CHEMICAL PIONEERING IN SOUTH AMERICA
G r a c e presents i n t e g r a t e d sugar, chlorine, and caustic, a n d operations in Paramonga, Peru. quarter o f a century a g o
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S P S C X ^ . 1 .
In color, the beginnings a
-A-TITu^E!
CHARLES E. W A R I N G W . R. G r a c e & Co.
Chemical Pioneering in South America
W
. R. GRACE and Co. have been operating in South America for one hundred years. In fact, the home grounds were originally Peru, and later transferred to New York, the reverse of the usual situation with a U. S. company operating south of the border. The company has been associated with the industrialization of South America for most of those hundred years, but not in the chemical industry. For the chemical industry is an industry that develops only when the economies 54 A
arc relatively mature—after other industrialization has first taken place. Grace's first ventures were largely in mining, food processing, and textiles, industries now becoming rather mature, mature to the point that local companies can operate better in many cases than a foreign-based organization such as Grace. This has come about because the technology is rather simple; the families who own the industries are frequently local families; they send their sons to top technical schools in the United
INDUSTRIAL AND ENGINEERING CHEMISTRY
States and bring them back well trained in American engineering techniques; they are able to operate on a very low overhead that a foreign company maintaining a large organization can't beat. Manv of the South American countries are now reaching the point where a chemical industry is beginning to emerge. Attendance by prominent South American nationals at the AGS Diamond Jubilee in 1951, and the concurrent meeting of International Union of Pure and
Applied Chemistry, testified to this. A series of feature articles in Chem ical and Engineering News in 1952 and 1953 gave the picture at that time and hints of the future of South America's chemical industry in great detail, country by country. Much has happened since then. Some years ago W. R. Grace, planning future growth, decided they ought to be more strongly based in the United States. The result was entry into the United States chemical industry, in 1951. In less than ten years Grace sales in the industry now amount to $175 million an nually, roughly in the top ten cate gory in the industry. One of the basic philosophies back of the move was the belief that a strong tech nological base in the United States chemical industry would create a means for exporting similar tech nology into South America. With technical know-how and operating experience achieved in this country, Grace should be able to pioneer the chemical industry in Latin America, where they already had a strong op erating organization and economic and political know-how. At present the company is actually undertaking to transfer technology to South American countries and to start chemical ventures on a relatively small scale.
This is α very timely subject, partly from the political stand point and partly from the general increased public interest in foreign affairs. Today we hear a great deal about foreign a i d ; it is a topic d e b a t e d in Congress on a very controversial basis. Most people connected with or having some knowledge of foreign aid have concluded that this is a job the Government cannot d o alone—it must enlist the help of private industry. This job is so important that the end result of our competition with the Communist world may depend on how well w e do it, how well w e help underde veloped countries to raise their standard of living through industrialization. Many proposals are being made before Congressional committees to provide incentive for industry to undertake this job of foreign a i d ; they usually involve t a x incentives of some sort. Here is the story of a company relatively new to the chemical industry—both a b r o a d and at home—but one which has been operating successfully in South America for a hundred years, in shipping, mining and metallurgy, f o o d processing, and other lines. Their methods, the factors they take into account in going into and conduct ing business in the South American countries, the problems that distinguish chemical industry operations in these countries from similar operations in the United States—all these, stated simply, should be of interest to the company, U. S. or foreign, contemplating South American operations.
The first conclusion Grace reached is that American technology—the engineering phases—is simply not exportable to underdeveloped coun tries. Basic theoretical knowledge can be exported, of course. But when it comes to picking up a proc ess design satisfactory for an op eration in the United States, and transferring it bodily to a South American country, this generally just doesn't work. Why not? Look at the total size of individual South American economies compared to American economy, as per cent of the American market: Brazil Argentina Venezuela
4 2.5 1
Chile Peru Ecuador
0.5
0.33 0.05
All of the West Coast countries com bined (where Grace is most active) total about 38 million people, but they represent only about 2 % of the American market. One reason is that large proportions of the popu lation are Indians, who are not real consumers—only the urban popula tion in these countries are true
In these l a r g e vacuum pans sugar crystals a r e f o r m e d from the juices e x t r a c t e d from the sugar cane. From these sugar crystals molasses is then r e m o v e d b y high speed centrifugals. In a d d i t i o n to r a w and refined sugar, molasses a n d rum m a d e from this molasses a r e products of the C a r t a v i o sugar estate VOL. 5 1 , NO. 7
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JULY 1959
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Contrasted here a r e the o l d a n d new in cane transporting on the C a r t a v i o sugar estate in Peru. The locomotive on the left represents the old method, while the truck has been specially designed f o r transporting the cane f r o m the fields to the mill
consumers as we know them in terms of American economics. When you examine the development of the American chemical industry, the first thing you realize is that our industry is based on tremendous production units. Look at the minimum economic size of various chemical plants, for instance, particularly in heavy chemicals production : T o n s per D a y H,SOj NHr, Triple superphosphate Cl2
100-125 200 600 300
These are rough figures with which some may disagree, but they indicate size ranges. They show that there are huge capital investments in one of these minimum size economic units, ranging from perhaps $2 million for an H2SO4 plant to $10, SI 5, or $20 million for one of the other chemicals. Scaling down the U. S. markets for these chemicals, we find them not in the order of 100, 200, or 300 tons per day, but rather 3, 5, or 10 tons. I/EC's domestic readers will immediately recognize these as pilot plant capacities in terms of American engineering. But the picture isn't even as simple 56 A
A t the Paramonga p l a n t a t i o n and industrial center bagasse, the fibrous residue of sugar cane, is emp l o y e d in the manufacture of p a p e r . As a p a r t o f this process, (he bagasse digestor, pictured here, operates at a r a p i d rate to produce high strength pulps f o r the p a p e r a n d b o a r d production
as transferring a pilot plant, because the economic equation in these countries is completely the reverse of the U. S. equation, which is based on low capital costs and high labor. Some simple arithmetic based on what a company can afford to spend to eliminate one operator position in a chemical plant: Under American conditions a skilled chemical operator may cost as much as $5000 per year. A continuous process requires four men at every station to maintain round-the-clock operation, or $20,000 per station. By eliminating one such position the saving on an after-tax basis is approximately $10,000. Assuming this position is eliminated by mechanization, and the money for such mechanization is raised on the basis of debt capital at 5%, $200,000 can be spent in capital expenditure to eliminate one operator position. In some West Coast South American countries the labor rate is roughly $1 per day, $300 per worker per year, or $1200 per year on the basis of four men to a position. The tax rate is somewhat less in these countries than in the United States, so that saving on an after-tax basis is about $800 per year. Debt capital is about 10%, and equity capital perhaps 15%, so only from
INDUSTRIAL AND ENGINEERING CHEMISTRY
$5000 to $8000 expenditure would be allowable to eliminate one operator position as compared to the $200,000 allowed in this contry. This doesn't buy much mechanization. There is also a political implication in this problem, too, because in most of these countries it is considered socially desirable to provide maximum employment, and the population growth throughout these countries is about 3 % per year. In the United States there is a great deal of debate about desirable growth rate for our economy. Some of our most advanced thinkers maintain we ought to have a growth rate of 5 % per year. If 3 % is pretty good (and this is what ours has been over the last several decades), and we translate this to the Latin American countries, such a growth rate is really only keeping up with the population growth, with no gain on a per capita basis. For a company trying to find a project in South America in the chemical industry which will provide something that the country needs, and will be profitable, plant design must be based on engineering, economic, and sociological factors. Capital investment must be minimum, employment maximum. How
This p l a n t a t P a r a m o n g a produces caustic s o d a , chlorine, a n d hydrochloric a c i d . Some o f the caustic soda and chlorine gas a r e used in the p a p e r m a k i n g process here. The chlorine gas is also used to combine w i t h h y d r o g e n in making h y d r o chloric acid which is e m p l o y e d in Peru's textile mills and tanneries, a n d is used, in liquid f o r m , f o r w a t e r purification a n d treatment o f s e w a g e
do you get started in making your decision? Grace, of course, has the advantage of an existing organization in most of these countries. Our groups continually scan import statistics on various chemical commodities. When import figures indicate that the annual import rate is approaching the production of a very small plant, we begin to look and see whether we can undertake the design, construction, and operation of such a plant profitably. Here the dilemma arises. Take a report from our Chilean operations showing that a certain commodity at present growth rate will reach 3000 tons per year in 1965. Our Chilean group estimated this would be a minimum size economic plant there. If we put in a 3000-ton plant now, with the current import rate of 1500 tons, and all imports stopped, our plant would still be operating at only half capacity, and would possibly be barely on a break-even basis, or possibly even in the red for almost five years. If we wait until 1965 when the projected requirements are roughly in balance with the output of this minimum size plant, someone else is likely to take the gamble, build a plant, and accept the break-even or loss figures in return for having staked out a
strategic position for the future. Then it may be 15 or 20 years before the market has grown to the point where it can support a second producer. This is the situation, strategically, which exists in all these West Coast
countries. On the other hand, the chemical industry in Brazil and Argentina is already rather well developed, and a very small American plant design can generally be picked up and put down in those two countries without too much change. Having learned some things about the investment a company can afford in eliminating one operator position, Grace engineers are now beginning to look at the whole problem with a somewhat different point of view. They look at the prospects of scaling down the 3000-ton minimum size plant, for instance, to 1500 tons to balance production with demand. They do this by what would be, according to American standards, the most elementary engineering. Take a homely example— conveyor systems. Applying the equation of the amount of capital you can afford to spend to eliminate an operator position, occasionally plant design won't a even allow a conveyor system—the answer may be the wheelbarrow. A further example. In Peru Grace has a plant to make paper bagasse, one of the pioneering plants of this particular type in the entire paper industry. Begun in the 1930's it has a capacity today of roughly 40,000 tons of paper. During the war the supply of caustic required in the process was cut off. Largely
This is the coke p l a n t at the Huachipato steel mill in Concepcion, Chile's third largest city. Concepcion, while the center o f a rich agricultural region, is fast gaining importance as an industrial center. Concepcion is linked to S a n t i a g o b y air and r a i l , and with the United States and other American nations b y P a n a g r a planes V O L 5 1 , NO. 7
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JULY 1959
57 A
Fruit juices are purified in vats before being canned. Cia. Colombiana de Conservas California, Ltda., a wholly owned subsidiary of W . R. Grace & Co., operates this small food processing plant which is located in Barranquilla
with local e q u i p m e n t p u t together in the maintenance shops they produced some very small a n d primitive caustic chlorine cells a n d over a period of several years m a n a g e d to build up a capacity of 5 tons per day. This was enough to supply the caustic requirements of the p a p e r p l a n t — but in all of Peru there was not enough d e m a n d for chlorine to require all the 5 tons of chlorine m a d e as a co-product. I n the middle of the war d e m a n d for p a p e r began to grow. T h e plant had always generated its own electrical power. W i t h increased p a p e r production there was no longer e n o u g h power to supply process steam for the plant and at the same time generate e n o u g h electricity for the caustic chlorine installation. Grace engineers rose to the occasion, sent a scouting p a r t y u p t h r o u g h N e w England, and finally located what had been an old hydroelectrical generator in a small mill race. T h e generator had been and was actually submerged in the mill pond into which it had fallen. They bought it for $1000, fished it out, dried it, and sent it to Peru. A small d a m was put u p on a stream not far 58 A
from the p a p e r mill, and the generator (GE, 1000-kw., vintage 1895) installed, where it has been operating with practically no m a i n t e n a n c e necessary since 1943. Present plant production now requires more caustic a n d a 15-ton per day caustic chlorine addition, with m o d e r n DeNora cells, is being considered. For the present, at least, the power plant can supply enough current. But we know that exactly the same cycle will take place—process steam requirements will increase in the p a p e r mill, and there will be a pinch for steam and for current. So future plans call for another hydroelectric site, and another 15-ton expansion in caustic chlorine facilities. This highlights a cycle quite typical of underdeveloped countries, that in all those countries the original d e m a n d is for caustic, with no outlet for chlorine. T h e chlorine has to be disposed of in some way, or a venture begun to use it where chlorine cost as a raw material is considered practically nothing, on the assumption that this is better than spending money to clump it in the sea. A good example of this condition, a l t h o u g h far from L a t i n America, is found in J a p a n . The caustic chlorine industry expanded very rapidly there and the pricing pattern has taken the turn where caustic carries most of the load, with the result that the chlorine is very cheap. T h e Japanese are m a k i n g vinyl chloride from this cheap excess chlorine that nobody knew w h a t to d o with. R e s u l t — J a p a n e s e exports of vinyl chloride at $0.18 are u p setting the vinyl chloride m a r k e t all over the world. Brazil went through something of the same scale in the early development of its chemical industry. T h e y began to m a k e vinyl chloride with their excess chlorine and today the Brazilian m a r k e t is absorbing vinyl chloride at a n increasing rate. A n o t h e r pattern emerging in these underdeveloped South American countries and offering opportunities for the chemical industry is the trend toward steel mill construction. In Colombia and Chile, for instance, coke ovens are installed along with steel mills; benzene, toluene, a n d xylene are available from the ovens, and form a raw material base for an industry based on a r o m a t i c chemicals. If the situation is such
INDUSTRIAL AND ENGINEERING CHEMISTRY
that c h e a p aromatics are available; a n d also surplus chlorine, then the next step is simple chlorinated derivatives badly needed in these countries, such as benzene hexachloride or pentachlorophenol. Back again to the same song, however. T h e real problem as Grace sees it is the c h a n g e of engineering philosophy to the different economic equation with low labor costs a n d high capital costs, a n d redesign plants a n d plant operations in terms of m a x i m u m labor, minim u m capital, and m a x i m u m use of local facilities. This last is a point of real emphasis. O r d e r i n g equipm e n t for these plants from the U n i t e d States in m a n y cases is almost impossible because of excessive sizes of the unit pieces of equipment, or shipping costs, or import duties, or any combination of these. In Colombia, for instance, a bond equivalent to the entire cost of the import must be p u t u p with application for a n i m p o r t license. If the piece of e q u i p m e n t to be imported costs $50,000, that a m o u n t of money must be p u t u p with the Colombian government. T h a t a m o u n t of money is thus immobilized for perhaps as long as 6 months if delivery time is long, a n d local interest rates arc as m u c h as 1 0 % . These factors dictate development of local sources of manufacture for major pieces of e q u i p m e n t , a n d employment of engineers w h o can work with the m a chine shops and boiler shops e q u i p p e d to do steel fabrication. I n m a n y cases these are rather primitive, but this is the only way to circumvent high costs. O u t of all this Grace thinks there is going to develop a new type of engineer, one w h o has all the basic training advanced American technology can give him, and who also becomes experienced in methods of improvising to meet local situations. If we in the chemical industry are to undertake this task of helping underdeveloped countries, if wc are to help assume the b u r d e n which has been largely carried by the United States Government, we must create a pool of technologists of this kind.
A d a p t e d from a talk be fore the Société de Chimie Industrielle, American Section, in N e w York. Circle No. 74 on Readers' Service Card
