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A TOTAL PRODUCT STRATEGY CAPACITOR AROCLOR ^ ?! V-** w, flj C59W m ti Mri il ti b>/ baa ,i I lii P. G. Benignus G. R. Buchanan June 15, 1966 DSW 201240 STLCOPCB4052605 DISTRIBUTION 1. C. E. Anagnostopoulos 2. P. G. Benignus 3. H. S. Bergen 4. W. L. Bettison 5. G, R. Buchanan 6. J. Cresce 7. E, P. Cunningham 8. A. G. Eades 9. S. A. Heininger 10. D. B. Hosmer/J. A. Mullendore 11. W. K. Johnson 12. M. McEwen 13. H. L. Mlnckler 14. D. J. Murphy 15. W. R. Richard 16. E. S. Robson 17. D. S. Cameron - ME 18. David Wood 19. Extra 20. Extra 21. Extra 22. Extra 23. Extra DS\N 201241 1 _ -- STLCOPCB4052606 TABLE OP CONTENTS Page I. The Market Situation A. The Total Market for Capacitors.................... 1 B. The Market for Aroclor Capacitors................ 2 C. Capacitor Aroclor Sales Forecast......... 2 D. Major Customers for Capacitor Aroclor.... 3 E. General Properties and Specific Market Factors That Dictate the Use of Aroclor Capacitors............................................ 3 F. Forces Acting for Monsanto Aroclor in Capacitors.............................................................. 3 G. Forces Acting Against Monsanto Aroclor in Capacitors....................................................... 6 H. People Who Influence the Choice and Use of Aroclor Capacitors.............................. 7 I. Competition................................................................ 7 J. Pricing Strategy..................................................... 7 K. Importance of ourProduction Capacity.... 8 II. Long Range Objectives............ ......................... 9 III. General Strategy.................................. 10 IV. 1966 Goals...............................................................................12 V. 1966 Market Plans................................................ 14 Appendix A Appendix B Appendix C Appendix D STLCOPCB4052607 A TOTAL PRODUCT STRATEGY CAPACITOR AROCLOR The Market Situation A. The Total Market for Capacitors The annual value of capacitor production in the USA in 1966 will be over 400 million dollars. It is ex pected to grow to 425-450 million dollars by 1968. For better understanding, this broad total market is broken into the following general capacitor uses: Industrial (those which use Aroclor) 1. Air conditioning, motor running 2. Fluorescent lighting 3. Power line factor correction Industrial and Electronic 1. Energy storage 2. High voltage DC power supplies 3. Electrolytic capacitors for industrial, motor starting and also for electronic uses Electronic 1. Government defense, physics and research 2. Instruments 3. Tuning and filtering 4. Communications The attached table gives the type capacitors and their specific purposes to fulfill the different segments of each general market category. 0S\N 20A2A3 STLCOPCB4052608 VHC VHO VMp VMO VHO; > t --On' OoivOli Oj=1uOs> HHH hoovovo TYPE CAPACITOR Aroclor 1242 (AC) -c^lolo ro ro vMo vHo* vMo oI--o1 Hoo Aroclor 1242 (AC) Aroclor 1242 (AC) MARKET PURPOSE Air conditioning, motor running Fluorescent light ing Power line factor correction H zuc| 53 . aH> L* 4=- 4S- 4=-U) 00 OMJWJIVJI O00vVOJV1LOOVV0J10 VJl 0\ -r4o-m4-4m->o5C-4r\ Aroclor 1242, 1254 and castor oil Aroclor 1242, 1254 Aluminum Electrolytics Tantalum & Molybdenum, Electrolytics DC, Energy storage DC, High voltage power supplies Motor starting and electronics Mainly Government defense markets MH Si 3S U) aoZHO Hha>3 -U41 Hi o w fc- o o oo -4 vji uo> uroi O4s- LO -4 3 H oro OfHf OzJ o u> VJl ro vji ro VJl ro VJl CO % $ VoOo o bo oo Iq -Iq oo vji VJl 4^ 4r 4^ to O Hi en o 4^ LO CH LO 00 P3 M MM CO Zinc & Aluminum Metalized kraft paper Metalized or free foil. Mylar - Teflon Titanium-Barium-Zir conium Mica-Glass & Vitreous Paper film - plastic molded-wax impreg. Dibutyl sebacate and adipate, Al. Plate capacitors Halowax-chlorinated naphthalene Silicone Oil Mineral Oil, largely replaced by Aroclor Variable Air Conden sers Use poly iso butyl ene and in Europe, castor oil Highly reliable (dry) units fast growing market Very high capacitance small size (solid) High reliability steady market for MICA Inexpensive, wide general use High frequency specialty water cooled Inexpensive, specialty wfM ao z HO H zw ia-i Wz H3 Hc|i HZ zo ft* o o3 High temperature spe cialty little used, too costly Now used only as spe cialty for DC requiring flat DK temperature re lation z o h| O wz Wide use for tuning. __ . - ' DSW 201244 VO CT\ LO STLCOPCB4052609 -2- B. The Market for Aroclor Capacitors Aroclor capacitors are useful In the following market categories: Capacitor Value (Domestic Only) Industrial 1965 1969 1) Air conditioning 2) Fluorescent lighting 3) Power factor correction $10,000,000 13,000,000 19,000,000 $14,000,000 15,000,000 25,000,000 Industrial & Electronic 1) Energy storage 2) High voltage DC power supplies 4.000.000 6.000.000 5,000,000 8,000,000 Total $52,000,000 $67,000,000 Thus, Aroclor capacitors used primarily for industrial purposes controlled about 50 million dollars of the total capacitor market in 1965 with projected growth to $70,000,000 by 1969. Several overseas areas represent important markets for capacitor Aroclor. Most important of these are Canada, Europe, Latin America and Japan. Over the' past few years, total sales have been $200,000 - $400,000 per year with Canada being our most consistent market. For a complete look at the global markets for capacitor Aroclor together with marketing plans for the major areas of the world, refer to, "The World Wide Strategy for Capacitor Aroclor" dated May 1, 1966. C. Capacitor Aroclor Sales Forecast (Domestic USA plus Export) Actual past sales and the forecast for world-wide capacitor Aroclor are as follows: (Aroclors 1242 and 1254) Year Pounds of Aroclor 1957 1958 1959 I960 1961 1962 15,669,290 12,902,340 15,139,470 16,091,745 16,074,940 15,405,095 DSW 201245 STLCOPCB4052610 -3- Year 1963 1964 1965 *1966 *1967 *1968 *1969 *1970 Pounds of Aroclor 16,000,000 20,500,000 22,500,000 23*500,000 24,900,000 26,400,000 27,130,000 27,760,000 Since capacitor Aroclor sells at approximately 15^/lb., about $3*000,000 of Aroclor is used to make capacitors valued at about $60,000,000. Thus, in general, the market value of our fluid represents only about of the market value of Aroclor capacitors. D. Major Customers for Capacitor Aroclor The principal Monsanto Company customers for capacitor Aroclor are: Annual Purhcase Company Location Pounds General Electric Westinghouse Electric Aerovox Cornell Dubilier (Federal Pacific) Sprague Line Materials Electronic Components Sangamo Electrical Utilities Ohio Brass P. R. Mallory Canadian General Electric Aerovox Canada, Ltd. Canadian Westinghouse ITE Circuit Breaker Hudson Falls,N.Y. 7,500,000 Bloomington, Ind. 4,000,000 New Bedford, Mass . 1,500,000 New Bedford, Mass . 1,500,000 & Newark, N. J. N. Adams, Mass. 1,500,000 Milwaukee, Wise. 1,000,000 Bridgeport, Conn. 1,000,000 Pickens, S. C. 600,000 LaSalle, Illinois 600,000 Mansfield, Ohio 500,000 Crawfordsville, Ind. 300,000 Peterborough 600,000 Hamilton 300,000 London 150,000 Port Credit 100,000 Most of the capacitor Aroclor is produced at Anniston, Alabama, whereas most of our business is in the North east and North-central states. A potential competitor located in the Northeast would have a substantial ad vantage in freight since freight costs amount to nearly 9# of Aroclor sales prices. E. General properties and specific market factors that dic tate the usesof Aroclor capacitors A history of the development of capacitors and the use : DSW 201246 STLCOPCB4052611 -4- of Aroclor In capacitors Is given in Appendix A. This is Important to the understanding of our pro ducts and markets. An Aroclor capacitor is merely a roll of aluminum foil conductor interwound with kraft tissue insula tion, contained in a metal can, vacuum impregnated with Aroclor, and then permanently sealed. There are no moving parts and no maintenance to be done. Unlike the transformer industry, the selection of Aroclor for capacitors is not based primarily on the fact that Aroclor is fire-resistant. It is true that Aroclor is the only capacitor fluid that offers maxi mum safety to protect people and surroundings - and this is important. However, it is the combination of dielectric proper ties and economics that has permitted Aroclor to maintain a dominant position in fixed-paper industrial capacitors over the past 35 years. Possessing high capacitance relative to very low in sulation loss factors, excellent dielectric strength, remarkable oxidative and thermal stability, and a relatively low cost, Aroclor has not been replaceable and is used exclusively in its established capacitor market areas. Although priced near $2.00 a gallon, Aroclor capacitor dielectric has almost completely eliminated use of mineral oil (the past standard) priced at only 65 cents a gallon. The economic advantages of Aroclor are not obscure. Because the dielectric constant of Aroclor is at least twice as large as the 2.2 value for mineral oil, an Aroclor capacitor half the size of a mineral oil unit will do the same work. The savings accrued, by using only approximately half as much paper, aluminum foil and container, offsets by a considerable margin the higher cost of Aroclor fluid. However, this excellent fixed-paper capacitor is suit able for use only in certain applications - as shown in Table I. Entirely different capacitor systems are used to fill the many other large capacitor requirements. A discussion of the most important markets for Aroclor capacitors together with the factors affecting these markets is given in Appendix Bl OS\N 201247 V. STLCOPCB4052612 -5- F. Forces Acting for Monsanto Aroclor In Capacitors 1. In spite of considerable effort to find something better, Aroclor has remained the standard dielec tric in fixed-paper capacitors for over 35 years. On the basis of performance and cost, no one (in cluding Monsanto) has been able to beat Aroclor. Aroclor is still the product of choice. It is unlikely that this position will change in the foreseeable future. Any new product would have to show considerable advantage over Aroclor be cause: a. It is costly to set up separate or new produc tion lines in existing capacitor factories. Thus, manufacturers prefer not to handle another material unless it can completely replace Aroclor. b. The capacitor manufacturers are reluctant to handle different dielectric fluids in the same plant. They don't even like to buy Aroclor from two producing sources - we ship al most everything from Anniston. This desire acts to our advantage versus some possible competitive manufacturer of Aroclors. 2. The great confidence and reliance which our custo mers have in Monsanto's ability to produce and deliver very high quality products - temporarily shaken in 1956 but all okay today. . 3* The experience and technical service which Mon santo offers the capacitor manufacturer and his customers. We have been able to assist in problems involving storage, contamination, impregnating and handling and equipment designs. In addition, through the introduction of thermal and chemical stability tests, we have been able to assure the customer of the very highest quality material and provided him tools whereby he can check this quality prior to use. . 4. The very high quality of Monsanto Aroclor is a force acting for us. This quality establishes another hurdle for competition - makes it a little harder for someone else to enter the business. 5. Through cooperative activities in technical socie ties such as ASTM, Electrochemical Society, American Institute of Electrical Engineerings, the National DSW 201248 STLCOPCB4052613 -6- Electrical Manufacturers Association, we have established Monsanto as a professional partner the capacitor industry and have been able to ifntfluenoc specifications and test procedures >e^ U -*4 nouu.y- advantage. uStf- 6, Prudent pricing has been and will continue to be a most important force for Monsanto Aroclor. 7. The fire resistance of Aroclor certainly acts for us. Although safety is not as important in the selection of Aroclor for capacitors as it is in transformers, it is important. G. Forces Acting Against Monsanto Aroclor in Capacitors 1. Continued interest (mostly at G.E.) in finding a new dielectric fluid to replace Aroclor or an additive to be used with Aroclor to further de crease capacitor size and lower cost. We do not feel that either type of program will be success ful in the foreseeable future. G.E. has developed a new capacitor using plastic film as a partial replacement for paper. This will reduce the amount of Aroclor used in certain capacitors by about 25#. 2. We are the only domestic producer of Aroclor. Patents have expired and other companies do con sider the possibilities of producing chlorinated biphenyl - especially Dow, Stauffer, Koppers, and Hooker. Good field intelligence, prudent pricing, top-quality product and technical service leader ship are our best insurance against competition (see Plans & Strategies). 3. The capacitor industry troubles in 1956 partially blamed on Aroclor and the tests used to evaluate Aroclor, could be considered a force which acted both for and against us. It caused G.E. to doubt our ability to produce and define consistent top- quality product. To say the least, they were very unhappy with Monsanto and actually sought another source of supply. The fact that they were unsuc cessful acted for us since it demonstrated to G.E. that our pricing policies had been fair in spite of our position as sole supplier. Technically we all came out ahead since new thermal and chemical stability tests were developed which more accurately defined the quality of Aroclor. We have re-estab lished industry confidence in Monsanto's capabili ties to produce the very best quality products. Relations with G.E., Westinghouse and others are excellent. ___ _____ -- -- DSW 201249 STLCOPCB4052614 -7- 4. Monsanto product quality is not as good as that available from Bayer or Prodelec. This difference is small but can be important in a competitive market. Today this only involves certain export markets but longer range could affect a domestic position, actions are underway to correct this. H. People Who Influence the Choice and Use of Aroclor Capacitors Strange as it may seem, only the capacitor manufacturer has any influence in the choice of liquid dielectrics used in capacitors; and today, his only logical choice for fixed paper capacitors based on performance and cost is chlorinated biphenyl. For the user of indus trial fixed paper capacitors, Aroclor is the only thing available! and this is not likely to change un less the capacitor manufacturer finds something better. There are no outside influences on the market other than improved technology or another producer of chlori nated biphenyl. These influences are discussed in other sections of this report. I. Competition Monsanto's basic patents expired around 1950; but, thus far, no one else in the USA has produced electrical grade Aroclor. Fair pricing, top-quality products, and technical service leadership are responsible for our continued position as the only domestic producer of Aroclor. Chlorinated biphenyl is produced in England, Germany, France, Italy, Japan and Russia. Thus far, foreign material has not entered this country, and it is not likely to in the future. Complete details of competitive activity have been developed - country by country - as part of a global marketing strategy and certain area strategies. Additional details on the domestic competitive situa tion regarding Aroclor are contained in Appendix C. J. Pricing Strategy The historical pricing of Aroclor is given in Appendix D. A study of Appendix D together with Information pre sented in Section I-C indicates the following conclu sions and strategy? DSW 201250 STLCOPCB4052615 -8- 1. Depending upon the size and type of capacitor, the cost of the Aroclor in the capacitor repre sents 5-10$ of the market value of the capacitor. Thus, the market demand for capacitor Aroclor is not highly price sensitive, and we cannot increase our sales by simply reducing price. 2. Increasing the price of Aroclor as much as 25$ would have little effect on total sales. 3. We do not anticipate any change in the price of Aroclor used in capacitors unless there are changes in the price of raw materials or freight. 4. We will change Aroclor prices if a price change in benzene, chlorine or freight totals $0.20 cwt. in terms of Aroclor price. 5. In overseas markets our domestic prices will be used. If a legitimate competitive lower cost is offered, we will meet it. K. Importance of our Production Capacity Monsanto is the sole supplier of chlorinated biphenyl in this country. Originally all production was at Anniston, but during the War when the government in sisted on another source Monsanto was fortunate in being able to satisfy this essential requirement by producing at WGK. Today, both facilities are needed to furnish Aroclors for transformers and capacitors. These electrical apparatus are essential to maintain our normal living and for our defense in cold or hot war. Assuming this responsibility of single source of supply requires that we maintain a larger excess capacity than is required of most products. A minimum of 25$ excess capacity of required quality product should be available at all times. A recent expansion should provide this excess capacity for 1966 and 1967 > but new facilities will be re quired to meet forecasts beyond 1967 (and provide the agreed upon excess capacity). Additionally, we must maintain an adequate tank car fleet to deliver the Aroclor when and where the custo mer wants it. To replace obsolete cars and build up our fleet needs, 34 new aluminum cars are being pur chased at a cost around $600,000 - delivery mid 1966. DSW 201251 STLCOPCB4052616 -9II. Long Range Objectives A. Increase the sales of capacitor Aroclor from 23,500,000 pounds in 1966 to 27,800,000 pounds by 1970 - at maxi mum profitability. B. Establish a world-wide marketing program designed to provide top-quality products, the very best technical and commercial service and research and analytical assistance. Our purpose is to maintain our supply posi tion in the domestic market and increase our business in selected overseas markets. C. Investigate possible new technology which will enhance and protect and position of Aroclor in industrial capa citors. DSW 201252 STLCOPCB4052617 -10- III. General Strategy Aroclor 1242 is used as a dielectric in fixed-paper ca pacitors because it offers the best combination of cost and performance to do the Job. Many other products have been over the past 30 years, but none offers the total performance of Aroclor. We know of nothing on the horizon which will challenge this position. Fixed-paper capacitors with Aroclor are widely used in the market for capacitors used in industrial applications. These units fill a special market need and are always specified for the various applications where they are used. In other words, the user does not consider Aroclor units versus some other type - when he needs a specific type of industrial capacitor, he always buys an Aroclor fixed-paper capacitor. The same is true of other types of capacitors filling other specialized needs. For tech nical reasons, Aroclor will not compete in other markets, and thus other types of capacitors are specified (see Table 1). Because Aroclor fixed-paper capacitors fill a specific need and are always specified for that need, there is very little that we can do to increase the use of Aroclor in capacitors. We cannot influence the total requirement for industrial capacitors. However, there is a great deal that we can do to maintain our present position. The following items are an important part of our general strategy for capacitor Aroclor. A. To increase the sale of capacitor Aroclor from 23.5 million pounds in 1966 to 27.8 million in 1970 - at maximum profitability. 1. Provide the necessary high quality electrical grade Aroclor in the amount required to meet the expected growth for the fixed-paper Aroclor capacitor markets. The entire industry depends exclusively on Monsanto to fill these needs - we are their sole supplier. Make certain that the quality of Monsanto Aroclor is at least as good as competitive material produced in other world areas. 2. Maintain absolute leadership in sales and techni cal service on capacitor Aroclor to capacitor manufacturers, other component suppliers, and end use customers. Plan an offensive service program DSW 201253 STLCOPCB4052618 -11- (especlally technical assistance) and solve de fensive problems (especially with the customer) as they arise. 3. Induce all customers to employ the new modern testing tools for determining the thermal and chemical stability of incoming Aroclor. 4. Encourage the use of thermal stability procedures to probe the quality of capacitor components such as the resistors, tabs, foil, paper, gaskets, rim seal compound, and the can metals - when heated in the presence of Aroclor. Through this approach, get customers to screen out components now con sidered acceptable. This will "lock-in" Aroclor and lead to better quality capacitors. 5. Attend technical society meetings to keep posted on possible new developments and assist in the preparation of specifications and test procedures for capacitor materials. In the past ASTM was concerned with only establishing test methods for materials. Now this authoritative group is also responsible for posting the material specification requirements to meet the needs of the given indus try. Accordingly, the ASTM committee is now draw ing up and will publish official industry specifi cations for capacitor Aroclor. No lieniency will be shown on the very tight quality requirements which through its years of progressive efforts Mon santo has demonstrated its capability to meet. 6. Cooperate with the International Division to pro vide technical assistance to selected world mar ket s. ! 7. Forecast accurately future requirements for Aroclor in order to maintain at least 25# excess capacity to handle demand surges. 8. Appraise the effect of possible new dielectric developments by others (additives, films, etc.). 9. Continuously appraise our capability to develop marketable improvements in the Aroclor dielectric for across-the-board capacitor uses. 10. Investigate new markets, such as EHV transfer of electricity, to see if Monsanto can play a role in market development. DSW 201254 STLCOPCB4052619 -12- IV. 1966 Goals A. Sell 23.5 million pounds of capacitor Aroclor (domes tic and U. S. export). B. Request analysis by the Product Director of possible competitive manufacture. Since the availability and cost of biphenyl is such an important consideration in any competitive action, make a thorough analysis of other possible sources of biphenyl and its effect on chlorinated biphenyl production costs. C. Visit WGK and Anniston at least twice to review quality control, future activities and capacity needs. D. Make at least two calls on all our major capacitor Aroclor customers. E. Make trips to Canada, Europe, Mexico, South America and Australia as required, to help the electrical industry properly use our electrical grade Aroclor. F. Follow all the listed market use areas for indica tions of expansions or contractions and forecast accordingly. G. Analyze the increased demand for Aroclor that will result from the large new power capacitor require ments for EHV lines, and revise forecasts accordingly. H. Evaluate the effect of the new G.E. Slimvar 400 KVAR plastic film capacitor on future Aroclor requirements and establish marketing and research plans accordingly. I. In the ballast market areas, domestic and interna tional, evaluate the effect of G.E.'s new Pyranol-2 and establish marketing and research plans accordingly. J. Explore the status of outside developments designed to raise the capacitance of Aroclor 1242 by additives such as cyanoethyl sucrose. K. As Aroclor consumption has increased markedly and will surge strongly late in 1966, implement projects designed to provide a larger and more satisfactory tankcar fleet. L. Accomplish improved electrical properties to meet world-wide competition. This specifies raising the resistivity from 500 x 109 ohm-cm. at 100C. to I DSW 201255 l .. STLCOPCB4052620 -13- 10,000 for Aroclor 1254 and 6,000 for Aroclor 1242. It specifies power factor of 0.2# at 100C. and 60 cycles for Aroclor 1254 and 0.5# for Aroclor 1242. M. Arrive at standardization on electrical measurements between Anniston, WGK, MCL, and the customers. N. For International shipments, establish biphenyl con tent maximum of 0.025# for Aroclor 1254 and 0.05# for Aroclor 1242. O. To meet superior thermal and chemical stability of competitive chlorinated biphenyl, the maximum chloride levels related to various stability tests must be lowered considerably to 0.25 ppm. or less. P. To meet competitive and domestic industry requirements for transformer askarels the old resistivity specifi cation of 100 x 10^ ohm-cm. is to be raised to 1,000 and a power factor of 1.5# at 60 cycles and 100C. is tentatively assigned. Q. Determine need for and definition of a research pro gram designed to develop new generations of dielectric fluids to replace or improve Aroclor. R. Assist our customers to evaluate the diepoxide type scavenger for capacitor Aroclor. S. Assist in updating strategies for Mexico, Canada, Brazil, Argentina, Australia, Europe and others as required. T. Establish quality improvements at WGK so that we can have complete interchangeability of shipment to all customers between WGK and Anniston. U. Improve the electrical properties of Aroclor 1242 as packaged in drums - particularly for overseas cus tomers. - f DSW 201256 STLCOPCB4052621 -14- V. 1966 Market Plans Maintain present exclusive supply position in domestic markets. Responsibility Action Review Date or Target Date PGB, GRB, Purchasing Note changes in raw ma- Continuously terial costs (benzene and chlorine) and adjust prices according to pricing strategy. JC, Mfg. Evaluate any new develop ments which would affect possible competitive manu facture. 2nd and 4th Quarters 1966 PGB, Field Salesmen Visit major accounts at least twice to provide technical service. Field salesmen visit each major account at least six times during the year. During 1966 PGB Attend ASM and IEEE meet Through 1966 ings to^olvelop speclfica- tions^-'test procedures,and to project Monsanto image In f.lyj Improve quality so that our product is at least as good as foreign competition. PGB, JMC, Mfg. JAM, Mfg., Engineering JC, Mfg., Marketing Mfg., Eng. Agree on new target quality specifications Determine necessary ac tions, timing and costs to improve quality to meet new spec. Approve actions and costs to improve quality and get projects underway. Start producing material to consistently meet new specifications. 1st quarter 1966 2nd quarter 1966 2nd quarter 1966 2nd quarter 1967 I DSW 201257 STLCOPCB4052622 -15- Responsibility Action Review Date or Target Date Mfg., Mktg. Establish both WGK and Anniston as equally capable of producing new quality and obtain customer agree ment to take material from either plant. 2nd quarter 1967 PGB, Mfg., MCL, Agree on test procedures R. Munch to measure quality. 3rd quarter 1966 Assure 25# excess production and shipping capacity over annual requirement. Mktg. Review long-range fore casts. 1st quarter 1966 Mfg., Eng., JC Determine timing of need for new facilities, pre pare projects and submit to management for approval. 3rd quarter 1966 Evaluate the effect of new technical developments on the use of Aroclor in capacitors. RGB Define the value of epoxide 3rd quarter additives and establish plan 1966 by which Monsanto can make maximum contribution. PGB, GRB Evaluate value of Pyranol P-2 additive and attempt to get license from G. E. if desirable. 3rd quarter 1966 PGB Evaluate future effect of 3rd quarter use of plastic films in 1966 capacitors on Aroclor busi ness. PGB Define the importance of 4th quarter cyanoethyl sucrose to the 1966 Aroclor capacitor business. DSW 201258 _ STLCOPCB4052623 -16- E. Evaluate need for Research program In capacitor Aroclor. Responsibility PGB, Dev. Research Action Define areas In which Research effort is required. Review Date or Target Date 3rd quarter 1966 WR Richard Mktg., Mfg., JC Develop program to iraple- ment needs in the Research area and obtain approval for manpower and money. 4th quarter 1966 F. Provide assistance in Global Marketing program. PGB Make tech service trips as Through 1966 required to Canada, Mexico, South America, Europe and Australia. PGB, Int. Assist in preparation and implementation of Area Strategies. Through 1966 PGB, GRB, Int. JAM, MCL Review Global Strategy 2nd quarter 1967 Prepare process improve- 4th quarter ment plan for Aroclor, 1966 biphenyl and chlorine at MCL JAM, JC . MCL Implement plan to improve MCL costs. During 1967 Int. Div. Prepare Marketing plans for major export markets Canada, Mexico, South America, Australia, etc. 4th quarter 1966 RAS, GRB Study manpower requirements for better local marketing effort in selected export markets and make recommen dations accordingly. 3rd quarter 1966 G. Improve the delivered electrical quality of Aroclor 1242 - particularly packaged in drums to overseas customers Mfg. More highly refine to up- 2nd quarter grade electrical properties 1966 before packaging to meet new specifications. ________ DSW 201259 STLCOPCB4052624 -17- Responslblllty Mfg. Action Select a new drum capable of maintaining electrical properties. Investigate innovations such as add earth to the drum. Review Date or Target Date 2nd quarter 1966 j DSW 201260 STLCOPCB4052625 APPENDIX A HISTORY OF CAPACITOR DEVELOPMENT 600 BC - Capacitance is one of the three basic parts of an electric circuit. Around 600 BC, it was recorded that an amber rod rubbed with a piece of fur would then attract and cling to fur, feathers, etc. This was the first ex perimental proof that it is possible to store and release electrostatic energy. 1745 - Nothing further happened along this line until 1745 when similar observation was made using a jar filled with water and a nail stuck through the wooden cover. The operator's hand was the other electrode of this device called the Leyden Jar. 1746 - Refinement of this, by placing tin foil Inside and outside of the jar to serve as the electrodes and the glass walls of the jar to serve as a good dielectric, re sulted in the first capacitor constructicn. This is what Ben Franklin charged with his flying kite, but the gadget remained a play thing until 135 years la^er. 1878 - A paper capacitor impregnated with paraffin was made for a telegraph circuit. 1892 - A capacitor was tried for a single phase alternating current motor. 191*1 to j-929j the era of mineral oil - Finally in 191*+ it was concluded that capacitors could be made for the pur pose of power factor correction to save money. It was foreseen that capacitors on the power line would decrease the amount of electric current supplied at one end of the electrical system to get the desired work done at the other end. Paraffin wax used to impregnate these early capacitors had short life. This led to discovery of the refinement of mineral oil to give better performance. At this time Charles P. Steinmetz, of General Electric Company, aroused his associates by predicting large fu ture commercial use for this strange device, still called a condenser. Use was forecast fors 1. power factor control 2. Induction motor starting 3. as a circuit protective device DSW 201261 STLCOPCB4052626 A-2 While he did not foresee air conditioning, fluorescent lighting, nuclear plasma, etc., unquestionably the fixpaper, mineral oil impregnated capacitor had arrived for significant commercial use. In those days "Trouble Was GE's Most Important Product." Use of the new mineral oil impregnated paper capacitors contributed more than their fair share of trouble and problems. Probably noted more for high failure rate than anything else, use of these capacitors was hazardous as their failure involved an intense exothermic reaction, recog nized more commonly as an explosion. The tin foil electrodes dissolved in the mineral oil after short use and the linen paper contained an amazing amount of impurities, including pearl buttons. Aluminum foil replaced tin giving marked improvement, and allowed making a 5 KVAR power capacitor - indeed a large unit for those days. However, this also performed poorly until experience emphasized need for much more care in drying and impregnating operations. But this was far from enough. The problems were so great that G. E. hired their first organic chemist, Frank M. Clark, to study the nature of mineral oil, etc. Seeking high purity oil, highly refined, water-white mineral oil was adopted, only to find that this ionized under voltage stress forming a very troublesome deposit, called "X-wax" because no one knew its composition. After several years work the white oil was replaced with a (less pure) higher aromatic content oil, but it was known that something better would have to be found. Com mercial use demanded not only much better performance but already emphasized the need for significantly lower costs. Fortunately, Kraft paper was discovered. Coming from trees, it was clean and free from the bits of contamina tion resident in, linen cloth. Use of Kraft paper greatly encouraged the capacitor makers to continue, but in time they again got disgusted with the myriad of problems. Things were ripe for the coming great discovery. DSW 201262 STLCOPCB4052627 THE DISCOVERY OP AROCLOR 1254 DIELECTRIC BY FRANK M. CLARK OF GENERAL ELECTRIC CO. 1929 - Theodore Swann, an aggressive, enthusiastic, and venturesome businessman of our country's early chemical era, had provided the first facilities to produce biphenyl for heat transfer. The anticipated market promptly flopped. The main trouble arose from biphenyl's relatively high melting point causing all of the pipes in the heater sys tem to be frozen at normal temperatures. Wisely, Swann began chlorination of biphenyl as the easiest and least expensive approach to getting derivatives with possible useful and salable properties. This resulted in the great spectrum of interesting properties possessed by the new family of chemicals called Aroclor. Frank Clark quickly tried these new materials and found them to be good dielectrics. Moreover, they were unique because of their oxidative, thermal and chemical stability and, of all things, they did not burn. Frank patented their use and assigned the G. E. tradename Pyranol (R). For this discovery, he won the coveted Coffin Award of G. E. in 1932. His invention is designated by the World Almanac as One of the World's Great Inventions and Scientific Discoveries. The Pyranol Basic Use Patents; 1. USP, 1,931*455* application April, 1931* issued October, 1933. Covers chlorinated biphenyl, chlorinated benzene and chlorinated biphenyl ether. 2. USP, 2,041,594, application April, 1931* issued May, 1936. Covers chlorinated biphenyl, chlorinated bi phenyl ether and mixes with chlorobenzenes. 3. USP, 2,341,760, application February, 1942, issued February, 1944. Covers halogenated biphenyl benzene mixed with halogenated castor oil. 1932 - The advantages of Aroclor 1254 over mineral oil were so great that by 1932 nearly all capacitor manufac turers were licensed by the Clark patents to use this new material. It allowed cutting the capacitor size in half a great economic advantage - and additionally Aroclor lent Itself nicely to sales promotion activity because of its unusual quality of not burning. DSW 201263 STLCOPCB4052628 A-4 However, the new capacitor dielectric soon showed a dis advantage. While producing more capacitance, which re sulted in building much smaller units, lack of adequate heat-transfer area required finding a better design to dissipate this heat. This lead to development of the "cross-roll" design for the capacitor core and allowed making a 15 KVAR Aroclor unit - no larger than had been a 5 KVAR mineral oil capa citor. This great success was heralded by the advertising people who proclaimed that "Now capacitors like Ivory Soap are 99 44/100# pure, and look here, folks, we can't get the liquid to ignite with this blow torch." 1935 - 1951 - Through this period the Aroclor 1254 capacitor market use grew continuously. It was helped by development of a special Kraft paper which allowed increase in the capacitance rating from 15 to 25 KVAR. This also paved the way for low density paper, which later was an important factor in allowing construction of 50 and 100 KVAR units. THE ERA OF CAPACITOR AROCLOR 1242 1952 - Just like discovery of Aroclor 1254 back in 1930 resulted in the almost total replacement of mineral oil around 1952 the "discovery"of Aroclor 1242 resulted in almost complete replacement of Aroclor]2$4. This last transition which brought significant economic advantage to the capacitor indu st ry t ranspired practica1ly unnoticed at Monsanto because all that was needed was to chlorinate to 42# instead of 54# (an easier operation). As Aroclor 1242 was always as readily available as Aroclor 1254, it is of interest to note reasons why its advantages were not used for so many years. Its advantages are better low-temperature properties, about 12# greater capacitance than Aroclor 1254, and it is sig nificantly lighter in weight. Sold at the same price per pound, the combination of greater volume at the same weight cost plus greater capacitance allowing smaller, less costly construction adds up to economical advantages near 20#, depending on the particular type capacitor. r DSW 201264 STLCOPCB4052629 While the industry was always aware of this, they had evidence that Aroclor 1242, a thinner more polar dielec tric, might not be handled satisfactorily. This false premise was dedicted from the fact that the industry in deed had trouble at times handling Aroclor 1254 and hesi tated to face the fact that this was due to lack of suf ficient "cleanliness" in the capacitor plants. As power lines capacitor switching came into vogue to gain the most efficient possible use and also as fluorescent lighting was moving outdoors - there arose need for a superior low-temperature dielectric for such applications in the colder climates. Aroclor 1242 met these requirements. Also around this time, the fierce price squeeze began, and the capacitor makers looked hard for ways to cut costs. Westinghouse made the initial move to use Aroclor 1242 to solve both of these problems. The result has been that all others have had to follow. As was anticipated, almost all of the capacitor makers ran into contamination problems on switching to Aroctar 1242. Monsanto assisted in solving these problems. Today, these factories operate in the required "clinically clean en vironment" and the transition to Aroclor 1242 is almost complete. 1956 - Historically, 1956 was the only time that the quality of Aroclor has been seriously questioned. Possibly this and other materials used in construction resulted in the capacitor failures that swept our country at great loss to the capacitor manufacturers -" especially G. E. 1959 - By this time, dependable improvements in both the quality of Aroclor and Kraft paper paved the way for the industry to cut the size of power capacitors in about half and sell at much lower prices. 1966 - Throughout this historical gamut of capacitor events, Aroclor constantly emerged in a stronger position. Today, capacitor Aroclor 1242 is "a tremendous buy." In recent years competitive economic pressures amont the capacitor manufacturers resulted in constantly making smaller size Aroclor capacitors to do the same work as before at less cost. This has kept our capacitor Aroclor sales on a relative plateau instead of fully sharing the intrinsic ever growing use for Aroclor capacitors. Fort unately this cutting of the standard Aroclor fixed paper capacitor designs ended in 1966, and various standard type designs are now being enlarged for better performance. DSW 201265 STLCOPCB4052630 A-6 However, research done only at General Electric Company has resulted in their marketing Pyranol 2 ballast and motor-run capacitors wherein the Aroclor 1242 contains a diepoxide stabilizer. The purpose is to underwrite General Electric's objectives to continue making the smaller harder working capacitors. This is covered by British Patent 986,950 and U. S. application No. 223,691. Additionally, in 1966 General Electric introduced their . Slimvar 400 KVAR power capacitor containing Aroclor 1242 but with a highly stressed plastic film replacement for a portion of the Kraft paper, normally used. This is the first time that more than 100 KVAR's have been packaged in one can and obviously the new Slimvar 400 unit accom plishes significant size reduction. It cuts the Aroclor content by more than half. Pending anticipated commercial success this Aroclor capacitor containing plastic film will again result in enhancing the economic value of Aroclor fluid for capacitors. DSW 201266 STLCOPCB4052631 A-7 COMMERCIAL ATTEMPTS TO REPLACE AROCLOR It is beyond the scope of this writing to list the hun dreds of chemicals explored as possible replacements for Aroclor. Practically all sought to accomplish greater economies via the higher capacitance route. However, God seems to have ruled that with higher capacitance comes higher loss factors. Certainly this has been the prime reason for failure of most of the candidates to replace Aroclor for capacitors. Yet there will always be an in terest in the possibility of adding a relatively minor amount of a high dielectric constant material to Aroclor in order to shave costs. Since the advent of Aroclor 1254 use in 1932, replacement attempts that attained commercial attention are listed very briefly as follows: 1938 - Tetrachlorotoluene: This wex is unusual because its dipoles rotate in the solid state. However, instability precluded its use. . 19^^ - Chlorinated castor oil mixed with chlorinated bi phenyl benzene: While neither compound alone was of interest, surprisingly their mixture showed possibility until lack of stability ruled it out. 19^7 - Biphenyl sulfone: This was one of the early examples of a relatively high dielectric constant material that seemed of interest as an additive to Aroclor. However, due to higher polarity it was too difficult to "clean-up" and handle without excess trouble from contacting trace contaminants. 1948 - Trlchloroblphenyl ether: A good dielectric but too high in cost. 1949 - Although General Aniline and Film received U.S.P. '27211,019 in 1940 covering dimethyl-diphenyl sulfone, claimed to have a DK greater than 11.5 - and in 19^6 G. E. received U.S.P. 2,410,714 covering dlnapthyl sulfone for mixture with Aroclor and mineral oil - active commer cial interest did not develop until 1949 when Westinghouse received U.S.P. 2,434,540 on tolyl xylyl and phenyl xylyl sulfones. However, nothing commercial has materialized to date. Westinghouse continues to experiment and has long said that they may yet use xylyl tolyl sulfone as an additive DSW 201267 STLCOPCB4052632 A-8 to Aroclor for a small specialized captive use. Monsanto makes the material on a very small Beale to have it avail able for those who want some from time to time for ex perimental work. 1950 - This was the approximate time when Westinghouse was the first to commercially replace Aroclor 1254 with our Aroclor 1242. G. E., who had also explored Aroclor 1242, was afraid of it. They said, "Either they are wrong or Westinghouse is headed for a great deal of trouble." However, economic pressure and better low-temperature re quirements forced G. E. to learn how to handle the much more "touchy" Aroclor 1242. Then in 1952 they switched. Eventually, this forced the entire industry to adapt Aroclor 1242. The transition is now about completed. 1951 - IN-420, dichloroalpha methyl-styrene dimer: This was developed by the Federal Telecommunications Laboratory and heralded as a total replacement for Aroclor. The pro perties of this product are very similar to those of Aroclor 1254. However, IN-420 was claimed and proved to give longer DC life than possible with Aroclor (actually no one was really complaining about the DC life of the Aroclor units). Not knowing the possible impact of this development coming before Aroclor 1242 had chance for firm market establishment Monsanto bought exclusive rights to IN-420 for $10,000 (the initial look-see). Our process costs dictated that the best sale price was about 70 cents a pound, at a one-millionpound minimum. Our serious effort at sales promotion (at this unfavorable economic level) resulted in only an order for four drums by a small capacitor maker interested merely because it was a new and different dielectric. The industry turned down IN-420 because it was not worth one cent a pound more to them than Aroclor 1254, selling around 15 cents. This was a good exercise to experience the importance of econo mics in the capacitor business. 1955 - In 1952, U.S.P. 2,585,947 and in 1953 U.S.P. 2,662,995 issued to Dr. J. E. Lilienfeld covering use of an electro lytic type condenser for alternating current power circuits. This development created much interest and several capaci tor makers including some of our customers, i.e., G. E. and Aerovox, invested up to $100,000 for a license. They DSW 201268 STLCOPCB4052633 keenly felt need to protect their positions, if finally now an electrolytic unit was destined to challenge the exclusive use of fixed-paper - Aroclor-impregnated capaci tors for the fast growing power market. While quite a surprise to everyone, the fact was that this revised electrolytic unit worked, indeed for AC applications. The liquid used consjsted mainly of phenol with some toluene and a portion of sulfuric acid. The anticipated market was the newly booming air conditioner field which was greatly helping to increase sale of our Aroclor. But who wants to have a can of phenol, toluene and sulfuric acid blow up in the living room air condi tioner? Accordingly, this new electrolytic called the Ensar Power Capacitor failed to accomplish commercial use. On the other hand, the doctor and his sales promotion man, Mr. Powers (the nomenclature here is purely a coincidence) collected ample sums from this development, when needed to continue their fond pleasure of sailing the South Pacific waters in their small boat. 1959 - G. E. got real interested in dichloroblphenyl oxide which could be obtained from Dow. This good dielectric has a DK of 10, considerably higher than the value for Aroclor 1242, and it also has slightly better lowtemperature properties than our material. Unquestionably, an indicated sale price of somewhat over 40 cents a pound and doubts about availability from the Dow process are the factors keeping this material from competing with Aroclor 1242 readily available at much lower cost. As further evidence of G. E.'s strong interest, they in duced us to prepare a small amount of 2,2* dichloroblphenyl ether from orthophenyl phenol, orthonitrochlorobenzene and chlorine. Monsanto is well-known to have all three of these raw materials. Cost of this good product continues to preclude it from competing with Aroclor 1242. 1961 - For many years G. E. entertained the idea of eliminating some of the less desirable isomers of the Highly complex chlorinated biphenyl mixture. Fortunately, their approach was awkward as starting with finished Aroclor 1242 they had to go backwards to remove components. While cooling at low temperature was simple enough to re move undesired 4,4' dichloroblphenyl, a tub full of Aroclor was required for feeding laborious fractional distillations to get a trickle of some desired trichloro isomer possessing the sought higher DK values. DSW 201269 STLCOPCB4052634 A-10 G. E. gave up on this to put their efforts into new VPC analytical techniques to thoroughly study the nature of the Aroclor isomeric complex. Fearing competition as a result of the 1956 trouble, Mon santo assigned the funds needed to explore possibility of a relatively direct approach to enrichment of the desired isomer content of Aroclor 1242. This resulted in our high DK Aroclor. However, market acceptance has not been gained because the cold, hard economics of capacitor construction revealed that the use of the new material would result in higher costs than those in vogue with Aroclor 1242. Things of known interest but not mentioned previously be cause they never got to commercial consideration include: 1. Esters containing fluoro-methyl groups, patented by Sprague. 2. Tetrachloronltrobiphenyl: Monsanto made this very high, 25 to 30 DK, material in experimental amount for G. E. 3* Other items explored by Monsanto worthy of mention are ethyl orthonitrobenzenes and various nitriles. 4. Cyanoethyl sucrose is another high dielectric constant material patented as an additive for Aroclor, vor many years, Monsanto maintained very modest laboratory .'neilities where hundreds of possible dielectric candidates '.ere screened in a strictly preliminary way. Things that appeared of possible interest were submitted mainly to G.E. for further testing. Nothing fruitful evolved, and in recent /ears Monsanto has not carried on with such effort. G.E. also gave up further effort to directly alter or improve the properties of Aroclor and for that matter any other halogenif.ed aromatic dielectric materials. Logically, they concluded !.;hat we are best able to do this kind of thing. .1962 to 1966 Instead around 1962 G.E. dedicated their research efforts to finding an additive or partial replacement for Aroclor* or in fact to develop an .entirely different capacitor system. Late in 1965* G.E. announced Pyranol 2 ballast and motor run capacitors. This fluid is Aroclor 1242 containing about 0.25$ of a diepoxide stabilizer, believed to be Carbide's Unox 206 or Unox 269 disclosed in G.E.'s British Patent 986,950 and G.E.'s March 1966 USP 3,242,401 and 3,242,402. Use of these bvdrogen chloride scavengers is primarily an expedient to DSW 201270 STLCOPCB4052635 A-ll justify maintaining the smaller harder working capacitor designs developed over the past five years. Then early in 1966 General Electric announced their Slimvar 400 and their Magnovar 150 KVAR power capacitors. These use a plastic film as partial replacement for the normally used Kraft tissue paper insulation. The very high electrical stress accommodated by the plastic film allows building a much smaller capacitor. Indeed this is the first time that more than 100 KVAR's have been packed into one can. Thus far, this plastic film - paper - Aroclor 1242 capacitor system has been introduced only for power capacitors. Pend ing further developments, it may be of interest for motor-run, large ballast and energy storage capacitors. r DSW 201271 STLCOPCB4052636 APPENDIX B THE MARKETS FOR AROCLOR CAPACITORS Power Factor Correction (AC) All utilities and many industries strive for maximum line loss factor correction, accomplished by installing large 50 to 100 KVAR, AC, capacitors. This approach, which gains maximum utilization of electric power, is far more economical than an equivalent increase of generating capacity. While demand for Aroclor capacitors has markedly increased for this purpose and the future is very strong - paradoxically Aroclor has not fully shared this growth. Power line correction had been a 35 million dollar market in the early 1950's< Today, with far mere capacitors employed, this annual market is valued at only about 18 million dollars. Particularly after 1956, dependability on the stability quality of Aroclor and significant improvements in the quality of the Kraft paper used, allowed capacitor designers to cut components (including Aroclor) roughly in half. Thus, today a 100 KVAR unit is about the same size as was a 50 KVAR capacitor six years ago; and it does twice the work. Hard pressed by competitive cost-price squeezes, the capacitor makers fully employ such smaller designs to accomplish price cuts. Thus, a 50 KVAR unit priced around $165 several years ago, now sells for only $89* Under these circumstances - we as well as our customers are suffering commercially from an advancing technology in design. With our relatively constant Aroclor pricing, we have been on a volume and earnings plateau in a fast growing market. However, no one of right mind would be inclined to invest further in design ''brinkmanship," lest these units come nowhere near meeting the expected 25 to 30 years of life. Therefore, it was to be expected that Aroclor would begin to more fully share the great growth predicted for power capacitors. This would certainly hold true in terms of the standard type capacitor designs. However, now that G.E. has Introduced a much different design using plastic film and less Aroclor and paper, the situation will be qualified by the commercial success of G.E.'s new Slimvar 400 capacitor. It will be about two years before this becomes established. Then at the most It may cut down the Aroclor capacitor requirement by 25 per cent from what it would have been otherwise. In turn, this reduction will be counter balanced through increased use of capacitors. DSW 201272 STLCOPCB4052637 B-2 Air Conditioner Units (AC) No one Is allowed to market an air conditioner without a b''llt-in motor running capacitor. Aroclor units are used exclusively for this purpose of getting the most effective use of the available power. Thus, as our population grows and we strive to live more comfortably, the demand for Aroclor air conditioner capacitors will increase. Late in 1966, G.E. will have marketed Pyranol 2 type Aroclor capacitors for air conditioners. As yet, possible use of the Aroclor plastic film - paper system for this purpose has not been clarified. Fluorescent Lighting (AC) Aroclor capacitors are standard for all fluorescent lighting ballasts. Formerly used only indoors, a great deal of fluorescent lighting is now designed for outdoors as well. As living quarters, commercial structures, factories, government and institutional structures and outdoor lighting facilities are built for better living and to meet population growth - so will the use of Aroclor fluorescent lighting capacitors increase in use. Over recent years, the strong growth of lighting and air conditioner capacitors resulted in Aroclor's use for these applications drawing almost even with the volume demand for Aroclor in power correction units. While G.E. through their Pyranol 2 design appear to adhere to the "miniturned" sizes, most others are reverting to larger size air conditioning capacitors and will make no further cuts in size of ballast units. So far, G.E. have not licensed others (than Reguladores Automaticos in Mexico) to use the Pyranol 2 design. We seek to learn G.E.'s policy regards licensing Pyranol 2, not primarily relative to our domestic objectives, but mainly regards possible International advantages. Energy Storage Capacitors (DC) This market emcompasses a number of interesting highly technical applications, ranging from use of a single 50 KVAR unit to banks of 2,500 or more capable of releasing up to seven million joules within a microsecond into a confined magnetic field. This amounts to taking all the electric power capable of generation in this whole country, within the same time interval, and directing and dumping it into a very small area. Typical applications include: DS\N 201273 STLCOPCB4052638 B-3 a) The hot-shot wind tunnels to test supersonic aircraft and rocket components at air speeds ten times the speed of sound. b) Electrospark explosion, under water, to create shock waves of sufficient force to shape difficult-to-form metals into intricate contours, within millionths of a second. , c) Nuclear particle accelerators for nuclear fusion research, i.e., cyclotrons, plasma, etc. All of this is controlled by the Government at Los Alamos. Because their production lines for fixed paper capacitors are standardized on Aroclor, the capacitor makers prefer to fill requirements for high energy DC storage with banks of Aroclor units. However, recent work done in England indicates that castor oil units may give over twice as many shot-firings as possible with Aroclor units. Accordingly, castor oil is being resur rected and may replace some Aroclor where the application requires longer capacitor life. Actually, castor oil is less stable than Aroclor, but its products of decomposition are not as offensive as are the halogen ions given off with slight breakdown of Aroclor. Efforts to stabilize the Aroclor have not been effective. While capacitor demand for high energy storage is not expected to show any substantial growth, in any event it appears that Aroclor may encounter competition from castor oil in this area. i High Voltage Power Supplies (DC) Aroclor fixed paper capacitors are used almost exclusively to meet the needs of this interesting market area possessing growth potential readily recognizable from the nature of the specific applications, including the following: a) DC power supply filters 1) X-ray equipment 2) Electronic transmitters, radar, microwave, etc. 3) Any electronic or industrial direct current power supply requiring filtering for silicon rectifiers. This is the power supply approach taken in place of motor generators. b) Intermittent duty pulse forming systems 1) Small surge generators 2) Linear accelerators, i.e., the Laser method for highly oriented light. c) Flash tube light sources, i.e., flash photography DSW201274 STLCOPCB4052639 B-4 d) High intensity directional light systems to guide aircraft in runway landings (this is not the conven tional runway lighting). e) Capacitor discharge welding systems The above applications may be classified as DC light duty energy storage capacitors. In these areas, Aroclor will probably continue in exclusive use for these interesting growth markets. DSWI 201275 STLCOPCB4052640 APPENDIX C COMPETITION 1. Historical Background Monsanto's basic patents expired around 1950. Our histori cally sound pricing policies and the unbelievable respect held not only by Q.E. but the entire industry regards our , technical competence, are the two major forces that have continued to turn back potential competitors. Our reputa tion was temporarily damaged in 1956, but full confidence in Monsanto has again been restored. Various technical attempts to compete with Aroclor in the past are discussed in Appendix A. 2. Potential Competitors Today Only those with strong chlorine positions appear as logical contenders. The leading positions in this area are* Dow Columbia-Southern Diamond Alkali SolVay Hooker Olin Mathieson Wyandotte Today late in 1963 we know that* a. Stauffer and Halowax Division of Koppers have been calling on the electrical industry to ask, "What do they have to do to get into the Aroclor business?" The industry reply has been, "Go back home, determine what you can offer us so that we can evaluate it." b. Dow has contacted industry leaders regards "Aroclor-like" materials. This implies chlorinated biphenyl ethers. As far back as 1948, trichlorobiphenyl ether was recog nized as a very good capacitor dielectric with slightly better low temperature properties than Aroolor 1242. However, priced around 40 cents a pound it could not compete with Aroclor. Recent quotes from Dow indicate chlorinated polyphenyl ethers in the 25 to 28 cent a pound range, with possi bility that the trlchloro-compound might be available at a slightly lower level. As the directly chlorinated isomeric mix has about the same dielectric constant as Aroclor 1242, there is no economic advantage in using it unless the price is as low or lower than that of Aroclor 1242 (approximately 14^/lb.). '------------------- -- DSW 201276 STLCOPCB4052641 C-2 Any time Dow's material is available in sufficient amount and priced with slight advantage over Aroclor - there is little doubt but that the industry would show real interest. c. "Look-see" evaluation continues on eyanoethyl sucrose, offered by Eastman Kodak, as a high DK (12) additive for capacitor Aroclor. The material is reported to have good thermal and chemical stability, but it is too viscous even at 120C. for normal impregnation tephniques. 3. How Would Competitors Enter a. It is generally felt that entrance would not be through the electrical but via the non-electrical markets. Here the general price structure is higher, the use conditions are generally less critical, but the markets and end uses are highly diversified. b. Dow could look at the situation far more broadly. They are very strong in chlorine and have produced biphenyl for many years. Their costB are probably just as good as Monsanto's. They have a good position in hydroxy poly phenyls, but have never produced chlorinated polyphenyls. We assume that the size of the market, our pricing poli cies and our technical position have kept them out. The key is chlorine and the availability of by-product biphenyl. If by-product biphenyl can be economically purified and upgraded such that it can be used to produce the very high quality elec trical grade Aroclor, then low cost chlorine becomes a key factor. Whether it be Dow or anyone else, in the event of having large chlorine excess on hand, they would certainly consider chlorinated polyphenyls as a route to upgrade. From time to time the Manufacturing Dept, has made an analysis of Aroclor costs for potential competitors based on certain assumptions regarding chlorine and biphenyl costs.' The most recent analysis (June 1963) prepared by Mr. D. B. Hosmer is shown on page C-5. This analysis clearly shows that at 18,000,000 pounds per year (approximately half of the total capturable Aroclor market; it is possible for some company with cheap chlorine to compete in the Aroclor market. However, to establish a real long-term position, such a company would need to produce biphenyl or else find a way to upgrade and utilize by-product biphenyl. In addition, he must have outlets for terphenyl and recovered muriatic acid. These technical problem^ together with the marketing organization required to serve the widely diversified markets for Aroclor in competition with Monsanto's products and prices, have obviously discouraged competition.------------------------- DSW 201277 STLCOPCB4052642 C-3 Are we likely to have a competitor in electrical Aroclor in the future? We think not unless there is an unusual growth in the market or he enters the field to supply other uses and then tries to sell the electrical grade products. Our reasons are as follows: 1) O.E. knows the economic foundation of our price structure as well as we do - they set the pattern. We have followed this, not violated it; and G.E.'s only regret 1b that they did not do the same in conducting their business because if they had done so, they would not have the fierce competition and poor profits they now have. Westlnghouse and the rest who know about and understand our pricing policy have equal respect for it. The people who know this situation realize that if this business were divided, there would very likely be an increase in the price of Aroclor. 2) Assuming that we do not have G.E. or any other manufacturer cause to seek another source of Aroclor, any competitor would have to enter the market and attempt to take our business. We feel that he would have a very difficult Job on his hands. Monsanto's experience in making a quality product, production, handling, shipping and analytical know-how, plus our excellent reputation for technical service and prompt delivery, has built a very good rela tionship with the capacitor manufacturers. We have no reason to believe that many of our customers would offer a split of his business to any new, unproved supplier. 4. Overseas Chlorinated biphenyl is produced overseas as follows: England Prance Germany Italy Japan Russia MCL Progil Bayer Kaffaro Kanegafuchi Sovanol These companies have never sold any chlorinated biphenyl in the U.S.A., and we do not expect them to do so in the future. The reasons for this are as follows: a. Because of production capacity alone, we believe that nobody makes chlorinated biphenyl any cheaper than Monsanto. Since our quality and service are satisfactory, these foreign producers could only enter the market with a lower price. ` | DSW 201278 STLCOPCB4052643 C-4 b. The U. S. tariff on chlorinated biphenyl is 3.5^/lb. plus 25$ of the domestic market price (25$ of 15^/lb. or 375^/lb.) Thus, the total tariff is 7.25^/lb. Under these conditions, a foreign competitor would have to sell at or below our costs in drums on an f.o.b, basis. Present estimates by our tariff experts are that the tariff will not fall below 3.5 - 4.0 cents during the next five years. Considering freight, even at these reduced tariffs, overseas producers cannot compete effectively in the U.S. market. c. Because of the many technical and quality problems with Aroclor in capacitors, none of the major capacitor manufacturers would trust overseas production with a major testing program. They would need a powerful incentive to do this, and we don't believe that such is possible. Thus, we are not concerned about competi tion from foreign producers. d. However, as it has been established that our Aroclor quality is not as good as material from Bayer and Prodelec Monsanto needs make all-out effort to improve our quality. \ STLCOPCB4052644 \. Monsanto St. Louis - General Office FROM (NAME & L CATION ) June 6, 1963 DATE SUBJECT AROCLOR - BULK MANUFACTURING COSTS REFERENCE DBH to RON dated 2-7-61 JOB to RSW dated 3-1-61 TO Mr. R. S. Wobus - RWOBU CC: H. L. Minckler - HMINC C-5 As a result of our recent discussion, I have estimated Aroclor manufacturing costs that might be attained by a potential competitor who decided to make this line of products. For purposes of the comparison raw material usages for Aroclor 1248 were assumed since they represent pretty well an average of our product mix at Anniston. Chart No. I is attached which shows bulk manufacturing costs for various cases. It is believed that the chart is selfexplanatory but some comments concerning the results may be of interest. It would be very attractive at current plasticizer Aroclor prices, for a competitor to enter the market if he could attain an 18m lb. annual volume even though he was required to pur chase both biphenyl and chlorine. 18m lbs. x (0.1^25 - 0.12) = $585M gross profit, with an investment of about $1M. If either chlorine or biphenyl is made by a competitor the production of Aroclor for plasticizers is extremely attractive. A strong competitor who might make both biphenyl and chlorine is overlooking a very profitable opportunity if he fails to enter the Aroclor business. /dg Attachment D. B. Hosmer IN-IO REV. 11-65 DSW 201280 STLCOPCB4052645 Case No. Chlorine Biphenyl 1*" Purch. @ $50/T Purch. 3 $0.13/# Manufacturing Cost Raw Materials: Chlorine @ 103.3#/cwt. 2.58 Biphenyl @ 56.5#/cwt. 7.35 Others 0.01 Gross Raw Materials Credit Hcl (28.9# @ $ .01625) 9.94 0.47 Net Raw Materials 9.47 Total Conversion 1.94 Bulk Mfg. Cost* $11.41 CHART No* I AROCLOR COSTS FOR POTENTIAL COMPETITORS AT 18m lbs/yr Vs, Anniston Actual 21 45 Purch. @ $65/T Purch. @ $50/T Mftr. @ $35/T Mftr. 8 $35/T Purch. @ $0.17/# Mftr. @ $ .0685/#+ Purch. 3 $0.13/# Mftr. @ $ .0685/# 3.36 9.60 0.01 12.97 0.47 12.50 1.94 $14.44 2.58 3.86 0.01 6.45 0.47 5.98 1.94 $7.92 1.81 7.35 0.01 9.17 0.47 8.70 1.94 $10.64 1.81 3.86 0.01 5.68 0.47 5.21 1.94 $7.15 I IQZVOZ MSQ -_______________ _____~J 6 Mftr. 3 $4o/t Mftr. 8 $ .0685/# 7 Mftr. & Purch. 8 $48.92/T Mftr. 8 $ .0601/# Anniston Actual 1st Quarter 1963 2.07 3.86 0.01 5.94 0.47 5.47 1.94 $7.41 2.50 3.41 0.01 5.92 0.62 5.30 1.26 $6.56 All bulk manufacturing costs assume that the competitor can sell 54.5# of the theoretically recoverable Muriatic Acid and credits himself at $0.01625/# which Is essentially a net sales realization value. Biphenyl manufacturing costs assume that the competitor has an outlet for Terphenyl and credits himself at Benzene value for this by-product. DSW2 With no by-product Hcl credit and no outlet for Terphenyl (Santowax at no value) Aroclor costs in Cases 3, 5 and 6 will increase by $0.82/cwt. With no by-product Hcl credit Aroclor costs for Cases 1, 2 and 4 will increase by $0.47/cwt. DEFINITION OF CASES Case No. 1and 2 - Represents cost parameters for a competitor who would purchase both biphenyl and chlorine. Case No. 3and 4 - Represents a competitor who would purchase either chlorine or biphenyl but not both. Case No. 5and 6 - Characterizes the parameters for a strong competitor who makes both biphenyl and chlorine. Case No. 7 - Anniston actual first quarter of 1963. Cl2 - 102.158#/cwt. Biphenyl = 56.674#/cwt. Capital requirements for the various cases are shown in reference memo #21- APPENDIX D DETAILS OF PRICING STRATEGY ELECTRICAL GRADE AROCLOR A. Pricing History Seeking the lowest possible sales price under conditions acceptable to Monsanto, G.E. contracted in the late 1930's for Aroclor to be priced according to the follow ing formula. Since G.E. was our most important customer, this formula was used to establish the price of Aroclor. Base price - $10.3 cwt. figuring chlorine at $40/ton and benzene 17^/gal. Escalation based on: $0,10 cwt. for each lji per gallon change in price of benzene .$1,20 cwt. for each 1^ per pound change in price of chlorine Note: The attached Table I shows actual changes in Aroclor prices,' prices that would have been charged under the above formula' and reason's for pricing action' over the past 15 - 20 years. This original strategy accomplished the following goals: 1, To give Aroclor the best possible market acceptance in capacitors and transformers by providing the lowest possible price. 2. To provide Monsanto a justifiable and good long-term profitability required to function as a reliable supplier. After expiration of Monsanto's basic patents around 1948, Monsanto continued to adhere to the contract formula strategy until: February 5, 1954, when: a. Aroclor transferred from Inorganic to the Organic Division. b. The price of benzene was at all-time high.-- _______ j DSW 201283 STLCOPCB4052648 D-2 Now for the first time, Monsanto allowed Aroclor to sell under the contract formula price and by 5/15/56 the price was $0.86 cwt. below the contract. Obviously, G.E. did not Insist that we adhere to the contract. While G.E. recognized these reductions as filling Monsanto's goals, they were not impressed because this in no way satis fied their goal for advantage over their competitors. Thus, G.E. through the Hudson Palls Capacitor Department continued to seek a vblume price reduction for the follow ing reasons: 1. They are by far the largest volume purchaser. 2. They do most the research and development by which all others benefit (for free). 3. Except for Aroclor, they buy their materials on a volume - price basis. They sell their goods on this basis. 4. If they gave their Aroclor requirements to someone else, they feel our costs would increase. Monsanto remained firm in not giving a volume-price beoause: 1. We could not account for enough savings in this particular business to arrive at a worthwhile and yet legal volume-reduction. 2. Pear that granting a volume-price on Aroclor would spill over into other chemical areas to create broader problems. 3. Apprehension that our other customers (all much smaller than G.E.) would be provoked. This volume-price refusal was the only reason G.E. had for not being completely satisfied with Monsanto. Actually they respected our stand. However, several times the discussions became rather heated and emotions ran high. On January 2, 1957> Monsanto raised the price of Aroclor $0.45 cwt. but absorbed freight (POB-freight allowed). This action did two things: DSW 201284 STLCOPCB4052649 D-3 1. The price to Hudson Palls was now $1.96 cwt. below the G.E. contract arrangement (consider ing freight). 2. G.E. was especially satisfied. This freight absorption represented a considerable savings to G.E. They had the most costly freight haul and bought by far the most material. By early 1958 it was clear that G.E. was badly hurt (probably around 8 million dollar loss) due to capacitor failures made with Anniston's mid-1956 production of Aroclor. G.E. was clearly very unhappy with Monsanto, and cancelled the contract based on chlorine and benzene escalation. ^Top G.lS. management' solicited most all. lead ing and small chemical makers to determine whether another Aroclor supplier could be established. Some companies supplied acceptable quality samples. None could compete with our price. In June of 1958 Monsanto acted to help G.E. in their problem of financial losses due to capacitor failures with Aroclor. This action consisted of: 1. Raise price of Aroclor $0.50 cwt. across the board. 2. Grant G.E. $1.50 cwt. credit on all Aroclor purchased until $1,000,000 credit has been reached - probably by January 1967. This action cost Monsanto very little and greatly improved over-all relations with G.E. A similar arrangement was made with Westlnghouse to cover a maximum credit of $250,000 (terminated in 1961). As shown by Table I, all subsequent price changes have been due to routine factors involving raw materials and freight. It should be noted that in March 1962, the price of Aroclor was $0.13 cwt. above what would be allowed by the G.E. contract had it still been effective. On March 29, 1962, the Aroclor sale price was lowered $0.28 cwt. bringing it $0.15 cwt. below what would be allowed if the G.E. contract were active. This action was taken to reflect the lower prices for benzene. r' DSW 201285 STLCOPCB4052650 D-4 Today the electrical grade Aroclor price schedule is essentially where it was in the early 1940's. This is in relation to the cost of the raw materials, chlorine, benzene and freight. Accordingly, Monsanto retains the good long-term profitability. However, we can expect other companies to continue to look at chlorinated biphenyls. Recently, Stauffer and Hoppers visited Westinghouse to see what they can do about getting into this business. Such probing which has gone on for years will grow more earnest as the chemical price squeeze intensifies. B. Factors Affecting Future Pricing 1. Aroclors in the capacitor industry do not represent an exceptional growth market - estimated at 25 - 30# over next 5 years (see Table I). 2. Our studies and judgment indicate that the demand for Aroclor capacitors is not sensitive to small changes in Aroclor price - up or down. For example, increas ing the price of Aroclor up to 25# would have little or no effect on total sales. 3. Aroclor is a highly profitable product and prices could be reduced if necessary. 4, We can always expect the threat of competition. Product quality and service are our best insurance against competition. 5. Chlorinated biphenyl is produced in Europe, but we do not expect foreign production to compete in American markets (see Appendix C). 6. As long as we can supply the business at G.E. and Westinghouse, it will be difficult for competition to enter the electrical field with Aroclor. They account for approximately'55# of our electrical business. 7. Aroclor prices have historically followed the prices of benzene and chlorine - the major raw materials. 8. Prudent marketing decisions to the electrical industry and their effect on possible competition will lose their value unless comparable careful consideration is given the marketing of Aroclor for other applica tions (plasticizers, fluids, etc.). Competition can enter most easily through such non-electrical applica tions . DSW 201286 STLCOPCB4052651 D-5 C. Monsanto Pricing Strategy 1, On Our Own Initiative a. We anticipate no price change in Aroclor used in capacitors unless there are changes in raw mrterials or freight. b. We will change Aroclor prices if price change in chlorine, benzene and freight total $0.20 cwt. change in Aroclor. c. The new agreement with G.E. does not expire until 1972-73. Because of their large volume purchases, they represent the most important target for any potential competitor. Thus, we must always consider some approach under which we can do something "special" for G.E. in order to keep them close to Monsanto. d. If we are successful in establishing high concen trations of Aroclor 1242 for use in transformer blends, the price of Aroclor 1242 for transformer applications must be reduced below that presently charged for capacitors. We do not intend to lower the price for capacitor use to meet the price established for transformers. DSW 201287 STLCOPCB4052652 4R0C10P - ANNISTON, ALABAMA PRICING T ABLE I YEAR 100AROCLOR SALES PRICE PER POUNDS BASE 1944 1945 10/1/19*6 10/1/1947 7/1/i948 1949 1/1/1950 9/U/1950 9A/1951 "/70/1952 6/70/1953 7/5/1954 io/1/i 955 51//7'/51/1995576 93//744/1/1995578 6/6/1958 8/1/1958 1/1/1960 7/17/1960 4/1 /1960 57//1'55//1199661i 9/10/1961 7/1/196? 3/70/196? 3/79/196? 4/77/1963 . 7/8/1963 1/22/1964 *10.39 r.o.B. 12.50 12.50 10.00 10.50 11.20 11.46 11.34 11.5*1 12.70 13.15 13.15 4i .oo " * * " " n * " " " 14.00 14.00 " 13.43 13.66 Delivered 13.96 14.4613.96 \ m.w - 14.98 " 14.98 14.98 1**. 98 14.98 14.98 14.98 14.70 14.70 * " " .. 14.50 " G. E. CONTRACT PRICE PER 100 POUNDS SAVINGS TO G. E. PER 100 POUWS I10.39 r.o.B. 12.50 12.50 10.00 10.50 11.20 11.46 11.34 11.54 12.70 13.15 413.15 i .oo - - " " " $0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14.50 14.19 14.79 '4-37 14.38 14.51 14.51 1143.-7998 - * * " 14.4)7 14.41? - 1*1.112 '3-95 - 13.65 - '3-35 " 13-35 13.338 " 0.50 0.19 0.86 1.96 1.96 2.09 1.60 1.02 0.81 0.93 0.93 0.637 0.47 0.17 Loss -O.13 0.15 0.14 13.338 n 0.338 Aroclor Price Chanocs st G. E. Co. Contract ArOCLOR Base Price $10.39/100 LBS. r.O.B. 0.1 Ctnt red round ARoeiOR ros each 1.0 CtNT RED BALLON BENZCNC 1.2 CENTS RED ROUNO AROCLOR FOR (ACM 1.0 CENT RCR ROUNO ChLORINC TOT. DELIVEREO BENZENE PRICE PER GAL. *0.17 (-t-ritT.) 0.17 " 0.17 00..1179 " " " 0.20 ' 0.20 " 0.2275 0.7375 o.3'75 0.4175 0.4175 0.4700 00..34760708 O.37OO O.366 0.3675 O.3675 O.3675 00..33416666 0.3466 0.3466 0.3166 O.3166 0.7866 0.7566 0.7566 0.7566 0.2566 COLUMBIA SOl/TMERN OCLIVCRED CHLORINC PRICE PER TON 40.00$ * FRT. TOTAL 35*00 35-00 36.75 4485..0000 48.00 48.00 48.00 54.00 54.00 54.00 58.60 58.60 *17.60 T*O7T1A.7L0 61.00 10.66 71.66 61.00 10.66 71.66 63.00 10.66 73.66 63.00 10.71 73-71 63.00 63.00 1122..7777 7755-.7777 63.00 63.00 12.40 12.60 75-40 75-60 65.00 65.00 65.00 65.00 65.00 65.00 65.00 65.00 12.60 12.60 12.60 9-90 9.90 9.90 9-90 9-70 77-60 77.60 77.60 74.90 74.90 74.90 74.90 74.70 _- -- 65.00 9.70 74.70 fREIGHT (NCL. TAX ANN1S- 100TON TO HUO. FALLS, N. T. PCR LBS. COWCNTS *1.3184 1.4008 1.4729 . 1.5744 1.5450 1.5450 1.5000 1.5000 1.5000 1.5000 1.5000 1.5000 1.5000 1.5000 1.5000 1.5000 -- 1.2300 9 7G. c. Company Contract rricihs not followed. Monsanto* Oroanic Division debar lower pricino. Benzene ororrco * /8**- CMiomwc increase |2.4o/t, Frt. ordrrcd $1.94/ton on CL. 0.57$Monsanto lowered aroclor bale price pc* Monsanto absorbed preioht to Hudson Falls, N. Y. los. and raised Aroclor price 0.45$ per 100 lbs. 1957fBCIONT INCREASE. G. E. CANCELLED THE CONTRACT LATE IN . 100 100Monsanto raiseo price $0.50 pcb los.,issuco credit to G. E. or $1.50 *** 3 PERCENT rtEIONT RCOUCTION AND 5 CENTS PCR OAL. BENZENE REDUCTION. lbs. 10 12 19993Benzene inchcasco cents per oal. on // * Chlorine incrcaseo $2.00 per tor. Chlorine Frt. incrcaseo 1^/100 on rate above 65^/100 ano ^ on rate up to 654/iOO lbs. 4Benzene lowcrco 3 cents per oal., Monsanto dropped plasticizer Aroclor 1 id. 9/10'6l Chlorine frcioht rcouceo' trom $12.60/ton to $9-90/to* r*** Huntsville, Ala. '62 25. 3/20 Benzene lowcrco 3^/oal. to ^., Monsanto 010 not CHANOt Aroclor price. 3/29/62 MONSANTO LOWCRCO AROCLOR $0.0026/lO. 4/22/63 OUN'S NEW PLANT CHARLESTON, TEN*. FRT. 4/28/62 OUOTEO $9.70/TON CHLORINE INSTCAO OT $9*9 wt hao useo prom Huntsville, a.a., altmouqh Huntsville is nearer Anniston. 7 8/63 1260 13.70/ Aroclor changed to $ cvt. and FOB our factories. 10 15/63 90,000 1.27/ Freight reduced oh lbs. our rate became ($ cvt. REDUCTION DSW 201288 STLCOPCB4052653