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Economic feasibility of basic chemical manufacturing in the province of British Columbia Dobbie, John Wright 1965

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ECONOMIC FEASIBILITY OF BASIC CHEMICAL MANUFACTURING IN THE PROVINCE OF BRITISH COLUMBIA by JOHN WRIGHT DOBBIE B.A. Sc., U n i v e r s i t y o f B r i t i sh Columbia, 1951 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In the Department of Commerce and Business A d m i n i s t r a t i o n We.accept t h i s t h e s i s as conforming t o the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA June, 1965 In presenting this thesis in partial fulfilment of the require-ments for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It i s understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of Commerce and Business Administration The University of British Columbia, Vancouver 8, Canada Date June, 1965 ABSTRACT The requirements f o r an investment i n a chemical manu-f a c t u r i n g p l a n t t o be economically f e a s i b l e have been i n v e s t i -gated. The items s t u d i e d i n c l u d e d the market which e x i s t s f o r chemicals, the r e s o u r c e s r e q u i r e d t o manufacture?chemicals, and the f i n a n c e s commited to the investments i n manufacturing p l a n t s . The chemical p l a n t s i n v e s t i g a t e d were c o n f i n e d to that s e c t o r d e f i n e d as b a s i c and i n t e r m e d i a t e chemicals, f u r t h e r , the study was r e s t r i c t e d to the geographic r e g i o n o f B r i t i s h Columbia. Three sources o f i n f o r m a t i o n were p e r t i n e n t t o t h i s study. These were the e x t e r n a l t r a d e data f o r the p r o v i n c e of B r i t i s h Columbia, a v a i l a b l e through V i c t o r i a from the Dominion Bureau of S t a t i s t i c s * the growth i n t h e f o r e s t i n -d u s t r y , a v a i l a b l e from j o u r n a l s and news r e l e a s e s ; and s p e c i -f i c expense i n f o r m a t i o n , o b t a i n e d or confirmed from p r i v a t e communication w i t h v a r i o u s i n d i v i d u a l s i n the i n d u s t r i e s p e r t i n e n t to the study. Other m i s c e l l a n e o u s books, p u b l i c a -t i o n s , and u n p u b l i s h e d m a t e r i a l s were used as r e q u i r e d to complete the a n a l y s i s of the study. The p e r i n e n t i n f o r m a t i o n i n c l u d i n g markets and p r i c e s (revenue), r e s o u r c e s (expenses), and c a p i t a l commitment were combined to determine r a t e of r e t u r n on investment. Return was c o n s i d e r e d to be the p r i n c i p a l c r i t e r i a f o r the e v a l u a t i o n of the economic f e a s i b i l i t y of a chemical manufacturing p l a n t . The r e s u l t s o f the study i n d i c a t e d that the growth of the f o r e s t i n d u s t r y accounted f o r the f e a s i b i l i t y o f chemical p l a n t s i n the p r o v i n c e i n the recent p a s t and t h e near term f u t u r e . The chemical pulp exports e s p e c i a l l y to Japan and Burope are expected to s u s t a i n growth i n p u l p i n g and b l e a c h -i n g chemicals. A d e c l i n i n g per c a p i t a consumption f o r plywood and i n c r e a s e d e x p o r t s of t h i s m a t e r i a l a r e expected to s u s t a i n a s t r a i g h t l i n e growth i n plywood r e s i n chemicals i n the near term f u t u r e . The p o s s i b i l i t i e s f o r o p p o r t u n i t i e s i n b a s i c aromatic c h e m i c a l s , and p l a s t i c s , and s y n t h e t i c detergent i n t e r m e d i a t e s were o u t l i n e d , a l l of which would r e q u i r e market development. Resources and c a p i t a l commitment were not found to be a r e s t r i c t i o n upon economic f e a s i b i l i t y . Sulphur and petroleum a r e a v a i l a b l e w i t h i n the p r o v i n c e , but the m a j o r i t y of the m i n e r a l raw m a t e r i a l s are imported. Technology was i n each case the o r g a n i z a t i o n ' s own. C a p i t a l f o r the investments made i n B r i t i s h Columbia has been p r o v i d e d by the r o u t i n e o p e r a t i o n s of the parent o r g a n i z a t i o n , and funds flow from the l o c a l p l a n t s o p e r a t i o n s s h o u l d s u s t a i n expansion. The r e t u r n on investment f o r the b a s i c chemical p l a n t s which have been e s t a b l i s h e d r e c e n t l y i n B r i t i s h Columbia was V found t o be modest i n t h e s h o r t r u n . V a r i o u s f a c t o r s c o n t r i -b u t e d t o r e d u c t i o n s i n r a t e o f r e t u r n i n c l u d i n g r a t e o f i n -c r e m e n t a l e x p a n s i o n , market s t r u c t u r e change, p r i c e r e d u c t i o n s , and c o m p e t i t i o n . TABLE OF CONTENTS CHAPTER PAGE I . INTRODUCTION 1 Purpose o f Study 1 Reason f o r Study 2 L i m i t a t i o n s o f Study 3 D e f i n i t i o n s 5 O r g a n i z a t i o n of Study 7 Resume of H i s t o r y 9 Source of Data 16 I I . PRESENT HEAVY CHEMICAL USE 19 Consumers 19 F o r e s t r y 19 Pulp and paper 19 Lumbering 26 Mining and m e t a l l u r g y 28 M i s c e l l a n e o u s 30 Summary 33 Present Heavy Chemical Manufacturers 35 S a l t raw m a t e r i a l 35 Sulphur and s u l p h i d e raw m a t e r i a l 37 Other i n o r g a n i c raw m a t e r i a l s 39 Organic raw m a t e r i a l s 40 v i i CHAPTER PAGE Heavy Chemicals Not Manufactured i n B r i t i s h Columbia 41 I I I . FORECAST OF FUTURE REQUIREMENTS 43 Growth o f B r i t i s h Columbia I n d u s t r i e s Consuming Heavy Chemicals 41 Pulp and Paper 41 Plywood 60 M i s c e l l a n e o u s uses of manufactured chemicals. 65 P l a s t i c s and Resins 65 A g r i c u l t u r e 68 Soap 69 O i l and gas 70 E n t r y 70 IV. ECONOMIC REQUIREMENTS 72 Raw M a t e r i a l s 73 In o r g a n i c raw m a t e r i a l s 73 S a l t 73 Sulphur and S u l p h i d e s 75 Alumina 75 Phosphate 76 Potash 76 Sodium S u l p h a t e 76 v i i i CHAPTER P A G E Organic raw m a t e r i a l s 77 Other Resources 8 1 Labor 8 1 U t i l i t i e s 8 4 T r a n s p o r t a t i o n 8 7 Technology 8 8 C a u s t i c - C h l o r i n e 8 8 Phenol 8 9 Formaldehyde. 90 Petrochemical processes 90 T e c h n i c a l s e r v i c e 9 0 Timing 9 1 T a r i f f s 9 2 V. ECONOMIC FEASIBILITY 94 F i n a n c i n g 95 Requirements 95 Source 9 9 Return on Investment 99 Investment 99 Revenue 102 Expense 1 0 8 P r o f i t s 1 1 4 C a u s t i c - c h l o r i n e 115 i x CHAPTER PAGE Chlorate 120 Sulphuric A c i d 120 Alum 121 Phenol 121 Formaldehyde 122 Benzene-Toluene-Ethyl Benzene-Xylene 122 P l a s t i c s and Soap 124 VI . CONCLUSIONS 126 BIBLIOGRAPHY 134 APPENDIX A. Market Data 140 APPENDIX B. Expenses 141 APPENDIX C. FUNDS AND RETURNS 144 APPENDIX D. Miscellaneous Chemical Co. Data 149 X LIST OF TABLES TABLE PAGE I. P r o d u c t i o n of Pulp i n Canada and B r i t i s h Columbia f o r S e l e c t e d Years 22 I I . Chemical Pulp C a p a c i t y o f B r i t i s h Columbia Pulp M i l l s '. 23 I I I . Heavy Chemical Requirements of B r i t i s h Columbia Pulp M i l l s 25 IV. C a u s t i c , C h l o r i n e , Sodium C h l o r a t e P l a n t C a p a c i t i e s i n B r i t i s h Columbia 36 V. S u l p h i t e Pulp Grades Produced i n B r i t i s h Columbia During 1962 49 VI . K r a f t Pulp E x p o r t s from B r i t i s h Columbia 55 V I I . World Supply o f and Demand f o r Pulp and Paper.. 59 V I I I . Near F u t u r e Chemical Requirements of B r i t i s h Columbia Pulp M i l l s 61 IX. A F o r e c a s t and P r o d u c t i o n of S e l e c t e d Organic Chemicals 67 X. S a l t Cost from V a r i o u s Sources t o B r i t i s h Columbia S i t e s 74 XT. T e c h n i c a l Job F u n c t i o n s 83 X I I . Wage S t r u c t u r e i n B a s i c Chemical Industry ' of B r i t i s h Columbia 85 x i TABLE PAGE X I I I . A s s e t s and L i a b i l i t i e s as percentages Canadian F e r t i l i z e r and I n d u s t r i a l Chemical Companies 101 XIV. Revenue from B a s i c Chemical Marketing i n B r i t i s h Columbia 109 XV. Requirements o f BTX f o r M i s c e l l a n e o u s Chemicals.. 123 x i i LIST OF FIGURES FIGURE PAGE 1. T o t a l P r o d u c t i o n o f Plywood i n A s s o c i a t i o n Member M i l l s 27 2. Phenol and Formaldehyde Requirements i n B r i t i s h Columbia R e l a t e d to Plywood Pr o d u c t i o n 29 3. B r i t i s h Columbia C a u s t i c - C h l o r i n e C a p a c i t y i n R e l a t i o n t o Demand 38 4. B r i t i s h Columbia Newsprint P r o d u c t i o n , C a p a c i t y , and E x p o r t s 46 5. B r i t i s h Columbia S u l p h i t e P r o d u c t i o n , C a p a c i t y , and E x p o r t s 48 6. Growth o f K r a f t Pulp C a p a c i t y 52 7. K r a f t Pulp E x p o r t s from B r i t i s h Columbia 56 ACKNOWLEDGEMENT The c o - o p e r a t i o n of many i n d i v i d u a l s i n v a r i o u s c o r p o r a t i o n s who were c o n t a c t e d p e r s o n a l l y i s g r a t e f u l l y acknowledged. CHAPTER I INTRODUCTION I. PURPOSE OF STUDY T h i s t h e s i s s t u d i e s the growth i n a s e c t o r o f the chemical i n d u s t r y i n the p r o v i n c e of B r i t i s h Columbia. As evidence of t h i s growth, approximately 30 m i l l i o n d o l l a r s have been i n v e s t e d i n f o u r chemical p l a n t s i n the lower main-l a n d area s i n c e 1957. 1 What t h i s investment c o n t r i b u t e s to t h e economy of the p r o v i n c e may not be f u l l y r e c o g n i z e d because the chemicals do not reach the consumer d i r e c t l y . The chemicals are consumed p r i m a r i l y i n the manufacture of p u l p and paper, and plywood, which are products of the f o r -e s t r y i n d u s t r y - - t h e most important i n d u s t r y i n the p r o v i n c e . Chemical p l a n t investments such as the four examples mentioned must be economically f e a s i b l e . The c r i t e r i a f o r t h e i r success would be the concern of b u s i n e s s management. T h e r e f o r e , the c r i t e r i a f o r the economic f e a s i b i l i t y of such p l a n t investments i s t o be s t u d i e d . Market f o r e c a s t i n g , revenue and expense p r e d i c t i o n , c a p i t a l commitment, and the XHooker Chemicals L i m i t e d , $21 m i l l i o n , North Vancouver and Nanaimo; E l e c t r i c Reduction Co. of Canada L t d . , $4 m i l l i o n , North Vancouver; and Dow Chemical of Canada L t d . , $5 m i l l i o n , Ladner, B.C. - . 2 r e s p e c t i v e time p a t t e r n s of each are assumed to be the essen-t i a l c r i t e r i a . I n v e s t i g a t i o n of t h i s i n f o r m a t i o n f o r the recent examples and other near term p o s s i b i l i t i e s would i n d i c a t e the impact of the d e f i n e d s e c t o r o f the chemical i n d u s t r y on the economy of B r i t i s h Columbia i n the next few ye a r s . I I . REASON FOR STUDY Chemicals and a l l i e d p roducts were approximately f i v e per cent of the n a t i o n ' s t o t a l expenditure on goods and s e r -v i c e s at the time of the Royal Commission on Canada's 2 Economic P r o s p e c t s . Heavy chemicals manufactured i n B r i t i s h Columbia are c u r r e n t l y e s t i m a t e d t o be about two per cent o f 3 the value o f manufacturing shipments. The chemical i n d u s t r y w i l l expand i n B r i t i s h Columbia i f a combination of re s o u r c e s i s economically e f f i c i e n t . In the i n t e r e s t s of the economy of B r i t i s h Columbia, one might ask why fo u r chemical p l a n t s J . D a v i s , The Canadian Chemical I n d u s t r y , Royal Commission on Canada's Economic P r o s p e c t s No. 15, March, 1957, p. 1. H e r e a f t e r r e f e r r e d to by the t i t l e o n l y . 3 Summary of Business A c t i v i t y , Bureau o f Economics and S t a t i s t i c s , V i c t o r i a , 1963, p. 1. - shipments--$2,335 m i l l i o n , and the w r i t e r ' s estimate o f heavy chemical s a l e s - -$53 m i l l i o n by Hooker, E l e c t r i c Reduction, Dow, A l l i e d , and C o n s o l i d a t e d Mining & S m e l t i n g . were b u i l t when they were by the f i r m s i n v o l v e d . With con-t i n u e d i n t e r e s t one would c o n s i d e r the extent of growth i n or a d d i t i o n s t o chemical p l a n t s to be expected beyond these recent a d d i t i o n s . L i m i t a t i o n s o f Study Many manufacturing e s t a b l i s h m e n t s employ chemical p r o c e s s e s . Examples of chemical process i n d u s t r i e s i n B r i t i s h Columbia i n c l u d e m etals, wood p u l p , petroleum p r o d u c t s , cement, sugar, fermented l i q u o r s , l e a t h e r , g l a s s , i n d u s t r i a l gases, and ceramics. A broad c o l l e c t i o n of i n -d u s t r i e s r e s u l t s which cannot be d e f i n e d c o n c i s e l y . The Dominion Bureau of S t a t i s t i c s c l a s s i f i e s a l a r g e group of i n d u s t r i e s i n c l u d i n g many of the above as Chemicals and A l l i e d P r oducts. The chemical i n d u s t r y a l s o may be d i v i d e d i n t o broad product c a t e g o r i e s : raw m a t e r i a l s , primary chemi-c a l s , i n t e r m e d i a t e s , and f i n i s h e d p r o d u c t s . Raw m a t e r i a l s are u s u a l l y b a s i c m i n e r a l s , but may i n c l u d e a g r i c u l t u r a l p r o d u c t s . C o a l and petroleum are a l s o most important as chemical raw m a t e r i a l s although t h e i r p r i n c i p a l use i s i n the p r o d u c t i o n of energy. F i n i s h e d products are f a b r i c a t e d i n t o consumer a r t i c l e s . The stages between raw m a t e r i a l s and f i n i s h e d products are u s u a l l y thought by the g e n e r a l p u b l i c t o i n c l u d e chemical m a t e r i a l s . These m a t e r i a l s are consumed or d e s t r o y e d i n the manufacture of f i n i s h e d products so that they are no longer r e c o g n i z a b l e . The recent chemical plant-a d d i t i o n s i n the lower mainland area, which are s t u d i e d i n t h i s t h e s i s , have products i n t h i s i n t e r m e d i a t e s e c t o r . The study of the raw m a t e r i a l s e c t o r f o r expense p r e d i c t i o n and the f i n i s h e d product s e c t o r f o r market f o r e c a s t i n g i s t r e a t e d only i n s u f f i c i e n t d e t a i l t o o b t a i n r e l e v a n t i n f o r m a t i o n f o r the i n t e r m e d i a t e chemical s e c t o r . The number of chemicals which might be manufactured number i n the thousands. A l l the p o s s i b i l i t i e s cannot be e x t e n s i v e l y e x p l o r e d , but a l o g i c a l expansion beyond those chemicals which are p r e s e n t l y manufactured can be attempted. Those chemicals with a s u f f i c i e n t market to j u s t i f y c o r p o r a t e investment are c o n s i d e r e d p e r t i n e n t to t h i s study. The s p e c i f i c r e f e r e n c e s to l o c a l manufacturers are i n t e n d e d t o p r o v i d e p r a c t i c a l examples f o r b u s i n e s s d e c i s i o n s . P r e d i c t i o n s of l o c a l f i r m s ' expenses are not p r e c i s e , but serve as a guide. An i n d i v i d u a l f i r m can combine a c t u a l usage and cost f i g u r e s t o d e r i v e more p r e c i s e h i s t o r i c a l data. A l s o , the examples are not examined beyond the r e g i o n a l boundaries of B r i t i s h Columbia. Because the c o r p o r a t e bound-a r i e s are not t h i s c l e a r cut the i n f l u e n c e of the adjacent-areas of the U n i t e d S t a t e s , Canada, and beyond can only be i m p l i e d and i s not s t u d i e d here. 5 D e f i n i t i o n s The chemical i n d u s t r y as d e f i n e d w i l l not i n c l u d e raw m a t e r i a l s . Raw m a t e r i a l s , which are d e f i n e d best by example, i n c l u d e such important b a s i c m i n e r a l s as s a l t , l i mestone, s u l p h u r , phosphate rock, p y r i t e s , b a u x i t e , and potash. Raw m a t e r i a l s o b t a i n e d from a g r i c u l t u r e i n c l u d e c o r n s t a r c h , v e g e t a b l e and animal o i l s , and m i l k . Primary or b a s i c chemicals may be thought of as those which are produced d i r e c t l y from raw m a t e r i a l s . Intermedi-ates are produced from primary or b a s i c chemicals. The primary i n d u s t r y i s c h a r a c t e r i z e d by few manufacturers and l a r g e investments. One can e a s i l y v i s u a l i z e volume produc-t i o n of low-cost products i n t h i s s e t t i n g . The term b a s i c i s used mostly by the chemical i n d u s t r y and other i n d u s t r i e s . The term heavy i n i t i a l l y a p p l i e d to bulky primary chemicals manufactured from m i n e r a l s ( i n o r g a n i c raw m a t e r i a l s ) . Heavy now i n c l u d e s primary chemicals manu-f a c t u r e d from c o a l and petroleum (organic raw m a t e r i a l s ) . Three m o d i f i e r s now c h a r a c t e r i z e the s e c t o r of the chemical i n d u s t r y i n t h i s s t u d y - p r i m a r y or b a s i c or heavy. A subdiv-i s i o n i n t o i n o r g a n i c or o r g a n i c chemicals may a l s o be used. F i n i s h e d products or end use completes a d e f i n i t i o n of the chemical i n d u s t r y . For the purposes of t h i s study the manufacture of f i n i s h e d products may p r o v i d e a market f o r the 6 primary i n d u s t r y . Products r e p r e s e n t a t i v e of t h i s s ector which a r e w i t h i n the chemical and a l l i e d products i n d u s t r y are f i b e r s , p l a s t i c s , c o a t i n g s , adhesives, p h a r m a c e u t i c a l s , f e r t i l i z e r s , and soaps. Other i n d u s t r i e s which p r o v i d e markets or end use f o r chemicals i n B r i t i s h Columbia are mining, pulp and paper, petroleum r e f i n i n g , and a g r i c u l t u r e . D i v e r s i f i c a t i o n of a f i r m ' s product l i n e can be sought to reduce the r i s k to or improve the l e v e l o f r a t e of r e t u r n on investment. Thus, v e r t i c a l i n t e g r a t i o n i n the chemical i n d u s t r y would accomplish d i v e r s i f i c a t i o n through manufacture of primary, i n t e r m e d i a t e , and f i n i s h e d product c h e m i c a l s . Petroleum which was mentioned e a r l i e r as a raw m a t e r i a l p r o v i d e s a c o m p l i c a t i o n . A chemical p l a n t manufact-u r i n g a b a s i c chemical from petroleum, or a petroleum r e f i n e r y u s i n g i t s raw m a t e r i a l s to produce chemicals o f f e r l i t t l e d i s t i n c t i o n w i t h i n the immediate product area. Products i n t h i s area a r e c a l l e d p e t r o - c h e m i c a l s . The t o t a l a c t i v i t i e s of the chemical or petroleum f i r m would c h a r a c t e r -i z e t h e i r c l a s s i f i c a t i o n , however, o v e r l a p i n e v i t a b l y e x i s t s . In the other d i r e c t i o n , v e r t i c a l i n t e g r a t i o n with f i n i s h e d products i s a l s o g e n e r a l l y c o n s i d e r e d o u t s i d e the scope of the chemical i n d u s t r y , although chemical companies may a c t i v e l y manufacture f i n i s h e d products or manufacture these products i n t o consumer a r t i c l e s . In c o n t r a s t with v e r t i c a l i n t e g r a t i o n , h o r i z o n t a l i n t e g r a t i o n would normally keep a chemical f i r m w i t h i n the bounds of the b a s i c chemical i n d u s t r y . Such p r a c t i c e might be r e f e r r e d to as rounding out the l i n e when one raw mater-i a l i s used, or i t might i n c l u d e a d d i t i o n a l l i n e s u t i l i z i n g other raw m a t e r i a l s . I I I . ORGANIZATION OF STUDY The market f o r heavy chemicals i n B r i t i s h Columbia, one o f the f i r s t e s s e n t i a l s to determine the economic f e a s i -b i l i t y o f manufacturing a product, i s i n v e s t i g a t e d i n the next two c h a p t e r s . The two chapters are n e c e s s a r y ; t o e s t a -b l i s h a h i s t o r i c a l p e r s p e c t i v e b e f o r e attempting a f o r e c a s t . The supply of chemicals to end use i n d u s t r i e s , whether through l o c a l manufacture or import, i s reviewed over the 4 p e r i o d of the l a s t ten years and p r o j e c t e d from t h i s h i s t o r i c a l base beyond 1970. P r o j e c t i o n s i n c l u d e the market growth f o r the chemicals which are p r e s e n t l y manufactured and f o r r e l a t e d new pr o d u c t s . ( i . e . , h o r i z o n t a l i n t e g r a t i o n ) . The reason f o r t h i s time p e r i o d w i l l be more apparent when the a c t u a l h i s t o r i c a l growth i s c o n s i d e r e d i n Chapter 2. 8 A second e s s e n t i a l o f economic f e a s i b i l i t y i s an a n a l y s i s o f revenue and expense data as w e l l as i n t a n g i b l e s . Chapter IV, i n the study, i n c l u d e s d e t a i l e d i n f o r m a t i o n on the r e s o u r c e s and t h e i r r e s u l t a n t expense which are n e c e s s i -t i e s f o r chemical manufacturing. I n c l u d e d are the v a r i a b l e items raw m a t e r i a l s , labor and s u p e r v i s i o n , u t i l i t i e s , t r a n s -p o r t a t i o n , t e c h n i c a l requirements, and s e r v i c e . Notes on tim i n g and t a r i f f s are i n c l u d e d to complete the d i s c u s s i o n . Revenue i s d e f e r r e d u n t i l Chapter V when p r i c e i s d i s c u s s e d and t h i s i n f o r m a t i o n i s combined w i t h the e a r l i e r market data to p r o v i d e the counterpart of expense f o r income, d e t e r -mination. The t h i r d e s s e n t i a l of economic f e a s i b i l i t y i s c a p i t a l commitment. R e f e r r i n g t o i s o l a t e d examples f a l l i n g w i t h i n the boundaries o f the p r o v i n c e of B r i t i s h Columbia i s p r a c t i -c a l l y i m p o s s i b l e . The f i r s t p a r t of Chapter V t h e r e f o r e r e f e r s t o n a t i o n a l and i n t e r n a t i o n a l o r g a n i z a t i o n s and com-pares o r g a n i z a t i o n s on t h i s b a s i s . The investment i n the l o c a l manufacturing f a c i l i t i e s must then be r e l a t e d w i t h i n t h i s c o n t e x t . The f i n a n c i n g t r a n s a c t i o n s of l a r g e o r g a n i z a -t i o n s p r o v i d e more funds than the requirements of the l o c a l f a c i l i t i e s , but funds flow may be i n t e r p r e t e d w i t h i n the l o c a l context or the c o n s o l i d a t e d o r g a n i z a t i o n accounts. Thus, r e t u r n on investment i s c a l c u l a t e d w i t h i n the l o c a l 9 context and then r e l a t e d to the whole. Return on investment c a l c u l a t i o n s a r e not p o s s i b l e u n t i l those items not d i s c u s s e d i n e a r l i e r c hapters are r e -viewed. The second part of Chapter V reviews chemical p r i c e s and the " f i x e d " expenses which f o l l o w as a r e s u l t of the i n -vestments; s p e c i f i c a l l y , d e p r e c i a t i o n , taxes, i n s u r a n c e , debt, and g e n e r a l expense. Investment, revenue, and expense are then combined and r e p r e s e n t a t i v e p r o f i t s determined f o r the cu r r e n t examples of heavy chemical manufacturing investments i n B r i t i s h Columbia. The p r o f i t f o r a d d i t i o n a l near term p o s s i b i l i t i e s i s a l s o c a l c u l a t e d . IV. RESUME OF HISTORY OF THE CHEMICAL INDUSTRY The e a r l i e s t manufacture of a chemical product i n the province'was a s s o c i a t e d with the b u i l d i n g of the t r a n s c o n t i n -e n t a l r a i l r o a d at Y a l e , B.C. i n 1881. S u l p h u r i c a c i d and n i t r i c a c i d were s u p p l i e d from a s m a l l temporary chemical p l a n t n e a r i y at Emory f o r use i n the manufacture of e x p l o -s i v e s . ^ The raw m a t e r i a l sulphur came from Japan and the s a l t p e t r e from C h i l e . Other e a r l y e x p l o s i v e s p l a n t s e x i s t e d C.J.S. Warrington and R.V.V. N i c h o l l s , A H i s t o r y of  Chemistry i n Canada (Toronto: S i r Isaac Pitman and Sons (Canada) L i m i t e d , 1949), p. 301. 10 at Nanaimo, V i c t o r i a , and Bowen I s l a n d to supply the mining i n d u s t r y . In 1913 a new p l a n t was s t a r t e d on James I s l a n d to c o n s o l i d a t e manufacturing i n a more e f f i c i e n t p l a n t . In 1961 o p e r a t i o n s were suspended at t h i s p l a n t , the c l o s e s t manufacture by more e f f i c i e n t continuous p r o c e s s i n g now e x i s t i n g i n C a l g a r y . S u l p h u r i c a c i d manufacture f o r the e x p l o s i v e p l a n t s 7 was begun at Barnet i n 1908 u s i n g Japanese sulphur. In 1927 o p e r a t i o n s were converted to i r o n s u l p h i d e ore from the B r i t t a n i a Mine. In 1962 o p e r a t i o n f o r s u l p h u r i c a c i d was suspended and the a c i d i s now shipped from T r a i l . Alum manu-f a c t u r e f o r pulp and paper m i l l use and water treatment was begun at Barnet i n 1957 and c o n t i n u e s , although a competitor Q entered the market area i n A l b e r t a d u r i n g 1962. Large s c a l e s u l p h u r i c a c i d manufacture was begun at 9 T r a i l m 1931, a f t e r r e s e a r c h i n t o fume e l i m i n a t i o n . Opera-t i o n s have expanded g r e a t l y s i n c e that time i n t o s e v e r a l heavy chemicals f o r metal r e f i n i n g and f e r t i l i z e r manufacture. I b i d . pp. 306-7. 7 Canadian Chemical Journey (London: Canadian S e c t i o n , S o c i e t y o f Chemical I n d u s t r y , 1958), p. 60. P r i v a t e communication. 9 C.J.S. Warrington and R.V.V. N i c h o l l s , op_. c i t . , p. 52. At p r e s e n t , c a p a c i t y f o r s u l p h u r i c a c i d i s over 1200 tons per day (T/D) at T r a i l , more than 1600 T/D f e r t i l i z e r c a p a c i t y at T r a i l , 200 T/D f e r t i l i z e r c a p a c i t y at Kimberley, and 300 T/D f e r t i l i z e r c a p a c i t y at C a l g a r y . 1 0 Expansions i n 1964 which w i l l add to t h i s c a p a c i t y a r e d i s c u s s e d l a t e r . S y n t h e t i c r e s i n g l u e , a f i n i s h e d product, was manu-f a c t u r e d i n New Westminster f o r the f i r s t time i n 1948 f o l l o w e d by a p l a n t at Marpole i n 1949 and l a t e r a p l a n t i n Port Moody. Phenol, one of the heavy chemicals f o r t h i s f i n -i s h e d product, was produced f o r the f i r s t time i n B r i t i s h Columbia i n 1963 by Dow Chemical Company of Canada. The p r i n c i p a l market i s the l o c a l plywood g l u e p l a n t s , but some phenol i s shipped to Dow o p e r a t i o n s near Edmonton, and the balance t o ea s t e r n Canadian markets.1"'' The other b a s i c chemical r e q u i r e d i n l a r g e q u a n t i t i e s f o r s y n t h e t i c g l u e manufacture i s formaldehyde. R e i c h o l d Chemicals L t d . , one o f the g l u e manufacturers, s t a r t e d o p e r a t i n g a p l a n t i n 1964 which produces formaldehyde f o r c a p t i v e use. Expansion which w i l l p r o v i d e formaldehyde f o r s a l e i s contemplated. The manufacture of c a u s t i c soda and c h l o r i n e by Hooker Moody's I n d u s t r i a l Manual (New York: Moody's I n -v e s t o r s S e r v i c e , 1961), p. 1549. H e r e a f t e r r e f e r r e d to as Moody ' s In dust r i a Is . 11 . P r i v a t e communication. 12 Chemicals (Canada) L t d . , and sodium c h l o r a t e by E l e c t r i c Reduction Company o f Canada, L t d . (Erco) began i n North Vancouver i n 1958. C a u s t i c soda and c h l o r i n e manufacture was extended t o Nanaimo by Hooker Chemicals i n 1964. C o n s o l i -dated Mining and S m e l t i n g Co. s t a r t e d a sm a l l plant f o r c a u s t i c and c h l o r i n e manufacture at T r a i l i n 1961. These heavy chemicals are consumed p r i m a r i l y i n the manufacture of chemical p u l ps from wood. The Canadian Chemical I n d u s t r y , a volume of the Royal Commission Report p u b l i s h e d i n 1957, c o n s o l i d a t e d i n one 12 p l a c e an economic study of the chemical i n d u s t r y . The study i s of course n a t i o n a l and g e n e r a l , and not r e g i o n a l and s p e c i f i c . Comparisons with i t s p r e d i c t i o n s can now be made. The v a l u e o f p r o d u c t i o n i n c r e a s e d roughly f i v e f o l d from 1929 to 1955 and the c o n s e r v a t i v e estimate i n t h e report was f o r another f i v e f o l d i n c r e a s e by 1980. Canadian Chemical produc-13 t i o n was $0.7 b i l l i o n i n 1950. In 1962, $1.7 b i l l i o n i n 14 chemicals were shipped. The Royal Commission r e p o r t !2^ Op. c i t . 13 The Canadian Chemical I n d u s t r y , p. 20. 14 "Market Data," Canadian Chemical P r o c e s s i n g , 47 ( J u l y , 1963) , 37. a n t i c i p a t e d about $2 b i l l i o n by t h i s t i m e . 1 5 The i n d u s t r i e s annual investment i n new p l a n t and equipment i s over $100 m i l l i o n per year. The amount was $124 m i l l i o n i n 1961, $114 m i l l i o n i n 1962, and $158 m i l -17 l i o n i n 1963. The $30 m i l l i o n i n v e s t e d i n B r i t i s h Columbia i n four p l a n t s i n approximately 6 years may be compared to t h e s e t o t a l f i g u r e s (an average o f $5 m i l l i o n per y e a r ) . Vancouver was not a chemical center at the time of the Com-m i s s i o n ' s r e p o r t , although Edmonton had been added as a center to a chemical i n d u s t r y c o n c e n t r a t e d i n the c e n t r a l p r o v i n c e s . " F u l l y 90 per cent of those f i n d i n g j o bs with 18 t h i s i n d u s t r y are employed i n O n t a r i o and Quebec." The heavy chemical group as a whole appears to be l a r g e l y market o r i e n t e d . " I t s f u t u r e growth w i l l t h e r e f o r e 19 tend to p a r a l l e l that of i n d u s t r i a l development g e n e r a l l y . " Looked at i n another way, " I t has been estimated r e c e n t l y that some 60 per cent of a l l Canadian i n o r g a n i c chemical 15 The Canadian Chemical I n d u s t r y , p. 87. ^ ' ' C a p i t a l Budgets and C a p i t a l Markets," Chemistry i n Canada, 14 (Sept. 1962), p. 8. 17 "Market Data," op_. c i t . 18 ' . The Canadian Chemical I n d u s t r y , p. 21. 1 9 I b i d . , p. 29. 14 p r o d u c t i o n i s being used i n the manufacture of products which 20 themselves are subsequently s o l d abroad. The i n o r g a n i c i n d u s t r y i s about one-seventeenth the s i z e of i t s counterpart i n the U n i t e d S t a t e s , but has grown s i n c e prewar days at an 21 a c t u a l r a t e of 8 per cent compounded a n n u a l l y . E s t a b l i s h -ment of the Vancouver p l a n t s i n t h e l a t e 1950's makes the i n o r g a n i c i n d u s t r y i n Canada l a r g e l y s e l f s u f f i c i e n t , and as the h i s t o r i c a l development i n d i c a t e d t h i s i s a recent t u r n i n g p o i n t . Heavy o r g a n i c chemicals a r e somewhat d i f f e r e n t . The m a j o r i t y of these chemicals are used i n f i n i s h e d products and consumer p r o d u c t s . Many of the o r g a n i c s a r e imported. "In t h i s category Canadian p r o d u c t i o n i s c o n t i n u i n g to f o l l o w , sometimes a f t e r a decade or more, the manufacturing p a t t e r n s 22 which have been i n i t i a t e d elsewhere." With l e s s s i g n i f i -cant t r a n s p o r t a t i o n c o s t s f o r the higher p r i c e d o r g a n i c s , Canadian p r o d u c t i o n once e s t a b l i s h e d i s o f t e n capable of competing w i t h imported chemicals a c r o s s the country. The Department of I n d u s t r i a l Development, Trade and Commerce f o r the p r o v i n c e i n V i c t o r i a has produced pamphlets 20 . I b i d . , P. 33. 21' I b i d . , P. 36. 22 I b i d . , P- 34. from time t o time concerning the chemical i n d u s t r i e s . 23 P e t r o c h e m i c a l s s t a t e d that the volume of t h e market w i t h i n B r i t i s h Columbia would not support a major p e t r o c h e m i c a l com-p l e x . Some v a l i d c o n c l u s i o n s are reached, but the extent o f the chemical i n d u s t r i e s ' d i v e r s i f i c a t i o n , o f t e n i n t e g r a t i n g w i t h i t s e l f , and the p o s s i b i l i t y f o r a d d i t i o n a l market d e v e l -opments can be e x p l o r e d d i f f e r e n t l y at t h i s time. Pamphlets have a l s o been p u b l i s h e d i n the U n i t e d S t a t e northwestern s t a t e s r e g a r d i n g the chemical market i n t h a t a r e a . The d i f f i c u l t y w i t h pamphlets g e n e r a l l y , i s that they are o f t e n i s o l a t e d p u b l i c a t i o n s which present data f o r a po i n t i n time, but are o f l i t t l e v a l u e as a means to p r o j e c t and f o r e c a s t market growth. Present developments i n the heavy chemical i n d u s t r y o f t h i s p r o v i n c e i n c l u d e c o n t i n u e d i n c r e a s e s i n f e r t i l i z e r c a p a c i t y at T r a i l , and announced i n c r e a s e s i n c a u s t i c -c h l o r i n e p r o d u c t i o n near P r i n c e Rupert to supply expanded and p r o j e c t e d pulp and paper m i l l s i n that area. There are 24 no announced plans i n the Vancouver area, and Dow as Pe t r o c h e m i c a l s , Department o f I n d u s t r i a l Development Trade, and Commerce, V i c t o r i a : A p r i l , 1962, p. 6. 24 A news r e l e a s e an J u l y , 1964 s t a t e s t h a t F o r d Machinery C o r p o r a t i o n w i l l b u i l d a $10 m i l l i o n p l a n t f o r c a u s t i c - c h l o r i n e p r o d u c t i o n immediately at Squamish. See page 118. 16 expressed i n Petroc h e m i c a l s w i l l be " f o r c e d " t o c o n t i n u e 25 i m p o r t i n g t o l u e n e , i t s b a s i c p e t r o c h e m i c a l raw m a t e r i a l . V. SOURCE DATA As s t a t e d e a r l i e r , t he p e r t i n e n t i n f o r m a t i o n r e q u i r e d f o r an economic f e a s i b i l i t y study i s market data, expense i n f o r m a t i o n , and c a p i t a l commitment. The market data must be r e l a t e d to the r e g i o n a l market. Trade j o u r n a l s and s t a t i s t i c s u s u a l l y i n d i c a t e n a t i o n a l p r o d u c t i o n . To o b t a i n r e g i o n a l chemical f i g u r e s , e x t e n s i v e d i s c u s s i o n s must be h e l d with l o c a l manufacturers t o p i e c e together and check the f i g u r e s . For the pulp and paper i n d u s t r y market, t o i n -d i c a t e pulp p r o d u c t i o n , the p l a n t c a p a c i t y i n c r e a s e s which have o c c u r r e d i n the past w i t h i n B r i t i s h Columbia were f o l l o w e d i n the j o u r n a l s , and f u t u r e expansion plans were f o l l o w e d through news r e l e a s e s . Some pulp and paper t r a d e a s s o c i a t i o n f i g u r e s were a v a i l a b l e , but these a r e c o n f i d e n t -i a l . The Dominion Bureau of S t a t i s t i c s import and export f i g u r e s were a v a i l a b l e f o r B r i t i s h Columbia o n l y , and because few o p e r a t i o n s and end uses are p r e s e n t l y i n v o l v e d a f a i r l y a c c u r a t e p i c t u r e can be?.ascertained. Op. c i t . , p. 19. 17 Information on p r i c e s and c o s t s may be taken from j o u r n a l s and textbooks. Although data on s e l l i n g p r i c e s are s a t i s f a c t o r y most cost data a re inadequate. D i s c u s s i o n s w i t h l o c a l manufacturers and t r a n s p o r t a t i o n companies again i s r e q u i r e d . A v a i l a b l e p u b l i s h e d data on c o s t s can be very m i s l e a d i n g . P r i c e i n f o r m a t i o n f o r m a t e r i a l s , l a b o r , and overhead items i s d e s i r e d on a l o c a l b a s i s , and must be ob-t a i n e d d i r e c t l y from l o c a l sources. Marine t r a n s p o r t i s i n v o l v e d f o r which t a r i f f r a t e s do not e x i s t such as a r e a v a i l a b l e f o r the r a i l r o a d s . 'Discussions with the personnel o f l o c a l s h i p p i n g f i r m s i s again r e q u i r e d . F i n a n c i n g the l o c a l heavy chemical o p e r a t i o n s has o c c u r r e d i n i t i a l l y through the i n t e r n a t i o n a l parent o r g a n i z a -t i o n s . The f i n a n c i a l statements of the parent o r g a n i z a t i o n s were reviewed to e l i c i t what i n f o r m a t i o n they c o n t a i n e d . No d i r e c t c o n t a c t s were made concerning t h i s phase o f the econo-mics o f the chemical i n d u s t r y i n the p r o v i n c e . The magnitude of the investments i n the l o c a l o p e r a t i o n s i s compared wi t h the c o n s o l i d a t e d funds flow of the parent o r g a n i z a t i o n s . Commitment of c a p i t a l i n B r i t i s h Columbia i s one o f many c h o i c e s the parents c o u l d c o n s i d e r . The i n f o r m a t i o n g a t h e r e d concerning markets and c o s t s i s combined to c a l c u l a t e r a t e o f r e t u r n on investment by r e -co g n i z e d procedures. The r e t u r n s c a l c u l a t e d i n d i c a t e how 18 s a t i s f a c t o r i l y economic requirements have been combined as measured a g a i n s t a r e c o g n i z e d s t a n d a r d of p r o f i t a b i l i t y . The study i s concluded with a review of market t r e n d s framed w i t h i n r e g i o n a l supply and demand. I n t e r n a t i o n a l consequences which cannot be i g n o r e d can only be i n f e r r e d . The o u t l o o k f o r the i n d u s t r y i n the near term can be shown r e a d i l y . The long run e x p e c t a t i o n s must con t i n u e t o i f o l l o w a c o n s i d e r a t i o n of a l l developments. Fur t h e r study would c o n s i d e r t h e development o f a s a l e s - s e r v i c e o r g a n i z a t i o n i n a r e g i o n , and the p o s s i b i l i t y o f i n t e r n a t i o n a l marketing. CHAPTER II PRESENT HEAVY CHEMICAL USE I . CONSUMERS The p r e p a r a t i o n of a market f o r e c a s t i s supported by what has gone b e f o r e . A market survey f o r heavy chemicals consumption begins with the past requirements o f the prov-i n c e ' s i n d u s t r i e s . Data from j o u r n a l s and Dominion s t a t i s t i c s f o r the e x t e r n a l t r a d e o f the p r o v i n c e are compiled f o r t h i s purpose. The l o c a l chemical p l a n t s are then i n t r o d u c e d t o t h i s framwork, and the d i f f e r e n c e s accounted f o r by shipments from other p r o v i n c e s or c o u n t r i e s . F o r e s t r y Pulp and Paper. To determine the market f o r chemicals i n the pulp and paper i n d u s t r y i n B r i t i s h Columbia, i t i s necessary to d i s t i n g u i s h between the v a r i o u s types of pulp manufactured. Pulp i s f i r s t l y c l a s s i f i e d as chemical or mechanical. As the names imply, mechanical pulp i s of l i t t l e concern to the s t u d y 1 except t o the extent t h a t chemical pulp Groundwood pulp i s bleached with z i n c h y d r o s o l p h i t e , which i s manufactured w i t h waste z i n c from T r a i l and sodium s u l p h i t e or soda ash and sulphur d i o x i d e . Imports of sodium s u l p h i t e were 1030 tons i n 1962. Current requirements of z i n c h y d r o s u l p h i t e are estimated to be 3000 Tons/yr. 20 i s mixed with i t f o r newsprint manufacture. The chemical p u l p s are d i v i d e d i n t o k r a f t and s u l p h i t e p u l p s . The k r a f t p u l p i s f u r t h e r roughly s u b d i v i d e d , a c c o r d i n g to the amount of b l e a c h i n g , i n t o f u l l y bleached, semi-bleached, or un-bleached. S u l p h i t e pulps as w e l l as b l e a c h e d and unbleached s u b d i v i s i o n s , have another major s u b d i v i s i o n c a l l e d d i s s o l v -i n g p u l p . These c l a s s i f i c a t i o n s , which f o l l o w Dominion Bureau of S t a t i s t i c s c l a s s i f i c a t i o n s , are u t i l i z e d i n t h i s study. A f u r t h e r s i m p l i f y i n g assumption i s used to compile the chemical requirements f o r chemical p u l p s . A l l the e x i s t -i n g p u l p m i l l s do not use s i m i l a r b l e a c h i n g p r o c e s s e s and do not have s i m i l a r e f f i c i e n c i e s . Such d e t a i l s are important f o r the chemical f i r m to p r o p e r l y s e r v i c e i t s market at the 2 v a r i o u s pulp m i l l s i t e s , but are o m i t t e d i n t h i s study. The n a t i o n a l p r o d u c t i o n and export of pulp has been summarized f o r the y e a r s 1951 to 1962 by Canadian Pulp and 3 Paper I n d u s t r y . The A p r i l i s s u e s o f t h i s j o u r n a l were con-s u l t e d t o determine the changes i n B r i t i s h Columbia pulp m i l l The average chemical consumption f i g u r e s used were found to check with the t o t a l market i n f o r m a t i o n c l o s e l y . F u r t h e r refinements from the e f f e c t of i n d i v i d u a l p u lp m i l l methods would add l i t t l e to t h e t o t a l accuracy and would soon be out of date. 3 "Annual Review and Outlook f o r 1963," Canadian Pulp  and Paper Industry , 16 ( A p r i l , 1963), 41. c a p a c i t y over a s i m i l a r p e r i o d . The a c t u a l p r o d u c t i o n of chemical pulps i n B r i t i s h Columbia during 1962 when the m i l l s were producing near c a p a c i t y was a v a i l a b l e from a p r i v a t e source. The r e s u l t s f o r s e l e c t e d y e a r s are shown i n T a b l e I . The f i g u r e s from the Royal Commission report on Canada's Economic P r o s p e c t s are i n c l u d e d f o r comparison. The t o t a l Canadian f i g u r e s compared with t h e i n i t i a l Royal Commission p r e d i c t i o n s i n d i c a t e a l a g i n newsprint and a l e a d i n chemi-c a l pulp. The g e n e r a l a t t i t u d e of the Canadian pulp and paper i n d u s t r y has been p e s s i m i s t i c over the y e a r s , but a d i f f e r e n t s i t u a t i o n has e x i s t e d i n B r i i s h Columbia. In r e l a -t i o n to Canadian p r o d u c t i o n , B r i t i s h Columbia's p r o d u c t i o n of newsprint and e s p e c i a l l y k r a f t pulp has shown s u b s t a n t i a l g a i n s . In a 14 year p e r i o d B r i t i s h Columbia, as a percentage o f Canadian c a p a c i t y , grew from 6 t o 13 per cent. The chemical pulp c a p a c i t y f o r the e x i s t i n g eleven pulp m i l l s i n B r i t i s h Columbia i s summarized i n T a b l e I I . The r a p i d growth of the t o t a l k r a f t p r o d u c t i o n c a p a c i t y from 305,000 tons i n 1953 to 1,680,000 tons i n 1964 i s apparent. S u l p h i t e pulp was a c t u a l l y i n d e c l i n e b e f o r e 1958 when the s u l p h i t e p l a n t at Wdodfibre was shut down. T h i s i s not shown i n T a b l e I I , but a modest growth i n s t e a d i s i n d i c a t e d from t h i s new t u r n i n g p o i n t . Using the pulp c a p a c i t i e s t h a t have been summarized, TABLE I PRODUCTION OF PULP IN CANADA AND BRITISH COLUMBIA FOR SELECTED YEARS i n thousands of tons Year PRODUCTION3 GORDON REPORTc BRITISH COLUMBIA PRODUCTION T o t a l Chemical Newsprint Newsprint Pulp & Misc. Newsprint Pulp K r a f t S u l p h i t e 1955 1960 1962 10,151 11 ,183 11,855 4,359 5,324 5,964 6,691 7,100 4,894 585 c 9 8 8 b 749 c l , 2 4 0 d 410 d Sou r c e s : "Annual Review," Canadian Pulp and Paper I n d u s t r y , A p r i l i s s u e s . b P r o d u c t i o n c a p a c i t y , I b i d . c The F o r e s t r y Study Group, The Out look f o r the Canadian F o r e s t I n d u s t r i e s , Royal Commission on Canada's Economic Prospects No. 26, March, 1957. d . . P r i v a t e communication. TABLE II CHEMICAL PULP CAPACITY OF BRITISH COLUMBIA PULP MILLS i n thousands of tons Years 1953 1954 1955 1956 1957 1958 1960 1961 1962 1964 b 1966 b S u l p h i t e c c c c 300 340 3 340 340 360 390 440 K r a f t Bleached c c c c 120 205 300 305 460 605 685 Semi-bleached c 60 c 165 210 240 275 285 365 595 635 T o t a l K r a f t 305 410 600 635 680 865 865 1 ,140 1,240 1 ,680 1 ,940 Woodfibre shutdown i n 1958 excluded. b I n c l u d e s announced expansions from news r e l e a s e s . Not a v a i l a b l e . S ource: "Annual Review," Canadian Pulp and Paper I n d u s t r y , A p r i l I s s u e s . to 24 and m u l t i p l y i n g by average chemical consumption f o r each grade of p u l p , an average chemical consumption f o r pulp manu-f a c t u r i n g i s c a l c u l a t e d . T y p i c a l d e t a i l s are given i n Appendix A-2. The r e s u l t s from t h i s c a l c u l a t i o n are shown i n 4 T a b l e I I I . The v a l i d i t y f o r such an approach to chemical consumption i n the pulp and paper i n d u s t r y i s more evident when the d e t a i l s of growth i n each pulp s e c t o r i s reviewed i n the next chapter. T a b l e I I I does not i n c l u d e the r e q u i r e -ments f o r the raw m a t e r i a l s sulphur and limestone. Alum was imported i n t h e amounts of 3200 and 4000 tons i n the years 1955 and 1956. The q u a n t i t y f o r 1963 i s 7000 tons which i s a s u p p l i e r estimate. The q u a n t i t y consumed i s not c o n s i s t e n t w i t h the p u l p produced even when the p u l p process i s known because consumption depends upon water q u a l i t y at each m i l l s i t e . The above f i g u r e s , t h e r e f o r e , are not shown i n T a b l e I I I . Plywood. The plywood manufacturers i n B r i t i s h Columbia use s y n t h e t i c r e s i n t o make the g l u e used i n the p l y bonding p r o c e s s . A mixture i s compounded at the plywood m i l l s u s i n g The c a p a c i t y , p r o d u c t i o n , or other f i g u r e s concerning c a u s t i c i n t h i s t h e s i s are based upon 100 per cent c a u s t i c (NaOH). T h i s b a s i s i s a l s o used i n Dominion Bureau of S t a t i s -t i c s r e p o r t s . The t r a d e , however, t y p i c a l l y s e l l s on a 76 per cent Na 0 b a s i s (approximately 98 per cent NaOH). HEAVY CHEMICAL TABLE I I I REQUIREMENTS OF BRITISH COLUMBIA i n thousands of tons PULP MILLS Year S a l t Cake C a u s t i c Soda C h l o r i n e Sodium C h l o r a t e S u l p h u r i c A c i d 1957 69.5 42.0 1958 74.5 49.0 1959 78.0 53.5 1960 81.5 58.2 1961 90.0 69.7 1962 59.0 94.0 75.0 14.5 11.1 1963 67.3 100.6 83.0 17.2 13.3 1964 3 82.0 112.7 98.4 20.5 15.9 1965 1966 3 94.0 118.0 105.0 22.3 17.2 Includes announced expansions from news r e l e a s e s . Source: As c a l c u l a t e d . T y p i c a l d e t a i l s i n Appendix A-2. r e s i n and a small amount o f - c a u s t i c soda with water and f i l l e Phenol-formaldehyde r e s i n i s by f a r the predominant r e s i n used. Comparative f i g u r e s f o r 1962 f o r t h r e e types of r e s i n are 67,705,768 pounds of phenol-formaldehyde, 1,152,419 pounds of urea-formaldehyde, and 42,398 pounds of melamine-formaldehyde. 5 Members of the Plywood Manufacturers A s s o c i a t i o n of B r i t i s h Columbia produce n e a r l y a l l the B r i t i s h Columbia p l y -wood. In 1962, the p r o d u c t i o n from 11 p l a n t s i n the a s s o c i a -t i o n was e s t i m a t e d to be 91.5 per cent of the t o t a l . 6 The t o t a l p r o d u c t i o n of member m i l l s f o r the p e r i o d 1950 to 1962 i s shown i n F i g u r e 1. A steady i n c r e a s e i n p r o d u c t i o n i s shown except i n the l a t e 1950's when a combination of other i n d u s t r i a l a c t i v i t y combined with s t r i k e s i n the plywood m i l l s caused i r r e g u l a r i t i e s . A c l o s e p a r a l l e l between plywood p r o d u c t i o n and phenol and formaldehyde requirements i n B r i t i s h Columbia i s shown by e a r l y 1950 f i g u r e s when a l l requirements were imported b e f o r e p r o d u c t i o n began i n Canada. T h i s p a r a l l e l i s c l e a r l y shown Submission to the T a r i f f Board, Plywood Manufacturers A s s o c i a t i o n of B r i t i s h Columbia, January, 1963. T a b l e I I I . W.L. O o s t r e n b r i n k , "An Economic A n a l y s i s of the B.C. Softwood Plywood I n d u s t r y , " - g r a d u a t i n g t h e s i s B. Comm., The U n i v e r s i t y o f B r i t i s h Columbia, A p r i l , 1962. p. 8. J AdOO •>Oti3X j AdOO 28 i n F i g u r e 2 from 1950 t o 1956. An estimate o f the m a j o r i t y of the market growth f o r the b a s i c chemicals phenol and form-aldehyde i s d e r i v e d t h e r e f o r e from the plywood p r o d u c t i o n f i g u r e s . The p r o p o r t i o n of glue r e q u i r e d f o r plywood manu-f a c t u r e has remained s t a b l e (11,988,513 pounds i n 1949 and 68,903,085 pounds i n 1962) compared w i t h the plywood produc-7 t i o n . The s o l i d s i n the r e s i n averages 41 per cent, and breaking t h i s i n t o t h e requirements f o r the two b a s i c chemi-c a l s r e s u l t s i n requirements o f 15,900,000 pounds o f phenol 8 and 13,600,000 pounds of formaldehyde per year f o r r e q u i r e -9 merits i n 1963-64 o f 72,000,000 pounds of r e s i n . Mining and Me t a l l u r g y C o n c e n t r a t i o n o f ores by f l o t a t i o n uses Xanthates. Requirements of more than one m i l l i o n pounds per year o f these chemicals had been imported i n t o B r i t i s h Columbia u n t i l 1961 when p r o d u c t i o n began i n Edmonton, A l b e r t a . Recent v i g o r o u s mining development i n B r i t i s h Columbia which i n c l u d e s con-c e n t r a t i o n o f copper and molybdenum ores does not consume i n 7 Plywood Manufacturers A s s o c i a t i o n , op. c i t . 8 100 per cent b a s i s i s used i n t h i s t h e s i s . Formalde-hyde i s u s u a l l y s o l d on a 37 per cent s o l u t i o n b a s i s . Manu-f a c t u r e i s u s u a l l y i n a range from 35 to 50 per cent s o l u t i o n . 9 . . P r i v a t e communication. < O U 3 X -j A c J O O !o«3X 1 1 i 1 i i i 1 1 i I 1 H T ' ~ 1 1 ( j K I i 1 -i T r T -\ V q h J i -i •"7 | T T e T n n T ' r y r f , i i !_ t i 1 L 1 T ' •-^  i \ 1 1 1 - ! i r 1 v. r:> T i T p. n r "PI v r r rinlr r-'r - — r T •\ __ i t„ "**• i- h V;. ' r x: i.-»iO -ir X ... I 1 1 1 1 i 1 i 1 i-. "I 1 ! I ) c i j i 1 Q _, V- I J! t) ( "> 1 1 ... i V. 1 ''V — _ 1 t f .^ ^ \ 1 >"\ i 1 1 i I . 1 L i l 1 r i v r n r f: 'V n I / i 1 i i 1 ! J / i j V / i | ! / 1 / \ i i / / ... . - . i / / "OJ 1 i \. / / - 1 i j i 1 1 / A 7— 1 I c t 1 u h (- r C 1 I. i i' r - r- h r-iri 1 r 1 / / i ....... _ T . . - / k j i 1 / / 'iJ i i / >. if \aa 1 1 / V "0" 1 - 1 ! ' j 1 1 / i r~ '~ r / , 1 i i ™i • T ! i i 1 i i 1 I i ^" r ! 1 1 i i 1 1 i / 11 - r • ! i 1 L | / il r- i 1 I —L ! I 7 | Q • T ^. r r 1 I / TT r y l i - •i O •* y •r; v.. ~ r - / ; \ 'JT> I / \ 1 1 /• / \ r- / i — • "J i i / ! ! 1 1 i 1 \ 1 i i 1 / 1 » {T. I i 1 r|47 i> A I 1. H 7 / i / 1 ' i : H i / i/ \ - r / ! S ••H / y V j > i A\ i A A l i / 1 i i I i / i i !/ \ i \ '•J 1 i / r 1 \ > i '•-> i i / ~i J / JL ~~ '•IT" / / 1 i i c r 1 / i -1 i \ i c ID £ - 5 - f i / ) 1 i L; 1 f / \ < \ c t / 1 III! r \ \ / V v 1 I /\ - / 1 l \ \ \ \ 1/ / / | i / \ \ ! / I i / -1 1 / / i { ^ ' i 1 / 1 \ \ '-I / / •> / t i / • 1 ./ / 1 l i \ n ! \ 1 \ 1 ! / 1/ > i < s. \l )' . i 1 1 ) I T I \ 1 i 1 1 1 1 . i j 1 ( I j i r n i 1 ! 1 1 l I l l 1 I i 1 I i 1 i ! r> I. 1 .1. y 5 £?. 1 1 5 Ol .1. 'J .L 1 j . v I i 1 1 1 1 ~j I 1 c r Ip v- i i-n ,* "1 t I-. 1- ,^ .r -I • i- x V Q 1 i ... *-" J ... *' - .^.r.-j.;. „ ~ s • — i r o f c o p o i- s Si 1 4- c i- t i t s -r A n r") 1 1 i 'y-t r ojc Q p Us 1,' •1 1- I. i f ; p r 1- Ini .'.^  n t I IT -1 _ — — i 1 L_ i i i l r. .! V o i'MiP on t n a ' o 'll r"li c X C V 1 if-,1 ,•1 1 1 i 1 1 i j j i i I i 1 i 1 1 1 30 volume any b a s i c chemicals. Chemical consumption f o r m e t a l l u r g y i s a s s o c i a t e d ex-t e n s i v e l y w i t h the r e f i n i n g phase. The only r e f i n i n g opera-t i o n s i n the p r o v i n c e at T r a i l produce much of the chemical requirements on the s i t e . The l e a d - z i n c market and ore r e f i n i n g are not i n v e s t i g a t e d here. Another r e f i n i n g p r o c e s s p r e s s u r e l e a c h i n g with ammonia has been developed and i s now employed near Edmonton, A l b e r t a . No such a p p l i c a t i o n s have been employed i n B r i t i s h Columbia. Mi s c e l l a n e o u s A d d i t i o n a l consumption of chemicals by other i n d u s t r i e s i s next b r i e f l y reviewed to i n d i c a t e t h e i r consequence as a market w i t h i n B r i t i s h Columbia. These i n d u s t r i e s i n c l u d e p l a s t i c s and r e s i n s , a g r i c u l t u r e , soap, and o i l and g a s . 1 0 The p l a s t i c s i n d u s t r y has four broad end use c a t e g o r -i e s : (1) component p a r t s , (2) packaging, (3) c o n s t r u c t i o n , and (4) consumer i t e m s . 1 1 C o n s t r u c t i o n and consumer items The u s u a l h i s t o r y of chemical p r o d u c t i o n begins with i n d u s t r i e s i n need of chemicals. S t e e l r e f i n i n g may develop i n a s m a l l way i n the f u t u r e . T e x t i l e s and rubber are assumed t o be d o u b t f u l f o r the present i n B r i t i s h Columbia. "^Chemical Marketing i n the C o m p e t i t i v e S i x t i e s (No. 24 Advances i n Chemistry S e r i e s , Washington: American Chemical S o c i e t y , 1959), p. 124. (toys and c o n t a i n e r s ) would appear t o be the present manufact u r i n g o u t l e t s i n B r i t i s h Columbia. R e i n f o r c e d p l a s t i c sheet c u r r e n t l y manufactured uses about 150,000 pounds of chemicals 12 ( p o l y e s t e r s , s t y r e n e ) , and another 200,000 pounds i s im-13 p o r t e d . Imports of r e s i n s f o r use i n c o a t i n g s i n c l u d e d 14 500,000 pounds of p o l y e s t e r r e s i n s i n 1962. T y p i c a l raw m a t e r i a l s f o r p o l y e s t e r r e s i n s i n c l u d e raaleic anhydride ( f a t t y a c i d s and d r y i n g o i l s are added to produce a l k y d c o a t -i n g s ) , p h t h a l i c anhydride, s t y r e n e (produces thermosetting p l a s t i c s f o r r e i n f o r c e d p l a s t i c s ) , and a l c o h o l s and g l y c o l s . 1 The c u r r e n t market f o r maleic anhydride i s estimated at 300,000 pounds per year, and f o r p o l y s t y r e n e (precursor s t y -rene) i s e s t i m a t e d at 80,000 pounds per y e a r . 1 6 These two chemicals w i l l be d i s c u s s e d f u r t h e r l a t e r i n the study. P o l y e t h y l e n e which i s used i n toys and c o n t a i n e r s i s manu-f a c t u r e d i n Edmonton. Other p l a s t i c p r oducts, laminated 12 P r i v a t e communication. 13 P r e l i m i n a r y Statement o f E x t e r n a l Trade (Bureau of Economics and S t a t i s t i e s , V i c t o r i a , B.C., 1962), p. 221. H e r e a f t e r r e f e r r e d t o as E x t e r n a l Trade. 14 I b i d . , p. 219. 1 5 J . B j o r k s t e n e t . a l . , P o l y e s t e r s and t h e i r a p p l i c a -t i o n s (New York: R e i n h o l d P u b l i s h i n g C o r p o r a t i o n , 1956), pp. 11 and 21. 16 P r i v a t e communication. Pe t r o c h e m i c a l s estimated s t y r e n e requirements of 16,000 pounds per year i n 1958. 32 p l a s t i c , and s e v e r a l f i l m types are imported, but d e t a i l s f o r t h e s e products are not s i g n i f i c a n t i n themselves at t h i s time. D e s p i t e the l a r g e p r o d u c t i o n of f e r t i l i z e r m a t e r i a l s i n T r a i l a s m a l l amount of f e r t i l i z e r m a t e r i a l s i n c l u d i n g n e a r l y 8000 tons of n i t r o g e n , phosphorus, and other types were imported i n 1962. Another c l a s s of chemicals imported f o r a g r i c u l t u r a l purposes are sprays which have a v a l u e of one m i l l i o n d o l l a r s . 1 ^ Consumption of soap powders sh o u l d p a r a l l e l p o p u l a t i o n . I n d u s t r i e s such as t e x t i l e s and l e a t h e r a l s o use l a r g e amounts of these m a t e r i a l s . Detergents are produced: i n e a s t e r n Canada, shipped throughout the Dominion, and imports have been small s i n c e 1962. Dry s y n t h e t i c detergents had f a c t o r y shipments i n Canada of 172 and 182 m i l l i o n pounds i n 1961 and 18 1962 r e s p e c t i v e l y . The i n t e r m e d i a t e chemicals used i n approximately h a l f of the dry s y n t h e t i c detergents manufactured d are a l k y l a r y l sulphonate and soium t r i p o l y p h o s p h a t e . The s u l -phonate i n t u r n i s d e r i v e d from the b a s i c s benzene, e i t h e r a petroleum cut or tetramer, s u l p h u r i c a c i d , and c a u s t i c soda: the sodium t r i p o l y p h o s p h a t e i s d e r i v e d from the b a s i c s E x t e r n a l Trade,.1962. 18 "Market Data," Canadian Chemical P r o c e s s i n g , 47 ( J u l y , 1963), 46. 33 phosphoric a c i d and c a u s t i c soda. O i l and gas p r o d u c t i o n and manufacture r e s u l t i n a small amount o f b a s i c chemical consumption as f a r as B r i t i s h Columbia chemical manufacture i s concerned. H y d r o c h l o r i c a c i d , g l y c o l s , and amines a r e consumed i n the producing o i l and gas f i e l d area of northern B r i t i s h Columbia, and these chemicals a r e shipped from p l a n t s i n A l b e r t a which are cen-t r a l l y l o c a t e d i n the western Canadian o i l and gas area near Edmonton. O i l r e f i n e r i e s i n B r i t i s h Columbia use s m a l l amounts of c a u s t i c soda and a c i d s . S u m m a r y R e c a p i t u l a t i n g , the i n d u s t r i a l use of heavy chemicals i n B r i t i s h Columbia may be summarized as f o l l o w s : 1. Pulp and Paper has p r o v i d e d a l a r g e growing market f o r c h e m i c a l s . 2. Plywood has p r o v i d e d a l a r g e growing market f o r c h e m i c a l s . 3. Mining and M e t a l l u r g y p r o v i d e s one o u t l e t which i s c a p t i v e . 4. P l a s t i c s p r o v i d e a sma l l market. 5. F e r t i l i z e r s are a small market, though one l a r g e s u p p l i e r e x i s t s . 6. Soap p r o v i d e s a s u b s t a n t i a l market s u p p l i e d from 34 ea s t e r n Canada. 7. O i l and Gas has p r o v i d e d a growing market i n the northern part of the p r o v i n c e , and the chemicals are s u p p l i e d from A l b e r t a . The end use f o r chemicals i n B r i t i s h Columbia i s l i m i t e d p r i m a r i l y to t h e market p r o v i d e d by one i n d u s t r y . T h i s i s more apparent when i n d u s t r i a l market shares are c a l -c u l a t e d as percentages and the r e s u l t i n g end use p a t t e r n s are t a b u l a t e d as shown i n Appendix A - l . In B r i t i s h Columbia, pulp and paper i s estimated t o consume 94 per cent of the c a u s t i c soda and 99 per cent of the c h l o r i n e . Resins primar-i l y f o r plywood consume 100 per cent o f the phenol. Future growth and i n t e g r a t i o n c o u l d r e s u l t i n h e a v i e r use of chemi-c a l s by the chemical i n d u s t r y i t s e l f which shows up i n t h e Canadian f i g u r e s both i n the past (1948) and more so i n recent f i g u r e s (1961), and which shows up e s p e c i a l l y i n the f i g u r e s f o r the U n i t e d S t a t e s (1958). Growth i n the f u t u r e of other i n d u s t r i e s which r e q u i r e chemicals would be necessary i n B r i t i s h Columbia b e f o r e such i n t e g r a t i o n i n t h e chemical i n d u s t r y takes p l a c e . 35 I I . PRESENT HEAVY CHEMICAL MANUFACTURERS The l o c a l chemical p l a n t s are now i n t r o d u c e d which supply the consumers d e s c r i b e d i n the f i r s t part o f the cha p t e r . S a l t raw m a t e r i a l The present manufacturing of b a s i c chemicals from s a l t i n c l u d e s f a c i l i t i e s f o r c a u s t i c , c h l o r i n e , and sodium c h l o r -a t e . C a u s t i c and c h l o r i n e were imported from the Tacoma area b e f o r e manufacturing f a c i l i t i e s were e s t a b l i s h e d i n Vancouver, and imports c o n t i n u e d q u i t e e x t e n s i v e l y up to the present time. C a u s t i c i s used p r i m a r i l y f o r k r a f t pulp and d i s s o l v -i n g p u l p . C a u s t i c and c h l o r i n e combined are used e x t e n s i v e l y to b l e a c h k r a f t p u l p . Sodium c h l o r a t e i s used i n a more r e c e n t l y developed method f o r pulp b l e a c h i n g . T h i s chemical was shipped from e a s t e r n Canada b e f o r e i t became a v a i l a b l e i n Vancouver. The e x i s t i n g p l a n t c a p a c i t i e s which can supply the present requirements o f the pulp i n d u s t r y f o r c a u s t i c , c h l o r i n e , and sodium c h l o r a t e , as w e l l as m i s c e l l a n e o u s r e -quirements are shown i n T a b l e IV. The Vancouver c a u s t i c -c h l o r i n e p l a n t s t a r t e d p r o d u c t i o n i n i t i a l l y i n 1958. The c a p a c i t y o f 35,000 tons per year c h l o r i n e was i n c r e a s e d to the present c a p a c i t y o f 60,000 tons i n 1963. C h l o r i n e i s normally s h i p p e d as a l i q u i d , but the Nanaimo plant does not l i q u e f y 36 TABLE IV CAUSTIC, CHLORINE, SODIUM CHLORATE PLANT CAPACITIES IN BRITISH COLUMBIA i n thousands of tons per year LOCATION CAUSTIC CHLORINE SODIUM CHLORATE Vancouver 68 60 20 T r a i l 12 10 Nanaimo 40 35 Source: P r i v a t e communications. 37 c h l o r i n e f o r shipment to v a r i o u s p u l p m i l l s , t r a n s f e r r i n g the c h l o r i n e as gas only "over the f e n c e " t o the adjacent pulp m i l l . Some of the c a p a c i t y at T r a i l which began o p e r a t i o n s i n 1961 i s used independently to produce c a u s t i c potash and c h l o r i n e as w e l l as c a u s t i c soda and c h l o r i n e . The process i s s i m i l a r , uses potash feed, and produces a c a u s t i c f o r use 19 i n f e r t i l i z e r manufacture i n s t e a d of wood p u l p i n g . How the manufacturing c a p a c i t y f o r c a u s t i c - c h l o r i n e has grown i n r e -l a t i o n t o the pulp i n d u s t r y demand i s shown i n F i g u r e 3. T h i s f i g u r e shows that c a p a c i t y i n 1964 i n B r i t i s h Columbia 2 0 i s s u f f i c i e n t f o r demand f o r the f i r s t time. Sulphur and s u l p h i d e raw m a t e r i a l Sulphur i s consumed by the p ulp i n d u s t r y f o r the manu-f a c t u r e o f s u l p h i t e pulps from wood and f o r the b l e a c h i n g p r i m a r i l y o f s u l p h a t e pulp. Such d i r e c t consumption of a raw m a t e r i a l i s not a concern o f t h i s study. Manufacture of s u l p h u r i c a c i d , as noted under h i s t o r y i n Chapter I , was begun u s i n g s u l p h u r . The raw m a t e r i a l f o r An example of h o r i z o n t a l i n t e g r a t i o n i n an a d d i t i o n a l l i n e made p o s s i b l e by a c a p t i v e market. 2 0 The m a j o r i t y of the chemical processes reviewed i n -c l u d i n g c a u s t i c - c h l o r i n e and sodium c h l o r a t e are continuous p r o c e s s e s , so that the maximum p r o d u c t i o n p o s s i b l e i s only a l i t t l e g r e a t e r than the nominal c a p a c i t i e s . -— s / 1 JL. t ' J ( t •If c i ( 1 •( I- . --3 —1 r J c •i' 1 V -•^ 1 C. / 1 .1 ( - V . - I : \ _: 1 t / / — / 1 1 _ 3 / .1 •. y — / < / — j 1 : 1 •} r t i / / /  / i . / / i / 1' U .1 M 1 L U a I ! ; 1 / 1 1 / / / / / / / ... 7 t - ...;>., • ! c / / -/ / i 7 " / r-I* / '•r / / J / w / „ / 0 / i - V • -'' 1 i Iji P "> f r i i i y / / il / tyV v '!i ) - •> / J|j__ J- — — •ri itiz • i r } i ?j j !| ! j _ it —11 T ! •: l ( a 1 { '' 1 .19 6 4 - ) 9 6 )o. 6 • " — T i . 1 r ' •• '« • T r - r *~ ( v - . I T - • ^ r F -t - - ~> -\ \v T 1 t 1 . . K h .' ! i A J i /• 1 i •••• •,: • .'I1' T • ... • * ... J. i L ! I t ^; \ r r r , f> . Si-r , , 1 C ; 1 • V 1 t , \ 39 the past 35 y e a r s has been s u l p h i d e o r e s . The small p l a n t at Barnet used an i r o n s u l p h i d e from B r i t t a n i a Beach u n t i l the p l a n t was shut down. Iron oxide as a byproduct was s o l d t o cement manufacturers. P l a n t s c a l e i s too s m a l l to b u i l d new 21 f a c i l i t i e s at Barnet. The smelter i n T r a i l u t i l i z e s the a c i d gas generated i n the smelting o f l e a d - z i n c c o n c e n t r a t e s . The c a p a c i t y a f t e r an expansion o f 275 tons per day w i l l be approximately 1500 tons per day, l a r g e l y f o r c a p t i v e use as w e l l as s u p p l y i n g m i s c e l l a n e o u s requirements i n the p r o v i n c e i n c l u d i n g pulp and paper. Other i n o r g a n i c raw m a t e r i a l s Alum i s manufactured at Barnet i n a batch p l a n t u t i l i z -i n g alumina and s u l p h u r i c a c i d . & p l a n t c a p a c i t y of 14,000 tons per year i s s u f f i c i e n t to supply the present pulp m i l l 22 market o f 7000 tons per year. The manufacture of c a u s t i c potash at T r a i l which i s used i n f e r t i l i z e r s has been mentioned. In a d d i t i o n a l a r g e volume of p h o s p o r i c a c i d i s manufactured at T r a i l . The capa-c i t y a f t e r an expansion of 200 tons per day w i l l be about 700 See f u r t h e r d i s c u s s i o n of economics i n Chapter V. 22 A small amount, about 200 tons i s consumed by water-works. Canada. Dominion Bureau of S t a t i s t i c s , Waterworks, P r o v i n c i a l , 1958-1959, T a b l e I I . 40 tons per day. The a c i d i s used c a p t i v e l y to manufacture f e r t i l i z e r , and the expansion i s supposed t o supply t h i s mater-23 i a l to new f a c i l i t i e s f o r f e r t i l i z e r manufacture i n Regina. Organic raw m a t e r i a l s Two f a c i l i t i e s e x i s t i n Vancouver which supply i n t e r -mediate chemicals f o r the manufacture of plywood r e s i n g l u e s . Phenol manufacture began at Ladner during 1963 w i t h a p l a n t c a p a c i t y of 24 m i l l i o n pounds per year which i s more than enough to supply the present B r i t i s h Columbia market o f 17.7 m i l l i o n pounds, although a s m a l l amount i s s t i l l being im-p o r t e d , and some phenol i s shipped from the other Canadian producer in-.Mont-real. Benzoic a c i d , at an i n t e r m e d i a t e step i n the p r o c e s s , can be p u r i f i e d , and t h i s i s done t o the ex-tent of 600,000 pounds per year which w i l l supply Canadian requirements i n the e a s t . Formaldehyde manufacture began at Port Moody d u r i n g 1964 w i t h a c a p a c i t y of 4% m i l l i o n pounds per year i n c a p t i v e use and t h i s does not supply B r i t i s h 24 Columbia requirements of 15.1 m i l l i o n pounds. The balance of the formaldehyde i s s u p p l i e d from o u t s i d e the p r o v i n c e . "Chemical E x p a n s i o n , " Chemistry i n Canada , 16 (Jan. , 1964), 16, 24 100 per cent b a s i s . 41 Ammonia i s manufactured at T r a i l u t i l i z i n g n a t u r a l gas f o r c a p t i v e consumption i n metal r e f i n i n g and f e r t i l i z e r manu-f a c t u r e . Present c a p a c i t y i s i n excess of 500 tons per day. Other b a s i c o r g a n i c chemicals are not manufactured i n a form s u i t a b l e f o r f u r t h e r use i n B r i t i s h Columbia. The o v e r l a p between o i l r e f i n e r y and chemical o p e r a t i o n f o r pe t r o c h e m i c a l s becomes i n v o l v e d . The s i x r e f i n e r i e s i n B r i t -i s h Columbia (one at T a y l o r , one at Kamloops, and fou r at Vancouver) manufacture a mixture of org a n i c chemicals i n t h e i r r eforming u n i t s . These o r g a n i c chemicals a r e at present a par t o f the motor g a s o l i n e p o o l . E x t r a c t i o n and s e p a r a t i o n from such r e f i n e r y streams would be necessary to complete manufacture of b a s i c chemicals i n a pure form. A l s o , t h r e e of the Vancouver r e f i n e r i e s manufacture polymerized g a s o l i n e . These u n i t s , i f d e s i r e d , c o u l d e a s i l y manufacture tetramer, a b a s i c chemical f o r detergent a l k y l a t e manufacture. I I I . HEAVY CHEMICALS NOT MANUFACTURED IN BRITISH COLUMBIA Xanthates are consumed i n B r i t i s h Columbia i n the mining i n d u s t r y f o r c o n c e n t r a t i o n of ores, and they have been produced s i n c e 1962 at Edmonton, A l b e r t a . S e v e r a l other o r -ganic chemicals are manufactured at Edmonton. P r e v i o u s l y mentioned were the g l y c o l s and amines as w e l l as i n o r g a n i c a c i d f o r o i l and gas p r o d u c t i o n and manufacturing. Other 42 chemicals are a l c o h o l s , aldehydes, ketones, and a c i d s which ar e u sed as w e l l as g l y c o l s f o r p l a s t i c s manufacture amongst other t h i n g s . Many other primary o r g a n i c and i n o r g a n i c chemicals a r e consumed i n small amounts. They may be manufactured i n O n t a r i o or Quebec and t r a n s p o r t e d west, or they may be im-p o r t e d from the U n i t e d S t a t e s or many other c o u n t r i e s i n the world. No s p e c i a l c o n s i d e r a t i o n o f these chemicals, some of which have been mentioned e a r l i e r i n the t h e s i s i s c o n s i d e r e d necessary at t h i s time. CHAPTER I I I FORECAST OF FUTURE REQUIREMENTS I. GROWTH OF BRITISH COLUMBIA INDUSTRIES CONSUMING HEAVY CHEMICALS In the p r e v i o u s chapter, the present heavy chemicals consumption and the present heavy chemical manufacturing c a p a c i t y were d e s c r i b e d . The purpose of t h i s chapter i s to f o r e c a s t the growth i n chemicals consumption i n the near f u t u r e . A f t e r t h i s i n f o r m a t i o n i s pre s e n t e d , the market which might be served with B r i t i s h Columbia chemical manu-f a c t u r i n g c a p a c i t y w i l l be e v i d e n t . To present growth i n the consumption of chemicals p r e s e n t l y manufactured i n B r i t i s h Columbia a f o r e c a s t i s made of the growth of the pulp and paper and the plywood i n d u s t r i e s . The importance o f other m i s c e l l a n e o u s uses f o r chemicals b e s i d e s t h e i r use above must a l s o be c o n s i d e r e d . For chemicals r e q u i r e d but not manu-f a c t u r e d i n B r i t i s h Columbia, market c o n s i d e r a t i o n s and growth c h a r a c t e r i s t i c s a re i n v e s t i g a t e d f o r those i n d u s t r i e s prev-i o u s l y d i s c u s s e d i n Chapter I I ; namely, p l a s t i c s and r e s i n s , a g r i c u l t u r e , soap, and o i l and gas. Pulp and paper The volume and r a t e of growth i n newsprint, s u l p h i t e 44 p u l p , and the t h r e e grades of s u l p h a t e pulp serve as p r e d i c -t o r s i n the market area f o r chemical pulp. Each i s t r e a t e d s e p a r a t e l y i n t u r n . 1 P r o j e c t i o n s which have been u t i l i z e d f o r newsprint markets a r e s t r a i g h t l i n e consumption f o r per c a p i t a l income, 2 and s t r a i g h t l i n e consumption f o r Gross N a t i o n a l Product. Such p r e d i c t i o n s assume a g e n e r a l i n c r e a s e d consumption of newsprint per c a p i t a . The newsprint market i s l a r g e l y export, p r i n c i p a l l y t o the U n i t e d S t a t e s (94 per cent of exports i n 3 1962), and although an i n c r e a s e d per c a p i t a consumption has not o c c u r r e d g e n e r a l l y , and the consumption has remained f a i r l y s t a t i c i n the U n i t e d S t a t e s at 80 pounds per c a p i t a 4 per year from 1955 to 1962, the western r e g i o n has c o n t i n u e d l a r g e gains i n newsprint p r o d u c t i o n exceeding the growth of The i n v e n t o r i e s of pulp are not known, but may be q u i t e low. The Canadian i n v e n t o r y change during 1961 was 0.83% of p r o d u c t i o n . Reference T a b l e s , Canadian Pulp and Paper A s s o c i a t i o n , Aug. 1963, p..5, T a b l e 16. 2 The F o r e s t r y Study Group, The Outlook f o r the Canad-i a n F o r e s t Indust r i es, Royal Commission on Canada's Economic P r o s p e c t s , No. 26, March, 1957. 3 E x t e r n a l Trade, 1962. 4 Note the Food and A g r i c u l t u r a l O r g a n i z a t i o n s t a t e d i n 1959 that past e s t i m a t e s of p o p u l a t i o n growth and income e l a s -t i c i t y were wrong ( e l a s t i c i t y d e c l i n e s as income r i s e s ) . Pulp and Paper Demand, Supply, and Trade (Food and A g r i c u l t -u r a l O r g a n i z a t i o n of the U n i t e d N a t i o n s , Sept. 1959), pp. 2, 3. p o p u l a t i o n alone. The t o t a l growth i n the near term based upon p o p u l a t i o n i n c r e a s e and no change i n per c a p i t a consump-t i o n i s estimated to be 125-150,000 tons per year. Consump-t i o n i n C a l i f o r n i a d u r i n g 1962 i n c r e a s e d a " s t a g g e r i n g " 90,000 tons which was 60 per cent o f the t o t a l U n i t e d S t a t e s g a i n . T h i s t r e n d i n the western U n i t e d S t a t e s r e g i o n w i l l probably c o n t i n u e i n the near term t o s u s t a i n the i n c r e a s e i n B r i t i s h Columbia newsprint exports averaging 60,000 tons per year i n the past 8 y e a r s and accounting f o r some of the t h r e e announced i n c r e a s e s o f newsprint c a p a c i t y t o t a l l i n g 300,000 tons per year through 1965. In F i g u r e 4, the r e l a t i o n s h i p s o f p r o d u c t i o n , c a p a c i t y , and exports i s c l e a r l y shown. The d i f f e r e n c e between t h e current f i g u r e s f o r e x t e r n a l t r a d e and p r o d u c t i o n i s accounted f o r by exports through other p o r t s (about 50 thousand tons by the e a r l i e r a l l port f i g u r e s ) , and Canadian Pulp and Paper I n d u s t r y , 16 ( A p r i l , 1963), p. 26. ^Canadian Pulp and Paper I n d u s t r y , 17 ( A p r i l , 1964), p. 36. The Gordon report f o r the Canadian newsprint s u p p l i e d to the U n i t e d S t a t e s f o r e c a s t i n c r e a s e s t o t a l l i n g 460,000 tons from 1960 to 1965 and 670,000 tons from 1965 to 1970. The F o r e s t r y Study Group, op_. c i t . , p. 117. About 95,000 tons per year Canadian supply or 475,000 f o r a 5 year term would be expected with the 69 per cent Canadian share i n the growth of the U n i t e d S t a t e s market given i n the Canadian Pulp and  Paper Industry a r t i c l e . IQU3X.} !QW3X i OilDX i i j I 1 I- | i 4 1 ! I | i 4 4 0 1 i 1 I i i i -•c — i •j i i 1 V. -> i \ 1 i i 1 1 i i 1 i i 1 [ 1 -1 \ v. i I V 1 it; 1 b i i 1 r c ; iii 1—r ! i i i 1 1 1 "n • ••ti ! X i r ! i I 1 - i : \ y i <JI • H L K r ! I | — (J h 1 r- -1 1 1 1 1 —1 J | ( (. J •\u i . I Y j z; —r™^  0 i ~-1 1 1 J i k i i 1 — fC 1 1 1 1 J H ! " ] j J h _J .1. ! 1 L —1— ] 1 i,_ 1 "1, \ j 1 i 1 4-V \ y' (, r _^ \ J * '^ •r V I \ 'n 1 J \ , \ p *"• i rr, i \ 1 i J ;H K i 1 J J -ri' "I 1 V 1 ' \ \ -.. L •4 1. p -L k 3 i" -\j -if \ i I 1 •J •44 T •rp | T i \ i j \ i 1 - J- 1 vll - —/ii A 1 -> ~-H H V- *h d -i \ 1 " I f J •"1*- | 1 1 -J 1 \ ! •H 1 ! . | 1 r u ! Hi ; o \ J 1 u i r 4 i Y i \ 1 I 0 u ? ~ - ! - •t - . . . z :— - — - .4... -1 _ •- U i l l r r l j Tii-1 ~ . -<C T 1 i j ~ r -1 -< r ' 7 -r 1 1" 4 ! i 1 1 V : ~T i -r" •i. 1 <f- 1 i 1 1 '- i 1 ! 1 1 t/' I 'K TTTTQ - i | r t r r 1 1 i \ 1 ~~- * s ~'rr'— 1 i i 1 I I"- I 1 r • r n i p p i j n T t ! i i t 1 1 M'li^l i -'•Ki | 1 \,l i f! 1 i ip. "»i y\ i i_i '~ l 1 •-1 1 1 T r 4 i T I \ i l l - Ir JP l i -I; | \. i i " " u 4 i {/. I, \ i l> U 'Til | 1 i J J i I I M 1 1 " '1 (;J il T 1 1 1 1 I 1 i i 1 1 i 1 k-li * T ! j . i i ^ >, 1 1—\ 1 "H i| -rf! +-1 i i \i '—1 j^ 'li "T* '7* ! 1 \ u j i a j 1 1 \ I-- \ 4 | \ / WiiT — - , 'i i \ ! \) 4 l \ \ P i l " t •J5 1 \ ' I- '<~ ! j i r i 1 \ , I 1 1 •qi i i 1 1 j i l i l\ i V 1 T'ji !' "I ! 1 \ | I i \ \ J r J l f •f 4-j I L 1 1 \ T y |H 1 I l i \ \ 4 l ? i 4 X\ <~ i 1 \ l 14 r 1 1 \ 1 \ T U< d l 1 - 1 ! i 1 1 1 I | \ T'l ! 1 1 1 -4 4 1 I i 1 1 1 1 i 1 1 1 i"i n i u. 1 i 1 1 1 r r r 1 1 \ 1^ T 1 ; 1 1 1 ! ; j h \ '. u! w Li i i 1 1 1 1 • \ H-i. "rr. —- 1 ! T" a r i 1 \ U rr 1 4 1 h 1 -r [ ! i I 1 1\ l;T M 1 3 f i 1 1 i | i i 1 1 V _ 1 1 1 ! 1 TV 1 l 1 I i i n I i 1 i 1 i i i i 1 ^ • . '1 1 m _j <?! 1 i 1 i "V i I ! i i i i i ! I 1 M i l . : . 1 i - t 1 •J V . 1 I I i 1 i .1 1 ! ! > J 1 1 x- l 1 C 1 I | V 1 1 i • * f 1 1 i i i 1. -a r 4. S i r L i j 1 1 i t T 1 I r ! 1 1 1 - i i si' 1 ! ! 1 ! i i 1 1 i i 1 1 1 1 [ 1 1 i i ! i i 1 i i 1 1 I 1 i j 1 1 1 i 1 I i I 1 1 i 1 i i i i i j i 1 - I i ! I j 1 ! 1 ] . . . i 1 ! 1 i - - 1 _.L„. - __f_ . . . - i i ! i 1 i I i 1 j j ~ r I 1 P ! M i l ! 1 1 1 1 1 1 i i i ! i n i i i 1 : i i 1 i 1 1 r r n ; 1 1 1 i 1 i T I r r H T i i I n i 1 n ! i u ! i 1 l i i l i " 1 1 j 1 i 1 1 1 47 7 domestic consumption. The percentage of K r a f t pulp i n 60,000 tons per year i n c r e a s e d newsprint p r o d u c t i o n w i l l be used f o r i n c r e a s e d chemical pulp requirements. The s u l p h i t e p ulp market appears s t a b l e s i n c e r e a d j u s t -ment p r i o r t o 1958. A s t a b l e amount used i n newsprint i s expected with growth o c c u r r i n g i n the use o f k r a f t pulp r a t h e r than s u l p h i t e pulp. A l a r g e volume of d i s s o l v i n g p u l p i s u t i l i z e d c a p t i v e l y t o manufacture c e l l u l o s e a c e t a t e (snythe-t i c f i b r e ) at Edmonton. To t r a c e the demand i n t h i s area would be too f a r a f i e l d from the study: i n v o l v e d are the v i s c o s e raybn produced i n eastern Canada, the U n i t e d .'States market, competition from other s y n t h e t i c f i b r e s , p r i m a r i l y n y l o n , and other i n d u s t r i e s such as f i l m and other p l a s t i c p r o d u c t s . S u l p h i t e pulps are exported predominantly to the U n i t e d S t a t e s with l e s s e r amounts to A s i a n c o u n t r i e s , and s t i l l s m aller amounts to other c o u n t r i e s i n the world. F i g -u r e 5 summarizes the data d i s c u s s e d with the r e l a t i v e propor-t i o n s of v a r i o u s grades i n d i c a t e d i n T a b l e V. Announced c a p a c i t y i n c r e a s e s at P r i n c e Rupert u n t i l 1967 and an 8th d i g e s t e r at Port A l i c e are keeping pace w i t h a growth i n Reference T a b l e s , Canadian Pulp and Paper A s s o c i a t i o n Aug. 1963, T a b l e 50, p. 21. The l a r g e B r i t i s h Columbia and A l b e r t a newspapers consumed 54.2 and 56.5 thousand tons i n 1961 and 1962 r e s p e c t i v e l y . A d O O l (AdOD A.-/00 \OU3X j IOU3X J OU3K i 1 1 1 1 1 -1 1 1 i 1 1 J,-1 ! i 1 1 1 1 1 1 Hi-| 1 1 j 1 1 1 1 1 I 1 ! I 1 1 1 1 Hi I j i N 1 i I i 1 M j ; 1 1 1 1 1 i 1 1 I r i 1 ( 1 | ^  1 — 1 t. . . 1 ! 1 h 1 1 1 i i I ! 1 H 1 r r r-T- L I i mpr-L- a- - -ii i -f' •A u ; 1 1 l i a i - 1 1 l r r i M i 1- J: 0\ U Ml A 1 • r m , !| I - 1 I i »v . 1 i 1 ^ , 1 1 w r' \ j \ / D " U 1 •"1 •J -\ \ \ l ]^ ""I -- V J " 1 -i U i ! 1 . \ , . , ! \ w 1 , i1 -r 1. • t r-| | ! u 1 I \ \ t- • 1 1 H i \ 1 " 1 i I I 1 •A, H i n - 1 I , l\ 1 i l l • t H-—i— L 4 i i \ M r- til ~-\ 1 \ i i 1 1 1 ' J - 1 r . l \ • 1 ~ ~ 1 ;• i -"1 .-1 \ - \ f 1 -J. - -[J, 1 " ! i i ! ir j i \ \ ! i y • ; II * •V M 1 \ 1 t i \ 1 *. ) H ^ 1 i H \ i i ! r. Y s J U1 1 -I 1 i I \ \ 1 •r i j j i 1 1 i i - I 1 4 Ti-j T 'N 4 -o 1. vl l J h \ \ I ^ t; 1 \ v - \ ¥• 1 i T f-| ! 1 I —I ' | I w U r i I \ \ 1 [ 1 1 •zT r 1 i, ! I \ \ I 1 - 1 •i J i m m r \ I H - t i i 1 I r i V V 1 i w • I 4 — 1 M I \ c 1 H L { ) r 1 y. 1 •r T' 1 ' I 1 '~\ t . 1 i r , I i 1 it L I i — 1 ii' \ '— i i 1 i ,,l w i 1 \ i 1 I > I • 1 1 1 1 X I i —1 - i , r I i i i !/) ! l l irr 1 1 i ! +- ri ^ ] 1 I i i .1 ! T" " I f - JI i r • i i | i i- ! 1 i 0 ••I 0 1 | K -7 • k l I 1 4 rl C-y 1 ! i ^: }> h ! ! - : • M - r^ . 1 ( 1 | '1 1 i if i j I 1 1 I A H •-^  i 1 1 | | V I .i. 1 i 1 1 1 I ! 1 t y -* ! ! 1 1 i 1 i r-i t 1 1 1 1 1 1 i j '1 1 ! 1 ! ! < ! i ! 1 i 1 1 I i . ^ [ . j | l ! ^• I | l ! I l l . 1 r V: i i - 1 1 ( 1 I •I1 1 ~z 1 | | i - I ; 1 1 1 i J I 1 I0, 1 i 1 1 j i ! b'lUOl T D u tV | i 1 | I ! i ! 1 ! I 1 1 I | i 1 1 TT 1 i 1 i i i i 1 1 1 1 i i ! r ! i i . i 1 1 1 1 i i ; i ! 1 i i i 1 ! 1 1 1 1 1 1 1 I 1 i 1 i 1 i 11 1 j 1 \ i i i 1 1 1 i j 1 ! j 1 1 1 i 1 I 1 i 1 1 1 i | i 1 ! | I - 1 1 i j [ i i ~ ! > u ! ' 1 ! 1 1 1 1 i 1 i i - ' 1 I ! I i 1 1 i r r 1 ! 1 1 1 ' 1 1 i I i 1 1 | I i i 1 i I 1 1 I 1 1 i n i i - 1 1 1 1 1 1 ! i i 1 I ! l ! 1 ' 1 i \rr 49 TABLE V SULPHITE PULP GRADES PRODUCED IN BRITISH DURING 1962 COLUMBIA GRADE TONS 8 MARKETb Unbleached 19,500 Export Bleached 60,000 3/4 Export Newsgrade 110,000 Newsprint D i s s o l v i n g 220,000 70,000 Ex p o r t Source: a P r i v a t e communication. Export proportion from Preliminary Statement of E x t e r n a l Trade, V i c t o r i a : Bureau o f Economics and S t a t i s t i c s , 1962. 50 exports of about 25,000 tons per year i n v a r i o u s grades, and t h i s i n c r e a s e w i l l be assumed to continue. The sulphate pulp market has shown a c o n t i n u e d growth through the 1950's. S t a t i s t i c s have subsequently changed w i t h k r a f t and s u l p h i t e p r o d u c t i o n c a p a c i t y i n d i c a t e d separ-a t e l y s i n c e 1953 and semi-bleached k r a f t added t o the former bl e a c h e d and unbleached c l a s s i f i c a t i o n s s i n c e 1959. Annual p r o d u c t i o n of a l l k r a f t pulp has i n c r e a s e d from 360,000 tons per year i n 1955 to 1,240,000 tons per year i n 1962 or an average of 125,000 tons per year. The annual p r o d u c t i o n c a p a b i l i t i e s f o r the t h r e e g e n e r a l grades can be compiled from those annual f i g u r e s given i n Canadian Pulp and Paper  I n d u s t r y , the A p r i l i s s u e s . The export market i s a v a i l a b l e from- s t a t i s t i c s . Manufacturing of paper and board from un-bleached, and newsprint from semi-bleached accounts f o r the d i f f e r e n c e i n these two grades. A small amount of b l e a c h e d pulp i s consumed i n paper: the balance i s exported through other p r o v i n c e s . U s i n g past f i g u r e s i n b l e a c h i n g c a p a c i t y and announced expansions to p r o j e c t f u t u r e c a p a c i t i e s a l l t h r e e grades of s u l p h a t e pulp appear to be growing e q u a l l y i n the near term. The i n d u s t r y g e n e r a l l y expects the p r o p o r t i o n "Annual Review," Canadian Pulp and Paper I n d u s t r y , 9 ( A p r i l , 1956), 62; and p r i v a t e communication. 51 of b l e a c h i n g to i n c r e a s e , but t r e n d s have not shown a s i g n i -f i c a n t gap as yet between unbleached, semi-bleached, and bl e a c h e d c a p a c i t i e s . These r e l a t i o n s h i p s a r e p o r t r a y e d i n F i g u r e 6 showing p r o d u c t i o n o f the t h r e e k r a f t pulp grades as w e l l as the t o t a l t o 1966 f o r which d e f i n i t e c o n s t r u c t i o n i s underway. Four other expansions a r e shown through 1970 f o r t o t a l c a p a c i t y o n l y . These northern B r i t i s h Columbia p r o j e c t s are u n c e r t a i n u n t i l c o n s t r u c t i o n b e g i n s . At present they a r e 9 i n the plann i n g and t r e e farm a p p l i c a t i o n stage o n l y . A l s o , f o r the present c a l c u l a t i o n s , b l e a c h i n g p r o p o r t i o n s a r e not known, but w i l l be c o n s i d e r e d e q u a l l y d i s t r i b u t e d among the, th r e e grades. T h i s should y i e l d a c o n s e r v a t i v e chemical con-sumption estimate, but because of p o s s i b l e improvements i n b l e a c h i n g e f f i c i e n c y t h i s i s j u s t i f i e d . The t i m i n g o f the l a r g e northern p r o j e c t s i s staggered and a c c e l e r a t e s the p r o -d u c t i o n t r e n d o f the recent past which i s a l s o i n c r e a s e d f o r 1962 t o 1966. Recent experience w i t h m i l l s at C a s t e l g a r and P r i n c e Goerge i n d i c a t e s 5 y e a r s can ela p s e from the time of t r e e farm l i c e n s e a p p l i c a t i o n u n t i l p u lp i s produced, and with h e a r i n g s j u s t underway f o r these northern p r o j e c t s the ti m i n g S i t e s i n c l u d e Kamloops, K i t i m a t , P r i n c e Rupert, P r i n c e George, and B u l k l e y V a l l e y . The. small planned m i l l at Kamloops i s estimated f o r 1967, and t h r e e o f the l a r g e northern m i l l s a r e estimated f o r 1968, 1969, and 1970. '. AdOO i |Ot)3X ! J A dOO 'OU3X OU3.X S. 1 ! 1 ! " k 1 1 1 1 i i 1 1 ! 1 i i 1 1 1 i ! 1 " 1 1 1 1 I 1 1 1 j s I J .' L i 1 ..1 D ^ -t ; IP, 1 " 1 —Lai—i 13 i 1 r~ 4 T r~. u 1 r. 1 J 1 i 1 -{« i y V v. T f 1 j 1 r •1 1 ° ! 1 1 1 1 1 —1 ! -r J t j J 1 1 - i 1 ..I. Ll ..1 r T T , \ % M i t s. T 1 vU — rl | *- 1 i 1 C I 1 'P1 1 1 1 | \ i 1 1 1 ! — 1 \ i j PM 1 1 -I 1 1 '—i 1 1 1 1 I 1 1 1 \ l ; i i - i •1 1 1 1 | ! 1 - J I N 1 ** v 1 I P i 1 i f i T; 1 1 s. 1 1 \ 1 | i . WI 1 1 1 \ ! " i ' i ~1 i X', [ L "V C 1 1 1 i . 1 1 •i • x v. i \ 1 r^._ -- -- 1 1 [ t v r r H ! 1 s X 1 \. j ! N S 1 \ 1 ! , i i _ ! 1 t 1 - • 1 is. V ! i " \ 1 > : i 1 I \ - 1 0 -1 .. 1 1 1 x \ ! 1 \ r f\ j 1 S S s i - M 1 1 AO - \ l ' \ 1 (. 1 i 1 v s - i •j. . r 1 1 I 1 \ \ 1 1 1 ! — - -1 t P i <- ; i < - -....!... 1 r I 1 i \ J . _ L L T m ; 1 „ .1 A ; ! I i 1 1 i 1 1 i ! •J"' t • i\ IX 1 1 ' . i 1 f*. 1 i i J . 1 1 — I ! 1 •X iv 1 \ 1 ? i x l j K 1 i V i ! 1 i I J 1 1 \ > 1 1 v. i 1 ! 1 I X i S | ! I 1 j ; r 1 a ? i | 1 1 X i - 1 ! ;V ! 1 1 1 1 \ X \ t r — - [ . i V 1 i I 1 1 1 V , IN 1 1 l 1 1 1 i 1 1 • \\ 1 1 r i 1 >T 1 j 1 \ V r! 1 1 1 V - s i i j X \ -ii 1 . t J ) 1 X] J 1 1 j 1 1 1 M ! , X -i 1 t->. j -n; ' 1 \ -x Y ' 1 \ \ s 1 \ 4 - 1 \ 0 ,1. 1 1 V V 1 J 1 I \ \ \ X. ! ! 1 1 1 \ > 1 \ p 1 i_i 1 1 i \ ,11 1 1 J •J 1 1 ! ! 1 ; 1 \ H H 1 - N 1 1 1 1 1 - I N i " 1 1 i i j 1 i 1 1 T T \ r i .1 [ 1 I 1 1 1 1 1 >l 1 1 i 1 I ! IN - r-I ! 1 1 \ P p 1 i ! 1 * N -i 1 1 1 1 1 • m j t 1 \ 1 1 1 ; 1 N | 1 i 1 1 | \\ I 1 ! 1 1 1 1 1 1 1 ! ! 1 1 1 1 I i 1 ! j 1 1 N: 1 ") 1 1 _i ! 1 i i ! 1 1 ! i ! I \ _ J IT r 1 I i ! ! 1 1 1.. 1 1 1 ! 1 i ^ 1 .-I -1 1- r 1 ! — I 1 1 j 1 f- 1 ( pi 1 j 1 1 1 1 b <. ( J ) i i ^ P-- Q 1 1 1 1 1. • i 1 1 ! 1 1 ! 1 1 1 1 ! 1 ! 1 ; i I 1 1 1 i 1 1 ! 1 i 1 1 1 1 1 1 1 1 ! 1 1 1 1 1 1 1 1 1 ! 1 1 i | j j | 1 : 1 ! 1 1 | 1 I I I I I ; 1 1 1 I 1 r 1 1 ' M l 1 -H- 1 n- 1 1 1 V I T I 1 F T i .1 J [ t i _.!_ i - l i t ! _ j I 1 - i _. 1 j r i 1 - --- - 1 - l 1 - t 1 i < 1 1 i —f\ i 1 1 ' ! ! ! 1 1 j j n i : | 1 i ! 1 -- l l - i l i ] _. ... ! i ; \SL\C)- - ^ T r W r " 1 i 1 1 l 1 1 1 ) i i ! ! 1 1 1 i i r m i 1 ! ! 1 1 1 ; I 1 I 1 1 1 .1 1 ! 53 suggested i s f e l t t o be r e a l i s t i c . A l s o , a p r o j e c t f o r the Peace R i v e r area has been announced r e c e n t l y , which i s not c o n s i d e r e d i n t h i s f o r e c a s t . Some pulp from t h i s area would f i n d a market i n the U n i t e d S t a t e s d i f f e r e n t from the U n i t e d S t a t e s and overseas d i s t r i b u t i o n o f the present predomin-a n t l y c o a s t a l m i l l s . 1 0 F u r t h e r a s p e c t s of t h i s n o r t hern i n t e r i o r development w i l l be c o n s i d e r e d i n Chapter V. To j u s t i f y t he growth i n k r a f t c a p a c i t y , the v a r i o u s end uses o f the k r a f t p u l p are next i n v e s t i g a t e d . An i n -cr e a s e d newsprint market of 60,000 tons per year p r e v i o u s l y d i s c u s s e d would take 12,000 tons per year of semi-bleached p u l p . I n c r e a s e s i n exports of unbleached k r a f t papers and c o n t a i n e r board i n d i c a t e an a d d i t i o n a l market f o r 10,000 tons per year. The domestic market f o r t o t a l k r a f t i s a s t a b l e 30 per cent share of p r o d u c t i o n , 1 1 but t h i s share w i l l probably declirre- i n f u t u r e w i t h the importance of export markets. The growth i n the export pulp market i s c l e a r l y shown when a l l grades a r e c o n s i d e r e d together i n v a r i o u s world r e g i o n s (Europe i n c l u d i n g Great B r i t a i n , A s i a , U n i t e d S t a t e s , L a t i n The development of i n t e r i o r p u l p m i l l s i n f u t u r e w i l l r e q u i r e a knowledge of p u l p exports through other Canadian p o r t s and w i l l not show up i n the e x t e r n a l t r a d e f i g u r e s f o r B r i t i s h Columbia. 11 . ^ * , . P r i v a t e communication. 54 and South America, and A u s t r a l i a ) . The experience i n the v a r -i o u s grades of pulp i s summarized r e g i o n a l l y i n T a b l e V I . The r e s u l t s a r e combined and p o r t r a y e d f o r t o t a l k r a f t i n F i g u r e 7. An e a r l i e r r a p i d l y i n c r e a s i n g t r e n d of exports from B r i t i s h Columbia to the U n i t e d S t a t e s has l e v e l l e d o f f at an i n c r e a s e of 10,000 tons per year. T h i s i s a modest i n -c r e a s e which s h o u l d be m a i n t a i n e d or even a c c e l e r a t e d i n the f u t u r e . T h i s does not i n c l u d e exports of B r i t i s h Columbia p u l p through other Canadian p o r t s . A l a r g e upswing i n ex-p o r t s t o Europe o c c u r r e d i n the l a t e 1950's which has a b e t t e d the past few y e a r s , but i n c r e a s e d exports s t i l l averaged 20,000 tons per year to t h i s r e g i o n . The assumption that l a r g e g a i n s w i l l c o n t i n u e i s supported by c o r p o r a t e moves t o a c q u i r e paper c o n v e r t e r s i n England, and an arrangement t o s h i p a l a r g e part o f the output from a recent 150,000 tons per year expansion t o an a f f i l i a t e i n H o l l a n d . I n c r e a s e s i n shipments t o South America and A s i a have both averaged 10,000 tons per year r e c e n t l y . South America i s a s p e c i a l problem i n n a t i o n a l economics. The t r e n d l i n e i n F i g u r e 7 does not i n c l u d e recent experience i n Cuba t o whom, shipments of un-b l e a c h e d s u l p h a t e were 6000 tons i n 1960, 22,000 tons i n 1961, and nothing i n 1962. A few other South American c o u n t r i e s showed weakness i n 1962 ( B r a z i l , Colombia) w h i l e other TABLE VI KRAFT PULP EXPORTS THROUGH BRITISH COLUMBIA TO VARIOUS WORLD REGIONS, 1956-1962 i n thousands of tons YEAR BLEACHED SEMI-BLEACHED UNBLEACHED E u r . A s i a U.S. S.A. Aust. E u r . A s i a U.S. S.A. Aust. E u r . A s i a U.S. S.A. Aust 1962 100 25 78 28 11 42 10 28 15 3 20 28 116 30 3 1961 104 18 66 18 10 39 7 30 12 3 27 27 120 45 6 1960 111 8 71 15 19 41 1 29 4 2 35 19 116 31 9 1958 84 8 98 11 8 a a a a a 20 13 87 16 1957 58 11 69 1 8 a a a a a 16 28 94 11 -1956 60 3 54 4 5 a a a a a 21 9 45 13 -3Semi-bleached not r e p o r t e d before 1959. Source: P r e l i m i n a r y Statement of Ext e r n a l Trade, V i c t o r i a : Bureau of Economics and S t a t i s t i c s , a n n u a l l y . U d O O f r J A d O D •) A d O O 1 0 U 3 X I ! o U 3 X .1 O i i 3 X i 1 1 1 i 1 i 1 | | 1 f i 1 i i i 1 1 r &• S 1 1 1 i 1 1 1 .. t 1 1 1 i 1 l 1 s | | I i 1 -1 ~ ~ i 1 1 i i i i i I 1 \ i i 1 j i 1 J ! i I 1 1 r-l 1 1 i 1 i ! 1 i ! \ i N —1 -r- 1 ! : \ ! 1 I \ 5 1 1 ! 1 1 1 \ 1 1 \ 1'" 1 N Iff 1 i 1 | - T' I \ '< i 1 \ \ | 1 —rt}-I I r~i 1 f. 1 w 1 1 I •,s \ 1 „ 1 i \ 1 1 I 1 l N| 1 1 1 \ \ 1 1 -1 \ 1 1 1 \ \ 1 1. 1 I \ 1 °-V ! J H 1 j l\ \ 1 j • i , n 1 \ \ ! 1 r,1 1 \ \ \ 1 i ,-, I \ l 1 i \ i r 'j 1 ! 1. J _ 1 _ 1 1 ~- 1 1 T l \ V 1 rr \ I r p 1 rc \ \ 1 \ \ I' 1 a 4- 1 \ I 1 \ 1 1 1 T ! \ 1 I \l 1 I 1 +' i \ 1 1 1 i | , i \ ~] 1 II \ ! 1 1 - . 1 " V i \ \ i 1 I 1 1 1 \\ 1 4" J i 1 \ i I 1 | ' 1 i \ 1 ', ; - ! , j 1 ~ ~i. r i - ,L i 1 .1 I i\ i 1 1 1 i \ ,'. V, j j — ! i 1 \ 1 v 1 ^~ j 1 Ai rX - i y j 1 \ I V 1 i \ ! - 1 -f \ \ \ 1 r _ fT i ; \ \ j rt M \ i l —r= -1 - 1 \ 1 : i V \ 1 \ i i t \ L s 1 ' \ \ i ) \\ \ /I f X. \ \ I i \ \ » i \ \ \ \ t-1 \ \, — r j ;H \|. J t4 1 \ \ \ --c!A j \ V \  i. 1 \ \ \ \ \ \ f r ^. '•V \ \ r \ t\ \ \ \ \ \_ \ \ r •1 i \ <, T, m i 1 | \ ' h T \ \ \ | T i n j 1 1 1 1 ! 1 \ \ \ 1 'ii i i i 1 \ 1 \ \ .1, 1 | \ I i . 1 ^ r 1 \ I . J.J "1? 1 \ \ r- fr- ?h 1 \, \ 1 1 \ 1 1! L 1 1 I 1 1 J i 1 ! 1 -i i A) 1 1 '1 1 1 1 i 1 .'Li V , 1 1 1 I 1 1 I 1 i 1 : 1 r 1! /i 1 1 1 i 1 1 1 ! I 1 1 1 I 1 1 1 I 1 1 1 ! I 1 1 1 1 i 1 1 . ? 1 1 1 1 ! I i ! I ,J , 1 i 1 r L i i i 1 ! 1 I I I ! ..1". ' ! ] \ • 1 I Ir j 1 -.' t • i 1 i i 1*" ! Ir lb. —j>" 1 I r.i - ! I 1 i l , i 1 1 I 1 i 1 \ i 1 i 1 \ \ 1 i 1 i I 1 I I 1 1 1 1 i 1 1 1 I i 1 j i j 1 1 1 1 1 1 1 I I 1 1 I i i I I i 1 1 1 1 1 i 1 1 1 1 !_ 1 1 1 i i i 1 1 i i - - ... 1 : 1 i - - \ j I i i j ! '1 i 1 1 1 1 1 1 1 1 1 1 1 1 | j 1 1 1 1 i i n I 1 1 I 1 1 i, 57 12 c o u n t r i e s remained s t a b l e ( A r g e n t i n a , Peru, Venezuela). Meanwhile the few g r e a t e s t importing c o u n t r i e s i n A s i a appear s t a b l e . Evidence of much g r e a t e r i n c r e a s e s i n t h i s area are the t a l k e d about t i e s of northern pulp m i l l p r o d u c t i o n with 13 the Japanese market. A u s t r a l i a o f f e r s a s m a l l growth mar-ket, no doubt a r e s u l t of the establishment of a pulp i n d u s t r y i n t h i s r e g i o n which i n c l u d e s New Zealand. When a l l the world t r e n d s are summed, other t h i n g s remaining e q u a l , j u s t i f i c a t i o n i s evident f o r c o n t i n u e d expansion at present r a t e s , and at 14 a c c e l e r a t e d r a t e s through developments i n Europe and A s i a . Another f o r c e would a c c e l e r a t e planned pulp m i l l ex-pansion. S a l e s of pulp at American d o l l a r p r i c e s improve the economic p o s i t i o n of Canadian m i l l s f o l l o w i n g the d e v a l u i n g of the Canadian d o l l a r s i n c e 1960 ( s i n c e pegged i n 1963). T h i s r e s u l t , although i t may a c c e l e r a t e expansion p l a n s , has 12 Expansion of exports w i l l probably be to those areas which have reached a reasonable s t a n d a r d of l i v i n g (p. 32).... A new pulp m i l l i n C h i l e w i l l supply the f r e e t r a d e area of L a t i n America (p. 46). Canadian Pulp and Paper I n d u s t r y , 17 ( A p r i l , 1964). 13 E x p o r t s of k r a f t to Japan through 1961-63 were 20,000, 50,000 amd 160,000 tons. More might have been shipped du r i n g 1963 i f the supply was a v a i l a b l e . I b i d . , p. 30. 14 Note the Food and A g r i c u l t u r a l O r g a n i z a t i o n found t h a t time s e r i e s data had a lower response than c r o s s - s e c t i o n a l data f o r p o p u l a t i o n growth and income e l a s t i c i t y . 0p_. c i t . , p. 3. 58 been somewhat d i s c o u n t e d as d i s c u s s e d e a r l i e r under the ti m i n g o f pulp m i l l a d d i t i o n s and t r e e farm l i c e n s e a p p l i c a t i o n s . F i n a l l y the w o r l d demand i n d i c a t e s requirements f o r puxlp i n which market B r i t i s h Columbia shares. A summary of i n f o r m a t i o n i s p r e s e n t e d i n T a b l e VII from v a r i o u s sources i n d i c a t i n g the s i t u a t i o n with regard to the l a r g e demand area s . Current world exports of wood pulp are roughly one-h a l f S c a n d i n a v i a n , one-quarter Canadian, and one-quarter s p l i t between the U n i t e d S t a t e s and other c o u n t r i e s . Although r e g i o n s of s m a l l e r requirements are expected to decrease im-p o r t s r e l a t i v e to t h e i r t o t a l requirements, the t r e n d of l a r g e demand areas shown i n T a b l e VII i s expected t o i n c r e a s e w o r l d pulp and paper imports r e l a t i v e t o world demand. B r i t -i s h Columbia, as i n d i c a t e d i n the t a b l e , i n c r e a s e d i t s share of pulp exports i n worl d markets from 1955 to 1960 although t h i s r a t e of i n c r e a s e was l e s s e n e d i n 1961 and 1962. Never-t h e l e s s , the o p p o r t u n i t i e s f o r growth e x i s t , although such t h i n g s as Chinese demand and Communist block supply are un-known. North American, European, and Japanese demand w i l l i n -cr e a s e n e a r l y 20,000,000 tons between 1965 and 1975 or a p p r o x i -mately 2,000,000 tons per year a c c o r d i n g t o the Food and A g r i c u l t u r a l O r g a n i z a t i o n of the U n i t e d N a t i o n s . The expansion of the k r a f t p u lp market from 1,242,000 tons i n 1962 t o 2,775,000 tons i n 1970 i s the major component TABLE VII WORLD SUPPLY OF & DEMAND FOR PULP & PAPER, 1955, 1960, WITH ESTIMATES FOR 1965, 1975. i n thousands o f tons YEAR NEWSPRINT PULP & PAPER WORLD BRITISH TOTAL PULP COLUMBIA F.A .0. N. Am. DEMAND3 W.Eur. Japan China F.A.O. N. Am. DEMAND.? W. Eu r . Japan China „ h Prod. b Export EXPORT 0 Thru B.C. % 1955 6 ,250 2 ,600 446 139 24,700 10,330 1,665 715 51,370 8,370 363 4.3 1960 65,222 10,706 629 5.9 1965 8 ,160 4,130 935 490 34,800 15,250 3,540 2,360 1975 10,120 5 ,900 1,570 1 ,570 46,200 20,850 6,300 7,080 Sources: Pulp and Paper Demand, Supply and Trade, F i n a l Report of the World C o n s u l t a t i o n , Rome: Food A g r i c u l t u r a l O r g a n i z a t i o n of the U n i t e d N a t i o n s , Sept., 1959. b Reference T a b l e s , Montreal: Canadian Pulp and Paper A s s o c i a t i o n , Aug. 1963, T a b l e s 36, 37. c P r e l i m i n a r y Statement of E x t e r n a l Trade, V i c t o r i a : Bureau o f Economics and S t a t i s t i c s , a n n u a l l y . vO 60 o f chemical pulp growth to be assumed. Each new m i l l i n n o r t h e r n B r i t i s h Columbia adds about 250,000 tons per year. T h i s seems l i k e r a p i d growth u n t i l i t i s r e a l i z e d many pulp producing areas i n the world are reaching f u l l forest u t i l i z a -t i o n whereas B r i t i s h Columbia i s a c h i e v i n g t h i s step i n many l o c a l a reas f o r the f i r s t time. T h i s growth i s a l s o not that s t r i k i n g when the world pulp p r o d u c t i o n f i g u r e s a r e observed f o r the 1950's when the S c a n d i n a v i a n and other c o u n t r i e s ' growth was roughly 100 per cent w h i l e North American growth was c o r r e s p o n d i n g l y roughly 50 per cent. 1"* B r i t i s h Columbia i s thus estimated to be s h a r i n g i n 1/8 of the i n c r e a s i n g North American, lEuropean, and Japanese pulp demand noted i n the l a t e 1960's. With s u s t a i n e d growth i n chemical pulp markets j u s t i f y -i n g pulp m i l l expansion, the market f o r p u l p i n g and b l e a c h i n g chemicals i s assured. The i n c r e a s e d heavy chemical r e q u i r e -ments which are an extension of T a b l e I I I are then e s t i m a t e d as b e f o r e and are shownin T a b l e V I I I . Plywood The growth t r e n d of plywood p r o d u c t i o n p r e v i o u s l y i n d i -c a t e d by F i g u r e 1 (p. 27) was very c l o s e to a s t r a i g h t l i n e Reference T a b l e s , op. c i t . , T a b l e 36, p. 17. TABLE V I I I NEAR FUTURE CHEMICAL REQUIREMENTS OF BRITISH COLUMBIA PULP MILLS i n thousands of tons Year S a l t Cake C a u s t i c Soda C h l o r i n e Sodium C h l o r a t e S u l p h u r i c A c i d 1966 94.0 118.0 105.0 22.3 17.2 1967 94.0 126.5 107.0 22.4 17.3 1968 104.5 134.0 117.0 25.4 19.5 1969 115.0 141.5 127.0 28.4 21.7 1970 125.5 149 .0 137.0 31.4 23.9 Source: As c a l c u l a t e d . See t y p i c a l d e t a i l s i n Appendix A-2. 62 i n c r e a s i n g 100 m i l l i o n sq. f t . per year. The Plywood Assoc-i a t i o n f e l t that i n c r e a s e d p r o d u c t i o n was 8 t o 10 per cent per year which would be t r u e at 1250 t o 1000 m i l l i o n sq. f t . ( p r e s -e n t l y 1600 m i l l i o n ) . The promotion program of the a s s o c i a t i o n may have i n c r e a s e d demand i n the 1950's, but the e f f e c t i s now 17 dec r e a s i n g by the per c a p i t a consumption f i g u r e s . However, i n c r e a s e d promotion e f f o r t s i n Europe may make up f o r the d i f -f e r e n c e r e q u i r e d t o support a continued s t r a i g h t l i n e t r e n d . The exports of plywood have i n c r e a s e d from 120 m i l l i o n to 270 m i l l i o n sq. f t . from 1960 to 1962, an average of 50 m i l l i o n sq. f t , per year or h a l f the s t r a i g h t l i n e t r e n d . C o n s t r u c t i o n a c t i v i t y and new uses i n packing and s h i p p i n g , f l o o r i n g , p r e -f a b r i c a t e d beams, and w a l l p a n e l s w i l l a l s o s u s t a i n demand. I f per c a p i t a consumption i n c r e a s e s from 70 sq. f t . t o 80 sq. f t . i n the seven y e a r s from 1963 to 1970 ( i t i n c r e a s e d from 60 18 t o 70 i n the four y e a r s from 1959 t o 1963), domestic demand " ^ A l l f i g u r e s on 5/16 i n . b a s i s . Use d i r e c t r a t i o c o n v e r s i o n f o r other t h i c k n e s s e s . 17 Submission to the T a r i f f Board, Plywood Manufact-u r e r s A s s o c i a t i o n of B r i t i s h . C o l u m b i a , January, 1963, Graph No. 1. 18 The Canadian per c a p i t a consumption was smoothed and p l o t t e d on a semi-log s c a l e which y i e l d e d a s t r a i g h t l i n e . 63 19 s h o u l d i n c r e a s e o n e - t h i r d , that i s , over 400 m i l l i o n sq. f t . f o r the seven year p e r i o d or approximately 57 m i l l i o n sq. f t . per year. Thus, assuming the s t r a i g h t l i n e growth t r e n d of 100 m i l l i o n sq. f t . per year i s j u s t i f i e d (about 50 m i l l i o n domestic: 50 m i l l i o n e x p o r t ) , p r o d u c t i o n would be 2300 m i l l i o n sq. f t . by 197C. An i n c r e a s e of 100 m i l l i o n per year which i s 6% per cent of 1600 sq. f t . nominal f o r 1963 i s 4-1/3 per cent of 2300 sq. f t . The Canadian-American committee f o r softwood plywood i n Canada have p u b l i s h e d data on i n d u s t r i a l raw mater-i a l s i n North America, and on a b a s i s of A\ per cent growth 20 per year they estimated Canadian p r o d u c t i o n of 2760 m i l l i o n sq. f t . i n 1980 which would compare t o 3300 m i l l i o n B r i t i s h Columbia p r o d u c t i o n by the s t r a i g h t l i n e t r e n d . E s t i m a t e s beyond 1970, t h e r e f o r e , would be subject to r e v i s i o n (4\ per cent growth u n t i l 1970 may be low), but the present t r e n d u n t i l 1970 appears to be j u s t i f i e d . For a p o p u l a t i o n e s t i m a t e d to i n c r e a s e from 19 to 22.1 m i l l i o n . F i n a l Report of the Royal Commi s s i o n on Canada's  Economic Prospect s, p. 107, f o r immigration at 100,000 per year, 1960, 1965, and 1970, estimates of 17.65, 19.82, and 21.13 m i l l i o n ; but " P o p u l a t i o n Information f o r 127 c o u n t r i e s , " P o p u l a t i o n B u l l e t i n , 19 (Oct., 1963) 164, T a b l e I , mid 1963, 19 m i l l i o n , i n c r e a s i n g 2.2 per cent a n n u a l l y s i n c e 1958. 20 The plywood i n d u s t r y i n B r i t i s h Columbia makes about seven-eighths of a l l Canadian Plywood. Annual Report, Plywood Manufacturers A s s o c i a t i o n of B r i t i s h Columbia, 1962. p. 2. 64 The consumption of p h e n o l i c r e s i n s b e s i d e s s u p p l y i n g the requirements f o r plywood bonding w i l l be i n c r e a s e d by two other developments. The f i r s t i s p a r t i c l e board which may a f f e c t plywood s a l e s , but which w i l l i n c r e a s e r e s i n s a l e s (more than t h r e e times the r e s i n on a weight b a s i s : 1% - 2 vs. 6 - 7 per c e n t ) . A p l a n t i n t h e Vancouver area began pro-d u c t i o n i n 1964, and w i l l consume an e s t i m a t e d 3 m i l l i o n 21 pounds per year o f r e s i n . The second development i s a pheno-22 l i e impregnated paper o v e r l a y f o r plywood. A r e s i n weight of 19 pounds per thousand sq. f t . on 10 per cent of c u r r e n t p r o d u c t i o n of 1600 m i l l i o n sq. f t . would be e q u i v a l e n t t o another 3 m i l l i o n pounds per year of r e s i n . These requirements would be added to the s t r a i g h t l i n e t r e n d of 4.5 m i l l i o n pounds 23 of r e s i n per year. Phenol and formaldehyde requirements f o r p h e n o l i c plywood r e s i n would thus i n c r e a s e 1.00 and 0.85 m i l -l i o n pounds per year plu s a new market of 0.67 t o 1.33 and 0.57 to 1.13 m i l l i o n pounds r e s p e c t i v e l y f o r the p a r t i c l e board p l u s o v e r l a y uses. 21 . . P r i v a t e communication. 22 An impregnated paper i s a l s o used f o r g l u e i n g the p l y s , but t h i s only t a k e s the p l a c e of the present g l u e i n g method and does not a f f e c t r e s i n consumption. 23 72 m i l l i o n pounds ( n~~ . , , • , _ A c 77TJ-- r r - r : — c ... ;100 m i l l i o n sq . f t . ) = 4.5 m i l -1600 m i l l i o n sq. f t . ( ^ ' x l i o n pounds. 65 M i s c e l l a n e o u s uses o f manufactured chemicals M i s c e l l a n e o u s small uses of chemicals at present are summarized as f o l l o w s : 1. C a u s t i c soda--6700 tons per year i s used f o r o i l r e f i n i n g , plywood, b o t t l e washing, b l e a c h , and m i s c e l l a n e o u s . Consumption should i n c r e a s e 250 tons per year f o r plywood, o i l r e f i n i n g , and b l e a c h . 2. C h l o r i n e - - 7 0 0 tons per year i s used f o r b l e a c h which w i l l i n c r e a s e 25 tons per year. Water works consume 24 about 100 tons per year, and mining a l s o consumes a small amount. 3. Sodium c h l o r a t e - - present use as a h e r b i c i d e and f o r mining i s n e g l i g i b l e . 4. S u l p h u r i c acid--6000 tons per year i s used f o r alum, c h l o r i n e , and f e r t i l i z e r i n Vancouver and Nanaimo, which w i l l i n c r e a s e p o s s i b l y 275 tons per year f o r alum and c h l o r i n e . 5. Phenol and formaldehyde--l.8 and 1.5 m i l l i o n pounds per year are used i n r e s i n f o r m i s c e l l a n e o u s uses ( i n -crease- about 2 per cent per y e a r ) . P l a s t i e s and Re s i ns A l k y d and p o l y e s t e r r e s i n s a r e c u r r e n t l y manufactured Dominion Bureau of S t a t i s t i c s , Waterworks, 1959, T a b l e 2. 24 Canada. P r o v i n c i a l , 1958, 66 i n B r i t i s h Columbia though the amounts are s m a l l . Canadian manufacturing of these r e s i n s i s 35 and 9 m i l l i o n pounds per 25 year. Canadian p r o d u c t i o n i s approximately l / 2 0 t h that of the U n i t e d S t a t e s as i t i s i n the chemical i n d u s t r y i n g e n e r a l . The current growth r a t e of c o a t i n g s i s low--about 1% per cent a y e a r . ^ The growth r a t e of p l a s t i c s v a r i e s , but a l s o i s low 27 c u r r e n t l y f o r most ty p e s . T o t a l requirements of o r g a n i c chemicals f o r a l k y d s and p o l y e s t e r s i n B r i t i s h Columbia c o u l d reach 5 m i l l i o n pounds per year i n per c a p i t a terms or more, dependent upon the area of the market. P o l y s t y r e n e i s not manufactured i n B r i t i s h Columbia. The Canadian consumption was 52 m i l l i o n pounds i n 1962, so that again B r i t i s h Columbia requirements might reach 5 m i l l i o n pounds per year or more with market development. An i d e a of the growth o f the markets f o r some o r g a n i c chemicals which has taken p l a c e i n the U n i t e d S t a t e s can be seen i n T a b l e IX. Much of the growth i n the 1955 f o r e c a s t to 1975 has a l l ready taken p l a c e . Present Canadian p r o d u c t i o n 25 "Market Data," Canadian Chemical P r o c e s s i n g , 47 ( J u l y , 1963), p. 41. 26 I b i d . , p. 44. 27 Taking p l a s t i c s as a group i s m i s l e a d i n g . The growth r a t e of p l a s t i c s r e c e n t l y has been q u i t e l a r g e which i s account-ed f o r by the growth of p o l y e t h y l e n e . 67 TABLE IX A FORECAST & PRODUCTION OF SELECTED ORGANIC CHEMICALS IN THE UNITED STATES i n m i l l i o n s of pounds CHEMICAL FORECAST 3 1960 1975 PRODUCTION13 1962 e s t . CAPACITY 1963. Benzene 3,630 6,651 3,850 6 ,800 Toluene 1,060 2 ,000 3,400 O-Xylene 686 2,500 d 2,800 d P-Xylene 756 Phenol 1,250 800 850 St y r e n e 2 ,635 1 ,800 2,400 P o l y s t y r e n e 1 ,365 1,245° T o t a l of t h e 3 Xylenes (O.M.& P.) Sources: a W. I s a r d & E.W. S c h o o l e r , L o c a t i o n F a c t o r s i n the Petr o c h e m i c a l I n d u s t r y , (Washinqton, D.C.: O f f i c e o f Techni c a l S e r v i c e s , U n i t e d S t a t e s Dept. o f Commerce, J u l y , 1955), b p. 5. R. Katzen, "Petrochemical '63," Petroleum R e f i n e r , 41 (Dec. 1962), 120* °Western P l a s t i c s , 10 (Nov. 1963), 20. » c a p a c i t y f o r benzene, t o l u e n e , and xylene i n O n t a r i o and Quebec i s about 600 m i l l i o n pounds per year. The g r e a t e s t demand i n Canada has been f o r benzene, the use f i g u r e s f o r the t h r e e chemicals i n 1960 being 149, 18, and 19 m i l l i o n pounds r e s p e c t i v e l y . In 1956, t h e r e was only one Canadian producer i n O n t a r i o o f these primary o r g a n i c chemicals, but during the e a r l y 1960's l a r g e c a p a c i t y a d d i t i o n s have occur-r e d at major eastern Canadian r e f i n e r i e s . The growth of o r -g a n i c i n t e r m e d i a t e s was about 500 per cent and of r e s i n s 28 about 600 per cent i n the past decade. The development of a market f o r o r g a n i c chemicals i n B r i t i s h Columbia w i l l probably depend upon the development of end use i n d u s t r i e s . The development of such end use i n d u s -29 t r i e s may not occur r a p i d l y , but to the extent that t e c h n i -c a l s e r v i c e i s j u s t i f i e d t o develop the markets as new i n d u s t r y becomes e s t a b l i s h e d , f u t u r e manufacturing of the i n t e r m e d i a t e chemicals f o r these end uses i s more l i k e l y . A g r i c u l t u r e The o p p o r t u n i t i e s f o r the manufacture i n volume of "Market Data," op_. c i t . , pp. 39, 41. 29 For i n s t a n c e , as s t a t e d e a r l i e r , the p l a s t i c s i n -dustry appears c o n f i n e d to c o n s t r u c t i o n ( i n a lumbering p r o v i n c e ) and consumer items, without development of compon-ent p a r t s or packaging. 69 f e r t i l i z e r or p e s t i c i d e on the B r i t i s h Columbia coast are b e l i e v e d t o be n e g l i g i b l e . T r a i l overwhelms the f e r t i l i z e r b u s i n e s s , s u p p l y i n g the P r a i r i e s , the P a c i f i c Northwest, and some A s i a n c o u n t r i e s . T h i s market i s not s t u d i e d f u r t h e r here. The p e s t i c i d e s are small markets. Although some a g r i c u l t u r a l p roducts a r e used i n the F r a s e r V a l l e y , the l a r g e market area would appear to be the P r a i r i e s where even 30 i n the l a t e 1950's l i t t l e was used. C o n d i t i o n s have changed i n the 1960's such that manufacturing has begun o f urea both at C a l g a r y and near Edmonton, of 2-4-D near Edmon-ton, and o f m e r c u r i a l seed treatment a t C a l g a r y . F a c i l i t i e s f o r manufacturing other a g r i c u l t u r a l products may be e s t a -b l i s h e d i n that a r e a . The l i k e l i h o o d of ammonia manufacture i n B r i t i s h Columbia i n a d d i t i o n t o T r a i l f a c i l i t i e s would seem to depend upon another m e t a l l u r g y market o c c u r r i n g r a t h e r than t h e s a t i s f a c t i o n of the a g r i c u l t u r e market. Soap The growth o f s y n t h e t i c d e t e r g e n t s consumption de-pends p r i m a r i l y upon two t h i n g s . The f i r s t i s the d i s p l a c e -ment of h a r d soaps, and the second i s p o p u l a t i o n . The combined e f f e c t r e s u l t e d i n r a p i d growth i n the p a s t , but Canadian Chemical Journey, (London: Canadian S e c t i o n , S o c i e t y of Chemical I n d u s t r y , 1958), p. 54. 70 the f i r s t f a c t o r now has a low impact. Hard soap shipments i n Canada d e c l i n e d from 92 to 88 to 86 m i l l i o n pounds f o r 1961, 1962, and 1963 w h i l e dry and l i q u i d s y n t h e t i c d e t e r -gent shipments i n c r e a s e d from 231 t o 252 to 269 m i l l i o n 31 pounds. P o p u l a t i o n alone would i n c r e a s e dry detergents from 182 m i l l i o n pounds i n 1962 t o 210 m i l l i o n pounds by 1970. Displacement and other uses c o u l d boost t h i s f i g u r e t o 220 m i l l i o n pounds. Factory shipments of dry dete r g e n t s were 197 m i l l i o n pounds i n 1963, and p r o d u c t i o n i n c r e a s e d 5 m i l l i o n pounds over 1962. O i l and gas The o i l and gas i n d u s t r y has shown good growth i n the p r o d u c t i o n s e c t o r i n the no r t h e r n i n t e r i o r of B r i t i s h Colum-b i a f o r some y e a r s . The manufacture of chemicals f o r t h i s market, however, not u n l i k e the market f o r a g r i c u l t u r a l c h e m i c a l s , appears to be e s t a b l i s h e d i n A l b e r t a near Edmon-ton c l o s e to raw m a t e r i a l s and markets. I I . ENTRY The p r e v i o u s d i s c u s s i o n of i n d u s t r i a l consumption of heavy chemicals i n B r i t i s h Columbia d i s c l o s e s two p o s s i b i l i t i e s . "Market Data," op_. c i t . , 46; Canada. Dominion Bureau of S t a t i s t i c s , S y n t h e t i c Detergents, Dec. 1963, T a b l e 3. The need f o r i n c r e a s e d supply of chemicals f o r the pulp and plywood i n d u s t r i e s i s e v i d e n t . The supply o f chemicals f o r p l a s t i c s and d e t e r g e n t s i s an added p o s s i b i l i t y . F u r t h e r development of t h e s e p o s s i b i l i t i e s w i l l f o l l o w i n Chapters IV and V. The p o s s i b i l i t y of chemicals manufactured f o r the a g r i c u l t u r e and o i l and gas i n d u s t r i e s w i l l not be c o n s i d -ered f u r t h e r . The l a r g e c a p t i v e market f o r chemicals at T r a i l i n the m e t a l l u r g y and f e r t i l i z e r i n d u s t r y i s of l i t t l e use i n the development of t h i s study because of t h e i r con-s o l i d a t e d expense f i g u r e s , so that: f u r t h e r r e f e r e n c e to t h i s case w i l l be l i m i t e d . CHAPTER IV ECONOMIC REQUIREMENTS The economic f e a s i b i l i t y o f e s t a b l i s h i n g manufacturing f a c i l i t i e s w i l l depend p r i m a r i l y upon r e t u r n on investment and a c o n s i d e r a t i o n o f i n t a n g i b l e f a c t o r s . One of the essen-t i a l s o f a r e t u r n on investment c a l c u l a t i o n i s revenue, which can be es t i m a t e d when market data, which has been d i s -cussed i n C h a p t e r s I I and I I I a r e combined with s e l l i n g p r i c e i n f o r m a t i o n , which w i l l be d i s c u s s e d i n Chapter V. Expense, another e s s e n t i a l of a r e t u r n c a l c u l a t i o n , r e s u l t s from a combination of economic r e s o u r c e s , p r i n c i p a l l y , an e f f i c i e n t combination of raw m a t e r i a l s , l a b o r , c a p i t a l , and technology. A d i s c u s s i o n o f these r e s o u r c e s w i t h the excep-t i o n of c a p i t a l which i s a l s o postponed u n t i l Chapter V forms the substance o f t h i s chapter. A b l e n d of l i t e r a t u r e and l o c a l i n f o r m a t i o n i s again employed to present t h e s e data. A note on i n t a n g i b l e s i s d i s c u s s e d under t i m i n g and a note on government a c t i o n i s d i s c u s s e d under t a r i f f s t o complete the chapter. A l l t h i s i n f o r m a t i o n forms the b a s i s f o r the det e r m i n a t i o n o f manufacturing expense which are estimated when r a t e of r e t u r n i s c a l c u l a t e d f o r i n d i v i d u a l p l a n t ex-amples. 73 I . RAW MATERIALS Inor g a n i c Raw M a t e r i a l s Most raw m a t e r i a l s are c u r r e n t l y s u p p l i e d from out-s i d e the p r o v i n c e . S a l t . The raw m a t e r i a l f o r the manufacture of c a u s t i c -c h l o r i n e and sodium c h l o r a t e i s common s a l t . No commercial d e p o s i t s a r e a v a i l a b l e i n B r i t i s h Columbia, the present supply t o Vancouver being shipped by ocean f r e i g h t e r or barge from San F r a n c i s c o or Mexico. The c l o s e s t commercial l a n d d e p o s i t s of s a l t are the Great S a l t Lake area i n Utah, and the d e p o s i t s northeast of Edmonton. The A l b e r t a s a l t beds supply b r i n e f o r the c a u s t i c - c h l o r i n e p l a n t n o r t h o f Two H i l l s , and t h i s p l a n t a l s o s u p p l i e s s a l t f o r r a i l r o a d s h i p -ment to the T r a i l p l a n t . The cost of s a l t from these sources i s summarized i n T a b l e X w i t h t r a n s p o r t a t i o n shown s e p a r a t e l y . The estimates f o r t r a n s p o r t a t i o n r a t e s would be f o r l a r g e volume shipments i n l a r g e u n i t s (90 ton c a r s ) s i m i l a r to the r a t e s f o r other chemical m a t e r i a l s over s i m i l a r d i s t a n c e s (some t y p i c a l r a t e s a r e shown i n Appendix B - l ) . Mexican s a l t i s the most economic m a t e r i a l on the c o a s t . The p r i c e of t h i s s a l t has i n c r e a s e d s l i g h t l y at the source, but the t r a n s p o r t a t i o n cost has been reduced by the use o f l a r g e 30,000 ton s e l f u n loading c a r r i e r s . For i n l a n d l o c a t i o n s , 74 TABLE X SALT COST FROM VARIOUS SOURCES TO BRITISH COLUMBIA SITES i n d o l l a r s per ton SOURCE COST TRANSFER TO DESTINATION MEXICO $1.25' SAN FRANCISCO 5.10 ALBERTA SALT LAKE b 2.00 VANCOUVER PRINCE RUPERT PRINCE GEORGE 6.00est. 7.50est. 4.25-6.25 C 9.25est. 1.50est. 10.75est TRAIL 12.50est. 22.00 Sources s P r e l i m i n a r y Statement of E x t e r n a l Trade, V i c t o r i a : Bur-beau of Economics and S t a t i s t i c s , 1962. b Canada. Dominion Bureau of S t a t i s t i c s , Chemical Products, M a t e r i a l s Used, 1960. c P r i v a t e Communication. T a r i f f (36,000#) commodity r a t e . 75 volume and other c o n s i d e r a t i o n s are i n v o l v e d . A l b e r t a s a l t has been p u r i f i e d b e f o r e shipment to T r a i l which reduces i n -vestment f o r b r i n e f a c i l i t i e s at T r a i l . E l e c t r i c S e d u c t i o n Co. i n Vancouver s i m i l a r l y l i m i t s i t s investment i n b r i n e f a c i l i t i e s by purchase of p u r i f i e d b r i n e "over the f e n c e " from Hooker. Sulphur and s u l p h i d e s . Sulphur from the Peace R i v e r area of B r i t i s h Columbia or A l b e r t a , which has been r e c o v e r e d from n a t u r a l gas, may be a v a i l a b l e on t h e coast f o r as low as $17 per ton. Such a p r i c e a l l o w s the sulphur plant $8 and $9 f o r f r e i g h t . S u l p h i d e may be a v a i l a b l e from B r i t t a n i a f o r $5 per ton, or $10 per ton of sulphur at 50 per cent sulphur con-t e n t , with an i r o n oxide c r e d i t p o s s i b l e of $1 per ton.''" Sulphur from t h e s e two sources i s one of the few commercial raw m a t e r i a l s a v a i l a b l e w i t h i n the p r o v i n c e . Alumina. B a u x i t e f o r alum manufacture i s shipped from Jamaica or B r i t i s h Guiana. A c u r r e n t domestic p r i c e f o r b a u x i t e i s $30.50 per ton (plus f r e i g h t ) . A plan t i n A l b e r t a uses p u r i f i e d alumina hydrate from Quebec which reduces i n -vestment f o r alum manufacture. P r i v a t e communication. 76 Phosphate. Phosphate rock i s imported from the U n i t e d S t a t e s d e p o s i t s i n Montana and F l o r i d a . Phosphate rock from the Montana d e p o s i t s i s c u r r e n t l y shipped to T r a i l ( C o n s o l i -dated Mining & Smelting has an i n t e r e s t i n the Montana ven-t u r e ) , and a s m a l l amount i s shipped to the coast c o s t i n g $7.74 per ton p l u s $8.26 f r e i g h t or $16 per ton. Large shipments of 10,000 tons would be necessary f o r F l o r i d a m a t e r i a l t o compete on the c o a s t . Small shipment f r e i g h t i s e s t i m a t e d to be $13 to $14 per ton. A small amount of mater-i a l o f the r i g h t q u a l i t y f o r animal f e e d i s imported from Japan and Europe. The cost i s $77 and $53 per ton r e s p e c t -i v e l y p l u s $34 f r e i g h t or $111 and $87 per ton. Pot a sh. F e r t i l i z e r requirements f o r potash have been imported i n the past from the U n i t e d S t a t e s ( p r i c e $28.20 p l u s f r e i g h t ) , but Saskatchewan i s now a major s u p p l i e r s i n c e d e p o s i t s were developed t h e r e i n 1963. Sodium S u l p h a t e . S a l t cake, a major requirement f o r the B r i t i s h Columbia k r a f t pulp m i l l s , i s a v a i l a b l e as a nat-u r a l m a t e r i a l from Saskatchewan d e p o s i t s or from C a l i f o r n i a . The p o s t e d p r i c e i s $16.50 per ton. The c o m p e t i t i v e p r i c e E x t e r n a l Trade, p l u s r a i l r o a d *Pri vat e..:communicat i o n . t a r i f f . 77 would allow f r e i g h t which i s a minimum of $10.60 per ton i n 90 ton c a r s from Saskatchewan t o Vancouver. The ocean f r e i g h t r a t e s from C a l i f o r n i a , s i m i l a r t o s a l t , would be $4.25 t o $6.25 per ton. A l a r g e p r o p o r t i o n of the B r i t i s h Columbia requirements have been imported from C a l i f o r n i a i n the past (20,600 tons i n 1962 o f an estimated 59,000 tons consumed). Duty would be subject to 99 per cent drawback on t h i s m a t e r i a l because most of the pulp u t i l i z i n g t h i s mater-l a l i s exported. Organic Raw M a t e r i a l s Organic raw m a t e r i a l s may be d e r i v e d from c o a l , o i l and gas, or a g r i c u l t u r a l p r o d u c t s . Raw m a t e r i a l s f o r chemi-c a l s d e r i v e d from o i l and gas a r e not g e n e r a l l y h e l d as cheap, because they have a h i g h v a l u e as v a r i o u s a l t e r n a t e types of f u e l s. A small amount r e l a t i v e l y of the o i l stream (about 2 per c e n t ) , however, i s a l l that i s r e q u i r e d as p e t r o -chemical raw m a t e r i a l . C u r r e n t l y , B r i t i s h Columbia r e q u i r e -ments ar e d e r i v e d from o i l i n A l b e r t a and C a l i f o r n i a . 5 With-out a s t e e l i n d u s t r y t h e r e does not appear to be a l i k e l i h o o d Canada. Department of N a t i o n a l Revenue, Memorandum D 17-4, Jan. 2, 1958. 5 The products from the p r o d u c t i o n and r e f i n i n g of B r i t -i s h Columbia o i l are not used at present as o r g a n i c chemical raw m a t e r i a l s . 78 o f o r g a n i c raw m a t e r i a l s from a c o a l source, although t h i s source i s g e n e r a l l y r e c o g n i z e d to be cheaper than o i l . Even i f a s t e e l manufacturer s t a r t s r e f i n i n g , ore i n B r i t i s h Colum-b i a the volume of o r g a n i c o i l s would be s m a l l . A g r i c u l t u r a l sources have been developed f o r s p e c i f i c purposes, none o f which are a concern to t h i s study. Chemicals from wood or wood pulp o p e r a t i o n s have not been developed i n B r i t i s h Columbia, and t h i s source l i k e w i s e i s not a concern of t h i s J 7 study. V a r i o u s l o c a t i o n p o s s i b i l i t i e s are i n v o l v e d with o i l and gas as raw m a t e r i a l s . One i s l o c a t i o n at the source; i n t h i s case examples e x i s t i n A l b e r t a . A second i s l o c a t i o n a long a p i p e l i n e , but t h e r e i s no market o p p o r t u n i t y i n t h i s case between A l b e r t a or northern B r i t i s h Columbia and Van-couver. A t h i r d i s l o c a t i o n at the end of a n a t u r a l gas p i p e l i n e near a market, of which t h e r e i s no example at the B r i t i s h Columbia coast terminus. A f o u r t h i s l o c a t i o n near Current estimates assume a minimum 300,000 ton r e f i n -e r y , from which p r o d u c t i o n of 6 m i l l i o n pounds of organic o i l i s e s t i m a t e d based upon E a s t e r n Canadian s t e e l f i g u r e s . 7 Some of the chemicals d e r i v e d from wood p u l p opera-t i o n s i n c l u d e a l c o h o l s , a c i d s , t e r p e n e s , and l i g n i n . Markets are small f o r these m a t e r i a l s . A l c o h o l s and a c i d s from o i l and gas at Edmonton are i n good supply. Terpenes would have a market s i m i l a r t o o i l x y l e n e s . Lignosulphonates (from l i g -n i n ) are a f u t u r e p o s s i b i l i t y with~market development. Over 4 m i l l i o n pounds of t h i s m a t e r i a l was imported fhrough B r i t i s h Columbia during 1962. 79 a r e f i n e r y , of which t h e r e a re no cases i n B r i t i s h Columbia. A m u l t i t u d e of products i s p o s s i b l e when gas and o i l are used as raw m a t e r i a l s . C l a r i t y f o r the purposes of t h i s study would not be a i d e d w i t h an enumeration. Two broad s i t u a t i o n s a re noted at t h i s p o i n t . F i r s t l y , gas and o i l may be f u r t h e r s u b d i v i d e d i n t o gas, l i g h t hydrocarbon l i q u i d s , r e f i n e r y gases, and r e f i n e r y l i q u i d s . Secondly, the l o c a t i o n s i t u a t i o n t h at has o c c u r r e d i n A l b e r t a and B r i t i s h Columbia s h o u l d be noted. In A l b e r t a , c l o s e to the source of raw mat-e r i a l s , gas, l i g h t hydrocarbon l i q u i d s , and r e f i n e r y gases a r e used t o manufacture p o l y e t h y l e n e , a l c o h o l s , aldehydes, and a c e t i c a c i d ; and, c l o s e to markets as w e l l , these sub-stances a r e used t o manufacture g l y c o l s and amines (although m a t e r i a l manufactured from r e f i n e r y gases i s shipped from S a r n i a , O n t a r i o f o r part o f t h i s p r o c e s s ) . Formaldehyde i s manufactured i n Vancouver from methyl a l c o h o l manufactured i n Edmonton. The p r i c e o f methanol i n duty f r e e use i s 24 to 30 cents per i m p e r i a l g a l l o n w i t h f r e i g h t of 1/2 cent per pound ( t o t a l 3.6 to 4.0 cents per pound). In B r i t i s h Columbia, no primary o r g a n i c chemical manu-f a c t u r i n g has o c c u r r e d t o date, although the p e t r o c h e m i c a l to l u e n e may be d e r i v e d from r e f i n e r y l i q u i d s , which i s done i n C a l i f o r n i a and imported f o r use i n the manufacturing of phenol. The p r i c e landed i n Vancouver, duty p a i d , i s 80 estimated to be 4% cents per pound. The p r i c e w i l l not l i k e l y i n c r e a s e u n l e s s world crude o i l p r i c e s i n c r e a s e . A decrease i n p r i c e t o about 4 cents might occur with manufacture i n B r i t i s h Columbia. Benzene, t o l u e n e , ethylbenzene, and mixed xylenes may a l l be r e c o v e r e d from r e f i n e r y l i q u i d s and used i n the manufacture of i n t e r m e d i a t e s , d e t e r g e n t s , and many other p r o d u c t s . The economics of t h e i r recovery w i l l be r e -viewed i n Chapter V. M a t e r i a l s and S u p p l i e s The cost of chemicals, m i n e r a l s , and c a t a l y s t s u p p l i e s a r e expected to be f a i r l y s t a b l e and represent about 1 to 7 per cent of manufacturing c o s t s (see t a b l e i n Appendix B-2). The i n c r e a s e i n the cost of maintenance and consumed mater-i a l s i s g e n e r a l l y not s i g n i f i c a n t i n the short run u n l e s s a change i n p r i c e , or usage, or per cent of manufacturing c o s t s Q i s s i g n i f i c a n t . One j o u r n a l a r t i c l e about e s t i m a t i n g f u t u r e c o s t s i n the chemical i n d u s t r y g i v e s f a c t o r s of four per cent f o r maintenance and one per cent f o r s u p p l i e s , packaging, 9 t a x e s , and i n s u r a n c e . T h i s a r t i c l e a l s o suggests a one per In a c o r r o s i v e chemical p l a n t maintenance c o s t s may be q u i t e h i g h e s p e c i a l l y a f t e r new equipment has gone through the b r e a k - i n p e r i o d . 9 W. Copulsky and R. C z i n e r , " E s t i m a t i n g F u t u r e C o s t s , " Chemical E n g i n e e r i n g Progress, 56 (Feb., 1960), 46. These U n i t e d S t a t e s f a c t o r s s h o u l d apply i n Canada. 81 cent i n f l a t i o n f a c t o r . G r a p h i t e c o s t s are s i g n i f i c a n t f o r e l e c t r o l y t i c i n d u s t r i e s such as c a u s t i c - c h l o r i n e and c h l o r -a t e s . P r i c e i n c r e a s e s have averaged about one cent per pound per year or about two per cent and are assumed t o con-t i n u e i n the f u t u r e . I I . OTHER RESOURCES Labor The supply o f labor i s assumed t o be adequate f o r any pl a n t l o c a t i o n s which are p o s s i b l e i n B r i t i s h Columbia. The demand from the chemical i n d u s t r y i s t y p i c a l l y s m a l l . S k i l l s and p r i c e a r e the two prime c o n s i d e r a t i o n s . Four b a s i c chemi-c a l p l a n t s i n the Vancouver area employ 155 t o t a l p e r s o n n e l , a new p l a n t i n Nanaimo employs 35. The 1958 and 1959 Domin-i o n Bureau of S t a t i s t i c s chemical and a l l i e d p r o d u c t s , summary of p e r s o n n e l , i n d i c a t e d 728 and 755 employees i n B r i t i s h Columbia with roughly o n e - t h i r d o f f i c e and s u p e r v i s o r y s t a f f . The o i l r e f i n e r i e s (1400 employees approximately i n 1959-1960) and pulp m i l l s (9496 employees i n 1961) would have demands f o r many s k i l l s s i m i l a r to the chemical i n d u s t r y and are a l s o a p o t e n t i a l source of supply. 1*"* C o n t r a c t maintenance and The p u l p m i l l s w i l l undoubtedly be the l a r g e demand area i n the near f u t u r e as a r e s u l t of the many new m i l l s . T h i s m§.y tend t o b i d up p r i c e . O i l r e f i n i n g i s p r a c t i c a l l y : stagnant i n requirements and employees a c t u a l l y d e c l i n e d i n 1960 over 1959. o p e r a t i o n i s a v a i l a b l e from one company i n B r i t i s h Columbia which i s an a d d i t i o n a l source o f supply. Some of the s k i l l s r e q u i r e d i n the chemical i n d u s t r y would be p r o v i d e d by the cur r e n t chemical e n g i n e e r i n g gradu-a t i n g c l a s s e s i n Vancouver which number approximately 2 5 , 1 1 and which are more than adequate f o r current B r i t i s h Columbia requirements. A l i k e number graduate i n chemistry each year. In two y e a r s , t e c h n o l o g i s t s t r a i n e d i n B r i t i s h Columbia w i l l a l s o be a v a i l a b l e to t h e chemical process i n d u s t r i e s . Job f u n c t i o n s o f t e c h n i c a l l y t r a i n e d people vary. One survey r e s u l t e d i n the f i g u r e s g i v e n i n T a b l e XI. As some i n d i v i d -u a l s s e r v e i n more than one f u n c t i o n , the t o t a l i s g r e a t e r than 100 per cen t . A heavy chemical p l a n t i n B r i t i s h Colum-b i a might, have 10 per cent u n i v e r s i t y graduates, d i s t r i b u t e d t o management, design and c o n s t r u c t i o n , o p e r a t i o n s , and s a l e s — t e c h n i c a l s e r v i c e . L i t t l e independent r e s e a r c h and development has been done i n B r i t i s h Columbia up to the present time. The wages and s a l a r i e s i n the i n d u s t r y are r e l a t i v e l y h i g h i n comparison with manufacturing g e n e r a l l y . The wages p a i d i n the o i l r e f i n i n g i n d u s t r y l e a d i n B r i t i s h Columbia "Chemical S c i e n t i s t s and Chemical E n g i n e e r i n g S t u -dent s," CJiemi_sjtry_ in. Oajiada, 14 ( D e c , 1962), 48. TABLE XI TECHNICAL JOB FUNCTIONS percentage d i s t r i b u t i o n JOB FUNCTIONS ENGINEERS CHEMISTS Opera t i o n s 32.5 15.1 Design and C o n s t r u c t i o n 25.0 2.2 Research 25.0 75.7 Development 50.0 43.0 S a l e s 3.3 5.7 Purchasing 0.8 Other 7.5 1.4 No Answer — - 1.6 144.4 a 144.7 a I n d i v i d u a l s r e p o r t i n g more than one c l a s s i f i c a t i o n b r i n g the t o t a l over 100 per cen t . Source: A d m i n i s t r a t i on of the Chemical E n t e r p r i s e (C. Berenson Ed., New York: I n t e r s c i e n c e P u b l i s h e r s , 1963), p. 174. 84 f o l l o w e d about four per cent l e s s by pulp and paper and the l a r g e chemical p l a n t s . Smaller p l a n t s and a l l i e d products f o l l o w about f i v e to twelve per cent l e s s than t h i s , w h i l e manufacturing g e n e r a l l y i s 15 per cent l e s s . B a s i c wage i n -c r e a s e s were t h r e e per cent i n 1958, have r e c e n t l y been g r e a t e r than 3?§ per cent, and w i l l be assumed t o be about 35§ per cent or 10 cents per hour per year i n the near f u t u r e . To c a l c u l a t e l abor c o s t s , the b a s i c r a t e s must be i n -c r e a s e d about f i v e per cent to a r r i v e at earnings because of s h i f t premiums, overtime work, and other allowances, p l u s as much as 29 per cent f o r l e g a l , c o n t r a c t , and non-contract f r i n g e b e n e f i t s . A t y p i c a l s t r u c t u r e f o r a l a r g e chemical p l a n t i n s e l e c t e d y e a r s i s shown i n T a b l e X I I . An average b a s i c wage c u r r e n t l y o f $2.80 per hour thus becomes a labor cost of $3.75 per hour which when m u l t i p l i e d by 52 weeks of 40 hours i s e q u i v a l e n t t o $7800 per year per employee. Some p l a n t s w i l l have lower c o s t s as noted above. C o n t r a c t wage r a t e s are g e n e r a l l y higher ( i n 1964, $2.47 t o $3.47 per h o u r ) , and f r i n g e b e n e f i t s lower. A c o n t r a c t f o r labor a l s o i n v o l v e s a percentage c o n t r a c t o r ' s f e e (from 15 per cent to 5% per cent depending upon the amount of the c o n t r a c t ) . U t i l i t i e s Chemical p r o c e s s i n g r e q u i r e s process heat, c o o l i n g , and 85 TABLE XII WAGE STRUCTURE IN THE BASIC CHEMICAL INDUSTRY OF BRITISH COLUMBIA average i n d o l l a r s per hour YEAR BASIC EARNINGS FRINGE ADDED 1964 2.79 2.94 3.74 1962 2.59 2.72 3.33 1958 2.30 2.33 2.80 e s t . Source: P r i v a t e communication. 86 mechanical energy. Normal requirements are c u r r e n t l y p r o -v i d e d as f o l l o w s : heat with o i l , gas, steam, or e l e c t r i c i t y ; c o o l i n g with a i r or water from domestic supply, the ocean, or a r i v e r , or w e l l s ; mechanical energy w i t h steam or e l e c -t r i c i t y . An a d d i t i o n a l extremely important c o n s i d e r a t i o n i s the chemical r e a c t i o n energy r e q u i r e d f o r the e l e c t r o l y t i c i n d u s t r i e s such as c a u s t i c - c h l o r i n e , and c h l o r a t e s . U t i l i t i e s supply i s not g e n e r a l l y a problem. E f f l u e n t water must be c o n t r o l l e d p r o p e r l y . Some cost c o n s i d e r a t i o n s w i l l be b r i e f l y d i scussed. Fuel gas used d i r e c t l y f o r process heat or i n d i r e c t l y through steam ge n e r a t i o n i s a v a i l a b l e on an i n t e r r u p t a b l e b a s i s f o r four cents per hundred thousand BTU (therm) or approximately 40 cents per thousand cu. f t . (MCF). The cost of steam from gas v a l u e i s thus 42 to 43 c e n t s per thousand pounds. O i l i s r e q u i r e d as standby f u e l . In the s m a l l e r p l a n t s , at low consumption, gas r a t e s w i l l i n c r e a s e to n i n e cents per therm. Process water cost depends upon the c a p i t a l cost i n -v o l v e d with i n l e t , o u t l e t , and d i s t r i b u t i o n systems which may be e x t e n s i v e . Domestic water i n the Vancouver area i s a v a i l -a b l e f o r 15 to 25 cents per thousand Im p e r i a l g a l l o n s . A d d i -t i o n a l s e r v i c e c o s t s may be i n c l u d e d i n m u n i c i p a l tax s t r u c -t u r e s . Gas and water r a t e s are assumed to be s t a b l e i n the 87 near term although Vancouver c i t y i n c r e a s e d i t s water r a t e s i n 1965. E l e c t r i c i t y r a t e s depend upon t o t a l consumption, power f a c t o r , and l o a d f a c t o r . E l e c t r o l y t i c r a t e s averaged 3.5 m i l l s i n 1958, 4.2 m i l l s from 1959 and w i l l most l i k e l y approach 5 m i l l s i n 1966. Present motor l o a d r a t e s a re assumed to be 5 t o 8.5 m i l l s ( i n c l u d i n g 5 per cent s a l e s t a x) f o r maximum l o a d f a c t o r and loads g r e a t e r than 200 H.P. T r a n s p o r t a t i o n Chemical p r i c e s a re o f t e n f.o.b. f a c t o r y . When f r e i g h t i s e q u a l i z e d , i t i s a t r a n s p o r t a t i o n c o s t , but i t i s re c o g n i z e d here as a decreased p r i c e f o r revenue. Manufact-u r e r s i n B r i t i s h Columbia have not i n c u r r e d any a p p r e c i a b l e t r a n s p o r t a t i o n c o s t s through ownership of barges, tank t r u c k s and c o n t a i n e r s , but tank car l e a s i n g i s o f t e n an expense. The c u r r e n t cost to l e a s e tank c a r s on long term c o n t r a c t s i s approximately $2100 per year each. The cost t o l e a s e tank c a r s i n the f u t u r e i s assumed t o i n c r e a s e approximately 15 per cent i n 1966. Maintenance c o s t s a s s o c i a t e d with tank car may a l s o be i n c u r r e d by the manufacturer. R a d i c a l changes i n t r a n s p o r t a t i o n are not expected i n the short run, but c o s t s can be reduced. The cost f o r c h l o r -a t e c a r s may be reduced 10 per cent by a change from tank car 88 to hopper c a r s . "Over the f e n c e " p l a n t s i n c u r no tank car expense to the extent of the adjacent market. C a p t i v e use a l s o o b v i a t e s tank car expense. The customer may reduce c o s t s , even i f the chemical p l a n t i s not a d j a c e n t , by the use of changed unloading f a c i l i t i e s t o accept l a r g e r shipments such as barge loads i n s t e a d o f tank c a r s . Technology There i s o f t e n more than one process r o u t e or method a v a i l a b l e t o manufacture a c h e m i c a l . Each manufacturer may or may not have developed h i s own process although t y p i c a l l y the l o c a l manufacturers have developed t h e i r own processes. Minor refinements i n technique may a l s o be developed by i n -d i v i d u a l s who l i c e n s e another's p r o c e s s . B r i e f comments on l o c a l manufacturers' processes a r e p e r t i n e n t . C a u s t i c - c h l o r i n e . Two b a s i c types of e l e c t r o l y t i c c e l l s a re employed f o r c a u s t i c - c h l o r i n e manufacture--the mer-cury c e l l , and the diaphragm c e l l . The mercury c e l l has a h i g h mercury c o s t , but produces a pure c a u s t i c d i r e c t l y which i s d e s i r a b l e f o r v i s c o s e rayon, and t r a n s p a r e n t c e l l u l o s e f i l m manufacture. The diaphragm c e l l produces a weak c a u s t i c which i s c o n c e n t r a t e d f o r s a l e and which c o n t a i n s s a l t impur-i t y although t h i s i s of no consequence f o r a m a j o r i t y of uses i n c l u d i n g p u l p . The Hooker c e l l i s most commonly used as a diaphragm c e l l , and t h i s c e l l i s employed e x c l u s i v e l y i n B r i t i s h Columbia i n c l u d i n g l i c e n s e at T r a i l , and Two H i l l s , A l b e r t a . C h l o r a t e . V a r i o u s techniques are employed by the few manufacturers o f c h l o r a t e . Method may be s l a n t e d towards power c o s t s or g r a p h i t e c o s t s i n a given s i t u a t i o n . In Van-couver, the present s i t u a t i o n encourages reducing g r a p h i t e c o s t s . Phenol. F i v e p rocesses are a v a i l a b l e t o manufacture phenol. P l a n t s c a l e and byproducts are a concern with the v a r i o u s p r o c e s s e s . A t i e - i n with c a u s t i c - c h l o r i n e o p e r a t i o n and l a r g e s c a l e i s r e q u i r e d with one. D i s p o s a l of s a l t cake i s r e q u i r e d w i t h another (not a disadvantage l o c a l l y , but a byproduct of low v a l u e ) . A t h i r d r e q u i r e s d i s p o s a l of p o l y -phenols and a l s o some i n t e g r a t i o n . A f o u r t h and newer p r o c -ess r e q u i r e s d i s p o s a l of acetone. The f i f t h and l a t e s t com-m e r c i a l process does not i n v o l v e byproduct d i s p o s a l d i r e c t l y . A cheaper s t a r t i n g m a t e r i a l , t o l u e n e , i s r e q u i r e d with the 12 f i f t h p rocess developed and used l o c a l l y by Dow. The p r i c e of benzene i s now l e s s than toluene i n east e r n Canada wi t h the supply s i t u a t i o n r e c e n t l y developed t h e r e . See p.106. 90 Formaldehyde. Three processes are l i c e n s e d to manu-f a c t u r e formaldehyde. Pe t r o c h e m i c a l Processes. Many major o i l companies have developed t h e i r own p r o c e s s e s . Research c o r p o r a t i o n s such as U n i v e r s a l O i l Products (U.O.P.) have a l s o developed processes which a r e a v a i l a b l e f o r l i c e n s e . The economic f e a s i b i l i t y of a U.O.P. Udex e x t r a c t i o n u n i t f o r the manufacture of benzene, t o l u e n e , and xylene w i l l be c o n s i d e r e d i n Chapter V. A f u r -t h er review of p e t r o c h e m i c a l processes i s not p e r t i n e n t t o t h i s study. T e c h n i c a l s e r v i c e Technology does not end at the f a c t o r y gate. The de-t a i l requirements of an i n d u s t r i a l market have been d e s c r i b e d as d o l l a r s to the purchasing agent, methods t o the produc-13 t i o n manager, and technology to the s c i e n t i s t s . The import-ance of s u p p l y i n g proper t e c h n i c a l s e r v i c e t o maintain markets i s s t r e s s e d everywhere. T e c h n i c a l s e r v i c e developed during 14 the 1930's, and i s a r e c o g n i z e d approach f o r the d i r e c t Chemical Marketing i n the Competi t i v e S i x t i es (Ad-vances i n Chemistry S e r i e s No. 24, Washington: American Chemi-c a l S o c i e t y , 1959), p. 59. 14 E.H. Hempel, The Economics o f Chemical I n d u s t r i es (New York: John Wiley & Sons, Inc., 1939), p. 36. s e l l i n g of i n d u s t r i a l chemicals."^ 5 The d i r e c t channel of d i s -t r i b u t i o n i s employed by the b a s i c chemical manufacturers i n B r i t i s h Columbia u t i l i z i n g l o c a l or home o f f i c e p e r s o n n e l . Pulp b l e a c h i n g methods, techniques, m a t e r i a l s h a n d l i n g , and equipment are part of the s e r v i c e t o the p u l p i n d u s t r y . Timing One of the major c o n s i d e r a t i o n s r e g a r d i n g an investment may be t i m i n g . Many t h i n g s may be f o r e c a s t e d , but r e l i a b i l i t y f o r some of the f a c t o r s w i l l be poor. The i n t a n g i b l e s that must be c o n s i d e r e d i n c l u d e economic c o n d i t i o n s , i n f l a t i o n , 16 c o s t s , p r i c e s , market share, p l a n t s a f e t y , and p l a n t morale. Even w i t h r e l i a b l e market data and pr o d u c t i o n f o r e c a s t s one cannot be c e r t a i n o f how the competition w i l l r e a c t . Some o f the p r i c e and c o m p e t i t i v e i m p l i c a t i o n s w i l l be d i s c u s s e d f u r t h e r i n t h e next chapter. No attempt i s made here t o 15 D i r e c t s e l l i n g c o n t r a s t s markedly w i t h the e x t e n s i v e d i s t r i b u t i o n system r e q u i r e d f o r the marketing of chemical consumer p r o d u c t s . Heavy i n o r g a n i c chemicals s u p p l i e d t o a few u s e r s i n a small area makes d i r e c t s a l e s l o g i c a l . Many u s e r s over a l a r g e area would r e q u i r e middlemen. Hooker, i n t h i s r e g i o n , are committed t o b a s i c i n o r g a n i c chemicals and d i r e c t s e l l i n g . Dow, i n t h i s r e g i o n , has a separate s a l e s o r g a n i z a t i o n t o handle i t s other i n t e r e s t s . Long run d i v e r -s i f i c a t i o n i s i n v o l v e d and the c h o i c e may be of v i t a l conse-q u e n c e — a n e a r l y omission i n v e r t i c a l i n t e g r a t i o n may be a c o s t l y o v e r s i g h t . I b i d . , p. 196. H.A. Quigley and J.B. Weaver, "Economic C o n s i d e r a -t i o n s i n Postponing Investment," I n d u s t r i a l and B n g i n e r r i n g  Chemistry, 52 (Nov. I960), 57A. • review economic c o n d i t i o n s i n s e v e r a l c o u n t r i e s or areas of the world where much of the product o f the B r i t i s h Columbia f o r e s t i n d u s t r y i s marketed; the product which has consumed b a s i c chemicals i n i t s manufacture. The p u l p and paper i n -dustry s h o u l d be f a m i l i a r with these f o r e i g n c o n d i t i o n s as sho u l d a chemical manufacturer i f h i s market i s l a r g e l y ex-port . T a r i f f s The c u r r e n t meeting o f the Ge n e r a l Agreement on T a r -i f f s and Trade (GATT) may r e s u l t i n f r e e r t r a d e . T h i s was the g e n e r a l purpose o f the "Kennedy round" a f t e r P r e s i d e n t Kennedy was gi v e n a u t h o r i t y to reduce e x i s t i n g U n i t e d S t a t e s t a r i f f s . In Canada, the recommendations of the T a r i f f Board Reference 120--Chemicals, which has h e l d h e a r i n g s over sev-e r a l y e a r s , have not been r e l e a s e d . Notwithstanding the out-come from the f o r e g o i n g , the s i t u a t i o n i s probably c l e a r -t a r i f f s o f f e r l i t t l e p r o t e c t i o n f o r domestic producers of heavy chemic a l s . The f o l l o w i n g chemicals are duty f r e e f o r B r i t i s h P r e f e r e n t i a l or Most Favoured N a t i o n : phenol f o r plywood g l u e (item 922), ma l e i c anhydride (item 923), f o r m a l -dehyde (item 2196), and detergent a l k y l a t e (item 2696). Benzene, t o l u e n e , and xylene have a t a r i f f o f approximately one per cent ( t a r i f f item 269 - 1/3 cent per g a l l o n ) . S a l t cake, c h l o r i n e , c a u s t i c soda, sodium c h l o r a t e , s u l p h u r i c a c i d , and alum a r e s u b j e c t t o v a r i o u s d u t i e s under d i f f e r e n t t a r -i f f i t e m s , but when t h e s e c h e m i c a l s a r e consumed i n p u l p w h i c h i s e x p o r t e d t h e r e i s a 99 per cent drawback (Memoran-dum D17-4). The Ca n a d i a n government i s not l i k e l y t o g r a n t t a r i f f p r o t e c t i o n when t h e n a t i o n i s a w o r l d t r a d e r . T a r i f f p r o t e c t i o n i s p r o b a b l y not wanted i n any case i f an.export market f o r c h e m i c a l s i s d e s i r e d , a l t h o u g h f o r e i g n t a r i f f s may p r o h i b i t e x p o r t e n t r y even w i t h a f r e e d o m e s t i c p o l i c y . CHAPTER V ECONOMIC FEASIBILITY Economic f e a s i b i l i t y i s used here i n the sense of r e t u r n on investment. P r o f i t a b i l i t y i s a l s o measured by turnover and margin when f i x e d investment i s not as s i g n i f i -cant as i t i s i n the chemical i n d u s t r y . There are a l s o other f a c t o r s t o c o n s i d e r f o r d e c i s i o n making such as r e l i a b i l i t y of data, market t r e n d , r i s k f a c t o r s , t e c h n i c a l f e a t u r e s , and a v a i l a b i l i t y of c a p i t a l . The p r e v i o u s chapters have out-l i n e d market t r e n d s , and t e c h n i c a l f e a t u r e s . Of course, a l l data are subject to q u e s t i o n . T h i s chapter w i l l review the i s s u e o f supply o f c a p i t a l , and then g i v e the r e s u l t s of r a t e of r e t u r n c a l c u l a t i o n s . E i t h e r subject c o u l d be con-s i d e r e d f i r s t , but c a p i t a l i s here looked upon as another r e -source to be c o n s i d e r e d b e f o r e a l l r e s o u r c e s are combined to show f e a s i b i l i t y . The amount o f c a p i t a l r e q u i r e d f o r investment i n the heavy chemical i n d u s t r y of the p r o v i n c e w i l l be i n d i c a t e d by r e f e r r i n g t o l o c a l p l a n t s . Of course these investments are only a p a r t o f the t o t a l p i c t u r e i n approved or r e j e c t e d p r o j e c t s which the parent c o r p o r a t i o n s w i l l have c o n s i d e r e d . How these investments f i t i n the t o t a l scheme of t h i n g s can be deduced from a review of the f i n a n c i a l statements of 95 parent c o r p o r a t i o n s . Thus, t o t a l c o r p o r a t e c a p i t a l r e q u i r e -ments f o r a giv e n p e r i o d a re reviewed, and t h e i r source i d e n t i f i ed. C o n t i n u i n g , the r a t e o f r e t u r n on investment f o r l o c a l examples i s c a l c u l a t e d by b r i n g i n g together investments, r e v -enues, and expenses. I n c l u d e d i n t h i s s e c t i o n i s a d i s c u s s i o n of the composition of a s s e t s p r o v i d e d from investment c a p i t a l , though f i n i t e examples a r e not gi v e n ; a review of chemical p r i c e s t o use wit h market data; and an e x p l a n a t i o n of a d d i -t i o n a l items of " f i x e d " expense i n c l u d i n g d e p r e c i a t i o n , t a x e s , i n s u r a n c e , and debt charges. The net p r o f i t r e s u l t s a r e used t o show payout or simple r a t e o f r e t u r n , and d i s c o u n t e d r a t e of r e t u r n , t o i n c o r p o r a t e i n t e r e s t . Other r e t u r n methods, and d i f f e r e n c e s between methods are not reviewed here. F i n a l l y , whether the c a l c u l a t e d r a t e s o f r e t u r n deduced from the above meet any r e q u i r e d standard i s c o n s i d e r e d . I . F I N A N C I N G Requi rements Problems i n f i n a n c i n g a re not i n d i c a t e d u n t i l f i r m s i z e i s c o n s i d e r e d . The extent of some recent l o c a l i n v e s t -ment d e c i s i o n s i n v o l v e s some small amounts below a m i l l i o n d o l l a r s , and assuming c o n s t r u c t i o n approximately the year be-f o r e o p e r a t i o n , items such as Hooker Chemicals c a u s t i c - c h l o r i n e 96 p l a n t s --$12 m i l l i o n i n v e s t e d when a s s e t s were $134 m i l l i o n , an a d d i t i o n a l $8 m i l l i o n i n v e s t e d when a s s e t s were $209 m i l -l i o n , E l e c t r i c Reduction Company's c h l o r a t e plant--$4 m i l l i o n i n v e s t e d when a s s e t s were approximately $90 m i l l i o n ( e s t . ^ 3 3 m i l l i o n at $2.70), and Dow Chemical's phenol plant--$5 m i l -l i o n i n v e s t e d when a s s e t s were $1,021 m i l l i o n . The d e c i s i o n s r e g a r d i n g these investments and t h e i r f i n a n c i n g would have been made some time b e f o r e c o n s t r u c t i o n . These s i t u a t i o n s w i l l now be examined i n t u r n . The funds flow statements f o r Hooker E l e c t r o c h e m i c a l C o r p o r a t i o n i n d i c a t e two p e r i o d s which r e s u l t e d i n l a r g e f l o w s i n recent h i s t o r y d u r i n g 1955 to 1956 and 1959. 1 The f i r s t was the r e s u l t of equity through merger: the second was the r e s u l t of an i s s u e o f debt. The f i r s t does not i n d i c a t e f i n -ancing i n the o r d i n a r y sense, but r a t h e r a growth which as a r e s u l t p r o v i d e d a broader equity base (and a l s o h o r i z o n t a l i n t e g r a t i o n ) . Debt was 29 per cent o f debt p l u s equity i n 1955, and 37 per cent i n 1960 a year a f t e r the debt i s s u e o f $21 m i l l i o n . The s i g n i f i c a n c e o f the debt i s s u e thus r e f e r s to events l a t e r than the expenditure o f approximately $12 m i l l i o n d u r i n g 1957 f o r o p e r a t i o n s commencing i n 1958. The See Appendix C - l f o r funds flow statements r e f e r r e d to i n the example companies. funds flow during the 1957 p e r i o d i n d i c a t e s o p e r a t i o n s and minor debt p r o v i d e d the funds f o r p l a n t and working c a p i t a l . Although debt d o l l a r s cannot be shown fo, flow s p e c i f i c a l l y t o working c a p i t a l d o l l a r s , the balance of the " t y p i c a l " s i t u a t i o n i s apparent when o p e r a t i o n s p r o v i d e s the f i x e d asset funds. A minor source of funds would have r e s u l t e d from r e d u c t i o n of s l i g h t l y h i g h i n v e n t o r i e s d u r i n g 1956 t o 1957. The funds flow statements f o r Dow Chemical a l s o i n d i -c a t e two p e r i o d s which r e s u l t e d i n heavy flow i n recent h i s -t o r y . F i n a n c i n g , which had p r o v i d e d a supply b e f o r e 1955 ( p r i n c i a p p l y c o n v e r t i b l e debentures i n 1952), was i n v e s t e d d u r i n g 1955 and 1956. Investment i n pl a n t of $162 m i l l i o n and $189 m i l l i o n d u r i n g 1957 and 1958 r e s u l t e d i n a l a r g e 2 amount of debt i n 1958 (net i n f l o w $142 m i l l i o n ) . In the next t h r e e y e a r s investment i n p l a n t a s s e t s was $58, 99, and 151 m i l l i o n . Notes payable p r o v i d e d funds i n 1961. Working c a p i t a l requirements were l a r g e d u r i n g 1963 (net $84 m i l l i o n ) , and t h i s combined wi t h a r e f u n d i n g o p e r a t i o n of t h e $60 m i l -l i o n 1961 notes, r e s u l t e d i n a s u b s t a n t i a l debt i s s u e of $100 Dow had o b t a i n e d f a v o r a b l e terms i n the bond market as w e l l as making p r i v a t e placements with i n s u r a n c e companies. C. Berenson (Ed.) A d m i n i s t r a t i o n of the Chemical E n t e r p r i s e (New York: I n t e r s c i e n c e P u b l i s h e r s , John Wiley & Sons, 1963), p. 379. 98 m i l l i o n . Debt, as a percentage of debt plus equity has swung through a wide range d u r i n g t h i s p e r i o d : 1954--50 per cent, 1956--30 per cent, 1958--40 per cent, 1960--21 per cent, 1962--15 per cent, and 1963--19 per cent. The s i z e of the Vancouver investment and the concommitant investments near Bdmonton are p r a c t i c a l l y l o s t i n the t o t a l scheme of t h i n g s . A d i f f e r e n t a n a l y s i s would be p o s s i b l e i f statements f o r the Canadian o p e r a t i o n s were a v a i l a b l e . The funds flow statements of A l b r i g h t and Wilson the parent o f E l e c t r i c Reduction Company of Canada L i m i t e d , a l s o show two p e r i o d s which r e s u l t e d i n l a r g e flows i n recent h i s -t o r y , although a l i t t l e f u r t h e r apart than the two p r e v i o u s cases. E q u i t y and o p e r a t i o n s p r o v i d e d funds during 1955 and 1960 t o 1961 r e s p e c t i v e l y f o r l a r g e investments i n p l a n t . The o v e r - a l l p i c t u r e here clouds the f a c t that s u b s i d i a r i e s have loans and borrowings a t t e s t e d by notes t o the statements. The debt as a percentage of debt p l u s equity f o r 1962 i s thus 14.5 per cent f o r the parent and 24.4 per cent f o r the c o n s o l i -dated s t r u c t u r e , which r e s u l t s i n an average o f about 45 per cent i n the s u b s i d i a r i e s . In each of the cases above the need f o r s u b s t a n t i a l amounts of funds has o c c u r r e d i n p e r i o d s of from four t o s i x ye a r s . D e t a i l s a re not reviewed, but i t would appear that these moves o c c u r r e d f a v o r a b l y i n r e l a t i o n to the market averages. The equity hase has been broadened i n each case by merger, c o n v e r t i b l e debentures, and stock i s s u e . The major f i n a n c i n g has not been i n f l u e n c e d i n any p e r c e p t i b l e way by requirements i n B r i t i s h Columbia. Source The f i n a n c i a l requirements o f the chemical i n d u s t r y i n B r i t i s h Columbia a r e not s u b s t a n t i a l . In one case f a i r l y normal a c t i v i t y p r o v i d e d the funds t o p l a c e a s u b s i d i a r y i n Canada: i n the second and t h i r d case apparently o p e r a t i o n s or borrowings by Canadian s u b s i d i a r i e s extended the s u b s i d -i a r i e s ' o p e r a t i o n s to B r i t i s h Columbia.Funds flow f o r growth w i l l be d i s c u s s e d f u r t h e r i n the second s e c t i o n o f t h i s chapter. I I . RETURN ON INVESTMENT Investment Investments a r e t o t a l amounts; that i s , the investment i n c l u d e s the a s s e t s of working c a p i t a l as w e l l as p l a n t c a p i -t a l . During the i n i t i a l c o n s t r u c t i o n , amounts of cash are r e q u i r e d f o r i n v e n t o r i e s of equipment, spare p a r t s , and s u p p l i e s as w e l l as s t a r t - u p expenses c a p i t a l i z e d . O perations f u r t h e r r e q u i r e the b u i l d - u p o f process i n v e n t o r i e s , cash, and a net balance of accounts. Funds had al r e a d y been committed 100 b e f o r e p l a n t c o n s t r u c t i o n t o expand s a l e s i n B r i t i s h Columbia so that the only new requirements a t the time of p l a n t con-s t r u c t i o n would be the r e s u l t of expanded o p e r a t i o n s as they developed, other t h i n g s remaining equal (that i s , funds de-c i s i o n s p r e v i o u s to manufacturing d e c i s i o n s had expanded s a l e s i n B r i t i s h Columbia.) The amounts of investment to be used upon which e s t i m a t e d r e t u r n s w i l l be based a r e : C a u s t i c - c h l o r i n e 1957 - $12 m i l l i o n ( p r i v a t e communication) 1962 - 0.6 m i l l i o n ( p r i v a t e communication) 1963 - 8 m i l l i o n ( p r i v a t e communication) 1967 - 10 m i l l i o n (news r e l e a s e ) Sodium c h l o r a t e 1957 - $4 m i l l i o n ( p r i v a t e communication) Alum 1957 - $0.5 m i l l i o n (estimated) Phenol 1962 - $5 m i l l i o n ( p r i v a t e communication) Formaldehyde 1963 - $0.3 m i l l i o n (estimated) No data on the c a p i t a l s t r u c t u r e of B r i t i s h Columbia f i r m s are a v a i l a b l e , but an example of the average c a p i t a l s t r u c t u r e f o r Canadian F e r t i l i z e r and I n d u s t r i a l Chemicals i s p r e s e n t e d i n T a b l e X I I I . Of i n t e r e s t i n the t a b l e i s the newness of the " l o s s f i r m s " evidenced by t h e i r lower 101 TABLE X I I I TOTAL ASSETS & LIABILITIES CANADIAN FERTILIZER & INDUSTRIAL CHEMICAL COMPANIES expressed as percentages ASSETS P r o f i t Loss LIABILITIES P r o f i t L oss Ca sh 5.4 2.6 Loans 2.1 2.2 S e c u r i t i es 10.0 1.0 Accounts Payable 6.0 2.6 Account s R e c e i v a b l e 9.7 8.6 Tax L i a b i l i t i es 1.9 -Inventory 13.9 6.7 Other c u r r e n t .6 .3 Land 1.8 0.6 Debt 7.9 35.7 B u i l d i n g & Equipment 47.2 68.6 Other L i a b i l i t i es 18.9 19.4 Investment Af f i l i a t e s i n 10.0 9.6 P r e f e r r e d St ock 2.7 2.2 Other 2.0 2.3 Common Stock 24.8 29.9 100.0 100.0 S u r p l u s 35.1 7.7 D e p r e c i a t i o n (52.5) (30.5) 100.0 100.0 & D e p l e t i o n (Percent P l a n t ) In c l u d e s wages and commissions payable, d i v i d e n d s and em-plo y e e s t a x deductions payable, loans from a f f i l i a t e d companies, r e s e r v e f o r l i a b i l i t i e s such as, guarantees, pensions, f i r e or marine i n s u r a n c e , or Tax E q u a l i z a t i o n Reserve. Source: Adapted from money f i g u r e s i n Canada. Department of N a t i o n a l Revenue, T a x a t i o n S t a t i s t i c s , 1963, p. 137. 102 accumulated d e p r e c i a t i o n . In a d d i t i o n the debt as a p e r c e n t -age o f debt p l u s equity i s 58 per cent i n thes e f i r m s com-3 pared with 30 per cent i n the p r o f i t f i r m s . Revenue The market data have been developed f o r the chemicals under c o n s i d e r a t i o n . T h i s must now be adapted t o manufactur-i n g and market c o n s i d e r a t i o n s , and p r i c e i n c o r p o r a t e d so that e s t i m a t e s o f revenue may be d e r i v e d . P r i c e changes f o r chemicals i n recent y e a r s have been much lower than f o r other 4 commodities g e n e r a l l y . The two products c a u s t i c - c h l o r i n e from s a l t decomposi-t i o n a r e produced i n a f i x e d r a t i o which may not be so b a l -anced i n the market. The market i n B r i t i s h Columbia i n t h e past r e q u i r e d a d d i t i o n a l d a u s t i c which has been imported as w e l l as c a u s t i c - c h l o r i n e imported over and above t h i s imbal-ance. The r a p i d growth i n bl e a c h e d k r a f t p u l p has brought about a near balance i n the market at p r e s e n t , and i n the A review of over 30 U n i t e d S t a t e s and Canadian chemi-c a l companies f o r 1960 i n d i c a t e d net income as a per cent of net worth ranging from 0 to 7 f o r 50 per cent d e b t / c a p i t a l s t r u c t u r e t r e n d i n g upwards t o 4 to 11 per cent f o r 25 per cent d e b t / c a p i t a l s t r u c t u r e . D e t a i l s a re i n Appendix D. 4 The i n d u s t r i a l p r i c e index f o r a c i d s , a l k a l i s , and s a l t s g i v e n i n Bihe Bank o f Canada, S t a t i s t i c a l Summary, 1963, with 1956 = 100 was 1959 - 105.2 and 1962 = 103.9. 103 near f u t u r e expansion o f the d i s s o l v i n g pulp market w i l l h e l p t o prevent an imbalance i n the o p p o s i t e d i r e c t i o n . The a c t u a l o p e r a t i o n s of the B r i t i s h Columbia p l a n t s must then be phased i n wit h t o t a l requirements and imports p r o v i d e d from p l a n t s of a parent and a competitor i n Tacoma and p o s s i b l y a very small amount from A l b e r t a . The p r i c e r e -c e i v e d f o r l o c a l p r o d u c t i o n has remained f i r m s i n c e opera-t i o n s began i n 1958 ( c h l o r i n e $60. c a u s t i c $54 bulk--$55 tank c a r s per t o n ) . 5 The l a s t time p r i c e i n c r e a s e s o c c u r r e d i n the western p r o v i n c e s was i n 1957, although i n c r e a s e s have o c c u r r e d s i n c e i n the eastern p r o v i n c e s . Any shipments to C a s t l e g a r or Hinton, A l b e r t a are a l s o f r e i g h t e q u a l i z e d w i t h T r a i l and Two H i l l s , A l b e r t a . The competitive s i t u a -t i o n w i l l l i k e l y prevent p r i c e i n c r e a s e s i n the near f u t u r e . "Over the f e n c e " p l a n t s w i l l save pulp producers t r a n s p o r t a -t i o n c o s t s as w e l l ($0.50 t o $2.00 per ton p l u s i n s u r a n c e on the c o a s t ) . The market f o r sodium c h l o r a t e i n the p u l p i n d u s t r y i s growing to meet the supply which can be manufactured l o c a l l y . O r i g i n a l l y , p l a n t c a p a c i t y was r e q u i r e d t o supply a uranium mining and a h e r b i c i d e market. The l o s s o f the P r i v a t e communication. 104 uranium market, competition from c h l o r i n e b l e a c h i n g , and p o t e n t i a l c o m p e t i t i o n from pulp m i l l s making t h e i r own c h l o r a t e i n s o l u t i o n brought about a p r i c e cut of 6 per cent i n 1960 ($160 to 150 per t o n . ) ^ The p r i c e has been f i r m s i n c e that time, and no i n c r e a s e s are expected i n the f u t u r e • wi t h p o t e n t i a l c o m p e t i t i o n from pulp m i l l s or other chemical manufacturers. Operations above l o c a l nominal c a p a c i t y and shipments from parent p l a n t s i n ea s t e r n Canada w i l l m aintain supply u n t i l about 1967. Beyond t h i s immediate p e r i o d , the market growth f o r b l e a c h e d k r a f t p u lp and i n c r e a s e d c h l o r a t e b l e a c h i n g may j u s t i f y i n c r e a s e d manufacturing c a p a c i t y . Alum c a p a c i t y i s probably s u f f i c i e n t f o r the near f u t u r e (7000 tons per year market and 14,000 ton c a p a c i t y ) , and competition without raw m a t e r i a l p r i c e i n c r e a s e s w i l l prevent alum p r i c e i n c r e a s e s ( p r i c e i s about $10 per ton l e s s i n the e a s t ) . The l a s t i n c r e a s e s o c c u r r e d i n 1961 when baux-i t e l i s t p r i c e i n c r e a s e d 30 per cent which as 25 per cent of o p e r a t i n g c o s t s r e p r e s e n t s 7.5 per cent of t o t a l c o s t , and alum p r i c e i n c r e a s e d 4 per cent w i t h i n 6 months ($50 to $52 per t o n ) , or about one-half the cost i n c r e a s e . P r i v a t e communication and a l s o the l i s t p r i c e , which when quoted i s from the q u a r t e r l y p r i c e r e p o r t s of Canadian  Chemical P r o c e s s i n g . Benzene-Toluene-Xylene 2000 BPD Det ergent 250 T 267 B-T 307 B-T-EB 410 B-T-X 25MM#/yr 440 . 470 540 720 2000 64(8) 64 64 64 160 125 145 170 170 115 50 50 50 50 15 36 38 40 40 5 12 13 15 20 400 111 118 125 125 33 44 47 50 50 20 - - - - 20 862 945 1054 1239 2768 .250 1350 1580 2100 4250 388 405 526 931 1482 194 203 263 465 741 304 321 388 590 774 13.7 13.6 15.5 23.6 117 € o f GS S e l l . Gen. D i v i d e n d % S a l e s % S a l e s Payout % 71.9 11.0 59 63.6 16.2 33 77.3 9.2 55 65 16.8 31 + stock 74 7.4 57 + stock 86-- - - 67.5 71.5 17 55.5 85-- -- 25 84-- -- 42 72.25 17.4 39 75.8 8.3 46.5 + stock 60.6 21.8 50 + stock 78 11.6 45 70.5 10.9 43 + st ock 71.5 13.8 / 40 65.0 26 --76 14 41.3 67 13.8 16 + stock 91 '7.9 125 62 26 stock 66 13.6 29.4 75 20 71 65 26 61 61 8.9 --70 15 55 A l b r i g h t & Wilson A l l i e d 55 56 57 58 59 60 61 62 62 2.2 3.0 3.3 3.7 4.5 4.7 5.5 5.6 133 0.2 0.2 0.9 1.0 (0.3) - 1 2.4 1.1 0.3 0.5 (0.4) 0.3 2.0 (0.7) 18 4.1 (0.2) - 0.1 0.1 2.5 5.3 (0.5) 1 8.7 1.7 3.8 4.5 5.1 8.5 12.5 4.4 153 0.2 0.3 1.3 (0.9) 0.2 1.9 2.9 1.1 (1) 2.2 0.6 - 1.7 1.6 0.1 (1.9). (0.3) 10 6.0 0.3 2.0 3.1 2.5 5.5 10.4 2.5 92 0.3 0.5 0.5 0.6 0.8 1.0 1.1 1.1 47 5 2/3 Nam. 1 lP r . R . 4/7Kit. 300 447 f 447 245 231 244 333 284 382 567 561 307 75 120 125 70 40 40 50 40 15 25 25 -400 400 525 400 200 200 260 200 - 400 - -1645 2447 2326 1516 3012 4445 4445 2438 1367 1803 1924 922 683 901 962 461 684 902 962 461 1084 1302 1487 861 105 S a l t cake l i s t p r i c e d e c l i n e d 3 per cent i n 1960 and has remained f i r m ($17 to 16.50 per t o n ) . Formaldehyde l i s t p r i c e has i n c r e a s e d a l i t t l e , 7 per cent i n 1960 over 1958, and 4 per cent i n 1964 over 1960 (3.50 t o 3.75 to 3.90 cents per pound, 37 per cent u n i n h i b i t e d ) . The i n c r e a s e d supply of n a t u r a l gas and l i g h t hydrocarbon l i q u i d s w i l l h e lp maintain the p r i c e of raw m a t e r i a l s and primary chemicals such as methanol, c o n s t a n t . The i n c r e a s e s i n formaldhyde p r i c e are l e s s l i k e l y to be repeated i n t h e near f u t u r e . The i n c r e a s e i n formaldehyde c a p a c i t y on the coast w i l l h e l p m a i n t a i n the present p r i c e s i t u a t i o n which 7 a i d e d the j u s t i f i c a t i o n f o r t h i s c a p a c i t y i n the f i r s t p l a c e . Most markets and p r i c e s o f immediate concern have now been reviewed w i t h the exception of phenol. T h i s product and other primary o r g a n i c chemicals w i l l be looked at g e n e r a l l y . A heavy chemical does not u s u a l l y e n t a i l great r i s k because the market i s known, assured, and r e a d i l y f o r e c a s t . T h i s i s the r e s u l t of the consumption of these chemicals by b a s i c i n d u s t r i e s which have been e s t a b l i s h e d w i t h i n a r e g i o n . The p r i c e s i t u a t i o n f o r formaldehyde i s beyond the scope of t h i s study. The major s u p p l i e r i n the recent past i n Edmonton p r e f e r s to upgrade t h i s m a t e r i a l t o p e n t a r y t h r i t o l . R a i l shipments of methanol or formaldehyde from Edmonton are a l s o subject to c o m p e t i t i o n from imports by ocean t r a n s p o r t . 106 P e t r o c h e m i c a l s a f t e r t h e i r i n t r o d u c t i o n may move i n t o t h i s a r e a , p r i c e d e c l i n e s occur, and o v e r c a p a c i t y may a c c e l e r a t e the p r o c e s s , which apparently happened wi t h phenol. The supply has had a d r a s t i c e f f e c t on the p r i c e of phenol r e -c e n t l y , the p r i c e d e c l i n i n g two cents per pound i n 1962 and another two cents i n 1963 t o s e t t l e at 12 cents per pound. Pe t r o c h e m i c a l c a p a c i t y has g r e a t l y expanded the supply of benzene, t o l u e n e , and xylene i n recent y e a r s and p r i c e s have d e c l i n e d i n e a s t e r n Canada 25 per cent, 10 per cent and 7% per cent r e s p e c t i v e l y t o 29%, 32, and 37 cents per i m p e r i a l g a l l o n d e l i v e r e d (3.4, 3.7 and 4.25 cents per pound). These p r i c e s are l i k e l y now at a s t a b l e l e v e l , because where they were at one time g r e a t e r than c o a l d e r i v e d m a t e r i a l , they a r e now approximately e q u i v a l e n t (30 to 35 c e n t s per i m p e r i a l g a l l o n ) . The supply and p r i c e e f f e c t i s not so severe i n the west, and p r i c e w i l l l i k e l y remain s t a b l e with t r a n s p o r t a t i o n the b a r r i e r . Duty f o r these m a t e r i a l s at 1/3 cents per g a l l o n i s approximately one per cent. A d e c l i n e i n p r i c e f o r d e t e r -gent a l k y l a t e o c c u r r e d , as an e a r l i e r example, from 20 cents per pound t o 12% c e n t s from 1948 to 1951, and s i n c e has grad-u a l l y d e c l i n e d to 10.2 c e n t s . The d e c l i n e i n the p r i c e of s t y r e n e has been l e s s pronounced d e c l i n i n g from 13 t o 11% 107 g c e n t s per pound s i n c e 1958. Such d e c l i n e s i n chemical p r i c e s have had an adverse e f f e c t upon the earnings of Dow Chemical Company who a r e l a r g e manufacturers o f phenol and s t y r e n e , but these p r i c e l e v e l s w i l l probably be maintained i n the f u t u r e s e t t l i n g i n the 10 t o 12 cents per pound range, and manufacturing c o s t s s u f f i c i e n t l y below these p r i c e s w i l l 9 be r e q u i r e d t o r e a l i z e a p r o f i t . Whether t h e r e i s any e l a s -t i c i t y o f demand or whether a p o s s i b l e s h i f t o f demand c o u l d occur f o r some b a s i c chemicals with t h i s d e c l i n i n g p r i c e s i t u a t i o n i s not known, but some s u b s t i t u t i o n i n end use may occur through time. The p r i c e of s t y r e n e dropped 4 cents per pound i n the planni n g stage o f f a c i l i t i e s f o r the Cosden s t y r e n e p l a n t i n the U n i t e d S t a t e s . E.V. Anderson "Styrene-Crude O i l to P o l y -mer ," I n d u s t r i a l and E n g i n e e r i n g Chemistry, 52 (July 1960), 550. • 9 A l a r g e w o r l d supply e x i s t s from o v e r c a p a c i t y i n the U n i t e d S t a t e s and Europe. Low q u o t a t i o n s f o r phenol, s t y r e n e , and detergent a l k y l a t e were 10.5, 10.2, and 6.4 cents per pound i n Belgium, I t a l y , and Belgium l a s t y ear. P.W. Sherwood, "Use T h i s C o r r e l a t i o n f o r F o r e c a s t i n g Petrochemical Markets," Petroleum R e f i n e r , 42 (Jan., 1963), 140. I f 1.7 cen t s f r e i g h t i s added, and these items are duty f r e e , landed p r i c e would be 12.2, 11.0 and 8.1 cents per pound. T h i s would supply phenol c o m p e t i t i v e l y with and detergent a l k y l a t e cheaper than domes-t i c sources. Large r e d u c t i o n s i n p r i c e f o r new s y n t h e t i c chemicals a r e not unusual, but phenol i s not t h a t new. The p r i c e f o r t h i s chemical i n the U n i t e d S t a t e s was 10 cents per pound i n 1936, b e f o r e demands i n c r e a s e d and new petr o c h e m i c a l sources began producing. W.L. F a i t h , D.B. Keyes, and R.L. C l a r k e , I n d u s t r i a l Chemicals- (New York:- John Wiley & Sons, Inc., 1957), p. 588. 108 The revenue to be d e r i v e d f o r chemical p l a n t s may now be summarized u t i l i z i n g market data and p r i c e i n f o r m a t i o n . T h i s i s p o r t r a y e d i n T a b l e XIV. F i x e d Expense D e p r e c i a t i o n , A s t r a i g h t l i n e d e p r e c i a t i o n p o l i c y i s f o l l o w e d by the Canadian o r g a n i z a t i o n s with l o c a l p l a n t s . 1 ^ The c a p i t a l cost allowance p e r m i t t e d by tax r e g u l a t i o n s i s a c t u a l l y a d e c l i n i n g b alance method, but on a modest b a s i s ( b a r r i n g some recent s p e c i a l r e g i o n a l allowances) so that s m a l l p l a n t a d d i t i o n s would maintain a c t u a l d e p r e c i a t i o n charges r e l a t i v e l y c o n s t a n t . Rather than i n v o l v e the de-t a i l s of c a p i t a l cost allowance o f each case, a uniform f i g -u r e of f i v e per cent w i l l be assumed f o r p r o f i t a b i l i t y e s t i -mates and purposes o f comparison (Hooker r e c e n t l y has been 4% to 53§ per cent, Dow 7 t o 10 per cent, A l b r i g h t and Wilson 6 per cent, C o n s o l i d a t e d Mining & Smelting 6% per c e n t ) . Overhead. Overhead c o s t s over and above l o c a l ex-penses i n c l u d e g e n e r a l , a d m i n i s t r a t i v e , and s e l l i n g expense. 1 0 F r o m t h e i r annual r e p o r t s , Dow Chemical i n the U n i t e d S t a t e s f o l l o w s a d e c l i n i n g balance d e p r e c i a t i o n p o l i c y , and A l l i e d i n the U n i t e d S t a t e s uses the sum of the d i g i t s method. A l b r i g h t and Wilson f o l l o w a standard h i g h book d e p r e c i a t i o n p o l i c y f o r i n t e r d i v i s i o n a l comparison, which i s not a l l o w e d here f o r e s t i m a t e s of p r o f i t a b i l i t y which are t o be compared t o other f i r m s . P r i v a t e communication. TABLE XIV REVENUE FROM BASIC CHEMICAL MARKETING IN BRITISH COLUMBIA i n thousands of tons and thousands of d o l l a r s YEAR CAUSTIC REVENUE CHLORINE REVENUE SODIUM REVENUE ~ PHENOL REVENUE CHLORATE thousand thousand thousand thousand thousand thousand thousand thousand tons d o l l a r s tons d o l l a r s tons d o l l a r s tons d o l l a r : 1958 22.5 at $55 $1238 20.0 at $60 $1200 '-20 at $160 $3200 _ 1959 28.0 at $55 1512 25.0 at $60 1500 20 at $160 3200 -1960 34.0 at $55 1870 30.0 at $60 1800 15 at $150 2250 -1961 39.5 at $55 2172 35.0 ( c a p a c i t y ) 2100 16 at $150 2400 -1962 41.0 at $55 2255 36.5 ( c a p a c i t y ) 2190 17.5 $150 2625 -1963 68.0 at $55 3740,. 60.0 ( c a p a c i t y ) 3600 18 at $150 2700 12 at $223.4 a $2680 1964 68.0 at $55 3740 60.0 (Nanaimo) 3600 19 at $150 2850 12 at $225.0 2700 1965 68.0 at $55 3740 60.0 3600 20 ( c a p a c i t y ) 3000 12 at $226.6 2720 1966 68.0 at $55 3740 60.0 ( c a p a c i t y ) 3600 20 3000 12 at $228.4 2740 1967 68.0 at $55 3740 60.0 3600 12 at $230.0 2760 1968 68.0 at $55 3740 60.0 3600 12 at $231.6 2780 1969 68.0 at $55 3740 60.0 3600 12 at $233.4 2800 19*70 68.0 at $55 3740 60.0 3600 12 at $235.0 2820 1971 68.0 at $55 3740 60.0 3600 12 at $235.0 2820 1972 68.0 at $55 3740 60.0 3600 12 at $235.0 2820 1973 68.0 at $55 3740 60.0 3600 12 at $235.0 2820 E f f e c t i v e p r i c e i n c r e a s e s with gr e a t e r l o c a l demand f o r plywood and lower r e s u l t a n t t r a n s p o r t a t i o n c o s t s ( l i s t p r i c e $240/ton). Source: estimated from market data and l i s t p r i c e . 110 T h i s f i g u r e v a r i e s between chemical companies as a percentage of s a l e s from about 6 to 25 per cent."*""*" P r e c i s e c l a s s i f i c a -t i o n of overhead items i s not known so t h a t p o s s i b l e d i f f e r -ences might be e x p l a i n e d . In many of the l o c a l cases s e l l i n g expense i s p r i m a r i l y a l o c a l expense which has been i n c l u d e d i n the r e t u r n c a l c u l a t i o n s . E n g i n e e r i n g i s a u s u a l g e n e r a l expense which may be a l l o c a t e d i n d i f f e r e n t ways. Research and development may be handled s i m i l a r l y . In any event, ex-penses of t h i s type must be "reasonable" when they are a l l o -c a t e d f o r tax purposes. The a l l o c a t i o n may be accomplished through s u b d i v i s i o n by manhour or manpower, investment, or products. A l l a l l o c a t i o n i s c o n s i d e r e d a r b i t r a r y . For pur-poses of t h i s study some a l l o c a t i o n by a f a c t o r percentage of s a l e s i s u t i l i z e d i n p l a c e of more s p e c i f i c i n f o r m a t i o n . How-eve, such a l l o c a t i o n i s not a p p l i e d a r b i t r a r i l y through time. I n i t i a l l y , the extent o f parent overhead i s perhaps i r r e l e -vant t o an investment d e c i s i o n i n the B r i t i s h Columbia area, 12 and t h i s a t t i t u d e i s a l s o a p p l i e d here. Then when an 11 . Review o f over 30 U n i t e d S t a t e s and Canadian Chemical companies expenses i n Moody's I n d u s t r i a l s , 1961. See Appendix D. 12 J . Ross et_ al_. i n t h e i r a r t i c l e " G u i d e l i n e s f o r E s t i -mating P r o f i t a b i l i t y , " f o r i n s t a n c e , say c e r t a i n areas of..ad-m i n i s t r a t i v e , s e l l i n g , and g e n e r a l expense are r e l a t i v e l y un-a f f e c t e d — e x e c u t i v e management, c o r p o r a t e s a l e s , e n g i n e e r i n g , o p e r a t i o n s a d m i n i s t r a t i o n , c o m p t r o l l e r and t r e a s u r e r adminis-t r a t i o n , l e g a l and tax a d m i n i s t r a t i o n , p u b l i c r e l a t i o n s , and donations and endowments. Chemical E n g i n e e r i n g , 70 (Aug. 19, 1963), p. 145. I l l expansion i s e v a l u a t e d l o c a l l y , i n c r e m e n t a l c o s t s again apply to the a d d i t i o n a l investment, but the o r i g i n a l investment i s then viewed as part of the parent's whole and thus a l l o c a t e d some overhead expense. Such an approach c o n s i d e r s t h e p i t -f a l l o f e v a l u a t i n g f a c i l i t i e s i n c r e m e n t a l l y as i f overhead 13 were never a f a c t o r f o r long run p r o f i t a b i l i t y . Taxes. Property t a x v a r i e s from m u n i c i p a l i t y to muni-c i p a l i t y through assessment and m i l l r a t e d i f f e r e n c e s . A s s e s s -ment v a l u e i s reasonably e s t a b l i s h e d by the newness of t h e investments i n t h e case o f the p l a n t s which are s t u d i e d here. Tax i s then c a l c u l a t e d on approximately 50 per cent o f t h i s v a l u e d e p r e c i a t e d . D e p r e c i a t i o n a l l o w e d by m u n i c i p a l i t i e s i s not the same as f e d e r a l c a p i t a l c o s t allowance. An average f i g u r e f o r t o t a l f a c i l i t i e s of f i v e per cent i s again assumed though such a v a l u e may be s l i g h t l y h i g h . T h i s allowance i s made f o r f i v e y e a r s o n l y , from which time a d e p r e c i a t e d value of 75 per cent o r i g i n a l investment i s assumed f o l l o w i n g muni-c i p a l p o l i c y . A c t u a l g e n e r a l and school m i l l r a t e s a re then a p p l i e d as they would be t o the m u n i c i p a l assessment r o l l s . A d d i t i o n a l r a t e s f o r s e r v i c e s may apply to thes e s p e c i f i c Incremental e v a l u a t i o n s by an i n d u s t r y can r e s u l t i n over supply and depressed p r i c e s , and t h i s r e c e n t l y has been c l a i m e d of the o i l i n d u s t r y . 112 r a t e s . The taxes thus c a l c u l a t e d are approximately 1.6 to 1.7 per cent of investment v a l u e i n the cases c a l c u l a t e d . In u n i n c o r p o r a t e d a r e a s , p r o v i n c i a l tax assessment f o r g e n e r a l and s c h o o l purposes s i m i l a r l y e s t a b l i s h e s a v a l u e and uses 50 per cent to which tax i s a p p l i e d though the g e n e r a l r a t e i s 10 m i l l s . I f a d d i t i o n a l assessments f o r s e r v i c e s are not g r e a t , p r o v i n c i a l p r o p e r t y tax may be approximately 1.3 per cent of investment v a l u e . Insurance. Insurance expense depends upon coverage attempted. The types of coverage i n c l u d e f i r e , extended cov-erage, b u s i n e s s i n t e r r u p t i o n , b o i l e r and machinery, p u b l i c l i a b i l i t y , automobile and f i d e l i t y . G e n e r a l i z a t i o n s i n t h i s f i e l d are p r a c t i c a l l y i m p o s s i b l e , but some are attempted f o r e v a l u a t i o n . F i r e , extended coverage, and b u s i n e s s i n t e r r u p t i o n i n -surance apply b a s i c a l l y to the complete p l a n t . A review of the Superintendent of Insurance Report A b s t r a c t s f o r recent-years i n d i c a t e s that f i r e premiums a r e about 0.7 per cent of coverage f o r o i l r e f i n e r s and m i s c e l l a n e o u s manufacturers. The r e l a t i v e premium r a t e f o r extended coverage and b u s i n e s s i n t e r r u p t i o n from other sources i s about 0.1 per cent and 0.06 per cent. These r a t e s c o u l d not be a p p l i e d without con-s i d e r a t i o n of r i s k , experience, and d e t a i l e d c o n s t r u c t i o n . 113 The r i s k f o r the above premiums i s e q u i v a l e n t t o e i t h e r hazardous m a t e r i a l s ( r e f i n e r s ) , or average c o n s t r u c t i o n (manufacturers). The risk, might be t h r e e times as hi g h i n sawmills f o r i n s t a n c e . Premiums may vary s i m i l a r l y w i t h con-s t r u c t i o n over a f o u r or f i v e times range f o r c o n s t r u c t i o n v a r y i n g from f i r e r e s i s t a n t to wood frame. In the chemical examples c o n s i d e r e d here investment v a l u e i n new p l a n t s i s reasonable f o r coverage, and the t o t a l premium r a t e o f 0.86 per cent of coverage f o r i n s u r a n c e expense i s reasonable f o r inflammable m a t e r i a l s . Chemical p l a n t s o f " a l l - s t e e l " con-s t r u c t i o n which do not p r o c e s s inflammable m a t e r i a l s , such as c a u s t i c - c h l o r i n e and a c i d s , a re assumed t o have a premium r a t e much l e s s o f 0 . 4 per cent. Other types of i n s u r a n c e coverage are important, but the premium expense i s much l e s s . B o i l e r and machinery, and automobile coverage depend upon s p e c i f i c cases. P u b l i c l i a -b i l i t y depends upon experience and product s a l e s , or s i z e (by employees or o t h e r ) . A d d i t i o n a l l i a b i l i t y coverage i s a v a i l -a b l e f o r smal l a d d i t i o n a l premiums, s i m i l a r t o extended cov-erage. Bonding of employees depends upon employee c l a s s i f i c a -t i o n and might cost $25 per s u p e r v i s o r per year. An a r b i t r a r y premium i s assumed of 0.05 per cent a s s e t s and 0.025 per cent s a l e s t o allow f o r the expense of these l a s t types of co v e r -age (weighted t o a s s e t s — c o n s u m e r products would be weighted more to s a l e s ) . Debt. I n t e r e s t expense i s not i n c l u d e d i n the c a l c u l a -t i o n of r e t u r n s . T h i s i s not done because c a p i t a l s t r u c t u r e v a r i e s between o r g a n i z a t i o n s , and furthermore any t o t a l c a p i -t a l s t r u c t u r e bears no r e l a t i o n to the investment i n i n d i v i d -u a l p r o j e c t s (see d i s c u s s i o n under requirements p. 9 5 f f . ) I t would be p o s s i b l e t o show the e f f e c t of l e v e r a g e i n the r e t u r n c a l c u l a t i o n s i f t h i s were d e s i r e d by assuming some i n t e r e s t expense and then adding back t h i s expense a f t e r tax to d e r i v e funds flow r e l a t e d t o t o t a l c a p i t a l . P r o f i t s D e t a i l s of revenue and expense may now be brought t o -gether so that e s timated p r o f i t s may be u t i l i z e d t o e v a l u a t e investments by r e t u r n methods. The a c t u a l r e s u l t s are shown i n the appendices C-2 to C-5, and are r e f e r r e d to here. The income tax r a t e s a r e g e n e r a l l y a p p l i e d t o the p r o -f i t from expansions or extended o p e r a t i o n s i n Canada at the current r a t e of 50 per cent. For the i n i t i a l investment i n Canada, the stepped tax r a t e i s used, c u r r e n t l y 21 per cent of the f i r s t $35,000, then 50 per cent. Example revenues have been c o n s i d e r e d i n T a b l e XIV on page 109. The t y p i c a l expense items which have been d i s c u s s e d i n Chapter IV and the p r e v i o u s s e c t i o n of t h i s Chapter and which are used i n the appendices are summarized under raw m a t e r i a l s , l a b o r , u t i l i t i e s , s u p p l i e s , maintenance m a t e r i a l , t r a n s p o r t a t i o n , d e p r e c i a t i o n , taxes and i n s u r a n c e , debt, and g e n e r a l and a d m i n i s t r a t i o n . The t o t a l of these items sub-t r a c t e d from revenue p r o v i d e s gross income. A f t e r s u i t a b l e income t a x deduction t o o b t a i n net income to the s h a r e h o l d e r s , d e p r e c i a t i o n i s added back and funds from o p e r a t i o n s i s the r e s u l t . The funds can be accumulated from year t o year u n t i l an amount e q u i v a l e n t to investment i s reached. T h i s i s the payback p e r i o d i n y e a r s . To i n c o r p o r a t e i n t e r e s t , present v a l u e s are a p p l i e d to t h e funds f i g u r e s . A t r i a l and e r r o r p r o c e s s r e s u l t s . When the discount percentage u t i l i z e d and the years to accumulate investment are e q u i v a l e n t (e.g. 10 per cent and 10 y e a r s , or f i v e per cent and 20 y e a r s ) a s o l u -t i o n i s found. A few t r i a l s o l u t i o n s a r e shown i n the appen-d i c e s , and the f i n a l present v a l u e has been e x t r a p o l a t e d f o r c a u s t i c - c h l o r i n e and phenol and the per cent discount f i g u r e i n t e r p o l a t e d , which i s adequate c o n s i d e r i n g the accuracy of the f i g u r e s . Annual present v a l u e s were used, and s l i g h t l y lower r a t e s o f r e t u r n would r e s u l t w i t h the use of other present v a l u e s approaching i n f i n i t e t a b l e s . C a u s t i c - c h l o r i n e . Return on the i n t i a l investment f o r 116 the Hooker investment i n Vancouver as c a l c u l a t e d (see Appen-d i x C-2) shows a payout of about 8 years and a d i s c o u n t e d r a t e of r e t u r n from 1958 of approximately 8 per cent. Such r e t u r n s are minimally above r e t u r n t o s h a r e h o l d e r s during the e x i s t -ence o f the investment. With i n f l a t i o n or any i n c r e a s e d share v a l u e ( n e g l i g i b l e i n t h i s case) the r e t u r n would b a r e l y im-prove the p o s i t i o n of the common shareh o l d e r . I f heavy chemi-c a l s are c o n s i d e r e d to be low r i s k , one source i n d i c a t e d t a r g e t r e t u r n s of 10 to 20 per cent would j u s t i f y the i n v e s t -14 ment. A d d i t i o n a l investment and i n c r e a s e d s c a l e would im-prove the i n i t i a l Hooker p i c t u r e . Two f a c t o r s account f o r the improvement. One i s the decreased investment i n an "over the f e n c e " p l a n t at Nanaimo. The other i s c o n t i n u e d r a p i d market growth which w i l l u t i l i z e a d d i t i o n a l c a p a c i t y more r a p i d l y b a r r i n g imports or premature c o n s t r u c t i o n . Improved r e t u r n i s i n d i c a t e d f o r the r a p i d u t i l i z a t i o n o f c a p a c i t y at Nanaimo (for the 2/3 c a p a c i t y assumed 1964 t o 1965 and f u l l c a p a c i t y by 1966--simple r e t u r n s are 7% and 6 years r e s p e c t i v e l y ) . A c a r e f u l expansion program i n northern B r i t i s h Columbia would not d i s r u p t t h i s p i c t u r e . A l s o , the funds generated by Van-couver i n i t s f i r s t 6 y ears of o p e r a t i o n were not q u i t e 14 J . Happel, Chemical Process Economics (New York: John Wiley & Sons, Inc., 1958), p. 127. 117 s u f f i c i e n t to b u i l d Nanaimo, but the present combination c o u l d generate $10 m i l l i o n f o r a northern p l a n t i n j u s t over 4 y e a r s . Thus the p r e s e n t earnings should s u s t a i n f u r t h e r growth without funds commitment by the parent i n the U n i t e d S t a t e s . The r e t u r n from investments i n the heavy c h e m i c a l . i n -dustry are w e l l known as long run ventures. As i n c r e a s i n g increments o f c a p a c i t y a r e added, a smaller percentage o f i d l e c a p a c i t y e x i s t s , so that r e t u r n s should improve i n the long run i f other t h i n g s do hot change d r a s t i c a l l y . The r a t e of r e t u r n and c a p a c i t y u t i l i z a t i o n a l s o depends upon market share and customer p r e f e r e n c e s . I n i t i a l buying h a b i t s from more than one s u p p l i e r can be changed. Longer term c o n t r a c t s can a l s o be n e g o t i a t e d although p r e f e r e n c e s and p r o v i s i o n s are not reviewed here. Other items of c o m p e t i t i o n have been d i s c u s s e d under technology, p r i c e , t r a n s p o r t a t i o n , and s e r -v i c e . A l o g i c a l competitor t o Hooker Chemicals i s Pennsalt Chemicals C o r p o r a t i o n which h e l d a g r e a t e r share i n the mar-ket when both were s u p p l y i n g B r i t i s h Columbia from Tacoma b e f o r e Hooker b u i l t t h e i r p l a n t i n Vancouver. The p r o f i t a b i l -i t y o f Pennsalt was l e s s than Hooker i n 1958, but Pennsalt has apparently chosen to r e i n v e s t i n d i v e r s i f i c a t i o n and not long run expansion i n t h i s a r ea. Recent a c t i o n s by t h i s 118 company i n c l u d e a c q u i s i t i o n s of Delco and S h a r p i e s i n 1957 and 1962 (machinery l i n e s ) , a d d i t i o n a l investment (the r e -maining 20 per cent) i n a Texas company i n 1959 (sulphur com-pounds), p a r t i c i p a t i o n i n a Netherlands f i r m i n 1960 and s i n c e i n c r e a s e d , and a j o i n t venture w i t h Olin-Mathieson i n 1960 ( c h l o r a t e chemicals i n Kentucky). The short run growth of the f i r m ' s a s s e t s and s a l e s has been low, but the earnings per share i n c r e a s e has been f a v o r a b l e : 1956--$0.97, 1957--$0.80, 1958--$0.95, (3 f o r 1 s p l i t ) , 1959--$1.18, I960--$1.26, 1961--$1.40, 1962--$1.61. Thus i n the short run t h i s f i r m ' s p o l i c y has had s u c c e s s f u l r e s u l t s . Other announced competitors of Hooker i n the c a u s t i c -c h l o r i n e b u s i n e s s are Food Machinery C o r p o r a t i o n : , and West-ern Chemicals of Two H i l l s , A l b e r t a (most r e c e n t l y a s s o c i a t e d w i t h P e n n s a l t ) . Because Food Machinery C o r p o r a t i o n have i n -t e r e s t s i n an A l a s k a pulp m i l l , Hooker w i l l have t o p r o t e c t the northern B r i t i s h Columbia market which they are doing w i t h an announced p l a n t p r o j e c t i n P r i n c e Rupert. Although c o m p e t i t i o n has announced p r o j e c t s f o r the lower mainland, a P r i n c e George l o c a t i o n i n the f u t u r e would be more l o g i c a l . ' 1 ' 5 A news r e l e a s e i n J u l y ; 1964 s t a t e s that Food Machin-ery C o r p o r a t i o n w i l l b u i l d a $10 m i l l i o n p l a n t immediately at Squamish. They must capture some o f the lower mainland market to a c h i e v e success i n t h i s l o c a t i o n . Woodfibre i s the announ-ced customer (News item, The P r o v i n c e , J u l y 14, 1964, p. 6.) 119 The market w i l l s t a r t t h e r e i n 1966 and grow. A volume f r e i g h t r a t e f o r A l b e r t a s a l t would supply raw m a t e r i a l at t h i s l o c a t i o n c o m p e t i t i v e l y w i t h t h e supply of Mexican s a l t . The s m a l l p l a n t of C o n s o l i d a t e d Mining & Smelting at T r a i l i s a s p e c i a l case. S a l t i s expensive, but l a b o r i s lower by 10 per cent; s p e c i f i c power r a t e s are unknown but are undoubtedly lower; and many other charges are lower as a r e s u l t of c o - o r d i n a t i o n of these o p e r a t i o n s with the other l a r g e o p e r a t i o n s . In a d d i t i o n , market balance can be a c h i e v e d producing c a u s t i c potash as w e l l as c a u s t i c soda. Thus, t h e i r statement that s c a l e i s not important must be reviewed i n the 17 l i g h t of the circumstances. Hooker r e t u r n s appear to be-come s a t i s f a c t o r y at 170 tons per day (the expanded Vancouver p l a n t ) . F a i t h , Keyes, and C l a r k s t a t e t h a t 200 tons per day i s the economic s i z e , which appears r e a s o n a b l e . 1 8 16 The pulp m i l l o f Canadian F o r e s t P r o d u c t s i s proceed-i n g at P r i n c e George. Other m i l l s i t e s planned i n the area i n c l u d e B u l k l e y V a l l e y , P r i n c e George, and the Peace R i v e r . 17 Submission to the T a r i f f Board Reference 120, June 10, 1963. 18 W.L. F a i t h , D.B. Keyes, and R.L. C l a r k , op_. c i t . , p. 263. N o t e that about t h r e e K r a f t p u lp m i l l s of the 500 to 750 tons per day c a p a c i t y which are being c o n s t r u c t e d these days c o u l d be s u p p l i e d by a 100 tons per day c a u s t i c - c h l o r i n e p l a n t ( d i s r e g a r d i n g c a u s t i c - c h l o r i n e market b a l a n c e ) . 120 C h l o r a t e . The r e t u r n on the i n i t i a l investment f o r E r c o c h l o r a t e manufacture shows a payout of about 5 years and a d i s c o u n t e d r a t e o f r e t u r n from 1958 o f approximately 12.5 per cent (see appendix C-3). These r e t u r n s are reasonable c o n s i d e r i n g the remarks made under c a u s t i c - c h l o r i n e though i n -c r e a s e d stock value i s not known. The r e t u r n was i n c r e a s e d by low investment ( l e s s f i x e d c o s t ) , and decreased by reduced s e l l i n g p r i c e and l o s t markets. The r e t u r n s on f u t u r e major a d d i t i o n a l investment w i l l l i k e l y be l e s s i n i t i a l l y as a r e -s u l t o f lower i n i t i a l c a p a c i t y u t i l i z a t i o n . Funds g e n e r a t i o n has been more than adequate f o r f u t u r e expansion. S u l p h u r i c A c i d . Returns f o r the investment, i n a s u l -phur f e e d s u l p h u r i c a c i d p l a n t were c a l c u l a t e d f o r one year at c a p a c i t i e s of 25, 50, and 100 tons per day. One year r e t u r n was 0 per cent, 12.5 per cent and 21.7 per cent r e s p e c t i v e l y without the a d d i t i o n o f g e n e r a l and a d m i n i s t r a t i v e expense (see Appendix C-4). Under the circumstances a demand of approximately 50 tons would not present a t t r a c t i v e r e t u r n s f o r A l l i e d Chemical t o r e b u i l d at Barnet which they have de-c i d e d not t o do f o r the present (see T a b l e I I I , p. 25). A 100 ton p l a n t at 70 per cent c a p a c i t y would have a simple r e t u r n of 12 per cent. Present growth w i l l reach 70 tons per day by about 1970, so that u n l e s s new markets develop, c o n s i d e r a -t i o n o f investment i n a l o c a l s u l p h u r i c p l a n t w i l l be d e f e r r e d 121 u n t i l that time (see T a b l e V I I I , p. 61). Alum. The one year r e t u r n to a $500,000 investment by A l l i e d Chemical i n a 14,000 ton per year alum p l a n t i s 29 per cent (see Appendix C-4). However, at the present time com-p e t i t i o n from A l b e r t a l i m i t s the market to 7,000 tons per year which r e t u r n s 12 per cent. What might be a s a t i s f a c t o r y r e t u r n i s thus h i n d e r e d by excess c a p a c i t y and c o m p e t i t i o n . Phenol. The d e c l i n e i n p r i c e o f phenol from 16 to 12 cents per pound reduced one year r e t u r n s from 22.6 per cent to 13 per cent f o r the Dow p l a n t i n Vancouver. The payout i s 8 y e a r s , and the d i s c o u n t e d r a t e o f r e t u r n 7.9 per cent (see Appendix C-5). No s e l l i n g expense or overhead has been shown. T h i s would be a l l o c a t e d from the t o t a l expense of the Dow s a l e s o r g a n i z a t i o n which handles a l l Dow products. The r e t u r n to the t o t a l investment i n B r i t i s h Columbia and A l b e r t a i s no doubt b e t t e r , but d e t a i l s are not a v a i l a b l e f o r the Edmonton o p e r a t i o n (and t h i s i s a l s o beyond the scope of t h i s s t u d y ) . Maximum pr o d u c t i o n of benzoic a c i d ( l i m i t e d to the Canadian market) improves the p o s i t i o n s l i g h t l y because t h i s m a t e r i a l would r e a l i z e approximately 25 cents per pound or 13 c e n t s per pound i n c r e m e n t a l l y f o r phenol d i s p l a c e d i n the f i r s t stage of the p r o c e s s . 122 Formaldeny de. An investment l e s s than normal (no product p u r i f i c a t i o n ) , c a p t i v e use, o p e r a t i o n at f u l l c a p a c i t y , and no allowance f o r overhead, y i e l d s a one year r e t u r n of 18 per cent t o R e i c h h o l d Chemicals (see Appendix C-4). The a v a i l a b i l i t y o f a p r o c e s s , p l u s the r i g h t p r i c e s t r u c t u r e o f raw m a t e r i a l and f i n i s h e d product enables a p r o f i t a b l e back-wards i n t e g r a t i o n i n t h i s case. No s e l l i n g expense i s i n -v o l v e d i n the c a p t i v e use o f t h i s product. Benzene-Toluene-Ethyl Benzene-Xylene. A petroleum r e -f i n e r would r e q u i r e a 2,000 b a r r e l per day e x t r a c t i o n u n i t to recover enough t o l u e n e f o r Bow demand. No cost i s assumed f o r excess l i q u i d f e e d subsequently r e t u r n e d t o the r e f i n e r y p o o l . When markets e x i s t f o r the other products b e s i d e s t o l u e n e which may be separated from the e x t r a c t e d o r g a n i c chemical stream then f o r s l i g h t d i f f e r e n c e s i n investment the r e t u r n s a r e i n c r e a s e d . One year r e t u r n s f o r t o l u e n e , or l i m i t e d ben-zene-toluene, or benzene-toluene-ethyl benzene are thus e s t i -mated to be 13 per cent, 13 per cent, and 15 per cent r e s p e c t -i v e l y (see Appendix C-4) . Markets f o r any xylenes would improve t h i s p i c t u r e s t i l l f u r t h e r . The market f o r these b a s i c chemicals (BTX) may be summarized as shown i n T a b l e XV. The t o t a l amount of each chemical i s an estimate of the supply from a 2,000 b a r r e l per day Udex u n i t . The r e t u r n s f o r the 123 TABLE XV REQUIREMENTS OF BTX FOR MISCELLANEOUS CHEMICALS b a r r e l s per day MARKET BENZENE TOLUENE ETHYL XYLENES m i l l i o n l b s . per year BENZENE 15 A l k y l A r y l Sulphonate 17 - - -S o l v e n t s - - - 10 T o t a l S u p p l y 3 120 270 40 200 Excess 30 37 - 190 3 2000 B P D Udex, Canadian crude o i l . Source: c a l c u l a t e d f o r given markets. 124 investment i n an e x t r a c t i o n u n i t become a t t r a c t i v e only when markets f o r most of the chemicals e x i s t . T h i s i s d i f f e r e n t from t h e s i t u a t i o n i n E a s t e r n Canada where the p r o d u c t i o n c a p a c i t y i s l a r g e , but the market predominantly benzene (see p. 6 8 ) . P l a s t i c s and Soap. The minimum pl a n t s i z e f o r maleic anhydride and s t y r e n e which are manufactured from benzene and e t h y l benzene r e s p e c t i v e l y would be at l e a s t 5 m i l l i o n pounds per year ( b a r r i n g any new t e c h n o l o g i c a l developments). As i n d i c a t e d e a r l i e r i n Chapter I I I , no f e a s i b i l i t y e x i s t s u n t i l a market of t h i s s i z e or g r e a t e r i s developed, which would be a p r o p o r t i o n o f the present Canadian market f o r these chemi-c a l s e q u i v a l e n t to the p o p u l a t i o n i n the area. The economic s i z e of a s y n t h e t i c detergent p l a n t i s small (as low as 1.5 m i l l i o n pounds per y e a r ) , but t h i s i s -not the case w i t h the detergent a l k y l a t e and t h e sodium t r i -polyphosphate primary chemicals needed to produce the product. The phosphate requirements f o r a p l a n t s u p p l y i n g western Can-adian requirements o f syndet i s not l a r g e enough to j u s t i f y a 19 phosphorus p l a n t by i t s e l f , so that phosphoric a c i d from A polyphosphate requirement of 10 m i l l i o n pounds per year i n 25 m i l l i o n pounds per year of detergent i s 5000 tons per year. Phosphate p l a n t s i z e i s i n the range of 35,000 t o 80,000 tons per year a c c o r d i n g to W.L. F a i t h , D.B. Keyes, and R.L. C l a r k , op. c i t . , p. 65. 125 T r a i l might be c o n t e m p l a t e d . The l i m i t e d use o f benzene f o r a l k y l a t e m a n u f a c t u r e would o f f e r p r a c t i c a l l y no i n c r e a s e i n r e t u r n t o a benzene-toluunene p r o d u c e r , so t h a t a raw mater-i a l advantage t o an a l k y l a t e p r o d u c e r must a g a i n w a i t upon an i n c r e a s e d market f o r p l a s t i c s . Thus, p u r c h a s e o f t h e p r i m -ary c h e m i c a l p h o s p h o r i c a c i d , and t h e i n t e r m e d i a t e c h e m i c a l d e t e r g e n t a l k y l a t e , w o u l d e n a b l e f i n i s h e d p r o d u c t m a n u f a c t u r e , but would i n v o l v e l i t t l e i n v e s t m e n t f o r p r i m a r y c h e m i c a l s . The r e t u r n t o a d e t e r g e n t m a n u f a c t u r e r appears t o be a t t r a c -t i v e ( see A p p e n d i x C-4). D i s t r i b u t i o n o f p r o d u c t t o t h e o u t -l e t s now s u p p l i e d from E a s t e r n Canada would be r e q u i r e d . CHAPTER VI CONCLUSIONS The l a r g e consumers of b a s i c chemicals i n B r i t i s h Columbia are c u r r e n t l y the p u l p and paper, and plywood i n d u s t r i e s . These i n d u s t r i e s whose present growth p a t t e r n s t a r t e d i n the 1950's w i l l c o n t i n u e t o grow s u b s t a n t i a l l y i n the near f u t u r e . The b a s i c chemicals which are manufactured i n the p r o v i n c e f o r these i n d u s t r i e s i n c l u d e c a u s t i c soda, c h l o r i n e , sodium c h l o r a t e , alum, phenol, and formaldehyde. The p l a n t s which manufacture these chemicals have been e s t a -b l i s h e d i n the recent p a s t from 1957 u n t i l 1963. Growth of the pulp and paper market depends p r i m a r i l y upon B r i t i s h Columbia's share i n f o r e i g n markets. Europe and A s i a a re the important growth areas f o r B r i t i s h Columbia k r a f t p u lp, and the important growth area f o r newsprint and s u l p h i t e p u lp i s the U n i t e d S t a t e s . The share i n overseas k r a f t markets w i l l be s u s t a i n e d by i n t e r n a t i o n a l investment, examples o f which have o c c u r r e d i n H o l l a n d , Great B r i t a i n , and are expected to occur i n Japan. The share i n the U n i t e d S t a t e s market at present r e l i e s p r i m a r i l y on the r a p i d growth i n the nearby r e g i o n of C a l i f o r n i a . F a m i l i a r i t y w i t h the growth of f o r e i g n economies would a i d the pulp and paper i n -dustry i n t h e i r f o r e c a s t i n g of f o r e i g n markets. The Food and 127 A g r i c u l t u r a l O r g a n i z a t i o n of the U n i t e d Nations has prepared what are c o n s i d e r e d the best estimates of the world supply and demand u s i n g income techniques. Such downstream market study i s important f o r b a s i c chemical f o r e c a s t i n g when the chemicals a r e consumed i n manufactured products r a t h e r than being s o l d as f i n i s h e d p r o d u c t s . The growth of the plywood market depends upon new domestic uses, which i n per c a p i t a terms are d e c l i n i n g , and upon i n c r e a s e d exports promoted by the manufacturer's a s s o c -i a t i o n . A s t r a i g h t l i n e t r e n d appears j u s t i f i e d i n the near f u t u r e which i s a d e c l i n i n g percentage growth. T h i s growth would be above the compound r a t e assumed u n t i l 1970 by the Canadian-American Committee, softwood plywood i n Canada, at which time t h e i r r a t e of 4% per cent, or some other r a t e , may a p p l y . The growth of the A g r i c u l t u r a l , O i l and Gas, and Mining and M e t a l l u r g y i n d u s t r i e s i s not l i k e l y to r e s u l t i n b a s i c chemical manufacture i n B r i t i s h Columbia i n the near f u t u r e . The A g r i c u l t u r e and O i l and Gas i n d u s t r y are gener-a l l y s u p p l i e d from A l b e r t a . A new development i n m e t a l l u r g y c o u l d change that market's demand. The p l a s t i c s p l u s the syn-t h e t i c detergent market may r e s u l t i n b a s i c chemical manu-f a c t u r e i n the f u t u r e . Syndets c o u l d be manufactured now from purchased b a s i c c hemicals, but t h i s would r e q u i r e entry 1 . 128 to e x i s t i n g marketing channels. Resource requirements f o r the chemical i n d u s t r y were reviewed. The only raw m a t e r i a l s c u r r e n t l y of commercial use i n B r i t i s h Columbia are sulphur or s u l p h i d e s , and petroleum l i q u i d s and gas. The r e f i n i n g of metal s u l p h i d e s at T r a i l p r o v i d e s t h e byproduct m a t e r i a l t o manufacture s u l p h u r i c a c i d f o r metal r e f i n i n g and f e r t i l i z e r manufacture, but a sulphur or s u l p h i d e route t o s u l p h u r i c a c i d on the coast i s uneconomic i n the near f u t u r e . Petroleum gas i s used t o manufacture ammonia at T r a i l , but no u t i l i z a t i o n of petroleum gas f o r chemicals manufacture i s l i k e l y elsewhere i n the p r o v i n c e at t h i s time. Petroleum l i q u i d s a r e a v a i l a b l e at o i l r e f i n e r i e s f o r manufacture i n t o b a s i c chemicals f o r p l a s t i c s and detergents i f a s u f f i c i e n t market develops to i s o l a t e and separate the v a r i o u s o r g a n i c chemicals which can be d e r i v e d from t h i s source. Raw m a t e r i a l s are a l a r g e p er-centage o f p e t r o c h e m i c a l c o s t s so that ready supply c o u l d be an important c o n s i d e r a t i o n i n the f u t u r e (see Appendix B-2 f o r these p e r c e n t a g e s ) . G e n e r a l l y , the m i n e r a l raw m a t e r i a l s f o r the manu-f a c t u r e of e x i s t i n g and p o t e n t i a l b a s i c i n o r g a n i c chemicals a r e brought from o u t s i d e the p r o v i n c e f o r manufacture adjacent t o the l o c a l market. F r e i g h t t o move the b a s i c chemical t o the p o i n t of use i s thus kept t o a minimum. S a l t from Mexico 129 and A l b e r t a p r o v i d e s the raw m a t e r i a l f o r c a u s t i c soda, c h l o r i n e , and sodium c h l o r a t e . S i m i l a r l y b a u x i t e f o r alum, phosphate rock f o r phosphoric a c i d , and potash f o r c a u s t i c potash are brought i n t o the p r o v i n c e . The f o r e s t r y and m e t a l l u r g y i n d u s t r i e s of the p r o v i n c e consume these chemicals. The b a s i c chemicals do not progress f u r t h e r t o f i n i s h e d prod-u c t s or consumer items as r e f i n e r y l i q u i d s could--phenol and formaldehyde a r e thus e x c e p t i o n a l at present i n that they are market and not raw m a t e r i a l o r i e n t e d . The technology used by the example companies s t u d i e d was i n each case the o r g a n i z a t i o n ' s own. T h i s knowledge has been undoubtedly an important f a c t o r i n the determination o f the e n t r a n t s . Requirements of l a b o r , u t i l i t i e s , s u p p l i e s , and t r a n s -p o r t a t i o n are g e n e r a l l y i n good supply and would not seem to be a d e t e r r e n t to chemicals manufacture. Cost of r e s o u r c e s i s important when an item assumes a l a r g e percentage of the t o t a l c o s t . Labor i s thus important to i n o r g a n i c chemicals i n t h i s p r o v i n c e and n e c e s s i t a t e s l a r g e r p l a n t s c a l e to j u s t i f y investment (e.g. s u l p h u r i c a c i d ) . I n c r e a s i n g c o s t s a l s o reduce r e t u r n on investment through time. The f i r m or d e c r e a s i n g t r e n d i n chemical p r i c e s n e c e s s i t a t e s an expanded s c a l e i n a growth market to maintain r e t u r n s . The c a p i t a l requirements of the i n d u s t r y i n B r i t i s h 130 Columbia a r e not l a r g e and have been p r o v i d e d out o f parent o r g a n i z a t i o n r o u t i n e o p e r a t i o n s . A f a i r l y normal c a p i t a l budgeting procedure s h o u l d s u f f i c e f o r b a s i c chemical i n v e s t -ment o p p o r t u n i t i e s i n B r i t i s h Columbia based upon the s i z e of the parent c o r p o r a t i o n s of the examples c o n s i d e r e d i n t h i s t h e s i s . Funds flow i n the branch p l a n t s which are p r o f i t a b l e can l i k e l y s u s t a i n expansion. The p r o f i t a b i l i t y appears modest i n the cases explored. P r o f i t performance f o r a v a r i e t y of reasons has been s a t i s -f a c t o r y though l i m i t e d , but perhaps i t i s to be expected i n long run ventures of t h i s type. Slow growth ( h e l d back by imports from t h e U n i t e d S t a t e s p l a n t ) l i m i t e d r e t u r n on a l a r g e i n c r e m e n t a l investment i n c a u s t i c - c h l o r i n e , h d r a s t i c change i n c h l o r a t e market s t r u c t u r e a f f e c t e d short run r e -t u r n s f o r c h l o r a t e manufacture. A p r i c e r e d u c t i o n brought on by worl d supply reduced p r o f i t i n phenol manufacture. These are a l l r i s k s t o which any investment i s subj e c t and of t h r e e d i s c o u n t e d r a t e s o f r e t u r n estimated f o r an i n t e r -mediate run i n Appendices C-2, C-3, and C-5, only one ac h i e v e d a t a r g e t o f 10 t o 20 per cen t . World i m p l i c a t i o n s when they a f f e c t p r o f i t a b i l i t y do not make the d e c i s i o n process any e a s i e r . For p r o t e c t i o n the investment or expenses must be reduced. T h i s may be done through purchase when s c a l e i s s m a l l , or improved technology, or a l t e r n a t e products to reduce 1 3 1 the s c a l e f a c t o r , or by l a r g e s c a l e . Although t h i s study i n d i c a t e s the p o s s i b i l i t y of b a s i c o r g a n i c chemicals manufacture f o r p l a s t i c s , e t c . , f u r t h e r study would be r e q u i r e d to i n d i c a t e how t h i s might come about. The growth of s a l e s and s e r v i c e o r g a n i z a t i o n which b r i n g s i n chemicals and a i d s i n the development o f consumer products would be r e q u i r e d . The commitment of funds p r i o r t o p l a n t d e c i s i o n s , which was mentioned i n Chapter V, must a l s o be p r o f i t a b l e . Other products such as s y n t h e t i c l a t e x f o r c o a t i n g s or s i z e might a l s o be manufactured i n the f u t u r e and broaden the base f o r b a s i c o r g a n i c chemicals. No s t u d i e s of the technology f o r a l t e r n a t e products to reduce the s c a l e f a c t o r was attempted. Manufacture p r i m a r i l y f o r export was not c o n s i d e r e d i n t h i s study. Ammonia c o u l d r e a d i l y be manufactured from petroleum gas at t i d e w a t e r , but the market, which must be de-veloped, would be o f f s h o r e . With potash from Saskatchewan l i k e l y t o become a l a r g e export item, ammonia might be added as part of a f e r t i l i z e r package. G e n e r a l l y , b a s i c chemical manufacture does not employ raw m a t e r i a l r e s o u r c e s of the p r o v i n c e , employs few people, r e q u i r e s r e l a t i v e l y small amounts of investment, and r e a l i z e s modest r e t u r n s . The Canadian t a r i f f p o s i t i o n of world t r a d e and no p r o t e c t i o n l e a v e s manufacturers open to w o r l d 132 c o m p e t i t i o n . A study was not a t t e m p t e d o f t a r i f f p o l i c y i n o t h e r c o u n t r i e s where m a n u f a c t u r i n g o f p e t r o c h e m i c a l s i s p r a c t i c e d , t h u s l i m i t i n g t h e p o s s i b i l i t i e s o f export chemi-c a l s . However, export o f b a s i c o r g a n i c c h e m i c a l s i s p r a c -t i c e d from e a s t e r n Canada which has j u s t expanded i n t o o r g a n i c c h e m i c a l s from p e t r o l e u m on a l a r g e s c a l e . S i m i l a r d e v e l o p -ments might occur i n t h e west i n t h e f u t u r e . BIBIiIOGRAPHT A. BOOKS Berenson, C. (ed . ) . A d m i n i s t r a t i o n o f the Chemical E n t e r -p r i s e . New York: I n t e r s c i e n c e P u b l i s h e r s , John Wiley & Sons, 1963. Bjorkstem, J . et a l . P o l y e s t er s and t h e i r a p p l i c a t i o n s . New York: R e i n h o l d P u b l i s h i n g C o r p o r a t i o n , 1956. Canadian Chemical Journey. London: S o c i e t y of Chemical I n d u s t r y , Canadian S e c t i o n , 1958. Chaddock, R.E. Chemical Market Research i n P r a c t i c e . New York: R e i n h o l d P u b l i s h i n g C o r p o r a t i o n , 1956. Chemical Marketing i n t h e C o m p e t i t i v e S i x t i e s . 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Real E s t a t e and Business Trends. Vancouver: Vancouver Real E s t a t e Board, 1962. 136 Reference T a b l e s . Montreal: Canadian Pulp and Paper A s s o c i a -t i o n , 1963. Royal Commission on Canada ' s '.Economic Pro s p e c t s . Ottawa: J . Davis. The Canadian Chemical I n d u s t r y . No. 15, March, -1957. The F o r e s t r y Study Group. The Outlook f o r the Canadian  F o r e s t I n d u s t r i e s . No. 26, March, 1957. J . Davis. Mining and M i n e r a l P r o c e s s i n g in'Canada. No. 29, Oct., 1957. Summary of Busi n e s s A c t i v i t y . V i c t o r i a : Bureau of Economics and S t a t i s t i c s , 1963. The Case f o r Pet r o c h e m i c a l P r o d u c t i o n i n Washington. S e a t t l e : Department of Commerce and Economic Development, 1959. C. JOURNALS Anderson, E.V. "Styrene - Crude O i l t o P o l y m e r , " : I n d u s t r i a l  and E n g i n e e r i n g Chemistry, 52 ( J u l y 1960), 550. "Annual Review," Canadian Pulp and Paper I n d u s t r y , ( A p r i l i s s u e s ) . " C a p i t a l Budgets and C a p i t a l Markets," Chemistry i n Canada , 14 (Sept. , 1962) , 8. "Chemical E x p a n s i o n , " Chemistry i n Canada, 16 (Jan., 1964), 16. "Chemical S c i e n t i s t s and Chemical E n g i n e e r i n g S t u d e n t s , " Chemistry i n Canada. 14 ( D e c , 1962), 48. Copulsky, W., and R. C z i n e r . " E s t i m a t i n g F u t u r e C o s t s , " Chemical E n g i n e e r i n g P r o g r e s s , 56 (Feb., 1960), 46. Katzen, R. "Petrochemical '63," Petroleum R e f i n e r , 41 ( D e c , 1962), 120. "Market Data," Canadian Chemical P r o c e s s i n g , (June and J u l y i s s u e s ) . " Q u a r t e r l y P r i c e s , " (Jan., A p r i l , J u l y , O c t . ) . Moody's I n d u s t r i a l Manual. -New York: Moody's I n v e s t o r ' s S e r v i c e , 1961. 137 "Petrochem Growth," Petro Process E n g i n e e r i n g , 2 (March, 1961), 29. - < " P o p u l a t i o n Information f o r 127 C o u n t r i e s , " P o p u l a t i o n  B u l l e t i n . 19 (Oct., 1963), 164. Q u i g l e y , H.A. , and J.B. Weaver. "Economic C o n s i d e r a t i o n s i n Postponing Investment ," Indu st r i a l and E n g i n e e r i n g Chem- i s t r y , 56 (Nov., I960), 57A. Ross, J . et al_. " G u i d e l i n e s f o r E s t i m a t i n g P r o f i t a b i l i t y , " Chemical E n g i n e e r i n g . 70 (Aug. 19, 1963), 145. Sherwood, P.W. , rUse T h i s C o r r e l a t i o n f o r F o r e c a s t i n g P e t r o -chemical Markets," Petroleum R e f i n e r , 42 (Jan., 1963), 133. Singmaster, J.A. "Some P r a c t i c a l Problems i n C o r p o r a t i o n P l a n n i n g , " Chemi s t r y i n Canada. 14 (Dec., 1962), 40. Weaver, J.B., andA.G. Bates. " P i t f a l l s i n Incremental E v a l u a t i o n s , " I n d u s t r i a l and E n g i n e e r i n g Chemistry, 56 (Feb., 1960), 57a. D. UNPUBLISHED MATERIALS " C o n c i l i a t i o n B r i e f . " North Vancouver: Hooker Chemicals L i m i t e d , Feb., 1963. " E l e c t r i c T a r i f f , " and "Gas T a r i f f . " Vancouver: B r i t i s h Columbia Hydro and Power A u t h o r i t y . V a r i o u s i n d u s t r i a l t a r i f f s , e f f e c t i v e 30th A p r i l , 1963. O o s t r e n b r i n k , W.L. "An Economic A n a l y s i s of the B.C. S o f t -wood Plywood I n d u s t r y , " graduating t h e s i s B. Comm., The U n i v e r s i t y of B r i t i s h Columbia, A p r i l , 1962. " T a r i f f Board Reference 120." Submissions: Canadian Pulp and Paper A s s o c i a t i o n , S e p t . 13, I960, Ottawa: Plywood Manufacturers A s s o c i a t i o n of B r i t i s h Columbia, Jan. 21, 1963; The C o n s o l i d a t e d Mining and Smelting Company of Canada' L i m i t e d , June 10, 1963. 138 E . N E W S P A P E R S " T h e G e n e r a l A g r e e m e n t o n T a r i f f s a n d T r a d e , " C o m m e r c i a l L e t t e r . C a n a d i a n I m p e r i a l B a n k o f C o m m e r c e . , A p r i l , 1964. T h e P r o v i n c e , B u s i n e s s s e c t i o n , n e w s i t e m s , S e p t . 11, 1963, D e c . 10, 1963, J a n . 4, 1964, F e b . 29, 1964, M a r c h £g> 1964, M a y 8, 1964, J u l y 14, 1964. A P P E N D I X APPENDIX A - l MARKET END USE PATTERNS as percentage of market C a u s t i c C h l o r i ne S u l p h u r i c a Phenol M a l e i c Anh. d b c d . a , b c d b d c c Market B.C. Can. U.S. B.C. Can.'48 Can. '61 U.S. B.C. Can. B.C. U.S. U.S. Pulp & Paper 93.7 42.0 7.7 99 75 54.6 11.0 69 2.3 7 Chemicals 0.6 39.6 54.5 1 17 42.0 63.5 23.2 54.4 35 Resins 100 48 32 (alkyd) M e t a l l u r g y 2.4 2.5 3 1.4 26.0 Water works 2 0.9 Soap 5.4 5.0 1.1 1.0 F e r t i l i zer 7.8 7.4 P o l y e s t er s 16 Drying o i l s 15 Other 5.7 10.6 30.3 25. 5 8.9 17 30 100.0 100.0 100.0 100 100 100.0 100.0 100.0 100.0 100 100 100 Note: as d i s c u s s e d on p. 34. Source: C.J.S. Warrington and R.V.V. N i c h o l l s , A H i s t o r y o f Chemistry i n Canada (Toronto: S i r Isaac Pitman and Sons (Canada) L i m i t e d , 1949), p. 210. to Canada. Dominion Bureau of S t a t i s t i c s . I n d u s t r i a l Chemicals, 1961, T a b l e s 11, 12, 13. c W.C. F a i t h , D.B. Keyes, R.L. C l a r k , I n d u s t r i a l Chemicals (New York: John Wiley & Sons, Inc., 1958), pp. 261, 500, 588, 691. d . . E s t i m a t e f o r B r i t i s h Columbia i n 1963. S u l p h u r i c a c i d excludes C o n s o l i d a t e d Mining and S m e l t i n g at T r a i l . 141 APPENDIX B - l TYPICAL FREIGHT RATES COMMODITY POINTS RATE (min. c a r l o a d ) $18.60/T (50,000#) 7.80/T (80,000#) 6.40/T (80,000#) Formaldehyde Edmonton - Vancouver 11.00/T (agreed chrg. 180,000#) E t h l y e n e G l y c o l Edmonton - Vancouver 15 .00/T (60,000#) 17 .00/T (50,000#) 18 .00/T (40,000#) 20.00/T (30,000#) Sulphur T a y l o r - Pr. George 5 .00/T S u l p h u r i c A c i d Edmonton - Vancouver 28 .40/T Soaps O n t a r i o - Vancouver 66 .60/T (40,000#) (agreed charge 101) 58 .80/T (50,000#) 54 .40/T (60,000#) • 52 • 00/T (80,000#) C a u s t i c Soda Vancouver - C a s t e l g a r 31 .80/T (80,000#) Two H i l l s - Cast e l g a r 36 .60/T (80,000#) T r a i l - Ca st e l g a r 5 .40/T (80,000#) C h l o r i n e Vancouver - C a s t e l g a r 38 . 60/T (110,000#) Two H i l l s - C a s t e l g a r 4.4 .80/T (110,000#) T r a i l - C a s t e l g a r 6 .60/T (110,000#) Phenol Vancouver - O n t a r i o 40 . 00/T Alumina Jamai ca - Vancouver 15 . 00/T (Free i n & out, F.I.O.) 7 . 00/T (10,000 Tons F.I.O.) Phosphate F l o r i da - Japan 8 .00/T (12,000 Tons) Montana - Vancouver 8 .26/T (80,000#) Source: R a i l r o a d t a r i f f s , and p r i v e communications. Ammonia & Calgary - Vancouver Ammonium N i t r a t e ( o f f s h o r e f e r t i l i z e r ) W a r f i e l d - V a n . ( o f f s h o r e ) APPENDIX B-2 EXAMPLE RELATIONSHIPS OF CHEMICAL PROCESS EXPENSES as percentages ) C a u s t i c Sodium Phenol S u l p h u r i c Alum Udex Detergent Formalde C h l o r i n e C h l o r a t e A c i d BTX hyde Item 195 8, 170 T/D 57 T/D 24MM#/yr 100 T/D 50 T/D 2000 BPD 25MM#/yr . 12MM#/yr Raw M a t e r i a l s 17.8 8.3 52.5 35.1 64.4 53.8 74.6 71.6 Labor 14.9 13.5 15.8 25.6 12.5 4.8 11.9 4.7 U t i l i t i es 19.5 32.9 0.9 2.7 2.8 12.7 7.9 3.7 S u p p l i e s 4.6 9.6 - - 3.8 3.7 1.1 3.4 Maint. M a t ' l 1.5 5.6 3.8 6.8 3.8 3.0 0.4 3.4 T r a n s p o r t a t i o n 4.9 3.3 1.3 8.5 - 1.5 - -D e p r e c i a t i on 15.6 11.1 11.8 8.5 4.7 9.3 1.1 5.1 Tax & Ins. 5.6 3.5 6.8 5.1 3.4 3.7 0.4 3.0 Debt 15.6 11.1 7.1 7.7 4.7 7.5 1.1 5.1 Gen. & Admin. - 1.1 - - - - 1.5 -100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: d e r i v e d from expenses u t i l i zed i n appendices C-2 t o C-5. APPENDIX A-2 MARKET FOR BRITISH COLUMBIA PULP & PAPER CHEMICALS 1962 to 1966 i n thousands of tons Chemical S a l t Cake C a u s t i c C h l o r i ne Sod. C h l o r a t e S u l p h u r i c a 1962 Capaci ty (45#/T B) (35#/T B) K r a f t 1242 59(95#/T UB) 43.3(105#/T B) 55(140#/T B) 13.7(23#/T SB) 10.7(18#/TSB) Di s s o l v i ng 260 - 45 (345#/T ) 11.3(87#/T. ) 0.8 ( 6#/T ) 0.4( 3#/T ) S u l p h i t e 130 - . 5.5( 85#/T ) 8.4(130#/T ) - - - . T o t a l 59 - 94 75 14.5 11.1 '63 K r a f t 155(120B) 8.3 67 6.6 101 8.4 83 2.7 17.2 2.2 13.3 *64 K r a f t 330(70B,15QSB) 15.7 83 12.1 113 15.4 99 3.3 20.5 2.5 15.8 '66 K r a f t 220(80B ,4QSB) 12.0 95 4.3 117 5.6 104 1.8 22.3 1.4 17.2 Source: P r i v a t e communications f o r consumption, announced expansions f o r i n c r e a s e d requirements. APPENDIX C - l FUNDS FLOW i n m i l l i o n s of d o l l a r s Company Hooker Dow Year 55 56 57 58 59 60 61 62 55 56 57 58 59 60 61 62 63* Sou r c e Op e r a t i o n s 17 19 17 19 22 21 21 26 110 134 134 128 146 161 154 157 180 L i a b i l i t i es 3 4 5 2 4 - - 5 (4) (8) (60) (36) 34 (9) 82 (15) (20) Debt 6 5 4 6 21 (2) (3) (2) (5) (82) (27) 142 (103) (18) (9) 1 41 Stock 21 9 — 4 1 1 — 8 (32) 23 28 22 21 23 41 14 ("7) T o t a l 47 37 26 31 48 20 18 37 69 67 195 256 98 157 268 157 194 Use Acc. Rec. 10 4 3 4 32 (5) (14) 8 1 (42) (34) 15 22 7 20 18 62 Invent. 7 5 2 1 1 3 (1) 3 (6) 28 34 21 (13) 10 16 (10) 2 P l a n t 24 22 15 19 8 I 5 26 18 48 57 162 189 58 99 151 90 80 D i v i d e n d 6 6 6 7 7 7 7 8 23 24 30 31 31 37 40 47 47 Other 3 - 3 - 4 41 12 3 Annual r e p o r t . F i s c a l year changed b M i l l i o n s of pounds Source: adapted from Moody's I n d u s t r i a I s APPENDIX C-2 RETURNS CAUSTIC-CHLORINE i n thousand d o l l a r s per year It em 1958 59 60 61 62 63 64 65 66 67 68 69 70 Raw Mat'1 „. „d 264 330 396 432 450 720 720 720 720 720 720 720 720 Labor (82) 500° 500 525 560 575 605 635 665 695 725 755 785 815 U t i l i t i e s 240 334 400 463 487 791 791 791 928 928 928 928 928 S u p p l i e s 60 74 90 107 114 185 189 193 197 201 205 209 213 Maint . Mat. 50 40 40 50 50 90 50 50 60 60 80 60 60 Transp. 190 190 190 195 195 200 200 200 200 175 175 175 175 Depr. 5% 600 600 600 600 600 630 630 630 630 630 630 630 630 Tax & Ins. 260 260 260 245 220 225 235 235 235 235 235 235 255 Gen. & Adm. (Res. 200. Ge. - 10% S a l e s ) 900 900 900 900 900 900 900 900 T o t a l b 2164 2328 2501 2652 2691 4376 4380 4414 4595 4604 4658 4762 4706 Revenue 2438 3012 3670 4272 4445 7340 7340 7340 7340 7340 7340 7340 7340 Gross (274) 684 1169 1620 1754 2964 2960 2926 2745 2736 2682 2668 2634 I. Tax 122 335 577 800 866 1472 1470 1454 1362 1358 1330 1324 1306 Net 152 349 592 820 888 1492 1490 1472 1383 1378 1352 1344 1328 Funds 752 949 1193 1420 1488 2122 2120 2102 2013 2008 1982 1974 1958 6% D i s c . (Sum ) 710 845 1000 1125 1110 1495 1410 1320 1190 1120 1045 982 918 8% D i s c . (Sum ) 697 813 945 1043 1012 1335 1235 1135 1005 930 850 785 720 10% D i s c . (Sum ) 684 785 895 970 925 1195 1085 980 850 775 695 630 568 (14270) (12605) (11137) a P r e s c r i b e d r a t e s f o r Vancouver, 50% on new p l a n t s . b T a b l e XIV p. 109. °(87) i n 1958 S a l t p r i c e from 1958, $8 per ton, 8, 7.50, 7.50 and 7.25 i n i963 and t h e r e a f t e r . Funds of 12,146 i n 8 years, discount t o 13 years sums as shown ( ), 12,605 at about 8 percent f o r an investment of 12,600. E s t i m a t e d f o r p r o p o r t i o n o f c a p a c i t y shown. Nanaimo 2/3 - 1964-65, 1 Pr. Rupert - 1967; Kit i m a t - 1970. 1966; APPENDIX C-3 RETURNS SODIUM CHLORATE i n thousand d o l l a r s per year V 1958 59 60 61 62 63 64 65 66 Raw Mat'1 $15/T 165 165 99 132 144 149 157 165 165 Labor (33) 200 200 210 224 228 243 256 268 280 U t i l i t i e s 560 660 495 527 577 593 625 660 775 S u p p l i e s 180 183 139 151 168 174 186 199 202 Maint. Mat. 50 50 100 100 100 100 100 100 100 Transp. 60 60 60 60 60*. 60 60 55 55 Depr. 5% . 200 200 200 200 200 200 200 2 0 0 O 200 Tax & Ins. 76 76 76 72 63 64 65 66 67 Gen. & A dm. 20 20 20 20 20 20 20 20 20 T o t a l 1511 1614 1399 1486 1558 1601 1667 1731 1864 Revenue 3200 3200 2250 2400 2625 2700 2850 3000 3000 Gross 1689 1586 851 914 1067 1099 1187 1269 1036 I. Tax. 844 793 425 457 533 549 593 634 568 Net 845 793 426 457 534 550 594 635 568 Funds 1045 993 626 657 734 750 794 835 768 10% D i s c . (Sum ) 950 820 470 449 455 422 407 390 4363 12% Di sc. (Sum ) 933 790 446 418 415 380 359 337 4078 14% D i s c . (Sun ) 916 763 423 389 380 342 320 293 3826 Insurance about 1/2 of expected. ^ E s t . f o r engineering only, t e c h n i c a l s e r v i c e a l s o i n v o l v e d . Funds of 4055 i n 5 ye a r s , d i s c o u n t e d sum as shown ( ), 4000 investment i n t e r p o l a t e d at 12.5 percent. APPENDIX C-4 VARIOUS CHEMICAL RETURNS - ONE YEAR BASIS i n thousand d o l l a r s per year Product S u l p h u r i c A c i d Alum Formaldehyde Plant Cap. 25T/D 50 100 7000T/yr 14000 12MM#/yr 37% Raw Mat 11 52 103 206 170 340 212 Labor 150(20) 150 150 66(10) 66 14(2) U t i l i t i e s 4 8 16 10 15 11 S u p p l i e s - - 10 20 10 Maint. 10 20 40 18 20 10 Transp. 12 25 50 - - -Depr. 18 30 50 25 25 15 Tax & Ins. 7 12 30 18 18 9 Gen. & A dm. - - - - - -T o t a l 243 348 542 317 504 281 Revenue 219 438 876 364 728 360 Gross (24) 90 334 47 224 79 Net 45 167 34 122 40 Funds 75 217 59 147 55 100 Funds 12.5 21.7 11.8 29.4 18.3 Investment Source: L o c a l i n f o r m a t i o n where a v a i l a b l e from p r i v a t e communication, and t e c h n i c a l j o u r n a l f i g u r e s adapted to time and p l a c e . APPENDIX C-5 RETURNS PHENOL i n thousand d o l l a r s per year Item 1963 64 65 66 67 68 69 70 71 Raw Mat'1 4.5^/lb. 1100 1100 Labor (30) 234 246 U t i l i t i es 20 20 S u p p l i es - -Ma i n t . Mat. 182 194 Transp. 28 26 Depr. 5% 250 250 Tax & Ins. 144 142 Gen. & A dm. - -100 1100 1100 1100 1100 1100 1100 258 270 282 294 306 318 330 20 21 21 21 21 21 21 206 218 230 242 254 266 278 24 22 21 19 17 15 15 250 250 250 250 250 250 250 138 136 132 128 126 126 126 T o t a l , b Revenue Gross Inc. Tax Net Funds 6% D i s c . (Sum) 8% D i s c . (Sum) 1958 1978 1996 2017 2036 2054 2074 2096 2120 2758 2778 2798 2818 2838 2858 2878 2898 2898 = 800 800 802 801 802 804 804 802 778 400 400 401 401 401 402 402 401 389 400 400 401 400 401 402 402 401 389 650 650 651 650 651 652 652 651 639 627 61.5 603 612 602 547 515 486 460 434 408 378 350 324 300 579 557 516 478 444 410 380 352 319 290 264 240 Includes 17 c o n t r a c t maintenance crew. Inc l u d e s 600,000 l b . Benzoic A c i d at 13£/lb. i n c r e m e n t a l revenue. Funds o f 5207 i n 8 y e a r s ; d i s c o u n t e x t r a p o l a t e d t o 12 y e a r s sums as shown ( ), i n v e s t -ment o f 5000 i n t e r p o l a t e d at 7.9 p e r c e n t . APPENDIX D MISCELLANEOUS DATA FOR AMERICAN & CANADIAN CHEMICAL COMPANIES S a l e s Returns Depr e c i a - Owner s' Company $ MM % A s s e t s % Net Worth % S a l e s t i o n - % E q u i t y ! Hooker Chemicals 150 6.8 12.7 8.5 57 60 Wyandot t e 97 5.1 7.2 5.0 41 84 American Potash 50 7.1 8.2 10.0 53 95 Spencer 74 6.7 7.1 9.0 60 75 S t a u f f e r 220 10.9 11.8 9.1 49 88 I.C.I. 4.6 6.0 83 86 C.I.L. 170 4.4 7.5 3.8 53 66 Pennsalt 90 5.5 8.0 5.4 44 80 Matheson 12.2 26.5 82 Dom Tar 215 2.8 4.7 4.6 58 61 O l i n Ma t h i eson 690 4.0 8.7 5.0 58 55 Diamond A l k a l i 138 8. 2q 12.0 8.5 49 80 Grace 469 2.7 6.4 2.9 58 55 F.M.C. 353 6.9 11.2 5.8 50 76 Dow 781 9.1 14.1 10.6 49 79 Monsanto 890 6.2 11.3 7.6 68 82 Gen. A n i l i n e 160 4.0 5.3 4.4 84 M a l l i n c k r o d t 35 2.7 3.8 2.9 48 74 Rohm & Haas 218 11.5 13.4 9.6 50 100 C a t a l i n 19 0.4 0.8 0.2 59 63 Polymer 8 6.3 10.6 6.2 68 ' ' 63 Comm. S o l v e n t s 62 6.8 11.2 8.1 41 73 R e i c h h o l d 99 4.8 6.5 3.3 70 69 A t l a s 71 6.2 7.1 4.2 48 89.5 Can. Chemical 28 3.3 7.1 9.7 75 50 American M a r i e t t a . 95 Koppers 302 4.8 6.1 2.8 Dupont 2 ,142 41 Union C a r b i d e 1 ,548 12.3 16.5 11.3 H e r c u l e s 337 10.4 14.4 8.1 47 Cyanami de 578 7.3 10.8 8.1 49.5 Can. O i l s (av. of 3) 8.0 10.9 1.1.1 4 Can. Pulps (average) 148 7.5 9.7 7.9 51 S o u r c e : Moodv's I n d u s t r i a l s . 1961. 

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