Document 82JZ4G21DYzdwXgmgX98Dxb1B
FILE NAME: Union Carbide (UC)
DATE: 0000
DOC#: UC119
DOCUMENT DESCRIPTION: Unpublished Report - Asbestos Strategy with Cover Letter RE Strategic Planning - Asbestos
UC l)-2
INTERNAL CORRESPONDENCE
i
!
METALS DIVISION
ro(Name)
eh,*,.
Location
Mr. J. T. Kelly
UCC-Metals Division
38th Floor
'
270 Park Avenue
New York, NY 10017
copy to .
Messrs, (w/o Encs.) 6. R. Adams R. E. Byrne, Jr. W. B. DeAtley H. B. Rhodes F. 0. Shortsleeve/R.
File
\yRebhoz
P. 0. 30X 579 -4625 ROYAL AVE., NIAGARA FALLS, LE'.' YORK
Oate
February 25, 1980
Originating Dept. "Calidria" Asbestos
Answering letter date
Strategic Planning Asbestos
This is in response to the questions you asked on 2/13/80 relative to an update
of the Subject. I am sorry to advise that I have been unable to get very explicit
answers to most of your questions, as noted below. My prime source of iniormation is Bob C-lifton of the USBM.
1. How much of world production is short fiber? Clifton recommends using 422 based on Canadian exports.
2. What is world consumption by country?
a. Canada exports 952 of production
b. USSR & China consume most of production
c. Japan consumed about 330,000 tons in 1977 - 402 from Canada, 272 from S. Africa, 242 from USSR, 32 from U.S., Australia and Other.
3. What are major world-wide applications? About 702 used in asbestos-cement products, remaining 302 in myriad other applications.
4 Value of world-wide asbestos sales? Clifton suggests using Canada as example: 1977 - C$548,925,000..
5 Estimated reserves of Coalinga deposit? of "our shore"? Per Bill DeAtley, total reserves have never been estimated because ore depth has not been determined. We use 100 years as an estimate of our reserves - at 30,000 i?Y
that would be 3,000,000 tons.
6. Short Fiber capacities o f Competitors?
Atlas Carey J-M
- 25,000 - 230,000 - 800,000
TPY (all short) TPY (Grades 5&7) TPY (all grades)
UCC 008114
To: Mr. J. T. Kelly
O
February 25, 1980
7. Breakdown of .1975-1979 sales quantities?
Domestic & Export, Short Tons
Asbestos Industry
Viscosity Control
1975 1976
1977 1978 1979
28,502
22,490
22,782
32,883
25,513
1,579 2,057
2,110 2,375 2,157
Total
30,081 24,557 24,892 35,259 28,570
I apologize for the incomplete information, but perhaps some of it will be helpful. Enclosed are the following publications which may provide you with additional data and information. (Please return them to me):
"ASBESTOS", December 1979
.
USBM Report, July 1979
Market Analysis, April 1974
Bob Clifton is sending me some other information he has but.I don't think it will be pertinent for our study. I will send you copies of anything of interest.
'ohn L. Myers
JLMrdal Enclosures
UCC 008115
INTERNAL CORRESPONDENCE
M E T A L S D IVISION
MAR 3 ISSO 270 PARK AVENUE, NEW YORK, NEW YORK 10017
To (Nome) Division
FLolocoorfiNounmber
Copy to
G. R. Bailey R. L. Folkman
//
R. W. Rebholz *
F. J. Shortsleeve
W. G. Alesio
Date
March 3,
Originating Dept.
Floor Number
Answer/ng letter date
Subirci
Asbestos
1980 Strategy
Attached is a rough draft version of the asbestos strategic plan, which will be reviewed at our March 28 meeting.
JTK:tb Attachment
J. T. Kelly
INDUSTRY DEFINITION Those enterprises engaged in the worldwide production and marketing of short fiber asbestos and/or viscosity control agents.
BUSINESS DEFINITION The mining, milling, chemical treatment and world wide marketing of high quality short fiber asbestos.
UCC 008117
ASBESTOS - GENERAL
TOTAL WORLDWIDE ASBESTOS SUPPLY/DEMAND
Mi I0 .S'
5 4 * 4 Ta
USSR
Canada
.
USA
Europe
Japan
S. Africa
Rhodesia
Others
TOTAL
O
i--!
PRODUCTION 2.7 1.7
0.2 -
0.4
CONSUMPTION
o to
VO
o
5.9
SHORT FIBER ASBESTOS PRODUCTION
.
-- APPROXIMATELY 30% of TOTAL ASBESTOS PRODUCTION IS SHORT FIBER GRADES
-- MOST SHORT FIBER ASBESTOS IS OBTAINED AS A BY-PROD UCT IN LONG FIBER OPERATIONS. NOT ALL IS CURRENTLY RECOVERED.
MAJOR APPLICATIONS " ./'
^
A s .- - ~-s>5
--CEMENT PRODUCTS r-TILE f PAPER, FR ICTION MATFRTMnP------
T. -.Z
ma
UCC 008118
UCC OPERATION
KING CITY, CALIFORNIA 11CALIDRIA" ASBESTOS
MINING SITE AT COALINGA DEPOSIT, DISCOVERED IN 1957.
TOTAL COALINGA RESERVES --
3MM + TONS
(100 + YEARS OPERATION)
SHORT FIBER ASBESTOS ONLY. HIGH QUALITY (PURITY, FIBER CONTENT)
MILLING OPERATIONS BEGAN IN 1964. 85% OF CAPACITY.
CURRENTLY OPERATING AT
PRODUCT SOLD IN U.S.A., JAPAN, EUROPE
UCC 008119
UCC COMPETITORS
SHORT FIBER ASBESTOS
-- CAREY (Quebec, Canada) -- JOHNS--MANVILLE (Quebec) -- ATLAS (California)
CAPACITY, M TONS/YR 230 800 25
KING CITY
33
VISCOSITY CONTROL AGENTS
DE. GUSSA CABOT NATIONAL LEAD BAKER
PRODUCT '. ;
CURRENT OPERATING RATE '% CAPACITY
KING CITY
UCC 008120
.-.VJ
UCC MARKETS SHORT FIBER ASBESTOS
USA
TONS
% SHARE
JAPAN
TONS
% SHARE
TOTAL
TONS
% SHARE
CAREY
61,000
47
33,000
73
94,000
53
JOHNS-MANVILLE
30,000
23
5,000
11
35,000
20
ATLAS
15,000
11
-
-
15,000
9
UCC
25,000
19
7,000
16
33,000
18
j
131,000 100
45,000 100
176,000 100
s
j
1
UCC 008121
VISCOSITY CONTROL MARKETS
MAJOR 'APPLICATIONS -- ADHESIVES, SEALANTS, COATINGS
MARKET SHARE
DE GUSSA CABOT NATIONAL LEAD BAKER UCC
SHARES %
USA JAPAN EUROPE
25
70
70
49
2
5
10
2
3
5
1
3
11
25
19
TOTAL 40 40 3 2 15
UCC SUPPLYING THE ONLY ASBESTOS BASE PRODUCT.
UCC 008122
PROSPECTS FOR INDUSTRY GROWTH & PROFITABILITY
- SHORT FIBER ASBESTOS ~ low to moderate The question of health hazards and associated
governmental regulatory action and potential third party liability are expected to result in a zero volume growth rate for this industry. Limited num ber of competitors and favorable pricing history are positive factors.
. VISCOSITY CONTROL AGENTS -- high The unfavorable asbestos publicity and restric
tive government regulations have been less of a negative factor in customer consideration. Aplications for asbestos remain despite considerable effort to develop substitutes. Requirements for technical competence and capital investment in this area are high.
Viscosity control products represent only 8% of the tonnage at King City, but account for 60% of the plant margin.
UCC 008123
INDUSTRY PROFILE SHORT FIBER ASBESTOS
CRITICAL ITEMS
VOLUME GROWTH
VULNERABILITY TO SUBSTITUTION
COMPETITION
PRICING RESPONSE
CUSTOMERS
GOVERNMENT INTERVENTION
ACTIVIST INFLUENCE
THIRD PARTY LIABILITY
INDUSTRY PROSPECTS HIGH MODERATE " LOW
X
X
X
X
X
`
X
X
X
VOLUME GROWTH
EARNINGS QUALITY
X
OVERALL ASSESSMENT
X
UCC 008124
INDUSTRY PROFILE
VISCOSITY CONTROL AGENTS
CRITICAL ITEMS
VOLUME GROWTH SUBSTITUTION COMPETITION BASIS OF PRODUCT
COMPETITION CUSTOMERS
INDUSTRY PROSPECTS
HIGH MODERATE
LOW
X
X
.
X
X X
VOLUME GROWTH EARNINGS QUALITY OVERALL ASSESSMENT
X
X
X
I
0
UCC 008125 `l
rf-A1-s*r~
HEALTH QUg33T5N
FOUR DISEASES CONNECTED WITH ASBESTOS EXPOSURE: ASBESTOSIS LUNG CANCER MESOTHELIOMA
riduf LATENT PERIOD VARIES FROMjl5 TO 50 YEARS.
MESOTHELIOMA IS THE MOST CRITICAL CONCERN. CAN APPARENTLY BE CAUSED BY SHORT, RELATIVELY LOW EXPOSURES AND IS NOT SMOKING RELATED. REASON FOR SCHOOL CEILING & HAIR DRYER INCIDENTS.
t
,
DEFINITIVE SCIENTIFIC ANSWER TO QUESTION OF CANCER
RISK AT VERY LOW EXPOSURES WILL PROBABLY NOT BE
FORTHCOMING IN THE NEAR FUTURE.
.
UCC 008126
ESTIMATE OF FURTHER REGULATORY IMPACTS ON UCC ASBESTOS BUSINESS
1. WORKPLACE EXPOSURE LIMITS WILL BE REDUCED BY OSHA FROM 2.0 FIBERS/CC TO 0.5-1.0 RANGE.
2. LITTLE CHANGE IN OTHER REGULATIONS.
3. NO MANDATORY SUBSTITUTION. EXISTS AT PRESENT.)
(NO STATUTORY AUTHORITY
4. "AFTER THE FACT" LEGISLATION WILL NOT SIGNIFICANTLY AFFECT UCC.
UCC 008127
UCC PRODUCT DIRECTIONS EMPHASIZE DUST CONTROLLED "CALIDRIA" ASBESTOS
PRODUCTS. IMPROVE PACKAGING CONCENTRATE ON END USES WHERE FREE FIBER GENERATION
IS MINIMIZED OR ELIMINATED.
UCC 008128
FINANCIAL SUMMARY
"CALIDRIA" ASBESTOS
SALES ($MM) NET INCOME ($MM)
(/SHARE) ROS % ROA % CASH GENERATED ($MM)
1975 1976 1977 1978 1979
4.3
4.9
5.3
7.2
6.4
0.1
0.5
0.6
1.2
1.0
0.2
0.8
1.0
1.9
1.5
2.3 10.2 11.3 16.7 16.4
1.6 10.5 12.9 25.4 19.8
0.2
0.1
1.1
1.0
1.2
UCC 008129
SPU COMPETITIVE POSITION
SHORT FIBER ASBESTOS -- STRONG/LEADING High level of product quality and service to a
diverse customer base overcome the disadvantage on costs of competing against a by-product situation.
VISCOSITY CONTROL AGENTS -- STRONG A strong technical service effort, the most varied
product line, and superior cost position have helped to offset the health factor, which has limited market share and remains a threat to future participation in these markets.
UCC 008130
.. *
: i
ii
;
.
1 ] ?
i
; j
;
\J '
I
SPU COMPETITIVE PROFILE
SHORT FIBER ASBESTOS
CRITICAL ITEMS
LEADING
STRONG
FAIR
WEAK
MARKET SHARE PRODUCT LINE BREADTH BREADTH/CUSTOMER BASE COST POSITION TECHNOLOGY POSITION PRODUCT QUALITY SERVICE/RELIABILITY
*------- * *------- * *------- *
*-----*-------- * *----------* *----------*
OVERALL
*-------- * -
UCC 008131
ARsesleastsimveetnot KofeyPrCinomcippaetlitCivoemFpaectittoorrss
Asbestos Category
Market Share
Product lin e Breadth
Breadth Customer Base
Total Cost Position
Technical Position
Product Quality
Customer Service/Dependable Supplier
Oa verall
Hank
-
tJCC Strong Strong Strong Fair
Strong Leading Leading
LeSatdroinngg/ 1
Carey s t<ro tn1g S tFrao inrg / Strong
Strong
Weak S tFr oani rg / Weak
S tFr oani rg / 3
Johns -Manville Strong Strong Strong L eSatrdoinngg/ Strong Fair Strong
Strong 2
Atlas ^Strc&Stfgi ' Weak Weak Fair Weak Strong Weak
FWa iera/k 4
UCC 008132
SPU COMPETITIVE PROFILE
VISCOSITY CONTROL AGENTS
CRITICAL ITEMS
PRODUCT LINE BREADTH BREADTH/CUSTOMER BASE COST POSITION TECHNOLOGY POSITION PRODUCT QUALITY HEALTH FACTOR
OVERALL
LEADING
STRONG
FAIR
WEAK
UCC 008133
'W '
\
ARieielantimvee ntot KofeyPrCinomcippeatlitCivoemFpaectittoorr
Non-Asbestos Category
Product lin e Breadth Breadth of Customer Base
TJCC Strong Leading
Natl. Lead
F aWirea/k Fair
Cabot Fair Strong
DeGussa Fair
Strong
Baker FWa iera/k
Fair
Total Cost Position ' ' Leading . Strong Strong Strong Strong
Technical Position
LeSatrdoinngg/ Strong Strong `Strong Fair
Product Quality
Leading Strong Strong Strong Strong
;/ Health Factor Overall
Week Strong StFroanirg/^) StFraoinrg/
Strong Strong Strong StFraoinrg/
Strong StFraoinrg/
Rank
2
2
1
2
2
^ Trhaetinhgeaflotrh TfaJCctCo-r a "weighted at 4 to 1 acaintt other factor in the overall
. UC 008134
CO M PETITIVE POSITION
PROSPECTS FOR LONG-TERM INDUSTRY GROWTH AND EARNINGS Q UALITY
HIGH
MODERATE
LOW
UCC 008135
LEADING
STRONG :
F A IR
CABOT
(
)
N AUTC, CLE; lD
l DEGUSSA
\ BAKER
UCC1........ .........
{J.M . )
i
tATLAS!
WEAK
( ) ASBESTOS CATEGORY NON-ASBESTOS CATEGORY
KEY EXTERNAL ASSUMPTIONS
VOLUME GROWTH:. . VISCOSITY CONTROL -- 8% PER YEAR . SHORT FIBER ASBESTOS -- 0% PER YEAR
GOVERNMENT; . CLEAR POSITION TAKEN ON HEALTH QUESTION WITHIN 2-3 YEARS. . -NO WIDESPREAD BANS OR MANDATORY SUBSTITUTION
. OSHA TLV NO MORE RESTRICTIVE THAN JO* <'* f IBER/CC
COMPETITION:
. NO NEW MAJOR EXPLOITATION OF COALINGA DEPOSIT
. RUSSIANS DO NOT ENTER SHORT FIBER MARKET
;/ . VISCOSITY CONTROL COMPETITORS DO NOT REDUCE PRICES . MARKETING POLICY OF SHORT FIBER PRODUCERS UNCHANGED
. ATLAS OPERATES THROUGH AT LEAST 1981*
'
CUSTOMERS: . HEALTH FACTOR HAS NO SIGNIFICANT ADDITIONAL IMPACT ON- SHORT FIBER ASBESTOS MARKET . APPREHENSION OF CUSTOMERS IN THE VISCOSITY CONTROL AREA WILL SUBSIDE IN 2-3 YEARS
UCC 008136
CURRENT DIRECTION THE ASBESTOS BUSINESS HAS BEEN OPERATED TO MAXIMIZE EARNINGS AND CASH FLOW. AGGRESSIVE MARKETING AND PRODUCT DEVELOPMENT PROGRAMS HAVE BEEN MAINTAINED. CAPITAL INVEST MENT HAS BEEN LIMITED TO DUST CONTROL IMPROVEMENTS AND OTHER MINOR REQUIREMENTS.
-- MAINTAIN POSITION WHILE MINIMIZING RISK IN VIEW OF MARKET UNCERTAINTIES.
UCC 008137
SALES HISTORY
SHORT FIBER VISCOSITY
CONTROL
TOTAL
1975 28.5
1.6 30.1
1976 22.5
2.1 24.6
M TONS 1977 22.8 2.1 24.9
1978 32.9
2.4 35.3
1979 26.5
2.2 28.7
CONSTRUCTION EXPENDITURES
$ M
1975
542
1976
197
1977
-
47
1978-
77
1979
57
UCC 008138
STRATEGY SELECTION
STRATEGY: CONSTANT CAPACITY (BASE CASE) SHORTFIBER EXPANSION VISCOSITY CONTROL EXPANSION UNIT ABANDONMENT
STRATEGIC DIRECTION SHORT FIBER VISCOSITY CONTROL
Maintain Position
Improve Position
Maintain Position
Concede Position Concede Position Maintain Position
--
UCC 008139
STRATEGY ASSUMPTIONS
CONSTANT CAPACITY (BASE CASE): . SHORT FIBER ASBESTOS
-- MARKET SHARE 18-20% OVER PLAN PERIOD -- TOTAL VOLUME RELATIVELY CONSTANT
. VISCOSITY CONTROL -- MARKET SHARE 15% THROUGH 1982, DROPS TO 12% BY 1988 DUE TO CAPACITY LIMITATION OF CHEMICAL CURCUIT
SHORT FIBER EXPANSION: . SHORT FIBER ASBESTOS
-- INCREASE CAPACITY BY 25,000 TPY (75%) IN 1981, AT CAPITAL COST OF $6.3 MM
-- MARKET SHARE EXPANDED FROM 18% TO 32% BY 1982 (OBTAIN 12,000 TPY CONTRACT WITH GAF)
. VISCOSITY CONTROL -- SAME AS BASE CASE
VISCOSITY CONTROL EXPANSION: . SHORT FIBER ASBESTOS
-- SAME AS BASE CASE
. VISCOSITY CONTROL -- EXPAND CHEMICAL CURCUIT 1800 TPY (100%) BY 1983, AT CAPITAL COST OF $5.8 MM -- MAINTAIN MARKET SHARE. AT 15% TRHOUGH THE PLAN PERIOD
UCC 008140
STRATj EGY ASSUMPTIONS
UNIT ABANDONMENT
A - SHUT DOWN OPERATION
. CLOSE KING CITY PLANT IN 1980
-- DECOMMISSION COST $1.2 MM
-- NET BOOK VALUE
$2.6 MM
B - SELL OPERATION . 1980 SALE AT $7 MM (7X EARNINGS)
UCC 008141
;
ij '
njri:/J' ' I
;i '
'VI '
RISK ADJUSTMENTS
DEPLETION ALLOWANCE
. ASSIGNED 25% PROBABILITY TO THE LOSS OF DEPLETION BY 1983
SALES
.
. SHORT FIBER ASBESTOS VOLUME REDUCED BY 7-10% STARTING IN 1984
. VISCOSITY CONTROL PRODUCTS GROWTH RATE LOWERED FROM 8% TO 6% FOR THE ENTIRE PLAN PERIOD
PLANT COSTS
. INCREASED 3% ABOVE ANNUAL INFLATION RATE
DUE TO TIGHTENING REGULATIONS
* .
CAPITAL COSTS
' *
. INCREASED 12.5% ABOVE PLAN
u. UCC 008142
UCC 008143
CO
UCC 008144
STRATEGY
CONSTANT CAPACITY SHORT FIBER EXPANSION VISCOSITY CONTROL
EXPANSION UNIT ABANDONMENT
-- SHUT DOWN -- SELL
` CASH FLOW $ MM
RISK ADJUSTED FINANCIAL SUMMARY -- ASBESTOS
1979 - 1988 IMPACT
1988 ANNUAL RESULTS
EARNINGS $/ SHARE
AVERAGE ROA
CAPITAL $ MM
CASH FLOW $ MM
EARNINGS $/ SHARE ROA
12.0 8.2
3.7 8,0
.152 .128
.144
(.017) .050
23
1.6
10
8.5
13
7.7
--
0.3
-
0.3
1.4
.017
36
1.8
.013
14
2.2
.021
1.9
-
-
-
THIRD PARTY LIABILITY CLASSES OF POSSIBLE PLAINTIFFS
. INSULATION WORKERS -- UCC HAS NO EXPOSURE
. END USERS ~ LOW RISK TO UCC SINCE ASBESTOS IS 11ENCAPSULATED" IN MOST CUSTOMER PRODUCTS -- POSSIBLE EXCEPTION IS TAPE JOINT COMPOUNDS. CALIDRIA USED IN THIS APPLICATION FOR APPROX. 10 YRS.
. CUSTOMER EMPLOYEES ~ DISSATISFACTION WITH LOW WORKERS' COMPENSATION AWARDS MAY LEAD TO LITIGATION AGAINST ASBESTOS SUPPLIERS
UCC 008145
THIRD PARTY LIABILITY WARNINGS TO UCC CUSTOMERS -- NO WARNING ON UCC PACKAGE FROM LATE 1965 TO JUNE 1978 ~ "WEAK" WARNING LABEL USED ON UCC PACKAGING BEGINNING
JUNE 1968 -- OSHA WARNING LABEL PRESCRIBED IN JUNE 1972. NOT AN
ABSOLUTE BAR TO LIABILITY, BUT HAS NOT BEEN TESTED IN COURTS ~ MASSIVE GOVERNMENT EDUCATION CAMPAIGN IN 1578 A FURTHER BASIS FOR CLAIMING PUBLIC HAS BEEN ADEQUATELY WARNED
UCC 008146
THIRD PARTY LIABILITY
ANALYSIS OF UCC EXPOSURE . 1963 - 1977 -- EXPECT 2-3 SETTLEMENTS PER YEAR < $60,000 EACH -- WITH 20 YEAR INCUBATION PERIOD, CLAIMS WOULD BEGIN IN 1983
. POST 1977 -- ASSUME CLAIMS DROP TO $40,000 PER YEAR TOTAL
. RISK FACTOR -- FIGURE LIABILITY 50% HIGHER THAN ABOVE ESTIMATE;
. ESTIMATE OF UCC EXPOSURE -- CONTINUED OPERATION CASES -- ABANDONMENT CASE -- $3.5 MM
$4 M M .
UCC 008147
THIRD PARTY LIABILITY ANALYSIS OF UCC EXPOSURE
. IMPACT ON STRATEGY RESULTS
1979-1988 IMPACT (ZERO LIABILITY)
CASH FLOW $ MM
EARNINGS 5/SHARE
AVERAGE ROA
CONSTANT CAPACITY
SHORT FIBER EXPANSION
VISCOSITY CONTROL EXPANSION
UNIT ABANDONMENT - SHUT DOWN - SELL
12.0 8.2
7.8 3.7 8.0
.152 .128
.144 (.017)
.050
2 3 10
' 13 -
1979-1988 IMPACT (ACCRUE FOR LIABILITY)
CASH FLOW $ MM
EARNINGS $/SHARE
AVERAGE ROA
CONSTANT CAPACITY
9.9
SHORT FIBER EXPANSION
6.1
VISCOSITY CONTROL
EXPANSION
5.7
UNIT ABANDONMENT - SHUT DOWN
1.9
SELL
6.2
.120
18
.096
8
.112
10
(.045) "
-
.022
-- 1
UCC 008148
RECOMMENDED STRATEGY CONSTANT CAPACITY
. HIGHEST EARNINGS QUALITY . LIMITED CAPITAL INVESTMENT . LOW RISK (POTENTIAL THIRD PARTY LIABILITY LARGELY
RELATED TO PRE-'77 OPERATION)
UCC 008149
ANNUAL CHECK POINTS GOVERNMENT REGULATORY ACTION. STATUS OF ASBESTOS LITIGATION. MARKET DEMAND.
ACTION PLANS MAINTAIN STRONG TECHNICAL SERVICE IN VISCOSITY CONTROL AREAS. CONTINUE TO WORK WITH GOVERNMENT AGENCIES ON ASBESTOS
REGULATORY MATTERS. SPONSOR RESEARCH ON UCC CALIDRIA.
UCC 008150