Drummond C. Bell, chairman of National Distillers, says the decision to divest its European business was dictated by competitive disadvantages. National Distillers has been a single-product, nonintegrated producer in a market loaded with bigger, fully integrated chemical producers such as Essochem. •
Low capital spending may cause shortages The U.S. chemical industry's slow pace in current spending on new plant and equipment is due in large part to the industry's excess production capacity and resulting poor profits in many large-volume products. But that's not the whole story. Basic changes in the investment picture for chemicals have created large drains for capital funds unrelated to new capacity, according to John G. Brookhuis, president of American Hoechst. The result is that actual expansion of plant capacity takes a fairly small fraction of capital spending these days. The result for chemical markets could be quite different from the nagging surplus of the past few years. Since chemical companies have used up much of their available bank credit in current capital spending and have little chance of raising equity capital given the lethargic state of the stock market, supply-demand equilibrium could be in for a turnaround. "The inevitable conclusion must be shortages of some key chemical products sometime in the 1980's," Brookhuis says. Brookhuis notes that annual capital spending by the largest chemical
companies dropped 10 to 12% in 1977 and 1978 in constant dollars. "This year, chemical industry capital investments look like they will be down another 4%, adjusted for inflation. "In addition, out of this year's investments, about 15% will be spent for environmental protection and another 5% for occupational safety and health requirements. This includes some dollars used for energysaving systems. Finally, some funds must be spent on maintaining plants and equipment already in place. Traditionally, this takes about 50% of investment funds. That leaves only about 30% for building new plants," Brookhuis says. Companies seem to be turning to mergers as an alternative to building new plants. Brookhuis notes that "during 1977 and 1978, the chemical industry spent on acquisitions a sum equal to 50% of its capital investment. Just three years earlier, chemical spending on acquisitions equaled only about 20% of funds for investments." Brookhuis offers a combination of reasons for companies' reluctance to spend more money on their own plant additions. New plants cost more and must be financed with debt carrying high interest rates. Product prices today are based on economics of older, depreciated plants. Investment costs have increased from environmental and energy regulation. And new plant sites are harder to find. •
Dow bemoans rising cost of regulation
The skyrocketing cost of complying with federal regulations has raised the ire of Dow president and chief executive officer Paul F. Oreffice, who says that "excessive and highly questionable regulations are strangling American business, stifling American product innovation, and making American business less competitive in world markets with a resulting loss of American jobs." These sentiments are frequently expressed by U.S. businessmen, but Oreffice has some hardfiguresto back him up. Dow's most recent survey of its costs of complying with government regulations shows that these costs increased more than 44% from 1976 to 1977 to $268 million, or 4.3% of the company's sales for that year. The 1977 cost was 82% more than the 1975 cost of $147 million. According to Dow, at least $129 million of the 1977 cost is the result of complying with questionable or excessive regulations. This represents Brookhuis: shortages of key products an increase of 115% in two years.
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C&ENFeb. 12, 1979
President Carter's goal of reducing federal paperwork, although welcomed by Dow, has yet had no effect, according to Oreffice. It costs Dow more than $20 million per year to complete various government reports and forms. "Congress must accept the fact that these excessive regulations are the primary cause of America's inflation," Oreffice says, "and only Congress can do something about it by limiting the power available to regulators." •
New plants and environmental law A blueprint to guide corporate planners who are thinking of building a new facility or expanding an old one through the tangled thicket of federal environmental requirements has been compiled by a former Environmental Protection Agency official. Author of the 241-page volume, John R. Quarles, former EPA deputy administrator, and now a lawyer in private practice, says it is difficult for those building or expanding a plant to get a handle on what they will face, because of the "very striking increase" in environmental requirements covering such facilities that have been instituted recently. Some requirements, such as those for solid waste disposal, are still on the drawing board, he adds. And given Congress' tendency to amend environmental laws frequently, rules are likely to change in midstream, Quarles warns. Taken together, these requirements can be expected to add two to three years to the total lead time required for a project, Quarles concludes in his study, which was sponsored by 10 organizations, including Koppers, Monsanto, and Olin Corp. To help corporate planners cope with the difficulties posed by environmental rules, Quarles' study provides an in-depth examination of the impact on corporate planning of the clean air, water, and solid waste laws; controls on wetlands and coastal zones; and federal requirements for coal use and for environmental impact statements. The volume provides checklists for developing a preliminary description of the environmental effects of a proposed facility, determining which regulatory requirements are likely to apply, and for identifying major expected roadblocks. Copies of "Federal Regulation of New Industrial Plants" can be obtained by writing to Quarles at Morgan, Lewis & Bokius, 1800 M St., N.W., Washington, D.C. 20036. •
