§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-1

CHAPTER CONTENTS

B2B-1 Summary Insights from this Profile . . . . . . B2B-5

B2B-2 Domestic Production . . . . . . . . . . . . . . . . . B2B-5

B2B-2.1 Output . . . . . . . . . . . . . . . . . . . . . . . B2B-6

B2B-2.2 Prices . . . . . . . . . . . . . . . . . . . . . . . . B2B-9

B2B-2.3 Number of Facilities and Firms . . . B2B-10

B2B-2.4 Employment and Productivity . . . . B2B-12

B2B-2.5 Capital Expenditures . . . . . . . . . . . B2B-14

B2B-2.6 Capacity Utilization . . . . . . . . . . . . B2B-16

B2B-3 Structure and Competitiveness . . . . . . . . . B2B-19

B2B-3.1 Geographic Distribution . . . . . . . . B2B-19

B2B-3.2 Facility Size . . . . . . . . . . . . . . . . . B2B-20

B2B-3.3 Firm Size . . . . . . . . . . . . . . . . . . . B2B-21

B2B-3.4 Concentration Ratios . . . . . . . . . . B2B-22

B2B-3.5 Foreign Trade . . . . . . . . . . . . . . . . B2B-24

B2B-4 Financial Condition and Performance . . . B2B-29

B2B-5 Facilities Operating Cooling Water Intake

Structures . . . . . . . . . . . . . . . . . . . . . . . . . B2B-31

B2B-5.1 Waterbody and Cooling System 

Type . . . . . . . . . . . . . . . . . . . . . . . B2B-32

B2B-5.2 Facility Size . . . . . . . . . . . . . . . . . . B2B-33

B2B-5.3 Firm Size . . . . . . . . . . . . . . . . . . . . B2B-34

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2B-36

Chapter B2B: Chemicals and Allied

Products (SIC 28)

EPA’s Detailed Industry Questionnaire, hereafter

referred to as the DQ, identified thirteen 4-digit SIC

codes in the Chemical and Allied Products Industry

(SIC 28) with at least one existing facility that

operates a CWIS, holds a NPDES permit, withdraws

equal to or greater than two million gallons per day

(MGD) from a water of the United States, and uses at

least 25 percent of its intake flow for cooling

purposes (facilities with these characteristics are

hereafter referred to as facilities potentially subject to

the Phase III regulation or “potential Phase III

facilities”). 

For each of the fifteen SIC codes, Table B2B-1 below

provides a description of the industry segment, a list

of primary products manufactured, the total number

of detailed questionnaire respondents (weighted ro

represent national results), and the number and

percent of potential Phase III facilities.

Table B2B-1: Potential Phase III facilities in the Chemicals and Allied Products Industry (SIC 28)

SIC SIC Description Important Products Manufactured

Number of facilitiesa

Total

Potential

Phase III

facilitiesb

%

Inorganic Chemicals (SIC 281)c

2812 Alkalies and Chlorine Alkalies, caustic soda, chlorine, and soda ash 28 20 70%

2813 Industrial Gases Industrial gases (including organic) for sale in

compressed, liquid, and solid forms 110 4 4%

2816 Inorganic Pigments Black pigments, except carbon black, white

pigments, and color pigments 26 9 35%

2819 Industrial Inorganic Chemicals,

Not Elsewhere Classified

Miscellaneous other industrial inorganic

chemicals 271 30 11%

Total Inorganic Chemicals 435 64 15%

Plastics Material and Resins (SIC 282)

2821

Plastics Material and Synthetic

Resins, and Nonvulcanizable

Elastomers

Cellulose plastics materials; phenolic and

other tar acid resins; urea and melamine

resins; vinyl resins; styrene resins; alkyd

resins; acrylic resins; polyethylene resins;

polypropylene resins; rosin modified resins;

coumarone-indene and petroleum polymer

resins; miscellaneous resins

305 19 6%
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

Table B2B-1: Potential Phase III facilities in the Chemicals and Allied Products Industry (SIC 28)

SIC SIC Description Important Products Manufactured

Number of facilitiesa

Total

Potential

Phase III

facilitiesb

%

B2B-2

Organic Chemicals (SIC 286)d

2865

Cyclic Organic Crudes and

Intermediates, and Organic

Dyes and Pigments

Aromatic chemicals, such as benzene,

toluene, mixed xylenes naphthalene, synthetic

organic dyes, and synthetic organic pigments

59 9 15%

2869 Industrial Organic Chemicals,

Not Elsewhere Classified

Aliphatic and other acyclic organic chemicals;

solvents; polyhydric alcohols; synthetic

perfume and flavoring materials; rubber

processing chemicals; plasticizers; synthetic

tanning agents; chemical warfare gases; and

esters, amines, etc.

364 52 14%

Total Organic Chemicals 423 61 14%

Other Chemical Segments

2823 Cellulosic Manmade Fibers

Cellulose acetate and regenerated cellulose

such as rayon by the viscose or

cuprammonium process

7 1 14%

2824 Manmade Organic Fibers,

Except Cellulosic

Regenerated proteins, and polymers or

copolymers of such components as vinyl

chloride, vinylidene chloride, linear esters,

vinyl alcohols, acrylonitrile, ethylenes,

amides, and related polymeric materials

36 13 36%

2833 Medicinal Chemicals and

Botanical Products

Agar-agar and similar products of natural

origin, endocrine products, manufacturing or

isolating basic vitamins, and isolating active

medicinal principals such as alkaloids from

botanical drugs and herbs

33 2 6%

2834 Pharmaceutical Preparations

Intended for final consumption, such as

ampoules, tablets, capsules, vials, ointments,

medicinal powders, solutions, and

suspensions

91 4 5%

2873 Nitrogenous Fertilizers

Ammonia fertilizer compounds and

anhydrous ammonia, nitric acid, ammonium

nitrate, ammonium sulfate and nitrogen

solutions, urea, and natural organic fertilizers

(except compost) and mixtures

60 9 14%

2899

Chemicals and Chemical

Preparations, Not Elsewhere

Classified

Fatty acids; essential oils; gelatin (except

vegetable); sizes; bluing; laundry sours;

writing and stamp pad ink; industrial

compounds; metal, oil, and water treating

compounds; waterproofing compounds; and

chemical supplies for foundries

162 4 3%

Total Other 389 34 9%

Total Chemicals and Allied Products (SIC 28)

Total SIC Code 28 1,552 178 11%

a

 Number of weighted detailed questionnaire survey respondents. b

 Individual numbers may not add up due to independent rounding. c

 SIC code 281 is officially titled “Industrial Inorganic Chemicals.” However, to avoid confusion with SIC code 2819, “Industrial

Inorganic Chemicals, Not Elsewhere Classified,” this profile refers to SIC code 281 as the “Inorganic Chemicals segment.” d

 SIC code 286 is officially titled “Industrial Organic Chemicals.” However, to avoid confusion with SIC code 2869, “Industrial

Organic Chemicals, Not Elsewhere Classified,” this profile refers to SIC code 286 as the “Organic Chemicals segment.”
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-3

Source: U.S. EPA, 2000; Executive Office of the President, 1987.

The table shows that an estimated 178 out of 1,552 facilities (or 11 percent) in the Chemicals and Allied Products

Industry (SIC 28) are potentially subject to the proposed Phase III regulation. EPA also estimated the percentage

of total production that occurs at facilities potentially subject to the proposed regulation. Total value of shipments

for the chemicals and allied products industry from the 1998 Annual Survey of Manufacturers is $268 billion. 

Value of shipments, a measure of the dollar value of production, was selected for the basis of this estimate. 

Because value of shipments data were not collected using the DQ, these data were not available for the sample of

Phase III manufacturing facilities potentially subject to the proposed regulation. Total revenue, as reported on the

DQ, was used a close approximation for value of shipments for these facilities. EPA estimated the total revenue

of facilities in the chemicals industry potentially subject to the proposed regulation is $61.2 billion. Therefore,

EPA estimates that 23 percent of total production in the chemicals industry occurs at facilities potentially subject

to the proposed regulation.

The responses to the Detailed Questionnaire indicate that three chemical segments account for 80 percent of the

chemicals industry potential Phase III facilities: (1) Inorganic Chemicals (including SIC codes 2812, 2813, 2816,

and 2819); (2) Plastics Material and Resins (SIC code 2821); and (3) Organic Chemicals (including SIC codes

2865 and 2869). Of the 177 potential Phase III facilities in the Chemical industry, 64 facilities, or 36 percent,

belong to the Inorganic Chemicals segment, 61, or 35 percent, belong to the Organic Chemicals segment, and 19,

or 11 percent, belong to the Plastics and Resins segment. This profile therefore provides detailed information for

these three industry groups.

Table B2B-2 on the following page provides the cross-walk between SIC codes and NAICS codes for the profiled

chemical SIC codes. The table shows that alkalies and chlorine (SIC 2812), industrial gases (SIC 2813), Plastics

Material and Synthetic Resins, and Nonvulcanizable Elastomers (SIC 2821) have one-to-one relationships to

NAICS codes. The other SIC codes in the three profiled chemical segments correspond to two or more NAICS

codes.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-4

Table B2B-2: Relationship between SIC and NAICS Codes for the

Chemicals and Allied Products Industry (1997)

 SIC

Code SIC Description NAICS

Code NAICS Description Establishment

s

Value of

Shipments

($000)

Employment

Inorganic Chemicals (SIC 281)

2812 Alkalies and Chlorine 325181 Alkalies and chlorine

manufacturing 39 2,465,183 4,859

2813 Industrial Gases 325120 Industrial gas manufacturing (pt) 630 3,952,006 8,787

2816 Inorganic Pigments

325131 Inorganic dye and pigment

manufacturing (pt) 74 3,734,497 8,608

325182 Carbon black manufacturing (pt) 0 0 0

2819

Industrial Inorganic

Chemicals, Not

Elsewhere Classified

325131 Inorganic dye and pigment

manufacturing (pt) 00 0

325188 All other basic inorganic chemical

manufacturing (pt) 638 D 50,000 to 99,999

325998

All other miscellaneous chemical

product and preparation

manufacturing (pt)

22 380,156 1,484

331311 Alumina refining 7 1,257,211 3,153

Plastics Material and Resins (SIC 282)

2821

Plastics Material and

Synthetic Resins, and

Nonvulcanizable

Elastomers

325211 Plastics material and resin

manufacturing 529 44,478,404 60,764

Organic Chemicals (SIC 286)

2865

Cyclic Organic Crudes

and Intermediates, and

Organic Dyes and

Pigments

325110 Petrochemical manufacturing (pt) 22 3,665,285 3,007

325132 Synthetic organic dye and

pigment manufacturing 122 2,692,860 8,681

325192 Cyclic crude and intermediate

manufacturing 51 6,571,093 8,183

2869

Industrial Organic

Chemicals, Not

Elsewhere Classified

325110 Petrochemical manufacturing (pt) 32 16,869,465 7,936

325120 Industrial gas manufacturing (pt) 13 1,279,462 3,705

325188 All other basic inorganic chemical

manufacturing (pt) 2 D 250 to 499

325193 Ethyl alcohol manufacturing 39 1,287,273 1,890

325199 All other basic organic chemical

manufacturing (pt) 654 52,294,254 86,793

D = Withheld to avoid disclosure.

Source: U.S. DOC, 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-5

B2B-1 SUMMARY INSIGHTS FROM THIS PROFILE

A key purpose of this profile is to provide insight into the ability of Chemicals firms that would be potentially

subject to the proposed Phase III regulation, to absorb compliance costs without material adverse

economic/financial effects. Two important factors in the ability of the industry’s ability to withstand compliance

costs are: (1) the extent to which the industry may be expected to shift compliance costs to its customers through

price increases and (2) the financial health of the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers

As reported in the following sections of this profile, the chemicals industry has variable level of concentration,

with some industry segments exhibiting relatively low concentration while others show somewhat higher

concentration. Regardless of the domestic concentration level and its implications for market power, the U.S.

chemicals industry faces increasing competitive pressure from abroad, which substantially limits any apparent

ability of firms in this industry to pass through to customers a significant portion of their compliance-related

costs. In addition, the relatively low share of total industry output that is produced in potential Phase III facilities,

an estimated 23 percent, also argues against complying firms’ ability to shift compliance costs to customers. For

these reasons, in its analysis of regulatory impacts for the chemicals industry, EPA assumed that complying firms

would be unable to pass compliance costs through to customers: i.e., complying facilities must absorb all

compliance costs within their financial condition at the time of compliance (see following sections and Appendix

3 of Chapter B3: Economic Impact Analysis for Manufacturers for further information).

Financial Health and General Business Outlook

Over the past decade, the Chemicals industry, like other U.S. manufacturing industries, has experienced a range of

economic/financial conditions, including substantial challenges. In the early 1990s, the domestic chemicals

industry was affected by reduced U.S. demand as the economy entered a recessionary period Although domestic

market conditions improved by mid-decade, an oversupply of crude oil, weakness in Asian markets, along with

other domestic factors, dealt a serious blow to refiners in 1998. More recently, as the U.S. economy began

recovery from its economic weakness, the domestic chemicals industry is showing signs of recovery with higher

demand levels and improving financial performance in 2003. Although the industry weathered difficult periods

over the past few years, the strengthening of the industry’s financial condition and general business outlook

suggest improved ability to withstand additional regulatory compliance costs without a material financial impact.

B2B-2 DOMESTIC PRODUCTION

The U.S. chemical and allied products industry includes a large number of companies that, in total, produce more

than 70,000 different chemical products. These products range from commodity materials used in other industries

to finished consumer products such as soaps and detergents. The industry accounts for nearly 12 percent of U.S.

manufacturing value added, and produces approximately two percent of total national gross domestic product

(McGraw-Hill, 2000).

Raw materials containing hydrocarbons such as oil, natural gas, and coal are primary feedstocks for the

production of organic chemicals. Inorganic chemicals are chemicals that do not contain carbon but are produced

from other gases and minerals (McGraw-Hill, 2000).

The chemicals and allied products industry is highly energy intensive, consuming about 7 percent of total annual

U.S. energy output (McGraw-Hill, 2000). It is one of the largest industrial users of electric energy and also

consumes large amounts of oil and natural gas. In total, the industry accounts for approximately seven percent of

total U.S. energy consumption, including 11 percent of all natural gas use. Just over 50 percent of the industry’s

energy consumption is used as feedstock in the production of chemical products. The remaining energy

consumption is for fuel and power for production processes. Oil accounts for approximately 42 percent of total

energy consumption by the industry. For some products, e.g., petrochemicals, energy costs account for up to 85
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

1

Terms highlighted in bold and italic font are further explained in the glossary.

B2B-6

percent of total production costs. Overall, total energy costs represent seven percent of the value of chemical

industry shipments (S&P, 2001).

B2B-2.1 Output

Figure B2B-1 shows constant dollar value of shipments and value added for the three profiled segments

between 1987 and 20011

. Value of shipments and value added are two common measures of manufacturing

output. They provide insight into the overall economic health and outlook for an industry. Value of shipments is

the sum of the receipts a manufacturer earns from the sale of its outputs; it indicates the overall size of a market or

the size of a firm in relation to its market or competitors. Value added measures the value of production activity

in a particular industry. It is the difference between the value of shipments and the value of inputs used to make

the products sold.

The Organic Chemicals segment experienced a decrease in both value of shipments and value added between

1988 and 1993, followed by volatility through 1998. The mid 1990s were marked by increased competition in the

global market for petrochemicals, which comprise the majority of organic chemical products. The increased

competition stems from the considerable capacity expansions for these products seen in developing nations. 

(McGraw-Hill, 2000). Value of shipments for the segment increased through 2000, while value added remained

flat. Both value of shipments and value added declined significantly in 2001as the segment faced decreased

demand due to the economic slowdown.

The Plastics Material and Resins and Inorganic Chemicals segments remained somewhat more stable over the

period between 1987 and 2001. In the early 1990s, domestic producers benefitted from the relatively weak dollar,

which made U.S. products more competitive in the global market. During the later part of the 1990s, the strength

of the U.S. economy bolstered domestic end-use markets, offsetting the effect of reduced U.S. export sales, which

resulted from increased global competition and a strengthened dollar (McGraw-Hill, 2000). The global economic

slowdown that began in 2000 led to decreased production, in particular, of chemical goods that are used in the

production processes of other industries, notably steel, apparel, textiles, forest products, and technology.

Since 2000, these three segments of the chemical industry have experienced significant challenges and weakened

financial performance. In 2001, the industry faced high energy and raw material prices at the start of the year, and

overcapacity, weak demand, and slowing global economies at the end of the year. All these factors led to poor

financial results for the year (C&EN, 2001). Production increased slightly in 2002, and financial results

improved, as cost cutting efforts, including significant layoffs, improved earnings (C&EN, 2002). Firms began

2003 with hopes of a turnaround, but continued to face the same problems as the previous two years, as industry

was forced to reduce employment and spending against declining earnings (C&EN, 2003c).

Currently, the industry continues to face high raw material and energy costs, as well as an increase in competition

from abroad. The past three years have seen the industry struggle to maintain earnings against the global

economic decline. Although the U.S. economy has improved recently, the chemical industry has lagged in

increasing growth of sales and earnings. This may change in 2004, as the American Chemistry Council reported

that the chemical industry should experience positive growth only slightly lower than GDP in 2004 (C&EN,

2003c). This should better position firms to incur costs associated with regulatory compliance.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-7

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

198719881989199019911992199319941995199619971998199920002001

Organic Chemicals

(SIC 2865, 2869)

Organic Chemicals

(NAICS to SIC)

Plastics Material and

Resins (SIC 2821)

Plastics Material and

Resins (NAICS to

SIC)

Inorganic Chemicals

(SIC 2812, 2813,

2816, 2819)

Inorganic Chemicals

(NAICS to SIC)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

198719881989199019911992199319941995199619971998199920002001

Organic Chemicals

(SIC 2865, 2869)

Organic Chemicals

(NAICS to SIC)

Plastics Material

and Resins (SIC

2821)

Plastics Material

and Resins (NAICS

to SIC)

Inorganic Chemicals

(SIC 2812, 2813,

2816, 2819)

Inorganic Chemicals

(NAICS to SIC)

Figure B2B-1: Value of Shipments and Value Added for Profiled Chemical Segments

(in millions, $2003)

Value of Shipments

Value Added

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998-2001; U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-8

Table B2B-3 provides the Federal Reserve System’s index of industrial production for the three profiled

segments, which shows trends in production since 1997. This index reflects total output in physical terms,

whereas value of shipments and value added reflects the value of production. Table B2B-3 shows varying trends

in the three segments since 1997, but sharp declines in production in all three segments in 2000 or 2001. These

declines were caused by the marked slowdown in the U.S. economy, which affected demand in major chemicalusing segments such as steel, apparel, textiles, forest products, and the technology sectors (Chemical Marketing

Reporter, 2001). Production declines continued through 2001, but rebounded somewhat in 2002 before dipping

again in 2003.

Table B2B-3: Chemicals Industry Industrial Production Index

Year

Basic Inorganic Chemicalsa Plastics Material and Resinsb Organic Chemicalsc

Index

1997=100

Percent

Change

Index

1997=100

Percent

Change

Index

1997=100

Percent

Change

1989 105.1 n/a 78.8 n/a 89.6 n/a

1990 111.9 6.4% 79.6 1.0% 91.6 2.3%

1991 106.6 -4.7% 76.5 -3.8% 87.7 -4.3%

1992 107.2 0.6% 83.2 8.7% 89.1 1.6%

1993 102.1 -4.8% 81.7 -1.9% 86.4 -3.0%

1994 96.6 -5.4% 93.2 14.1% 91.2 5.5%

1995 97.5 1.0% 93.9 0.8% 90.4 -0.8%

1996 98.0 0.5% 91.0 -3.2% 90.2 -0.3%

1997 100.0 2.1% 100.1 10.1% 100.0 10.9%

1998 105.5 5.5% 107.9 7.8% 92.2 -7.8%

1999 106.0 0.4% 112.4 4.1% 99.1 7.5%

2000 96.8 -8.7% 112.3 -0.1% 99.9 0.8%

2001 95.6 -1.3% 100.2 -10.8% 88.2 -11.7%

2002 95.8 0.2% 105.8 5.5% 94.9 7.5%

2003 92.9 -3.0% 104.3 -1.4% 94.6 -0.3%

Total Percent Change

1989-2000 -11.6% 32.3% 5.6%

Average Annual

Growth Rate -0.9% 2.0% 0.4%

a

 Includes NAICS 32512-8.

b

 Includes NAICS 325211.

c

 Includes NAICS 32511,9.

Source: Federal Reserve Board, 2004.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-9

B2B-2.2 Prices

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment.

Figure B2B-2 shows the producer price index for the profiled chemical segments. Selling prices for the products

of the Organic and Inorganic Chemicals segments increased from 1987 to 1989 and remained stable through

1994. Between 1994 and 1995, prices increased sharply, followed by a period of relatively stable prices through

1999. The sharp price rises for Organic Chemicals and Plastics Material and Resins in 2000 resulted in part from

increases in the price of natural gas, which is the feedstock for 70 percent of U.S. ethylene production. High

natural gas prices put U.S. organic chemicals and, to a lesser extent, plastic resin producers at a disadvantage

relative to foreign producers who rely on naphta and gas oil as a feedstock. Natural gas prices declined, however,

in 2001 easing pressure on U.S. producers (Chemical Marketing Reporter, 2001). Price increases for Plastics

Material and Resins also reflected a shift by U.S. producers away from production of commodity resins to

speciality and higher-value-added products (McGraw-Hill, 2000). Prices for Plastics Material and Resins

followed a trend similar to the other two chemical industry segments but with larger fluctuations (see Figure B2B2). For the chemical industry in general, prices rose 4 percent in 2002, increased further in 2003, with the

producer price index reaching 165 (C&EN, 2003c).

Chemical and plastics prices fluctuate in large part as a result of varying energy prices. Basic petrochemicals,

which comprise the majority of organic chemical products, depend heavily on energy commodities as inputs to

the production process – energy input costs may account for up to 85 percent of total product costs. The prices of

natural gas and oil therefore influence the production costs and the selling price for these products. High basic

petrochemical prices affect prices for chemical intermediates and final end products, including organic chemicals

and plastics.

Another factor influencing prices for commodity chemical products is the cyclical nature of market supply and

demand conditions. The Plastics, Organic Chemicals, and Inorganic Chemicals segments are characterized by

large capacity additions which can lead to fluctuations in prices in response to imbalances in supply and demand.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-10

80

90

100

110

120

130

140

150

160

170

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Plastics Material and

Resins (SIC 2821)

Organic Chemicals

(SIC 2865, 2869)

Inorganic Chemicals

(SIC 2812, 2813,

2816, 2819)

Figure B2B-2: Producer Price Indexes for Profiled Chemical Segments

a

 Indices are an average of each SIC code’s PPI within each segment

Source: BLS, 2002.

B2B-2.3 Number of Facilities and Firms

According to the Statistics of U.S. Businesses, the number of facilities in the Inorganic Chemicals segment

remained relatively stable between 1989 and 1997, followed by four consecutive years of decreases in the number

of facilities. The other two segments saw overall increases in the number of facilities over the 1989 to 2001 time

period, though the Organic Chemicals segment saw declines in 1999 through 2001. The Plastics Material and

Resins segment saw significant increases in the number of facilities reported between 1993 and 1996, reflecting

growth in the demand for plastics in a number of end-uses (McGraw-Hill, 2000). Table B2B-4 shows the

downward trend in the number of facilities producing inorganic chemical products following a peak in 1991. The

decrease is partly attributable to the consolidation within the Inorganic Chemicals segment (S&P, 2001).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-11

Table B2B-4: Number of Facilities for Profiled Chemical Segmentsa

Year

Inorganic Chemicals Plastics Material and Resins Organic Chemicals 

Number of

Facilities

Percent

Change

Number of

Facilities

Percent

Change

Number of

Facilities

Percent

Change

1989 1,387 n/a 504 n/a 844 n/a

1990 1,421 2.5% 517 2.6% 837 -0.8%

1991 1,508 6.1% 529 2.3% 851 1.7%

1992 1,466 -2.8% 460 -13.0% 888 4.3%

1993 1,476 0.7% 502 9.1% 908 2.3%

1994 1,460 -1.1% 499 -0.6% 902 -0.7%

1995 1,425 -2.4% 558 11.8% 907 0.6%

1996 1,396 -2.0% 630 12.9% 868 -4.3%

1997 1,414 1.3% 593 -5.9% 945 8.9%

1998b 1,310 -7.3% 565 -4.7% 1,093 15.6%

1999b 1,309 -0.1% 586 3.7% 1,076 -1.5%

2000b 1,300 -0.7% 597 1.9% 1,072 -0.4%

2001b 1,266 -2.6% 621 4.0% 1,064 -0.7%

Total Percent Change 

1989-2001

-8.7% 23.2% 26.1%

Average Annual Growth

Rate

-0.8% 1.8% 2.0%

a

 The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of

firms and facilities than other Census data sources.

b

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. SBA, 1989-2001.

The trend in the number of firms between 1989 and 2001 is similar to the number of facilities. The number of

firms in the Inorganic Chemicals segment peaked in 1992 and has trended downward since. The Organic

Chemicals segment showed more volatility before peaking in 1998 with 710 firms; since then, the number of

firms has declined somewhat. The number of firms in the Plastics Material and Resins segment increased

substantially between 1993 and 1996, from 284 to 403 firms, before decreasing in the next two years. Starting in

1999, the Plastics Material and Resins segment showed three years of positive growth in the number of firms. 

Table B2B-5 on the following page shows the number of firms in the three profiled chemical segments between

1990 and 2001.
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B2B-12

Table B2B-5: Number of Firms for Profiled Chemical Segmentsa

Year

Inorganic Chemicals Plastics Material and Resins Organic Chemicals

Number of

Firms

Percent

Change

Number of

Firms

Percent

Change

Number of

Firms

Percent

Change

1990 640 n/a 301 n/a 579 n/a

1991 678 5.9% 319 6.0% 584 0.9%

1992 699 3.1% 255 -20.1% 611 4.6%

1993 683 -2.3% 284 11.4% 648 6.1%

1994 677 -0.9% 295 3.9% 644 -0.6%

1995 657 -3.0% 343 16.3% 644 0.0%

1996 625 -4.9% 403 17.5% 596 -7.5%

1997 611 -2.2% 358 -11.2% 674 13.1%

1998b 618 1.1% 322 -10.1% 710 5.3%

1999b 609 -1.3% 337 4.7% 684 -3.6%

2000b 611 0.2% 352 4.5% 683 -0.1%

2001b 606 -0.8% 375 6.5% 692 1.3%

Total Percent Change

1990-2001 -5.4% 24.6% 19.5%

Average Annual

Growth Rate -0.5% 2.0% 1.6%

a

 The Statistics of U.S. Business is derived from Census County Business Patterns data, and reports somewhat different numbers of

firms and facilities than other Census data sources.

b

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. SBA, 1989-2001.

B2B-2.4 Employment and Productivity

Figure B2B-3 below provides information on employment from the Annual Survey of Manufactures. With the

exception of minor short-lived fluctuations, employment in the Organic Chemicals and Plastics Material and

Resins segments remained relatively stable between 1988 and 2000 before seeing declines of greater than 4.5

percent in 2001. The Inorganic Chemicals segment, however, experienced a significant decrease in employment

from 103,400 to 80,200 employees over the 1992 to 1996 period. This decrease reflects the industry’s

restructuring and downsizing efforts intended to reduce costs in response to competitive challenges. Employment

in this segment remained fairly constant over the next two years before experiencing three years of employment

declines greater than 4 percent through 2001. From 1987 to 2001, the Inorganic Chemicals segment had the

largest overall decrease in employment at 23 percent. The Organic Chemicals segment employment declined 6.4

percent, while the Plastics Material and Resins segment was the only segment to increase employment, rising just

over 4 percent for the period.

The chemical industry continued to experience more layoffs since 2001 as firms sought to improve financial

performance by reducing employment costs. Both 2002 and 2003 saw workforce reductions, though not as severe

as 2001, as firms shut plants or reduced operations (C&EN, 2003c).
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B2B-13

0

20

40

60

80

100

120

140

198719881989199019911992199319941995199619971998199920002001

Organic Chem icals

(SIC 2 8 6 5 , 2 8 6 9 )

Organic Chem icals

(N A ICS t o SIC)

Inorganic Chem icals

(SIC 2 8 1 2 , 2 8 1 3 ,

2816, 2819)

Inorganic Chem icals

(N A ICS t o SIC)

P lastics M aterial

an d Resin s (SIC

2821)

P lastics M aterials

and Resins (NAICS

t o SIC)

Figure B2B-3: Employment for Profiled Chemical Segmentsa (000s)

a

Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991,1993-1996, and 1998-2001; U.S. DOC, 1987, 1992, and 1997.

Table B2B-6 presents the change in value added per labor hour, a measure of labor productivity, for each of

the profiled industry segments between 1988 and 2001. The trends in each segment show considerable volatility

through the 1990s into the 2000s . The gains in productivity in the Inorganic Chemicals segment reflect firms’

attempts to reduce costs by restructuring production and materials handling processes in response to maturing

domestic markets and increased global competition (S&P, 2001). Over the 1988 to 2001 period, two segments,

Plastics Material and Resins and Organic Chemicals, saw decreases of 15 and 31 percent, respectively, to value

added per labor hour. The Inorganic Chemicals segment, however, improved 10 percent over the same

timeframe. 
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B2B-14

Table B2B-6: Productivity Trends for Profiled Chemical Segments ($2003)

Year

Inorganic Chemicals Plastics Material and Resins Organic Chemicals

Value

Added

(mill.)

Prod. 

Hours

(mill.)

Value

Added/Hour Value

Added

(mill.)

Prod. 

Hours

(mill.)

Value

Added/Hour Value

Added

(mill.)

Prod. 

Hours

(mill.)

Value

Added/Hour

($/hr.) Percent

Change ($/hr.) Percent

Change

($/hr.) Percent

Change

1988 17,923 114 158 18,420 80 231 37,268 152 246

1989 19,366 109 178 13% 17,472 84 209 -10% 39,128 155 253 3%

1990 20,848 115 182 2% 15,792 83 191 -8% 36,869 156 237 -7%

1991 19,673 121 163 -11% 13,778 81 171 -11% 32,628 156 209 -12%

1992 20,437 120 170 4% 15,281 79 195 14% 31,609 155 203 -3%

1993 18,974 108 176 3% 14,289 81 177 -9% 31,542 156 202 -1%

1994 17,626 101 175 -1% 17,914 89 200 13% 34,066 146 234 16%

1995 18,667 100 186 7% 20,195 92 221 10% 38,820 148 263 12%

1996 18,650 97 193 3% 17,235 81 214 -3% 32,022 158 203 -23%

1997 19,204 91 211 9% 19,517 84 234 9% 39,181 150 261 29%

1998a 25,247 92 276 31% 20,886 83 251 8% 31,727 147 216 -17%

1999a 18,097 88 206 -25% 20,075 84 238 -5% 32,776 143 230 6%

2000a 15,042 94 161 -22% 19,397 87 223 -6% 32,973 138 238 4%

2001a 15,112 87 173 8% 15,639 80 196 -12% 22,768 134 169 -29%

Total

Percent

Change 

1988-2001

-16% -23% 10% -15% 0% -15% -39% -11% -31%

Average

Annual

Percent

Change

-1% -2% 1% -1% 0% -1% -4% -1% -3%

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998-2001; U.S. DOC, 1987, 1992, and 1997.

B2B-2.5 Capital Expenditures

The chemicals industry is relatively capital-intensive. According to the Census’s 2001 Annual Survey of

Manufactures, facilities in NAICS 325, which includes all the profiled chemical SIC codes, had aggregate capital

spending of almost $19 billion in 2001. Capital-intensive industries are characterized by large, technologically

complex manufacturing facilities which reflect the economies of scale required to manufacture products

efficiently. New capital expenditures are needed to extensively modernize, expand, and replace existing

capacity to meet growing demand. All three profiled chemical industry segments experienced substantial

increases in capital expenditures through the 1990s. Table B2B-7 on the following page shows that capital

expenditures in the Inorganic Chemicals segment increased, in real terms, from $1.146 billion in 1987 to $2.642
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-15

billion in 1998. Although the following three years saw declines in capital expenditures, the Inorganic Chemicals

segment increased capital expenditures by 80 percent from 1987 to 2001. The Plastics segment more than

doubled its capital expenditures from 1987 through 1999, before significant reductions occurred in the subsequent

two years. The Organic Chemicals segment peaked in 1996, and has seen its capital expenditures declining since,

particularly in 2000 and 2001, for an overall decline of almost 18 percent from 1988 to 2001. Much of the growth

in capital expenditures was driven by investment in capacity expansions to meet the increase in global demand for

chemical products. Domestically, the continued substitution of synthetic materials for other basic materials and

rising living standards caused consistent growth in the demand for chemical commodities (S&P, 2001). As the

economy slowed in 2000, chemical industry firms curtailed capital expenditures in the face of weakening

financial performance. As the economy picked up steam, an early 2003 survey of 19 chemical companies found

that businesses sought to start increasing capital projects in 2003 (C&EN, 2003b).
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B2B-16

Table B2B-7: Capital Expenditures for Profiled Chemical Segments (in millions, $2003)

Year

Inorganic Chemicals Plastics Material and Resins Organic Chemicals 

Capital

Expenditures

Percent

Change

Capital

Expenditures 

Percent

Change

Capital

Expenditures

Percent

Change

1987 1,146 1,800

1988 1,170 2.1% 2,241 24.5% 4,441

1989 1,799 53.7% 2,644 18.0% 5,473 23.2%

1990 1,721 -4.3% 3,155 19.3% 6,618 20.9%

1991 1,722 0.1% 2,817 -10.7% 6,570 -0.7%

1992 1,900 10.4% 2,088 -25.9% 5,818 -11.4%

1993 1,410 -25.8% 2,302 10.3% 4,815 -17.2%

1994 1,527 8.3% 2,968 28.9% 4,107 -14.7%

1995 1,959 28.3% 2,666 -10.2% 5,610 36.6%

1996 2,254 15.0% 3,134 17.6% 7,027 25.3%

1997 2,211 -1.9% 3,238 3.3% 6,438 -8.4%

1998a 2,642 19.5% 3,757 16.0% 5,470 -15.0%

1999a 2,236 -15.3% 4,039 7.5% 5,033 -8.0%

2000a 2,186 -2.2% 2,371 -41.3% 4,834 -4.0%

2001a 2,067 -5.4% 1,812 -23.6% 3,687 -23.7%

Total Percent

Change 1987-2001 80.4% 0.6% -17.0%

Average Annual

Growth Rate 4.3% 0.0% -1.4%

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998-2001; U.S. DOC, 1987, 1992, and 1997.

B2B-2.6 Capacity Utilization

Capacity utilization measures actual output as a percentage of total potential output given the available

capacity. Capacity utilization reflects excess or insufficient capacity in an industry and is an indication of

whether new investment is likely. To take advantage of economies of scale, chemical commodities are typically

produced in large facilities. Capacity additions in this industry are often made on a relatively large scale and can

substantially affect the industry’s capacity utilization rates. Figure B2B-4 presents the capacity utilization index

from 1989 to 2002 for specific 4-digit SIC codes within each of the profiled segments in the chemicals industry. 

Capacity utilization in the Organic Chemicals segment remained the most stable through this time period with

only moderate fluctuations between 1989 and 1999, followed by decreased utilization rates in 2000 and 2001,

before rebounding in 2002. Plastics Material and Resins capacity utilization showed a downward trend, as the

production of many commodity resins shifted overseas. U.S. producers responded by emphasizing the

manufacture of speciality and higher-value-added products and by rationalizing capacity to improve profitability

(McGraw-Hill, 2000).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-17

Overall, the Inorganic Chemicals segment demonstrated the most volatility in capacity utilization between 1989

and 2002. The chlor-alkali industry (SIC code 2812) experienced an almost consistent decline in capacity

utilization since its high of 96 percent from 1992 through 1994. This decrease reflects the enactment of treaties

and legislation designed to reduce the emission of chlorinated compounds into the environment. These

regulations decreased the demand for chlorine which, together with caustic soda, accounts for more than 75

percent of production by this segment. The significant increase in capacity utilization in the industrial gases

segment (SIC code 2813) in the mid 1990s reflects the expansion of key intermediate purchasers of chemical

commodities such as the primary metals and electronics industries. As these markets and the economy in general

started to slow, utilization rates declined as well. Similarly, capacity utilization in the pigments and other

inorganic chemicals segments (SIC codes 2816 and 2819) remained relatively stable between 1989 and 1998,

before dropping in the early 2000s. The stability in these segments through 1999 reflects the fact that these are

essentially mature markets where the demand for products tends to track growth in gross domestic product (GDP)

(McGraw-Hill 2000). As the economy continued its sluggish performance in the early 2000s, utilization within

this segment dampened, as demand for product decreased.
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B2B-18

60

65

70

75

80

85

90

95

100

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Inorganic Pigments (SIC 2816)

Inorganic Pigments (NAICS to

SIC)

Alkalies and Chlorine (SIC

2812)

Alkalies and Chlorine (NAICS

to SIC)

Industrial Gases (SIC 2813)

Industrial Gases (NAICS to

SIC)

Industrial Inorganic Chemicals,

NEC (SIC 2819)

Industrial Inorganic Chemicals,

NEC (NAICS to SIC)

60

65

70

75

80

85

90

95

100

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Plastics M aterial and Resins

(SIC 2821)

Plastics M aterial and Resins

(NAICS to SIC)

60

65

70

75

80

85

90

95

100

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Cy clic Organic Crudes and

Intermediates (SIC 2865)

Cy clic Organic Crudes and

Intermediates (NAICS to

SIC)

Industrial Organic

Chemicals, NEC (SIC 2869)

Industrial Organic

Chemicals, NEC (NAICS to

SIC)

Figure B2B-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Chemical Segments

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1989-2002.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

2

 The 1992 Census of Manufactures is the most recent data available by SIC code and State.

B2B-19

B2B-3 STRUCTURE AND COMPETITIVENESS

The chemicals industry continues to restructure and reduce costs in response to competitive challenges, including

global oversupply for commodities. In the early 1990s, the chemical industry’s cost-cutting came largely from

restructuring and downsizing. The industry has taken steps to improve productivity, and consolidated to cut costs. 

Companies seeking growth within these relatively mature industry segments have made acquisitions to achieve

production or marketing efficiencies. The Plastics Material and Resins segment, for example, experienced sizable

consolidations in the late 1990s into 2000 (S&P, 2001).

B2B-3.1 Geographic Distribution

Chemical manufacturing facilities are located in every state, but almost two-thirds of U.S. chemical production is

concentrated in ten states. Given the low value of many commodity chemicals and the handling problems posed

by products such as industrial gases, nearly two-thirds of the tonnage shipped was transported less than 250 miles

in 1998 (S&P, 2001).

Facilities producing cyclic crudes and intermediates (SIC 2865) and unclassified industrial organic chemicals, not

elsewhere classified (SIC 2869), are concentrated in Texas, New Jersey, Ohio, California, New York, and Illinois. 

Facility sites are typically chosen for their access to raw materials such as petroleum and coal products and to

transportation routes. In addition, since much of the market for organic chemicals is the chemical industry,

facilities tend to cluster near such end-users (U.S. EPA, 1995a).

Inorganic Chemicals facilities are typically located near consumers and, to a lesser extent, raw materials. The

largest use of inorganic chemicals is in industrial processes for the manufacture of chemicals and nonchemical

products. Facilities are therefore concentrated in the heavy industrial regions along the Gulf Coast, both East and

West coasts, and the Great Lakes region. Since a large portion of inorganic chemicals are used by the organic

chemicals manufacturing segment, the geographical distribution of Inorganic Chemicals facilities is very similar

to that of Organic Chemicals facilities (U.S. EPA, 1995b). Facilities in the Plastics Material and Resins segment

are concentrated in the heavy industrial regions, similar to both the Organic Chemicals and Inorganic Chemicals

facilities.

Figure B2B-5 shows the distribution of all facilities by State in the profiled chemical segments, based on the 1992

Census of Manufactures.2
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-20

4

7 5

6

9

7

9

5

6

13

14

27

35

47

57

1

88

23

27

70

20

70

86

25

62

67

50

42

147 66

102

56

120

154

165

37

2

28

41

184

27

14

2

225

296

Number of Facilities

0 - 14

15 - 50

51 - 102

103 - 184

185 - 296

Figure B2B-5: Number of Chemical Facilities by State for Profiled Chemical Segments

Source: U.S. DOC, 1987, 1992, and 1997.

B2B-3.2 Facility Size

Facility size can be expressed by the number of employees and/or by the total value of shipments, with the most

accurate depiction of size being a combination of both. The three profiled chemicals industry segments are

characterized by a large number of small facilities, with more than 67 percent of facilities employing fewer than

50 employees and only eight percent employing 250 or more employees. However, the larger facilities in the

three segments account for the majority of the industries’ output. This fact is most pronounced in the Inorganic

Chemicals segment where facilities with fewer than 20 employees account for 63 percent of all facilities but for

only 8 percent of the industry’s value of shipments. In the Organic Chemicals segment, approximately 29 percent

of all facilities employ 100 employees or more. These facilities account for about 87 percent of the value of

shipments for the industry. Similarly, facilities in the Plastics Material and Resins segment with more than 100

employees account for only 29 percent of all facilities but for 80 percent of the industry’s value of shipments (see

Figure B2B-6 below).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-21

0

100

200

300

400

500

600

700

800

900

1-19 20-49 50-99 100-249 250-499 500-999 1,000-

2,499

2,500+

Inorganic Chemicals (SIC

2812, 2813, 2816, 2819)

Plastics (SIC 2821)

Organic Chemicals (SIC

2865, 2869)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

1-19 20-49 50-99 100-249 250-499 500-999 1,000-

2,499

2,500+

Inorganic Chemicals (SIC

2812, 2813, 2816, 2819)

Plastics (SIC 2821)

Organic Chemicals (SIC

2865, 2869)

Figure B2B-6: Number of Facilities and Value Added by Employment Size Category in 1992a

for Profiled Chemical Segments

Number of Facilities

Value of Shipments (in millions)

a

 The 1992 Census of Manufactures is the most recent data available by SIC code and facility employment size.

Source: U.S. DOC, 1987, 1992, and 1997.

B2B-3.3 Firm Size

The Small Business Administration (SBA) defines small firms in the chemical industries according to the firm’s

number of employees. Firms in the Inorganic Chemicals segment (SIC codes 2812, 2813, 2816, 2819) and in

Industrial Organic Chemicals, NEC (SIC code 2869) are defined as small if they have 1,000 or fewer employees;

firms in Plastics Material and Resins (SIC 2821) and Cyclic Organic Crudes and Intermediates (SIC code 2865)

are defined as small if they have 750 or fewer employees. The size categories reported in the Statistics of U.S.

Businesses (SUSB) do not correspond with the SBA size classifications, therefore preventing precise use of the

SBA size threshold in conjunction with SUSB data. 
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

3

Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high

concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers

or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios

based on share of domestic production are therefore only one indicator of the extent of competition in an industry.

B2B-22

The SUSB data presented in Table B2B-8 show that in 2001, 481 of 606 firms in the Inorganic Chemicals

segment had less than 500 employees. Therefore, at least 79 percent of firms in this segment were classified as

small. These small firms owned 555 facilities, or 44 percent of all facilities in the segment. In the Plastics and

Resins Industry segment, 299 of 375 firms, or 80 percent, had less than 500 employees in 2001. These small

firms owned 330 of 621 facilities (53 percent) in the segment. In the Organic Chemicals segment, 74 percent of

facilities (512 of 692) had fewer than 500 employees, owning 52 percent of all facilities in that segment.

Table B2B-8 below shows the distribution of firms, facilities, and receipts in the Inorganic Chemicals, Plastics

Material and Resins, and Organic Chemicals segments by the employment size of the parent firm.

Table B2B-8: Number of Firms, Facilities and Estimated Receipts by Firm Size Category

for Profiled Chemical Segments (2001)

Employment

Size Category

Inorganic Chemicals Plastics Material and

Resins Organic Chemicals

No. of

Firms

Number of

Facilities

No. of

Firms

Number of

Facilities

No. of

Firms

Number of

Facilities

0-19 288 290 156 156 277 278

20-99 129 162 97 101 156 168

100-499 64 103 46 73 79 111

500+ 125 711 76 291 180 507

Total 606 1,266 375 621 692 1,064

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been

compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted the

NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS

and SIC.

Source: U.S. SBA, 1989-2001.

B2B-3.4 Concentration Ratios

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is

closely related to entry barriers with more concentrated industries generally having higher barriers.

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things

being equal3

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602 + 302

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-23

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated.

Of the profiled chemicals and allied products segments, as shown in Table B2B-9, only Alkalies and Chlorine

(SIC 2812), Industrial Gases (SIC 2813), and Inorganic Pigments (SIC 2816) would be considered concentrated

based on their CR4 and HHI values. In contrast, Industrial Inorganic Chemicals, NEC (SIC 2819), Plastics

Material and Resins (SIC 2821), Cyclic Crudes and Intermediates (SIC 2865), and Industrial Organic Chemicals,

NEC (SIC 2869) would be considered competitive. The diversity of products in some of the profiled segments,

however, makes generalizations about concentration less reliable than in industries with a more limited product

slate. That is, within a single SIC code, the numbers of producers may vary substantially by individual product –

firms may possess relatively high market power in products with a smaller number of competing producers even

though the total SIC code would appear to have a relatively low concentration. On the basis of concentration

information, some industry segments would therefore appear to be moderately concentrated; accordingly, firms in

these segments might possess a moderate degree of market power and thus the ability to pass compliance costs

through to customers as price increases. However, as discussed above and more specifically in the following

section, competition from foreign producers in both domestic and export markets, increasingly restrains any

discretionary pricing power of U.S. firms in the profiled industry segments.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-24

Table B2B-9: Selected Ratios for Four-Digit SIC Codes for Profiled Chemical Segments, 1987 and 1992a

SIC Code Year

Concentration Ratios

4 Firm

(CR4)

8 Firm

(CR8)

20 Firm

(CR20)

50 Firm

(CR50)

HerfindahlHirschman Index

Inorganic Chemicals

2812

1987 72% 93% 99% 100% 2,328

1992 75% 90% 99% 100% 1,994

2813

1987 77% 88% 95% 98% 1,538

1992 78% 91% 96% 99% 1,629

2816

1987 64% 76% 94% 99% 1,550

1992 69% 79% 93% 99% 1,910

2819

1987 38% 49% 68% 84% 468

1992 39% 50% 68% 85% 677

Plastics Material and Resins

2821

1987 20% 33% 61% 89% 248

1992 24% 39% 63% 90% 284

Organic Chemicals

2865

1987 34% 50% 77% 96% 542

1992 31% 45% 72% 94% 428

2869

1987 31% 48% 68% 86% 376

1992 29% 43% 67% 86% 336

a

 The 1992 Census of Manufactures is the most recent concentration ratio data available by SIC code.

Source: U.S. DOC, 1987, 1992, and 1997.

B2B-3.5 Foreign Trade

The chemicals industry is the largest exporter in the United States. The industry generates more than 10 percent

of the nation’s total exports, and overseas sales constitute a growing share of U.S. chemical company revenues. 

The major U.S. producers still derive 50 percent or more of their revenue from domestic sales, however (S&P,

2001).

This profile uses two measures of foreign competition: export dependence and import penetration.

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests

that higher import penetration levels will reduce market power and pricing discretion because foreign competition

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-25

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be

less likely to succeed in passing compliance costs through to customers.

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through

price increases since export sales are presumed subject to substantial competition from foreign producers.

Table B2B-10 presents trade statistics for each of the profiled chemical segments. Both export dependence and

import penetration experienced increases in each of these segments between 1989 and 2001. 

Globalization of markets has become a key factor in the Inorganic Chemicals segment, with both import

penetration and export dependence growing substantially over the 13-year analysis period. During this period,

imports rose by almost 12 percent, while exports has climbed 5 percent. The greater growth in imports

underscores the increasing competition from foreign producers in domestic markets.

Increased globalization has also affected the Plastics Material and Resins segment. Imports and exports of

plastics and resins have increased significantly over the time period, reflecting the continued growth in the global

market. Of the three profiled chemical segments, this segment has shown the largest overall increases in values of

imports and exports with total growth of 177 percent and 65 percent, respectively, from 1989 through 2001. 

Import penetration grew more quickly than export dependence in this segment due to declining export

opportunities and increased competition from new foreign capacity. The United States remained a net exporter of

plastics and resins, despite these trends. The market for organic chemicals, particularly petrochemicals, has

become increasingly competitive. Significant capacity expansions for petrochemicals worldwide increased

competition in domestic markets from imports and began to limit export opportunities for U.S. producers. 

Through 1999, the segment still exported more than it imported. This balance recently changed though as imports

exceeded exports in both 2000 and 2001. From 1989 through 2001, imports in this segment grew by 165 percent,

while export growth was at 43 percent.

In 2001, the Inorganic Chemicals segment’s import penetration ratio was 26.9 percent, while the Organic

Chemicals segment’s import penetration ratio was slightly lower at 25.9 percent. Both segments likely face

strong competition from foreign firms in U.S. markets. The Plastics Material and Resins segment had an import

penetration ratio of 14.3 percent in 2001, suggesting this segment does not presently face strong competition from

foreign firms’ presence in U.S. markets. However, the import penetration ratio nearly doubled in the decade from

1991 to 2001, which could indicate that foreign firms have begun aggressive pursuit of these U.S. markets. In

2001, the export dependence ratio was 28.2 percent for the Inorganic Chemicals segment, 26.1 percent for the

Plastics Material and Resins segment, and 24.2 percent for the Organic Chemicals segment. All three segments

likely face significant competitive pressure in retaining these positions in export markets. Given these levels of

exposure to competition from foreign firms in domestic and export markets, the profiled chemicals industry

segments likely have little discretionary power to recover compliance costs through price increases.

Recent trends in international chemicals markets imply that U.S. producers will continue to face strong

competition from foreign producers. The industry’s trade balance declined in 2000, due to increased imports

from Western Europe, encouraged by the strong U.S. dollar relative to the Euro, and growth in the petrochemical

industry in the Middle East. Declines in the dollar relative to the Euro improved export performance somewhat,

but decline in the global economy resulted in mixed trade performance in 2001 (Chemical Market Reporter,

2001). In 2002, the chemical industry’s traditional trade surplus reversed, reaching a deficit of around $4 billion

(C&EN, 2003a). After nine months of 2003, the deficit had ballooned to $7.7 billion (C&EN, 2003c).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-26

Table B2B-10: Trade Statistics for Profiled Chemical Segments

Year Value of imports

(millions, $2003)

Value of exports

(millions, $2003)

Value of

shipments

(millions, $2003)

Implied

Domestic

Consumptiona

Import

Penetrationb

Export

Dependencec

Inorganic Chemicals, Except Pigments

1989 5,688 6,457 28,357 27,588 20.6% 22.8%

1990 5,599 6,037 30,414 29,976 18.7% 19.8%

1991 5,360 6,243 29,492 28,609 18.7% 21.2%

1992 5,095 6,274 29,416 28,237 18.0% 21.3%

1993 4,828 5,764 27,570 26,634 18.1% 20.9%

1994 5,510 6,104 25,373 24,779 22.2% 24.1%

1995 6,432 7,087 26,895 26,240 24.5% 26.4%

1996 7,036 7,174 27,323 27,185 25.9% 26.3%

1997 5,811 6,904 28,100 27,007 21.5% 24.6%

1998d 5,832 6,119 34,163 33,876 17.2% 17.9%

1999d 5,812 5,822 27,051 27,041 21.5% 21.5%

2000d 6,630 6,658 24,679 24,651 26.9% 27.0%

2001d 6,363 6,784 24,049 23,628 26.9% 28.2%

Total Percent

Change 1989-2001 11.9% 5.1% -14.4% 23.9%

Average Annual

Growth Rate 0.9% 0.7% -1.6% 2.6%

Plastics Material and Resins

1989 2,089 7,424 44,728 39,393 5.3% 16.6%

1990 2,345 8,110 40,564 34,799 6.7% 20.0%

1991 2,221 9,237 36,991 29,975 7.4% 25.0%

1992 2,522 8,570 38,286 32,238 7.8% 22.4%

1993 3,010 8,584 37,710 32,136 9.4% 22.8%

1994 3,839 9,864 43,667 37,642 10.2% 22.6%

1995 4,685 11,857 49,844 42,672 11.0% 23.8%

1996 4,701 11,918 45,139 37,922 12.4% 26.4%

1997 4,866 12,024 50,079 42,921 11.3% 24.0%

1998d 4,948 11,252 49,314 43,010 11.5% 22.8%

1999d 5,210 11,268 50,230 44,172 11.8% 22.4%

2000d 6,090 13,093 55,167 48,164 12.6% 23.7%

2001d 5,791 12,258 46,924 40,457 14.3% 26.1%

Total Percent

Change 1989-2001 177.2% 65.1% 2.7% 57.4%

Average Annual

Growth Rate 8.9% 3.3% 2.1% 1.4%

Organic Chemicals, Except Gum & Wood

1989 7,822 13,320 87,856 82,358 9.5% 15.2%
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

Table B2B-10: Trade Statistics for Profiled Chemical Segments

Year Value of imports

(millions, $2003)

Value of exports

(millions, $2003)

Value of

shipments

(millions, $2003)

Implied

Domestic

Consumptiona

Import

Penetrationb

Export

Dependencec

B2B-27

1990 8,123 12,678 84,237 79,682 10.2% 15.1%

1991 8,239 12,670 79,725 75,294 10.9% 15.9%

1992 8,858 12,329 78,063 74,592 11.9% 15.8%

1993 8,765 12,494 75,958 72,229 12.1% 16.4%

1994 10,132 14,500 81,008 76,640 13.2% 17.9%

1995 12,121 17,916 87,077 81,282 14.9% 20.6%

1996 12,985 15,980 84,276 81,281 16.0% 19.0%

1997 17,312 20,079 91,683 88,916 19.5% 21.9%

1998d 16,683 18,159 77,134 75,658 22.1% 23.5%

1999d 18,049 18,885 82,553 81,717 22.1% 22.9%

2000d 22,151 21,221 92,222 93,152 23.8% 23.0%

2001d 20,728 19,032 78,489 80,185 25.9% 24.2%

Total Percent

Change 1989-2001 165.0% 42.9% -2.6% 59.9%

Average Annual

Growth Rate 8.5% 4.0% 0.7% 4.0%

a

 Calculated by EPA as shipments + imports - exports. b

 Calculated by EPA as imports divided by implied domestic consumption. c

 Calculated by EPA as exports divided by shipments.

d

 Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North American Industry

Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code classifications using

the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-28

0

2,500

5,000

7,500

10,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Exp ort s (SIC

2812,2813, 2819)

Exp ort s (N A IC S

to SIC)

Imp orts (SIC

2812,2813, 2819)

Imp orts (NAICS

to SIC)

0

2,500

5,000

7,500

10,000

12,500

15,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Exp orts (SIC

2821)

Exp orts (N A ICS

to SIC)

Imp orts (SIC

2821)

Imports (NAICS

to SIC)

0

5,000

10,000

15,000

20,000

25,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Exp orts (SIC

2865, 2869)

Exp orts (N A ICS

to SIC)

Imp orts (SIC

2865, 2869)

Imports (NAICS

to SIC)

Figure B2B-7: Value of Imports and Exports for Profiled Chemical Segments (in millions,$2003)

Inorganic Chemicals, Except Pigments

Plastics Material and Resins

Organic Chemicals, Except Gum & Wood

Source: U.S. DOC, 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-29

B2B-4 FINANCIAL CONDITION AND PERFORMANCE

The financial performance and condition of the chemical industry are important determinants of its ability to

withstand the costs of regulatory compliance without material adverse economic/financial impact. To provide

insight into the industry’s financial performance and condition, EPA reviewed two key measures of financial

performance over the 12-year period, 1992-2003: net profit margin and return on total capital. EPA calculated

these measures as a revenue-weighted index of measure values for public reporting firms in the respective

industries, using data from the Value Line Investment Survey. Financial performance in the most recent financial

reporting period (2003) is obviously not a perfect indicator of conditions at the time of regulatory compliance. 

However, examining the trend, and deviation from the trend, through the most recent reporting period gives

insight into where the industry may be, in terms of financial performance and condition, at the time of

compliance. In addition, the volatility of performance against the trend, in itself, provides a measure of the

potential risk faced by the industry in a future period in which compliance requirements are faced: all else equal,

the more volatile the historical performance, the more likely the industry may be in a period of relatively weak

financial conditions at the time of compliance.

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales

or revenues, and measures profitability, as reflected in the conventional accounting concept of net income. Over

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from

several factors, including: variations in aggregate economic conditions (including international and U.S.

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the

cost of energy to the chemical process). The extent to which these fluctuations affect an industry’s profitability,

in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a capital intensive

industry such as the chemical and allied products industry, the relatively high fixed capital costs as well as other

fixed overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative

affect on profit margin.

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in

return on total capital.

Figure B2B-8 presents net profit margin and return on total capital for public-reporting firms in two chemical

industry segments – (1) Industrial Chemicals and (2) Plastics and Synthetic Fibers – for the 12-year period, 1992

and 2003. The Industrial Chemicals segment corresponds approximately to the Organic Chemicals and Inorganic

Chemicals profiled industry segments; the Plastics and Synthetic Fibers segment corresponds approximately to

the Plastics Material and Resins profiled industry segment. The financial performance information reported in

Figure B2B-8 confirms the trends and performance discussed above in this section. 

As shown in Figure B2B-8, the Industrial Chemicals (Organic Chemicals and Inorganic Chemicals) segment has

seen moderate volatility of financial performance over the analysis period. Return on total capital moved off a

post-recession low near 10 percent in 1992 to achieve levels in excess of 20 percent during 1995-1997. Recovery

of demand accompanied by industry restructuring and downsizing accounted for the upturn in performance. 

During the latter part of the decade, though, increased competition from foreign producers and demand weakness

in Asian markets eroded this performance. As a result, return on capital fell below 15 percent in 1998, and

remained at this lower level through 2000. In 2001, a series of factors – high energy and raw material prices at
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-30

the start of the year, and overcapacity, the terrorist attacks, and slowing U.S. and global economies at the end of

the year – led to a further sharp decline in return on capital performance of approximately 8 percent. Return on

total capital improved modestly during 2002 and 2003 but remained sub-par compared to mid 1990s performance. 

Net profit margin shows a similar, though less volatile, trend. 

The same factors largely influenced performance in the Plastics and Synthetic Fibers (Plastics Material and

Resins) segment over the 12 year period. Performance in this segment followed a similar, but less volatile,

pattern to that of the Industrial Chemicals segment. Return on total capital rose from a low near 10 percent in

1993 to a period high of 15 percent in 1995. Since then, performance trended down to reach a period low of

approximately 9 percent in 2001. This segment achieved modest improvement in 2002 and 2003. Net profit

margin again shows a similar, though less volatile, trend compared to return on capital. 

Overall, the profiled segments of the chemical industry remain at weaker levels of financial performance than

achieved during the mid 1990s but appear to be recovering from the sharp weakness of 2001-2002. Continued

recovery in 2004 and beyond suggest improved ability to withstand additional regulatory compliance costs

without imposing significant financial impacts.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

4

 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of Manufactures

reported cooling water use.

B2B-31

0%

5%

10%

15%

20%

25%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Return on Total Capital -

Industrial Chemicals

Net Profit Margin -

Industrial Chemicals

0%

5%

10%

15%

20%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Return on Total Capital -

Plastics and Synthetic

Fibers

Net Profit Margin -

Plastics and Synthetic

Fibers

Figure B2B-8: Net Profit Margin and Return in Total Capital for the Chemical Industry

Industrial Chemicals (Organic and Inorganic)

Plastics and Synthetic Fibers

Source: Value Line, 1992-2003.

B2B-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES

Section 316(b) of the Clean Water Act applies to point source facilities that use or propose to use a cooling water

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the

chemical and allied products industry withdrew 2,797 billion gallons of cooling water, accounting for

approximately 3.6 percent of total industrial cooling water intake in the United States4

. The industry ranked 2nd in

industrial cooling water use behind the electric power generation industry (1982 Census of Manufactures).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

5

The proposed Phase III regulation also applies to existing electric generating facilities as well as certain facilities in the oil and gas

extraction industry and the seafood processing industry. See Chapters B4 and B5 and Part C of this document for more information on

these industries.

6

EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not respond to the

survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information Collection Request (U.S.

EPA, 2000).

B2B-32

This section provides information for facilities in the profiled chemical and allied products segments potentially

subject to the proposed regulation. Existing facilities that meet all of the following conditions are potentially

subject to the proposed regulation:5

< Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract

or arrangement with an independent supplier who has a cooling water intake structure; or their

cooling water intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least

twenty-five (25) percent of the water withdrawn is used for contact or non-contact cooling

purposes;

< Have an National Pollutant Discharge Elimination System (NPDES) permit or are required to

obtain one; and

< Have a design intake flow of greater than 2 million gallons per day (MGD).

The proposed Phase III regulation also covers substantial additions or modifications to operations undertaken at

such facilities. While all facilities that meet these criteria are subject to the regulation, this section focuses on the

estimated 144 facilities nationwide in the profiled chemical and allied products segments identified in EPA’s 2000

Section 316(b) Industry Survey as being potentially subject to this proposed regulation6

. Information collected in

the Detailed Industry Questionnaire found that an estimated 64 out of 435 Inorganic Chemicals facilities (15

percent), 19 out of 305 Plastics Material and Resins facilities (6 percent), and 61 out of 423 Organic Chemicals

facilities (14 percent) meet the characteristics of a potential Phase III facility.

B2B-5.1 Waterbody and Cooling System Type

Table B2B-11 shows the distribution of U.S. Phase III facilities in the profiled chemical segments by type of

waterbody and cooling system. The table shows that most of the U.S. Phase III facilities either have a oncethrough system (62, or 50 percent) or employ a combination of a once through and a recirculating system (37, or

30 percent). The majority of existing facilities draw water from a freshwater stream or river (95, or 76 percent). 

Seven of the 20 facilities that withdraw from an estuary, the most sensitive type of waterbody, use a once-through

cooling system. Plants with once-through cooling water systems withdraw between 70 and 98 percent more water

than those with recirculating systems.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-33

Table B2B-11: Number of Potential Phase III facilities by Water Body and Cooling System Type 

for Profiled Chemical Segments

Water Body Type

Cooling System

Recirculating Combination Once-Through Other Unknown

Totala

Numbe

r

% of

Total

Numbe

r

% of

Total

Numbe

r

% of

Total

Numbe

r

% of

Total

Numbe

r

% of

Total

Inorganic Chemicals

Estuary/ Tidal River 0 0% 13 65% 7 35% 0 0% 0 0% 20

Ocean 0 0% 0 0% 9 100% 0 0% 0 0% 9

Freshwater Stream/

River 4 18% 0 0% 17 77% 0 0% 0 0% 22

Lake/ Reservoir 0 0% 4 100% 0 0% 0 0% 0 0% 4

Great Lake 0 0% 0 0% 4 44% 4 44% 0 0% 9

Totala 4 6% 17 27% 37 58% 4 6% 0 0% 64

Plastics Material and Resins

Freshwater Stream/

River 0 0% 9 50% 4 22% 0 0% 4 22% 18

Lake/ Reservoir 0 0% 2 100% 0 0% 0 0% 0 0% 2

Totala 0 0% 11 58% 4 21% 0 0% 4 21% 19

Organic Chemicals

Freshwater Stream/

River 9 16% 9 16% 30 53% 9 16% 0 0% 57

Great Lake 0 0% 0 0% 4 100% 0 0% 0 0% 4

Totala 9 15% 9 15% 35 57% 9 15% 0 0% 61

Total for Profiled Chemical Facilities

Estuary/ Tidal River 0 0% 13 65% 7 35% 0 0% 0 0% 20

Ocean 0 0% 0 0% 9 100% 0 0% 0 0% 9

Freshwater Stream/

River 13 14% 18 19% 52 54% 9 9% 4 4% 96

Lake/ Reservoir 0 0% 6 100% 0 0% 0 0% 0 0% 6

Great Lake 0 0% 0 0% 9 69% 4 31% 0 0% 13

Totala 13 9% 37 26% 76 53% 13 9% 4 3% 144

a

 Individual numbers may not add up to total due to independent rounding.

Source: U.S. EPA, 2000.

B2B-5.2 Facility Size

The 316(b) sample facilities are generally larger than facilities in the chemicals industry as a whole, as reported in

the Census and discussed previously:

< Ninety-eight percent of all facilities in the Inorganic Chemicals segment had fewer than 100

employees in 1992, compared with 21 percent of the potential Phase III facilities.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-34

13

0 0

13

4

26

11

0

9

23

4

10

4

11

16

0

5

10

15

20

25

30

<100 100-249 250-499 500-999 >=1000

Inorganic Chemicals (SIC

2812, 2813, 2816, 2819)

Plastics (SIC 2821)

Organic Chemicals (SIC

2865, 2869)

< Ninety-four percent of all facilities in the Plastics Material and Resins segment had fewer than

100 employees in 1992; none of the potential Phase III facilities in that segment fall into that

employment category.

< Ninety-four percent of all facilities in the Organic Chemical segment had fewer than 100

employees in 1992; none of the potential Phase III facilities in that segment fall into that

employment category.

Figure B2B-9 shows the number of potential Phase III facilities in the profiled chemical segments by employment

size category.

Figure B2B-9: Number of Potential Phase III facilities by Employment Size Category

for Profiled Chemical Segments

Source: U.S. EPA, 2000.

B2B-5.3 Firm Size

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of U.S. 

Phase III facilities in the three profiled chemical segments that are owned by small firms. Firms in the Inorganic

Chemicals segment (SIC codes 2812, 2813, 2816, 2819) and in Industrial Organic Chemicals, NEC (SIC code

2869) are defined as small if they have 1,000 or fewer employees; firms in Plastics Material and Resins (SIC

2821) and Cyclic Organic Crudes and Intermediates (SIC code 2865) are defined as small if they have 750 or

fewer employees.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-35

Table B2B-12 shows that, of the 64 potential Phase III facilities in the Inorganic Chemicals segment, four, or 7

percent, are owned by a small firm. All four of these firms are in SIC 2819. None of the 19 potential Phase III

facilities in the Plastics Material and Resins segment are owned by a small firm. Ninety-three percent of the

potential Phase III facilities in the Organic Chemicals segment are classified as large. SIC 2869 accounts for all

of the facilities owned by small firms in the Organic Chemicals segment. Overall, the profiled chemicals segment

has 135 facilities (94 percent) owned by large firms, and 9 facilities (6 percent) owned by small firms.

Table B2B-12: Number of Potential Phase III facilities by Firm Size

for Profiled Chemical Segments

SIC Code

Large Small

Total

No. % of SIC No. % of SIC

Inorganic Chemicals

2812 20 100% 0 0% 20

2813 4 100% 0 0% 4

2816 9 100% 0 0% 9

2819 26 87% 4 13% 30

Total 59 93% 4 7% 64

Plastics Material and Resins

2821 19 100% 0 0% 19

Organic Chemicals

2865 9 100% 0 0% 9

2869 48 92% 4 8% 52

Total 57 93% 4 7% 61

Total for Profiled Chemical Facilities

Total 135 94% 9 6% 144

Source: U.S. EPA, 2000; U.S. SBA, 2000; D&B, 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-36

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PDU2821#-Plastic Materials and Resins, PDU2865#-Cyclic Crudes and Intermediates, PDU2869#-Industrial

Organic Chemicals, n.e.c.

Business Weekly. 2001. “Materials: Plastics.” p. 125. January 8, 2001.

Chemical & Engineering News (C&EN). 2003a. “Chemicals finally showed some signs of life in 2002; this year

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Chemical & Engineering News (C&EN). 2003b. “Counting Pennies.” Volume 81, No. 5, pp. 17-21. February

3, 2003. 

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December 16, 2002. Available at: http://pubs.acs.org/cen/coverstory/8050/8050busreview02.html.

Chemical & Engineering News (C&EN). 2001. “2001 Chemical Industry Review.” Volume 79, No. 52, pp. 13-

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Chemical Marketing Reporter. 2001. “U.S. Chemical Industry Outlook: Trade and Domestic Demand”. v260,

issue 25, p. 33. June 18, 2001.

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification

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Federal Reserve Board. 2004. Industrial Production and Capacity Utilization. Data extracted May 11, 2004.

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McGraw-Hill and U.S. Department of Commerce, International Trade Administration. 2000. U.S. Industry &

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Standard & Poor’s. (S&P) 2001. Industry Surveys - Chemicals: Basic. July 5, 2001.

U.S. Department of Commerce (U.S. DOC). 1989-2002. Bureau of the Census. Current Industrial Reports. 

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U.S. Department of Commerce (U.S. DOC). 2001. Bureau of the Census. International Trade Administration

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, and 1998-2001. Bureau of the Census. 

Annual Survey of Manufactures.

U.S. Department of Commerce (U.S. DOC). 2000. Bureau of the Census. Foreign Trade Data.

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge

Between NAICS and SIC.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-37

U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of

Manufactures.

U.S. Environmental Protection Agency (U.S. EPA) 2000. Detailed Industry Questionnaire: Phase II Cooling

Water Intake Structures.

U.S. Environmental Protection Agency (U.S. EPA). 1995a. Profile of the Organic Chemicals Industry. 

September, 1995.

U.S. Environmental Protection Agency (U.S. EPA) 1995b. Profile of the Inorganic Chemical Industry. 

September, 1995.

U.S. Small Business Administration (U.S. SBA). 1988-2001. Statistics of U.S. Businesses.

Available at: http://www.sba.gov/advo/stats/int data.html

U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.

Value Line. 1992-2003. Value Line Investment Survey.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis Existing Facilities B2B: Chemicals and Allied Products

B2B-38

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§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-1

CHAPTER CONTENTS

B2C-1 Summary Insights from this Profile . . . . . . . . . . B2C-2

B2C-2 Domestic Production . . . . . . . . . . . . . . . . . . . . . B2C-3

B2C-2.1 Output . . . . . . . . . . . . . . . . . . . . . . . . . B2C-3

B2C-2.2 Prices . . . . . . . . . . . . . . . . . . . . . . . . . . B2C-7

B2C-2.3 Number of Facilities and Firms . . . . . . B2C-7

B2C-2.4 Employment and Productivity . . . . . . B2C-10

B2C-2.5 Capital Expenditures . . . . . . . . . . . . . B2C-11

B2C-2.6 Capacity Utilization . . . . . . . . . . . . . . B2C-14

B2C-3 Structure and Competitiveness . . . . . . . . . . . . . B2C-15

B2C-3.1 Geographic Distribution . . . . . . . . . . B2C-15

B2C-3.2 Facility Size . . . . . . . . . . . . . . . . . . . B2C-17

B2C-3.3 Firm Size . . . . . . . . . . . . . . . . . . . . . . B2C-18

B2C-3.4 Concentration Ratios . . . . . . . . . . . . B2C-18

B2C-3.5 Foreign Trade . . . . . . . . . . . . . . . . . . B2C-19

B2C-4 Financial Condition and Performance . . . . . . . B2C-22

B2C-5 Facilities Operating Cooling Water Intake

Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2C-23

B2C-5.1 Waterbody and Cooling System Type B2C-24

B2C-5.2 Facility Size . . . . . . . . . . . . . . . . . . . . B2C-25

B2C-5.3 Firm Size . . . . . . . . . . . . . . . . . . . . . . B2C-26

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2C-27

Chapter B2C: Petroleum Refining

(SIC 2911)

EPA’s Detailed Industry Questionnaire,

hereafter referred to as the DQ, identified one 4-

digit SIC code in the Petroleum and Coal

Products Industry (SIC 29) with at least one

existing facility that operates a CWIS, holds a

NPDES permit, withdraws at least two million

gallons per day (MGD) from a water of the

United States, and uses at least 25 percent of its

intake flow for cooling purposes (facilities with

these characteristics are hereafter referred to as

facilities potentially subject to the Phase III

regulation or “potential Phase III facilities”). 

Table B2C-1 below provides a description of the

industry segment, a list of primary products

manufactured, the total number of detailed

questionnaire respondents (weighted to represent

national results), and the number and percent of

potential Phase III facilities within the estimated

national total of facilities in the respective

industry SIC code groups.

Table B2C-1: Potential Phase III facilities in the Petroleum and Coal Products Industry (SIC 29)

SIC SIC Description Important Products Manufactured

Number of Facilitiesa

Total Potential Phase

III facilities b %

2911 Petroleum Refining

Gasoline, kerosene, distillate fuel oils, residual fuel oils,

and lubricants, through fractionation or straight distillation

of crude oil, redistillation of unfinished petroleum

derivatives, cracking, or other processes; aliphatic and

aromatic chemicals as byproducts

163 36 22.1%

a

 Number of weighted detailed questionnaire survey respondents. b

 Individual numbers may not add up due to independent rounding.

Source: U.S. EPA, 2000; Executive Office of the President, 1987. ASM 1998

The table shows that an estimated 36 out of 163 facilities (or 22 percent) in the Petroleum and Coal Products

Industry (SIC 29) are potentially subject to this proposed regulation. EPA also estimated the percentage of total

production that occurs at facilities potentially subject to the proposed regulation. Total value of shipments for the

Petroleum and Coal Products Industry (SIC 29) from the 1998 Annual Survey of Manufacturers is $118.2 billion. 

Value of shipments, a measure of the dollar value of production, was selected for the basis of this estimate. 

Because value of shipments data were not collected using the DQ, these data were not available for the sample of

Phase III manufacturing facilities potentially subject to the proposed regulation. Total revenue, as reported on the

DQ, was used a close approximation for value of shipments for these facilities. EPA estimated the total revenue

of facilities in the petroleum industry subject to the proposed regulation is $47.8 billion. Therefore, EPA
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-2

estimates that 40 percent of total production in the petroleum industry occurs at facilities potentially subject to the

proposed regulation.

Table B2C-2 provides the cross-walk between SIC codes and NAICS codes for the profiled petroleum SIC codes. 

For the Petroleum Refining segment, the translation of NAICS-reported data to the SIC framework is

straightforward as these frameworks have a simple one-to-one match for Petroleum Refining: SIC code 2911 and

NAICS code 324110.

Table B2C-2: Relationship between SIC and NAICS Codes for the Petroleum and Coal Products

Industry (1997)

SIC

Code SIC Description NAICS

Code NAICS Description Establishments Value of Shipments

($000) Employment

2911 Petroleum Refining 324110 Petroleum Refineries 242 157,525,704 65,471

Source: U.S. DOC, 1997.

B2C-1 SUMMARY INSIGHTS FROM THIS PROFILE

A key purpose of this profile is to provide insight into the ability of Petroleum Refining firms that would be

subject to the Phase III regulation to absorb compliance costs without material adverse economic/financial effects. 

Two important factors in the ability of the industry’s ability to withstand compliance costs are: (1) the extent to

which the industry may be expected to shift compliance costs to its customers through price increases and (2) the

financial health of the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers

As reported in the following sections of this profile, the Petroleum Refining segment is relatively unconcentrated,

which suggests that firms in this industry would have less power to pass through to customers a significant

portion of their compliance-related costs. As discussed above, the proportion of total value of shipments in the

industry potentially subject to the proposed regulation is 40 percent. The actual proportion of total value of

shipments subject to regulation-induced compliance costs would be smaller since not all of the facilities would be

subject to the national categorical requirements of the proposed regulation: that is, facilities below the proposed

design intake flow (DIF) would be subject to permitting based on best professional judgement (BPJ) rather than

based on national standards, and several facilities currently employ baseline technologies that meet the

requirements of the proposed regulation. Given the likelihood that these percentages represent upper bound

estimates, EPA believes that the theoretical threshold for justifying the use of industry-wide CPT rates in the

impact analysis of potential Phase III refineries has not been met. Even though the Petroleum Refining segment is

not characterized by high competitive pressure from foreign markets, the low market concentration leads EPA to

believe that the market power held by individual firms is likely to be quite small. For these reasons, in its analysis

of regulatory impacts for the Petroleum Refining segment, EPA assumed that complying firms would be unable to

pass compliance costs through to customers: i.e., complying facilities must absorb all compliance costs within

their financial condition at the time of compliance (see following sections and Appendix 3 to Chapter B3:

Economic Impact Analysis for Manufacturers for further information).

Financial Health and General Business Outlook

Over the past decade, Petroleum Refining, like other U.S. manufacturing industries, has experienced a range of

economic/financial conditions, including substantial challenges. In the early 1990s, the domestic Petroleum

Refining segment was affected by reduced U.S. demand as the economy entered a recessionary period Although

domestic market conditions improved by mid-decade, oversupply of crude oil, weakness in Asian markets, along

with other domestic factors, materially weakened refiners’ financial performance in 1998. As petroleum

producing countries reduced crude oil supply and refiners cut production, prices rebounded in the late 1990's into

2000, before another U.S. recession, the attacks of 9/11, and global economic downturn again had a negative
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

1

In addition, there was one operating and one idle refinery in Puerto Rico and one operating refinery in the Virgin Islands.

2

For comparison, preliminary 1997 Census data included 244 establishments for NAICS 3241/SIC 2911, whereas U.S. DOE/EIA

reported 164 operable refineries as of January 1997. 

3

The first step in refining is atmospheric distillation, which uses heat to separate various hydrocarbon components in crude oil.

Beyond this basic step are more complex operations (generally referred to as “downstream” from the initial distillation) that increase the

refinery’s capacity to process a wide range of crude oils and increase the yield of lighter (low-boiling point) products such as gasoline.

These downstream operations include vacuum distillation, cracking units, reforming units, and other processes (U.S. DOE, 1999a).

B2C-3

effect on petroleum refiners. More recently, as the U.S. economy began recovery from its economic weakness,

domestic petroleum refiners began showing signs of recovery with higher demand levels and improving financial

performance in 2003. Although the industry has weathered difficult periods over the past few years, the

strengthening of the industry’s financial condition and general business outlook suggest improved ability to

withstand additional regulatory compliance costs without imposing significant financial impacts.

B2C-2 DOMESTIC PRODUCTION

The Petroleum Refining segment accounts for about 4 percent of the value of shipments of the U.S. entire

manufacturing segment and 0.4 percent of the manufacturing segment’s employment (U.S. DOE, 1999a). 

According to the Annual Survey of Manufactures, in 2001, Petroleum Refineries achieved shipments of

approximately $206 billion dollars ($2003) and employed 63,251 people. Petroleum products contribute

approximately 40 percent of the total energy used in the United States, including virtually all of the energy

consumed in transportation (U.S. DOE, 1999a).

U.S. DOE Energy Information Administration (EIA) data report that there were 149 operable Petroleum

Refineries in the U.S. as of January 2003, of which 145 were operating and four were idle (U.S. DOE, 2004)1

. 

Some data reported in this profile are taken from EIA publications. Readers should note that the Census data

reported for SIC 2911 cover a somewhat broader range of facilities than do the U.S. DOE/EIA data, and the two

data sources are therefore not entirely comparable.2

The petroleum industry includes exploration and production of crude oil, refining, transportation, and marketing. 

Petroleum refining is a capital-intensive process that converts crude oil into a variety of refined products. 

Refineries range in complexity, depending on the types of products produced. Nearly half of all U.S. refinery

output is motor gasoline.

The number of U.S. refineries has declined by almost half since the early 1980s. The remaining refineries have

improved their efficiency and flexibility to process heavier crude oils by adding “downstream” capacity3

. While

the number of refineries has declined, the average refinery capacity and utilization has increased, resulting in an

increase in domestic refinery production overall.

B2C-2.1 Output

Table B2C-3 shows trends in production of petroleum refinery products from 1990 through 2002. In general,

output of refined products grew over this period, reflecting growth in transportation demand and other end-uses. 

Output fell in 1991 due to the domestic economic recession, and the early years of the 2000s experienced little or

negative growth due to the downturn of the U.S. economy and events of 9/11 (API, 2003a). At the beginning of

2002, petroleum products were in excess supply in the world market, and the focus was on the elimination of

excess supplies and stabilization of prices (U.S. DOE, 2004). In 2003, the industry rebounded, with refinery

processing increasing 2 percent, producing record or near record levels of gasoline and distillate (API 2004). 

Petroleum demand in 2004 is expected to increase 1.1 percent. As the U.S. and global economy improves,

Petroleum Refining firms should continue to see improving results in their markets and earnings. This should

place companies in a better position to incur any costs associated with regulatory compliance.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

4

Terms highlighted in bold and italic font are further explained in the glossary.

B2C-4

Table B2C-3: U.S. Petroleum Refinery Product Production (million barrels per day)

Year Motor

Gasoline

Distillate

Fuel Oil Jet Fuel Residual

Fuel Oil

Other

Productsa

Total

Output

Percent

Change

1990 6.96 2.92 1.49 0.95 2.95 15.27 n/a

1991 6.98 2.96 1.44 0.93 2.95 15.26 -0.1%

1992 7.08 2.98 1.40 0.89 3.08 15.44 1.2%

1993 7.30 3.13 1.42 0.84 3.09 15.79 2.2%

1994 7.18 3.20 1.45 0.83 3.13 15.79 0.0%

1995 7.46 3.16 1.42 0.79 3.18 15.99 1.3%

1996 7.59 3.32 1.52 0.73 3.21 16.37 2.3%

1997 7.74 3.39 1.55 0.71 3.36 16.76 2.4%

1998 7.89 3.42 1.53 0.76 3.43 17.03 1.6%

1999 7.93 3.40 1.57 0.70 3.39 16.99 -0.2%

2000 7.97 3.59 1.61 0.70 3.42 17.29 1.8%

2001 8.02 3.69 1.53 0.72 3.32 17.28 0.0%

2002 8.17 3.59 1.51 0.60 3.38 17.25 -0.2%

Total Percent Change

1990-2002

17.4% 22.7% 1.7% -36.9% 14.5% 13.0%

Average Annual

Growth Rate

1.3% 1.7% 0.1% -3.8% 1.1% 1.0%

a

 Includes asphalt and road oil, liquified petroleum gases, petroleum coke, still gas, kerosene, petrochemical feedstocks, lubricants, wax,

aviation gasoline, special napthas, and miscellaneous products. b

 Monthly data for motor gasoline production include blending of fuel ethanol and an adjustment to correct for the imbalance of motor

gasoline blending components.

Source: U.S. DOE, 2001b, and 2001c; U.S. DOE, 2004.

Value of shipments and value added are two common measures of manufacturing output4. They provide

insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the receipts

a manufacturer earns from the sale of its outputs; it indicates the overall size of a market or the size of a firm in

relation to its market or competitors. Value added measures the value of production activity in a particular

industry. It is the difference between the value of shipments and the value of inputs used to make the products

sold.

Figure B2C-1 on the following page shows value of shipments and value added for petroleum products from 1987

to 2001. Value of shipments rose through 1990; however, during and following the recession of 1991, value of

shipments fell through 1994. This was followed by some volatility in value over the next few years until

experiencing a sharp drop in 1998, when a range of factors led to a dramatic decrease in petroleum prices. 

Increased production quotas by OPEC, increased production from Iraq through the “oil-for-food” program, weak

demand in Asia due to their financial crisis, and a warm winter in the U.S. all increased the supply of petroleum

products (U.S. DOE, 1999c). Estimates of worldwide petroleum supply exceeding demand during 1998 range

from 1.47 millions barrels per day to 2.4 million barrels per day (World Oil, 1999). As crude oil producers and
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-5

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

198719881989

1990

1991

1992

1993

1994

1995

1996199719981999

20002001

Petroleum Refineries

(SIC 2911)

Petroleum Refineries

(NAICS 324110)

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1987

1988

1989

1990

1991

1992

1993

1994199519961997199819992000

2001

Petroleum Refineries

(SIC 2911)

Petroleum Refineries

(NAICS 324110)

refiners cutback on production, the industry rebounded with significant improvements in 1999 and 2000, before

the latest recession and global economic slowdown and weakening demand decreased the value of shipments in

2001. Value added generally followed the path of value of shipments over this time period, though it did not

quite have the volatility of the value of shipments.

Figure B2C-1: Value of Shipments and Value Added for Petroleum Refineries 

(millions, $2003)

Value of Shipments

Value Added

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the

North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the

SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996 and 1998 - 2001; U.S. DOC, 1987, 1992 and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-6

40

50

60

70

80

90

100

110

120

1987

19881989

1990

1991

1992

19931994

1995

19961997

19981999

20002001

2002

Petroleum Refineries

(SIC 2911)

B2C-2.2 Prices

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment.

Figure B2C-2 shows substantial fluctuations in petroleum product prices between 1987 and 2002. Through the

early 1990s, refiners faced declining prices due to the effects of the 1991 recession and weak demand before

rebounding somewhat in the mid 1990s. Prices plummeted in 1998 as a massive oversupply of petroleum

products coupled with decreased demand led to significant drops in petroleum prices. As the subsequent

production cutbacks took hold and the glut of supply dwindled, prices recovered in 1999 and 2000, as shown in

Figure B2C-2. The higher prices reflect low refinery product inventories and higher crude oil input prices (Value

Line, 2001). Excess supply, the global recession, impacts from 9/11, and the relatively warm winter of 2001-

2002 led to decreases in prices in subsequent years (U.S. DOE, 2004).

Figure B2C-2: Producer Price Index for Petroleum Refineries

Source: BLS, 2002.

B2C-2.3 Number of Facilities and Firms

Figure B2C-3 shows historical trends in the number of refineries and in refinery capacity. This figure shows that

the number of operable refineries fell substantially during the 1980s, with a more gradual reduction in refineries

continuing through the 1990s and into the 2000s. This decrease resulted in part from the elimination of the Crude

Oil Entitlements Program in the early 1980s. The Entitlements Program encouraged smaller refineries to add

capacity throughout the 1970s. After the program was eliminated, surplus capacity and falling profit margins led

to the closure of less efficient capacity (U.S. DOE, 1999a). The decrease in the number of refineries continued, as

the industry consolidated to improve margins. After peaking in the early 1980s, refining capacity decreased

throughout the rest of the decade. Refining capacity has remained relatively stable since the decrease in the

1980s, with a slight upward trend occurring in the latter part of the 1990s into the 2000s. This trend is expected to

continue, with no new “greenfield” refineries likely to be built in the U.S., but continuing capacity expansion at

existing facilities (S&P, 2001).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-7

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002

Thousand bbl/calendar day

100

150

200

250

300

350

400

No. of Refineries

U.S. Crude Oil Refining Capacity (000s bbl/day) No. of Operable Refineries

Figure B2C-3: Trends in Numbers of Refineries and Refining Capacity 1949-2003

Source: U.S. DOE, 2001a; U.S. DOE, 2004.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-8

Data from the Statistics of U.S. Businesses for SIC 2911 (Table B2C-4) show that the number of firms reporting

Petroleum Refining as their primary business also declined since 1990.

Table B2C-4: Number of Firms and Facilities for Petroleum Refineries

Year

Firms Facilities

Number Percent Change Number Percent Change

1990 215 n/a 340 n/a

1991 215 0.0% 346 1.8%

1992 185 -14.0% 303 -12.4%

1993 148 -20.0% 251 -17.2%

1994 161 8.8% 265 5.6%

1995 150 -6.8% 251 -5.3%

1996 173 15.3% 275 9.6%

1997 128 -26.0% 248 -9.8%

1998a 155 21.1% 304 22.6%

1999a 145 -6.5% 292 -3.9%

2000a 162 11.7% 298 2.1%

2001a 165 1.9% 302 1.3%

Total Percent Change

1990 - 2001 -23.3% -11.2%

Average Annual Growth

Rate -2.4% -1.1%

a

 Before 1998, these data were compiled in the Standard Industrial Classification (SIC) system; since 1998, these data

have been compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted

the NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS

and SIC..

Source: U.S. SBA, 1989-2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-9

60,000

62,000

64,000

66,000

68,000

70,000

72,000

74,000

76,000

198719881989199019911992199319941995199619971998199920002001

Petroleum Refineries

(SIC 2911)

Petroleum Refineries

(NAICS 324110)

B2C-2.4 Employment and Productivity

Employment in the Petroleum Refining segment declined by 15 percent between 1987 and 2001, from 74,600 to

63,258 employees, as shown in Figure B2C-4. After increasing in the early 1990s, employment at Petroleum

Refineries declined until 2000, before increasing slightly, reflecting overall industry consolidation. 

Figure B2C-4: Employment for Petroleum Refineries

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998 -2001; U.S. DOC, 1987, 1992, and 1997. 
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-10

Table B2C-5 shows substantial year-to-year changes in labor productivity, measured by value added per

production hour. These fluctuations reflect volatility in value added, which in turn reflect variations in the

relationship between input prices (primarily crude oil) and refinery product prices. Changes in production hours

from year to year were less volatile, with a net reduction over the period 1987 to 2001. Value added , however,

was not affected as it more than doubled over the same period.

Table B2C-5: Productivity Trends for Petroleum Refineries ($2003)

Year Value Added

(millions)

Production Hours

(millions)

Value Added/Hour 

($/hr) Value Added/

Hour

1987 20,524 103 199 n/a

1988 28,875 103 281 41.2%

1989 29,024 105 277 -1.1%

1990 29,553 106 279 0.7%

1991 24,767 107 233 -16.7%

1992 23,361 109 214 -8.1%

1993 22,367 107 210 -1.7%

1994 27,865 110 253 20.6%

1995 27,505 107 258 1.8%

1996 29,276 103 285 10.7%

1997 34,192 100 342 20.0%

1998a 26,310 98 269 -21.4%

1999a 34,023 94 362 34.4%

2000a 38,705 92 419 15.9%

2001a 41,627 94 445 6.2%

Total Percent

Change 1987-2001 102.8% -9.5% 124.0%

Annual Average

Growth Rate 5.2% -0.7% 5.9%

a

 Before 1998, these data were compiled in the Standard Industrial Classification (SIC) system; since 1998,

these data have been compiled in the North American Industry Classification System (NAICS). For this

analysis, EPA converted the NAICS classification data to the SIC code classifications using the 1997

Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998 - 2001; U.S. DOC, 1987, 1992, and 1997.

B2C-2.5 Capital Expenditures

Petroleum industry capital expenditures increased substantially between 1988 and 1993, but generally decreased

afterwards through the latest data year, 2001, as shown in Table B2C-6. In 2001, the industry spent almost $5

billion ($2003), as compared with $2.9 billion ($2003) in 1988. Although this represents a 69 percent increase

from 1988 to 2001, it is a 34 percent drop from what was spent in 1993, when capital expenditures peaked at $7.5

billion per year in real terms. Much recent investment in Petroleum Refineries has been to expand and de-
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-11

bottleneck units downstream from distillation, partially in response to environmental requirements. Changes in

refinery configurations have included adding catalytic cracking units, installing additional sulfur removal

hydrotreaters, and using manufacturing additives such as oxygenates. These process changes have resulted from

two factors:

< processing of heavier crudes with higher levels of sulfur and metals; and 

< regulations requiring gasoline reformulation to reduce volatiles in gasoline and production of diesel fuels

with reduced sulfur content (U.S. EPA, 1996b).

Environmentally-related investments have also accounted for a substantial part of capital expenditures. In the

future, substantial capital investments by refineries will be required to comply with: product quality regulations,

including EPA’s Tier 2 Gasoline Sulfur Rule requiring reductions in the sulfur content of gasoline; reductions or

elimination of the use of MTBE in gasoline; and proposed sulfur reductions in highway diesel fuel (NPC, 2000).

Table B2C-6: Capital Expenditures for Petroleum Refineries

Year Capital Expenditures 

(millions, $2003) % Change

1988 2,937 n/a

1989 3,248 10.6%

1990 4,017 23.7%

1991 4,945 23.1%

1992 7,007 41.7%

1993 7,509 7.2%

1994 7,156 -4.7%

1995 6,466 -9.6%

1996 6,729 4.1%

1997 5,850 -13.1%

1998a 4,700 -19.7%

1999a 4,566 -2.9%

2000a 4,257 -6.8%

2001a 4,949 16.3%

Total Percent Change 

1987 - 2001 68.5%

Average Annual

Growth Rate 4.1%

a

 Before 1998, these data were compiled in the Standard Industrial Classification (SIC) system;

since 1998, these data have been compiled in the North American Industry Classification

System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC

code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996, and 1998 - 2001; U.S. DOC, 1987, 1992, and

1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-12

Air

75%

Spills 

0%

Other

4%

Remediation

3%

W astes

6%

Water

12%

0

1,000

2,000

3,000

4,000

5,000

6,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Air/Water/Waste

Remediation/Spills

Figure B2C-5 shows pollution control expenditures (capital plus operating costs), reported by American

Petroleum Institute (API) members. Expenditures to control current environmental releases (air, water and waste)

account for the largest share of total pollution control expenditures. API estimates that the U.S. oil and natural

gas industry spent $7.875 billion in 2001 for environmental protection. Of the total 2001 environmental

expenditures to address air, water, and waste pollution from on-going operations, 32 percent ($2.5 billion) was

capital expenditures and 66 percent ($5.2 billion) was operating maintenance (API, 2003b).

Figure B2C-5: Environmental Expenditures by Type and Medium for Petroleum Refineries

Environmental Expenditures by Type, 2001

Refining Expenditures by Aggregated Types (in millions)

Source: API, 2001; API, 2003b.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-13

84

86

88

90

92

94

96

1989

1990

19911992

19931994

1995

1996

199719981999200020012002

Petroleum Refineries (SIC

2911)

Petroleum Refineries

(NAICS 324110)

B2C-2.6 Capacity Utilization

Refinery capacity is frequently measured in terms of crude oil distillation capacity. EIA defines refinery capacity

utilization as input divided by calendar day capacity, which is the maximum amount of crude oil input that can be

processed during a 24-hour period with certain limitations. Some downstream refinery capacities are measured in

terms of “stream days,” which is the amount a unit can process when running full capacity under optimal crude

and product mix conditions for 24 hours (U.S. DOE, 1999a). Downstream capacities are reported only for

specific units or products, and are not summed across products, since not all products could be produced at the

reported levels simultaneously. 

Figure B2C-6 below shows the fluctuation in utilization rates over the period 1989-2002, based Census Bureau

data. Capacity utilization fluctuated over a relatively lower range between 1989-1992, followed by an increase in

utilization rates for five straight years, concluding in 1997. After decreasing in 1998, utilization rates climbed

until 2000, before excess supply, recession, and other factors led to decreases in rates in the early 2000s. The

industry appears to be recovering, however, as the American Petroleum Institute (2004) reports that refineries

operated at 92.4 percent of capacity for 2003. Overall refinery utilization has remained high over this entire time

period. Capacity utilization relative for production o specific products may vary, however, as the industry adjusts

to changes in the desired product mix and characteristics. 

Figure B2C-6: Capacity Utilization Rates (Fourth Quarter) for Petroleum Refineries 

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the

North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the

SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1989-2002.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

5

 The 1992 Census of Manufactures is the most recent data available by SIC code and State.

B2C-14

B2C-3 STRUCTURE AND COMPETITIVENESS

The Petroleum Refining segment in the United States is made up of integrated international oil companies,

integrated domestic oil companies, and independent domestic refining/marketing companies. In general, the

petroleum industry is highly integrated, with many firms involved in more than one stage of petroleum industry

operations. Large companies, referred to as the “majors,” are fully integrated across crude oil exploration and

production, refining, and marketing. Smaller, nonintegrated companies, referred to as the “independents,”

generally specialize in one segment of the industry.

Like the oil business in general, refining was dominated in the 1990s by integrated internationals, specifically a

few large companies such as Exxon Corporation, Mobil Corporation, and Chevron Corporation. These three

ranked in the top ten of Fortune’s 500 sales during this time period. Substantial diversification by major

petroleum companies into other energy and non-energy segments was financed by high oil prices in the 1970s and

1980s. With lower profitability in the 1990s, the major producers began to exit nonconventional energy

operations (e.g., oil shale) as well as coal and non-energy operations in the 1990s. Some have recently ceased

chemical production.

During the 1990s and into the early 2000s, several mergers, acquisitions, and joint ventures occurred in the

Petroleum Refining segment in an effort to cut cost and increase profitability. This consolidation has taken place

among the largest firms (as illustrated by the acquisition of Amoco Corporation by British Petroleum in 1999, the

merger of Chevron and Texaco in 2001, the merger of Conoco and Phillips in 2002, and the mega-merger of

Exxon and Mobil Corporation in 1998) as well as among independent refiners and marketers (e.g., the

independent refiner/marketer Ultramar Diamond Shamrock (UDS) acquired Total Petroleum North America in

1997) (U.S. DOE, 1999b, 2004). Merger activity seems to have slowed since 2002, however, possibly as

companies seek to address financial issues or wait to see that the recent positive economic growth continues (U.S.

DOE, 2004).

B2C-3.1 Geographic Distribution

Petroleum Refining facilities are more often located in areas near crude oil sources and/or near consumers. The

cost of transporting crude oil feed stocks and finished products is an important influence on the location of

refineries. Most Petroleum Refineries are located along the Gulf Coast and near the heavily industrialized areas

of both the east and west coasts (U.S. DOE, 1997).

Figure B2C-7 shows the distribution of all facilities by State in the profiled petroleum segments, based on the

1992 Census of Manufactures5

. In 1992, 44 refineries were located in Texas, 32 in California, and 20 in

Louisiana, accounting for 43 percent of SIC 2911 facilities in the United States.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-15

4

3

2

4

8

2

6

1

7

7

7

2

3

6 3

1

4

7

2 2

7 2

20

14 6

2

32

44

Number of Facilities

0 - 1

2 - 4

5 - 8

9 - 20

21 - 44

Figure B2C-7: Geographic Distribution of Petroleum Refineries

Source: U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-16

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1-4 5-9 10-19 20-49 50-99 100-249 250-499 500-999 1,000-

2,499

0

5

10

15

20

25

30

35

40

45

50

1-4 5-9 10-19 20-49 50-99 100-249 250-499 500-999 1,000-

2,499

B2C-3.2 Facility Size

A substantial portion of the facilities in SIC 2911 employ a large number of employees, with 41 percent having

250 or more employees. Figure B2C-8 shows that approximately 87 percent of the value of shipments for the

industry is produced by the 41 percent of establishments with more than 250 employees. Establishments with

more than 1,000 employees are responsible for approximately 36 percent of all industry shipments.

Figure B2C-8: Value of Shipments and Number of Facilities in 1992a

 for Petroleum Refineries

by Employment Size Category

Number of Facilities

Value of Shipments ($ millions)

a

 The 1992 Census of Manufactures is the most recent data available by SIC code and facility employment size.

Source: U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

6

Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high

concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers

or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios

based on share of domestic production are therefore only one indicator of the extent of competition in an industry.

B2C-17

B2C-3.3 Firm Size

For SIC 2911, the Small Business Administration defines a small firm as having 1,500 or fewer employees. The

size categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond with the SBA size

classifications, therefore preventing precise use of the SBA size threshold in conjunction with SUSB data. Table

B2C-7 below shows the distribution of firms and establishments in SIC 2911 by the employment size of the

parent firm. The SUSB data show that 180 of the 302 SIC 2911 establishments reported for 2001 (60 percent) are

owned by larger firms (those with 500 employees or more), some of which may still be defined as small under the

SBA definition, and 112 (40 percent) are owned by small firms (those with fewer than 500 employees).

Table B2C-7: Number of Firms, Establishments, and Estimated

Receipts for Petroleum Refineries by Firm Employment Size

Category (2001)

Employment Size

Category Number of Firms Number of Establishments

0-19 71 71

20-99 22 23

100-499 23 28

500+ 49 180

Total 165 302

a

 Before 1998, the Department of Commerce compiled data in the SIC system;

since 1998, these data have been compiled in the North American Industry

Classification System (NAICS). For this analysis, EPA converted the NAICS

classification data to the SIC code classifications using the 1997 Economic Census

Bridge Between NAICS and SIC.

Source: U.S. SBA, 1989-2001.

B2C-3.4 Concentration Ratios

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is

closely related to entry barriers, with more concentrated industries generally having higher barriers.

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things

being equal6

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602 + 302

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-18

As shown in Table B2C-8, the CR4 and the HHI for SIC 2911 are both below the benchmarks of 50 percent and

1,000, respectively. For the Petroleum Refining segment, the HHI is 422, suggesting the sector is unconcentrated. 

With the majority of the firms in this industry having small market shares, this suggests limited potential for

passing through to customers any increase in production costs resulting from regulatory compliance.

Table B2C-8: Selected Ratios for Petroleum Refineries

SIC Year

Total

Number

of Firms

Concentration Ratios

4 Firm

(CR4)

8 Firm

(CR8)

20 Firm

(CR20)

50 Firm

(CR50)

HerfindahlHirschman

Index

2911

1987 200 32% 52% 78% 95% 435

1992 132 30% 49% 78% 97% 414

1997 122 28% 49% 83% 98% 422

Source: U.S. DOE, 1987, 1992, and 1997.

B2C-3.5 Foreign Trade

This profile uses two measures of foreign competition: export dependence and import penetration.

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests

that higher import penetration levels will reduce market power and pricing discretion because foreign competition

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be

less likely to succeed in passing compliance costs through to customers.

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through

price increases since export sales are presumed subject to substantial competition from foreign producers.

Table 4D-9 presents trade statistics for the profiled Petroleum Refining segment from 1989 to 2001. The table

shows that while export dependence has been relatively stable, import penetration decreased during the economic

weakness of the early 1990s, before leveling off through the mid 1990s. Import penetration increased steadily

through 2000 and then dropped slightly in 2001. This cycle follows the growth in the U.S. economy of the late

1990s, followed by the subsequent economic slowdown arriving in the latter half of 2000 into 2001. Mexico

received the largest amount of U.S. exported refined petroleum products in 2001, followed by Canada and Japan. 

Imports of refined petroleum products increased 47.3 percent from 1989 to 2001, with 46.6 percent of total

imports coming from OPEC countries (U.S. DOE, 2003b).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-19

The import penetration ratio for facilities in the Petroleum Refining segment in 2001 was only 15 percent, well

below the U.S. manufacturing segment average of 22 percent. The export dependence ratio for petroleum refiners

in 2001 was only four percent compared to the U.S. manufacturing average of 15 percent. Thus, based on the

lack of competitive pressures from foreign markets/firms, the petroleum industry appears to be in a position to

pass-through to consumers a significant portion of compliance-related costs associated with the Phase III

regulation. However, given the low HHI for this industry EPA believes that existing market competition among

domestic firms most likely nullifies any favorable influence the lack of foreign competitors would have on

increasing the market power of firms in this industry.

Table B2C-9: Foreign Trade Statistics for Petroleum Refining

Year

Value of

Imports

(millions,

$2003)

Value of

Exports

(millions,

$2003)

Value of

Shipments

(millions,

$2003)

Implied

Domestic

Consumptiona

Import

Penetration b

Export

Dependence

B2989 15,867 5,807 176,444 186,504 8.5% 3.3%

1990 18,477 7,754 206,424 217,147 8.5% 3.8%

1991 13,625 7,952 181,906 187,579 7.3% 4.4%

1992 12,457 7,043 166,625 172,039 7.2% 4.2%

1993 11,646 6,743 155,357 160,260 7.3% 4.3%

1994 10,856 5,804 150,633 155,685 7.0% 3.9%

1995 10,054 6,117 156,200 160,137 6.3% 3.9%

1996 20,837 7,092 177,942 191,687 10.9% 4.0%

1997d 22,627 7,621 175,693 190,699 11.9% 4.3%

1998d 18,683 5,680 129,399 142,402 13.1% 4.4%

1999d 23,627 6,221 155,768 173,174 13.6% 4.0%

2000d 42,334 9,221 227,748 260,861 16.2% 4.0%

2001d 36,252 8,333 206,312 234,231 15.5% 4.0%

Total Percent Change 

1989-2001 128.5% 43.5% 16.9%

Average Annual

Growth Rate 7.1% 3.1% 1.3%

 Calculated by EPA as shipments + imports - exports. b

 Calculated by EPA as imports divided by implied domestic consumption. c

 Calculated by EPA as exports divided by shipments.

d

 Before 1998, these data were compiled in the Standard Industrial Classification (SIC) system; since 1998, these data have been

compiled in the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification

data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC..

Source: U.S. DOC, 2001; U.S. DOC 1988-1991, 1993-1996, and 1998 - 2001; U.S. DOE, 2001b.

The United States consumes more petroleum than it produces, requiring net imports of both crude oil and

products to meet domestic demand. In 2002, the U.S. imported 9.05 million barrels per day (MBD) of crude oil

and 2.31 MBD of refined products. These refined product imports represented roughly 12 percent of the 19.65

MBD of refined products supplied to U.S. consumers. The U.S. exported 0.97 MBD of refined products in 2002

(U.S. DOE, 2003b).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-20

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1989

19901991

1992

1993

1994

19951996

19971998

19992000

20012002

Imports (SIC 2911)

Imports (NAICS to SIC)

Exports (SIC 2911)

Exports (NAICS to SIC)

Imports of refined petroleum products have fluctuated since 1985. Imports rose to 2.3 MB in the early 1980s, due

to rapid growth in oil consumption, especially consumption of light products, which exceeded the growth in U.S.

refining capacity. Imports then declined as a result of the 1990/91 recession and increased upgrading of refinery

capacity resulting primarily from the 1990 Clean Air Act Amendments and other environmental requirements

(U.S. DOE, 1997). Since the 1995 low point, imports steadily increased through 2000 with the exception of

1998, before dropping again, due to general economic weakness, in 2001 and 2002 (see Figure B2C-9).

Figure B2C-9: Value of Imports and Exports for Petroleum Refining (millions, $2003)

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOE, 2001b.; U.S. DOE, 2003b.

Petroleum exports include heavy products such as residual fuel oil and petroleum coke, which are produced as coproducts with motor gasoline and other light products. Production of these heavier products often exceeds U.S.

demand, and foreign demand absorbs the excess. Petroleum coke is the leading petroleum export product,

accounting for 35 percent of petroleum exports in 2002, followed by residual fuel oil (18 percent of exports) and

motor gasoline (almost 13 percent) (U.S. DOE, 2003b). Exports generally reflect foreign demand, but other

factors influence exports as well. For example, exports of motor gasoline increased due to high prices in Europe

at the time of the 1990 Persian Gulf war. U.S. refiners and marketers have gained experience in marketing to

diverse world markets, and U.S. products are now sold widely abroad (U.S. DOE, 1997). As reported by the

International Trade Administration and shown in Figure B2C-9, the real value of petroleum exports has fluctuated

between $5 and $10 billion during the years 1989 and 2002.

B2C-4 FINANCIAL CONDITION AND PERFORMANCE

The financial performance and condition of the Petroleum Refining segment are important determinants of its

ability to withstand the costs of regulatory compliance without material adverse economic/financial impact. To

provide insight into the industry’s financial performance and condition, EPA reviewed two key measures of

financial performance over the 12-year period, 1992-2003: net profit margin and return on total capital. EPA
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

7

Crude oils processed by U.S. refineries have become heavier and more contaminated with materials such as sulfur. This trend

reflects reduced U.S. dependence on the more expensive high gravity (“light”) and low sulfur (“sweet”) crude oils produced in the Middle

East, and greater reliance on crude oil from Latin America (especially Mexico and Venezuela), which is relatively heavy and contains

higher sulfur (“sour”) (U.S. DOE, 1999a). 

8

Demand for lighter products such as gasoline and diesel fuel has increased, and demand for heavier products has decreased.

9

Reductions in costs resulted from:

< divesting marginal refineries and gasoline outlets;

< divesting less profitable activities (e.g., gasoline credit cards);

< reducing corporate overhead costs, including eliminating redundancies through restructuring;

< outsourcing some administrative activities; and 

< use of new technologies requiring less labor.

B2C-21

calculated these measures as a revenue-weighted index of measure values for public reporting firms in the

respective industries, using data from the Value Line Investment Survey. Financial performance in the most

recent financial reporting period (2003) is obviously not a perfect indicator of conditions at the time of regulatory

compliance. However, examining the trend, and deviation from the trend, through the most recent reporting

period gives insight into where the industry may be, in terms of financial performance and condition, at the time

of compliance. In addition, the volatility of performance against the trend, in itself, provides a measure of the

potential risk faced by the industry in a future period in which compliance requirements are faced: all else equal,

the more volatile the historical performance, the more likely the industry may be in a period of relatively weak

financial conditions at the time of compliance.

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales

or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from

several factors, including: variations in aggregate economic conditions (including international and U.S.

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the

cost of energy to the petroleum refining process). The extent to which these fluctuations affect an industry’s

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a

capital intensive industry such as Petroleum Refining, the relatively high fixed capital costs as well as other fixed

overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative affect

on profit margin.

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate,

over time, a sufficient return on capital if the industry is to remain economically viable and attract capital. The

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in

return on total capital.

Figure B2C-10 below shows trends in net profit margins and return on total capital for the Petroleum Refining

segment between 1992 and 2003. Through the first half of the 1990s, the petroleum industry was characterized

by unusually low product margins, low profitability, and substantial restructuring. These low profit margins

resulted from three cost-side factors – (1) increases in operating costs as a result of governmental regulations; (2)

expensive upgrading of processing units to accommodate lower-quality crude oils;7

 and (3) upgrading of

operations to adapt to changes in demand for refinery products8

 – coupled with lower product prices, resulting

from competitive pressures (API, 1999). In the late 1990s, the petroleum industry pursued cost-cutting measures

throughout their operations (Rodekohr, 1999)9

. These cost-cutting measures, along with increases in the prices of
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

10 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of Manufactures

reported cooling water use.

11 The proposed Phase III regulation also applies to existing electric generating facilities as well as certain facilities in the oil and gas

extraction industry and the seafood processing industry. See Chapters B4 and B5 and Part C of this document for more information on

these industries.

B2C-22

0%

5%

10%

15%

20%

25%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Return on Total Capital

- Petroleum Refining

Net Profit Margin -

Petroleum Refining

petroleum refining products, resulted in significantly improved financial performance in the Petroleum Refining

segment. Refinery profits remained high in 2000 and the first half of 2001, due to low product inventories and

high operating rates. The latter half of 2001 and 2002 saw the effects of the global recession, the attacks of 9/11,

and a mild winter. These factors, coupled with world supply in excess of demand, led to decreases in refiner

margins, as crude oil prices increases and petroleum product prices decreased. In 2003, as the U.S. economy

began recovery from its economic weakness, the domestic Petroleum Refining segment returned to relatively

strong financial performance.

Figure B2C-10: Net Profit Margin and Return on Total Capital for Petroleum Refining

Source: Value Line 1999-2003

B2C-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES

Section 316(b) of the Clean Water Act applies to point source facilities that use, or propose to use, a cooling water

intake structure that withdraws cooling water directly from a surface waterbody of the United States. In 1982, the

Petroleum and Coal Products industry (SIC 29) withdrew 590 billion gallons of cooling water, accounting for

approximately 0.8 percent of total industrial cooling water intake in the United States10. The industry ranked 4th in

industrial cooling water use, behind the electric power generation industry and the chemical and primary metals

industries (1982 Census of Manufactures).

This section provides information for facilities in the petroleum segment potentially subject to the proposed

regulation. Existing facilities that meet all of the following conditions are potentially subject to the proposed

regulation:11

< Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

12 EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not respond to the

survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information Collection Request (U.S.

EPA, 2000).

B2C-23

intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least twenty-five (25)

percent of the water withdrawn is used for contact or non-contact cooling purposes;

< Have a National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one;

and

< Have a design intake flow of greater than 2 million gallons per day (MGD).

The proposed Phase III regulation also covers substantial additions or modifications to operations undertaken at

such facilities. While all facilities that meet these criteria are potentially subject to the regulation, this section

focuses on the 36 facilities nation-wide in the petroleum segment identified in EPA’s 2000 Section 316(b)

Industry Survey as being potentially subject to the proposed regulation12. Information collected in the Detailed

Industry Questionnaire found that an estimated 36 of 163 Petroleum Refining facilities, or 22 percent, meet the

characteristics of a potential Phase III facility.

B2C-5.1 Waterbody and Cooling System Type

Table B2C-10 shows the distribution of existing Section 316(b) Petroleum Refineries by type of water body and

cooling system. Twenty-six facilities, or 74 percent, obtain their cooling water from either a freshwater stream or

a river. Five facilities (14 percent) of refineries obtain their cooling water from either an estuary or a tidal river. 

Two facilities, or 6 percent, obtain their cooling water from a Great Lake. The other two sources of cooling water

reported for Petroleum Refineries were oceans and lakes/reservoirs, accounting for three percent each.

The most common cooling water system used by Petroleum Refineries is a recirculating cooling system,

representing approximately 53 percent of all systems used by refineries. Thirty-one percent of all refineries use a

combination cooling system. The remaining 14 percent use a once-through cooling system. Of the five plants

that withdraw from an estuary, the most sensitive type of waterbody, two use a once-through system. Plants with

once-through cooling water systems withdraw between 70 and 98 percent more water than those with

recirculating systems.

Table B2C-10: Number of Section 316(b) Petroleum Refining Facilities by Water Body Type

and Cooling System Type

Water Body Type

Cooling System

Total Recirculating Combination Once-Through

Number % of

Total Number % of

Total Number % of

Total

Estuary/ Tidal River 0 0% 3 60% 2 40% 5

Ocean 0 0% 0 0% 1 100% 1

Lake/ Reservoir 1 100% 0 0% 0 0% 1

Freshwater Stream/ River 18 69% 6 23% 2 8% 26

Great Lake 0 0% 2 100% 0 0% 2

Totala 19 53% 11 31% 5 14% 36

a

 Individual numbers may not add up to total due to independent rounding.

Source: U.S. EPA, 2000.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-24

0

9

7

14

7

0

2

4

6

8

10

12

14

<100 100-249 250-499 500-999 >=1000

According to the American Petroleum Institute and EPA, water use at Petroleum Refineries has been declining

because facilities are increasing their reuse of water (U.S. EPA, 1996a).

B2C-5.2 Facility Size

Section 316(b) sample facilities are larger than facilities in the petroleum refining industry as a whole, as reported

in the Census and discussed previously:

< Forty percent of all facilities in the refineries segment had fewer than 100 employees in 1992; none of the

potential Phase III facilities in that segment fall into that employment category.

Figure B2C-11 shows the number of potential Phase III facilities by employment size category.

Figure B2C-11: Number of Section 316(b) Petroleum Refineries by Employment Size Category

Source: U.S. EPA, 2000.

B2C-5.3 Firm Size

EPA used the Small Business Administration (SBA) small entity thresholds to determine the number of existing

Section 316(b) petroleum refineries owned by small firms. Firms in this industry are considered small if they

employ fewer than 1,500 people. Table B2C-11 shows that all of the Section 316(b) Petroleum Refineries are

owned by large firms.

Table B2C-11: Number of Section 316(b) Petroleum Refineries by Firm Size

SIC

Large Small

Total

No. % of SIC No. % of SIC

2911 36 100% 0 0% 36

Source: U.S. EPA, 2000; U.S. SBA, 2000; D&B, 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-25

REFERENCES

American Petroleum Institute (API). 2004. “Year-end API monthly statistical report.” January 14, 2004.

American Petroleum Institute (API). 2003a. “Year-end statistical report, 2002.” January 15, 2003.

American Petroleum Institute (API). 2003b. Policy Analysis and Statistics Department. U.S. Petroleum

Industry’s Environmental Expenditures, 1992-2001. February 20, 2003.

American Petroleum Institute (API). 2001. Policy Analysis and Statistics Department. U.S. Petroleum

Industry’s Environmental Expenditures, 1990-1999. January 19, 2001.

American Petroleum Institute (API). 1999. Policy Analysis and Strategic Planning Department. Economic State

of the U.S. Petroleum Industry. February 26, 1999.

Bureau of Labor Statistics (BLS). 2002. Producer Price Index. Series: PCU29__#–Petroleum Refining and

Related Products.

Dun and Bradstreet (D&B). 2001. Data extracted from D&B Webspectrum August 2001.

Executive Office of the President. 1987. Office of Management and Budget. Standard Industrial Classification

Manual.

Rodekohr, Dr. Mark. Financial Developments in ‘96-‘97: How the U.S. Majors Survived the 1998 Crude Oil

Price Storm. Presentation. May 27, 1999. Available at:

http://www.eia.doe.gov/emeu/finance/highlite7/sld001.htm

Standard & Poor’s. (S&P) 2001. Industry Surveys - Oil & Gas: Production & Marketing. March 8, 2001.

U.S. Department of Commerce (U.S. DOC). 1989-2002. Bureau of the Census. Current Industrial Reports. 

Survey of Plant Capacity.

U.S. Department of Commerce (U.S. DOC). 2001. Bureau of the Census. International Trade Administration.

U.S. Department of Commerce (U.S. DOC). 1988-1991, 1993-1996, and 1998 - 2001. Bureau of the Census. 

Annual Survey of Manufactures.

U.S. Department of Commerce (U.S. DOC). 1997. Bureau of the Census. 1997 Economic Census Bridge

Between NAICS and SIC.

U.S. Department of Commerce (U.S. DOC). 1987, 1992, and 1997. Bureau of the Census. Census of

Manufactures.

U.S. Department of Energy (U.S. DOE). 2004. Energy Information Administration. Performance Profiles of

Major Energy Producers 2002. DOE/EIA-0206(04). February 2004.

U.S. Department of Energy (U.S. DOE). 2003a. Energy Information Administration. Petroleum Supply Annual

2002, Volume 1. DOE/EIA-0340(02)/1. June 2003.

U.S. Department of Energy (U.S. DOE). 2003b. Energy Information Administration. Annual Energy Review

2002. DOE/EIA-0384(2002). October 2003.

U.S. Department of Energy (U.S. DOE). 2001a. Energy Information Administration. Petroleum Supply Annual

2000, Volume 1. DOE/EIA-0340(00)/1. June 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2C: Petroleum Refining

B2C-26

U.S. Department of Energy (U.S. DOE). 2001b. Energy Information Administration. Annual Energy Review

2000. DOE/EIA-0384(00). August 2001.

U.S. Department of Energy (U.S. DOE). 2001c. Energy Information Administration. Monthly Energy Review. 

DOE/EIA-0035(2001/10). October 2001. 

U.S. Department of Energy (U.S. DOE). 1999a. Energy Information Administration. Petroleum: An Energy

Profile, 1999. p. 25. DOE/EIA-0545(99). July 1999.

U.S. Department of Energy (U.S. DOE). 1999b. Energy Information Administration. The U.S. Petroleum

Refining and Gasoline Marketing Industry. Recent Structural Changes in U.S. Refining: Joint Ventures, Mergers,

and Mega-Mergers. July 9, 1999.

U.S. Department of Energy (U.S. DOE). 1999c. Energy Information Administration. Petroleum Marketing

Annual 1998. DOE/EIA-0487(98). October 1999.

U.S. Department of Energy (U.S. DOE). 1997. Energy Information Administration. Petroleum 1996: Issues and

Trends. 

p. 15. DOE/EIA-0615(96). September 1997.

U.S. Department of Energy (U.S. DOE). Financial Reporting System (FRS) historical data. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. Detailed Industry Questionnaire: Phase II Cooling

Water Intake Structures.

U.S. Environmental Protection Agency (U.S. EPA). 1996a. Office of Water. Preliminary Data for the

Petroleum Refining Category. EPA-821-R-96-016. July, 1996.

U.S. Environmental Protection Agency (U.S. EPA). 1996b. Office of Solid Waste. Study of Selected Petroleum

Refining Residuals: Industry Study. August, 1996.

U.S. Small Business Administration (U.S. SBA). 1989-2001. Statistics of U.S. Businesses.

Available at: http://www.sba.gov/advo/stats/int_data.html

U.S. Small Business Administration (U.S. SBA). 2000. Small Business Size Standards. 13 CFR section 121.201.

Value Line. 1992-2003. Value Line Investment Survey.

Value Line. 2001. “Petroleum (Integrated) Industry.” September 21, 2001.

World Oil. 1999. “1998: A year of infamy.” February 1, 1999. Vol. 220. No.2 Available at:

http://www.worldoil.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=478&MONTH_YEAR=Feb-1999
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-1

CHAPTER CONTENTS

B2D-1 Summary Insights from this Profile . . . . . . . . . . B2D-3

B2D-2 Domestic Production . . . . . . . . . . . . . . . . . . . . . B2D-4

B2D-2.1 Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2D-5

B2D-2.2 Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2D-9

B2D-2.3 Number of Facilities and Firms . . . . . . . . . B2D-9

B2D-2.4 Employment and Productivity . . . . . . . . . B2D-11

B2D-2.5 Capital Expenditures . . . . . . . . . . . . . . . . B2D-14

B2D-2.6 Capacity Utilization . . . . . . . . . . . . . . . . . B2D-15

B2D-3 Structure and Competitiveness . . . . . . . . . . . . . B2D-16

B2D-3.1 Geographic Distribution . . . . . . . . . . . . . B2D-17

B2D-3.2 Facility Size . . . . . . . . . . . . . . . . . . . . . . . B2D-18

B2D-3.3 Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . B2D-20

B2D-3.4 Concentration Ratios . . . . . . . . . . . . . . . . B2D-20

B2D-3.5 Foreign Trade . . . . . . . . . . . . . . . . . . . . . . B2D-22

B2D-4 Financial Condition and Performance . . . . . . . B2D-24

B2D-5 Facilities Operating Cooling Water Intake

Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2D-25

B2D-5.1 Waterbody and Cooling System Type . . . B2D-26

B2D-5.2 Facility Size . . . . . . . . . . . . . . . . . . . . . . . B2D-27

B2D-5.3 Firm Size . . . . . . . . . . . . . . . . . . . . . . . . . B2D-28

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B2D-29

Chapter B2D: Steel (SIC 331)

EPA’s Detailed Industry Questionnaire,

hereafter referred to as the DQ, identified five 4-

digit SIC codes in the Steel Works, Blast

Furnaces, and Rolling and Finishing Mills

Industries (SIC 331) with at least one existing

facility that operates a CWIS, holds a NPDES

permit, withdraws equal to or greater than two

million gallons per day (MGD) from a water of

the United States, and uses at least 25 percent of

its intake flow for cooling purposes (facilities

with these characteristics are hereafter referred

to as facilities potentially subject to the Phase III

regulation or “potential Phase III facilities”). 

For each of the five SIC codes, Table B2D-1

below provides a description of the industry

segment, a list of primary products

manufactured, the total number of detailed

questionnaire respondents (weighted to represent

national results), and the number and percent of

potential Phase III facilities within the estimated

national total of facilities in the respective

industry SIC code groups.

Table B2D-1: Potential Phase III facilities in the Steel Industry (SIC 331)

SIC SIC Description Important Products Manufactured

Number of Facilitiesa

Total Potential Phase

III facilities b %

Steel Mills (SIC 3312)

3312

Steel Works, Blast

Furnaces (Including

Coke Ovens), and

Rolling Mills

Hot metal, pig iron, and silvery pig iron from iron ore

and iron and steel scrap; converting pig iron, scrap

iron, and scrap steel into steel; hot-rolling iron and

steel into basic shapes, such as plates, sheets, strips,

rods, bars, and tubing; merchant blast furnaces and

byproduct or beehive coke ovens

161 46 28.6%

Steel Products (SICs 3315, 3316, 3317)

3315 Steel Wiredrawing and

Steel Nails and Spikes

Drawing wire from purchased iron or steel rods, bars,

or wire; further manufacture of products made from

wire; steel nails and spikes from purchased materials

122 7 5.7%

3316 Cold-Rolled Steel Sheet,

Strip, and Bars

Cold-rolling steel sheets and strip from purchased hotrolled sheets; cold-drawing steel bars and steel shapes

from hot-rolled steel bars; producing other cold

finished steel

57 10 17.5%

3317 Steel Pipe and Tubes Production of welded or seamless steel pipe and tubes

and heavy riveted steel pipe from purchased materials 130 5 3.8%

Total Steel Products 309 21 6.8%
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

Table B2D-1: Potential Phase III facilities in the Steel Industry (SIC 331)

SIC SIC Description Important Products Manufactured

Number of Facilitiesa

Total Potential Phase

III facilities b %

B2D-2

Other Segments

3313 Electrometallurgical

Products, Except Steel

Ferro and nonferrous metal additive alloys by

electrometallurgical or metallothermic processes,

including high percentage ferroalloys and high

percentage nonferrous additive alloys

6 2 33.3%

Total Steel (SIC 331)

Total SIC Code 331 476 68 14.3%

a

 Number of weighted detailed questionnaire survey respondents. b

 Individual numbers may not add up due to independent rounding.

Source: U.S. EPA, 2000; Executive Office of the President, 1987

The table shows that an estimated 68 out of 476 facilities (or 14 percent) in the Steel Industry (SIC 331) are

potentially subject to this proposed regulation. EPA also estimated the percentage of total production that occurs

at facilities potentially subject to the proposed regulation. Total value of shipments for the steel industry from

the 1998 Annual Survey of Manufacturers is $76.2 billion. Value of shipments, a measure of the dollar value of

production, was selected for the basis of this estimate. Because value of shipments data were not collected using

the DQ, these data were not available for the sample of Phase III manufacturing facilities potentially subject to the

proposed regulation. Total revenue, as reported on the DQ, was used a close approximation for value of

shipments for these facilities. EPA estimated the total revenue of facilities in the steel industry subject to the

proposed regulation is $38.4 billion. Therefore, EPA estimates that 50 percent of total production in the steel

industry occurs at facilities potentially subject to the proposed regulation.

The responses to the Detailed Questionnaire indicate that two main steel segments account for the largest numbers

of potential Phase III facilities: (1) Steel Mills (SIC code 3312) and (2) Steel Products (SIC codes 3315, 3316, and

3317). Of the 70 potential Phase III facilities in the steel industry, 46, or 66 percent, are Steel Mills, and 22, or 32

percent, are Steel Products facilities. The remainder of the steel industry profile therefore focuses on these two

industry segments

Table B2D-2 provides the cross-walk between SIC codes and the new NAICS codes for the profiled steel SIC

codes. The table shows that both cold finishing of steel shapes (SIC 3316) and steel pipe and tubes (SIC 3317)

have a one-to-one relationship to NAICS codes. The other SIC codes in the profiled steel segments correspond to

two NAICS codes.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-3

Table B2D-2: Relationships between SIC and NAICS Codes for the Steel Industries (1997)

SIC

Code SIC Description NAICS

Code NAICS Description Number of

Establishments

Value of

Shipments

($1000)

Employment

3312

Blast furnaces and

steel mills 324199 All other petroleum and coal

products manufacturing (pt) 8 438,107 1,731

Blast furnaces and

steel mills 331111 Iron and steel mills (pt) 193 56,358,764 144,074

3313

Electrometallurgical

products 331112

Electrometallurgical

ferroalloy product

manufacturing

24 1,409,834 3,724

Electrometallurgical

products 331492

Secondary smelting, refining,

and alloying of nonferrous

metal (except copper and

aluminum) (pt)

4 125,945 311

3315

Steel wire and related

products 331222 Steel wire drawing 273 4,920,798 23,489

Steel wire and related

products 332618 Other fabricated wire product

manufacturing (pt) 31 370,492 2,265

3316 Cold finishing of steel

shapes 331221 Cold-rolled steel shape

manufacturing 186 6,343,466 14,362

3317 Steel pipe and tubes 331210

Iron and steel pipes and tubes

manufacturing from

purchased steel

235 7,565,377 27,723

Source: U.S. DOC, 1997

B2D-1 SUMMARY INSIGHTS FROM THIS PROFILE

A key purpose of this profile is to provide insight into the ability of steel industry firms that would be subject to

the 316(b) regulation to absorb compliance costs without material adverse economic/financial effects. Two

important factors in the ability of the industry’s ability to withstand compliance costs are: (1) the extent to which

the industry may be expected to shift compliance costs to its customers through price increases and (2) the

financial health of the industry and its general business outlook. 

Likely Ability to Pass Compliance Costs Through to Customers

As reported in the following sections of this profile, the steel industry is relatively unconcentrated, which would

suggest that firms in this industry would have difficulty in passing through to customers a significant portion of

their compliance-related costs. In addition, the domestic steel industry faces high competition from imports into

the U.S. market, further curtailing the potential of firms in this industry to pass through to customers a significant

portion of their compliance-related costs. As discussed above, the proportion of total value of shipments in the

industry potentially subject to the proposed regulation is 50 percent. The actual proportion of total value of

shipments subject to regulation-induced compliance costs would be smaller since not all of the facilities would be

subject to the national categorical requirements of the proposed regulation: that is, facilities below the proposed

design intake flow (DIF) would be subject to permitting based on best professional judgement (BPJ) rather than

based on national standards, and several facilities currently employ baseline technologies that meet the

requirements of the proposed regulation. Given the likelihood that these percentages represent upper bound

estimates, EPA believes that the theoretical threshold for justifying the use of industry-wide CPT rates in the

impact analysis of existing Phase III steel facilities has not been met. For these reasons, in its analysis of

regulatory impacts for the steel industry, EPA assumed that complying firms would be unable to pass compliance

costs through to customers: i.e., complying facilities must absorb all compliance costs within their financial
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

1

 Large integrated producers include such companies as Bethlehem Steel, LTV, and U.S. Steel. Nucor is the largest U.S. minimill

producer.

2

 Production from open hearth furnaces, which dominated production until the early 1950s, ended in 1991. BOF facilities have

traditionally been referred to as integrated producers, because they combined iron-making from coke, production of pig iron in a blast

furnace, and production of steel in the BOF. In recent years, some facilities have closed their coke ovens. These BOF facilities are no

longer fully integrated. 

B2D-4

condition at the time of compliance (see following sections and Appendix 3 to Chapter B3: Economic Impact

Analysis for Manufacturers for further information).

Financial Health and General Business Outlook

Over the past decade, the steel industry, like other U.S. manufacturing industries, experienced a range of

economic/financial conditions, including substantial challenges. The U.S. steel industry went through a difficult

restructuring process in the 1980s and early 1990s, including the closing of a number of inefficient mills,

substantial investment in new technologies, and reductions in the labor force. Although U.S. demand for steel

was strong in the late 1990s, low-priced imports increased substantially in 1998, which caused a number of U.S.

steel bankruptcies and steelworker layoffs. The increased imports resulted from the Asian financial crisis, with

the associated decline in Asian demand for steel and currency devaluations. Tariffs provided temporary relief

through 2002; however, all tariffs were removed by the end of 2003. The steel industry was also negatively

affected by economic recession in 2000 and 2001 and has been slow to recover. The industry has weathered

difficult periods over the past few years and may be in position for better performance with continued

strengthening of the U.S. economy. However, until such improvement manifests more concretely, the industry’s

relatively weak financial condition suggest a lower ability (among the industries subject to the 316(b) regulation)

to withstand additional regulatory compliance costs without imposing significant financial impacts.

B2D-2 DOMESTIC PRODUCTION

Steel is one of the most important products of the U.S. industrial metals industry. For most of the twentieth

century, the U.S. steel industry consisted of a few large companies utilizing an integrated steelmaking process to

produce the raw steel used in a variety of commodity steel products. The integrated process requires a large

capital investment to process coal, iron ore, limestone, and other raw materials into molten iron, which is then

transformed into finished steel products (S&P, 2001). In recent decades, the integrated steel industry has

undergone a dramatic downsizing as a result of increased steel imports, decreased consumption by the auto

industry, and the advent of “minimills” (S&P, 2001)1

. While the traditional integrated facilities using basic

oxygen furnaces (BOF) still account for a substantial percent of U.S. steel mill product production, the share of

electric arc furnace (EAF) facilities using scrap steel as an input has grown steadily2

. By 2002, about 72

companies operating about 107 steelmaking plants used the EAF steelmaking process; these non-integrated,

minimill facilities produced 46.1 million metric tons of steel, an increase of about eight percent compared with

that of 2001, and accounted for 50.4 percent of total steelmaking (USGS, 2002). The range of products produced

by EAFs has also expanded over time. Initially, EAFs produced primarily lower-quality structural materials. 

Starting in the 1990s, EAFs began producing higher quality sheet products as well. All recent capacity additions

have been at EAF facilities. 

Basic steel mill products include carbon steel, steel alloys, and stainless steel. Steel forming and finishing

operations may take place at facilities co-located with steelmaking or at separate facilities. These operations take

steel (in the form of blooms, billets, and slabs) and use heating, rolling or drawing, pickling, cleaning,

galvanizing, and electroplating processes in various combinations to produce finished bars, wire, sheets, and coils

(semifinished steel products). Establishments that produce hot rolled products, along with basic BOF and EAF

steelmaking facilities, are included in SIC 3312. SIC codes 3315, 3316, and 3317 perform additional processing

of steel bars, wires, sheets, and coils (including cold-rolling of sheets) to produce steel products for a variety of

end-uses (U.S. EPA, 1995).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-5

The steel industry is the fourth largest energy-consuming industry in the U.S. economy. Energy costs account for

approximately 17 percent of the total manufacturing cost (AISI 2000). Steelmakers use coal, oil, electricity, and

natural gas to fire furnaces and run process equipment. Minimill producers require large quantities of electricity

to operate the electric arc furnaces used to melt and refine scrap metal, while integrated steelmakers depend on

coal for up to 60 percent of their total energy requirements (McGraw-Hill, 1998).

B2D-2.1 Output

Steel mill products are sold to service centers (which buy finished steel, often process it further, and sell to a

variety of fabricators, manufacturers, and construction industry clients), to vehicle producers, and to the

construction industry. The rapid growth in sales of heavy sports utility vehicles contributed to increased U.S.

steel consumption in the 1990s. Efforts to increase the fuel efficiency of vehicles has eroded steel’s position in

the automotive market as a whole, however, as aluminum and plastic have replaced steel in many automotive

applications. Other end-uses for steel include a wide range of agricultural, industrial, appliance, transportation,

and container applications. Use of steel in beverage cans has been largely replaced by aluminum. 

Table B2D-3 shows trends in production from the two major groups of steel producers: BOF and EAF facilities. 

Table B2D-3: U.S. Steel Production by Type of Producer

Year

Steel Production Percent from

BOF

Percent from

Million MT % Change EAF

1990a 89.7 n/a 59.1% 37.3%

1991b 79.7 -11.1% 60.0% 38.4%

1992 84.3 5.8% 62.0% 38.0%

1993 88.8 5.3% 60.6% 39.4%

1994 91.2 2.7% 60.7% 39.3%

1995 95.2 4.4% 59.6% 40.4%

1996 95.5 0.3% 57.4% 42.6%

1997 98.5 3.1% 56.2% 43.8%

1998 98.6 0.1% 54.9% 45.1%

1999 97.4 -1.2% 53.7% 46.3%

2000 102 4.7% 53.0% 47.0%

2001 90.1 -11.7% 52.6% 47.4%

2002 91.6 1.7% 49.6% 50.4%

2003c 91.5 -0.1% 48.0% 52.0%

Total Percent Change

1990-2003 2.0%

Average Annual

Growth Rate change 0.2%

a

 3.5 percent of 1990 production was from open hearth furnaces.

b

 1.6 percent of 1991 production was from open hearth furnaces.

c

 Estimated.

Source: AISI, 2001b; USGS, 2000; USGS, 1997; USGS 2004; USGS, Iron and Steel

Statistical Compendium.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

3

 World steel trade is characterized by noncompetitive practices in a number of countries, which have resulted in substantial friction

over trade issues since the late 1960s. Since 1980, almost 40 percent of the unfair trade practice cases investigated in the U.S. have been

related to steel products (U.S. DOC, 2000).

4

 Terms highlighted in bold and italic font are further explained in the glossary.

B2D-6

This table shows the cyclical nature of the U.S. steel industry, with variations in growth from year to year

reflecting general U.S. and world economic conditions, persistent excess production capacity worldwide, the

competitive strength of imports, and trends in steel’s share of the automotive and other end-use markets for steel. 

The U.S. steel industry went through a difficult restructuring process in the 1980s and early 1990s, including the

closing of a number of inefficient mills, substantial investment in new technologies, and reductions in the labor

force. The U.S. became a world leader in low-cost production, lead by the minimill producers. Although U.S.

demand for steel was strong in the late 1990s, low-priced imports increased substantially in 1998, which led to a

number of U.S. steel bankruptcies and steelworker layoffs. The increased imports resulted from the Asian

financial crisis, with the associated decline in Asian demand for steel and currency devaluations. The U.S.

government initiated the Steel Action Program in response to the crisis, focusing on strong enforcement of trade

laws through the World Trade Organization and bilateral efforts to address market-distorting practices abroad3

. 

The industry began to show signs of recovery in the second half of 1999, and by early 2000 capacity utilization

recovered to above 90 percent and earnings were up for most major steel companies (U.S. DOC, 2000). 

However, beginning in 2000, the weakening of the U.S. economy significantly reduced steel demand and total

U.S. steel production fell by nearly 12 percent in 2001. In March 2002, the U.S. steel industry received

temporary relief under Section 201 of the 1974 Trade Act with 3 years of tariffs ranging up to 30 percent on

certain steel imports. Relief from imports was nullified to some extent when the U.S. Department of Commerce

exempted 727 imported steel products from the tariff in June 2002. By year end, 2002 was the fourth highest

steel import year in U.S. history. (USGS, 2002). Removal of all tariffs occurred on December 4, 2003. (S&P,

2004).

The steel industry is recovering, but slowly, from the import penetration in the late 90's followed by the economic

recession in 2001. In 2003, the integrated steel industry had poor operating results, as high raw material costs

outweighed increased sales and higher volumes. As a result, most domestic steel producers instituted a raw

material surcharge to offset sharply rising costs for raw materials such as scrap, iron ore and coke. Additionally,

worldwide capacity remains in excess of long-term needs. Imports will most likely rise in 2004 after the removal

of tariffs. However, to the extent that imports put downward pressure on prices, they may force the shutdown of

marginal capacity currently operating. These capacity reductions will reduce domestic supply, and may set the

stage for better financial performance in later years (S&P, 2004).

Value of shipments and value added are two common measures of manufacturing output4

. They provide

insight into the overall economic health and outlook for an industry. Value of shipments is the sum of the receipts

a manufacturer earns from the sale of its outputs; it indicates the overall size of a market or the size of a firm in

relation to its market or competitors. Value added measures the value of production activity in a particular

industry. It is the difference between the value of shipments and the value of inputs used to make the products

sold.

Figure B2D-1 presents trends in constant-dollar value of shipments and value added for Steel Mills and Steel

Products. Value of shipments and value added from Steel Mills declined in the early 1990s, and recovered

through 1997, prior to the 1998 import crisis and the later U.S. economic recession. This segment continued to

decline through 2001. Value of shipments and value added for Steel Products were less volatile, increasing

gradually over the period 1990 through 1997. Value added stayed relatively constant through 2001, while value

of shipments slightly declined.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-7

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Steel Mills (SIC 3312)

Steel Mills (NAICS to

SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

Steel Products (NAICS

to SIC 3315, 3316, 3317)

0

2,000

4,000

6,000

8,000

10,000

12,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Steel Mills (SIC 3312)

Steel Mills (NAICS to

SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

Steel Products (NAICS

to SIC 3315, 3316, 3317)

Figure B2D-1: Value of Shipments and Value Added for Profiled Steel Industry Segments 

(millions,$2003)

Value of Shipments

Value Added

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996 and 1998-2001; US. DOC, 1987, 1992, 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-8

95

100

105

110

115

120

125

130

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Steel Mills (SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

B2D-2.2 Prices

The producer price index (PPI) measures price changes, by segment, from the perspective of the seller, and

indicates the overall trend of product pricing, and thus supply-demand conditions, within a segment.

Figure B2D-2 below shows that prices increased from 1987 to 1989 and then decreased in the early 1990s, due to

a depressed domestic economy and the resulting decline in the demand for steel. Prices rebounded sharply

through 1995 before eroding again, due to the global oversupply and increases in exports discussed above. Basic

steel prices declined sharply with the growth of imports in the late 1990s, recovered in 2000, but dropped again in

2001with the decline in steel demand (S&P, 2001; AISI, 2001a). Prices increased slightly in 2002 with the

beginning of the economic recovery. The reason prices in the Steel Mill segment have declined since 1997, while

prices in the Steel Products segment have remained constant, is most likely due to the advent of mini-mill

technology, which lowers the cost of production and therefore lowers prices as well. 

Figure B2D-2: Producer Price Index for Profiled Steel Industry Segments

Source: BLS, 2002.

B2D-2.3 Number of Facilities and Firms

The number of operating Steel Mills fluctuated significantly between 1989 and 2001, as the U.S. industry

underwent a substantial restructuring. Table B2D-4 shows substantial decreases in the number of facilities in

1992 and 1993 due to a significant decrease in global demand for Steel Products and resulting overcapacity. This

decrease was followed by a significant recovery in 1995 and 1996. The number of facilities continued to rise

through 2001, with the largest increase around 1998. This increase could result in part from the advent of

minimills discussed above. The import crisis in 1998 ultimately led to bankruptcy for a number of U.S.

producers, including LTV and Bethlehem Steel (S&P, 2001). Additionally, 7 major bankruptcies occurred over

2002 and early 2003, including Bayou Steel Corp, Kentucky Electric Steel Inc, Slater Steel Inc, and Weirton Steel

Corp. (USGS, 2004)
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-9

In contrast to the volatility in the number of Steel Mills, the number of facilities in the Steel Products segment has

remained relatively stable for the past twelve years, with increases towards the end of the period.

Table B2D-4: Number of Facilities in the Profiled Steel Industry Segments

Year

Steel Mills Steel Products

Number of

Facilities

Percent

Change

Number of

Facilities

Percent

Change

1989 476 n/a 784 n/a

1990 497 4.4% 776 -1.0%

1991 531 6.8% 807 4.0%

1992 412 -22.4% 831 3.0%

1993 343 -16.7% 833 0.2%

1994 339 -1.2% 804 -3.5%

1995 391 15.3% 791 -1.6%

1996 483 23.5% 770 -2.7%

1997 297 -38.5% 727 -5.6%

1998 346 16.5% 801 10.2%

1998a 398 34.0% 865 19.0%

1999a 685 72.1% 919 6.2%

2000a 981 43.2% 1,026 11.7%

2001a 1,352 37.9% 1,028 0.2%

Total Percent Change 

1989-2001 184.0% 10.3%

Average Annual

Growth Rate 9.1% 2.3%

a

 Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the

North American Industry Classification System (NAICS). For this analysis, EPA converted the

NAICS classification data to the SIC code classifications using the 1997 Economic Census Bridge

Between NAICS and SIC.

Source: U.S. SBA, 1989-2001.

The trend in the number of firms over the period between 1990 and 2001 is similar to the trend in the number of

facilities in both industry segments. The number of firms in the Steel Mill segment decreased to a period-low of

216 in 1997, before increasing over the rest of the period. According to the American Iron and Steel Institute

(AISI), 23 U.S. steel companies either declared bankruptcy or ceased operations entirely from 1997 through mid2001, as a result of the continuing trade difficulties and weakness in the U.S. economy (AISI, 2001a). The

number of firms in the Steel Products segment also decreased from 1992 to 1998, before rising steadily through

2001. 
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-10

Table B2D-5 shows the number of firms in the two profiled steel segments between 1990 and 2001.

Table B2D-5: Number of Firms in the Profiled Steel Industry Segments

Year

Steel Mills Steel Products

Number of Firms Percent Change Number of Firms Percent Change

1990 408 n/a 597 n/a

1991 433 6.1% 635 6.4%

1992 321 -25.9% 661 4.1%

1993 261 -18.7% 641 -3.0%

1994 258 -1.1% 618 -3.6%

1995 309 19.8% 607 -1.8%

1996 397 28.5% 583 -4.0%

1997 216 -45.6% 544 -6.7%

1998 267 23.6% 601 10.5%

1998a 314 45.3% 666 22.4%

1999a 593 89.0% 716 7.4%

2000a 885 49.2% 810 13.2%

2001a 1,254 41.6% 811 0.1%

Total Percent Change 

1990-2001 207.4% 35.8%

Average Annual

Growth Rate 10.7% 2.8%

a

 Before 1998, data were compiled in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data

to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. SBA, 1989-2001.

B2D-2.4 Employment and Productivity

Figure B2D-3 below provides information on Employment from the Annual Survey of Manufactures for the

Steel Mills and Steel Products segments. The figure shows that employment levels in the Steel Mills segment

decreased by a total of 33 percent between 1987 and 2001. Employment is a significant cost component for

steelmakers, accounting for approximately 30 percent of total costs (McGraw-Hill, 1998). Labor cost reductions

enabled Steel Mills to improve profitability and competitiveness in the face of limited opportunity for price

increase in the highly competitive market for Steel Products. The steady decline in employment reflects the

smaller number of Steel Mill facilities and firms, in conjunction with aggressive efforts to improve worker

productivity in order to cut labor costs and improve profits (McGraw-Hill, 1998). Employment declined further

as a result of the 1998 import crisis, with almost 26,000 U.S. steelworkers reportedly losing their jobs (AISI,

2001a). Employment in the Steel Products segment over the period 1987-2001 has remained fairly constant.

Figure B2D-3: Employment for Profiled Steel Industry Segments
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-11

0

50,000

100,000

150,000

200,000

250,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Steel Mills (SIC 3312)

Steel Mills (NAICS to

SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

Steel Products (NAICS

to SIC 3315, 3316, 3317)

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996 and 1998-2001; U.S. DOC, 1987, 1992, 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-12

Table B2D-6 presents the change in value added per labor hour, a measure of labor productivity, for the Steel

Mill and Steel Products segments between 1987 and 2001. Labor productivity at Steel Mills increased slightly

over this period. Value added per labor hour increased around seven percent between 1987 and 2001. Much of

this increase in labor productivity can be attributed to the restructuring of the U.S. steel industry and the increased

role of minimills in production. Minimills are capable of producing rolled steel from scrap with substantially

lower labor needs than integrated mills (McGraw-Hill, 1998). Labor productivity in the Steel Products segment

has also fluctuated, but increased nine percent overall from 1987 to 2001.

Table B2D-6: Productivity Trends for the Profiled Steel Industry Segments ($2003)

Year

Steel Mills Steel Products

Value

Added

(millions)

Production

Hours

(millions)

Value Added/Hour Value

Added

(millions)

Productio

n Hours

(millions)

Value Added/Hour

($/hr) Percent

Change ($/hr) Percent

Change

1987 9,269 306 30 n/a 2,355 108 22 n/a

1988 9,817 324 30 0% 2,550 94 27 24%

1989 9,631 348 28 -9% 2,447 112 22 -20%

1990 9,490 315 30 9% 2,445 93 26 21%

1991 8,682 279 31 3% 2,342 106 22 -17%

1992 8,605 277 31 0% 2,424 87 28 27%

1993 8,369 268 31 1% 2,551 109 23 -16%

1994 8,529 266 32 2% 2,572 91 28 21%

1995 8,604 263 33 2% 2,647 114 23 -18%

1996 8,389 260 32 -2% 2,645 134 20 -15%

1997 8,206 252 33 1% 2,645 110 24 21%

1998a 8,170 245 33 2% 2,702 113 24 0%

1999a 7,715 237 33 -2% 2,588 108 24 0%

2000a 7,836 241 32 0% 2,641 109 24 0%

2001a 6739 210 32 -1% 2427 100 24 0%

Total Percent Change 

1987-2001 -27.3% -31.4% 6.7% 3.1% -7.4% 9.1%

Average Annual

Growth Rate -2.3% -2.7% 0.5% 0.2% -0.5% 0.6%

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996 and 1998-2001; U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-13

B2D-2.5 Capital Expenditures

Steel production is a relatively capital intensive process. The integrated production process requires a capital

investment of approximately $2,000 per ton of capacity for plants and equipment. The nonintegrated process

employed in minimills is significantly less capital intensive with capital costs of approximately $500 per ton of

capacity (McGraw-Hill, 1998).

New capital expenditures are needed to modernize, expand, and replace existing capacity to meet growing

demand. Capital expenditures in the Steel Mills and the Steel Products segments between 1987 and 2001 are

presented in Table B2D-7 below. The table shows that capital expenditures in both the Steel Products and the

Steel Mills dropped significantly between 1987 and 2001. Capital outlays increased in the late 1980s and early

1990s, rising by a total of 131 percent from 1987 to 1991. This substantial increase coincides with the advent of

thin slab casting, a technology that allowed minimills to compete in the market for flat rolled sheet steel. The

significant decreases in capital expenditures by Steel Mills that followed this expansion reflects the bottoming out

of the demand for Steel Products in the early 1990s. The recovery in capital expenditures in the mid 1990s

reflected increased demand and higher utilization rates (McGraw-Hill, 1998). However, the import crisis of the

late 1990s and later weakening of the U.S. economy put pressure on the domestic industry, and expenditures for

new capacity have decreased steadily since 1997 (McGraw-Hill, 2000).
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-14

Table B2D-7: Capital Expenditures for the Profiled Steel Industry Segments (millions,$2003)

Year

Steel Mills Steel Products

Capital

Expenditures Percent Change Capital

Expenditures Percent Change

1987 1,761 n/a 783 n/a

1988 2,642 50.0% 597 -23.8%

1989 3,360 27.2% 678 13.6%

1990 3,307 -1.6% 677 -0.1%

1991 3,736 13.0% 482 -28.8%

1992 2,704 -27.6% 496 3.0%

1993 2,126 -21.4% 542 9.2%

1994 3,059 43.9% 626 15.4%

1995 3,156 3.2% 611 -2.4%

1996 3,173 0.5% 658 7.7%

1997 2,871 -9.5% 605 -8.0%

1998a 2,821 -1.7% 578 -4.5%

1999a 2,391 -15.2% 488 -15.6%

2000a 2,175 -9.0% 507 3.9%

2001a 1,378 -36.6% 437 -13.9%

Total Percent Change 

1987-2001 -21.7% -44.2%

Average Annual

Growth Rate -1.7% -4.1%

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in

the North American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification

data to the SIC code classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1988-1991, 1993-1996 and 1998-2001; U.S. DOC, 1987, 1992, and 1997.

B2D-2.6 Capacity Utilization

Capacity utilization measures actual output as a percentage of total potential output given the available

capacity. Capacity utilization provides insight into the extent of excess or insufficient capacity in an industry, and

into the likelihood of investment in new capacity. Figure B2D-4 presents the capacity utilization index from 1989

to 2002 for the 4-digit SIC codes that make up the Steel Mill and Steel Products segments. As shown in the

figure, the index follows similar trends in each segment. For all segments, capacity utilization peaked in 1994 and

decreased through 2001, with a slight increase in 2002. This trend reflects the over-capacity in the U.S. steel

industry, which has followed the substantial capacity additions in the late 1980s and early 1990s and increased

imports throughout the 1990s. Worldwide capacity remains in excess of long-term needs (S&P, 2004). 
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-15

40

90

140

190

240

1989 1991 1993 1995 1997 1999 2001

Steel Mills (SIC 3312)

Steel Mills (NAICS to SIC

3312)

Steel Products (SIC 3315,

3316, 3317)

Steel Products (NAICS to

SIC 3315, 3316, 3317)

Figure B2D-4: Capacity Utilization Rates (Fourth Quarter) for Profiled Steel Industry Segments

a

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC.

Source: U.S. DOC, 1989-2001.

B2D-3 STRUCTURE AND COMPETITIVENESS

The companies that manufacture steel operate in a highly capital intensive industry. The Steel Mill segment is

comprised of two different kinds of facilities, integrated mills and minimills. The integrated steelmaking process

requires expensive plant and equipment purchases that will support production capacities ranging from two

million to four million tons per year. Until the early 1960s, integrated steelmaking was the dominant method of

U.S. steel manufacturing. Since then, the integrated steel business underwent dramatic downsizing due to

competition from minimills and imports. These trends reduced the number of integrated steelmakers (S&P,

2001). Minimills vary in size, from capacities of 150,000 tons at small facilities to larger facilities with annual

capacities of between 400,000 tons and two million tons. Integrated companies have significant capital costs of

approximately $2,000 per ton of capacity compared with minimills’ $500 per ton. Because minimills do not

require as much investment in capital equipment as integrated steelmakers, minimills have been able to lower

prices, driving integrated companies out of many of the commodity steel markets (S&P, 2001). The advent of

minimills, with their lower initial capital investments, has made it easier for new producers to enter the market.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

5

 The 1992 Census of Manufactures is the most recent data available by SIC code and State.

B2D-16

42

2

7

4

2

7

1

8

7

5

5

6

14

17

1

16

17

23

17

23

20

8

32

20

58

17

50

20

4

14

23

24

28

3

6

79 84

100

104

Number of Facilities

0 - 3

4 - 8

9 - 32

33 - 58

59 - 104

B2D-3.1 Geographic Distribution

Steel mills are primarily concentrated in the Great Lakes Region (New York, Pennsylvania, Ohio, Indiana,

Illinois, and Michigan). In 2003, Indiana accounted for about 20 percent of total raw steel production, followed

by Ohio, 15 percent, Michigan, seven percent, and Pennsylvania six percent (USGS, 2004). Historically, mill

sites were selected for their proximity to water (both for transportation and for use in cooling and processing) and

the sources of their raw materials, iron ore and coal. The geographic concentration of the industry has begun to

change as minimills can be built anywhere where electricity and scrap are available at a reasonable cost and where

a local market exists (U.S. EPA, 1995). Figure B2D-5 below shows the distribution of all facilities by State in

both profiled steel segments (Steel Mills and Steel Products), based on the 1992 Census of Manufactures.5

Figure B2D-5: Geographical Distribution of Facilities in the Profiled Steel Industry Segments

Source: U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-17

B2D-3.2 Facility Size

Seventy-one percent of all Steel Mills employed 100 or more employees in 1992, as shown in Figure B2D-6. 

These facilities accounted for approximately 98 percent of 1992 value of shipments. Facilities with more than

1,000 employees accounted for approximately 69 percent of all Steel Mill shipments. For 1997, Census of

Manufactures data for Iron and Steel Mills (NAICS 331111), which is roughly comparable to the SIC 3312 data

shown in Figure B2D-6, show that the 11 percent of facilities with more than 1,000 employees accounted for a

somewhat smaller percentage, 63 percent, of total value of shipments. The declining share of total production in

the largest facilities reflects growth in the minimill production segment, which, on average, have smaller capacity

and lower employment than integrated mills.

The Steel Products segment is characterized by smaller facilities than steel making, with only 26 percent of

facilities in the segment employing 100 or more employees in 1992. While the majority of facilities in the Steel

Products segment had fewer than 100 employees, most of the output from this segment was produced at the

largest facilities. Figure B2D-6 shows that Steel Products facilities with more than 100 employees accounted for

approximately 74 percent of the industry’s 1992 value of shipments.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-18

0

50

100

150

200

250

1-9 10-19 20-49 50-99 100-249 250-499 500-999 1000-

2499

2500+

Steel Mills (SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

1-9 10-19 20-49 50-99 100-249 250-499 500-999 1,000-

2,499

2500+

Steel Mills (SIC 3312)

Steel Products (SIC 3315,

3316, 3317)

Figure B2D-6: Number of Facilities and Value of Shipments in 1992a by Employment Size Category for

the Profiled Steel Industry Segments

Number of Facilities

Value of Shipments (in millions)

a

 The 1992 Census of Manufactures is the most recent data available by SIC code and facility employment size.

Source: U.S. DOC, 1987, 1992, and 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

6

 Note that the measured concentration ratio and the HHF are very sensitive to how the industry is defined. An industry with a high

concentration in domestic production may nonetheless be subject to significant competitive pressures if it competes with foreign producers

or if it competes with products produced by other industries (e.g., plastics vs. aluminum in beverage containers). Concentration ratios

based on share of production are therefore only one indicator of the extent of competition in an industry.

B2D-19

B2D-3.3 Firm Size

For both Steel Mills and Steel Products, the Small Business Administration defines a small firm as having 1,000

or fewer employees. The size categories reported in the Statistics of U.S. Businesses (SUSB) do not correspond

with the SBA size classifications, therefore preventing precise use of the SBA size threshold in conjunction with

SUSB data. Table B2D-8 below shows the distribution of firms, facilities, and receipts by the employment size of

the parent firm. The SUSB data presented in Table B2D-8 show that in 2001, 1,172 of 1,254 firms in the Steel

Mills segment had less than 500 employees. Therefore, at least 93 percent of firms in this segment were classified

as small. These small firms owned 1,179 facilities, or 87 percent of all facilities in the segment. 

Of the 811firms with facilities that manufacture Steel Products, 706, or 87 percent, employ fewer than 500

employees, and are therefore considered small businesses. Small firms own 74 percent of facilities in the

industry.

Table B2D-8: Number of Firms, Facilities, and Estimated Receipts in the

Profiled Steel Industry Segments by Employment Size Category, 2001

Employment

Size Category

Steel Mills Steel Products

Number of

Firms

Number of

Facilities

Number of

Firms

Number of

Facilities

0-19 959 959 438 438

20-99 154 154 162 175

100-499 58 66 106 149

500+ 82 173 105 266

Total 1,254 1,352 811 1,028

Source: U.S. SBA, 2001.

B2D-3.4 Concentration Ratios

Concentration is the degree to which industry output is concentrated in a few large firms. Concentration is

closely related to entry barriers with more concentrated industries generally having higher barriers.

The four-firm concentration ratio (CR4) and the Herfindahl-Hirschman Index (HHI) are common

measures of industry concentration. The CR4 indicates the market share of the four largest firms. For example, a

CR4 of 72 percent means that the four largest firms in the industry account for 72 percent of the industry’s total

value of shipments. The higher the concentration ratio, the less competition there is in the industry, other things

being equal6

. An industry with a CR4 of more than 50 percent is generally considered concentrated. The HHI

indicates concentration based on the largest 50 firms in the industry. It is equal to the sum of the squares of the

market shares for the largest 50 firms in the industry. For example, if an industry consists of only three firms with

market shares of 60, 30, and 10 percent, respectively, the HHI of this industry would be equal to 4,600 (602

 + 302

+ 102). The higher the index, the fewer the number of firms supplying the industry and the more concentrated the

industry. Based on the U.S. Department of Justice’s guidelines for evaluating mergers, markets in which the HHI

is under 1000 are considered unconcentrated, markets in which the HHI is between 1000 and 1800 are considered

to be moderately concentrated, and those in which the HHI is in excess of 1800 are considered to be concentrated.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-20

Table B2D-9 shows that Steel Mills have an HHI of 511 and that Steel Products, comprised of SIC 3315, 3316,

and 3317, have HHIs of 201, 604, and 194, respectively. The Steel Mills and Steel Products segments are

considered competitive, based on standard measures of concentration. The CR4 and the HHI for the relevant SIC

codes are below the benchmarks of 50 percent and 1,000, respectively. Moreover, the table shows that each of the

industry segments became more competitive between 1987 and 1992. The relatively low concentration values

suggest that this factor would not contribute to the industry’s ability to pass through compliance costs as price

increases to customers.

Table B2D-9: Selected Ratios for the Profiled Steel Industry Segments

SIC Code Year

Total

Number of

Firms

Concentration Ratios

4 Firm

(CR4)

8 Firm

(CR8)

20 Firm

(CR20)

50 Firm

(CR50)

HerfindahlHirschman Index

Steel Mills

3312

1987 271 44% 63% 81% 94% 607

1992 135 37% 58% 81% 96% 551

Steel Products

3315

1987 274 21% 34% 54% 78% 212

1992 271 19% 32% 54% 80% 201

3316

1987 156 45% 62% 82% 95% 654

1992 158 43% 60% 81% 96% 604

3317

1987 155 23% 34% 58% 85% 242

1992 166 19% 31% 53% 80% 194

a

 The 1992 Census of Manufactures is the most recent concentration ratio data available by SIC code.

Source: U.S. DOC, 1987, 1992, 1997.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-21

B2D-3.5 Foreign Trade

This profile uses two measures of foreign competition: export dependence and import penetration. 

Import penetration measures the extent to which domestic firms are exposed to foreign competition in domestic

markets. Import penetration is calculated as total imports divided by total value of domestic consumption in that

industry: where domestic consumption equals domestic production plus imports minus exports. Theory suggests

that higher import penetration levels will reduce market power and pricing discretion because foreign competition

limits domestic firms’ ability to exercise such power. Firms belonging to segments in which imports account for

a relatively large share of domestic sales would therefore be at a relative disadvantage in their ability to passthrough costs because foreign producers would not incur costs as a result of the Phase III regulation. The

estimated import penetration ratio for the entire U.S. manufacturing sector (NAICS 31-33) for 2001 is 22 percent. 

For characterizing the ability of industries to withstand compliance cost burdens, EPA judges that industries with

import ratios close to or above 22 percent would more likely face stiff competition from foreign firms and thus be

less likely to succeed in passing compliance costs through to customers. 

Export dependence, calculated as exports divided by value of shipments, measures the share of a segment’s sales

that is presumed subject to strong foreign competition in export markets. The Phase III regulation would not

increase the production costs of foreign producers with whom domestic firms must compete in export markets. 

As a result, firms in industries that rely to a greater extent on export sales would have less latitude in increasing

prices to recover cost increases resulting from regulation-induced increases in production costs. The estimated

export dependence ratio for the entire U.S. manufacturing sector for 2001 is 15 percent. For characterizing the

ability of industries to withstand compliance cost burdens, EPA judges that industries with export ratios close to

or above 15 percent are at a relatively greater disadvantage in potentially recovering compliance costs through

price increases since export sales are presumed subject to substantial competition from foreign producers.

The global market for steel continues to be extremely competitive. From 1945 until 1960, the U.S. steel industry

enjoyed a period of tremendous prosperity and was a net exporter until 1959. However, by the early 1960s,

foreign steel industries had thoroughly recovered from World War II and had begun construction of new plants

that were more advanced and efficient than the U.S. integrated steel mills. Foreign producers also enjoyed lower

labor costs, allowing them to take substantial market share from U.S. producers. This increased competition from

foreign producers, combined with decreased consumption in some key end use markets, served as a catalyst for

the restructuring and downsizing of the U.S. steel industry. The industry emerged from this restructuring

considerably smaller, more technologically advanced and internationally competitive (S&P, 2001).

Table B2D-10 presents trade statistics for the profiled steel industry segments from 1990 to 2001. The table

shows that while the trend in export dependence has been relatively stable, import penetration has increased from

the early 1990s until 1998 and has since dropped. The drop after 1998 results from the trade protection measures

mentioned above. Historically, the U.S. steel industry has exported a relatively small share of shipments

compared to the steel industries of other developed nations (McGraw-Hill, 2000). U.S. exports rose in 1995 to

the highest level since 1941, and remained relatively high through 2001. Imports penetration rose to 21 percent in

1998, after hovering around 15 percent in the early 1990s. This increase in imports reflected excess steel capacity

worldwide and the competitiveness of foreign steel producers, as described previously. Canada received the

largest amount of U.S. exported steel in 2003, followed by Mexico. Imports of steel mill products increased 8.4

percent from 2001 to 2002. Brazil, Canada, the EU, Japan, the Republic of Korea, Mexico, Russia, and Turkey

were major sources of steel mill product imports (USGS, 2002).

The steel industry’s import penetration ratio was 19 percent in 2001, implying that the industry currently faces

moderate competition from foreign firms in setting prices for U.S. sales. However, as noted above, the removal of

temporary import restrictions will leave the industry more exposed to competition from foreign producers. The

steel industry’s export dependence ratio in 2001 was eight percent, therefore the industry will not likely be

affected by competitive pressures from abroad in export sales. This finding implies that the steel industry is not

characterized by competitive pressures from foreign firms/markets and thus market power and cost pass through

potential are not diminished by export penetration. However, it is questionable that firms in an industry will have

a comparatively high cost pass-through potential simply because firms in that industry are not active in export
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-22

markets. From the standpoint of firms gaining market power, EPA believes that the finding of low export

dependence diminishes the importance of export competition as indicator of market power. Thus, other indicators

must be relied upon to gauge the amount of market power firms in the steel industry are expected to hold. On

balance, the U.S. steel industry is subject to significant international competitive pressure, largely manifesting

though the penetration of foreign product into domestic markets. Although the U.S. industry’s competitiveness

against foreign producers improved in recent years, the industry remains substantially vulnerable to foreign

competition, indicating a low likelihood that steel industry producers subject to the 316(b) regulation would be

able to pass a material share of compliance costs through to customers.

Table B2D-10: Import Penetration and Export Dependence: Steel Mill Products

Year

Value of

Imports 

(millions,

$2003)

Value of

Exports 

(millions,

$2003)

Value of

Shipments 

(millions,

$2003)

Implied

Domestic

Consumptiona

Import

Penetrationb

Export

Dependence

B2989 12,440 3,864 84,803 93,379 13.3% 4.6%

1990 11,158 3,701 78,913 86,370 12.9% 4.7%

1991 10,204 4,729 69,041 74,516 13.7% 6.9%

1992 10,169 3,815 69,936 76,290 13.3% 5.5%

1993 10,884 3,496 73,280 80,668 13.5% 4.8%

1994 15,419 3,675 80,479 92,223 16.7% 4.6%

1995 14,529 5,506 84,557 93,580 15.5% 6.5%

1996 15,338 4,812 82,446 92,972 16.5% 5.8%

1997 16,224 5,603 83,830 94,451 17.2% 6.7%

1997de 16,436 5,754 83,830 94,512 17.4% 6.9%

1998de 19,683 5,416 81,744 96,011 20.5% 6.6%

1999de 15,241 4,946 74,877 85,172 17.9% 6.6%

2000de 17,415 5,544 73,771 85,642 20.3% 7.5%

2001de 13,240 5,181 61,996 70,055 18.9% 8.4%

Total Percent Change

1989-2001 18.7% 40.0% -21.4% -18.9%

Average Annual

Growth Rate 1.4% 2.8% -2.0% -1.7%

a

 Calculated by EPA as shipments + imports - exports. b

 Calculated by EPA as imports divided by implied domestic consumption. c

 Calculated by EPA as exports divided by shipments.

d

 Before 1998, the Department of Commerce compiled data in the SIC system; since 1998, these data have been compiled in the North

American Industry Classification System (NAICS). For this analysis, EPA converted the NAICS classification data to the SIC code

classifications using the 1997 Economic Census Bridge Between NAICS and SIC. e

 As Census Trade data are not available before 1997, export and import values are taken from the International Trade Administration

for years 1989-1997.

Source: ASM 1997-2001; ITA 1989-1997
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-23

B2D-4 FINANCIAL CONDITION AND PERFORMANCE

The financial performance and condition of the steel industry are important determinants of its ability to withstand

the costs of regulatory compliance without material adverse economic/financial impact. To provide insight into

the industry’s financial performance and condition, EPA reviewed two key measures of financial performance

over the 12-year period, 1992-2003: net profit margin and return on total capital. EPA calculated these measures

as a revenue-weighted index of measure values for public reporting firms in the respective industries, using data

from the Value Line Investment Survey. Financial performance in the most recent financial reporting period

(2003) is obviously not a perfect indicator of conditions at the time of regulatory compliance. However,

examining the trend, and deviation from the trend, through the most recent reporting period gives insight into

where the industry may be, in terms of financial performance and condition, at the time of compliance. In

addition, the volatility of performance against the trend, in itself, provides a measure of the potential risk faced by

the industry in a future period in which compliance requirements are faced: all else equal, the more volatile the

historical performance, the more likely the industry may be in a period of relatively weak financial conditions at

the time of compliance.

Net profit margin is calculated as after-tax income before nonrecurring gains and losses as a percentage of sales

or revenue, and measures profitability, as reflected in the conventional accounting concept of net income. Over

time, the firms in an industry, and the industry collectively, must generate a sufficient positive profit margin if the

industry is to remain economically viable and attract capital. Year-to-year fluctuations in profit margin stem from

a several factors, including: variations in aggregate economic conditions (including international and U.S.

conditions), variations in industry-specific market conditions (e.g., short-term capacity expansion resulting in

overcapacity), or changes in the pricing and availability of inputs to the industry’s production processes (e.g., the

cost of energy to the steel production process). The extent to which these fluctuations affect an industry’s

profitability, in turn, depends heavily on the fixed vs. variable cost structure of the industry’s operations. In a

capital intensive industry such as the steel industry, the relatively high fixed capital costs as well as other fixed

overhead outlays, can cause even small fluctuations in output or prices to have a large positive or negative affect

on profit margin.

Return on total capital is calculated as annual net profit, plus one-half of annual long-term interest, divided by

the total of shareholders' equity and long-term debt (total capital). This concept measures the total productivity of

the capital deployed by a firm or industry, regardless of the financial source of the capital (i.e., equity, debt, or

liability element). As such, the return on total capital provides insight into the profitability of a business’ assets

independent of financial structure and is thus a “purer” indicator of asset profitability than return on equity. In the

same way as described for net profit margin, the firms in an industry, and the industry collectively, must generate

over time a sufficient return on capital if the industry is to remain economically viable and attract capital. The

factors causing short-term variation in net profit margin will also be the primary sources of short-term variation in

return on total capital.

Figure B2D-7 presents trends in net profit margins and return on total capital for the steel industry between 1992

and 2003. The graph shows considerable volatility in the trend over this period. After registering improvement in

financial performance in the first half of the 1990s, steel industry financial performance declined markedly from

1997/1998 forward to 2003, due first to increasing imports and later to general economic weakness. Measures of

financial performance increased in 2002 when the U.S. steel industry received temporary relief with tariffs

ranging up to 30 percent on certain steel imports. In 2003, however, the integrated steel industry had poor

operating results, as high raw material costs outweighed increased sales and higher volumes.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

7

 Data on cooling water use are from the 1982 Census of Manufactures. 1982 was the last year in which the Census of Manufactures

reported cooling water use.

8

 The proposed Phase III regulation also applies to existing electric generating facilities as well as certain facilities in the oil and gas

extraction industry and the seafood processing industry. See Chapters B4 and B5 and Part C of this document for more information on

these industries.

B2D-24

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Net Profit Margin - Iron

and Steel Industry

Return on Total Capital -

Iron and Steel Industry

Figure B2D-7: Net Profit Margin and Return on Total Capital for the Iron and Steel Industry

Source: Value Line, 1992-2003.

B2D-5 FACILITIES OPERATING COOLING WATER INTAKE STRUCTURES

Section 316(b) of the Clean Water Act applies to point source facilities which use or propose to use a cooling

water intake structure that withdraws cooling water directly from a surface waterbody of the United States. In

1982, the Primary Metals industries as a whole (including Nonferrous and Steel producers) withdrew 1,312

billion gallons of cooling water, accounting for approximately 1.7 percent of total industrial cooling water intake

in the United States7

. The industry ranked 3rd in industrial cooling water use, behind the electric power generation

industry, and the chemical industry (1982 Census of Manufactures).

This section provides information for facilities in the profiled steel segments potentially subject to the proposed

regulation. Existing facilities that meet all of the following conditions are potentially subject to the proposed

regulation:8

< Use a cooling water intake structure or structures, or obtain cooling water by any sort of contract or

arrangement with an independent supplier who has a cooling water intake structure; or their cooling water

intake structure(s) withdraw(s) cooling water from waters of the U.S., and at least twenty-five (25)

percent of the water withdrawn is used for contact or non-contact cooling purposes;

< Have an National Pollutant Discharge Elimination System (NPDES) permit or are required to obtain one;

and

< Have a design intake flow of greater than 2 million gallons per day (MGD).

The proposed regulation also covers substantial additions or modifications to operations undertaken at such

facilities. While all facilities that meet these criteria are subject to the regulation, this section focuses on the 66
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

9

 EPA applied sample weights to the sampled facilities to account for non-sampled facilities and facilities that did not respond to the

survey. For more information on EPA’s 2000 Section 316(b) Industry Survey, please refer to the Information Collection Request (U.S.

EPA, 2000).

B2D-25

facilities nation-wide in the profiled steel segments identified in EPA’s 2000 Section 316(b) Industry Survey as

being potentially subject to this proposed regulation9

. Information collected in the Detailed Industry

Questionnaire found that an estimated 46 out of 161 Steel Mills (29 percent) and 21 out of 309 Steel Product

manufacturers (7 percent) meet the characteristics of a potential Phase III facility.

B2D-5.1 Waterbody and Cooling System Type

Minimills use electric-arc-furnace (EAF) to make steel from ferrous scrap. The electric-arc-furnace is extensively

cooled by water and recycled through cooling towers (U.S. EPA, 1995). This is important to note since most new

steel facilities are minimills.

Table B2D-11 shows the distribution of potential Phase III facilities in the profiled steel segments by type of

water body and cooling system. The table shows that most of the potential Phase III facilities employ a

combination of a once-through and recirculating system (23, or 35%) or a once through system (22, or 33%). The

largest proportion of existing facilities draw water from a freshwater stream or river (52, or 79%).

Table B2D-11: Number of Potential Phase III Facilities in the Profiled Steel Industry Segments

by Water Body Type and Cooling System Type

Water Body Type

Cooling Systems

Recirculating Combination Once-Through Other

Total Numbe

r

% of

Total

Numbe

r

% of

Total

Numbe

r

% of

Total

Numbe

r

% of

Total

Steel Mills

Freshwater Stream/ River 5 16% 9 28% 11 34% 8 25% 32

Great Lake 0 0% 10 77% 3 23% 0 0% 13

Total† 5 11% 19 41% 14 30% 8 17% 46

Steel Products

Freshwater Stream/ River 10 50% 3 15% 7 35% 0 0% 20

Lake/ Reservoir 0 0% 0 0% 1 100% 0 0% 1

Total† 10 48% 3 14% 8 38% 0 0% 21

Total for Profiled Steel Industry

Freshwater Stream/ River 15 29% 12 23% 18 35% 8 15% 52

Great Lake 0 0% 10 77% 3 23% 0 0% 13

Lake/ Reservoir 0 0% 0 0% 1 100% 0 0% 1

Totala 15 23% 23 35% 22 33% 8 12% 66

a

 Individual numbers may not add up to total due to independent rounding.

Source: U.S. EPA, 2000.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-26

0 0

5

7

8

7

5

3

28

5

0

5

10

15

20

25

30

<100 100-249 250-499 500-999 >=1000

Steel Mills (SIC 3312)

Steel Products (SIC

3315, 3316, 3317)

B2D-5.2 Facility Size

Section 316(b) sample Steel Mills and Steel Products facilities are larger than facilities in their industries as a

whole, as reported in the Census and discussed previously:

< Sixty-four percent of all facilities in the steel segment had fewer than 100 employees in 1992; none of the

potential Phase III facilities in that segment fall into that employment category.

Figure B2D-8 shows the number of potential Phase III facilities by employment size category.

Figure B2D-8: Number of Potential Phase III Facilities in the Profiled Steel Industry Segments

by Employment Size

Source: U.S. EPA, 2000.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-27

B2D-5.3 Firm Size

EPA used the Small Business Administration (SBA) small entity size standards to determine the number of

existing Section 316(b) profiled steel industry facilities owned by small firms. Firms in the Steel Mills and Steel

Products segments are defined as small if they have 1000 or fewer employees. Table B2D-12 shows that 7 of the

46 Section 316(b) Steel Mills, or 15 percent, are owned by small firms, while 6 (or 30 percent) of the Section

316(b) Steel Product facilities are owned by small firms. Overall, 53 facilities (80 percent) are owned by large

firms, and 13 facilities (20 percent) are owned by small firms.

Table B2D-12: Number of Potential Phase III Facilities by Firm Size for the Profiled Steel

Segments

SIC Code

Large Small

Total

Number % of SIC Number % of SIC

Steel Mills

3312 39 85% 7 15% 46

Steel Products

3315 3 50% 3 50% 7

3316 7 69% 3 31% 10

3317 5 100% 0 0% 5

Total† 15 73% 6 30% 21

Total for Profiled Steel Facilities

Totala 53 80% 13 20% 66

a

 Individual numbers may not add up to total due to independent rounding.

Source: U.S. EPA, 2000; U.S. SBA, 2000; D&B, 2001.
§ 316(b) Proposed Rule: Phase III – EA, Part B: Economic Analysis for Existing Facilities B2D: Steel

B2D-28

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B2D-29

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