Chemical firms slash capital spending plans 1982 never looked like a good year for capital spending, but now it's beginning to look terrible. Chemical and other U.S. companies are cut ting deeply into earlier budget plans for this year's new plant and equip ment. A fresh survey by the Com merce Department as well as C&EN's most recent canvass finds sharp funding drops in just the past few months. It is clear that, considering inflation, actual project levels will fall in 1982 from 1981. For chemicals and allied products, Commerce's latest survey, conducted in late April and May, shows that companies have sliced more than $1 billion from earlier spending plans for U.S. projects in 1982. The latest spending figure for the year is $14.24 billion, down from $15.38 billion planned earlier. This reduces the current-dollar increase for the year from 13.1% to 4.7% from 1981's $13.60 billion. Even with a greatly reduced in flation rate for capital goods pur chases in 1982, the physical volume of new projects is down. Commerce estimates this inflation rate at 4.8% in 1982 after 8.7% in 1981. The re sult for chemicals and allied prod ucts is constant-dollar spending down 0.1% in 1982 after a drop of 0.8% in 1981. The rest of U.S. manufacturing is going the same way. Commerce es timates total capital spending for 1982 at almost .$127.3 billion, up just 0.4% from 1981. With inflation taken
New chemical spending figure is $1 billion lower $ Billions 16
1
Earlier estimate
14
-4
13
Latest estimate ]
12 11 10
ol 1979
I
ι
1980
1981
Source: Commerce Department
J 1982
out, spending is falling 3.5% in 1982 and gained just 0.8% in 1981. Commerce's new data close much of the gap between its survey find ings and C&EN's on the state of capital spending this year. In a latespring canvass of 17 large U.S. basic chemical companies, C&EN found a 1% increase planned in worldwide capital spending for 1982, down from 6% in an earlier survey of 1982 spending at the end of last year (C&EN, Dec. 14,1981, page 13). The budget squeeze in capital spending is showing up in actual project spending backlogs and, by derivation, project starts. Commerce shows carryover of unspent funds for chemicals and allied products down 10% in March 1982 from March 1981. Starts in first-quarter 1982 were down 16% from firstquarter 1981. D
New merger guidelines issued by Justice The Department of Justice has is sued new guidelines to help chemi cal and other businesses decide which mergers Justice is most likely to challenge. By stating its policy "as simply and clearly as possible," Justice says, it hopes to reduce u n c e r t a i n i t y associated with en forcement of antitrust laws. The guidelines reflect the evolu tionary, rather than revolutionary, changes that have taken place since the previous guidelines were issued in 1968. Thus they are a statement of the policy that has been followed for the past few years. Nevertheless the new guidelines do a number of things that the old guidelines didn't. For one thing, they exhaustively define what a market is and how merging firms' share of it will be calculated and evaluated. For an other, as an aid to the interpreta tion of market data, Justice says it will use for the first time the Herfindahl-Hirschman Index (HHI) to measure market concentration. The HHI is calculated by summing the squares of the individual market shares of all the firms included in the market served by the potentially merging firms. Using t h e postmerger m a r k e t share in the calculation, if the HHI is below 1000, Justice is unlikely to challenge the merger. If the postmerger index is between 1000 and 1800, a merger is unlikely to be chal lenged if the difference between the premerger and postmerger HHI is
less than 100 points. If the postmerger H H I is above 1800, the chance of a challenge increases substantially. However, Justice says that it likely would challenge the merger of any firm with a market share of at least 1% with the leading firm in the mar ket, provided that that firm has a market share that "is at least 35% and is approximately twice as large as that of the second largest firm in the market." Justice also likely would challenge a merger between two firms each having a 5% or more mar ket share. Thus mergers among large chemical companies still would be difficult. The guidelines also lay out prac tices that Justice considers warning flags for a challenge. Among these is that one or more of the following practices are adopted by substan tially all the firms in the market: exchange of price or output infor mation in a form that could assist firms in setting or enforcing an agreed price; mandatory delivered pricing; collective standardization of product variables on which firms could compete; and price protection clauses. D
Reagan environmental policies criticized A major report on the Reagan Ad ministration's environmental poli cies, published by the Conservation Foundation, criticizes the govern ment for "single mindedness" and for polarizing conservationists and the government. In its overview of the situation, the report concludes that "a year and a half into the Administration's term, no hierarchy of environmen tal priorities or concept of a positive federal role in maintaining and en hancing the environment is yet discernible." Although it normally avoids po litical confrontations, the 34-yearold, independent foundation found it impossible to keep quiet. The 439-page report, "The State of the Environment 1982," covers all as pects of the environment. The great est fears are that cuts in funding and personnel will interfere with gathering information on pollutants. Such data is needed to make good policy decisions. Lack of funding of environmental and resource pro grams will lead to decisions, the re port says, that are based on "ideol ogy, instinct, and self-interest." June 21, 1982 C&EN
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