Chemicals and allied products - 1991 U.S. Industrial Outlook

Chemicals and Allied Products

Chemical and allied products is one of the largest U.S. industries, producing more than 50,000 different chemicals and formulations in more than 12,000 U.S. chemical plants. There are about 1.1 million people directly employed in U.S. chemical production, and chemicals from the United States are sold in more than 180 countries. The industry has consistently had a positive trade balance and currently there are at least 20,000 different chemicals involved in two-way trade.

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapters 9 (Textile Mill Products), 10 (Paper and Allied Products), 11 (Cans and Containers), 13 (Industrial and Agricultural Chemicals), 14 (Plastic and Rubber), 18 (Advanced Materials) 36 (Cleaning Preparations and Cosmetics), and 45 (Drugs).

The chemical industries (SIC 28) sector covers inorganic and organic chemicals (including industrial gases and pigments), plastic resins and synthetic rubber, drugs and pharmaceuticals, soaps and other detergents, cosmetics, paints and coatings, agricultural chemicals (including fertilizers and pesticides), adhesives and sealants, explosives, printing inks, and a variety of miscellaneous chemicals (including essential oils, salt, distilled water, etc). This chapter covers overall developments in the chemical industry. Special attention is given to petrochemicals, which comprise nearly half of all chemical industries shipments and is the bulk of chemicals used in value-added products. The chapter also reviews government regulations affecting the chemical industry.

The constant-dollar value of shipments by the chemicals and allied products industry (SIC 28) increased 2.8 percent in 1989 over 1988 shipments. Total constant dollar shipments in 1990 increased 1.6 percent over 1989, because of the strong market for chemical products and technology plus the increased export demand. The aggregate current-dollar value of shipments by these industries increased 7.8 percent from 1988 to 1989, and 5.2 percent from 1989 to 1990 to a level of $297.1 billion. Largely because of chemical processing worldwide, exports by the chemicals industries climbed 17 percent from 1988 to 1989, and 3.7 percent in 1990. Imports over the like period increased 12.9 percent between 1988 and 1989, and 2.53 percent during 1990.

Throughout 1990 it was evident that the U.S. chemicals industry was still emerging from a massive restructuring that began in 1985, including major acquisitions, spin-offs, plant closings, and extensive early retirement and lay-off programs. In 1990, research and development expenditures increased nearly 5 percent over 1989. Capacity utilization of the chemical industry went from 89 percent in 1989 to 78 percent in 1990. The drop was due to diminished requirements in the chemical processing industries, i.e., automotive products, construction materials, electronic and other durable goods.

INTERNATIONAL COMPETITIVENESS

International trade is expected to play a greater role in the future of the chemical industry as developing countries increase their production of chemicals. Most countries possess or manufacture some type of chemical. As countries progress up the economic ladder, the raw chemicals are usually converted to value-added products and the chemical processing industry becomes involved.

With increasing numbers of international players, competition will intensify, placing more pressure on the United States to maintain its positive trade balance record. International competitiveness will also be affected by the increasing role played by environmental regulation of the U.S. chemicals industry. Most other countries count environmental issues as social costs and do not reflect this added expense in the production of many conventional chemicals and petrochemicals. This is not the situation in the United States. A detailed discussion of regulations applicable to the chemical industry is included later in this chapter.

International legal issues such as intellectual property rights, as well as product liability/tort reform, will also continue to require attention in the 1990s. Infringement of intellectual copyright law in other countries has a deleterious effect on U.S. industry; this issue is being addressed in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The possibility of litigation resulting from unforeseen effects of new products is also impeding development of advanced products - for example, automobile tires and asbestos substitutes.

In 1991 it is expected that several East-West joint ventures in the chemical area will materialize. As the global nature of the chemical and chemical-processing industries increases, the industry is expected to play and even greater role in international trade during 1991.

Outlook for 1991

The constant-dollar value of chemical industry shipments is forecast to increase 1.1 percent in 1991 over 1990 shipments. Exports in 1991 are likely to increase by 1 percent with imports increasing 2.5 percent. This would result in a net positive trade balance in 1991 of $15.8 billion. During 1991 restructuring is expected to continue with acquisitions of U.S. companies by both domestic and foreign companies. Great Britain, Germany, France, and Japan are the major purchasers of U.S. chemical firms. It is expected that during 1991 the industry will continue to move away from the sales of low unit price high-volume commodity chemicals to high-unit price specialty chemicals. An increase in research and development expenditures is expected in 1991, but at a slower rate than in 1990. Also, the industry in 1991 will continue to deal with the problem of finding employees with adequate technical expertise.

Long-Term Prospects

The chemical industry will be central to technological developments of the future, including those in the aerospace, electronic, auto, and construction materials industries. As a major player in technological progress, the industry is expected to become one of the main indicators of the overall U.S. economy. New materials such as engineering polymers, composites, advanced ceramics, and adhesive and sealants, are changing not only the way materials are produced, but also the finished products. Thus, like the general economy, the industry expects growth, but at a slower rate.

Long-term performance of the chemicals industry depends on public perception of the social and environmental impact of chemical products. This perception is important in a broad range of issues, from locations of future plants to recruitment of the best and brightest young people to the field.

PETROCHEMICALS

The value of petrochemicals industry shipments, in constant dollars, is expected to increase 1.0 percent in 1991. The petrochemical industry consists of plastic materials, synthetic resins, and nonvulcanizable elastomers (SIC 2821); plastic materials and synthetic resins, synthetic rubber, cellulosic and other manmade fibers (SIC 2822); manmade organic fibers (SIC 2824); surface active agents, finishing agents, sulfonated oils (SIC 2843); cyclic organic crudes and intermediates, and organic dyes and pigments (SIC 2865); industrial organic chemicals, nec (SIC 2869); nitrogenous fertilizers (SIC 2873); and carbon black (SIC 2895).

U.S. exports of petrochemicals increased 3 percent over the $20.8 billion shipped in 1989, to reach $21.4 billion in 1990. This represents a significant slowing in the rate of growth in the industry; exports had increased nearly 22 percent from 1987-88, and 17 percent from 1988-89. A weakening of world-wide chemical processing industries throughout the world, price decreases, and market saturation for many products from other countries after several years of rapid export growth combined to produce the slowdown.

Imports for 1990 totaled $9.6 billion, an 8 percent increase over the previous year. Despite the greater increase in imports than in exports, net trade remained at $11.8 billion. The increased import activity reflects a tendency of the restructured U.S. industry to obtain primary and intermediate materials from energy-rich countries when domestic production costs exceed foreign prices for commodity chemicals. This situation, where import prices were close to production costs, existed throughout 1990, but became most evident in the second half of the year.

INTERNATIONAL COMPETITIVENESS

Petrochemicals account for over 20 percent of all the chemicals in world trade. New production facilities are scheduled to begin operations in East Asia between 1992 and 1995, with Korea, China, Malaysia, Indonesia, the Philippines, and Taiwan each planning to build world-scale facilities. This new capacity will further depress the U.S. export market share in East Asia.

Existing petrochemical producers around the world are considering the advantages of shifting production to energy-rich countries possessing investment opportunities, so that they can take advantage of lower cost fuel and feedstocks. Japan has been investing in Korea and Indonesia. U.S. industry is investigating opportunities in Mexico and Eastern Europe. Conclusion of a U.S.-Mexico Free Trade Agreement may induce corporate interests to finance new petrochemical facilities in that country. Mexico has indicated need for a $5-7 billion infusion in its petrochemical and chemical processing industries. East European petrochemical organizations - in Poland, Hungary, Czecholovakia, and the USSR, for example - would require multiples of that amount to achieve state-of-the-art technology.

Outlook for 1991

The slackening demands of the chemical processing industries throughout the world because of the economic downturn will have a negative effect on the petrochemical industry during 1991, especially in Japan and Western Europe. At the same time, in part due to volatility in the Middle East, prices for fuel and feedstock have been increasing. At the end of 1990, the petrochemical market is one of ample supply and weakening prices, and it appears unlikely that increased fuel and feedstock costs will be "passed through" to petrochemical products in 1991. This scenario is further complicated by additional capacity becoming available in South Korea and Taiwan.

Internationally, petrochemical prices are expected to soften gradually throughout 1991. This will affect profits for all petrochemical producers, so capital expenditures are expected to decrease, as will research and development monies. At some unpredictable point, it seems likely that operating capacity, especially among Japanese and West Europeans producers, will be cut back to achieve a better supply-demand ratio in the marketplace.

Long-Term Prospects

A projected weakening global economy may eventually cause production cut-backs in the petrochemical industry. Reduced production would occur first with privately held petrochemical companies in free-market countries; producers in managed economy countries would soon follow. The depth and breadth of any slowdown in petrochemical production and trade cannot be predicted.

Worldwide concern about global warming and the need to reduce hydrocarbon emissions cast uncertainity over future fuel and feedstock prices. Should international agreement call for reduced coal usage due to environmental risks, shifts to petroleum and natural gas as alternative energy sources will drive petrochemical raw material and production costs to all-time highs. On an international basis, such an energy sourcing switch would impact U.S. industry more than others, because the U.S. is more dependent upon coal as an energy source than all our trading partners except England, West Germany, and East European countries.

REGULATIONS IN THE

CHEMICAL INDUSTRY

The U.S. chemical industry is regulated under such laws as the Emergency Planning and Community Right-to-Know Act; the Clean Air Act; the Toxic Substances Control Act; the Resource Conservation and Recovery Act; Superfund; the Clean Water Act; the Safe Drinking Water Act; and the new Chemical Diversion and Trafficking Act. In addition, the industry meets standards set by the Occupational Safety and Health Administration.

These and many other regulatory obligations increase the industry's capital expenditures and operating costs. In 1989 it is estimated that the chemical industry spent $1.45 billion on capital expenditures for pollution abatement; annualized operating expenditures for pollution abatement accounted for another $3.35 billion.

For additional background about regulations affecting the chemical industry, see the 1990 U.S. INDUSTRIAL OUTLOOK, Chapter 12, (Chemicals and Allied Products), as cited in Additional References at the end of this chapter.

Emergency Planning and Community-Right-to-Know Act

The Emergency Planning and Community-Right-to-Know Act is the third title of the Superfund Amendments and Reauthorization Act, signed into law in 1986. Know as Title III, the Emergency Planning and Community-Right-to-Know Act is a free-standing law that mandates emergency planning and gives communities the right to know more about hazardous materials used by certain industries.

Nearly every industry or business that produces, stores, buys, or ships hazardous materials is covered under the law. For these industries, Title III sets specific reporting requirements and deadlines. Since October 1987, companies involved in the production or handling of certain hazardous materials have had to submit material safety data sheets or lists of chemicals kept on site. On July 1 of each year, covered companies also must report inventories of specific chemicals kept in the workplace and annual releases of hazardous materials into the environment. This Toxic Release Inventory information is available to the public. In addition to their reporting responsibilities under Title III, covered facilities are required to participate in the local emergency-planning efforts mandated by the law.

Covered industries so far have reported environmental releases made from 1987 through 1989. The 1987 and 1988 data are already in an Environmental Protection Agency (EPA) computerized data base that can be accessed by the public. The 1989 data will also be entered into the data base.

Clean Air Act

The Clean Air Act Amendments of 1990 that were signed into law in November impose new standards on industry. Under the guidelines, controls for industrial sources of 41 pollutants must be in place by 1995; for 148 other pollutants, the deadline is 2003. Compliance will cost industry an estimated $25 billion a year.

Toxic Substances Control Act

The Toxic Substance Control Act (TSCA) of 1976 remains in force through a continuing resolution, although it was due for reauthorization in 1984. Reauthorization bills died in both houses of Congress. TSCA affects the chemical industry mainly through its Section 5 program requiring companies to submit a premanufacture notification for each new chemical. This requirement calls for review and testing by manufacturers, and costs millions of dollars each year. EPA has focused enforcement efforts on Section 5 violations, resulting in the assessment of several million dollars in civil penalties. EPA collects information on particular substances under Section 8 of TSCA through the Comprehensive Assessment Information Rule (CAIR). Cost estimates for reporting on the initial list of CAIR chemicals have run as high as $2.9 million. Another area of increased investigate activity by EPA has been under Section 8(e), which requires reporting of substantial risk information. EPA has the authority to assess civil penalties of up to $25,000 per day per violation.

Under TSCA Section 6, EPA can prohibit, limit, or ban the manufacture process, and use of chemicals. Recent activities under Section 6 have involved a new risk management process that highlights nonregulatory and voluntary actions to control individual chemicals.

Resource Conservation and Recovery Act

In 1984, amendments to the Resource Conservation and Recovery Act (RCRA) made major changes in the law, including:

* a complete ban on land disposal of hazardous waste

unless no migration from the waste facility will occur for

as long as the waste remains hazardous or the waste is

treated to EPA-established levels;

* legally mandated deadlines under which congressional

decisions become effective, even, in the absence of EPA

action;

* more stringent standards for the handling and disposing

of hazardous waste;

* a schedule for EPA listing of additional categories of

chemicals, plus criteria to make delisting more difficult;

and

* regulatory control of, and standards for, underground

storage tanks.

In 1990, EPA implemented the land-disposal prohibitions required under the 1984 amendments; regulations governing corrective action were also promulgated and will be implemented during the next few years. According to a study conducted for the Chemical Manufacturers Association, the industry could pay $9 billion to $60 billion to clean up hazardous and nonhazardous waste sites during the next decade, depending on the program requirements. Congress began RCRA reauthorization in 1990 and may enact new legislation in 1991.

Superfund

The Superfund Amendments and Reauthorization Act of 1986 that established an $9 billion, five-year fund to pay for the continued cleanup of hazardous waste sites, is scheduled for reauthorization in 1991. Most of the revenues for the fund are generated by $4.15 billion in taxes on industry sectors and a broad-based $2.5 billion corporate tax. General federal revenue appropriations provide $1.25 billion during five-year period. Interest payments and cost recoveries from responsible parties at waste sites make up the balance of revenues.

Clean Water Act

The Clean Water Act of 1987 guarantees continued progress in ensuring high-quality water. It also increases the severity of civil and criminal penalties for violations of the act.

Five regulations that have been promulgated will have a substantial impact on the chemical industry, if approved. Guidelines limitating effluents were put forward in 1987 setting standards for discharging wastewater from chemicals plants processing into U.S. waters or into sewer systems that lead to municipal treatment plants. Original costs of compliance, as estimated by EPA, were $841 million in initial capital costs and $504 million annually thereafter. A 1989 Appeals Court decision resulted in a remand of major portions of the legislation, saving or deferring millions of dollars in capital and operating costs.

Another rule, introduced in December 1988 to establish permits for stormwater discharges from industrial facilities, is also significant for the industry. Chemical industry facilities would be required to sample and monitor stormwater runoff in compliance with EPA or state standards, resulting in significant compliance costs. A final rulemaking was expected in October 1990. The domestic sewage study regulations finalized in July 1990 would also add costs to the chemical industry. They establish new requirements for wastewater pretreaters that discharge into sewer systems, including a large number of chemical plants.

Yet another significant proposal, from February 1989, would set pollutant standards sewage sludge. Indirectly, this would affect pretreaters discharging into sewage systems, because it would regulate the amounts of various pollutants that are permitted in the sludge produced by municipal wastewater treatment. The municipal treatment plants, in turn, would be expected to impose more stringent limits on the industrial pretreaters.

Section 3041 of the Clean Water Act directs states to identify toxic "hot spots" in their waters and develop plans to alleviate the problems. Finally, in addition to the proposals or finalized rules discussed above, states are establishing water-quality standards for 126 priority toxic pollutants under the Clean Water Act. In April 1990, EPA announced it would establish such standards for states judged to be in noncompliance.

Safe Drinking Water Act

The 1986 Safe Drinking Water Act Amendments require EPA to set standards for 83 chemicals on a phased, three-year schedule. EPA has set National Primary Drinking Water Requirements (NPDWRs) for 9 of the contaminants, and has proposed NPDWRs for 62 chemicals. Based on the amended definition of "non-transient non-community water system," facilities supplying drinking water to workers must comply with the NPDWRs. Of more significance, NPDWRs are also used in Superfund cleanups and Resource Conservation and Recovery Act corrective actions.

The amendments also provide for protecting groundwater quality around a public well. Although authorized, EPA has not requested funding for the Wellhead Protection Plan, citing budgetary constraints. In spite of this lack of funding, about 20 states have submitted wellhead protection programs to EPA for approval.

Chemical Diversion and Trafficking Act

Chemical companies are subject to the Chemical Diversion and Trafficking Act passed in 1988 to address the problem of diverting chemicals to make illegal drugs. The law contains three key provisions: (1) the seller of chemicals must keep detailed records; (2) sellers must report suspicious purchases and unusual or excessive losses; and (3) the Drug Enforcement Administration is authorized to control export and import transactions.

Occupational Safety and Health

The chemical industry meets hazard identification standards established by the Occupational Safety and Health Administration (OSHA). The standards require extensive documentation of chemicals in trade and in the workplace and mandate warning labels on containers. In 1980, OSHA estimated the chemical industry's compliance costs at $719.8 million initially, plus about $400 million annually. In July 1990, OSHA released its proposed rule on process safety management intended to prevent major industrial accidents while minimizing the consequences of accidents involving high-risk chemicals.

Other standards met by the chemical industry include OSHA's Hazard Communication Standard and state and local laws, which give workers the right to know about hazardous chemicals in the workplace. In addition to implementing the standards, the Chemical Manufacturers Association is improving its methods for communicating product information through a uniform material safety data sheet that is receiving global acceptance and could become an international standard.

The chemical industry also complies with OSHA's updated permissible exposure limits for some 600 hazardous substances. OSHA updated the limits, based on current health effects data, in January 1989. - Vincent Kamenicky, Office of Chemicals and Allied Products, (202) 377-0128, November 1990.

PHOTO : Chemical and allied products is one of the largest U.S. industries, producing more than 50,000 different chemicals and employing 1.1 million people. The value of industry shipments is expected to increase by 1.1 percent in 1991.

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Current Industrial Reports, Manufacturers Shipments, Inventories and

Orders, monthly, U.S. Department of Commerce, Bureau of the

Census, Washington, DC 20233. Capacity Utilization, Federal Reserve statistical release, monthly. Producer Price Index, monthly, U.S. Department of Labor, Bureau of

Labor Statistics, Washington, DC 20210. U.S. Merchandise Trade, FT900, monthly, U.S. Department of Commerce,

Bureau of the Census, Washington, DC 20233. Synthetic Organic Chemicals, Annual Production and Sales, U.S. International

Trade Commission, Washington, DC 20436. Annual Review of the Chemical Industry, United Nations Economic

Commission for Europe. 1990 U.S. INDUSTRIAL OUTLOOK, U.S. Department of Commerce.

Available for $27 (S/N 003-009-00562-1) from the Superintendent of

Documents, Government Printing Office, Washington, DC 20402-9325.

COPYRIGHT 1991 U.S. Department of Commerce
COPYRIGHT 2004 Gale Group