3,760 $5.3 0.142%

Costs $1,877 $1,888 $10.7 0.568%

Control NA $16 $16.0 NA

Production $1,877 $1,872 –$5.3 –0.284%

Operating Profit $1,877 $1,872 –$5.3 –0.284%

Chemicals

Revenue $13,622 $13,648 $26.1 0.191%

Costs $6,811 $6,863 $52.1 0.765%

Control NA $78 $78.1 NA

Production $6,811 $6,785 –$26.0 –0.382%

Operating Profit $6,811 $6,785 –$26.0 –0.382%

Total

Revenue $17,376 $17,408 $31.4 0.181%

Costs $8,688 $8,751 $62.7 0.722%

Control NA $94 $94.1 NA

Production $8,688 $8,657 –$31.3 –0.361%

Operating Profit $8,688 $8,657 –$31.3 –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
4-7

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
4-8

Table 4-3. Distribution of the Social Costs (106 1998 $/yr)

Consumer Surplus –$62.8 67%

Coatings –$10.7

Chemicals –$52.1

Producer Surplus –$31.3 33%

Coatings –$5.3

Chemicals –$26.0

Total Social Cost –$94.1

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.)
5-1

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.
5-2

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

miscellaneous organic chemicals other

than coatings

$55,930,257

140a Continuous process manufacturing of

miscellaneous organic chemicals other

than coatings

$22,288,551

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.

5.1 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 screeninglevel 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.
5-3

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 5-1(a) and 5-1(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 
5-4

Table 5-2. Summary Statistics for SBREFA Screening Analysis: MON—Regulation of Coating Facilities: 1998

Small Large All Companies

Total number of companies 32 26 58Annual compliance costs ($106/yr) $3.8 $12.2 $16.0

Number Sharea Number Share Number Sharea

Companies with sales data 30 26 56

Compliance costs are <1% of sales 23 77% 25 96% 48 86%Compliance costs are 1 to 3% of sales 5 17% 1 4% 6 11%

Compliance costs are 3% of sales 2 7% 0 0% 2 4%

Compliance cost-to-sales ratios

Average 1.02% 0.10% 0.60%Median 0.50% 0.03% 0.17%Maximum 7.74% 1.45% 7.74%Minimum 0.08% 0.00% 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.
5-5

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

Figure 5-1. Distribution of Cost-to-Sales Ratios
5-6

Table 5-3. Profit Margins With and Without Regulation of Coatings Manufacturers 

Small

Companies

Large

Companies

All

Companies

Profit margins without regulation

Average 2.74% 4.92% 3.75%

Median 2.70% 3.85% 2.70%

Maximum 5.10% 15.05% 15.05%

Minimum –0.24% 1.59% –0.24%

Number of firms with profit margin less

than zero

101

Profit margins with regulation

Average 1.71% 4.82% 3.16%

Median 2.70% 3.85% 2.70%

Maximum 5.10% 15.05% 15.05%

Minimum –0.24% 1.59% –0.24%

Number of firms with profit margin less

than zero

404

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
5-7

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

<0 0 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

0%

20%

40%

60%

80%

100%

<0% 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

Figure 5-2. Distribution of Profit Margins
5-8

Table 5-4. Summary Statistics for SBREFA Screening Analysis: Impacts of the Regulation of Other MiscellaneousOrganic Chemical Manufacturers using Batch and/or Continuous Production Processes

Small Large All Companies

Total number of companies 46 102 148Annual compliance costs ($106/yr) $8.9 $69.8 $78.7

Number Share Number Share Number Share

Companies with sales data 41 102 143

Compliance costs are <1% of sales 29 71% 102 100% 131 92%Compliance costs are 1 to 3% of sales 7 17% 0 0% 7 5%Compliance costs are 3% of sales 5 12% 0 0% 5 3%

Compliance cost-to-sales ratios

Average 1.13% 0.04% 0.36%Median 0.37% 0.02% 0.03%Maximum 9.32% 0.51% 9.32%Minimum 0.00% 0.00% 0.00%

Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
5-9

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

Figure 5-3. Distribution of Cost-to-Sales Ratios
5-10

Table 5-5. Profit Margins With and Without Regulation of Manufacturers of Other

Miscellaneous Organic Chemicals using Batch and/or Continuous Production Processes

Small

Companies

Large

Companies

All

Companies

Profit margins without regulation

Average 4.30% 5.96% 5.48%

Median 4.00% 4.50% 4.50%

Maximum 18.53% 82.74% 82.74%

Minimum 2.70% –13.92% –13.92%

Number of firms with profit margin less

than zero

044

Profit margins with regulation

Average 3.17% 5.91% 5.13%

Median 3.43% 4.48% 4.20%

Maximum 18.52% 82.73% 82.73%

Minimum –6.62% –13.95% –13.95%

Number of firms with profit margin less

than zero

246

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.
5-11

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

<0 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

0%

20%

40%

60%

80%

100%

<0% 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

Figure 5-4. Distribution of Profit Margins With Regulation
5-12

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.
5-13

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
5-14

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.
R-1

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R-3

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R-5

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Appendix A

MON Economic Model 
1

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-1

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.1 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-1).

 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). 

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:

Table A-1. Baseline Data Set: 1998

Market Average Price ($/lb) Quantity (109 lbs)

Chemical $0.71 9.59

Coatings $1.43 2.63
A-2

QSi  ASi [pi

]

S (A.1)

QSi  ASi [pi

ci]

Si (A.2)

QDi  ADi [pi

]

Di (A.3)

In this Cobb-Douglas specification, pi

 is the market price for the ith market, Si 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 (ci

) enters the

supply equation as a net price change (i.e., pi – ci). Thus, the supply function from Eq. (A.1)

becomes:

A.3 Market Demand 

Demand will be expressed as

Table A-2. Computing Regulatory-Induced Shift in Supply Function: 1998

Market Total Annual Costs ($106) Per-Unit “Cost-Shifter” % Shift

Chemical $78.2 $0.008 1.14%

Coatings $16.0 $0.006 0.43%
A-3

where pi

 is the market price, Di 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-1 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-1, baseline

equilibrium occurs at the intersection of the demand curve, D, and supply curve, S. Price is

Pl

 with quantity Ql. The increased cost of production with the 
A-4

P1

P2

Q2 Q1

S

S’

D

Q/t

$/Q

(a) Change in Consumer Surplus with Regulation

P1

P2

Q2 Q1

S

S’

D

Q/t

$/Q

(b) Change in Producer Surplus with Regulation

P1

P2

Q2 Q1

S

S’

D

Q/t

$/Q

(c) Net Change in Economic Welfare with Regulation

A

B

C

D

Figure A-1. Economic Welfare Changes with Regulation: Consumer and Producer

Surplus
A-5

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-1(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, Ql

–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-1(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-1(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.
Appendix B

Sensitivity Analysis of Assumed Elasticities of

Demand and Supply
B-1

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-2

Table B-2. Industry-Level Impacts (continuous product = batch production, demand

elasticity = –0.6, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,758 $3.7 0.098%

Costs $1,877 $1,887 $9.8 0.524%

Control NA $16 $16.0 NA

Production $1,877 $1,871 –$6.1 –0.327%

Operating Profit $1,877 $1,871 –$6.1 –0.327%

Chemicals

Revenue $13,622 $13,640 $18.1 0.133%

Costs $6,811 $6,859 $48.0 0.705%

Control NA $78 $78.0 NA

Production $6,811 $6,781 –$30.0 –0.440%

Operating Profit $6,811 $6,781 –$30.0 –0.440%

Total

Revenue $17,376 $17,398 $21.7 0.125%

Costs $8,688 $8,746 $57.9 0.666%

Control NA $94 $94.0 NA

Production $8,688 $8,652 –$36.1 –0.416%

Operating Profit $8,688 $8,652 –$36.1 –0.416%

Table B-1. Market Level Impacts (continuous product = batch production, demand

elasticity = –0.6, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.263%

Quantity (lb) 2,625 2,621 –4.3 –0.164%

Directly Affected: Domestic 2,625 2,621 –4.3 –0.164%

Chemicals

Price ($/lb) $0.71 $0.71 $0.003 0.354%

Quantity (lb) 19,186 19,144 –42.3 –0.220%

Directly Affected: Domestic 19,186 19,144 –42.3 –0.220%
B-3

Table B-3. Distribution of Social Costs ($) (continuous product = batch production,

demand elasticity = –0.6, supply elasticity = 1)

Consumer Surplus –$58.0

Coatings –$9.9 62%

Chemicals –$48.1

Producer Surplus –$36.1

Coatings –$6.1 38%

Chemicals –$30.0

Total Social Cost –94.1

Table B-4. Market Level Impacts (continuous product = batch production, demand

elasticity = –0.4, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.310%

Quantity (lb) 2,625 2,622 –3.0 –0.116%

Directly Affected: Domestic 2,625 2,622 –3.0 –0.116%

Chemicals

Price ($/lb) $0.71 $0.71 $0.003 0.418%

Quantity (lb) 19,186 19,156 –30.0 –0.156%

Directly Affected: Domestic 19,186 19,156 –30.0 –0.156%
B-4

Table B-5. Industry-Level Impacts (continuous product = batch production, demand

elasticity = –0.4, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,762 $7.3 0.194%

Costs $1,877 $1,889 $11.6 0.620%

Control NA $16 $16.0 NA

Production $1,877 $1,873 –$4.4 –0.232%

Operating Profit $1,877 $1,873 –$4.4 –0.232%

Chemicals

Revenue $13,622 $13,658 $35.6 0.261%

Costs $6,811 $6,868 $56.8 0.834%

Control NA $78 $78.1 NA

Production $6,811 $6,790 –$21.3 –0.312%

Operating Profit $6,811 $6,790 –$21.3 –0.312%

Total

Revenue $17,376 $17,419 $42.8 0.246%

Costs $8,688 $8,757 $68.5 0.788%

Control NA $94 $94.1 NA

Production $8,688 $8,663 –$25.6 –0.295%

Operating Profit $8,688 $8,663 –$25.6 –0.295%

Table B-6. Distribution of Social Costs ($) (continuous product = batch production,

demand elasticity = –0.4, supply elasticity = 1)

Consumer Surplus –$68.5

Coatings –$11.6 73%

Chemicals –$56.9

Producer Surplus –$25.6

Coatings –$4.4 27%

Chemicals –$21.3

Total Social Cost –94.2
B-5

Table B-7. Market Level Impacts (continuous product = batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.305%

Quantity (lb) 2,625 2,621 –4.0 –0.152%

Directly Affected: Domestic 2,625 2,621 –4.0 –0.152%

Chemicals

Price ($/lb) $0.71 $0.71 $0.003 0.410%

Quantity (lb) 19,186 19,147 –39.3 –0.205%

Directly Affected: Domestic 19,186 19,147 –39.3 –0.205%

Table B-8. Industry-Level Impacts (continuous product = batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.7 0.152%

Costs $2,086 $2,096 $10.3 0.493%

Control NA $16 $16.0 NA

Production $2,086 $2,080 –$5.7 –0.274%

Operating Profit $1,669 $1,664 –$4.6 –0.274%

Chemicals

Revenue $13,622 $13,650 $27.9 0.205%

Costs $7,568 $7,618 $50.2 0.663%

Control NA $78 $78.1 NA

Production $7,568 $7,540 –$27.8 –0.368%

Operating Profit $6,054 $6,032 –$22.3 –0.368%

Total

Revenue $17,376 $17,410 $33.6 0.194%

Costs $9,654 $9,714 $60.5 0.627%

Control NA $94 $94.0 NA

Production $9,654 $9,620 –$33.6 –0.348%

Operating Profit $7,723 $7,696 –$26.8 –0.348%
B-6

Table B-9. Distribution of Social Costs ($) (continuous product = batch production,

demand elasticity = –0.5, supply elasticity = 1.25)

Consumer Surplus –$67.3

Coatings –$11.4 71%

Chemicals –$55.9

Producer Surplus –$26.8

Coatings –$4.6 29%

Chemicals –$22.3

Total Social Cost –94.1

Table B-10. Market Level Impacts (continuous product = batch production, demand

elasticity = –0.5, supply elasticity = 0.75)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.256%

Quantity (lb) 2,625 2,622 –3.4 –0.128%

Directly Affected: Domestic 2,625 2,622 –3.4 –0.128%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.345%

Quantity (lb) 19,186 19,153 –33.0 –0.172%

Directly Affected: Domestic 19,186 19,153 –33.0 –0.172%
B-7

Table B-11. Industry-Level Impacts (continuous product = batch production, demand

elasticity = –0.5, supply elasticity = 0.75)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,759 $4.8 0.128%

Costs $1,609 $1,620 $11.2 0.696%

Control NA $16 $16.0 NA

Production $1,609 $1,604 –$4.8 –0.298%

Operating Profit $2,145 $2,139 –$6.4 –0.298%

Chemicals

Revenue $13,622 $13,646 $23.5 0.172%

Costs $5,838 $5,893 $54.7 0.937%

Control NA $78 $78.1 NA

Production $5,838 $5,815 –$23.4 –0.401%

Operating Profit $7,784 $7,753 –$31.2 –0.401%

Total

Revenue $17,376 $17,405 $28.3 0.163%

Costs $7,447 $7,513 $65.9 0.885%

Control NA $94 $94.1 NA

Production $7,447 $7,419 –$28.2 –0.379%

Operating Profit $9,929 $9,892 –$37.6 –0.379%

Table B-12. Distribution of Social Costs ($) (continuous product = batch production,

demand elasticity = –0.5, supply elasticity = 0.75)

Consumer Surplus –$56.6

Coatings –$9.6 60%

Chemicals –$46.9

Producer Surplus –$37.6

Coatings –$6.4 40%

Chemicals –$31.2

Total Social Cost –94.2
Appendix C

Sensitivity Analysis of Assumed Quantity of MON

Chemicals Produced Using Continuous Processes
C-1

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-1 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 C6 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-2

Table C-2. Industry-Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.3 0.142%

Costs $1,877 $1,888 $10.7 0.568%

Control NA $16 $16.0 NA

Production $1,877 $1,872 –$5.3 –0.284%

Operating Profit $1,877 $1,872 –$5.3 –0.284%

Chemicals

Revenue $10,217 $10,243 $26.1 0.255%

Costs $5,108 $5,160 $52.0 1.019%

Control NA $78 $78.0 NA

Production $5,108 $5,082 –$26.0 –0.508%

Operating Profit $5,108 $5,082 –$26.0 –0.508%

Total

Revenue $13,971 $14,002 $31.4 0.225%

Costs $6,985 $7,048 $62.7 0.898%

Control NA $94 $94.0 NA

Production $6,985 $6,954 –$31.3 –0.448%

Operating Profit $6,985 $6,954 –$31.3 –0.448%

Table C-1. Market Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.285%

Quantity (lb) 2,625 2,622 –3.7 –0.142%

Directly Affected: Domestic 2,625 2,622 –3.7 –0.142%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.511%

Quantity (lb) 14,390 14,353 –36.6 –0.255%

Directly Affected: Domestic 14,390 14,353 –36.6 –0.255%
C-3

Table C-3. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,

demand elasticity = –0.5, supply elasticity = 1)

Consumer Surplus –$62.8

Coatings –$10.7 67%

Chemicals –$52.1

Producer Surplus –$31.3

Coatings –$5.3 33%

Chemicals –$26.0

Total Social Cost –$94.1

Table C-4. Market Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.6, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.263%

Quantity (lb) 2,625 2,621 –4.3 –0.164%

Directly Affected: Domestic 2,625 2,621 –4.3 –0.164%

Chemicals

Price ($/lb) $0.71 $0.71 $0.003 0.472%

Quantity (lb) 14,390 14,347 –42.3 –0.294%

Directly Affected: Domestic 14,390 14,347 –42.3 –0.294%
C-4

Table C-5. Industry-Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.6, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,758 $3.7 0.098%

Costs $1,877 $1,887 $9.8 0.524%

Control NA $16 $16.0 NA

Production $1,877 $1,871 –$6.1 –0.327%

Operating Profit $1,877 $1,871 –$6.1 –0.327%

Chemicals

Revenue $10,217 $10,235 $18.1 0.177%

Costs $5,108 $5,156 $48.0 0.940%

Control NA $78 $78.0 NA

Production $5,108 $5,078 –$30.0 –0.587%

Operating Profit $5,108 $5,078 –$30.0 –0.587%

Total

Revenue $13,971 $13,993 $21.7 0.156%

Costs $6,985 $7,043 $57.9 0.828%

Control NA $94 $94.0 NA

Production $6,985 $6,949 –$36.1 –0.517%

Operating Profit $6,985 $6,949 –$36.1 –0.517%

Table C-6. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,

demand elasticity = –0.6, supply elasticity = 1)

Consumer Surplus –$58.0

Coatings –$9.9 62%

Chemicals –$48.1

Producer Surplus –$36.1

Coatings –$6.1 38%

Chemicals –$30.0

Total Social Cost –$94.1
C-5

Table C-7. Market Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.4, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.310%

Quantity (lb) 2,625 2,622 –3.0 –0.116%

Directly Affected: Domestic 2,625 2,622 –3.0 –0.116%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.557%

Quantity (lb) 14,390 14,360 –30.0 –0.208%

Directly Affected: Domestic 14,390 14,360 –30.0 –0.208%

Table C-8. Industry-Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.4, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,762 $7.3 0.194%

Costs $1,877 $1,889 $11.6 0.620%

Control NA $16 $16.0 NA

Production $1,877 $1,873 –$4.4 –0.232%

Operating Profit $1,877 $1,873 –$4.4 –0.232%

Chemicals

Revenue $10,217 $10,252 $35.6 0.348%

Costs $5,108 $5,165 $56.8 1.112%

Control NA $78 $78.1 NA

Production $5,108 $5,087 –$21.3 –0.416%

Operating Profit $5,108 $5,087 –$21.3 –0.416%

Total

Revenue $13,971 $14,014 $42.8 0.307%

Costs $6,985 $7,054 $68.4 0.980%

Control NA $94 $94.1 NA

Production $6,985 $6,960 –$25.6 –0.367%

Operating Profit $6,985 $6,960 –$25.6 –0.367%
C-6

Table C-9. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,

demand elasticity = –0.4, supply elasticity = 1)

Consumer Surplus –$68.5

Coatings –$11.6 73%

Chemicals –$56.9

Producer Surplus –$25.6

Coatings –$4.4 27%

Chemicals –$21.3

Total Social Cost –$94.1

Table C-10. Market Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.305%

Quantity (lb) 2,625 2,621 –4.0 –0.152%

Directly Affected: Domestic 2,625 2,621 –4.0 –0.152%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.547%

Quantity (lb) 14,390 14,350 –39.2 –0.273%

Directly Affected: Domestic 14,390 14,350 –39.2 –0.273%
C-7

Table C-11. Industry-Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.7 0.152%

Costs $2,086 $2,096 $10.3 0.493%

Control NA $16 $16.0 NA

Production $2,086 $2,080 –$5.7 –0.274%

Operating Profit $1,669 $1,664 –$4.6 –0.274%

Chemicals

Revenue $10,217 $10,244 $27.9 0.273%

Costs $5,676 $5,726 $50.2 0.884%

Control NA $78 $78.0 NA

Production $5,676 $5,648 –$27.8 –0.490%

Operating Profit $4,541 $4,518 –$22.3 –0.490%

Total

Revenue $13,971 $14,005 $33.6 0.241%

Costs $7,762 $7,822 $60.5 0.779%

Control NA $94 $94.0 NA

Production $7,762 $7,728 –$33.5 –0.432%

Operating Profit $6,209 $6,182 –$26.8 –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 –67.3

Coatings –$11.4 72%

Chemicals –$55.6

Producer Surplus –$26.8

Coatings –$4.6 28%

Chemicals –$22.3

Total Social Cost –$94.1
C-8

Table C-14. Industry-Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 0.75)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,759 $4.8 0.128%

Costs $1,609 $1,620 $11.2 0.696%

Control NA $16 $16.0 NA

Production $1,609 $1,604 –$4.8 –0.298%

Operating Profit $2,145 $2,139 –$6.4 –0.298%

Chemicals

Revenue $10,217 $10,240 $23.5 0.230%

Costs $4,379 $4,433 $54.7 1.248%

Control NA $78 $78.0 NA

Production $4,379 $4,355 –$23.4 –0.534%

Operating Profit $5,838 $5,807 –$31.2 –0.534%

Total

Revenue $13,971 $13,999 $28.3 0.202%

Costs $5,988 $6,053 $65.9 1.100%

Control NA $94 $94.0 NA

Production $5,988 $5,959 –$28.2 –0.471%

Operating Profit $7,983 $7,946 –$37.6 –0.471%

Table C-13. Market Level Impacts (continuous product = 0.5 * batch production, demand

elasticity = –0.5, supply elasticity = 0.75)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.256%

Quantity (lb) 2,625 2,622 –3.4 –0.128%

Directly Affected: Domestic 2,625 2,622 –3.4 –0.128%

Chemicals

Price ($/lb) $0.71 $0.71 $0.003 0.460%

Quantity (lb) 14,390 14,357 –33.0 –0.229%

Directly Affected: Domestic 14,390 14,357 –33.0 –0.229%
C-9

Table C-16. Market Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.285%

Quantity (lb) 2,625 2,622 –3.7 –0.142%

Directly Affected: Domestic 2,625 2,622 –3.7 –0.142%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.306%

Quantity (lb) 23,983 23,946 –36.7 –0.153%

Directly Affected: Domestic 23,983 23,946 –36.7 –0.153%

Table C-15. Distribution of Social Costs ($) (continuous product = 0.5 * batch production,

demand elasticity = –0.5, supply elasticity = 0.75)

Consumer Surplus –$56.6

Coatings –$9.6 60%

Chemicals –$46.9

Producer Surplus –$37.6

Coatings –$6.4 40%

Chemicals –$31.2

Total Social Cost –$94.1
C-10

Table C-17. Industry-Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.3 0.142%

Costs $1,877 $1,888 $10.7 0.568%

Control NA $16 $16.0 NA

Production $1,877 $1,872 –$5.3 –0.284%

Operating Profit $1,877 $1,872 –$5.3 –0.284%

Chemicals

Revenue $17,028 $17,054 $26.1 0.153%

Costs $8,514 $8,566 $52.1 0.612%

Control NA $78 $78.1 NA

Production $8,514 $8,488 –$26.0 –0.306%

Operating Profit $8,514 $8,488 –$26.0 –0.306%

Total

Revenue $20,782 $20,813 $31.4 0.151%

Costs $10,391 $10,454 $62.7 0.604%

Control NA $94 $94.1 NA

Production $10,391 $10,360 –$31.3 –0.302%

Operating Profit $10,391 $10,360 –$31.3 –0.302%

Table C-18. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,

demand elasticity = –0.5, supply elasticity = 1)

Consumer Surplus –$62.8

Coatings –$10.7 67%

Chemicals –$52.1

Producer Surplus –$31.3

Coatings –$5.3 33%

Chemicals –$26.0

Total Social Cost –$94.2
C-11

Table C-19. Market Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.6, supply elasticity = 1)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.263%

Quantity (lb) 2,625 2,621 –4.3 –0.164%

Directly Affected: Domestic 2,625 2,621 –4.3 –0.164%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.283%

Quantity (lb) 23,983 23,940 –42.3 –0.176%

Directly Affected: Domestic 23,983 23,940 –42.3 –0.176%

Table C-20. Industry-Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.6, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,758 $3.7 0.098%

Costs $1,877 $1,887 $9.8 0.524%

Control NA $16 $16.0 NA

Production $1,877 $1,871 –$6.1 –0.327%

Operating Profit $1,877 $1,871 –$6.1 –0.327%

Chemicals

Revenue $17,028 $17,046 $18.1 0.106%

Costs $8,514 $8,562 $48.1 0.565%

Control NA $78 $78.1 NA

Production $8,514 $8,484 –$30.0 –0.353%

Operating Profit $8,514 $8,484 –$30.0 –0.353%

Total

Revenue $20,782 $20,804 $21.7 0.105%

Costs $10,391 $10,449 $57.9 0.557%

Control NA $94 $94.1 NA

Production $10,391 $10,355 –$36.2 –0.348%

Operating Profit $10,391 $10,355 –$36.2 –0.348%
C-12

Table C-21. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,

demand elasticity = –0.6, supply elasticity = 1)

Consumer Surplus –58.0

Coatings –$9.9 62%

Chemicals –$48.1

Producer Surplus –$36.1

Coatings –$6.1 38%

Chemicals –$30.0

Total Social Cost –$94.1

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) $1.43 $1.43 $0.004 0.310%

Quantity (lb) 2,625 2,622 –3.0 –0.116%

Directly Affected: Domestic 2,625 2,622 –3.0 –0.116%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.334%

Quantity (lb) 23,983 23,953 –30.0 –0.125%

Directly Affected: Domestic 23,983 23,953 –30.0 –0.125%
C-13

Table C-23. Industry-Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.4, supply elasticity = 1)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,762 $7.3 0.194%

Costs $1,877 $1,889 $11.6 0.620%

Control NA $16 $16.0 NA

Production $1,877 $1,873 –$4.4 –0.232%

Operating Profit $1,877 $1,873 –$4.4 –0.232%

Chemicals

Revenue $17,028 $17,063 $35.6 0.209%

Costs $8,514 $8,571 $56.8 0.668

Control NA $78 $78.1 NA

Production $8,514 $8,493 –$21.3 –0.250%

Operating Profit $8,514 $8,493 –$21.3 –0.250%

Total

Revenue $20,782 $20,825 $42.8 0.206%

Costs $10,391 $10,459 $68.5 0.659%

Control NA $94 $94.1 NA

Production $10,391 $10,365 –$25.6 –0.247%

Operating Profit $10,391 $10,365 –$25.6 –0.247%

Table C-24. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,

demand elasticity = –0.4, supply elasticity = 1)

Consumer Surplus –68.5

Coatings –$11.6 73%

Chemicals –$56.9

Producer Surplus –$25.6

Coatings –$4.4 27%

Chemicals –$21.3

Total Social Cost –$94.2
C-14

Table C-25. Market Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.305%

Quantity (lb) 2,625 2,621 –4.0 –0.152%

Directly Affected: Domestic 2,625 2,621 –4.0 –0.152%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.328%

Quantity (lb) 23,983 23,943 –39.3 –0.164%

Directly Affected: Domestic 23,983 23,943 –39.3 –0.164%

Table C-26. Industry-Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –0.5, supply elasticity = 1.25)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.7 0.152%

Costs $2,086 $2,096 $10.3 0.493%

Control NA $16 $16.0 NA

Production $2,086 $2,080 –$5.7 –0.274%

Operating Profit $1,669 $1,664 –$4.6 –0.274%

Chemicals

Revenue $17,028 $17,056 $27.9 0.164%

Costs $9,460 $9,510 $50.2 0.531%

Control NA $78 $78.1 NA

Production $9,460 $9,432 –$27.9 –0.295%

Operating Profit $7,568 $7,546 –$22.3 –0.295%

Total

Revenue $20,782 $20,816 $33.6 0.162%

Costs $11,546 $11,606 $60.5 0.524%

Control NA $94 $94.1 NA

Production $11,546 $11,512 –$33.6 –0.291%

Operating Profit $9,236 $9,210 –$26.9 –0.291%
C-15

Table C-27. Distribution of Social Costs ($) (continuous product = 1.5 * batch production,

demand elasticity = –0.5, supply elasticity = 1.25)

Consumer Surplus –$67.3

Coatings –$11.4 71%

Chemicals –$55.9

Producer Surplus –$26.9

Coatings –$4.6 29%

Chemicals –$22.3

Total Social Cost –$94.2

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) $1.43 $1.43 $0.004 0.256%

Quantity (lb) 2,625 2,622 –3.4 –0.128%

Directly Affected: Domestic 2,625 2,622 –3.4 –0.128%

Chemicals

Price ($/lb) $0.71 $0.71 $0.002 0.276%

Quantity (lb) 23,983 23,949 –33.0 –0.138%

Directly Affected: Domestic 23,983 23,949 –33.0 –0.138%
C-16

Table C-29. Industry-Level Impacts (continuous product = 1.5 * batch production, demand

elasticity = –1.5, supply elasticity = 0.75)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,759 $4.8 0.128%

Costs $1,609 $1,620 $11.2 0.696%

Control NA $16 $16.0 NA

Production $1,609 $1,604 –$4.8 –0.298%

Operating Profit $2,145 $2,139 –$6.4 –0.298%

Chemicals

Revenue $17,028 $17,051 $23.5 0.138%

Costs $7,298 $7,352 $54.7 0.749%

Control NA $78 $78.1 NA

Production $7,298 $7,274 –$23.4 –0.321%

Operating Profit $9,730 $9,699 –$31.2 –0.321%

Total

Revenue $20,782 $20,810 $28.3 0.136%

Costs $8,907 $8,972 $65.9 0.740%

Control NA $94 $94.1 NA

Production $8,907 $8,878 –$28.2 –0.317%

Operating Profit $11,875 $11,838 –$37.6 –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 –$56.6

Coatings –$9.6 60%

Chemicals –$46.9

Producer Surplus –$37.6

Coatings –$6.4 40%

Chemicals –$31.2

Total Social Cost –$94.2
Appendix D

Model Results, Including Batch Chemical

Producers Only
D-1

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-2

Table D-2. Industry-Level Impacts (does not include costs for continuous process

facilities; supply elasticity = 1, demand elasticity = –0.5)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.3 0.142%

Costs $1,877 $1,888 $10.7 0.568%

Control NA $16 $16.0 NA

Production $1,877 $1,872 –$5.3 –0.284%

Operating Profit $1,877 $1,872 –$5.3 –0.284%

Chemicals

Revenue $6,811 $6,830 $18.6 0.274%

Costs $3,406 $3,443 $37.2 1.093%

Control NA $56 $55.8 NA

Production $3,406 $3,387 –$18.6 –0.545%

Operating Profit $3,406 $3,387 –$18.6 –0.545%

Total

Revenue $10,565 $10,589 $24.0 0.227%

Costs $5,283 $5,331 $47.9 0.906%

Control NA $72 $71.8 NA

Production $5,283 $5,259 –$23.9 –0.452%

Operating Profit $5,283 $5,259 –$23.9 –0.452%

Table D-1. Market Level Impacts (does not include costs for continuous process

facilities; supply elasticity = 1, demand elasticity = –0.5)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.285%

Quantity (lb) 2,625 2,622 –3.7 –0.142%

Directly Affected: Domestic 2,625 2,622 –3.7 –0.142%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.548%

Quantity (lb) 9,593 9,567 –26.2 –0.273%

Directly Affected: Domestic 9,593 9,567 –26.6 –0.273%
D-3

Table D-3. Distribution of Social Costs ($) (does not include costs for continuous process

facilities; supply elasticity = 1, demand elasticity = –0.5)

Consumer Surplus –$48.0

Coatings –$10.7 67%

Chemicals –$37.3

Producer Surplus –$23.9

Coatings –$5.3 33%

Chemicals –$18.6

Total Social Cost –$71.9

Table D-4. Market Level Impacts (continuous costs not included; demand elasticity =

(1.25 * –0.5)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.263%

Quantity (lb) 2,625 2,621 –4.3 –0.164%

Directly Affected: Domestic 2,625 2,621 –4.3 –0.164%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.506%

Quantity (lb) 9,593 9,563 –30.2 –0.315%

Directly Affected: Domestic 9,593 9,563 –30.2 –0.315%
D-4

Table D-5. Industry-Level Impacts (continuous costs not included; demand elasticity =

(1.25 * –0.5)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,758 $3.7 0.098%

Costs $1,877 $1,887 $9.8 0.524%

Control NA $16 $16.0 NA

Production $1,877 $1,871 –$6.1 –0.327%

Operating Profit $1,877 $1,871 –$6.1 –0.327%

Chemicals

Revenue $6,811 $6,824 $12.9 0.189%

Costs $3,406 $3,440 $34.3 1.008%

Control NA $56 $55.8 NA

Production $3,406 $3,384 –$21.4 –0.629%

Operating Profit $3,406 $3,384 –$21.4 –0.629%

Total

Revenue $10,565 $10,582 $16.6 0.157%

Costs $5,283 $5,327 $44.2 0.836%

Control NA $72 $71.7 NA

Production $5,283 $5,255 –$27.6 –0.522%

Operating Profit $5,283 $5,255 –$27.6 –0.522%

Table D-6. Distribution of Social Costs ($) (continuous costs not included; demand

elasticity = (1.25 * –0.5)

Consumer Surplus –$44.3

Coatings –$9.9 62%

Chemicals –$34.4

Producer Surplus –$27.6

Coatings –$6.1 38%

Chemicals –$21.4

Total Social Cost –$71.8
D-5

Table D-7. Market Level Impacts (continuous costs not included; demand

elasticity = –0.4)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.310%

Quantity (lb) 2,625 2,622 –3.0 –0.116%

Directly Affected: Domestic 2,625 2,622 –3.0 –0.116%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.598%

Quantity (lb) 9,593 9,572 –21.4 –0.223%

Directly Affected: Domestic 9,593 9,572 –21.4 –0.223%

Table D-8. Industry-Level Impacts (continuous costs not included; demand

elasticity = –0.4)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,762 $7.3 0.194%

Costs $1,877 $1,889 $11.6 0.620%

Control NA $16 $16.0 NA

Production $1,877 $1,873 –$4.4 –0.232%

Operating Profit $1,877 $1,873 –$4.4 –0.232%

Chemicals

Revenue $6,811 $6,836 $25.4 0.373%

Costs $3,406 $3,446 $40.6 1.193%

Control NA $56 $55.8 NA

Production $3,406 $3,390 –$15.2 –0.446%

Operating Profit $3,406 $3,390 –$15.2 –0.446%

Total

Revenue $10,565 $10,598 $32.7 0.310%

Costs $5,283 $5,335 $52.3 0.989%

Control NA $72 $71.8 NA

Production $5,283 $5,263 –$19.5 –0.370%

Operating Profit $5,283 $5,263 –$19.5 –0.370%
D-6

Table D-9. Distribution of Social Costs ($) (continuous costs not included; demand

elasticity = –0.4)

Consumer Surplus –$52.3

Coatings –$11.6 73%

Chemicals –$40.7

Producer Surplus –$19.5

Coatings –$4.4 27%

Chemicals –$15.2

Total Social Cost –$71.9

Table D-10. Market Level Impacts (continuous costs not included; supply elasticity =

1.25)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.305%

Quantity (lb) 2,625 2,621 –4.0 –0.152%

Directly Affected: Domestic 2,625 2,621 –4.0 –0.152%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.587%

Quantity (lb) 9,593 9,565 –28.0 –0.292%

Directly Affected: Domestic 9,593 9,565 –28.0 –0.292%
D-7

Table D-11. Industry-Level Impacts (continuous costs not included; supply elasticity =

1.25)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,760 $5.7 0.152%

Costs $2,086 $2,096 $10.3 0.493%

Control NA $16 $16.0 NA

Production $2,086 $2,080 –$5.7 –0.274%

Operating Profit $1,669 $1,664 –$4.6 –0.274%

Chemicals

Revenue $6,811 $6,831 $20.0 0.293%

Costs $3,784 $3,820 $35.9 0.948%

Control NA $56 $55.8 NA

Production $3,784 $3,764 –$19.9 –0.526%

Operating Profit $3,027 $3,011 –$15.9 –0.526%

Total

Revenue $10,565 $10,591 $25.7 0.243%

Costs $5,870 $5,916 $46.2 0.786%

Control NA $72 $71.8 NA

Production $5,870 $5,844 –$25.6 –0.436%

Operating Profit $4,696 $4,675 –$20.5 –0.436%

Table D-12. Distribution of Social Costs ($) (continuous costs not included; supply

elasticity = 1.25)

Consumer Surplus –$51.4

Coatings –$11.4 72%

Chemicals –$39.9

Producer Surplus –$20.5

Coatings –$4.6 28%

Chemicals –$15.9

Total Social Cost –$71.8
D-8

Table D-14. Industry-Level Impacts (continuous costs not included; supply elasticity =

0.75)

Baseline With Reg Absolute Relative

Coatings

Revenue $3,754 $3,759 $4.8 0.128%

Costs $1,609 $1,620 $11.2 0.696%

Control NA $16 $16.0 NA

Production $1,609 $1,604 –$4.8 –0.298%

Operating Profit $2,145 $2,139 –$6.4 –0.298%

Chemicals

Revenue $6,811 $6,828 $16.8 0.246%

Costs $2,919 $2,958 $39.1 1.339%

Control NA $56 $55.8 NA

Production $2,919 $2,902 –$16.7 –0.573%

Operating Profit $3,892 $3,870 –$22.3 –0.573%

Total

Revenue $10,565 $10,587 $21.6 0.204%

Costs $4,528 $4,578 $50.3 1.110%

Control NA $72 $71.8 NA

Production $4,528 $4,507 –$21.5 –0.475%

Operating Profit $6,037 $6,009 –$28.7 –0.475%

Table D-13. Market Level Impacts (continuous costs not included; supply elasticity =

0.75)

Change

Baseline With Reg Absolute Relative

Coatings

Price ($/lb) $1.43 $1.43 $0.004 0.256%

Quantity (lb) 2,625 2,622 –3.4 –0.128%

Directly Affected: Domestic 2,625 2,622 –3.4 –0.128%

Chemicals

Price ($/lb) $0.71 $0.71 $0.004 0.494%

Quantity (lb) 9,593 9,569 –23.6 –0.246%

Directly Affected: Domestic 9,593 9,569 –23.6 –0.246%
D-9

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 –$71.9
Appendix E

Small Business Screening Sensitivity Analyses
E-1

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.1 Impact of the Regulation of the Manufacture of Miscellaneous Organic

Chemicals using Batch Production Processes

Table E-1 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-1(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-1). 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-2

Table E-1. Summary Statistics for SBREFA Screening Analysis: Impact of the Regulation of the BatchProduction of Miscellaneous Organic Chemicals other than Coatings

Small Large All Companies

Total number of companies 27 85 112Annual compliance costs ($106/yr) $4.7 $51.3 $56

Number Share Number Share Number Share

Companies with sales data 24 85 109

Compliance costs are <1% of sales 20 83% 85 100% 105 96%Compliance costs are 1 to 3% of sales 3 13% 0 0% 3 3%

Compliance costs are 3% of sales 1 4% 0 0% 1 1%

Compliance cost-to-sales ratios

Average 0.74% 0.04% 0.19%Median 0.22% 0.01% 0.02%Maximum 6.23% 0.51% 6.23%Minimum 0.00% 0.00% 0.00%

Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
E-3

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

Figure E-1. Distribution of Cost-to-Sales Ratios
E-4

Table E-2. Profit Margins With and Without Regulation of Batch Production of

Miscellaneous Organic Chemicals

Small

Companies

Large

Companies

All

Companies

Profit margins without regulation

Average 5.07% 5.34% 5.28%

Median 4.50% 4.55% 4.50%

Maximum 18.53% 18.27% 18.53%

Minimum 2.70% –13.92% –13.92%

Number of firms with profit margin less

than zero

044

Profit margins with regulation

Average 4.33% 5.30% 5.09%

Median 4.00% 4.55% 4.48%

Maximum 18.52% 18.21% 18.52%

Minimum –1.13% –13.95% –13.95%

Number of firms with profit margin less

than zero

145

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.

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-5

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

<0 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

0%

20%

40%

60%

80%

100%

<0% 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

Figure E-2. Distribution of Profit Margins With Regulation
E-6

Table E-3. Summary Statistics for SBREFA Screening Analysis: Combined Impact of the Regulation of theManufacture of Coatings and Other Miscellaneous Organic Chemicals

Small Large All Companies

Total number of companies 72 109 181Annual compliance costs ($106/yr) $12.6 $82.3 $94.9

Number Share Number Share Number Share

Companies with sales data 65 109 174

Compliance costs are <1% of sales 46 71% 108 99% 154 89%Compliance costs are 1 to 3% of sales 12 18% 1 1% 13 7%

Compliance costs are 3% of sales 7 11% 0 0% 7 4%

Compliance cost-to-sales ratios

Average 1.19% 0.07% 0.49%Median 0.51% 0.02% 0.06%Maximum 9.32% 1.45% 9.32%Minimum 0.00% 0.00% 0.00%

Note: Assumes no market responses (i.e., price and output adjustments) by regulated entities.
E-7

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-8

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

0%

20%

40%

60%

80%

100%

0% 0 - .05% 0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

15 -

20%

>20%

CSR Range

Frequency

Figure E-3. Distribution of Cost-to-Sales Ratios
E-9

Table E-4. Profit Margins With and Without Combined Regulation of Coatings

Manufacturers and Manufacturers of Other Miscellaneous Organic Chemicals

Small

Companies

Large

Companies

All

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

than zero

145

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

than zero

6 4 10
E-10

(a) Small Companies

(b) Large Companies

0%

20%

40%

60%

80%

100%

<0 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

0%

20%

40%

60%

80%

100%

<0% 0% 0 -

.05%

0.05 -

1%

1 - 3% 3 - 5% 5 - 7% 7 - 10% 10 -

15%

>15%

Profit Margin Range

Frequency

Figure E-4. Distribution of Profit Margins With Regulation
Appendix F

Industry Profile of Affected SIC Codes
F-1

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.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

(see Table F-1).
F-2

Table F-1. Value (1998 $106) and Quantity of Shipments (106 gallons)

Year SIC 2851 SIC 28511 SIC 28512 SIC 28513

Value of Shipments

1987 15,279.7 5,106.8 4,549.9 2,557.2

1988 15,388.7 5,034.3 4,667.8 2,560.7

1989 14,966.5 4,959.4 4,624.9 2,732.7

1990 15,508.8 5,351.9 4,392.3 3,029.6

1991 15,367.5 5,283.1 4,318.0 3,138.0

1992 16,282.1 5,615.6 4,657.4 3,047.0

1993 17,382.6 6,089.1 5,192.2 3,185.5

1994 18,415.5 6,230.7 5,364.7 3,383.2

1995 18,338.2 6,174.6 5,379.7 3,171.4

1996 18,630.5 NA NA NA

1997 19,221.7 NA NA NA

Quantity of Shipments

1987 1,183.6 527.0 340.2 145.5

1988 1,229.0 535.9 365.7 154.4

1989 1,239.7 537.5 359.9 179.0

1990 1,281.9 558.4 338.6 195.6

1991 1,226.8 537.9 320.4 179.5

1992 1,270.5 562.3 334.0 169.5

1993 1,336.5 608.1 356.6 179.0

1994 1,431.1 644.8 372.9 193.8

1995 1,408.3 621.1 376.2 195.1

1996 NA NA NA NA

1997 NA NA 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. 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. 
F-3

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.1.1 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-4

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 μm. 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 solventor 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-5

F.1.1.2 Major 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-6

– 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-7

– 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.

– Refinish paints: Coatings formulated specifically to meet certain product and

application requirements and sold to the refinishing 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.1.1.5 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 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-8

Table F-2. Inputs Used in Paints and Allied Products Industry

Year

Labor

Materials

(1998 $106)

New Capital

Investment

(1998 $106

)

Energy

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

1987 55.2 1,794.2 7,830.8 330.9 122.1

1988 56.9 1,779.5 8,061.3 287.3 133.4

1989 55.0 1,761.7 7,991.1 263.9 120.6

1990 53.9 1,772.8 8,077.8 295.5 117.6

1991 51.1 1,690.6 8,014.9 275.6 117.3

1992 51.2 1,860.9 8,488.3 315.6 117.4

1993 50.2 1,839.2 8,985.9 277.9 124.7

1994 50.0 2,020.5 9,579.4 295.9 104.7

1995 52.4 2,024.7 9,796.7 426.4 109.4

1996 51.1 1,979.4 10,050.6 411.9 110.6

1997 52.7 2,083.7 9,947.9 NA 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-9

F.1.2 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.1.2.2 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, 1995f). 

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 refinishing.

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-10

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.1.4 presents historical data on paint production, consumption, and net exports.

F.1.2.3 Substitution 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.1.3 Organization of the Industry

F.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 (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-11

The four- and eight-firm concentration ratios (CR4 and CR8) and HerfindahlHirschmann 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). 

Table F-4. Size of Establishments and Value of Shipments for SIC 2851

1992 1997

Establishments With an

Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilitiesa

Value of

Shipmentsa

(1998 $106)

1 to 4 employees 329 170.7 412 220.9

5 to 9 employees 247 368.1 245 438.9

10 to 19 employees 264 882.8 250 920.8

20 to 49 employees 306 2,378.8 296 2,495.3

50 to 99 employees 146 3,389.8 153 3,948.2

100 to 249 employees 100 5,537.4 105 6,723.8

250 to 499 employees 23 3,554.4 20 D

500 to 999 employees 1 D 3 935.0

1,000 to 2,499 employees 2 D 2 D

Total 1,418 16,282.1 1,486 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. 
F-12

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.

F.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

(see Table F-6).

F.1.4 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

Table F-5. Measures of Market Concentration by SIC: 1992

SIC Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2851 Paints and Allied

Products

29 43 305 1,130 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-13

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.

Table F-6. Industry Statistics for the Top Ten States for SIC 2851, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

Ohio 2,014.7 79 36 6,000

California 1,912.3 189 127 5,400

Illinois 1,821.9 125 60 5,500

Michigan 1,012.9 76 49 3,200

Texas 997.6 84 55 2,500

Pennsylvania 952.4 65 34 3,000

New Jersey 827.9 91 52 2,800

Georgia 693.0 45 25 1,500

Kentucky 639.5 26 10 1,200

Maryland 504.2 20 10 1,200

USA 16,282.1 1,418 840 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. 
F-14

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

Table F-7. Production and Consumption Trends for SIC 2851, 1987 to 1994 (1998 $106)

Year Domestic Production Domestic Consumption

Net 

Exports

1987 14,180.4 14,037.0 143.4

1988 14,260.2 14,031.3 228.9

1989 14,415.9 14,046.4 369.5

1990 14,894.3 14,394.3 500.0

1991 14,325.0 13,724.9 600.1

1992 14,792.2 14,172.4 619.8

1993 15,680.4 15,053.3 627.0

1994 16,183.0 15,539.6 643.4

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. 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-15

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

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

32511 Petrochemical manufacturing (pt)

325132 Synthetic organic dye and pigment

manufacturing

325192 Cyclic crude and intermediate

manfacturing

2869 Industrial organic chemicals, not

elsewhere classified

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.

<http://www.census.gov/epcd/www/naicstab.htm>. As obtained March 6, 2000.
F-16

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

Table F-9. Value of Shipments (1998 $106)

Year

SIC 2865

Cyclic Crudes and Intermediates

SIC 2869

Industrial Organic Chemicals, N.E.C.

1987 10,657.1 50,749.4

1988 11,715.6 55,842.0

1989 11,849.3 59,742.5

1990 11,864.2 58,991.0

1991 11,483.1 57,210.9

1992 10,409.3 58,995.0

1993 11,032.7 57,788.9

1994 12,082.0 61,429.2

1995 12,692.9 64,699.1

1996 12,371.6 56,273.4

1997 12,264.0 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. 
F-17

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

1-phenyl-3-carbethoxy-5-pyrazolone.

 Yellow 139 (Isoindoline): reaction of 1-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-18

F.2.1.2 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.

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-19

 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-11 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-20

Table F-10. Inputs: Industrial Organic Chemicals

Year

Labor

Materials

(1998 $106)

New Capital

Investment

(1998 $106

)

Energya

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

SIC 2865 Cyclic Crudes and Intermediates

1987 22.8 946.2 6,619.1 455.7 506.5

1988 23.9 998.3 6,961.7 487.1 556.1

1989 22.8 957.4 7,694.3 641.0 563.5

1990 23.0 992.2 7,654.5 1,040.1 516.6

1991 23.5 1,037.1 7,326.8 769.6 512.4

1992 22.2 1,016.3 6,862.9 587.9 460.1

1993 23.3 1,114.8 7,000.4 726.1 522.6

1994 22.7 1,077.6 7,376.4 623.2 492.6

1995 22.6 1,046.1 7,315.0 863.2 415.5

1996 22.8 1,108.9 7,517.0 1,054.0 566.2

1997 19.3 1,298.9 7,110.9 NA 514.7

SIC 2869 Industrial Organic Chemicals, N.E.C.

1987 100.3 4,447.4 29,141.0 2,388.9 2,683.0

1988 97.1 4,227.3 30,821.4 3,131.5 2,649.2

1989 97.9 4,323.3 32,257.0 3,818.4 2,697.6

1990 100.3 4,592.4 32,775.1 4,527.0 2,776.5

1991 101.0 4,746.6 33,064.9 4,891.8 2,542.9

1992 100.1 4,898.4 34,644.6 4,585.1 2,773.4

1993 97.8 4,882.6 33,124.4 3,643.8 3,120.8

1994 89.8 4,783.8 35,142.0 3,089.5 3,023.2

1995 92.1 4,906.9 36,137.7 4,153.5 2,755.5

1996 100.3 5,704.2 39,990.5 5,316.0 3,417.1

1997b 100.1 5,508.2 40,784.2 NA 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. 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 Manufacturers,
F-21

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

Table F-11. Capacity Utilization Ratios for SICs 2865 and 2869

1991 1992 1993 1994 1995 1996 1997

SIC 2865 85 89 86 88 84 85 82

SIC 2869 86 81 91 89 84 84 78

Sources: U.S. Department of Commerce, Bureau of the Census. 1999i. 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-22

Paints

29%

Plastics

23%

Printing Ink

41% Special 

Applications

7%

Figure F-1. Worldwide Pigment Consumption by Industry

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-1).

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-23

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 eightfirm concentration ratios (CR4 and CR8) and Herfindahl-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-24

Table F-12. Size of Establishments and Value of Shipments

1992 1997

Establishments With

an Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

SIC 2865 Cyclic Crudes and Intermediates

1 to 4 employees 26 21.1

5 to 9 employees 15 37.9

10 to 19 employees 22 87.9

20 to 49 employees 40 468.6

50 to 99 employees 34 790.1

100 to 249 employees 43 3,370.2

250 to 499 employees 18 2,901.0

500 to 999 employees 7 2,732.5

1,000 to 2,500 employees 1 D

Total 206 10,409.3 184 12,264.0

SIC 2869 Industrial Organic Chemicals, N.E.C.

1 to 4 employees 100 111.6

5 to 9 employees 80 226.9

10 to 19 employees 97 580.6

20 to 49 employees 125 1,850.2

50 to 99 employees 106 3,763.3

100 to 249 employees 111 9,629.7

250 to 499 employees 41 10,842.4

500 to 999 employees 30 14,956.9

1,000 to 2,499 employees 10 9,841.9

2,500 or more employees 5 7,191.4

Total 705 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-25

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 lessconcentrated 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.

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).

Table F-13. Measures of Market Concentration by SIC: 1992

Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC

2865

Cyclic Crudes and

Intermediates

31 45 428 150 206

SIC

2869

Industrial Organic

Chemicals, N.E.C.

29 43 336 489 705

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. 
F-26

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).

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.

Table F-14. Industry Statistics for the Top Five States, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

SIC 2865 Cyclic Crudes and Intermediates

South Carolina 864.4 10 1 1,500

New Jersey 847.9 39 14 2,400

New York 670.6 11 1 1,900

Pennsylvania 632.0 17 7 1,700

Illinois 493.1 11 2 1,300

USA 10,409.3 206 63 22,200

SIC 2869 Industrial Organic Compounds, N.E.C.

Texas 26,615.6 97 21 30,700

Louisiana 8,350.1 31 4 11,100

New Jersey 3,062.3 69 23 8,300

Illinois 2,667.7 37 11 3,300

West Virginia 1,835.9 13 0 4,600

USA 58,995.0 705 277 100,100

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. 
F-27

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-28

Table F-15. Trends in Domestic Production, Consumption, and Net Exports: SICs 2865

and 2869 (1998 $106)

Year Domestic Production Domestic Consumption

Net 

Exports

SICs 2865 and 2869 Combined

1987 64,367.7 59,704.3 4,663.4

1988 71,576.4 69,854.6 1,721.8

1989 76,390.9 75,342.0 1,048.9

1990 75,119.1 71,161.9 3,957.3

1991 70,164.7 64,632.6 5,532.1

1992 64,645.9 61,506.6 3,139.3

1993 63,548.5 60,161.7 3,386.8

1994 67,489.2 63,571.0 3,918.2

1995 68,936.4 63,789.9 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. 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. 
1

Values adjusted using the plant cost index published in Chemical Engineering, various years.

F-29

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 
F-30

Table F-16. Value of Shipments (1998 $106)

Year

SIC 2841

Soap and Other

Detergents

SIC 2842

Polishes and

Sanitation Goods

SIC 2843

Surface Active

Agents Totals

1987 13,903.8 6,728.9 3,611.4 24,244.0

1988 13,995.1 6,661.6 3,864.8 24,521.5

1989 14,554.9 6,561.9 3,243.2 24,359.8

1990 16,744.7 6,369.6 3,450.9 26,565.1

1991 16,492.4 6,653.2 4,087.5 27,233.1

1992 16,050.7 7,259.6 3,114.3 26,424.6

1993 16,798.3 8,783.2 3,974.7 29,556.0

1994 15,452.2 9,206.1 5,170.8 29,829.1

1995 16,487.5 8,590.2 3,802.7 28,880.4

1996 16,100.9 8,777.4 4,838.2 29,716.6

1997 16,906.3 8,434.4 7,046.6 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. 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. 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-31

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-32

Powdered Detergents. 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.3.1.2 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.

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-33

 household, institutional, and industrial cleaning products and polishes: allpurpose 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-34

Table F-17. Inputs: Soaps and Cleaners

Year

Labor

Materials

(1998 $106

)

New Capital

Investment

(1998 $106

)

Energy

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

SIC 2841 Soap and Other Detergents

987 31.7 1,149.6 6,824.5 407.5 126.6

1988 33.3 1,150.7 6,818.7 418.9 137.0

1989 34.8 1,198.0 7,441.5 434.1 130.7

1990 36.3 1,304.6 8,178.8 518.2 127.4

1991 36.6 1,315.9 7,717.5 680.0 126.8

1992 32.9 1,278.7 7,568.3 621.3 130.2

1993 31.4 1,246.2 7,799.4 557.2 132.9

1994 31.3 1,237.8 7,497.6 523.0 117.0

1995 32.1 1,258.7 7,069.8 371.6 102.0

1996 30.3 1,196.5 6,845.6 435.6 100.5

1997 29.0 1,191.9 7,051.3 NA 101.8

SIC 2842 Polishes and Sanitation Goods

1987 20.6 601.9 2,338.2 141.6 37.6

1988 20.5 571.0 2,399.3 81.5 37.1

1989 21.2 609.0 2,520.1 154.7 36.7

1990 19.6 579.7 2,361.2 103.4 34.6

1991 19.6 618.1 2,462.1 147.7 36.1

1992 22.0 720.3 2,678.7 132.1 37.7

1993 22.9 689.2 3,222.0 141.4 42.5

1994 21.4 691.9 3,108.1 131.1 40.2

1995 23.0 717.7 3,273.9 158.1 43.5

1996 24.2 752.2 3,218.5 176.3 45.1

1997 22.0 730.2 3,215.0 NA 42.1

SIC 2843 Surface Active Agents

1987 9.1 348.6 2,025.4 124.4 105.3

1988 9.0 337.2 2,326.1 218.0 103.8

1989 9.0 341.7 1,941.7 141.6 75.8

1990 9.1 361.8 2,119.3 179.7 78.1

1991 9.3 366.0 2,182.9 169.6 77.9

1992 8.2 348.3 1,837.1 100.5 72.1

1993 8.6 388.9 2,267.2 220.6 104.2

1994 8.1 368.6 2,247.3 237.6 103.9

1995 8.0 351.0 2,476.1 125.2 96.2

1996 8.8 408.5 2,584.2 164.4 129.6

1997 9.5 466.3 3,051.4 NA 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-35

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.

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

Table F-18. Capacity Utilization Ratios for Sics 2841, 2842, and 2843

1992 1993 1994 1995 1996 1997

SIC 2841 74 70 72 57 58 66

SIC 2842 68 75 76 57 69 60

SIC 2843 85 71 82 68 72 67

Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994.

Washington, DC: Government Printing Office. 
F-36

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-37

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 eightfirm 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-38

Table F-19. Size of Establishments and Value of Shipments

1992 1997

Establishments With an Average of

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

SIC 2841 Soaps and Other Detergents

1 to 4 employees 234 108.0 274a 126.2a

5 to 9 employees 140 230.1 151a 247.2a

10 to 19 employees 108 325.6 124a 394.1a

20 to 49 employees 108 924.8 107a 827.4a

50 to 99 employees 53 1,178.4 46a 1,186.8a

100 to 249 employees 37 2,058.6 34a 3,232.1a

250 to 499 employees 20 5,873.2 18a 6,785.3a

500 to 999 employees 9 5,352.2 4a D

1000 employees or more 1 D 2a D

Total 710 16,050.8 760a 16,906.2a

SIC 2842 Polishes and Sanitation Goods

1 to 4 employees 289 141.0 294 106.8

5 to 9 employees 125 166.8 127 145.5

10 to 19 employees 110 264.5 95 332.9

20 to 49 employees 121 965.8 100 740.2

50 to 99 employees 50 1,112.6 62 1,465.8

100 to 249 employees 41 1,723.3 35 2,497.0

250 to 499 employees 11 2,885.7 12 1,068.3

500 to 900 employees 1 D 2 D

1,000 to 2,500 employees 1 D 1 D

Total 749 7,259.7 728 8,434.4

SIC 2843 Surface Active Agents

1 to 4 employees 50 34.1 47 177.4

5 to 9 employees 33 76.1 26 92.6

10 to 19 employees 32 159.6 35 198.6

20 to 49 employees 44 492.9 52 709.1

50 to 99 employees 24 695.2 28 1,007.5

100 to 249 employees 16 815.3 18 1,248.2

250 to 499 employees 6 841.1 3 D

500 to 999 employees 0 0 2 D

Total 205 3,114.4 7,068.5

a

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-39

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.

Table F-20. Measures of Market Concentration by SIC: 1992

Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2841 Soaps and

Detergents

63 77 1,584 635 710

SIC 2842 Polished and

Sanitation Goods

52 59 817 694 749

SIC 2843 Surface Active

Agents

37 53 471 176 205

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. 
F-40

Table F-21. Industry Statistics for the Top Five States, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees)

Number of

Employees

SIC 2841 Soaps and Other Detergents

Ohio 3,070.5 43 22 4,000

Michigan 1,802.1 42 34 5,000

California 1,505.9 99 62 3,000

Georgia 1,118.3 29 13 2,200

Missouri 1,111.3 26 19 1,800

USA 16,050.7 710 482 32,900

SIC 2842 Polishes and Sanitation Goods

Illinois 814.1 53 31 2,200

New Jersey 629.7 35 23 1,300

Ohio 576.0 34 17 1,900

Georgia 526.7 28 18 1,300

Missouri 484.0 24 12 1,100

USA 7,259.6 749 524 22,000

SIC 2843 Surface Active Agents

Illinois 684.6 16 5 1,500

South Carolina 299.5 20 8 800

Texas 287.1 12 6 600

North Carolina 266.4 25 16 900

New Jersey 265.8 23 13 800

USA 3,114.3 205 115 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-41

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-42

Table F-22. Production and Consumption Trends, 1987 to 1995 (1998 $106)

Year Domestic Production Domestic Consumption Net Exports

SIC 2841 Soaps and Detergents

1987 14,682.6 14,758.0 75.3

1988 14,827.6 14,887.6 60.0

1989 15,530.6 15,386.7 143.8

1990 17,752.4 17,528.3 224.1

1991 16,845.5 16,480.0 365.5

1992 16,050.7 15,648.4 402.3

1993 16,603.4 16,182.2 421.2

1994 15,105.1 14,711.1 394.0

1995 16,279.2 15,868.4 410.7

SIC 2842 Polishes and Sanitation Goods

1987 7,105.9 7,038.6 67.3

1988 7,057.9 6,964.9 92.9

1989 7,001.7 6,947.3 54.3

1990 6,752.9 6,665.8 87.1

1991 6,795.6 6,689.3 106.3

1992 7,259.6 7,153.0 106.6

1993 8,681.3 8,563.5 117.8

1994 8,999.4 8,877.6 121.7

1995 8,481.6 8,337.3 144.3

SIC 2843 Surface Active Agents

1987 3,813.7 3,433.8 379.8

1988 4,094.7 3,866.5 228.2

1989 3,460.6 3,157.7 302.9

1990 3,658.5 3,276.4 382.2

1991 4,175.0 3,817.2 357.8

1992 3,114.3 2,690.2 424.1

1993 3,928.6 3,546.0 382.6

1994 5,054.6 4,567.4 487.2

1995 3,754.6 3,256.1 498.5

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-43

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-44

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.

Table F-23. Value of Shipments (1998 $106)

Year

SIC 2873 Nitrogenous

Fertilizers

SIC 2874 

Phosphatic Fertilizers

SIC 2875 Fertilizers, 

Mixing Only

1987 2,943.7 4,594.2 2,046.3

1988 3,129.6 5,071.5 2,120.0

1989 3,108.5 4,541.7 2,007.3

1990 3,377.8 5,029.9 2,198.9

1991 3,609.2 5,554.9 2,106.8

1992 3,645.3 4,975.3 2,380.1

1993 4,016.7 4,230.1 2,461.4

1994 4,853.7 5,254.3 2,561.5

1995 4,859.9 5,857.2 2,699.4

1996 4,465.1 5,800.6 2,442.0

1997 3,793.3 5,793.9 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. 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 Manufacturers,

Industry Series. Washington DC, Government Printing Office. 
F-45

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.

Table F-24. The Correspondence Between SIC Codes 2873, 2874, and 2875 and the

NAICS

SIC

Code Description

NAICS

Code(s) Description

2873 Nitogenous fertilizers 325311 Nitrogenous fertilizer manufacturing

2874 Phosphatic fertilizers 325312 Phosphatic fertilizer manufacturing

2875 Fertilizers, mixing-only 325314 Fertilizer (mixing-only) manufacturing

Source: U.S. Department of Commerce, Bureau of the Census. 1997 NAICS and SIC Correspondence Tables.

<http://www.census.gov/epcd/www/naicstab.htm>. As obtained March 6, 2000. 
F-46

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.4.1.2 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).

F.4.1.3 Types of Output

The main nitrogenous fertilizers in the United States are

 anhydrous ammonia,

 synthetic urea,

 aqua ammonia,
F-47

 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-48

Table F-25. Inputs: Agricultural Chemicals

Year

Labor New Capital

Quantity

(103

)

Payroll

(1998 $106)

Materials

(1998 $106)

 Investment

(1998 $106)

Energy

(1998 $106)

SIC 2873 Nitrogenous Fertilizers

1987 4.5 268.0 1,808.6 44.3 503.6

1988 4.4 252.5 1,849.6 54.8 509.9

1989 4.4 253.8 1,889.8 134.5 522.3

1990 4.8 276.2 2,075.3 108.3 510.4

1991 4.7 280.5 2,136.8 237.4 478.9

1992 4.7 280.1 2,035.3 227.0 414.9

1993 7.0 293.2 2,297.5 201.6 467.3

1994 8.0 326.0 2,382.1 184.7 499.2

1995 7.3 306.9 2,042.4 179.6 432.9

1996 7.5 320.0 2,152.9 310.9 649.4

1997 5.5 271.4 2,066.8 NA 483.4

SIC 2874 Phosphatic Fertilizers

1987 9.4 342.2 3,139.0 76.5 155.3

1988 10.4 369.3 5,088.1 152.1 172.6

1989 10.8 381.9 4,589.1 144.8 146.7

1990 10.5 396.5 3,771.2 149.8 153.3

1991 10.3 397.1 3,901.8 212.5 142.7

1992 9.5 372.0 3,345.2 334.6 129.5

1993 9.4 361.0 2,850.1 162.5 146.9

1994 8.5 358.7 3,181.6 168.6 125.2

1995 8.6 367.9 3,566.4 199.2 115.1

1996 7.8 343.2 3,675.8 203.6 130.8

1997 8.9 380.2 3,667.6 NA 159.8

SIC 2875 Fertilizers, Mixing Only

1987 7.5 174.6 1,492.1 31.7 20.2

1988 7.5 166.0 1,563.9 18.4 26.1

1989 6.4 151.2 1,504.9 29.1 17.6

1990 7.1 178.2 1,596.0 33.9 23.0

1991 6.7 169.6 1,556.5 28.4 21.3

1992 6.9 197.8 1,699.3 47.5 30.4

1993 6.7 193.9 1,705.0 36.7 31.6

1994 7.8 214.5 1,684.9 40.3 27.4

1995 8.4 269.4 1,618.3 92.4 31.9

1996 7.7 278.4 1,556.4 58.4 43.8

1997 8.7 235.9 2,334.2 NA 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-49

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.

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

Table F-26. Capacity Utilization Ratios for SICs 2873, 2874, and 2875

1991 1992 1993 1994 1995 1996 1997

SIC 2873 91 92 90 93 97 96 92

SIC 2874 89 94 84 87 99 98 94

SIC 2875 54 56 77 77 70 71 50

Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994. 

Washington, DC: Government Printing Office.
F-50

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 Herfindahl-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-51

Table F-27. Size of Establishments and Value of Shipments

1992 1997

Establishments With

an Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

SIC 2873 Nitrogenous Fertilizers

1 to 4 employees 41 32.3 50 41.9

5 to 9 employees 19 34.5 21 50.0

10 to 19 employees 15 39.7 17 47.6

20 to 49 employees 32 447.5 24 498.5

50 to 99 employees 22 634.8 10 494.5

100 to 249 employees 21 2,263.2 19 D

250 to 499 employees 1 D 1 D

500 to 999 employees 1 D 1 D

Total 227 3,451.9 143 3,793.3

SIC 2874 Phosphatic Fertilizers

1 to 4 employees 11 5.7 14 15.0

5 to 9 employees 16 37.5 8 48.8

10 to 19 employees 7 27.2 1 D

20 to 49 employees 15 719.3 9 171.3

50 to 99 employees 5 D 6 220.2

100 to 249 employees 10 648.3 12 1,233.3

250 to 499 employees 6 1,341.7 7 2,232.7

500 to 999 employees 3 1,931.7 3 D

1,000 to 2,500 employees 2 D 1 D

Total 75 4,332.8 61 5,793.9

SIC 2875 Fertilizers, Mixing Only

1 to 4 employees 109 68.6 135 167.4

5 to 9 employees 96 216.0 94 285.9

10 to 19 employees 97 501.4 96 427.2

20 to 49 employees 69 677.7 87 1,018.7

50 to 99 employees 21 426.8 26 700.8

100 to 249 employees 9 489.6 4 271.4

250 to 499 employees 0 0.0 2 D

500 to 999 employees 0 0.0 1 D

Total 401 2,380.1 445 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-52

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.

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

Table F-28. Measures of Market Concentration by SIC: 1992

Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2873 Nitrogenous

Fertilizers

48 67 792 103 152

SIC 2874 Phosphatic

Fertilizers

62 83 1,528 54 75

SIC 2875 Mixing Only

Fertilizers

19 31 187 313 401

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
F-53

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-54

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 

Table F-29. Industry Statistics for the Top Five States, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

SIC 2873 Nitrogenous Fertilizers

Louisiana 784.9 8 1 900

Iowa 143.8 5 1 300

Nebraska 105.4 3 0 200

Illinois 90.8 7 4 200

Florida 71.0 5 2 200

USA 3,452.0 152 77 7,000

SIC 2874 Phosphatic Fertilizers

Florida 2,748.8 15 2 5,900

North Carolina (D) 9 7 500-999

Idaho (D) 3 1 500-999

Louisiana (D) 4 0 500-999

Georgia 67.6 5 2 200

USA 4,711.4 75 34 9,500

SIC 2875 Fertilizers, Mixing Only

Florida 418.5 42 25 1,000

Ohio 254.2 31 17 900

Texas 234.8 26 21 500

Washington 138.2 16 12 300

California 107.7 25 19 500

USA 2,380.1 401 302 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.
F-55

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.

Table F-30. Production and Consumption of Fertilizers, 1989-1995 (1998 $106)

Year Domestic Production Domestic Consumption

Net

Exports

SIC 2873 and SIC 2874 Combined

1989 8,248.2 6,116.4 2,131.9

1990 8,948.8 5,799.9 3,148.9

1991 9,053.4 6,762.0 2,291.4

1992 8,163.4 6,601.9 1,561.5

1993 7,629.4 6,897.3 732.1

1994 9,146.6 7,680.8 1,465.7

1995 9,893.7 8,062.1 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. 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. 

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.
2

Values adjusted using the plant cost index published in Chemical Engineering, various years.

F-56

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.
F-57

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).

Table F-31. Value of Shipments, Photographic Equipment, 1987 to 1997 (1998 $106)

Year SIC 3861 SIC 38615 SIC 39617 SIC 38618 

1987 23,144.5 5,467.5 1,501.0 1,473.4

1988 23,365.3 5,607.0 1,487.7 1,589.3

1989 24,919.4 5,587.0 1,513.4 1,485.0

1990 22,893.0 5,612.5 1,543.9 1,624.7

1991 23,067.7 5,701.4 1,381.4 1,762.8

1992 24,085.3 6,090.2 1,451.7 2,014.4

1993 24,198.7 5,750.2 1,633.8 2,440.5

1994 24,613.8 5,849.3 1,503.4 2,672.6

1995 22,059.5 5,781.4 1,495.5 2,808.7

1996 22,752.2 NA NA NA

1997 21,403.5 NA 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. 1995i. 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. 
F-58

Western 

Europe (exc. 

Germany)

11%

Eastern 

Europe

10%

United States

41% Germany

7%

Africa and 

Asia

3%

Japan

28%

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-59

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.5.1.2 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. 

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-60

Table F-32. Inputs: Photographic Equipment and Supplies

Year

Labor

Materials

(1998 $106)

New Capital

Investment

(1998 $106

)

Energy

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

1987 88.0 3,462.3 7,498.3 819.2 203.6

1988 87.5 3,370.0 7,548.9 920.8 199.0

1989 87.0 3,435.0 7,600.8 1,104.9 204.7

1990 79.3 3,199.4 7,013.6 1,098.6 208.3

1991 78.0 3,281.6 7,208.2 1,174.2 204.6

1992 77.5 3,337.5 7,675.5 878.7 215.2

1993 75.7 3,124.0 7,320.1 840.9 210.1

1994 63.9 2,837.1 7,385.6 796.7 211.8

1995 61.1 2,780.3 7,298.0 762.6 189.3

1996 60.7 2,855.2 8,280.0 738.9 199.9

1997 63.7 2,960.8 8,934.4 NA 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. 1995i. 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-61

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

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. 

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. 1999i. Survey of Plant Capacity: 1997.

Washington, DC: Government Printing Office. 
F-62

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-63

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).

Table F-34. Size of Establishments and Value of Shipments, SIC 3861

1992 1997

Establishments With

an Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

1 to 4 employees 324 92.6 295 77.7

5 to 9 employees 178 162.0 100 86.5

10 to 19 employees 138 294.8 105 209.1

20 to 49 employees 122 579.7 112 594.0

50 to 99 employees 54 778.2 61 857.5

100 to 249 employees 56 1,563.8 32 1,119.5

250 to 499 employees 16 1,719.6 19 D

500 to 999 employees 7 18,894.6 8 D

1,000 to 2,499 employees 5 D 3 D

2,500 or more employees 4 D 3 D

Total 904 24,085.3 738 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. 
F-64

To assess the competitiveness of a market, economists often estimate four- and eightfirm concentration ratios (CR4 and CR8) and Herfindahl-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.

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.

Table F-35. Measures of Market Concentration for SIC 3861: 1992

Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 3861 Photographic

Equipment

78 83 2,408 831 904

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-65

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.

Table F-36. Industry Statistics for the Top Five States for SIC 3861, 1992

State

Value of

Shipments

(1998 $106)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

New York (D) 112 72 25,000

to 49,999

Massachusetts 2,021.0 50 21 7,800

California 807.9 142 103 6,800

New Jersey 801.1 67 48 2,900

Illinois 505.5 76 51 3,000

Pennsylvania 413.5 40 27 1,400

USA 24,085.3 904 640 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. 
F-66

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.

Table F-37. Production and Consumption of Photographic Materialsa (1998 $106)

Year Domestic Production Domestic Consumption

Net

Exports

1987 24,441.1 27,030.8 –2,589.7

1988 24,755.3 27,686.7 –2,931.5

1989 26,589.8 29,527.3 –2,937.5

1990 24,270.5 26,547.5 –2,277.1

1991 23,561.7 25,784.3 –2,223.2

1992 24,085.3 26,954.9 –2,869.6

1993 23,579.3 26,714.3 –3,135.0

1994 23,377.0 26,780.0 –3,403.0

Note: Consumption = Domestic Production - Exports + Imports

a

Numbers 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. 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-67

Asia

25%

Canada

17%

Latin 

America

15%

Other

3% Europe 

40%

Figure F-3. U.S. SIC 3861 Export Markets, 1994

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).
3

Values adjusted using the plant cost index published in Chemical Engineering, various years.

F-68

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

SIC 2891

Adhesives and Sealants

SIC 2893

Printing Ink

SIC 2899

Chemical Preparations

1987 5,627.3 2,877.0 9,653.3

1988 5,526.7 2,783.0 9,924.1

1989 5,792.8 2,890.2 9,686.3

1990 5,974.4 3,000.1 10,258.2

1991 5,997.2 3,046.2 9,892.1

1992 6,153.5 3,343.8 10,836.6

1993 6,370.1 3,486.4 11,861.9

1994 6,045.6 3,608.9 11,965.2

1995 5,930.7 3,803.0 13,435.5

1996 6,597.6 4,104.8 12,114.8

1997 7,387.9 4,172.4 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. 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. 
F-69

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-70

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.6.1.2 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.

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-71

Table F-39. Inputs: Adhesives, Sealants, and Printing Ink

Year

Labor

Materials

(1998 $106)

New Capital

Investment

(1998 $106)

Energy

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

SIC 2891 Adhesives and Sealants

1987 20.9 664.9 3,241.6 134.4 69.2

1988 21.2 658.5 3,270.2 134.6 67.7

1989 21.9 671.5 3,429.0 149.3 67.4

1990 21.4 689.8 3,450.5 138.5 68.8

1991 20.9 695.9 3,429.6 150.2 69.4

1992 21.1 737.0 3,280.5 206.2 75.9

1993 20.9 744.9 3,389.5 202.7 76.5

1994 19.2 727.3 3,538.3 216.1 72.9

1995 18.8 658.9 3,582.3 201.3 66.0

1996 17.3 670.6 3,909.8 192.0 71.6

1997 21.7 833.6 3,982.1 NA 89.2

SIC 2893 Printing Ink

1987 11.1 371.6 1,695.8 45.5 23.8

1988 11.1 382.9 1,719.3 39.2 24.5

1989 11.3 391.0 1,756.2 51.0 26.5

1990 11.4 386.0 1,932.2 48.2 26.6

1991 10.8 386.1 1,899.2 31.5 26.5

1992 12.3 439.4 2,145.4 50.0 27.8

1993 12.0 438.2 2,261.9 60.5 27.5

1994 13.3 485.0 2,277.6 58.6 30.5

1995 14.2 517.7 2,228.0 59.3 29.9

1996 13.1 502.4 2,347.6 84.4 30.4

1997 13.0 505.4 2,513.0 NA 27.6

a

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. 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.
F-72

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.

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. 

Table F-40. Capacity Utilization Ratios for SICs 2891 and 2893

1992 1993 1994 1995 1996 1997

SIC 2891 75 78 82 71 71 67

SIC 2893 79 79 77 64 72 66

Source: U.S. Department of Commerce, Bureau of the Census. 1996. Survey of Plant Capacity: 1994. 

Washington, DC: Government Printing Office. 
F-73

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 waterresistant 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 fuelefficient 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-74

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-75

ratios (CR4 and CR8) and Herfindahl-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

Table F-41. Size of Establishments and Value of Shipments

1987 1992

Establishments With

an Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

SIC 2891 Adhesives and Sealants

1 to 4 employees 166 87.6 183 92.9

5 to 9 employees 143 312.6 122 205.9

10 to 19 employees 131 507.8 109 426.6

20 to 49 employees 163 1,569.7 162 1,708.2

50 to 99 employees 64 1,444.3 68 1,531.0

100 to 249 employees 39 1,478.5 33 1,570.5

250 to 499 employees 7 542.1 6 673.9

500 to 999 employees 1 D 2 D

 Total 714 5,942.7 685 6,209.1

SIC 2893 Printing Ink

1 to 4 employees 77 71.9 60 49.8

5 to 9 employees 102 194.6 96 186.7

10 to 19 employees 140 606.9 149 533.6

20 to 49 employees 140 1,098.0 155 1,431.7

50 to 99 employees 31 592.2 49 802.3

100 to 249 employees 14 474.6 10 369.8

Total 504 3,038.2 519 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. 
F-76

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.

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.

Table F-42. Measures of Market Concentration by SIC: 1992

Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2891 Adhesives and

Sealants

25 37 245 517 685

SIC 2893 Printing Ink 45 57 688 220 519

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-77

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 

Table F-43. Industry Statistics for the Top Ten States, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees)

Number of

Employees

SIC 2891 Adhesives and Sealants

Ohio 888.6 53 26 3,100

Illinois 651.2 48 25 1,700

New Jersey 496.9 53 28 1,500

California 435.9 75 45 2,100

Kentucky 435.7 9 3 800

USA 6,153.5 685 414 21,100

SIC 2893 Printing Ink

Illinois 410.9 47 24 1,500

California 292.1 50 23 1,300

Indiana 226.4 7 2 300

Ohio 215.1 42 24 900

North Carolina 131.4 21 12 600

USA 3,343.8 519 305 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-78

Table F-44. Domestic Consumption, Production and Net Exports (1998 $106)

Year Domestic Production Domestic Consumption Net Exports

SIC 2891 Adhesives and Sealants

1987 5,942.6 5,913.1 29.4

1988 5,855.6 5,771.8 83.8

1989 6,181.1 6,119.1 62.0

1990 6,333.8 6,254.0 79.9

1991 6,125.6 6,043.0 82.5

1992 6,153.5 6,055.6 97.9

1993 6,296.3 6,159.1 137.2

1994 5,909.8 5,744.3 165.6

SIC 2893 Printing Ink

1990 3,355.9 3,321.2 34.7

1991 3,227.4 3,193.3 34.1

1992 3,508.3 3,481.6 26.7

1993 3,724.6 3,699.9 24.8

1994 3,780.5 3,778.5 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-79

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. 

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. 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. 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. 
F-80

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 
4

All values inflated using the plant cost index published in Chemical Engineering, various years.

F-81

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

Table F-45. Value of Shipments (1998 $106)

Year

SIC 2824

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. 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. 1999b. 1997 Census of Manufacturers,

Industry Series: Noncellulosic Organic Fiber Manufacturing. <http://www.census.gov/prod/www/

abs/97ecmani.html>.
F-82

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.7.1.2 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.
F-83

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: productionlevel 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-84

Table F-46. Inputs: Man-Made Fibers, Noncellulosic

Year

Labor

Materials

(1998 $106)

New Capital

Investment

(1998 $106)

Energy

(1998 $106)

Quantity

(103)

Payroll

(1998 $106)

SIC 2824 Man-Made Organic Fibers, Noncellulosic

1987 45.4 1,602.0 6,142.6 552.2 491.4

1988 45.8 1,591.2 6,271.1 719.4 444.2

1989 48.0 1,644.6 6,445.5 756.8 467.1

1990 48.1 1,676.6 5,626.9 887.4 475.1

1991 46.9 1,691.1 5,299.6 873.4 446.8

1992 44.4 1,680.2 5,803.5 784.3 465.7

1993 42.3 1,600.0 6,016.9 999.1 516.2

1994 40.7 1,551.2 6,115.0 596.7 508.7

1995 38.6 1,469.9 6,508.0 696.3 478.9

1996 38.5 1,481.5 6,297.0 D 496.3

1997 37.1 1,445.3 5,743.9 NA 259.0a

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. <http://www.census.gov/prod/www/

abs/97ecmani.html>.
F-85

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

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. 
F-86

and olefins 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, olefin, 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-87

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 HerfindahlHirschmann indices (HHI). The CR4 for this industry in 1992 was 74, meaning that the top

Table F-48. Size of Establishments and Value of Shipments for SIC 2824

1992 1997

Establishments With

an Average of 

Number of

Facilities

Value of

Shipments

(1998 $106

)

Number of

Facilities

Value of

Shipments

(1998 $106

)

1 to 4 employees 1 52.0 17 7.5

5 to 9 employees 0 0.0 3 6.3

10 to 19 employees 2 D 9 19.0

20 to 49 employees 7 D 6 41.6

50 to 99 employees 8 114.7 10 157.8

100 to 249 employees 14 386.8 17 574.9

250 to 499 employees 13 1,331.2 12 1,307.5

500 to 999 employees 6 989.4 12 2,665.7

1,000 to 2,499 employees 19 9,210.9 14 7,221.9

2,500 or more employees 1 D - D

Total 71 12,929.6 100 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. <http://www.census.gov/prod/www/

abs/97ecmani.html>.
F-88

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 manmade fiber (noncellulosic) industry.

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.

Table F-49. Measures of Market Concentration for SIC 2824: 1992

SIC Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2824 Man-Made Organic

Fibers, Noncellulosic

74 90 2,158 42 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-89

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

Table F-50. Industry Statistics for the Top Three Statesa for SIC 2824, 1992

State

Value of

Shipments

(1998 $106

)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

South Carolina 3,438.0 18 0 11,900

North Carolina 2,773.6 14 1 9,200

Alabama 793.8 5 0 3,000

USA 12,084.8 71 3 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-90

Table F-51. Production and Consumption of All Man-made Fibers: SICs 2823 and

2824 (1998 $106)

Year Domestic Production Domestic Consumption

Net

Exports

1987 14,383.2 13,591.5 791.8

1988 14,799.5 13,728.4 1,071.1

1989 15,513.4 14,494.8 1,018.6

1990 14,876.7 13,809.7 1,067.0

1991 13,853.3 12,851.2 1,002.1

1992 13,883.7 13,340.0 543.7

1993 14,087.6 13,604.2 483.4

1994 13,825.6 13,523.6 302.0

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. 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-91

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 II, additional new resins were developed, and the introduction of alloys
F-92

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).

Table F-52. Value (1998 $106) of Shipments

Year SIC 2821

1987 $22,172.92

1988 $33,217.03

1989 $35,191.90

1990 $31,393.31

1991 $29,289.68

1992 $29,639.76

1993 $29,981.92

1994 $36,566.27

1995 $49,634.27

1996 $43,092.97

1997 $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#. <http://www.bls.gov> Obtained August 18, 2000
F-93

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-94

Table F-53. Inputs Used in Plastic Materials and Resins Industry

Labor

Year

Quantity

(103

)

Payroll

(1998 $106)

Materials

(1998 $106)

New Capital

Investment

(1998 $106)

Energy

(1998 $106)

1987 56.3 1,694.555 13,019.13 1,053.669 NA

1988 58.3 2,244.724 20,000.48 1,661.1724 NA

1989 62 2,521.878 21,473.74 2,080.6125 NA

1990 62.4 2,491.057 19,432.69 2,441.8513 NA

1991 60.5 2,456.74 18,419.75 2,230.6712 NA

1992 60.4 2,529.575 17,838.26 1,616.5384 1,066.804

1993 62.2 2,660.542 18,533.98 1,830.4351 1,177.299

1994 69.2 3,116.056 21,701.4 2,527.3688 1,267.493

1995 70 3,782.761 29,966.59 2,654.4547 1,408.269

1996 58.6 3,078.084 26,684.04 2,991.5701 1,482.459

1997 61.035 3,464.973 28,089.96 NA 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-95

Table F-54. Total Resin Sales and Captive Use by Major Market (millions of pounds,

dry weight basis)

Year Growth

Major Market 1992 1993 1994 1995 1996 Rates

Transportation 2,817 3,221 3,795 3,916 3,964 0.0683162

Packaging 18,284 19,569 19,551 19,334 21,271 0.0302637

Building and Construction 11,876 12,885 14,715 14,321 16,199 0.062086

Electrical/electronic 2,766 2,981 3,325 2,966 3,137 0.0251729

Furniture and Furnishings 2,559 2,759 3,118 3,198 3,477 0.0613107

Consumer and Institutional

Uses

6,093 6,015 9,266 9,054 9,804 0.09513

Industrial/machinery 671 768 836 818 980 0.0757567

Adhesives/Inks/Coatings 1,723 1,572 1,789 1,795 1,833 0.0123774

All Other 6,877 7,234 7,515 8,050 9,361 0.0616739

Exports 6,950 6,632 6,889 7,742 8,722 0.0454214

Total 60,562 63,636 70,799 71,194 78,748 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.8.3.1 Firm 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-96

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.

Table F-55. Size of Establishments and Value of Shipments for SIC 2821, 1997

1992 1997

Employment Size

Category

Number of

Establishments

Value of

Shipments by

Employment Size

(1998 $106

)

Number of

Establishments

Value of

Shipments by

Employment

Size

(1998 $106

)

1 to 4 employees 26 27.26897 21 13.586761

5 to 9 employees 36 86.44641 38 186.31629

10 to 19 employees 47 266.0618 56 539.03364

20 to 49 employees 110 1,376.325 160 3,417.6524

50 to 99 employees 101 3,888.289 114 5,958.2407

100 to 249 employees 72 6,627.684 94 13,837.611

250 to 499 employees 30 5,150.71 28 8,971.3418

500 to 1,000 employees 19 6,657.131 14 7,968.8801

over 1,000 employees 8 a 7 a

Total 449 29,639.76 532 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.
F-97

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-56. Measures of Market Concentration by SIC: 1992

SIC Description CR4 CR8 HHI

Number of

Companies

Number of

Facilities

SIC 2821 Plastic materials

and resins

24 39 284 241 449

Source: U.S. Department of Commerce, Bureau of the Census. 1995a. Concentration Ratios in

Manufacturing. Washington, DC: Government Printing Office. 

Table F-57. Industry Statistics for the Top Ten States for SIC 2821, 1997

State

Value of

Shipments

(1998 $106)

Number of

Facilities

Facilities With

Fewer Than 20

Employees

Number of

Employees

Texas $16,050.4 68 53 12,920

Louisiana $6,617.3 21 19 5,152

Kentucky $2,822.0 14 13 2,986

Oklahoma $1,834.5 34 29 3,088

Indiana $1,656.7 15 13 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-98

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.

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. 

Table F-58. Production and Consumption Trends for SIC 2821, 1992 to 1997

(1998 $106

)

Year

Domestic

Production Value of Imports Value of Exports

Apparent

Consumption

1992 31,528.795 2,032.864 6,714.036 26,847.622

1993 31,924.028 2,476.823 6,919.138 27,481.713

1994 37,633.054 3,343.578 8,437.093 32,539.539

1995 50,278.039 4,797.414 11,948.99 43,126.466

1996 45,945.04 4,633.086 11,504.8 39,073.328

1997 50,492.909 5,293.629 13,138.99 42,647.547

Prices adjusted using the PPI for SIC 2821.
F-99

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).
TECHNICAL REPORT DATA

(Please read Instructions on reverse before completing)

1. REPORT NO.

 EPA-452/R-02-006

2. 3. RECIPIENT’S ACCESSION NO.

4. TITLE AND SUBTITLE

Economic Impact Analysis of the Miscellaneous Organic NESHAP

 

5. REPORT DATE

 March 2002

6. PERFORMING ORGANIZATION CODE

7. AUTHOR(S)

 John L. Sorrels, Innovative Strategies and Economics Group

 

8. PERFORMING ORGANIZATION REPORT NO.

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 27711

10. PROGRAM ELEMENT NO.

11. CONTRACT/GRANT NO.

 

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 27711

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 b. IDENTIFIERS/OPEN ENDED TERMS c. COSATI Field/Group

 Economic Impact Analysis (EIA)

Regulatory Flexibility Analysis (RFA)

 

Air Pollution control

economic analysis

small business analysis

18. DISTRIBUTION STATEMENT

 Release Unlimited

19. SECURITY CLASS (Report)

 Unclassified

21. NO. OF PAGES

243

20. SECURITY CLASS (Page)

 Unclassified

22. PRICE

EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE