Socio- Economic- Benefits- Study by blueskycn1981

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									Socio-Economic Benefits of Formaldehyde
to the European Union (EU 25) and Norway



                  PREPARED FOR:


                 FormaCare




                  PREPARED BY:




                24 Hartwell Avenue
            Lexington, MA 02421-3158




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                  June 2007
Copyright © 2007 by Global Insight (USA), Inc. ALL RIGHTS RESERVED.

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                                                                      ii
1.       EXECUTIVE SUMMARY................................................................................................................. 6
     CONSUMER BENEFITS ................................................................................................................................. 7
     ECONOMIC CONTRIBUTIONS OF FORMALDEHYDE PRODUCERS .................................................................. 9
2.       THE NATURE OF THE RESEARCH ............................................................................................15
     ECONOMIC CONTRIBUTIONS METHODOLOGY............................................................................................15
     CONSUMER BENEFITS METHODOLOGY......................................................................................................15
     ORGANIZATION OF THIS REPORT ...............................................................................................................18
3.       UREA FORMALDEHYDE RESINS ...............................................................................................19
     INTRODUCTION ..........................................................................................................................................19
     ECONOMIC CONTRIBUTIONS OF UREA FORMALDEHYDE RESIN PRODUCERS .............................................19
     PROPERTIES AND ADVANTAGES OF UREA FORMALDEHYDE RESINS..........................................................20
     UREA FORMALDEHYDE CONSUMPTION .....................................................................................................21
     SUBSTITUTES FOR UREA FORMALDEHYDE ................................................................................................22
        Particleboard and medium density fiberboard (MDF) ........................................................................22
        Hardwood plywood..............................................................................................................................25
        Other Applications ...............................................................................................................................26
        The Woodworking Industry..................................................................................................................27
        Wood-based Panel Consumption .........................................................................................................28
        Economic Contributions of the Wood-Based Panel Board and Furniture Industry ............................29
     ECONOMIC BENEFITS OF UREA FORMALDEHYDE ......................................................................................30
4.       MELAMINE FORMALDEHYDE RESINS....................................................................................32
     INTRODUCTION ..........................................................................................................................................32
     ECONOMIC CONTRIBUTIONS OF MELAMINE FORMALDEHYDE RESIN PRODUCERS ....................................32
     PROPERTIES AND ADVANTAGES OF MELAMINE FORMALDEHYDE RESINS .................................................33
     MELAMINE FORMALDEHYDE CONSUMPTION ............................................................................................33
     SUBSTITUTES FOR MELAMINE FORMALDEHYDE ........................................................................................35
        Laminates.............................................................................................................................................35
        Surface Coatings..................................................................................................................................36
        Molding compounds.............................................................................................................................36
        Specialty wood applications.................................................................................................................36
     ECONOMIC BENEFITS OF MELAMINE FORMALDEHYDE..............................................................................36
5.       PHENOL FORMALDEHYDE RESINS..........................................................................................38
     INTRODUCTION ..........................................................................................................................................38
     ECONOMIC CONTRIBUTIONS OF PHENOL FORMALDEHYDE RESIN PRODUCERS .........................................39
     PROPERTIES AND ADVANTAGES OF PHENOL FORMALDEHYDE RESINS ......................................................39
     PHENOL FORMALDEHYDE CONSUMPTION .................................................................................................40
     SUBSTITUTES FOR PHENOL FORMALDEHYDE.............................................................................................42
        Insulation binder..................................................................................................................................42
        Wood products .....................................................................................................................................43
        Paper Lamination ................................................................................................................................45
        Molding Compounds............................................................................................................................45
        Abrasives binders.................................................................................................................................46
        Other ....................................................................................................................................................46
     ECONOMIC BENEFITS OF PHENOL FORMALDEHYDE ..................................................................................47
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         POLYACETAL RESINS ..................................................................................................................50
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     INTRODUCTION ..........................................................................................................................................50
     ECONOMIC CONTRIBUTIONS OF POLYACETAL RESINS...............................................................................50
     PROPERTIES AND ADVANTAGES OF POLYACETAL RESINS .........................................................................51
     POLYACETAL RESIN CONSUMPTION ..........................................................................................................52
     SUBSTITUTES FOR POLYACETAL RESINS....................................................................................................54


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     ECONOMIC BENEFITS OF POLYACETAL RESINS .........................................................................................56
7.       METHYLENEBIS(4-PHENYL ISOCYANATE) ...........................................................................57
     INTRODUCTION ..........................................................................................................................................57
     ECONOMIC CONTRIBUTIONS OF MDI ........................................................................................................57
     PROPERTIES AND ADVANTAGES OF MDI...................................................................................................58
     MDI CONSUMPTION ..................................................................................................................................58
     SUBSTITUTES FOR MDI .............................................................................................................................61
     FORMALDEHYDE FREE ROUTE TO MDI .....................................................................................................63
     ECONOMIC BENEFITS OF MDI ...................................................................................................................64
8.       1,4-BUTANEDIOL ............................................................................................................................66
     INTRODUCTION ..........................................................................................................................................66
     ECONOMIC CONTRIBUTIONS OF 1,4-BUTANEDIOL .....................................................................................66
     PROPERTIES AND ADVANTAGES OF 1,4-BUTANEDIOL ...............................................................................67
     1,4-BUTANEDIOL CONSUMPTION...............................................................................................................67
     SUBSTITUTES FOR 1,4-BUTANEDIOL ..........................................................................................................69
     ECONOMIC BENEFITS OF 1,4-BUTANEDIOL................................................................................................69
9.       PENTAERYTHRITOL .....................................................................................................................71
     INTRODUCTION ..........................................................................................................................................71
     ECONOMIC CONTRIBUTIONS OF PENTAERYTHRITOL..................................................................................71
     PROPERTIES AND ADVANTAGES OF PENTAERYTHRITOL ............................................................................72
     PENTAERYTHRITOL CONSUMPTION ...........................................................................................................72
     SUBSTITUTES FOR PENTAERYTHRITOL ......................................................................................................74
     ECONOMIC BENEFITS OF PENTAERYTHRITOL ............................................................................................76
10.          ALL OTHER USES OF FORMALDEHYDE AND DERIVATIVE BENEFITS ...................78
     ECONOMIC CONTRIBUTIONS OF ALL OTHER USES OF FORMALDEHYDE AND DERIVATIVES ......................78
     HEXAMETHYLENETETRAMINE (HMTA)....................................................................................................78
       Properties and Advantages of Hexamethylenetetramine .....................................................................78
       Hexamethylenetetramine Consumption ...............................................................................................79
       Substitutes for Hexamethylenetetramine..............................................................................................80
     CONTROLLED RELEASE FERTILIZERS ........................................................................................................81
       Properties and Advantages of Controlled Release Fertilizers .............................................................81
       Controlled Release Fertilizer Consumption.........................................................................................82
       Substitutes for Urea-Formaldehyde CRF ............................................................................................83
     CHELATING AGENTS ..................................................................................................................................84
       Properties and Advantages of Chelating Agents..................................................................................84
       Chelating Agents Consumption............................................................................................................85
       Substitutes for Chelating Agents ..........................................................................................................86
     TRIMETHYLOLPROPANE (TMP)..................................................................................................................86
       Properties and Advantages of Trimethylolpropane .............................................................................87
       Trimethylolpropane Consumption .......................................................................................................87
       Substitutes for Trimethylolpropane......................................................................................................88
     PYRIDINES .................................................................................................................................................89
       Properties and Advantages of Pyridines..............................................................................................89
       Consumption of Pyridines....................................................................................................................89
       Substitutes for Pyridines ......................................................................................................................91
     ECONOMIC CONTRIBUTION AND BENEFITS OF OTHER END USES ................................................................91
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     HEALTH CARE APPLICATIONS ....................................................................................................................93
       Manufacture of Vaccines .....................................................................................................................93
       Manufacture of Gelatin Capsules ........................................................................................................95
       Laboratory Usage ................................................................................................................................95
     OTHER USES ..............................................................................................................................................96
       Embalming ...........................................................................................................................................96


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    DERIVATIVE BENEFITS ..............................................................................................................................96
11.         MACROECONOMIC AND COUNTRY LEVEL IMPACTS ..................................................97
12.         ECONOMIC CONTRIBUTIONS AND BENEFITS METHODOLOGIES..........................101
    ECONOMIC CONTRIBUTIONS ....................................................................................................................101
      Establishing an Operational Definition of the Formaldehyde Industry.............................................101
      Estimating Direct Impacts .................................................................................................................102
      Estimating Indirect Impacts ...............................................................................................................103
    CONSUMER BENEFITS ..............................................................................................................................104
    ASSUMPTIONS USED FOR THIS ANALYSIS ................................................................................................107
APPENDIX I..............................................................................................................................................108
    AUTHORS OF THE REPORT ...............................................................................................................108
APPENDIX II ............................................................................................................................................110
    PRODUCT TREE FOR THE FORMALDEHYDE INDUSTRY ...........................................................110




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1.       EXECUTIVE SUMMARY

People use products that contain formaldehyde every day. For example, this chemical is
a key building block in four major sectors of the economy:

     •   In the residential construction industry, it is used for making particle board,
         medium density fiberboard, plywood, insulation materials, cabinets and cabinet
         doors, and laminated countertops (see Figure 3);
     •   In the automobile industry, it can be found in molded under-the-hood
         components, seat belt buckles and systems, exterior primer and clear coat paints,
         tire cord adhesive, brake pads, and critical fuel system components (see Figure 4);
     •   In the aircraft industry, its applications include essential landing gear
         components, lubricants, brake pads, and door and window insulation (see Figure
         5), and
     •   In health care applications, it is used for a variety of purposes: to manufacture
         vaccines against anthrax, diphtheria, hepatitis A, and influenza; as a denaturant
         for RNA analysis; as an active ingredient in anti-infective drugs; for hard gel
         capsule manufacturing; and in pharmaceutical research, especially proteomics and
         genomics research.

We make formaldehyde in our bodies and it occurs naturally in the air we breathe. Use
of formaldehyde for embalming purposes, one of the earliest and most widely known
applications for formaldehyde, represents far less than 1% of consumption.

Products that contain formaldehyde or materials made from formaldehyde have a broad
role in the economies of the European Union and Norway, but their dependence on
formaldehyde is largely invisible to the public. In addition, government statistics are not
well designed to identify or quantify the value of formaldehyde to consumers or the
contribution of the formaldehyde industry to the economy in terms of jobs, wages, and
investment.

FormaCare, a sector group of Cefic and acting on behalf of the European formaldehyde
industry, commissioned Global Insight, Inc. to conduct the necessary independent
research to quantify the value of formaldehyde to consumers and the contribution of the
industry to the economies of the European Union and Norway. This report is the result of
this groundbreaking research.

Global Insight approached this task from two different points of view in order to obtain a
comprehensive view of formaldehyde and its economic role, looking at both the
consumer benefits and the economic contributions of formaldehyde. First, for its
benefits research, Global Insight identified the unique and specific physical and chemical
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properties of formaldehyde and the qualities that it imparts to major categories of
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products that are based on it. While there are some applications where other materials
can replace formaldehyde with only a small incremental cost or performance penalty, in
most instances the use of substitutes entails significant cost increases or performance
losses. This portion of Global Insight’s research was focused on quantifying the benefits


Executive Summary                                                                              6
of formaldehyde by asking, "What would be the costs to the consumers if they were
forced to switch to substitute products that are not based on formaldehyde?"

Secondly, Global Insight researched the contributions of the formaldehyde industry to
the economies of the European Union and Norway in terms of direct and indirect effects
on employment, wages, and investment. This research employed more familiar economic
data and modeling tools using a very conservative and narrow definition of the
formaldehyde industry in order to avoid over-estimating its economic contribution. While
the benefit values and the contribution values for the formaldehyde industry are not
directly additive, this quantification of both is necessary in order obtain a comprehensive
understanding of the importance of the formaldehyde industry to the economies of the
European Union and Norway and its citizens.

                                      Figure 1
                    Economic Contributions and Consumer Benefits




                     Focus on producers            Focus on consumers

                     Production economics:         Substitution economics
                     jobs, sales, business
                     fixed investment, trade       Q: what are the costs to
                                                   the consumer if forced
                     Q: how does this              to switch to substitute
                     industry contribute to        products?
                     economic welfare?
                                                   Nationwide consumer
                     Local geographic              impacts
                     impacts




Consumer Benefits

Here are highlights of the major findings for benefits for consumers:

   •   Consumers would have to spend an additional €29.4 billion per year (the
       equivalent of nearly €2,750 per metric ton of formaldehyde currently consumed)
       if formaldehyde-based products were replaced by substitute materials. Nearly
       80% of the estimated benefits are attributed to four major applications: urea
       formaldehyde resins, melamine formaldehyde resins, phenol formaldehyde resins,
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       and methylenebis(4-phenyl isocyanate) or MDI. In most cases, substitution in
       these end uses is very imperfect; consumers would suffer large losses in utility
       using alternative materials, and large new capital investments would be required
       to produce or utilize the substitutes.



Executive Summary                                                                             7
   •   Urea formaldehyde (UF) resin is one of the mainstays in the building and
       construction industry. About 95% of UF resins are used as a binder or adhesive in
       particleboard and medium density fiberboard for composite panels. In these
       applications, it has a predominant market share. There are substitutes for each
       application but no substitute material has the broad range of properties of UF
       resins including low cost, dimensional stability, hardness, clear glue line, and fast
       curing time. Without UF resins, consumers would be forced to use more
       expensive, less versatile, and less durable materials or else switch to entirely
       different construction methods. In most cases, switching to different construction
       methods is a significantly more costly alternative.

   •   Melamine formaldehyde (MF) resin is used widely in the building and
       construction industries in the form of laminates and surface coatings, which
       account for more than 95% of its consumption. Its combination of properties has
       resulted in its having a dominant market share in certain applications, such as high
       pressure laminations for outer decorative surfaces, in spite of its higher cost.
       Other resins, or different materials, may be substituted for MF resin-based
       products, but they have higher costs and decreased utility to consumer.

   •   Phenol formaldehyde (PF) resin is another important product in the building and
       construction industry. Approximately 60% of PF resins are used in this sector for
       applications like insulation binder, wood products, and laminates. Other important
       end uses include automobile applications (e.g. friction materials) and foundry
       binders. Like UF resins, it has a predominant market share in its major
       applications. There are substitutes for each application but no substitute material
       has the broad range of properties of PF resins where high strength, dimensional
       stability, the ability to resist water, and thermal stability are required. In addition,
       current production methods are designed around the continued use of PF resins,
       and possible substitutes may have quite different processing properties. Without
       PF resins, consumers would be forced to use more expensive, less desirable, and
       less versatile materials, or switch to alternate construction methods.

   •   The majority of MDI is used in the manufacture of rigid polyurethane foams.
       These products are commonly used in construction applications for their superior
       insulating and mechanical properties. In addition, MDI rigid foam applications
       include appliances (e.g., refrigerators, freezers, and air conditioners), packaging
       for high end electronics, and transportation. In the absence of MDI, consumers
       would be forced to use less effective materials and would experience significant
       losses of utility (e.g. inferior insulation properties, increased breakage or
       spoilage).

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       Other materials, mostly alternate resins, usually can be substituted for
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       formaldehyde-based materials in most other uses, but they are often more costly
       to use and may result in reduced consumer benefits because the products made
       from them are inferior to formaldehyde-based products in one or more ways.



Executive Summary                                                                                 8
     •     Access to formaldehyde-based products provides consumers not only with the
           types of direct benefits detailed here, but with secondary benefits as well. These
           benefits arise because the economy is able to utilize formaldehyde-based
           materials more efficiently than their substitutes thereby avoiding the requirement
           to make nearly €22 billion in additional investments.

     •     Formaldehyde-based products are so common in our daily lives that a transition to
           a formaldehyde-free economy in the European Union and Norway would be
           costly and disruptive.


                                             Table 1
                                 Economic Benefits of Formaldehyde
                                      (Consumer Perspective)
                                                             Economic Value
                                                                   in 2004
                                                            (€ billion per year)
                Formaldehyde End Use
                 Urea formaldehyde resin (UF)                                       € 13.57
                 Melamine formaldehyde resin (MF)                                    € 3.57
                 Phenol formaldehyde resin (PF)                                      € 2.55
                 MDI                                                                 € 2.44
                 Polyacetal resin                                                    € 0..19
                 1,4-Butanediol (BDO)                                                € 0.13
                 Pentaerythritol                                                     € 0.15
                 All other products & derivative benefits                            € 6.76
                Total benefits to consumers                                         € 29.36
           Source: Global Insight, Inc.
           Note: These economic values are additive. Totals may not add due to rounding.


Economic Contributions of Formaldehyde Producers

Formaldehyde and downstream user facilities located throughout the European Union and
Norway generate economic contributions at the local and national levels in terms of
employment, wages, and investment. Here are highlights of the major findings for
economic contributions of the formaldehyde industry to the economies of the European
Union and Norway in 2004, using a narrow definition of the industry:

 •       Sales:
               o Almost €330 billion worth of sales resulted from this industry’s activities.

 •       Employment:
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             o Over 1.7 million workers are employed directly in chemical processing
                and downstream fabrication facilities in the European Union and Norway
                (primarily in the wood products and furniture industries). These workers
                operate and maintain the formaldehyde and downstream user facilities,



Executive Summary                                                                               9
             and have responsibility for management, research and development, and
             sales and marketing.
           o Additionally, close to 4 million workers are employed indirectly in the
             economies of the European Union and Norway. These individuals are
             employed in the wide network of supplier industries that provide goods
             and services (e.g. raw materials, utilities, capital goods, services) to the
             formaldehyde industry.
           o Thus, the total number of workers in the European Union and Norway
             who depend on the formaldehyde industry is almost 5.7 million workers.

 •   Wages:
         o Using the same definitions as for employment, wages of direct employees
            amounted to over €42 billion for the year (an average of €24,300 per
            worker).
         o An additional €128.1 billion of wages was earned by workers in the
            companies that supply the formaldehyde industry (indirect workers).
         o Total wages for all of these workers amounted to nearly €170.3 billion.

 •   Value of Business Fixed Investment:
          o Formaldehyde and derivatives production was carried out in facilities with
              an aggregate investment value of nearly €195 billion in the European
              Union and Norway.

 •   Number of Plants:
         o There are approximately 20,300 plants that are critically dependent on
            formaldehyde operating in the European Union and Norway, with all
            counties represented. This estimate includes 395 chemical processing
            plants and 19,900 fabrication plants primarily in the wood products and
            furniture industries. This estimate excludes facilities with fewer than 10
            workers, of which there are tens of thousands.

In summary, the products of the formaldehyde industry are pervasive in the economies of
the European Union and Norway. They generate a substantial volume of sales, provide a
sizable number of jobs, and contribute to the local economies in countless visible and
not-so-visible ways. The direct economic contributions of the formaldehyde industry are
summarized below.




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Executive Summary                                                                           10
                                     Figure 2
         Employment in the Formaldehyde and Downstream User Industries
                              Total and by Segment




                           Wood Product
                            Fabrication
                               10%
                                             Furniture
                                                                               Formaldehyde-derivatives
                                               11%
                                                                                        0.5%




                                                     Other Manufacturing
                                                             8%

                                                         Chemical Processing
                                                                0.7%




                                                                                                 Formaldehyde
                                                                                                     0.2%
 Indirect Employment
          71%




              Source: Global Insight, Inc.




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Executive Summary                                                                                               11
                                      Table 2
          Highlights of the Economic Contributions of Formaldehyde, 2004
                               (Producer Perspective)
                                                              Units              EU 25 + Norway
        Value of Sales                                   €Billion/Year                           329.0
        Total Plants                                     Plants                                 20,305
          Chemical processing                            Plants                                     395
          Wood products and furniture*                   Plants                                 19,910
        Total Employment                                 Workers                            5,723,000
          Direct:                                        Workers                            1,736,000
            Chemical processing                          Workers                                38,400
            Wood products and furniture                  Workers                            1,221,600
            Other manufacturing                          Workers                              476,000
          Indirect                                       Workers                            3,987,000
        Total Wages                                      €Billion/Year                           170.3
          Direct:                                        €Billion/Year                             42.2
            Chemical processing                          €Billion/Year                              1.1
            Wood products and furniture                  €Billion/Year                             28.5
            Other manufacturing                          €Billion/Year                             12.5
          Indirect                                       €Billion/Year                           128.1
        Fixed Investment                                 €Billion                                194.9
        Purchases                                        €Billion/Year                           144.8
          Raw materials                                  €Billion/Year                             86.9
          Utilities                                      €Billion/Year                             57.9
   Source: Global Insight, Inc.
   * Represents the estimated number of plants with 10 or more workers. This estimate excludes facilities with fewer
   than 10 workers, of which there are tens of thousands.
   Note: These economic values are not additive.




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Executive Summary                                                                                                      12
                                             Figure 3
                                     Formaldehyde in the House



     House Construction
        Sheathing & cladding
        Walls & wall panels
        Floors
        Roof
        Insulation

     House Interior
        Electrical boxes & outlets
        Furniture
        Countertops
        Cabinets & cabinet doors
        Bedding
        Seating
        Carpet underlay
        Appliances: washers, dryers,
        dishwasher
        Plumbing: faucets, showerheads,
        valve mechanisms,
        Paints & varnishes




                                            Figure 4
                                   Formaldehyde in Automobiles




  Fuel System Components                                         Interior
   Pump housings                                                  Seats
   Filters                                                        Steering wheel
   Impellers                                                      Interior trim
   Reservoirs                                                     Brake pads
   Senders                                                        Dashboard and fascias
   Gas caps                                                       Instrument knobs
                                                                  Hooks, fasteners, clips
                                                                  Locks
  Under the Hood                                                  Speaker grilles
   Molded components                                              Trunk release levers
                                                                  Door handles
   Engine & metallic parts
                                                                  Door panels
   Automatic transmission parts
                                                                  Window cranks
   Carburetor floats
                                                                  Seatbelt buckles
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                            http://technician.zxq.net             Windshield wiper parts
                                                                  Cup holders
   Exterior primer, clear coat, and trim                          Head rests
   Tire cord adhesive
   Bumper




Executive Summary                                                                     13
                                Figure 5
                        Formaldehyde in Airplanes




                                                Airplane
                                                Brake pads
                                                Landing gear
                                                Lubricants
                                                Seats
                                                Seatbelt buckles
                                                Insulation of doors and
                                                windows
                                                Interior walls and floors
                                                Tire cord adhesive




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Executive Summary                                                           14
2.      THE NATURE OF THE RESEARCH

This chapter describes the methodology undertaken on behalf of FormaCare by Global
Insight, Inc. to quantify the contributions of the formaldehyde industry to the economies of
the European Union and Norway and the economic benefits to consumers.

Economic Contributions Methodology

The methods used to estimate the economic contributions of the formaldehyde industry as
measured by employment, wages, and investment are those used frequently by economists
to assess the impact of a specific industry. Global Insight assembled a database from
various sources on the sales and production of formaldehyde-based products in the
European Union and Norway in 2004, the number of employees by sector, plant capacities
and locations, and purchases of raw materials. From these data, Global Insight estimated
the direct contributions of the formaldehyde industry. Global Insight then employed its
World Industry Service economic model, which uses a modified input/output analysis of
demand, to estimate indirect impacts of the formaldehyde industry on the economy through
the industry’s suppliers. The model captures the linkages between the formaldehyde and
downstream user industry with all the corresponding industries which use the output of this
industry, and the linkages to all supplier industries (i.e. providers of raw materials, utilities,
and other supplies) with the formaldehyde and downstream user industry. A detailed
description of these methods can be found in Chapter 12.

Consumer Benefits Methodology

The methodology used to estimate the consumer benefits of the formaldehyde industry is
more novel and merits a fuller description for the reader here:

Consumers who have access to formaldehyde-based products choose them in place of
products that use alternative materials. Numerous alternatives are available, ranging from
other synthetic resins and organic chemicals to solid wood products and metals; however,
consumers value the attributes of formaldehyde-based products and select them. The
properties of formaldehyde that consumers find valuable are the ones that permit the
product to be fabricated easily into components that are stronger, lighter, easier to install or
use, longer-lived, or more resistant to high temperatures and environmental stresses than
those made of substitute materials that have lower costs per kilogram. In other cases, the
formaldehyde-based products have properties such as resistance to moisture, chemical
resistance, strength and dimensional stability that result in better performance and longer
service life. These features reduce the life-cycle cost of the items into which they are
incorporated. In yet other cases, the mechanical properties, stiffness, and self-lubricating
properties of formaldehyde-based products provide benefits for the products that are
otherwise unattainable in a cost effective way.
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The decision to choose formaldehyde-based materials over an alternative is rarely made
based on an evaluation of only one physical property or the relative cost of materials alone.
Usually a number of physical, manufacturing, or compatibility issues are raised, such as the
requirements and constraints of other components in a system, the required service life and



The Nature of the Research                                                                           15
conditions, product formability, material cost, and aesthetics. All of these factors would
have to be considered “in reverse” if a formaldehyde-based product were to be deselected
in favor of a substitute, resulting in the loss of the benefits brought to consumers. The
methodology used to estimate the benefits of formaldehyde across the economies of the
European Union and Norway is described in the following sections of this chapter, and the
results of applying this methodology to the range of formaldehyde-based products to which
consumers have access is presented in the succeeding chapters.

To summarize: the economic benefits provided by formaldehyde-based products in the
economy are simply the total net value in euros of the savings that consumers enjoy by
using them instead of substitutes. Viewed from another perspective, consumer savings are
the increased costs that consumers would have to bear if they lost access to the
formaldehyde-based products they now enjoy. The benefits arise from the properties of
formaldehyde that allow products to be manufactured at lower costs than possible with
alternative materials and provide greater utility to consumers in the form of extended use,
improved performance, and more desirable aesthetics.

For purposes of estimating these economic benefits, the domestic consumption of
formaldehyde in 2004 was separated into eight major derivatives shown in Table 3. These
derivatives account for approximately 95% of current consumption.

                                     Table 3
                 EU 25 + Norway Formaldehyde Consumption, 2004
                                                EU 25 + Norway
                                                 Consumption
             Formaldehyde Derivative         ('000 of Metric Tons)
          Urea Formaldehyde Resins                                     5,915
          Melamine Formaldehyde Resins                                 1,496
          Phenol Formaldehyde Resins                                     789
          MDI                                                            539
          Polyacetal Resins                                              615
          1,4-Butanediol                                                 464
          Pentaerythritol                                                371
          All Other Consumption                                          499
          TOTAL CONSUMPTION                                           10,687
        Source: Global Insight estimates.


Next, the kinds of products made from each type of material were identified, and the
amounts of material used in each of its major end-uses or applications were estimated. The
types of substitute materials that are also currently used—or might be used—in each end-
use or application were also identified, together with the salient reason that formaldehyde
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or the alternative materials are normally selected or rejected. The amount of each type of
formaldehyde-based product and the potential alternative or substitute materials for each
major end-use or application are presented in the following chapters.




The Nature of the Research                                                                    16
When the types of formaldehyde materials have been classified and the amounts consumed
and possible substitutes have been identified, the benefits of access to the formaldehyde-
based materials can be determined if the likely consumer responses can be identified and
all of the costs of the consumers’ responses can be estimated. The general range of
consumers' responses is shown schematically in Figure 6.

                                               Figure 6
                               Range of Potential Consumer Responses



            Consumer Benefits Methodology

                                                  Identify Product


                                                Specify Consumer
                                                   Response

                                              Switch to Approximate
                Switch to “Drop-In”                 Substitute                  Forego Consumption
                    Substitute                                                       Altogether
                                             Calculate Price Difference
            Calculate Price Difference          Between Products            Calculate Tangible Costs
               Between Products                                                of Losing Product
                                             Calculate Other Costs of
                                             Approximate Substitute


                                      Multiply Per Unit Costs Times Aggregate
                                                    Sales Volume




Source: Global Insight, Inc.




Estimating the costs of perfect substitution of an alternative “drop-in” material for a
formaldehyde-based product is simple, conceptually, as shown at the left in Figure 6: we
calculate the price difference between products and multiply by the aggregate sales volume.
In “perfect” substitution, the formaldehyde-based and substitute products have identical
attributes, including ease of manufacturing and performance-in-service, so that the
consumer notices only the difference in the initial cost of the product.

In most cases, it is not possible to identify a perfect, drop-in substitute for a formaldehyde-
based product in a particular application. In these cases, we perform the analysis following
the course depicted in the center of Figure 6. In these applications, substitution for the
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formaldehyde-based product would entail a loss of utility to the consumer, for example
decreased quality of particleboard or shorter useful life of the gears of a small appliance. In
other instances, the substitute product may have attributes that are similar to the
formaldehyde-based product it would displace, but would be more difficult and costly to
manufacture, install, or use, or would have a reduced service life.


The Nature of the Research                                                                             17
In some industries, the loss of a key raw material would require consumers to forego
consumption altogether because there would be no appropriate substitute. No explicit
instances of this situation were identified in this analysis for the formaldehyde industry. A
more detailed discussion of the methodology and assumptions used in this analysis for
making quantified estimates of the benefits of formaldehyde-based products is contained in
Chapter 12.

Organization of this Report

The following eight chapters of this report present the results of both the economic
contribution and consumer benefits analyses for each segment of the formaldehyde
industry. Each chapter provides background information on the type of formaldehyde-
based product being evaluated, its properties and the features that consumers find desirable,
the ranges of potential substitutes in each end-use application and their limitations, and
estimates of the net benefits to consumers for each formaldehyde derivative. The report
concludes with a chapter on economic impacts at the country level, a chapter on
methodology, and a list of major assumptions used in the analysis.




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The Nature of the Research                                                                      18
3.     UREA FORMALDEHYDE RESINS



The European Union and Norway consumed nearly 5.4 million metric tons of urea
formaldehyde resins in 2004, with 95% being used as an adhesive in particleboard and
medium-density fiberboard production. Owing to its simple molecular structure, relatively
low feedstock costs, and inexpensive conversion costs, urea formaldehyde on a kilogram
for kilogram basis is the least expensive synthetic adhesive material available. Alternative
adhesives are available at significantly higher cost and reduced performance. Limited
availability of products to make the substitution at the product level reduces the potential
for indirect substitution to 5% or less for most applications.

Total cost of substitutes for urea formaldehyde – the net benefits consumers enjoy because
they have access to urea formaldehyde – are approximately €13.6 billion per year. In
addition, some €12 billion in capital expenditures for capacity additions or plant retrofit are
avoided because of the presence of urea formaldehyde in the marketplace. In 2004, urea
formaldehyde manufacturers generated almost €1.7 billion in sales and bought nearly
€1,100 million worth of raw materials and utilities. The sector supported some 11,600 jobs
in the European Union and Norway.



Introduction

Urea formaldehyde (UF), along with melamine formaldehyde (MF) and melamine urea
formaldehyde (MUF), are the most important amino resins. The other classes of amino
resins (benzoguanamine, aniline, and toluene sulfonamide) are comparatively smaller in
terms of commercial volume and value, and will not be included within the benefits
calculation. Amino resins are generally sold in a liquid form with content of active matter
in the range of 50% to 70%. They are “thermosetting adhesives” and are cured through the
application of heat and generally with the addition of an acid catalyst, which enhances the
polymerization.

Economic Contributions of Urea Formaldehyde Resin Producers

In the European Union and Norway, 55% of urea formaldehyde resin production (over 3
million metric tons) is produced by the chemical departments of backward integrated panel
board producers. The largest of these captive producers are Kronospan Group and Sadepan
Chimica. The remaining 45% of the market is served by the non-integrated producers:
Dynea Chemicals, BASF, Hexion, Arkema, and Ercros. In 2004 all producers in the
European Union and Norway made nearly 5.4 million metric tons of urea formaldehyde
resins, bought almost €1,100 million worth of raw materials and utilities from their
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suppliers, and generated almost €1.7 billion in sales. The sector supported approximately
11,600 jobs in the European Union and Norway.




Urea Formaldehyde Resins                                                                          19
                                   Table 4
        EU 25 + Norway Urea Formaldehyde Resin Economic Contributions


                                                             2004
                    Production ('000 MT)                     5,377
                    Sales (MM€)                              1,651
                    Purchases (MM€)                          1,073
                    Employment                             11,600
                  Source: Global Insight, Inc.


Properties and Advantages of Urea Formaldehyde Resins

Light in color, strong, and abrasion resistant, UF resins are also the least costly
formaldehyde resin to produce. However, the moisture and abrasion resistance they
provide is inferior to both melamine formaldehyde (MF) and phenol formaldehyde (PF).
UF resins are generally used in applications requiring dimensional stability but only
moderate exposure to heat or moisture, such as particleboard or medium density fiber board
used in furniture or cabinet making.

Being one of the lowest-cost, commercially available adhesive substances, UF resins are
the binder of choice for a variety of commodity-like end-use applications that are extremely
cost sensitive (e.g. composite panels). UF resins typically compete with other
formaldehyde resins within its end-use applications; since UF resins are generally sold for
about 35% of the cost of a PF resin of similar solids content, and about 40% of the cost of
MF, they are favored unless the end-use application requires the specific properties
provided by PF or MF. Other potential substitute adhesives are all considerably more
expensive than UF. The most important properties of UF resins are:
                   Low cost
                   Water borne (can be applied in an aqueous suspension)
                   Fast curing
                   Very good hardness and abrasion resistance
                   Excellent dimensional stability
                   Clear glue line
                   Color retention
                   Moderate water resistance
                   Moderate heat resistance
                   Good chemical resistance
                   Good arc resistance (the ability to resist a high voltage electric arc)
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                   Good flame resistance
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Urea Formaldehyde Resins                                                                       20
Urea Formaldehyde Consumption

Building and construction applications, including particleboard and medium density
fiberboard, account for approximately 95% of UF resin demand in the European Union and
Norway.

                                     Figure 7
             EU 25 + Norway UF Resin Demand by End-Use Market, 2004




                                      Plywood/Construction
                                              2%

                                                     Surface Coating, 2%

                                                                    Textiles, 1%

                 Medium Density                                                    Particleboard, 63%
              Fiberboard (MDF), 32%




       Source: Industry sources.


Urea formaldehyde resin is consumed principally in the production of construction and
building materials, such as particleboard, medium density fiber board, and plywood. The
binder properties required for construction material applications are low cost, dimensional
stability, hardness, clear glue line, and fast curing time. Not all binder or adhesive
materials produce a "clear glue line," which is the point at which the wood product and
adhesive meet in an adhesive binding. UF resins are also used in molding compounds,
primarily for electrical applications, such as switches and circuit breakers, but also for stove
hardware buttons and small housings. The binder properties required for molding
applications include hardness, dimensional stability, heat tolerance, electrical resistance,
and colorability. While once commercially important as paper coatings additives and paper
wet strength additives, UF resins have largely been displaced because of the emergence of
other materials that offer improved cost performance, as well as the shift from acid-based
to alkaline or neutral paper-making, which favors alternative coating and wet-strength
compounds. Relatively minor applications of UF resins include wood-working adhesive
(competing with PVA adhesives), textile finishing, fertilizers, and additives to PF-based
foundry and insulation binders.1
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1
 Greiner, Elvira O. Camara, Amino Resins, Chemical Economics Handbook, SRI International,
February 2004: 1-87.


Urea Formaldehyde Resins                                                                                21
                                            Table 5
                            Major Product Applications for UF Resins
  Category                        Material                                    Applications
                                                                         Cabinets, furniture, flooring,
                                  Composite panels (particleboard,       countertops, decorative
                                  medium density fiberboard)             molding
                                  Plywood                                Furniture, interior finishing
  Construction Materials          Fiberglass insulation                  Architectural insulation
  and Home                        Surface coatings (alkyd-urea           Kitchen cabinets, furniture,
  Improvement…………                 finishes)                              lacquers
  …………………………                                                             Countertops (laminating
  …………….                          Wood Adhesive                          adhesive)
                                                                         Electrical switches, circuit
                                                                         breakers, stove hardware,
  Molding Compounds               Molded plastic products                buttons, housings
                                                                         Coated paper, paper towel,
  Paper Treatment                 Coatings, wet strength resins          tissue
  Textiles                        Textile treatment                      Finishing compound
  Other                           Foundry binder, slow release fertilizers
  Source: SRI International, Chemical Economics Handbook, 2004 and industry sources




Substitutes for Urea Formaldehyde

Since most UF resins are used to provide a binding, adhesion, or coating service to another
material, there are two potential levels of substitution. First, it may be technically feasible
to substitute the service that the formaldehyde resin provides with an alternative binder or
coating material. Other potential substitute adhesives are modified soy adhesive,
methylenebis(4-phenyl isocyanate) (MDI) and other polyurethanes, polyvinyl acetate
(PVA) and ethyl vinyl acetate (EVA), emulsion polymer isocyanates (EPI), acrylic
adhesives, polyesters, and epoxies. The reader should note that MDI is also synthesized
with formaldehyde. The second level of substitution can occur by replacing a UF-
containing material with another material at the point of application.
Particleboard and medium density fiberboard (MDF)

Particleboard and MDF both require binders that possess high dry strength, dimensional
stability, moderate temperature and moisture resistance and, for processing considerations,
are fast curing and preferably water solubility (low viscosity). UF adhesive is by far the
principal adhesive used in particleboard and MDF production owing to its low cost,
physical characteristics, and processability. There is a small volume of particleboard
produced with PF resins, and industry sources confirm that it is feasible technically to
produce particleboard and MDF using polymeric MDI-type (or pMDI) adhesives. Potential
substitute adhesives for particleboard and MDF include natural adhesives such as soybean,
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blood, casein, or lignocellulosic materials, and other synthetic adhesives, such as emulsion
polymer isocyanate (EPI), polyurethanes (PU), and vinyl acetate emulsions (VAE).

The potential for soybean adhesives has attracted considerable attention because they are
low cost, made from renewable resources, and because there is substantial feedstock and


Urea Formaldehyde Resins                                                                                  22
primary processing capability (grinding and milling). However, 100% soybean adhesives
do not have sufficient dry strength for panel board applications. Dry and wet strength
performance can be improved by mixing with phenol formaldehyde, blood adhesive, or
other natural protein adhesives.

In 2005 Columbia Forest Products Company announced the development of a new type of
soy-based adhesive that incorporates synthesized mussel protein. The first commercial
application for this product in North America was hardwood plywood (HWPW).2 More
recently, Columbia announced that it will begin producing particleboard using the same
type of adhesive.3 The advantage of this product is that it possesses high dry and wet
strength, good dimensional stability and abrasion resistance. The HWPW application
seems to have gained some degree of market acceptance; it is still too soon to judge the
performance of the particleboard application.

Blood adhesive, made from dried blood albumen, is applied in a liquid state, and cured
using heat pressing.4 Blood adhesive is inexpensive but there is only limited availability of
feedstock. In addition, board processing using blood adhesive can create objectionable
workplace conditions due to odor and vermin. The performance characteristics of blood
adhesives can be improved by formulating it with phenol formaldehyde, and it is used as a
foaming agent with PF resins at some plywood mills.

Casein adhesive, derived from milk, is another possibility, as it possesses high dry strength,
intermediate temperature resistance, and better moisture resistance than either blood or
straight soy adhesives. However, the cure time for casein adhesives is likely too long for
them to be commercially viable for particleboard or MDF production since they have a
short pot life, tend to stain certain wood species, and are subject to microbial attack.5 Pot
life is the amount of time available for use after the resin and curing agent are mixed, and
short pot lives complicate and constrain the manufacturing process. While casein glues are
cost competitive with UF resins, their availability is limited as most of the feedstock
material (milk) is used by the food products industry.

Another natural adhesive is lignocellulosic residue extracted from wood. It possesses good
dry strength and moderate wet strength, but it is not as durable as synthetic resin-based
adhesives, and it is by no means clear that sufficient material could be made available to
serve as a widespread substitute for UF. Like blood adhesives, its performance can be
improved by mixing with phenol formaldehyde.




2
  “Columbia Forest Products to eliminate formaldehyde in its hardwood plywood production,”
Facilities Management News, April 29, 2005, www.fmlink.com.
3
                       http://technician.zxq.net
  "Columbia Forest Products to produce formaldehyde-free particleboard," see
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www.columbiaforestproducts.com.
4
  Vick, Charles B., “Adhesive Bonding of Wood Materials,” Chapter 9 of Wood handbook – Wood
as an engineering material, U.S. Department of Agriculture, Forest Service, Forest Service
Products Laboratory, 1999: 9-1 to 9-24.
5
  Eckelman, Carl A., “Brief Survey of Wood Adhesives,” Purdue University, Forest and Natural
Resources, November 2004: 1–10.


Urea Formaldehyde Resins                                                                         23
Emulsion polymer isocyanate (EPI) is a possible synthetic alternative to UF.6 EPI is a two-
part system comprised of a liquid emulsion, such as an acrylate, polyurethane, or vinyl
acetate emulsion, and a separate isocyanate hardener, such as MDI. EPI is used in such
wood product applications as laminated beams, finger-jointing, and to laminate metals or
plastics to wood panels. EPI possesses high dry and wet strength, moisture resistance, and
clear glue line. It can be formulated in a variety of viscosities and can be cured quickly at
high temperature or with radio-frequency curing techniques. The drawbacks of EPI are
higher cost, the additional process steps needed for metering and mixing, and application
challenges due to its high tackiness. To be considered as a formaldehyde-free substitute, it
is assumed that the MDI used as a cross-linker would be derived from a formaldehyde-free
route, which would increase the overall cost of the EPI adhesive by 20% to 30%.

Polyurethane adhesives could also be used as a substitute for UF. The most likely
candidate would be poly-methylenebis(4-phenyl isocyanate) or pMDI, which is already
used for oriented strand board (OSB). Polyurethane-based adhesives, applied in a liquid
form at about 50% solids and heat cured, are technically feasible for particleboard and
MDF production. These adhesives possess high strength and superior heat and temperature
resistance to UF. The limitations of pMDI are its hydrophilic nature, resulting in potential
premature bonding of high moisture content wood fiber, high tackiness with a tendency to
stick to press plates, and high toxicity. In addition, the conventional process route for
pMDI production involves the use of formaldehyde, and while an alternative non-
formaldehyde route may be technically feasible, initial estimates suggest that the cost per
kilogram of MDI would be up to three times the current market price (see Chapter 7).

Other polyurethane adhesives include solvent-based elastomeric polyurethane,
polyurethane dispersions and reactive polyurethane hot-melts.7, 8 In this group,
polyurethane dispersions are the most likely candidate for replacing UF because they can
be applied as an aqueous suspension. Polyurethane dispersions are more commonly used
as coating materials but they are also used in some wood-working applications, such as
profile laminating, and laminating wood to plastics. They have good bonding strength and
abrasion resistance and heat and temperature stability. Besides higher cost, the main
limitation of PU dispersions for panel board production are their longer cure time relative
to UF- or pMDI-based adhesives, which would lower the overall productivity of the board
mill.

Vinyl acetate emulsions (VAE) – such as polyvinyl acetate (PVA) or ethyl vinyl acetate
(EVA) – are common wood-working adhesives that could be potentially be used for
particleboard and MDF. While possessing good dry strength characteristics, PVA and
EVA are limited by their poorer performance under moderately high temperatures (over
50°C), moist or humid conditions, and their tendency to “creep” under load. In addition,
they have higher viscosity than water-based adhesives, thus requiring manufacturers to

6                      http://technician.zxq.net
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  “Wood Adhesives Science and Technology,” U.S. Department of Agriculture Forest Service
Product Laboratory, Publication # FS-FPL-4703.
7
  Petrie, Edward M., “Reactive polyurethane adhesives for bonding wood,”
www.specialchem4adhesives.com, Jan. 4, 2004: 1–9.
8
  Cognard, Philippe, “Adhesive bonding of wood and wood based products,”
www.specialchem4adhesives.com, May 11, 2005: 1–11.


Urea Formaldehyde Resins                                                                        24
make new capital investments before they could be used for panel production. Cross-
linked PVA glues have better water resistance and resistance to creep, but they do not have
the dimensional stability of UF and they are even more viscous than regular PVA. 9, 10

Other potential substitute adhesives for particleboard and MDF are epoxy resins. Epoxies
are water resistant, have low creep, and are dimensionally stable. Due to their high cost,
they tend to be used for specialty wood-working applications such as boat building.
Besides their high material cost, epoxy resins require metering and mixing equipment, are
toxic, and generally have a longer cure time than UF resin, unfavorable factors that panel
board producers would need to consider if they chose to modify their manufacturing
processes.

Particleboard and MDF are commodity materials and highly sensitive to material input
cost. A substantial increase in the cost of adhesive raw material or processing cost can
increase the board cost to a point where it is susceptible to replacement by alternative panel
products such as edge-glued solid wood panels.
Hardwood plywood

Hardwood plywood, which is produced by laminating surface sheets onto plywood cores, is
used primarily for furniture and decorative interior applications. UF resin is the adhesive
of choice because of its high dry strength, dimensional stability, clear glue line, and good
stand time. Before use, the UF is formulated into viscous glue with the addition of wheat
flour and other additives, and is applied using a roller-spreader. A possible substitute for
UF resin is PVA-based adhesive, which is already used in veneer applications (adhering a
hardwood veneer onto a substrate of plywood or composite board.) The limitations of
using PVA include higher adhesive cost, limited stand time (PVA begins to cure as soon as
it is applied thus limiting the time available to set up the panel prior to pressing), poorer
dimensional stability, and poorer heat and moisture resistance. It is possible to improve the
final product qualities (stiffness and moisture resistance) of PVA by using cross-linking
agents, but alternate chemistries would have to be developed to replace the most prevalent
cross-linking systems for PVA which incorporate formaldehyde or formaldehyde-based
derivatives. EPI is another logical substitution candidate for plywood, and it is already
used to make some specialty exterior panels.

Recently Columbia Forest Products, North America’s largest hardwood plywood
manufacturer, converted all of its standard production from UF resins to a modified
soybean adhesive called PureBondTM. In 2007 Columbia announced that it will begin
producing particleboard using this same type of soy-based adhesive. This adhesive is
described as possessing “equivalent” performance attributes of UF resins at a “comparable”
cost for hardwood plywood applications and at a higher cost for particleboard applications.


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9
  Jewitt, Jeff, “Woodworking Glues – Some Facts That Will Stick,” Homestead Finishing Products,
2000. See www.homesteadfinishing.com.
10
   See VHI "Glue Workshop," January 2006.


Urea Formaldehyde Resins                                                                          25
Other Applications

UF resin molding compounds have largely been supplanted in many areas of application by
thermoplastic polymers, such as ABS and polypropylene. UF-based molding compounds
tend to be used in applications requiring high mechanical strength, chemical resistance,
good arc resistance, high dielectric strength, and good flame and heat resistance, such as
electrical switches, circuit breakers, stove hardware, and housings. They are also used for
non-electrical applications such as door knobs and toilet seats. ABS could substitute for
UF molding compounds for non-electrical components at a significantly higher material
cost. Potential replacements for UF for electrical applications include epoxies, polyester
thermosets, and silicones. Polyester thermosets are likely the most cost effective substitute
for UF resins. They can be formulated to have excellent strength, temperature, and
electrical properties.

In surface coating applications, UF resins are used to cross link other coatings polymers
such as alkyds, acrylics, and polyesters in order to provide scratch and chemical resistance.
Products using such coatings include kitchen cabinets, furniture, and baked coatings for
metal parts and machinery. Alternative coatings systems, such as powder coating and
radiation cure, can be used to replace UF resins for furniture applications, and epoxy
coatings can be substituted for machinery and metal applications.

For paper treatment, UF is used primarily as a wet strength resin, though its use has
declined in favor of polyamide-epichlorohydrin (PAE) resins, which are more efficient and
can be cured in an alkaline paper making environment. However, PAE has its own
environmental issues. UF resins are sometimes used as a coated abrasive binder, but PF is
more commonly used due to its superior thermal resistance.

                                          Table 6
               Substitutes for Urea Formaldehyde (including mUF and MUF11)

     End-use Market              Substitute binder or resin      Substitute end-use material
                               Soy, blood, EPI, VAE, pMDI,
  Particleboard (PB)           tannin                            Edge glued solid wood
  Medium density               Soy, blood, EPI, VAE, pMDI,
  fiberboard (MDF)             tannin, polyamine                 Edge glued solid wood
  Oriented strand
  board (OSB)                  pMDI, tannin                      Solid wood

  Plywood/construction         Modified soy, EPI, PU, VAE        Solid wood
  Veneer, lamination,
  sizing                       Hot melt adhesive, VAE            Solid materials

  Molding compounds            ABS, epoxy, silicone, polyester

  Surface coating              http://technician.zxq.netcuring (furniture)
                                Epoxy, alkyd, polyester, acrylic
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                                Polyamide, polyamine,
                                                                 Radiation

  Paper treatment              epichlorohydrin, acrylic
Source: Global Insight, Inc.


11
     mUF are modified UF resins and MUF are melamine-urea formaldehyde compounds.


Urea Formaldehyde Resins                                                                        26
The Woodworking Industry

Urea formaldehyde resin and other formaldehyde-based binders and adhesives are a
mainstay of the woodworking industry. This industry is composed of two main sub-
sectors – the production of wood-based panels, veneers and boards and related products
and the production of furniture. The wood-based panels industry is comprised of mostly
large, capital-intensive plants that produce particleboard, medium density fiberboard,
oriented strand board, and plywood. Many of the larger plants have backward integrated
formaldehyde and UF/MF swing production facilities. Consumption of these products in
the European Union and Norway is shown in Table 7.

                                     Table 7
               EU 25 + Norway Production of Wood-based Panels, 2004
                                                Units             Production
          Particleboard                        Million m3               36.0
          Medium density fiberboard            Million m3               12.4
          Oriented strand board                Million m3                3.4
          Plywood                              Million m3                3.6
         Source: European Panel Federation


On the other hand, the furniture industry is quite fragmented in that most of the companies
are small and medium enterprises.12 In terms of production value, the woodworking
industry in Italy is the largest in the European Union and Norway, followed by Germany
and France.

As the vast majority of the products manufactured by the European woodworking industry
find their way into the construction sector, for structural and non-structural applications, as
well as for decorative purposes, the performance of the woodworking industry is dependent
on that of the construction sector. The repairs, maintenance, and improvement (RMI)
segment is a bigger market for woodworking products than new construction since timber
frame construction is not as prevalent in European Union and Norway as it is in North
America. Still, timber frame’s share of residential construction is growing, especially in
Central Western Europe and the United Kingdom; by 2010, the number of timber frame
houses expected to increase by between 30,000 and 60,000 in Western Europe and by
around 3,000 to 6,000 in Eastern Europe.13

As for the furniture manufacturing sector, the European Union and Norway represents the
world’s largest furniture producer, accounting for about 27% of total world production and
almost half of total world exports.14 Italy is the leading furniture producer in Europe,
followed by Germany, the United Kingdom, and France.15 In Italy and France, the
furniture sector is dominated largely by smaller, artisan companies. German furniture
manufacturers, on the other hand, tend to be larger and more industrialized. The largest
furniture manufacturer in Italy is Natuzzi S.p.A., which started as a small furniture
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12
   CEI-Bois
13
   Ibid.
14
   Ibid.
15
   EUROSTAT


Urea Formaldehyde Resins                                                                          27
workshop in Taranto, Italy, in 1959. The sector is a major user of wood-based panels, but
also an important user of sawn wood, especially hardwood.

                                  Figure 8
       Production of Wood and Wood Products in the EU 25 + Norway, 2004




                                  Packaging, 3%   Other, 5%
                                                                        Furniture, 52%
                Construction
               elements, 19%




         Wood-based panels,
                9%

                          Sawing, planing, and
                           impregnation, 12%




       Source: European Panel Federation

Wood-based Panel Consumption

Wood-based panels that utilize formaldehyde-derivatives provide lower cost or higher
performance alternatives to solid wood. As discussed more fully in this and the following
two chapters of this report, these products often provide qualities such as better
dimensional stability and mold resistance. Plywood was the first wood-based panel
product to be invented. During the Second World War, large scale plywood manufacturing
was developed as an alternative to solid wood. It utilizes veneering techniques have been
around for thousands of years. For example, ancient Egyptians have used veneers of
African ebony with inlays of ivory and other exotic materials to decorate artifacts the
Pharaohs planned to take with them into the afterlife. By the end of the 1940s, there was
not enough lumber available to manufacture plywood affordably which led to the
development of particleboard – a product that used waste material such as planer shavings,
offcuts or sawdust, hammer-milled into chips, and bound together with a phenolic resin.
The first commercial-grade particleboard was produced at a factory in Bremen, Germany.

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Wood-based panels are used as intermediate products in a wide variety of applications in
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the furniture industry, the building industry, the packaging industry, or as ‘do-it-yourself’
products. As mentioned earlier, the construction market and packaging industry are the
most important end-users for plywood and OSB, but plywood also enjoys specific niche
markets, such as transport, boat building and musical instruments. As for particleboard, the


Urea Formaldehyde Resins                                                                        28
furniture industry is the main user (46%), while medium-density fiberboard (MDF) finds a
rapidly growing market in laminate flooring.16

First appearing in the 1950s, when there was great market demand for large quantities of
sliced veneers with a "rift cut" effect which were in short supply, a wood-based panel
known as multilaminar wood (MLW) came to the market. The subsequent evolution of
MLW has been attributed to increasing mass production in the furniture industry, which
has led to a search for decorative materials that could be manufactured in large quantities
and without waste, discoloration, knots, or other defects due to biodegradation agents, and
without the constraints of shape and size of the logs. 17 MLW is an attractive alternative to
traditional types of solid wood, as a material made from the least expensive or plantation
wood species, which at the same time offers those working in the sector (including
architects and decorators) unlimited varieties of colors and designs for the customizable
production of furniture, internal accessories, flooring, and other types of articles. The
adhesive used in the manufacture of MLW is usually UF or melamine-urea-formaldehyde
(MUF).18

Engineered wood products, including glulam, I-joists and laminated veneer lumber,
compete with concrete and steel beams. These are increasingly used by architects in
structural applications while high value defect-free products, like finger-jointed and stress-
free timber, are popular in the joinery industry.
Economic Contributions of the Wood-Based Panel Board and Furniture Industry

In 2004, production of panel boards and other wood products in the European Union and
Norway generated over €290 billion in sales and supported over 1.2 million jobs. Wages
and salaries commanded by this industry exceeded €30 billion in 2004. Together,
producers in EU 25 and Norway bought over €127 billion worth of raw materials and
utilities from their suppliers.

                                     Table 8
         EU 25 + Norway Woodworking Industry Economic Contributions, 2004
                               Wood-based panels & other
                                                            Furniture              Total
                                wood product fabrication
Sales (MM €)                           119,120               100,163              219,283
Employment                             595,600               626,021             1,221,621
Wages (MM €)                            14,808               13,733               28,541
Purchases (MM €)                        52,413               44,072               96,485
Source: Global Insight, Inc.




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16
   CEI-Bois
17
   Castro, Gaetano; Zanuttini, Roberto,” Multilaminar wood: manufacturing process and main
physical-mechanical properties.” Forest Products Journal, February 1, 2004
18
   Ibid


Urea Formaldehyde Resins                                                                         29
Economic Benefits of Urea Formaldehyde

The most significant economic benefit of UF arises from its application as an adhesive and
binder. Due to its simple molecular structure, relatively low feedstock costs, and
inexpensive conversion costs, UF is, on a kilogram for kilogram basis, the least expensive
synthetic adhesive material available. The panel board industry relies on the fact that UF is
both water borne and fast curing (with heat) to maximize their production line speeds. In
addition, UF is thermosetting, providing strength, durability, and other desirable physical
attributes to the end-products that contain it. Once shaped into a permanent form, usually
with heat and pressure and with a curing agent, a thermosetting resin cannot be remelted or
reshaped because the basic polymeric component has undergone an irreversible chemical
change.
The substitution cost for replacing UF in its current applications is approximately €13.6
billion per year. This annual cost includes a capital recovery charge that reflects the
investment to produce the incremental volumes of the substitute materials, as well as to
retrofit plants at the point of application so that they can switch to substitute binders. The
total capital investment required by industry to switch to substitutes of UF would be
approximately €12 billion in order to have sufficient capacity to produce the required
volumes of acrylic and vinyl acetate emulsions and emulsion polymer isocyanates.

If UF were no longer available, polymer emulsions would be the primary replacements
for nearly 85% of UF. These emulsions include EPI, VAE, and acrylates. Most of these
substitute materials will be used in wood products applications, such as particle board,
MDF, and plywood. In addition, there will be some increase in the use of natural
adhesives for panel board applications (blood, soy, lignins), but limitations in the
effectiveness and/or supply of these materials will restrict more widespread adoption.
Other thermoplastic and thermoset materials (ABS, polyester, and polyurethanes) would
replace approximately 5% of current UF consumption primarily in molding and coating
applications.

If the recently announced development of soy-based adhesives with improved properties
can be accomplished at modest price premiums over the less-efficient, currently
available, soy-based products, they could be preferred over higher-priced EPI and VAE-
based adhesives for particleboard and medium density fiberboard, and this would reduce
the magnitude of the direct economic benefits estimated in Table 9. Successful
development of this alternative would reduce new capital requirements for other
substitute materials somewhat as well. However, significant investments could be
required in the mills to form products with properties that differ from UF, and economic
benefits therefore would be reduced.

Indirect substitutes would account for approximately 6% of UF substituted. These include
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edge-glued solid wood panels and other wood products. Cost and restricted availability
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would limit the potential of these materials to substitute for the UF-based product. For
instance, it is possible to replace particleboard or MDF with imported edge-glued
hardwood but the total global supply of this material would fulfill less than 10% of the
composite panel requirements of the European Union and Norway.


Urea Formaldehyde Resins                                                                         30
The total specific benefits of UF, that is, the dollar benefits per metric ton of UF displaced,
are about €2,500 per metric ton on average. This high cost of substitution reflects the basic
differential in material cost between UF and the next best (non-formaldehyde) binders that
can provide the same functionality.

                                    Table 9
                     Economic Benefits of Urea Formaldehyde
                                    Direct          Indirect                     Total
           End-use market
                                 (€ MM/year)      (€ MM/year)                 (€ MM/year)
  Particle board (PB)                            8,595            190             8,785
  Medium density fiberboard (MDF)                4,315             35             4,350
  Plywood/construction                            115              25               140
  Other applications                              300               -               300
  Total                                         13,325            250            13,575
    Source: Global Insight, Inc.
    Note: Totals may not add due to rounding.




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Urea Formaldehyde Resins                                                                          31
4.         MELAMINE FORMALDEHYDE RESINS



The market for MF resins in the European Union and Norway is approximately 1.3 million
metric tons (dry-weight basis) of which laminates and surface coating applications account
for approximately 96% of MF resin demand by volume. Other significant applications
include molding compounds and wood adhesives. The largest economic benefit of MF is
in laminates, where its displacement could force consumers to switch to materials with
higher price points, such as granite countertops and hardwood flooring.

The total costs for substitutes for MF, which are the net benefits that consumers enjoy
because they have access to MF, are approximately €3.57 billion per year. Additionally,
approximately €2.6 billion worth of capital costs for new plant and equipment to produce
and use substitutes is avoided through the continuing use of MF. In 2004 MF
manufacturers generated sales of over €975 million, and purchased raw materials and
utilities valued at over €430 million. The sector also supported some 3,300 jobs.


Introduction

Melamine formaldehyde (MF) resins were developed in the 1930s and 1940s. Early
applications were fabric impregnation and adhesives, followed by the introduction of
molding powders containing cellulosic fibers, pigments and fillers. Today, the major
producers in the European Union are BASF and Dynea Chemicals. There are numerous
other participants, many of whom produce MF for captive requirements. Captive
consumption amounts to approximately 30% of total production.

Outstanding properties such as clarity, stability to heat, light, chemicals, abrasion and fire
resistance led to a surge in MF resin demand after World War II. Principal among these
applications was high pressure MF-faced decorative laminate sheets used for heavy duty
surfaces. The development of MF fine faced chipboard allowed rapid production of light
duty decorative panels for furniture application in very high volumes which continues
today.19 A large and fast-growing application of MF resin is laminate flooring on an
MDF board base. Another development was the use of MF molded domestic table and
kitchenware as an attractive and durable alternative to china ware. Other MF applications
include adhesives, paints, electrical moldings and glass-reinforced substrates. MF can
also be copolymerized with other formaldehyde resins to produce a resin with many of
the performance attributes of MF at a lower cost.

Economic Contributions of Melamine Formaldehyde Resin Producers

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The value of sales of MF resins amounted to over €975 million in 2004. MF resin makers
purchased over €430 million worth of raw materials and utilities from their suppliers. The
level of employment supported by the sector was around 3,300 workers.

19
     Greiner, op. cit., February 2004.


Melamine Formaldehyde Resins                                                                     32
                                    Table 10
        EU 25 + Norway Melamine Formaldehyde Resin Economic Contributions
                                                    2004
                          Production ('000 MT)                   1,247
                          Sales (MM€)                             978
                          Purchases (MM€)                         430
                          Employment                             3,300
                         Source: Global Insight, Inc.


Properties and Advantages of Melamine Formaldehyde Resins

Melamine formaldehyde resins are similar in chemical behavior and properties to urea
formaldehyde resins. Like UF resins, MF resins are light in color and, therefore, provide a
clear glue line or can be colored. In addition, MF resins are tougher, more thermally stable,
and are more moisture and chemically resistant than UF resins. MF resins tend to be used
in applications that have higher physical service requirements relative to UF but also
require a binder, or saturating resin with excellent cosmetic characteristics. For example,
laminated countertops will typically incorporate several layers of PF saturated paper as the
core layers, with a single layer of MF saturated paper on top to form the graphic image.
The most important properties of MF resins are:

                          Water borne
                          Fast curing (faster than UF)
                          Excellent hardness and abrasion resistance (better than UF and PF)
                          Excellent dimensional stability
                          Clear glue line
                          Color retention (better than UF)
                          Very good water resistance (better than UF, inferior to PF)
                          Excellent heat resistance
                          Excellent chemical resistance
                          UV stability
                          Excellent flame resistance

Melamine Formaldehyde Consumption

Consumption of MF resins in the European Union and Norway in 2004 was approximately
1.3 million metric tons (dry-weight basis). The major end-use markets for melamine
formaldehyde are laminates and surface coatings, with minor applications including
molding compounds and wood adhesives.20
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20
     Industry sources.


Melamine Formaldehyde Resins                                                                    33
                                         Figure 9
                  EU 25 + Norway MF Resin Demand by End-Use Market, 2004




                                     Molding Compounds, 1%
                                                             Wood Adhesive, 3%


            Surface Coatings, 31%




                                                                                 Laminates, 65%




     Source: Industry sources.


Decorative laminates, made with both low pressure and high pressure lamination, are the
largest single market for MF. Low pressure lamination (LPL) involves laminating MF
resin impregnating paper directly onto a substrate of particleboard or MDF. LPL is used
for applications involving relatively light service conditions, such as drawer fronts.21 High
pressure lamination involves laminating a sheet of MF-impregnated decorative paper onto
several sheets of PF-impregnated Kraft paper at high pressure and heat. The resulting
laminated sheet is extremely tough and moisture and temperature resistant. The laminated
paper is then adhered to a substrate material, usually particleboard or plywood, and is used
for counter-tops, furniture tops, cabinet and drawer faces, wall cladding, automobile
interiors, laminated flooring, and wall coverings.

Like UF resins, MF resins are used as cross-linkers with a variety of surface coating
polymers such as alkyd, acrylic, or polyester resin. Modified MF resins improve the
toughness, moisture and chemical resistance, and ultraviolet stability of surface coatings;
they are used extensively in automobile coatings, appliance coatings, and surface coatings.
The automobile market accounts for about 40% of MF resin consumed in the surface
coating market. Modified MF resins are used as cross linking agents for acrylic enamel
top-coats and as curing agents for polyester based primer-surfaces. MF resins are also used
as cross-linking agents for metal containers, metal furniture, coil coatings, and electrical
appliances.

MF provides functionality similar to UF resins as a paper coating additive and wet-strength
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resin. MF is also used as a wood adhesive in specialty applications where the service
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requirements exceed those that can be provided by UF resins, such as curved plywood,

21
  Troxel, Rick, “High Pressure Laminate and Thermally-Fused Melamine: A Study in Form and
Function,” Roseburg Forest Products, Fall/Winter 2002: 1–4.


Melamine Formaldehyde Resins                                                                      34
marine grade plywood, train and truck bed flooring, and fire-proof surfacing. It can also be
used as a binder or adhesive for structural panels (plywood and OSB) for interior
applications.

                                            Table 11
                     Major Product Applications of Melamine Formaldehyde
Category                                   Material                  Applications
                                                                    Countertops, cabinets,
                                                                    furniture, flooring, wall
                                           Paper impregnation       covering, sheathing,
                                           and lamination           automobile interiors
                                                                    Curved plywood, truck and
                                                                    train car beds, marine
Construction Materials and Home                                     grade plywood, interior
Improvement                                Wood adhesive            structural panels
………………………………………………                         Ceiling tiles            Ceiling tiles
                                                                    Automobile, metal
                                                                    containers and furniture,
Surface Coatings                           Alkyd, acrylic           coil coating
                                                                    Dinnerware, knobs,
                                           Molded plastic           handles, buttons, circuit
Molding Compounds                          products                 breakers
                                           Tire cord adhesive, tanning agent, cross-linking
                                           agent, water treatment resin, textile finishing agent,
Other                                      coated paper
Source: Global Insight, Inc.


Substitutes for Melamine Formaldehyde
Laminates

Since melamine formaldehyde resins are used in the top decorative sheet for both high
pressure and low pressure laminates, which use other formaldehyde resins in the substrate,
substituting a formaldehyde-free substance for a laminate countertop involves replacing
three materials – the MF resin used in the decorative layer, the PF resin used in the core
layer, and the UF or PF resin used in the production of the substrate material. Substitute
decorative laminate materials include polyester resins, epoxy resins, acrylic/polyvinyl
alcohol copolymer dispersions,22 and amorphous silica.23 Laminated countertops can also
be substituted with solid surface countertops (e.g. Corian®, Silestone), marble, granite,
slate, solid wood, or other materials. Substitute materials for vertical applications of low
pressure laminate include vinyl film, tile, and solid wood.




22
  Matscheko, Horst et al (Inventors), “Decorative sheets used in the production of laminated
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panels,” U.S. Patent # 5,851,684, Arjo Wiggins Deutschland GmbH, December 22, 1998: 1–6.
23
  Mehta, Mahendra et al (Inventors), “Low scratch, abrasion-resistant overlay and decor papers,”
U.S. Patent # 5,141,799, Mead Corporation (Assignee), August 25, 1990: 1–10.




Melamine Formaldehyde Resins                                                                        35
Surface Coatings

Modified MF (methylated, butylated, or isobutylated) resins are used as cross-linkers with
alkyd, acrylic, or polyester resins. A substantial proportion of modified MF resin is used in
automotive applications (acrylic clear coats, acrylic base coats, and polyester primer-
surfaces.) In the clear coat market, substitute products include solvent-borne urethanes and
carbamate coatings. MF resins are cross linked with acrylics for exterior coatings of
beverage and food containers. MF resins are cross linked with high solids polyesters for
metal surface coating. Alternative coating systems for this application include powder
coating.
Molding compounds

Most melamine molding compounds are used in the production of dinnerware products
such as cups, bowls, and food trays. MF resins that contain up to 40% filler (typically
cellulose) have excellent hardness and thermal properties, can be molded using a variety of
techniques, and can be colored or decorated using color transfer or silk-screen methods.
ABS plastic, though more expensive, is a possible replacement for melamine molding
compounds for dinnerware products. Melamine molding compounds are also used for
other consumer and electrical products such as buttons, circuit breakers, appliance
housings, and components (knobs and handles.) Potential substitutes for these applications
include ABS in non-electrical applications and polyester thermosets (polyester bulk
molding compound) for electrical applications.
Specialty wood applications

MF resins are used in specialized wood-working applications, such as curved plywood,
marine grade plywood, train and truck bed flooring, and fire-proof surfacing. These
applications require high dimensional stability, high moisture resistance, smoke/fire
resistance, and good cosmetic properties. Possible substitutes include EPI, polyurethanes,
and epoxy dispersions. Substitute end-use materials are solid wood or steel.

                                               Table 12
                               Substitutes for Melamine Formaldehyde

End-use Market                   Substitute binder or resin   Substitute end-use material
                                                              Horizontal: granite, marble
Laminates (paper                                              Vertical : vinyl, wood
impregnation)                    Polyester, epoxy             Flooring: carpeting, tile, wood

Surface Coatings                 Polyester, epoxy, acrylic    Powder coating, carbamate coating
Molding Compounds                ABS, polyester thermosets
Wood Adhesive                    EPI, PU, epoxy, pMDI         Wood, steel
Source: Global Insight, Inc.


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Economic Benefits of Melamine Formaldehyde
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Due to its cost and performance attributes, MF resins face more material substitution (both
direct and indirect) across its applications than either UF or PF (with the exception of high
pressure lamination, where MF is by far the dominant system for outer and decorative



Melamine Formaldehyde Resins                                                                      36
layers). The total costs for substitutes for MF, which are the net benefits that consumers
enjoy because they have access to MF, are approximately €3.57 billion per year, of which
€3.50 billion per year are saved from direct material substitutes (binders, adhesives, and
coating systems), and €70 million per year are saved by indirect substitution (LPL
substitute materials). The total capital investment required by industry to switch to
substitutes of MF is approximately €2.6 billion.

The largest economic benefit of MF comes from its paper impregnation applications in
laminates. Although alternative HPL impregnation systems exist, they are either more
expensive (epoxy), not as durable (acrylic) or offer lower final product aesthetics (epoxy,
polyester). The alternatives to MF-based LPL include vinyl or paper foil. These
alternatives are less expensive materials that do not match the aesthetic attributes of MF-
impregnated paper. Removing MF would limit the color and pattern selection of counter-
top materials, certain types of furniture, as well as the laminate flooring market.
Consumers would need to switch to materials with considerably higher price points (solid
surface countertops, real hardwood flooring) in order to match the versatility and pattern
range of MF-based laminated materials.

Polyester, acrylic, and epoxy could also serve as replacements in other MF applications
including coatings and molding compounds. In addition to their use in paper lamination,
these polymers could substitute for between 80% to 85% of MF consumption in the
European Union and Norway. The remaining substitutes will include ABS (molding
applications), EPI (specialty wood), and PVA (specialty wood). Some light duty paper
laminate applications such as vertical surfaces will probably be replaced by other materials
like vinyl film.

                                    Table 13
                   Economic Benefits of Melamine Formaldehyde
                                Direct        Indirect       Total
             End-use market
                             (€ MM/year)    (€ MM/year)   (€ MM/year)
            Laminates                     2,365       70              2,435
            Surface Coatings                985                         985
            Molding Compounds                   25                       25
            Wood Adhesives                  130                         130
            Total                         3,505       70              3,575
     Source: Global Insight, Inc.
     Note: Totals may not add due to rounding




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Melamine Formaldehyde Resins                                                                   37
5.      PHENOL FORMALDEHYDE RESINS



The market for phenol formaldehyde (PF) resins in the European Union and Norway is
approximately 750,000 metric tons (dry-weight basis), of which insulation binder,
impregnated paper, and wood product applications account for approximately 60% of PF
resin demand. Though more expensive than UF resins, PF resins are still among the least
expensive adhesive option on the market. As such, substituting PF resins would not only
require substantial capital expenditure to retrofit or expand production facilities but also
significantly raise the cost of products.

The total costs for substitutes for PF, which are the net benefits that consumers enjoy
because they have access to PF, are approximately €2.55 billion per year. Moreover,
approximately €2 billion worth of capital costs for new equipment to produce and use
substitutes is avoided through the continuing use of PF. In 2004 PF manufacturers
generated sales of approximately €650 million, and purchased raw materials and utilities
valued at over €285 million. The sector also supported some 1,725 jobs in the European
Union and Norway.


Introduction

Phenol formaldehyde (PF) resin is generally regarded as the first synthetic polymeric
material. It was invented by Dr. Leo Baekeland around 1909, and sold under the trade
name “Bakelite.” Early applications for Bakelite included telephones, radio housings, and
electrical insulators. Applications for phenol formaldehyde resins greatly expanded in the
period following World War II.

There are two classes of phenolic resins – resols and novolacs. Resols are produced by
reacting phenol and formaldehyde at a temperature range of 70 – 100°C under alkaline
conditions.24 Resols do not require the presence of cross-linking agents to cure and most
resols are cured using heat. Resol phenolics are used as binders and adhesives in
applications that emphasize hardness and dimensional stability as well as heat, moisture,
and chemical resistance such as plywood, insulation binder, and paper saturating resins.
Novolacs are produced in a two-stage process. Phenol and formaldehyde are first reacted
under acid conditions to produce a novolac polymer, which is usually dehydrated and
shipped in a dried form. At the application point, a cross-linking agent is applied, usually
hexamethylenetetramine (hexa or HMTA) resulting in an infusible polymer. The process
of making novolacs results in a lower cross-linking density than resols. This makes them
less hard than resols, but also less brittle and more impact resistant (i.e., tougher). For these
reasons, novolacs are used in applications requiring both high service temperatures as well
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as high “toughness,” such as in friction, foundry, and abrasive binder applications.
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24
 Greiner, Elvira O. Camara, Phenolic Resins, Chemical Economics Handbook, SRI International,
April 2002: 1-63.


Phenol Formaldehyde Resins                                                                          38
Economic Contributions of Phenol Formaldehyde Resin Producers

Three producers, Hexion Specialty Chemicals, Dynea Chemicals, and Perstorp, account for
a substantial proportion of the PF resins produced in the European Union and Norway.
Additionally, there are some smaller regional and/or captive suppliers to the forest products
sector and a number of producers of specialty phenolics for industrial (i.e., non-wood)
applications. In 2004 PF manufacturers in the European Union and Norway generated an
estimated €650 million in sales for the industry, produced approximately 830 thousand
metric tons of PF resins, and purchased €286 million of raw materials and utilities from
their suppliers. The PF resin sector supported about 1,725 jobs in the European Union and
Norway.

                                  Table 14
       EU 25 + Norway Phenol Formaldehyde Resin Economic Contributions
                                                  2004
                    Production ('000 MT)                       830
                    Sales (MM€)                                650
                    Purchases (MM€)                            286
                    Employment                               1,725
                   Source: Global Insight, Inc.


Properties and Advantages of Phenol Formaldehyde Resins

Resol PF resins offer comparable strength and dimensional stability to UF resins but have
higher moisture and chemical resistance than either UF or MF resins. For this reason, PF
resins are the adhesives of choice as an insulation binder and for structural grade wood
products. The main limitation of PF resins is that the resin is colored a deep red to black,
and this coloration can bleed though wood-grains. This limits the application of PF resins
in end-uses where a clear glue line or color tinting is required. Resol phenolics are used in
a wide variety of applications, including structural panel boards, glass insulation binder,
paper lamination, coating abrasives, phenolic foams, and fiber reinforced panels. Novolac
PF resins are dimensionally stable at high temperatures, abrasion resistant, yet not brittle.
These are the very qualities needed in applications such as foundry binders and friction
materials (for example, automotive clutch plates and brake pad linings).

The most important properties of PF resins are:

                   Water borne
                   Fast curing
                   Excellent hardness and abrasion resistance
                   Excellent dimensional stability
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                   Excellent resistance to creep
                   Excellent moisture resistance (better than UF or MF)
                   Excellent thermal stability
                   Excellent chemical resistance


Phenol Formaldehyde Resins                                                                      39
                        Very good flame and smoke resistance
                        Toughness

Phenol Formaldehyde Consumption

Consumption of PF resins in the European Union and Norway in 2004 was approximately
750,000 metric tons (dry-weight basis). Building and construction applications, including
insulation binders, wood products, and laminates account for approximately 60% of PF
resin demand, while other applications, including molding compounds, friction materials,
and foundry binders accounts for about 40%.

                                     Figure 10
              EU 25 + Norway PF Resin Demand by End-Use Market, 2004




                Hot Tops & Refractory ,
                         4%             Friction , 4%     Others, 6%
                                                                             Insulation Binder, 30%
          Felt Bonding , 5%
            Foam , 5%



         Rubber , 5%


            Foundry , 5%

                  Abrasives , 6%
                                                                       Wood Products , 20%
                                Impregnated Paper , 10%




 Source: Industry sources.


The major applications for PF resin are the manufacture of fiberglass insulation, wood
products, and high pressure laminates. It is the principal material used to bind fiberglass
threads into fiberglass insulation, although polyacrylic acid has recently been introduced
into the market as a competing binder material. Another major end use for resol type PF
resins is high pressure lamination (HPL) used for decorative and industrial laminates. High
pressure lamination involves laminating a sheet of MF impregnated decorative paper onto
several sheets of PF-impregnated Kraft paper at high pressure (70-100 atmospheres) and
temperature (130°C). The resulting laminated sheet is extremely tough and moisture and
temperature-resistant. The laminated paper is then adhered to a substrate material, usually
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particleboard or plywood, and is used for countertops, furniture tops, cabinet and drawer
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faces, wall cladding, automobile interiors, laminated flooring, and wall coverings. Besides
construction, plywood also enjoys specialty niche markets, such as boat building and
musical instruments.




Phenol Formaldehyde Resins                                                                            40
Specialty applications of PF resins include molding compounds for appliances,
housewares, electrical applications, automotive components, coated abrasives (sand paper,
scouring pads), bonded abrasives (grinding wheels, cutting wheels), protective coatings
(food container linings), rubber processing additives, and phenolic foams for underground
mining and other specialty uses.
Novolacs are typically used in applications where service temperatures are high and the
binder needs to be abrasion resistant but not brittle such as under-the-hood molded
automotive components; bonded abrasives (grinding wheels, cut-off wheels, finishing
wheels); friction materials (clutch facings, drum brake blocks, disk brake pads); and
foundry binders.

Foundry binders are used to make metal molds used to cast metal parts. The main end use
industries include automobile production, aerospace, and machine tools. There are a
number of different molding techniques not all of which require the use of foundry binders.
The primary foundry techniques requiring the use of foundry binders are no-bake, cold-
box, shell molding, and hot-box. The no-bake process involves the use of a resin, sand, and
a curing agent. An advantage of the no-bake process over the older hot-box technique is
that heat is not needed in curing, and thus energy costs are lower. Phenolic urethanes and
straight phenolic binders account for about 75% of the no-bake binder market, with furan
binders, sodium silicates, and alkyd-oil isocyanates accounting for the balance. 25 Cold-box
resins are similar to no-bake in that curing occurs at room temperature, but a gas is used as
a curing agent rather than a liquid. The primary method involves use of phenolic-
isocyanate resin cured by triethylamine vapor. Other systems include furan resin cured by
sulfur dioxide, and acrylic and epoxy-acrylic systems cured by sulfur dioxide gassing. In
the shell molding technique, hot or warm sand is coated with phenolic novolac hexa
solution, which is then blown or compressed into a mold pattern. In the hot box technique
a liquid resin, together with an acid catalyst and dry sand, are blown into a heated pattern
box. The heat induces that acid to cure the resin. This technique uses resol-type PF resins
and to a minor extent furan-type resins.




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25
     Greiner, op. cit., 2002.


Phenol Formaldehyde Resins                                                                      41
                                              Table 15
                               Major Product Applications of PF Resins
 Market                                  Material                   Applications
                                                                        Cabinets, furniture, flooring
                                         Structural panels              countertops, decorative
                                                                        molding
 Construction Materials & Home                                          Tabletops, furniture, paneling,
                                         Hardboard, molded wood,
 Improvement                                                            door material, flooring, window
                                         particleboard
                                                                        assemblies
                                                                        Architectural insulation, pipe
                                         Fiberglass insulation
                                                                        insulation
                                                                        Countertops, cabinets,
                                                                        furniture, flooring, wall
                                         Decorative laminates
                                                                        covering, sheathing,
                                                                        automobile interiors
 Automotive                                                             Under-the-hood components
                                         Molding compounds
                                                                        (engine, transmission, brakes)
                                                                        Brakes, clutches, automatic
                                         Friction materials
                                                                        transmissions
                                         Foundry resins                 Cast metal parts
                                                                        Gears, bearings, rings, valves,
                                         PF Saturated paper or cloth
                                                                        printed circuits
                                         Coated and bonded
 Industrial                                                             Grinding wheels, sand-paper
                                         abrasives
                                         Sheet molding, phenolic        Train and aircraft interiors,
                                         composites                     automotive
                                                                        Food containers, drum linings,
 Coatings                                Protective coatings
                                                                        storage tanks
 Other                                   Rubber processing chemicals, oil field, phenolic foams
Source: Global Insight, Inc.


Substitutes for Phenol Formaldehyde
Insulation binder

Due to its low cost, versatility, ease of application, excellent insulating properties, and fire
and moisture resistance, glass fiber insulation is the most widely used architectural
insulation material in Europe, having displaced large amounts of mineral wools made from
metallurgical slags. Resins for the fiberglass industry are traditionally based on water
soluble phenol-formaldehyde resol resins, with urea sometimes added to lower the cost,
and melamine added to improve product rigidity. After mixing the solution is sprayed onto
a continuous stream of hot amorphous glass fibers, which is formed into a continuous mat
and allowed to warm, thus curing the resin. 26 The resin must be structurally stable, but
flexible, as mats are compressed prior to shipping, and must be able to expand to their
designed thickness for optimal insulating properties. Incorporating melamine resin
improves high temperature resistance, a property that is important for fiberglass pipe
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insulation, which may have to withstand very low or high service temperatures – from

26
  Strauss, Carl R. Owens (Inventor) “Fibrous glass binders” U.S. Patent # 5,318,990, Owens
Corning Fiberglas Technology Inc. (Assignee), June 7, 1994: 1–18.



Phenol Formaldehyde Resins                                                                          42
below 0°C to above 500°C. Recently, fiberglass binders for architectural applications have
been developed using polyacrylic acid.27 The latest generation of glass mat insulation
made from acrylic binders has performance attributes similar to phenolic resin-based
insulation; however the material cost is higher (acrylic resin is two to three times more
expensive than phenolic resin) and the manufacturing process incurs additional
maintenance costs due to the corrosive nature of acrylic acid.
Wood products

Plywood is used in home construction for interior and exterior applications, where high
strength, dimensional stability, moisture resistance, and thermal stability are needed.
Beyond the required adhesive properties, adhesives used in panel board production must
have certain working characteristics for a satisfactory performance with current production
methods. For example, in many operations manufacturing plywood or laminated wood
products, the panels are pre-pressed cold prior to heat setting of the adhesive. By pre-
pressing the assembled panels, the capacity of the heated platen press is increased and the
quality of the plywood improved. In cold pre-pressing, the adhesive must have sufficient
tack to permit the handling of the pre-pressed panels without shifting of the plies after the
pressure is removed (i.e. good wet strength). After consolidation of the panel, it is stored or
held for various lengths of time until the panel can be subjected to high temperature and
pressure to finally set the adhesive. The hot-pressing operation is a more involved
procedure using more costly equipment and usually is the limiting production factor in the
mill. An adhesive that permits the consolidated panel to be stored for long periods of time,
for example a hold time of 16 to 40 hours before hot pressing, gives considerable flexibility
to the mill. 28

Phenol formaldehyde resin is used for plywood because of its relatively low cost, high dry
and wet strength, moisture resistance, and thermal stability. It also offers the properties that
are advantageous to the production process. pMDI provides similar end-use functionality
but because it is more difficult to work with (high tack, toxicity, hydrophilic) and higher in
cost, it is not used for plywood. Melamine formaldehyde and resorcinol formaldehyde also
possess the combination of adhesive properties and moisture resistance needed for exterior
grade structural panels, but their higher cost limits their use to specialty applications.

Prior to the development of synthetic adhesives, plywood was produced using blood
albumin adhesives which, when hot pressed, provides high dry strength and moderate
resistance to damp conditions and microorganisms. Plywood based on casein adhesives
were also used for interior applications; however, blood albumin or casein adhesives do not
meet the service requirements of exterior grade plywood.29, 30 Not only are the raw
materials for blood and casein adhesives limited, but concerns over BSE or “mad cow
disease” would further restrict the amount of slaughterhouse blood albumin available for
27
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   Arkens, Charles Thomas et al (Inventors), “Curable aqueous composition and use as fiberglass
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nonwoven binder” U.S. Patent # 5,661,213, Rohm and Haas Company (Assignee), August 26,
1997: 1–26.
28
   Blackmore; Kenneth A. E. et al “Phenolic Adhesives,” U.S. Patent# 3,956,207, Georgia Pacific
Corporation (Assignee), May 11, 1976: 1–11.
29
   Vick (1999).
30
   Eckleman (2004).


Phenol Formaldehyde Resins                                                                         43
adhesive production. Soybean adhesives have been proposed as possible replacements for
phenol formaldehyde in panel board production, but they are generally lower in strength
and are less moisture tolerant. Soybean adhesives have been produced with improved
moisture resistance through cross-linking with phenol formaldehyde or mixing with blood
albumin.

The modified soybean adhesive discussed in Chapter 3 as a replacement of UF for particle
board and medium density fiber board is a potential substitution candidate. If, as claimed,
it possesses many of the needed strength and serviceability characteristics of PF resin, it
may become an economically viable substitute. However, it has yet to be commercialized
for use in plywood applications.

pMDI adhesives are other possible substitutes for PF in plywood production. However,
the conventional route to produce MDI involves the use of formaldehyde, and a potential
alternative route results in a substantially higher product cost (see Chapter 7 of this report).
Emulsion polymer isocyanates (EPI) formulated for exterior applications would be a more
likely choice, as they possesses high wet and dry strength, dimensional stability, and
moisture resistance. Since EPI uses MDI as a cross-linker, its cost would increase since the
MDI would need to be synthesized using the alternative, more expensive process or an
alternative cross-linker would need to be developed. This would increase the cost over
currently available products. In addition, board plants would experience higher costs
because of the relative difficulty of handling and applying EPI versus PF resins.

Another synthetic alternative is polyurethane dispersions. Unlike vinyl acetate emulsions
(VAE), polyurethane dispersions can be formulated for exterior grade applications.
Besides possessing superior heat and moisture resistance, PU dispersions are harder, more
dimensionally stable, and more creep-resistant that VAE. PU dispersions are used
currently in niche applications, such as some structural wood products where its higher cost
is offset by functional advantages. They are single-part systems, so end-users do not have
to deal with metering, mixing, or pot life considerations. Their biggest draw-back is the
substantially higher cost compared to MDI, PDI, or VAE.

Water borne epoxy systems, or emulsions consisting of epoxies and acrylic, vinyl acetate,
or styrene butadiene copolymers, are potential substitutes. 31 These systems would possess
properties of excellent hardness, toughness, moisture, and thermal stability.

If formaldehyde resins were not available for use, the cost of production for wood products
would increase due to the higher adhesive cost and processing considerations. Higher
panel board costs would result in some switching to alternative materials and construction
techniques. Other indirect substitutes of plywood include cement board and acrylic coated
gypsum board, both of which can be used in structural applications. However, these
materials are more expensive, and builders would incur additional costs if they were used
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exclusively to replace structural wood panels. Cement board, for example, is much heavier
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than structural wood panels. If cement board were used exclusively in sheathing, cladding,

31
 Kamikaseda, Takeshi et al (Inventors), “Emulsion Adhesives,” U.S. Patent # 4,634,727,
National Starch and Chemical Company (Assignee), January 6, 1987: 1-10.


Phenol Formaldehyde Resins                                                                         44
flooring, and roofing applications, more dimensional lumber would be needed to provide
the bracing needed for the additional weight, and installation costs would increase.
Alternative, more costly building technologies are also available such as the use of
insulating concrete form, steel frame, concrete, or brick construction.
Paper Lamination

Phenol formaldehyde saturated resins provide the core sheets for decorative laminates and
are used in the production of industrial laminates. Decorative laminates are composite
products in which the top sheet (graphic or pattern) is impregnated with melamine
formaldehyde resin. The finished decorative sheet is often laminated onto a substrate of
plywood or particleboard. Therefore, a formaldehyde-free substitute for a laminate
countertop involves substituting three materials – the MF resin used in the decorative layer,
the PF resin used in the core layer, and the UF or PF resin used in the production of the
substrate material. Substitute decorative laminate materials include polyester,32 vinyl ester,
and epoxy. These materials are typically not used for decorative laminates because of their
higher cost. Laminated countertops can also be substituted with Corian®, marble, granite,
slate, solid wood or other materials at much higher cost.

Industrial laminates are made by impregnating a PF resin into a substrate such as Kraft
paper, cotton, or canvas. The laminate is used to make a variety of end products, such as
gears, bearings, rings, valves, seals, pump impellers, printed circuit boards and electronic
components. Industrial laminates need to have good strength and dimensional stability,
hardness, heat and moisture resistance. An advantage of PF-based industrial laminates is
their low cost versus substitute materials, which include epoxy, polyimid, and unsaturated
polyester.33
Molding Compounds

The most desirable properties of phenolic molding compounds include moldability,
toughness, dimensional stability, thermal stability, electrical insulation, chemical resistance,
compressive strength, and superior load-bearing capability at elevated temperatures.
Design engineers specify phenolics for close-tolerance precision moldings that must
function in hostile environments.34 Potential substitutes for phenolic molding compounds
in industrial applications include glass-filled engineering thermoplastics (such as
polyamide, polyethylene terephthalate, polycarbonate, ABS, and polyacetal resins).
However, these materials are generally about twice as expensive on a unit volume basis,
and their physical properties (creep modulus, hardness, flexural modulus, temperature, and
compression strength) are markedly inferior to PF, and in many cases unsuited for the
required service conditions. Polyester bulk molding compound (BMC) could substitute for
some applications and, in many cases, consumers would be forced to revert to the use of
heavier and more expensive metal parts. For houseware and home appliance applications,
substitutes include polybutylene terephthalate, PET, and glass-reinforced thermoplastic
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32
   Nakatsuka, Ryuzo et al, "Process for preparing dry, laminating impregnated papers or cloths,
and process for producing decorative plates using the same," U.S. Patent #4,057,674, Sumitomo
Bakelite Company Limited, November 8, 1977: 1-8.
33
   “Manufacture of Industrial Laminates.” See www.ilnorplex.com/manufacturing.htm.
34
   “Phenolic Molding Compounds.” See www.durez.com.


Phenol Formaldehyde Resins                                                                         45
polyester. Polyester bulk molding compounds and engineering thermoplastics are also
substitutes for electrical applications.
Abrasives binders

PF is one of the two common substrates used in bonded abrasives (abrasive particles bound
into a matrix for use in cutting, grinding, or milling). The other major type is vitrified
abrasives. Vitrified abrasives are used for grinding applications while PF wheels are used
for milling, de-burring, and precision machining.35 Properties required for this application
include strength, toughness, thermal shock resistance and productivity/cost impact.
Besides vitrified types, alternative binders include ceramic, shellac, and rubber. However,
grinding or cutting wheels made from these substitute binders cannot operate at the same
speed as PF-based wheels, so the productivity of a machining shop would decrease if PF
bonded abrasives were no longer available.

PF is also the binder of choice for coated abrasives (abrasive particles bound to a substrate
such as paper, cloth, or plastic film) because of its superior thermal resistance to any other
system.36, 37 Coated abrasives made from PF resins are used in machine-based sanding
operations under high heat conditions and intermediate-to-heavy stock (substrate)
removal.38 PF-based systems are also used in wet sanding conditions. The commercially
available substitute for PF (and to a lesser extent UF) coated abrasives are animal hide
glues. Animal hide glues, made from the collagen on the flesh side of cattle hide, is the
system used in the pre-synthetic resin days. Collagen glues are more flexible than PF
resins, and are suitable for hand sanding and light load applications. However, they cannot
operate at high speed and high loads or in wet conditions, and they have a limited useful
life because they are subject to microbial attack. If the metal working industry were unable
to use PF coated abrasive binders, they would likely be forced to develop alternative
synthetic binding technologies based on epoxy resins since collagen-based adhesives would
not likely be able to meet the service requirements of most applications.

Phenol formaldehyde is generally the most cost effective of the various foundry binding
systems, which is why it is the predominant foundry binder used. Substitute binding
systems include furan (no-bake, cold-box, and hot-box), silicates (no-bake), isocyanates
(no-bake), and acrylic (cold-box), and epoxy).39, 40, 41
Other

Phenol-resorcinol formaldehyde (PRF) is used in the manufacture of glue-lam beams while
PF resins are used in making I-joists. These are specialty wood products, often used for

35
   “The Manufacture of Bonded Abrasives.” See www.saint-gobain.com.
36
   “How to Choose the Right Sandpaper.” See http://woodworking.about.com.
37
   Greaves, Scott “Good Stuff about Sandpaper.” See http://homeallianceecable.net.
38
39                     http://technician.zxq.net
   “FAQs about Abrasives.” See www.woodartistry.com.
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   Woodsone, Wayne D. et al (inventors), “Cold-box foundry binder systems,” U.S. Patent #
6,686,402, Ashland Inc. (assignee), February 3, 2004: 1–15.
40
   Chang, Ken K.(inventor), “Furan no-bake foundry binders and their use,” U.S. Patent #
6,593,397, Ashland Inc. (assignee), July 15, 2003: 1–12.
41
   Woodson, Wayne D. et al (inventors), “Cold box foundry binder systems having improved
shakeout,” U.S. Patent # 6,662,854, Ashland Inc. (assignee), December 16, 2003: 1–13.


Phenol Formaldehyde Resins                                                                       46
engineering applications. The adhesives used in these applications are typically specified
for particular performance attributes, including high strength, dimensional stability, and
moisture and abrasion resistance. Emulsion polymer isocyanates (EPI) and epoxy
adhesives are potential direct substitutes for PRF and PF for engineered wood products,
and solid wood or steel beams are indirect substitutes.

Phenolic fiber reinforced polymer (PFRP) composites are typically specified in
applications that require superior flame and heat tolerance, as well as low smokability, such
as aerospace, passenger trains, and offshore drilling rigs. These applications also require
excellent dimensional stability, toughness, and thermal stability. PF is the most widely
used polymer resin for these applications, and it is unlikely that other thermoset material
(unsaturated polyester, epoxies, vinyl esters, or polyurethanes) have all the required
properties.42

                                       Table 16
                        Substitutes for Phenol Formaldehyde
                            Substitute binder or
         End-use Market                              Substitute end-use material
                                     resin
                                                                       Alternatives to wood frame
     Plywood, LVL                      Blood, soy, EPI, PU             housing (concrete, steel frame,
                                                                       insulating concrete form)
     Insulation binder                 Polyacrylic acid
                                                                       HPL: Corian®, granite
     Paper impregnation                Epoxy, silicone, polyester      LPL: vinyl film, decorative foils,
                                                                       low basis weight paper
                                       Consumer and appliance
                                       applications: thermoplastics,
     Molding compounds                                                 Automotive – metal
                                       polyester bulk molding
                                       compounds
     Friction materials                                                Carbon fiber
                                       Coated: animal glue, epoxy
     Coated and bonded
                                       Bonded: ceramic, shellac,
     abrasives
                                       rubber
                                       Furan, silicates,
     Foundry                                                           Die casting
                                       isocyanates, acrylic
                                                                       Solid or laminated wood, steel,
     Specialty wood adhesives          Epoxy, EPI
                                                                       concrete
     Source: Global Insight, Inc.




Economic Benefits of Phenol Formaldehyde

Like UF, there are both direct and indirect substitutes available for most, if not all PF-based
applications. As might be expected, the more “commodity-like” the application, the
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narrower the range of direct substitute materials since higher priced substitutes (on a
price/functionality basis) become less attractive. In addition, in the more commodity-like

42
  Tang, Benjamin, “Fiber Reinforced Polymer Composites Applications in USA,” DOT-Federal
Highway Administration, January 29, 1997. See www.fhwa.dot.gov/bridge/frp/frp197.htm.


Phenol Formaldehyde Resins                                                                                  47
applications, the higher the market share held by the low-cost application technology tends
to be.

Most substitution will occur at the level of the resin functionality (direct substitution) rather
than indirect substitution. The incremental impact on business fixed investment is
generally lower with direct substitution because there will be less capital "stranded" due to
shut-downs of existing factories and because fewer links of the value chain will need to be
replaced.

The cost of substitution per metric ton of PF replaced is higher for indirect substitutes
because the resin component makes up only a fraction of the final weight of the end use
product. An extreme example is replacing laminate-type horizontal surfacing (e.g.,
countertops) with granite or solid surface material. The amount of resin used to make
horizontal surfacing (PF and MF) is about 0.4 to 0.5 kg per square meter. However, a
square meter of 15mm granite solid surface countertop material weighs more than 40 kg.

Although substitutes are available for most PF applications, some applications such as
brake and friction linings and phenolic fiber reinforced paneling used in the interiors of
aircraft specifically require properties that currently only PF or PF derivatives currently can
provide.

The total costs for substitutes for PF, which are the net benefits that consumers enjoy
because they have access to PF, are approximately €2.55 billion per year, of which €1.80
billion per year are saved from direct material substitutes (binders, adhesives, and coating
systems), and €0.75 billion per year are saved from indirect substitution (alternative
building technologies, alternative countertop materials, alternative structural sheathing
materials). The economic benefit of indirect substitution for HPL is included only in the
PF section, though HPL uses both PF and MF as laminating resins. The total capital
investment required by industry to switch to substitutes of PF is approximately €2 billion
due primarily to additional volumes of EPI, polyester, acrylic, and epoxy resins.

Polymeric dispersions, principally EPI and polyurethanes, could account for over 65% of
PF substituted. These materials are the most likely synthetic substitutes for PF in structural
wood product applications due to their bond strength, dimensional stability, and ability to
withstand both interior and exterior service conditions. A further 5% of PF could be
substituted by blood-based and soy-based adhesives which can be used in interior wood
panel applications. MDI could also be used, both as a cross-linking agent for EPI and, to a
lesser degree, in the use of polymeric-MDI binders. However, as MDI would need to be
produced using a more expensive, formaldehyde-free route, its potential as a replacement
product is limited. Acrylic polymers could account for about 15% of PF substituted (not
including volumes used in EPI or solid surfacing). Epoxy resins could replace an estimated
9% of PF. While substantially more expensive, epoxy compounds are one of the few
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materials that possess sufficient bond strength, dimensional stability, and toughness to
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partially or wholly replace PF in paper impregnation, molding, friction, abrasives, and
coating applications. Other thermoplastics and thermoset materials (polyester, furan,
silicates) could account for about 10% of PF substituted. These materials would be used
primarily in molding and foundry applications.


Phenol Formaldehyde Resins                                                                          48
As in the case with UF resins, the successful development of relatively low cost,
formaldehyde-free cross-linked soy based adhesives would provide a lower cost alternative
to the use of EPI, polyurethane, polyester, and acrylic based adhesives. If successful, this
development could reduce these estimates of new capital requirements and reduce the
economic benefit estimate.

Indirect substitution accounts for a significant amount of the economic benefits due to the
substantially higher cost that is incurred by replacing an entire product, material or system
rather than simply the adhesive or binder component of a material. Because of the higher
cost of switching to indirect substitutes, direct substitutes would be used when possible.
However, the changes in the cost, attributes, and quality of materials traditionally produced
using PF resins would result in some switching to alternative materials and technologies.



                                      Table 17
                      Economic Benefits of Phenol Formaldehyde
                                    Direct        Indirect        Total
             End-use market
                                 (€ MM/year)    (€ MM/year)    (€ MM/year)
     Insulation binder                        535                           535
     Wood products                            460           105             565
     Impregnated paper                        365           625             990
     Abrasives                                130                           130
     Foundry products                          30                            30
     Rubber and foam products                  60                            60
     Felt bond, hot top & refractory           75                            75
     Friction products                         85                            85
     All other uses                            60             15             75
     Total                                   1,800          745           2,545
 Source: Global Insight, Inc.
 Note: Totals may not add due to rounding.




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Phenol Formaldehyde Resins                                                                      49
6.      POLYACETAL RESINS



The market for polyacetal resins (POM) in the European Union and Norway is
approximately 210,000 metric tons, with 52% of polyacetal resin consumption in industrial
and automotive applications. POM has replaced many metal products. In the absence of
POM, the market would either go back to metals or move to alternative thermoplastics (e.g.
polyolefins, polycarbonates, polyesters, and nylons). However, there are tradeoffs: the
metals are much heavier, and the thermoplastics have inferior mechanical and chemical
properties and are more difficult to fabricate.

The total costs for substitutes for POM, which are the net benefits that consumers enjoy
because they have access to POM, are approximately €195 million per year. In addition,
approximately €110 million worth of capital for new plant and equipment to produce and
use substitutes is avoided through the continuing use of POM. In 2004 POM
manufacturers generated sales of over €515 million, and purchased raw materials and
utilities valued at nearly €225 million. The sector supports approximately 900 jobs.


Introduction

Polyacetal, also known as acetal polymers or polyoxymethylene (POM), is a
formaldehyde-based thermoplastic that has been available commercially for over 45 years.
Due to its superior properties, including high stiffness and strength, low coefficient of
friction and good lubricity, and good solvent resistance, polyacetal has become
commercially important and is used widely in industrial, transportation, agricultural,
construction, and consumer markets. Polyacetal resin manufacture consumes nearly 6% of
the formaldehyde production in the European Union and Norway.

The largest producers of polyacetal resins in Europe are E. I. du Pont de Nemours and
Company and Ticona (a business unit of Celanese). Polyacetal is available in a number of
grades ranging from low cost commodity resins, specialty grades with properties tailored to
the application, and filled grades with higher performance features, such as glass-filled,
mineral-filled, low-wear and low-friction, ultraviolet light-stabilized, antistatic and
electroconductive, electroplatable, and toughened grades.

Economic Contributions of Polyacetal Resins

In 2004 polyacetal resin manufacturers generated nearly €515 million in sales and
purchased nearly €225 million worth of raw materials and utilities. Production of
polyacetal resins was 205 thousand metric tons in 2004. The sector supports approximately
900 jobs.
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Polyacetal Resins                                                                             50
                                     Table 18
              EU 25 + Norway Polyacetal Resins Economic Contributions
                                                    2004
                     Production ('000 MT)                     205
                     Sales (MM€)                              515
                     Purchases (MM€)                          226
                     Employment                               900
                    Source: Global Insight, Inc.


Properties and Advantages of Polyacetal Resins

Polyacetal resins are crystalline, high-performance engineering polymers. They are valued
for their chemical and mechanical properties, relative ease of processability, and ability to
be fabricated into complex shapes with high precision.

Important properties include:
                     Excellent strength
                     Excellent creep resistance
                     Excellent fatigue resistance
                     Self lubricating
                     Very good chemical resistance
                     Very good water resistance

The many commercially attractive properties of polyacetal resins are due in large part to the
inherent high crystallinity of the base polymers. This crystallinity makes acetals stiffer and
stronger than most thermoplastics and contributes to their excellent resistance to most
chemicals, including many organic solvents. General purpose acetal resins are
substantially stiffer than general purpose polyamides (e.g. nylon) when the polyamides
have reached equilibrium water content.43 Unless the other polymers have fillers, POM’s
stiffness is superior.

The polymers are derived from formaldehyde either directly or through its cyclic trimer,
trioxane. Acetal resins are classified by two chemical types: homopolymers and
copolymers. All acetals contain various stabilizers which are added by the supplier.
Homopolymers are produced by polymerizing formaldehyde and are 100% formaldehyde-
based. DuPont introduced the homopolymer polyacetal resin in 1960 under the name
Delrin®. Homopolymers account for about 85% of the resin sold at the producer level and
have excellent mechanical properties. Copolymers are 98% formaldehyde-based and are
produced by polymerizing trioxane. Trioxane is a compound that is formed from three
formaldehyde molecules joined into a ring structure. The ring structure makes it a
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desirable form, as it is easy to purify. Hoechst Celanese (now Ticona) introduced a

43
 John Wiley & Sons, Inc., "Acetal Resins", Kirk-Othmer Encyclopedia of Chemical Technology,
Dec 2000.



Polyacetal Resins                                                                                51
copolymer polyacetal resin, Celcon® in 1961. Copolymer specialty grades accounts for
the remaining 15% of the resin and have excellent processability, although at some
sacrifice of mechanical properties.

Polyacetal Resin Consumption
The European Union and Norway consumed approximately 210,000 metric tons of
polyacetal resins in 2004 - over half is used in industrial and automotive markets.44
Products made from polyacetal have widespread applications based on their favorable cost-
performance balances. Gears, bearings, housings, and various parts are important
applications in the industrial sector. Gears account for the largest segment across all
markets. Not only are they found in automobiles and industrial products but also in
consumer articles and appliances, such as cameras, DVD players, and printers. The plastic
used in gears must be strong enough to prevent the teeth on the gears from breaking, have
good stiffness and wear resistance to retain their shape, and minimum friction resistance
and surface finish to prevent gauling. POM is an excellent choice of plastic in this
application because of its stiffness and low-wear properties.

                                      Figure 11
          EU 25 + Norway Polyacetal Resins Demand by End-Use Market, 2004




                                                   Other, 11%
                           Appliances/Tools, 5%
                                                                                              Automotive, 35%
                  Electrical/Electronic, 4%

                Plumbing/Irrigation, 7%




                          Consumer Articles, 21%
                                                                         Industrial Applications,
                                                                                   17%




          Source: Industry sources.


The largest application for POM in the automotive industry is in fuel system components.
All fuel pumps are made with POM due to its superior chemical resistance. The two major
characteristics of polyacetal resins that make them attractive in transportation applications
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are excellent resistance to gasoline, including gasoline blends with ethanol and methanol,
and excellent inherent lubricity.45 In the fuel system component application, there is no

44
     Estimated value
45
     Nexant, Inc./Chem Systems, "Polyacetal", PERP 01/02S12, September 2002: 80.


Polyacetal Resins                                                                                    52
other resin substitute that can match POM's chemical resistance. The next largest
application for POM in the automotive industry is seatbelt systems. In this application,
POM is valued for its frictional and stiffness properties.

                                              Table 19
                           Major Product Applications of Polyacetal Resins
                                               Industrial Applications
 Gears, cams, bearings, levers, pulleys, sprockets, bushings, valves   Gas meters & water flow meters
 Chemical mixing screws                                                Pump impellers
 Conveyor systems                                                      Police nightsticks
 Fan and blower blades                                                 Pumps and beverage valves
 Farm machinery                                                        Sausage presses
 Food and dairy machinery                                              Scaffolding hardware

                                              Automotive Applications
 Automatic transmission parts                                          Gear selector for automatic gearbox
 Car heater plates                                                     Locks, hooks, fasteners, clips, mirror housings
 Carburetor floats                                                     Seatbelt systems
 Control switches & instrument knobs                                   Steering column shear pin parts
 Door handles, door catches and window cranks                          Suspension links
 Door module                                                           Tire valve stems
 Electrical switch parts                                               Trunk release levers
 Exterior and interior trim                                            Window transport mechanisms
 Fan parts and car ventilation grille                                  Windscreen washer nozzles
 Fuel systems components                                               Light sockets

                                                 Consumer Articles
 Aerosol spray valves                                                  Roller-skate brake supports
 Can opener drive train                                                Mixers and blenders
 Cannula disposal unit for dental practices                            Pen components
 Cell phone cover                                                      Marine fittings, fishing reels
 Disposable lighters, lighter bodies                                   Scrubbing discs on power rug cleaners
                                                                       Sliding mast for windsurfers; parts for
 Disposable syringes
                                                                       surfboards, sailboats, and sailboards
 Electric toothbrushes                                                 Snow and water ski bindings and straps
 Garage door opener components                                         Temperature control timer gears
 Gears in watches                                                      Utensils and bowls
 Gun components and accessories                                        Zippers
 Hospital bed (height adjustment mechanism)

                                                Plumbing & Irrigation

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 Agricultural irrigation systems, turf maintenance sprinkler systems
                                http://technician.zxq.net              Garden hose nozzles
 Ballcocks, taps, pipe couplings, valve mechanisms                     Showerheads
 Faucets                                                               Water softener components

                                              Appliances & Power Tools




Polyacetal Resins                                                                                                        53
 Clothes washers and dryers                                          Kitchen appliances
 Dishwashers                                                         Laser welding
 Fans and vacuum cleaners                                            Paint sprayer parts
 Garden chemical sprays and tools                                    Powered craft tools

                                            Electrical & Electronic
 Business machines                                                   Keyboard push buttons
 Coil forms                                                          Laser printer (gear trains)
 Computer printers and plotters                                      Precision instruments
 Electromechanical counter frames                                    Relay components, buttons, knobs
 Internal ratchets and other moving parts                            Switches

                                                      Other
 Artificial heart valves                                             Neck and foot prostheses
 Pacemakers
Source: SRI International, Nexant/Chem Systems and company product literature.


Substitutes for Polyacetal Resins

Polyacetal incorporates formaldehyde directly in its polymer skeleton and cannot be
produced by alternate chemistries. Substitutes made from other materials would have to be
found if formaldehyde were not available.

In most applications, POM competes with other engineering resins. Intermaterial
competition with various grades of nylon occurs in many products. Competition exists
with polyethylene terephthalate (PET) and polycarbonate (PC) as well as other resins,
including polybutylene terephthalate (PBT), polyphenylene oxide (PPO), and polyvinyl
chloride (PVC), in various situations. POM has displaced metals and these competing
resins in applications where its lower cost in service provides consumers with economic
benefits. Not only are competing resins of comparable grade more expensive on a
kilogram for kilogram basis compared to POM, these alternatives are also more difficult to
process in the equipment used to fabricate parts from POM so manufacturing costs are
higher. Therefore, the cost to produce parts that are equivalent in service to those made
from POM are significantly higher, even though parts made from most of the competing
resins may be lighter in weight than POM. Metal parts are much heavier than parts made
to the same dimensions from POM, and would only be used where their superior
mechanical properties are required. In many applications, the substitutes will have
properties that are not as favorable as POM, so consumers will experience a loss of utility
from decreased service life, increased maintenance requirements and decreased
functionality.

Substitutes for POM cannot match all elements of its functionality in terms of stiffness,
weight, moisture and chemical resistance, and lubricity. Polyacetal resins are generally
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harder, tougher, and longer-lasting than other plastics and are used in many areas of
application in which metallic materials were previously used. In automotive applications
and appliances end uses, polyacetal resins are replacing metals because of their preferred




Polyacetal Resins                                                                                       54
properties: they are light weight, long lasting, have no corrosion concerns, and no painting
is required.

                                            Table 20
                                       Substitutes for POM

                                     Thermoplastic Engineering
     End-Market Market                                                 Metal Substitutes
                                         Resins Substitute
Industrial                         Nylon, polyester                  Brass, steel, die-cast zinc
Automotive                         Nylon, polyester                 Steel, die-cast zinc
Consumer articles                  ABS, nylon, polystyrene          -
Plumbing and irrigation            -                                Brass
Appliances and tools               -                                Brass, steel, die-cast zinc
Electrical and electronic          ABS, nylon, polystyrene          -
Other                              Polycarbonates, polyolefins      -
Source: Global Insight, Inc.


In industrial applications, polyacetal resins compete with metals, nylons, and polyester
resins. Polyacetals are preferred over metals and nylons as materials for bearings because
of their low coefficient of friction and greater lubricity. In food and dairy machinery,
polyacetal resins have better hydrolysis resistance than the substitute materials nylon and
polyester resins. Conveyor systems made from polyacetal resins are corrosion-free, can be
made anti-static to prevent dust buildup, and have lower energy requirements because of
the reduced weight compared to metal counterparts.46 Furthermore, polyacetal components
produce less noise, making the conveyors much quieter.

In automotive applications, polyacetal resins compete with metals and other engineering
resins. Polyacetal resins compete against steel, nylons and polyesters in window crank
transport and windshield wiper mechanisms. Given their excellent mechanical properties,
durability and a low coefficient of friction, polyacetal resins make simpler, lighter and
longer lasting parts. As a competing material and potential substitute, however, polyesters
offer higher heat distortion temperature. Reinforced nylons, thermoplastic polyester
engineering resins, and die cast zinc which are also used in door handles and window
cranks, could replace polyacetal resins should polyacetals become unavailable to
consumers. The same is true for metals and polycarbonates substitution in loudspeaker
grills.

In consumer articles, polyacetal competes with ABS, polystyrene, and nylon in
videocassette and audiocassette platforms and reel hubs. In some less demanding
applications, these substitutes are already preferred because they are lower priced. This
limits the economic benefits of POM in this end-use market. For plumbing and irrigation
applications, however, polyacetals are preferred over and have largely substituted for brass.
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Their non-corrosive properties resist scale buildup for long term maintenance-free
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operation. In medical uses, including pacemakers, artificial heart valves, and neck and foot
prostheses, polyacetals compete against such substitutes as polyolefins and polycarbonates.
46
  Noni Suk-Chin Lim, "Acetal Resins", SRI Process Economics Program Report 69A, September
2002: 3-4.


Polyacetal Resins                                                                                  55
Economic Benefits of Polyacetal Resins

The substitution cost for replacing polyacetal in its current applications is over €195
million per year. If polyacetal were no longer available, thermoplastic engineering resins
would be the primary replacements for about 97% of the material. These resins include
nylons, polyester (PET), polycarbonates (PC) and other resins. Of all the thermoplastic
engineering resins, nylons would be the most important substitute as they would replace
more than half of the displaced polyacetal. Nylons would also bear the highest total cost of
substitution at about €110 million. Utility losses in water and solvent-sensitive applications
contribute to the costs of substitution of POM by nylon. Other thermoplastic engineering
resins have a lower cost per kilogram than POM; however their stiffness and chemical
resistance properties are inferior on a per-weight basis. Substitution costs are lowest where
the competing resins are most nearly “drop in” substitutes for the POM parts that would no
longer be available.

Metals, including brass, steel, and die-cast zinc, would replace the remaining 3% of the
polyacetal. Metal parts would only be used where their superior mechanical properties are
required. Substitution costs of metals are high because the weights of metals substituted
are so much higher for parts of the same size and shape.

                                             Table 21
                                   Economic Benefits of Polyacetal
                                                              Cost of        Cost of
                                            POM Displaced
          Substitute Material                               Substitution   Substitution
                                              ('000 MT)
                                                            (€ MM/year)    (€/MT POM)

           Nylon resins                          114             110              960
           PET resin                              35              20              590
           PC resin                               27              40            1,485
           Other resins                           28              15              475
           Metals                                  7              10            1,495
           Total                                 211             195              920
Source: Global Insight, Inc.
Note: Totals may not add due to rounding.



About 85% of the total costs of substitution result from the direct costs of switching to less
efficient, more expensive materials. The remaining costs result from utility losses for the
products substituted and the charges for the additional capital that must be employed. New
investments of about €110 million will be required to produce the additional substitute
materials required and to process them, and consumers enjoy derivative benefits since the
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costs of the additional capital required for the alternative resin capacity are not passed on to
other products made from them.




Polyacetal Resins                                                                                  56
7.     METHYLENEBIS(4-PHENYL ISOCYANATE)



The market for methylenebis(4-phenyl isocyanate) (MDI) in the European Union and
Norway in 2004 was approximately 1.3 million metric tons, the majority of which goes into
the production of rigid polyurethane foams. The primary substitutes of MDI are alternative
isocyanate-based polyurethanes (toluene diisocyanate (TDI) and aliphatic isocyanates),
expandable polystyrene, and other thermoplastics, latexes and elastomers. While many of
these substitutes are less expensive to produce than MDI-based polyurethanes, their
insulating value and other properties are inferior on a per-weight employed basis.

The total costs for substitutes for MDI, which are the net benefits that consumers enjoy
because they have access to MDI, are approximately €2.44 billion per year. In addition,
approximately €4.35 billion worth of capital for new plant and equipment to produce and
use substitutes is avoided through the continuing access to MDI. In 2004 MDI
manufacturers generated sales of €2.6 billion, and purchased raw materials and utilities
valued at over €1.15 billion. The sector also supported approximately 5,200 jobs.


Introduction

Methylenebis(4-phenyl isocyanate) (MDI) is one of the isocyanate family of chemicals that
includes diisocyanates and polyisocyanates – a group of low molecular weight aromatic
and aliphatic compounds containing functional isocyanate groups. It is used mainly in the
manufacture of polyurethanes that are produced in a variety of forms: rigid and flexible
foams and used in binders, coatings, adhesives, sealants and elastomers. Rigid
polyurethane foams account for over 55% of all MDI consumption, with the majority of the
rigid foams being used in construction applications as insulation.

Economic Contributions of MDI

In 2004 European MDI manufacturers produced some 1,315 thousand metric tons of MDI
using €1.15 billion worth of raw materials and utilities purchased from its suppliers.
Together, MDI manufacturers generated €2.63 billion of sales and supported approximately
5,200 jobs, mostly in Germany, Belgium, and the Netherlands.

                                      Table 22
                      EU 25 + Norway MDI Economic Contributions
                                                     2004
               Production ('000 MT)                       1.315
               Sales (MM€)                                2,630

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               Purchases (MM€)
               Employment http://technician.zxq.net
                                                          1,157
                                                          5,200
               Source: Global Insight, Inc.




MDI                                                                                          57
Properties and Advantages of MDI

MDI is the most important diisocyanate in commercial use. MDI is soluble in acetone,
benzene, octane, and kerosene; however, it is insoluble and can be very reactive with water.
A white to light yellow solid, MDI is produced commercially in a phosgenation process, to
form a mixture of MDI known as polymeric MDI. Its precursor, diamino dephenyl
methane, is produced by the reaction of aniline with formaldehyde. Polymeric MDI can
then be purified to form pure MDI.

MDI is more expensive than the other high-volume isocyanate, toluene diisocyanate (TDI),
but provides better performance characteristics in many applications. MDI is converted
into a variety of forms by reaction with various polyols: rigid and flexible polyurethane
foams, binders, coatings, adhesives, sealants and elastomers. End products exhibit durable
and versatile qualities that make them very useful and important to consumers. Rigid
foams provide excellent structural stability and have excellent insulating properties making
them ideal for construction and appliance applications. They can be molded in any shape
to fit specific requirements, and in many applications are sprayed or poured-in-place,
reducing energy costs. Cushioning and resiliency are important characteristics of flexible
foams based on MDI.

Other important properties of products made from MDI are:
                  High strength
                  Lightweight
                  Good chemical resistance
                  Good higher temperature/fire resistance
                  Excellent abrasion resistance
                  Impact and shock resistance
                  Oil and solvents resistance

MDI Consumption

Consumption of MDI in the European Union and Norway was approximately 1.3 million
metric tons in 2004.47 There are four European producers of MDI – BASF, Bayer
MaterialScience, Dow Chemical, and Huntsman.

The majority of MDI is used to manufacture rigid polyurethane foams. Most alternative
low density thermal insulation products must be supported with additional materials and
are soft or less resistant to moisture; this is not the case with rigid polyurethane foam.48
Rigid foams are excellent insulators that reduce costs in a variety of construction
applications. The excellent insulation qualities and strong adhesive characteristics of
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polyurethanes make them ideal for use in the walls and roofs of commercial and residential
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buildings. Also, rigid foams can be fabricated into self-supporting products, ideal for

47
   Global Insight estimate.
48
   See “Polyurethane and Polyisocyanurate Foams," Alliance for the Polyurethane Industry. See
http://www.polyurethane.org.


MDI                                                                                             58
insulation panels and other construction applications.49 In fact, over a third of all MDI
rigid foam consumption was in the construction industry. Rigid foams are also found in
appliances (insulation of refrigerators and freezers and in air conditioners and boilers),
packaging, and transportation. Rigid foams are used in automobile doors for insulation,
and can be used as flotation devices.

                                           Figure 12
                          EU 25 + Norway MDI Demand by End-Use Market




                              PU Fibers, 1%
                       Thermoplastic
                     Polyurethanes, 4%




                                                                                 Construction, 20%

              C.A.S.E., 26%


                                                Rigid Foams, 56%                 Appliances, 16%


                                                                                  Packaging, 8%
                                                                                  Industrial Insulation, 3%
                                                                                  Transportation, 5%
                                                                                  Other, 4%
            Semi-flexible Foams, 13%




     Source: European Chemicals Bureau, European Union Risk Assessment Report:
     Methylenediphenyl diisocyanate (MDI), 2005.


Another form of rigid foam – polyisocyanurate rigid foam – also utilizes MDI in its
production. Used predominantly in the construction industry (insulation for commercial
and industrial low slope roofs, residential sheathing insulation, in structural panels) polyiso
foam has a higher MDI content compared to polyurethane foam and has enhanced
performance characteristics. It is also higher priced than its polyurethane counterpart.
Polyiso foams provide improved fire resistance enabling products to withstand higher
temperatures for a longer period of time. With a high R-value that allows for thinner
insulation and reduced material costs, polyiso foams tend to be more energy and cost
efficient in some applications. Moreover, polyiso foams can be cut and formed more
rapidly and, therefore, produced more quickly than polyurethane rigid foams.
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MDI is used directly in some applications, especially as a binder in the manufacture of
fabricated wood products. See Chapter 3 for a more detailed discussion of this application.

49
  John Wiley & Sons, Inc., "Isocyanates – Organic," Kirk-Othmer Encyclopedia of Chemical
Technology, December 2000.


MDI                                                                                                           59
Binders represent the second largest individual portion of MDI consumption, representing
approximately 120 thousand metric tons consumed. MDI is used to bond wood chips into
wood products, making products such as oriented strand board (OSB). The use of MDI as
a binder has been one of the fastest growing MDI markets.

Semi-flexible foams account for approximately 13% of MDI consumption in the European
Union and Norway. Most flexible foams are made from MDI combined with a polyether
polyol, with only a small percentage based on polyester polyols.50 Flexible foams’
versatility and cushioning characteristics are very beneficial to consumers. Used mostly as
furniture and carpet cushions, these foams provide excellent support and comfort. Flexible
foams are also found in mattresses and other beddings, car seats, headrests, bumpers and
spoilers, packaging materials, and in the soles of shoes.

Polyurethane coatings, adhesives, sealants and elastomers (CASE) products make up 26%
of total MDI consumption, including its consumption as a binder for wood products. Many
products benefit greatly from the functionality of these materials. The automotive industry
uses polyurethane coatings as finishes, sealants for doors and windows and adhesives to
secure the bumpers, spoilers, interior panels or other elastomer products. Elastomers are
the second largest portion of the CASE products and are used in many products where their
properties of moldability and abrasion resistance are desired. Elastomers can be either
thermoplastic or thermoset (cast) depending on the functionality of the monomers used.51
Thermoplastic elastomers have a low functionality with regard to the ability to return to
their original shape after being compressed: cast elastomers have a higher functionality
with higher tear and abrasion resistance.




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50
  See "Polyurethane and Polyisocyanurate Foams". Alliance for the Polyurethane Industry.
51
  John Wiley & Sons, Inc., "Urethane Polymers," Kirk-Othmer Encyclopedia of Chemical
Technology, December 2000.


MDI                                                                                           60
                                           Table 23
                               Major Product Applications of MDI
   Rigid Foams                                          Flexible Foams
    Insulation                                           Furniture
    Roofing                                              Office chairs
    Windows/doors                                        Stadium/arena seats
    Metal panels                                         Automotive
    Appliance insulation                                 Headrests
    Freezers                                             Fenders
    Refrigerators                                        Interior parts/panels
      Air conditioners/water heaters                      Exterior trim
      Flotation devices                                   Packing/packaging
   Surface Coatings                                       Carpet underlays
    Paints                                                Bedding/mattresses
    Concrete flooring                                   Polyurethane Elastomers
   Adhesives & Sealants                                 Cast Elastomers
    Used in bonding and insulation                       Gaskets
    Automotive interiors                                 Shoe soles
      Textile laminates                                   Tires
      Indoor/outdoor athletic surfaces                   Microcellular Products
   Binders                                               Auto panels/interior parts
    Binds wood chips into wood products                  Bumpers
    Adhere rubber chips/flakes to surfaces               Spoilers
   PU Fibers                                             Thermoplastic Elastomers
    Sportswear                                           Flexible tubing, hose
    Spandex                                              Film
   Source: SRI International, Chemical Economics Handbook, Diisocyanates and Polyisocyanates,
   February 2000.


Substitutes for MDI

Polyurethanes based on alternate isocyanates and polyols and expandable polystyrene
(EPS) are the most important substitutes for MDI-based materials, accounting for about
half of the total amount substituted. The most direct type of substitution comes from the
use of polyurethanes based on an alternative isocyanate (TDI or other aromatic or aliphatic
isocyanate) and polyol combinations, whose compositions would be selected to give
properties that approached those of MDI-based materials. These direct substitutes could
replace up to 35% of total MDI consumption. Other substitutes require a change of
materials and manufacturing steps rather than a more simple, nearly drop-in substitute. The
thermoplastic substitutes, including EPS, expanded polyethylene (EPE), expanded
polypropylene (EPP), and expanded polyvinyl chloride (PVC), could replace about 30% of
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MDI consumption while fiberglass, polycarbonate structures, styrene-butadiene/styrene-
butadiene rubber (SB/SBR) latexes and elastomers, as well as other latexes and elastomers,
could substitute for the remaining 35%.




MDI                                                                                             61
                                                Table 24
                                            Substitutes for MDI
     End-Use                   Polyurethane
                                                   Thermoplastic Substitutes            Others
      Market                    Substitutes
                          TDI, other aromatic         EPS, EPP, expanded PVC,
Rigid Foam                                                                            Fiberglass
                          isocyanates                 polycarbonate structural foam
                          TDI, other aromatic
Binders                                               -                               Latexes
                          isocyanates
                          TDI, other aromatic         EPS, EPP, EPE, expanded PVC,    SB/SBR and
Flexible Foam
                          isocyanates                 polycarbonate structural foam   other elastomers
Adhesives &               TDI, other                                                  SB/SBR and
                                                      -
Sealants                  isocyanates                                                 other latexes
Polyurethane              TDI, other                                                  SB/SBR and
                                                      EPP/EPE
Elastomers                isocyanates                                                 other latexes
                          TDI, other                                                  Various other
Coatings                                              -
                          isocyanates                                                 latexes
Source: Global Insight, Inc.
Note: Alternate polyols would be used with the other isocyanates


The substitute polyurethanes are more costly than MDI-based products and the selection
would be limited for rigid foams. TDI or other isocyanates with appropriate polyols could
be used as a direct substitute in pour-in-place insulating applications in appliances (e.g.,
refrigerators and freezers) and some construction applications with low cure times. If a
change of system were required, EPS would be a significant substitute for rigid foams used
for their insulation value. Other systems, such as structural polycarbonate insulating
foams, would be required for products in which the structural insulation needed was
foamed-in-place. EPP, EPE and PVC foams as well as fiberglass could all also be used in
insulation applications but they are not as efficient as polyurethane or polyiso foams.
Thicker layers of insulation would be needed, thereby increasing costs. PVC has a low
heat resistance and would be best used in lower temperature insulations.

TDI-based products would be more efficient substitutes for other applications, especially
for flexible foams. Currently, approximately 90% of consumption of TDI is used for
flexible foams since products made from it have excellent compression properties.52
Compared to MDI-based foams, TDI-based foams will spring back more easily to their
original shape and have a softer feel in applications such as cushions and seats. However,
in recent years toxicity issues and new standards have led manufactures to move away from
TDI in flexible foams. Other thermoplastics could also be effective as flexible foam
substitutes. EPE has good heat and sound insulation along with excellent shock absorbing
capability, properties that are useful for packaging, automotive and construction
applications. EPE can be used to pack high-end electronics such as televisions, personal
computers, and printers, as well as in pipe insulation.
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52
 Henry Chinn with Walter E. Cox and Akihiro Kishi, "Diisocyanates and Polyisocyanates,"
Chemical Economics Handbook, February 2002: 1-52.


MDI                                                                                                      62
Aliphatic isocyanate-based urethanes are acceptable substitutes for coatings since they are
primarily used in applications based on their outstanding weatherability.53 Their excellent
UV protection properties have led to their use in many outdoor coating applications such as
automotive and concrete support finishes. They could also be used for hardwood floor and
machinery finishes. Although aliphatic isocyanate-based systems provide increased
protection, they are significantly more costly to produce than systems based on either MDI
or TDI and find use in niche applications.

Formaldehyde Free Route to MDI

The currently practiced, four-step route to MDI is mature, efficient with respect to the
consumption of raw materials, and produces the required distribution of isocyanate
isomers. The use of formaldehyde to couple aniline to form the diamine precursor to MDI
is central to this technology. No formaldehyde-free routes to MDI have been shown to be
technically and economically feasible, although it is possible to conceive of chemistries
that would support such routes. They would be adopted if it could be shown that their costs
were lower or if they had significant environmental or other benefits.

For this analysis we have conducted a scoping level evaluation of the costs for a five-step
route for the production of MDI that would not require formaldehyde. The five steps are:

     1. The chlorination of toluene to form benzyl chloride. This technology currently is
        practiced commercially although not widely.

     2. The Friedel Crafts catalyzed condensation of benzyl chloride with benzene to form
        diphenyl methane. This has been used as a preparatory procedure, but yields are
        low and it has not been commercialized.

     3. The nitration of the diphenyl methane to form dinitro diphenyl methane. It has
        been assumed that this step would be analogous to the current commercially
        practiced nitration of benzene, but the distribution of the isomers that would be
        formed is not known.

     4. The hydrogenation of the dinitro diphenyl methane to form the diamine precursor to
        MDI. It has been assumed that this step would be analogous to the current
        commercially practiced production of aniline, although it probably would have to
        be done in the liquid phase.

     5. The phosgenation of the diamine to form MDI, and its separation and the formation
        of pMDIs, as is currently practiced commercially.

Steps 1 and 2 could be carried out in integrated facilities, and the diphenyl methane could
then be converted by Steps 3 and 4 to the diamine in other integrated facilities. The
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diamine could then be converted to MDI in existing facilities, assuming that its purity and


53
  John Wiley & Sons, Inc., "Isocyanates – Organic," Kirk-Othmer Encyclopedia of Chemical
Technology, December 2000


MDI                                                                                           63
the distribution of isomers formed are essentially the same as produced by the current
route.

The capital requirements for the process plants required to produce approximately 1.3
million metric tons per year of MDI by this formaldehyde-free route were developed using
a pre-design estimating technique that requires knowledge only of such key process
parameters as the number of process steps, the limiting process temperatures and pressures,
materials of construction, and the average plant throughput. Neither details of the process
technology nor site-specific details that can affect costs are comprehended by this
methodology, so the estimating uncertainty is high, of the order of plus or minus 33% to
50%.

Operating cost estimates for the process plants were developed based on input-output
balances for the major raw materials using estimated yields and conversion costs for
analogous processes. Site-specific costs and special arrangements with respect to raw
materials costs are not comprehended so that the uncertainty in estimated operating costs is
also high, of the order of plus or minus 20% to 25%.

The capital requirements to produce MDI by this formaldehyde-free route to MDI are
estimated to be approximately €3,800 per metric ton of MDI, assuming that no additional
investments are required for the final phosgenation step. Thus, total new investments of
approximately €4.3 billion would be required to produce the MDI consumed in the
production of polyurethane foams and other products. The cash costs for raw materials and
their conversion would be about €5,000 per metric ton of MDI at current raw material
prices. Therefore, the estimated required selling price for MDI produced by this route
would be about €5,800 per metric ton, almost three times the current posted price for MDI.
The substantial increase in price is due to the less efficient use of raw materials caused by
poorer yields, particularly in the second step, the additional conversion cost of an extra
step, and the requirement to obtain an adequate return on the new capital investments. If
the substitutes identified in Table 24 could be manufactured at lower cost that this, there
would be no incentive to develop such a process.

Economic Benefits of MDI

The use of more expensive polyols and isocyanates that would be required to develop
products whose properties approach those based on MDI and the capital requirements and
utility losses that result from their substitution drive the substitution costs for the alternative
polyurethanes. TDI is less expensive than MDI but has significant performance losses
when compared to MDI in all end-use applications other than flexible foams. Aliphatic
isocyanates are more costly to produce than either MDI or TDI and usually do not show
any significant performance benefits other than increased weatherability. In all, over 400
thousand metric tons of MDI would be replaced with alternative polyurethanes costing
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more than €900 million per year.
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The substitute thermoplastics, latexes and elastomers all have lower costs than MDI-based
polyurethanes. However, their insulating value and other properties are inferior on a per-
weight basis. More materials are needed to achieve the required performance in most


MDI                                                                                                   64
applications. Additional layers may be added to other thermoplastic foams to provide
increased thermal protection thus increasing costs. The result is larger products, more
production steps, or more difficult installation which also increases costs. The direct costs
of substitution of the less efficient materials accounts for about half of total cost. About
20% of the cost results from utility losses of utilizing the materials. The remaining costs
are for additional capital. The total cost for substitutes for MDI, which are the net benefits
that consumers enjoy because they have access to MDI, are approximately €2.44 billion per
year. In addition, more than €4.3 billion in capital expenditures for capacity additions are
avoided because of the presence of MDI in the marketplace.

The specific benefit of MDI is over €2,000 per metric ton and reaches over €3,000 per
metric ton depending on the substitute. These costs, while significant, are still estimated
to be substantially lower than the cost to produce MDI by a formaldehyde-free route, so
one would not need to be developed. The availability of formaldehyde-based MDI also
provides significant derivative benefits by avoiding the capital required for the production
of alternative materials.

                                              Table 25
                                      Economic Benefits of MDI
                                                          Cost of                       Cost of
              Substitute              MDI Displaced
                                                       Substitution                  Substitution
               Material                 ('000 MT)
                                                       (€ MM/year)                    (€/MT MDI)
        Alternative
        Polyurethanes                         427                   885                    304
        EPS                                   210                   365                    690
        Fiberglass                             58                   125                    580
        EPP/EPE                                74                    55                    535
        Expanded PVC                           80                    55                    715
        PC Structural Foams                   125                   395                   3,155
        SB/SBR Latexes                         34                   100                   2,940
        Other Latexes                          23                    60                   2,690
        SB/SBR Elastomers                      66                   170                   2,545
        Other Elastomers                       58                   145                   2,515
        Other Materials                        32                    75                   2,315
        Total                                1,187                 2,440                  2,055
       Source: Global Insight, Inc.
       Note (1): The benefits of MDI consumed as a binder in the manufacture of wood products
       are included in Chapter 3 and 4.

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       Note (2): Totals may not add due to rounding.
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MDI                                                                                                 65
8.      1,4-BUTANEDIOL



Consumption of 1,4-butanediol (BDO) in the European Union and Norway in 2004 was
approximately 360,000 metric tons, of which about 70% was based on the use of
formaldehyde as a starting material. Approximately 45% of BDO consumption goes into
the production of tetrahydrofuran. BDO is used as an intermediate to make products for
automotive engines and parts, electrical and electronic components, pharmaceutical
manufacturing, and consumer goods. Since formaldehyde-free production processes for
BDO are already available and commercialized, the elimination of formaldehyde would
primarily involve replacement of the formaldehyde-based production plants.

The total costs for substitution of BDO, which are the net benefits that consumers enjoy
because they have access to formaldehyde-based BDO, are approximately €130 million per
year. In addition, approximately €575 million worth of capital costs for new plant and
equipment to produce and use alternative processes is avoided through the continuing use
of formaldehyde-based BDO. In 2004 BDO manufacturers generated sales of nearly €450
million, and purchased raw materials and utilities valued at nearly €200 million. The sector
supports approximately 650 jobs.


Introduction

There are three main BDO producers in Europe but only two – BASF (Ludwigshafen) and
ISP (Marl) – use formaldehyde in their production process. BDO is most commonly
produced by the Reppe process which is based on the reaction of acetylene with
formaldehyde. Access to lower cost raw materials and the necessary production
technologies have favored alternative processes that do not use formaldehyde under the
proper circumstances. In 2004 BDO consumed approximately 4% of formaldehyde
production.

Economic Contributions of 1,4-Butanediol

We only consider the economic contributions from the two manufacturers who use
formaldehyde to make BDO. These producers made approximately 260 thousand metric
tons of BDO in 2004 and generated nearly €450 million in sales. They bought nearly €200
million worth of raw materials and utilities and support about 650 jobs.




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1,4-Butanediel                                                                                 66
                                       Table 26
                 EU 25 + Norway 1,4-Butanediol Economic Contributions
                                                      2004
                     Production ('000 MT)54                   265
                     Sales (MM€)                              450
                     Purchases (MM€)                          198
                     Employment                               650
                    Source: Global Insight, Inc.


Properties and Advantages of 1,4-Butanediol

BDO is a non-corrosive, colorless, high-boiling point liquid with a low order of toxicity
under normal handling and use conditions. BDO is completely soluble in water, most
alcohols, esters, ketones, glycol ethers and acetates and may be immiscible or partially
miscible in common aliphatic and aromatic or chlorinated hydrocarbons.

BDO is consumed in the manufacture of other chemicals, including tetrahydrofuran (THF),
polybutylene terephthalate (PBT), gamma-butyrolactone (GBL), as well as polyurethanes.
These products are versatile intermediates found in automobile engines and parts, electrical
appliances and components, plumbing equipment, consumer appliances, and in the
production of pharmaceuticals. In general, polymers produced from BDO exhibit greater
hydrophobicity, crystallinity, strength, hydrolysis resistance and better low temperature
flexibility than those produced from ethylene glycol. The physical properties of BDO
make it useful as a plasticizer and humectant. A humectant is a substance that promotes the
retention of moisture.

1,4-Butanediol Consumption

In 2004 consumption of BDO in the European Union and Norway was 260 thousand metric
tons. Over 70% of BDO consumption is used as an intermediate in the production of
tetrahydrofuran (THF) and polybutylene terephthalate resins (PBT).

In Europe, tetrahydrofuran is the largest market for BDO, accounting for 43% of
consumption in 2004. The major use of THF is used to produce polytetramethylene ether
glycol (PTMEG). PTMEG is an ether polyol, which combines with an isocyanate in the
manufacture of urethane elastomers and polyurethane fibers. In the production of
polyurethanes, PTMEG is used as the soft-segment building block and provides
exceptional flexibility and elasticity to the end-products that contain it.55 Consumer
products based on PTMEG include spandex fibers (Lycra®) as well as in elastomeric
products (buttons, rollers and wheels) that take advantage of its flexible properties. The
remaining THF consumption is used to manufacture polyvinyl chloride cement and
coatings, in magnetic tape, and in the production of pharmaceuticals.56
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54
   Excludes production from non-formaldehyde based processes.
55
   See http://www.lyondell.com/html/products/products/thf> .
56
   Koon-Ling Ring with Thomas Kalin and Kazuteru Yokose, "1,4-Butanediol," Chemical
Economics Handbook, June 2004: 1-25.


1,4-Butanediel                                                                                 67
                                        Figure 13
              EU 25 + Norway 1,4-Butanediol Demand by End-Use Market, 2004




                                                           Other, 5%
                                    γ-Butyrolactone, 13%
                                                                            Tetrahydrofuran, 43%


               Polyurethanes, 11%




                                        Polybutylene
                                     Terephthalate, 28%




             Source: SRI International, Chemical Economics Handbook, 2004




In 2004 28% of BDO production was used to manufacture polybutylene terephthalate
resins (PBT). PBT exhibits high impact strength and good chemical resistance. These
resins are used widely in the automotive industry as well as in electrical and electronic
components and parts. The automotive industry takes advantage of PBT's excellent
physical properties (stiffness and durability), its high degree of moldability as well as its
appearance as a finished product. PBT also exhibits high dimensional stability and is a
good flame-retardant. It is these properties that have led PBT to be widely used in the
electrical and electronics industry as connectors, insulators and relays. PBT can also be
found in plumbing equipment, consumer appliances, and other miscellaneous uses (buttons,
zippers furniture and hardware fixtures).

Thirteen percent BDO production was used in the synthesis of gamma-butyrolactone
(GBL) in 2004. GBL can be used as a solvent in lube oil extraction, electronics
applications, paint strippers and engineering resins. Also, GBL is used to manufacture 2-
pyrrolidone/N-vinyl-2-pyrrolidone/polyvinylpyrrolidone and can be found in cosmetics,
hair sprays, germicides, papers, textiles and is used as an aid in beverage clarification.157



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57
     Ibid.


1,4-Butanediel                                                                                     68
                                         Table 27
                        Major Product Applications of 1,4-Butanediol
         Automotive                                      Adhesives
         Metal/mechanical parts in engines               Coating for magnetic tape
         Car Bumpers                                     Polyvinyl cements & coatings
         Applications                                    Consumer
         Cosmetics                                       Skate wheels
         Hair sprays                                     Belts
         Germicides                                      Rollers
         Appliances                                      Buttons
         Plumbing equipment (pipe fittings)              Zippers
         Furniture                                       Printing Inks
         Hardware fixtures                               Fibers & Solvents
         Electronics                                     Spandex
         Connectors                                      Oil lube extraction
         Insulators                                      Electronic appliances
         Relays                                          Paint strippers
        Source: SRI International, Chemical Economics Handbook, 1,4-Butanediol, June 2004



Substitutes for 1,4-Butanediol

There are at least five different chemical processes that manufacturers can choose to
produce BDO. Formaldehyde is a key raw material for the Reppe process which is based
on the reaction of acetylene with formaldehyde. Raw materials for the competing
technologies include propylene oxide and n-butane (the Geminox® process). These
technologies may have certain advantages over the Reppe process and may be favored
when new BDO plants can be constructed with preferential access to one of the alternative
feedstocks. Since formaldehyde-free BDO production processes have already been
developed and commercialized, inability to access formaldehyde would not eliminate BDO
from the market. Therefore, production of BDO without formaldehyde requires only
process know-how, feedstock access and the capital necessary to construct the new
capacity to displace existing Reppe process plants.

Economic Benefits of 1,4-Butanediol

In the case of BDO, the benefits that consumers currently experience derive from the fact
that 70% of current BDO production in the European Union and Norway is based on
formaldehyde while the remaining production is based on alternative raw materials –
propylene oxide/allyl alcohol or n-butane. In the absence of formaldehyde, the industry
would be forced to abandon their existing Reppe plants and convert to alternative
technologies. The benefits, therefore, are simply the avoided capital and any operating
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costs differential in not having to build plants for the other processes.

Global Insight estimates that the avoided capital expenditures would be in the range of
€570 million to €900 million depending on whether the alternative non-formaldehyde BDO
production were greenfield (a whole new system) or brownfield plants and the scope of the


1,4-Butanediel                                                                              69
projects. The avoided costs of the required return on investment would depend on the
project scope. There may also be operating cost differentials which could amount to €20
million per year either way depending on the feedstock chosen (either propylene or n-
butane). Thus, the total substitution cost for replacing formaldehyde-based BDO
production in its many applications is approximately €130 million per year. In addition,
approximately €575 million worth of capital costs for new equipment to produce and use
alternative processes is avoided through the continuing use of formaldehyde-based BDO.




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1,4-Butanediel                                                                             70
9.      PENTAERYTHRITOL



The market for pentaerythritol (penta) in the European Union and Norway in 2004 was
approximately 80,000 metric tons, of which about 53% is used in alkyd resins for
architectural coatings and OEM product finishes. The use of penta in alkyd resins is not a
growth market as use of byproduct glycerin poses stiff competition. Penta is also used to
make aviation and refrigeration lubricants; aviation lubricants and cosmetic esters are the
end-use markets where substitution is most difficult and, hence, it is the area where penta
has significant economic benefits.

The total costs for substitutes, which are the net benefits that consumers enjoy because they
have access to pentaerythritol, are approximately €145 million per year. In addition,
approximately €90 million worth of capital investment for new plant and equipment to
produce and use substitutes is avoided through the continuing use of pentaerythritol. In
2004 pentaerythritol manufacturers generated sales of €145 million, and purchased raw
materials and utilities valued at nearly €65 million. The sector also supported
approximately 300 jobs, most of which are in Germany, Sweden, and Spain.


Introduction

Penta is a neopentyl polyhydric alcohol produced from formaldehyde and acetaldehyde.
Pentaerythritol's versatile chemistry makes it a building block for a wide range of
performance chemicals and materials. It is consumed mainly in the manufacture of alkyd
resins, neopolyol esters for lubricants, tall oil and rosin esters, and explosives. It exhibits
high thermal stability and imparts desirable characteristics that are valuable in the product
performance of coating resins and synthetic lubricants. The use of penta in alkyd resins is
not a growth market and is under competitive pressure. Penta competes with glycerin in its
use of alkyd resins for paints and coatings. The two largest markets for penta-based
neopentyl polyols are in aviation lubricants and refrigeration lubricants.

The largest European producer of pentaerythritol is Perstorp Chemicals which has
operations in Germany and Sweden.

Economic Contributions of Pentaerythritol

In 2004 European manufacturers produced 111,000 metric tons of pentaerythritol. In doing
so, pentaerythritol manufacturers purchased nearly €65 million of raw materials and
utilities from their suppliers and generated €145 million in sales. The sector supported
approximately 300 jobs, most of which are in Germany, Sweden, and Spain.
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Pentaerythritol                                                                                   71
                                        Table 28
                  EU 25 + Norway Pentaerythritol Economic Contributions
                                                        2004
                  Production ('000 MT)                        111
                  Sales (MM€)                                 145
                  Purchases (MM€)                              64
                  Employment                                  300
                  Source: Global Insight, Inc.


Properties and Advantages of Pentaerythritol

Pentaerythritol is a white, odorless, crystalline powder. Penta is little soluble in water,
slightly soluble in alcohol, and insoluble in most hydrocarbons. Dipentaerythritol, an off-
white powder, is much less soluble than pentaerythritol and tripentaerythritol are higher
homologues of pentaerythritol which are also produced in the manufacturing process.

Pentaerythritol is manufactured from formaldehyde and acetaldehyde in the presence of an
alkaline catalyst such as sodium or calcium hydroxide. Three sequential aldol reactions
initially produce pentaerythrose, which is then crossed with formaldehyde ultimately to
produce pentaerythritol. Three grades of monopentaerythritol are produced including
mono grade, technical grade, and nitration grade. Dipentaerythritol and tripentaerythritol
are optional purified coproducts. Reactant ratios used in the synthesis determine the
proportion of the products. The amount of monopentaerythritol produced increases and
dipentaerythritol decreases as the ratio of formaldehyde to acetaldehyde is increased.

Pentaerythritol and other neopentyl polyhydric alcohols are characterized by having no
hydrogens in the highly reactive beta position, increasing their stability at high
temperatures. The structure and chemistry of pentaerythritol make it particularly valuable
in making alkyd resins, fatty acid rosin and tall oil esters. Important properties of penta-
based coatings include:
                       Durability
                       Versatility
                       Low cost
                       Short drying times
                       Gloss retention
                       Water and chemical resistance
                       Heat and color stability

Pentaerythritol Consumption

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Consumption of pentaerythritol in the European Union and Norway amounted to 80,000
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metric tons of in 2004. Pentaerythritol consumption accounts for 3% of formaldehyde
consumption. Approximately 53% of pentaerythritol was used in alkyd resins, most of
which were used in architectural coatings and printing inks. Pentaerythritol is an excellent
material for these applications because of its relatively low cost, versatility and long


Pentaerythritol                                                                                72
familiarity to end users. Other product applications of penta include neopolyol esters
(NPEs) for lubricants, rosin and tall oil esters for printing ink and coating adhesives,
alkoxylates in polyurethanes and radiation curing, and pentaerythritol tetranitrate (PETN)
for explosives. Other miscellaneous uses include flame retardant paints, polyvinyl chloride
(PVC) stabilizers, antioxidants for olefins, and pentaerythritol triacrylate.

                                        Figure 14
                 EU 25 + Norway Pentaerythritol Demand by End-Use Market




                              PETN, 6%
                     Other, 3%
         Rosin and Tall Oil
           Esters, 10%                                                               Product Finishes -
                                                                                      OEM & Special
                                                                                       Purpose, 24%

                                           Alkyd Resins, 53%                         Architectural Coatings
                                                                                       - Waterborne, 13%

                                                                                     Architectural Coatings
                                                                                      - Solventborne, 17%
       Neopolyol Esters for
         Lubricants, 27%




Source: SRI International, Chemical Economics Handbook, Neopentyl Polyhydric Alcohols,
December 2002.


Pentaerythritol's largest use in the European Union and Norway is in alkyd resins. The
major European producers of alkyd resins include Benasedo, DSM, Cray Valley, Hexion
Specialty Chemicals, Novance, Nuplex, Reichhold, Spolchemie, Synthopol and Worlée.58
Nearly all alkyd resins are used in alkyd surface coatings for architectural coatings, original
equipment manufacturer's (OEM) product finishes, and specialty coatings. Manufacturers
of alkyd coatings blend penta with various polyalcohols to balance a specific coating's
properties with its cost.

Esterification of pentaerythritol results in the production of neopolyol esters (NPEs).
Pentaerythritol is the largest-volume neopolyol used to manufacture NPEs because of its
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cost and performance attributes. NPEs are used mainly in the production of synthetic
lubricants for refrigeration systems. Mechanical components of a refrigeration system
must be lubricated well and reliably since the systems are sealed. Key components include

58
     Commission of the European Communities


Pentaerythritol                                                                                               73
the compressor and various valves throughout the system. A good lubricant will protect
moving parts, improve sealing in the compressor (viscosity), be chemically compatible
with the refrigerant and the other materials within the refrigeration system, have low
solubility in refrigerant, and be safe.59 The lubricant and the refrigerant must be compatible
under all conditions in the system. Lubricants compatible with the older
chlorofluorocarbon (CFC) refrigerant systems have been replaced with pentaerythritol-
based NPE lubricants used in the newer, environmentally friendlier
hydrochlorofluorocarbon (HCFC) and hydroflouorocarbon (HFC) based refrigeration
systems.

The superior thermal stability for NPEs also make excellent lubricants for aviation turbine
engines, automotive gasoline and diesel engines, and small two-cycle engines used in
recreation vehicles like outboards motors and snowmobiles.60 Because airplane engines
must withstand extreme heat and cold temperatures, the high temperature stability and low
temperature flow properties of neopolyol-based products make them practically the only
ones that can be used in airplane engines. Biodegradable lubricants based on penta are
used as additives to fuel in motor oils and 2-cycle engines; they reduce waste, increase the
lifespan of the engine, and increase the lifespan of the lubricant.

                                                Table 29
                               Major Product Applications of Pentaerythritol
     Alkyd Coating Resins
     Architectural Coatings: Exterior and interior enamels, flat house paints, flat wall paints, semi-gloss and gloss paints
     Product Finishes –OEM: Automotive and transportation, machinery and equipment, metal furniture and fixtures,
     wood furniture
     Special-Purpose Coatings: Aerosols, automotive refinishing, industrial maintenance coatings, marine, traffic paints,
     and printing inks
     Neopolyol Esters (NPEs)
     Synthetic lubricants: Aviation turbine oils (military and civilian jet aircraft), gasoline and diesel engine cars and
     trucks, refrigerator oils, two-cycle engines, plasticizers, synthetic waxes
     Rosin and Tall Oil Esters
     Adhesives, caulking compounds, flooring materials, inks, surface coatings, varnishes

     Pentaerythritol tetranitrate (PETN)
     Detonating cord, detonators, military uses, priming compositions, sheet and plastic explosives

     Other
     Medication for angina, antioxidant for olefins, flame retardant paints, radiation curing
     Source: SRI International, Chemical Economics Handbook, Neopentyl Polyhydric Alcohols,
     December 2002.


Substitutes for Pentaerythritol

No formaldehyde-free chemistries have been developed for its manufacture, so penta
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would have to be substituted with products based on glycerin and other polyols, or by

59
  McQuay Air Conditioning, Refrigerant Application Guide AG 31-007, 2002: 16.
60
  “Pentaerythritol." The Innovation Group. See www.the-innovation-
group.com/ChemProfiles/Pentaerythritol.htm.


Pentaerythritol                                                                                                                74
materials based on entirely different chemistries. Since products manufactured from penta
have unique characteristics based on their structural and chemical properties, most
alternatives would be imperfect substitutes and their use would entail loss in utility. Even
though not all alkyd resins or neopolyol esters are produced using pentaerythritol, and other
neopentyl polyhydric alcohols are used to produce these resins and NPEs, the potential
alternatives to neopentyl polyhydric alcohols are also manufactured by the reaction of
formaldehyde with another aldehyde.

Glycerin is the largest competitor of pentaerythritol for use in alkyd resins and has been
gaining market share as its price has fallen in recent years. There is a high interest in
producing biodiesel which would generate glycerin as a by-product. However, glycerin is a
low-end alkyd resin constituent with performance trade-offs in durability, versatility, and
flow properties. Pentaerythritol-based alkyd coating resins are preferred over the substitute
glycerin-based alkyds because they are faster drying, have greater gloss retention, have
greater water and chemical resistance, are more durable, and have greater heat and color
stability.

Other alkyd resin substitutes include waterborne coating systems and other coating
technologies. Waterborne acrylics compete in architectural coatings. Powder coatings,
high-solids polyesters and waterborne systems compete in some product finishes. Acrylic
latexes, epoxies, and urethanes compete in special-purpose coatings and surface coatings.
Latex-based systems are easier to use and clean, since oil based paints need solvents for
cleaning, and are widely used in consumer applications that do not require alkyds’
durability. Other surface coating alternatives include polyester and vinyl-based systems.

The use of penta in alkyd resins is not growing in the European Union and Norway. This is
partly in response to environmental regulations concerning VOC (volatile organic
compound) emissions.61 VOC describes the level of organic solvent in a system, which
flashes off into the atmosphere. The lower the VOC, the less potential there is for organic
materials to be released into the atmosphere.

There still are a few older aircraft with engines designed to use diesters or dibasic acid
esters, but they represent perhaps only 5% of all commercial and military aircraft. Almost
all new commercial, military, and private jet aircraft are designed to use NPEs. They have
been selected because NPEs exhibit suitable properties such as high temperature stability
and low temperature flow. NPEs used in aviation applications also are more desirable than
diesters because of improved oxidation and thermal stability. Other advantages include
good low-temperature viscosity, very good high-temperature stability, high flash point, low
volatility and good oxidation-corrosion resistance. Not only are diester blends less
effective, they cannot be used as a drop-in substitute for NPEs. Jet engines would need to
be redesigned to use an alternate lubricant, which would be costly and require an extended
period of time for testing and certification.
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Alternate materials used for lubricants in refrigeration include mineral oils, alkylbenzenes,
NPE lubricants, polyalkene glycols, modified polyalkylene glycols and polyvinyl ethers.

61
     Kirschner, Mark, "Chemical Profile: Pentaerythritol," May 12, 2003, No. 19, Vol 263, p. 31.


Pentaerythritol                                                                                    75
The manufacturer of refrigeration systems usually recommends the type of lubricant and
bases its warranty on its use. Recommendations are based on several criteria which can
include lubricity, miscibility, compatibility with materials of construction, thermal stability,
and compatibility with other lubricants.62 The two most familiar for commercial air
conditioning applications are mineral oils and NPE lubricants. CFC refrigerants often used
mineral oils for lubricants. HCFC refrigerants use mineral oils or synthetic lubricants.
HFC refrigerants typically require a synthetic lubricant, such as NPE lubricants. While
HFC refrigerants will not mix with conventional lubricants, substitutes are likely to be
made for the NPEs.

Alternatives for rosin and tall oil esters in coating systems are hydrocarbon resins.
Substitutes for PETN and its explosive applications are other high explosives including
TNT and RDX. In its booster applications there are currently no entirely suitable
substitutes.

                                                  Table 30
                                       Substitutes for Pentaerythritol
          End-Use Market                        Substitutes
                                                Glycerin or other polyol-based alkyds,
          Alkyd Resins                          latex, waterborne coating systems,
                                                epoxy, urethane, vinyl
                                                Dibasic acid esters, diesters, mineral
          Neopolyol esters (NPEs) for
                                                oils, alkylbenzenes, polyalkene glycol,
          lubricants
                                                polyvinyl ethers
          Rosin and tall oil esters             Hydrocarbon resins
          PETN (Explosives)                     TNT, RDX
        Source: Global Insight, Inc.


Economic Benefits of Pentaerythritol

If pentaerythritol were no longer available, glycerin or other polyol-based alkyds would be
the primary replacement in the pentaerythritol-based alkyd resin applications, representing
half of the displaced penta. The substitute glycerin alkyds have lower costs than penta-
based resins; however their performance characteristics are inferior. Consumers would
experience a loss of utility unless other steps are taken to improve the performance of these
substitute materials due to the superior durability, versatility, and flow properties of the
penta-based alkyds.

Other substitutes, representing perhaps another 15% of the displaced penta, could include
waterborne coating systems, powder coatings, acrylics, latexes, epoxies, and urethanes.
The two primary applications of neopolyol esters for lubricants are aviation fluids in
military and civilian jets, and refrigerator fluids. Drop-in substitutes do not readily exist for
lubricants in aviation due to the unique chemical structure allowing lubricants to withstand
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extreme hot and cold temperatures. Diester blends are ineffective and cannot be substituted
as a "drop in" for NPE lubricants. Jet engines would need to be redesigned to use an

62
 DuPont Suva Refrigerants, "DuPont Suva HP Refrigerants Properties, Uses, Storage, and
Handling," H-47122-5, July 2004:13.


Pentaerythritol                                                                                     76
alternate lubricant, which would be costly and require an extended period of time for
testing and certification. Instead, new investments must be made to develop a new
chemistry that would be compatible with the turbines.

Substitutes for refrigeration fluids are not as difficult in some applications. While many
refrigerants only mix with specific lubricants, substitutes are likely to be made with
alkylbenzenes, polyalkene glycols, modified polyalkylene glycols and polyvinyl ethers.
Hydrocarbon resins would be substituted for the rosin and tall oil ester applications, while
TNT and RDX would be replaced for PETN in explosives. Much of the total cost of
substitution results from the direct costs of switching to less efficient materials.

We estimate the substitution cost for replacing pentaerythritol in its many applications is
approximately €145 million per year, with new investment of about €90 million required to
produce the additional specialty polyols needed in reformulated alkyds and other products.




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Pentaerythritol                                                                                77
10.       ALL OTHER USES OF FORMALDEHYDE AND DERIVATIVE
          BENEFITS


This chapter of the report will address all other end uses for formaldehyde, collectively
representing approximately 5% of the total formaldehyde usage. It is organized as follows:
      •   A discussion of five other uses of formaldehyde: hexamethylenetetramine
          (HMTA), controlled release fertilizers, chelating agents, trimethylolpropane
          (TMP), and pyridines;
      •   An estimation of the economic contribution and benefits of these end uses;
      •   A discussion of health care applications that utilize formaldehyde, including:
             o Vaccine manufacturing
             o Gelatin capsule manufacturing
             o Laboratory usage
      •   A discussion of the use of formaldehyde for embalming.


Economic Contributions of All Other Uses of Formaldehyde and
Derivatives

In 2004, production of all other formaldehyde derivatives in the European Union and
Norway generated over €1.2 billion in sales and supported approximately 2,300 jobs.
These jobs were concentrated in Germany, the Netherlands, and United Kingdom.

                                     Table 31
               EU 25 + Norway Economic Contributions of All Other Uses
                                                              Sales
                                                              (MM €)         Employment
              All other uses                                    1,200               2,300
                 Note: includes HMTA, CRF, chelating agents, TMP, and miscellaneous
                 Source: Global Insight, Inc.


Hexamethylenetetramine (HMTA)

Hexamethylenetetramine (HMTA) is a versatile chemical intermediate that can be used as
an ammonia or formaldehyde donor. The three primary applications of HMTA are as a
curing agent, rubber accelerator, and in the production of explosives. Other uses of HMTA
are found in pharmaceutical, cosmetic, and technical applications.

The three European producers of HMTA are Ineos Paraform GmbH & Co. KG (Mainz,
Germany), Caldic Chemie b.v. (Rotterdam, The Netherlands), and Hexion Specialty
Chemicals (Solbiate, Italy).
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Properties and Advantages of Hexamethylenetetramine

HMTA is a specialty chemical produced from formaldehyde and ammonia, and its unique
structure and properties make it indispensable in the production of certain other specialty
materials. It is produced by reacting aqueous or gaseous formaldehyde with ammonia in


All Other Uses of Formaldehyde and Derivative Benefits                                        78
the form of gas, liquid, or in water. HMTA is a white crystalline solid that readily absorbs
moisture. It is a symmetrical, heterocyclic fused ring molecule, and is soluble in water,
alcohol, and chloroform. Its solubility in water varies little with temperature.
Hexamethylenetetramine Consumption
Consumption of HMTA in the European Union and Norway amounted to approximately
25,000 metric tons in 2004. More than 90% of HMTA was used as curing agents for
novolac resins. Novolac-based epoxy resins provide resistance against chemicals, acids,
abrasions, skids, and mechanical wear in high temperatures. They are preferred over
regular epoxies in demanding applications due to their overall high performance and
superior chemical and temperature resistance. These industrial high quality coatings are
used in high abuse areas as attractive, easy to maintain finishes. They are used in foundry
resins, abrasives, friction materials and molding compounds.

                                    Figure 15
         EU 25 + Norway Hexamethylenetetramine Demand by End-Use Market




                                                      Other Uses, 2%

                               Nitration Reaction
                                 Products, 3%




                                                        Novolac Resins, 95%




                  Source: European Chemicals Bureau


HMTA is also used as a raw material for high explosives. This is a declining application.
Nitration of HMTA produces trimethylene trinitramine, an ingredient in cyclonite (RDX)
and cyclotetramethylene-tetranitramine (HMX). Mining, construction, and military uses
account for the majority of RDX and HMX.63 Demand varies depending on mining and
construction activity and military spending.

HMTA is a reagent in chemical analysis. It is used in the preparation of primary amines
and nitrogen heterocyclics and as a methylenating reagent. Formaldehyde and
acetaldehyde react with HMTA to produce pentaerythritol, a neopentyl polyhydric alcohol.
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HMTA is also used as an accelerator in rubber vulcanization. Other applications include
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use in adhesives, sealants, preservatives, and chemical stabilizers. HMTA is also used in


63
     Sebastian N. Bizzari, "Formaldehyde," Chemical Economics Handbook, January 2004: 30.


All Other Uses of Formaldehyde and Derivative Benefits                                         79
waterproof wallpapers, dye fixatives, biocidal active intermediates, pesticides, fungicides,
and protein modifiers.

Though small in terms of volume, HMTA used as a formaldehyde donor is important.
HMTA, or methenamine, is an active ingredient in many urinary tract infection (UTI)
treatments. It degrades in an acidic urine environment and releases formaldehyde, which
provides bactericidal or bacteriostatic action. Despite the performance of the products
based on HMTA, sales of HMTA amounts to less than €10 million in Europe. In addition,
the role as a formaldehyde donor makes HMTA an inexpensive and effective biocide used
widely as a preservative in topical creams, cosmetics, and personal hygiene products.
HMTA preservative often appears under the names Quaternium-15 and Dowicil®75 and
Dowicil®100.
Substitutes for Hexamethylenetetramine

There is no non-formaldehyde route to HMTA. Substitution by other materials is possible,
but would involve significant losses in utility or higher costs, since no other materials have
the functional properties of hexamine as an intermediate. In rubber applications HMTA can
be replaced with HMMM, another melamine-based derivative of formaldehyde.

Regular epoxies are replacements for novolac-based epoxy resins. They are less desirable
than novolac resins in applications that require resistance to temperature and chemicals and
suffer significant loss of utility if substituted.

Urinary tract infection treatments are usually aimed at fighting the infection and easing
discomfort. Medication options include antibiotics or pain relievers. Other prescribed
substitutes to methenamine are amoxicillin, sulfamethoxazole, trimethoprim, nitrofurantoin
or cephalexin. However, methenamine has the advantage that bacterial resistance to
formaldehyde is not known to develop as it can with antibiotics. Over-the-counter
medications such as acetaminophen or ibuprofen do not cure infections, and are very
imperfect substitutes to methenamine.

For use of HMTA as a preservative, alternatives such as imidazolidinyl urea (Germall®),
diazolidinyl urea (Germall II®), DMDM hydantoin (Glydant®), bromonitropropane diol
(Bronopol™), and tris (hydroxymethyl) nitromethane (Tris Nitro®), are currently being
used in creams, cosmetics, and personal hygiene products. However, these are also
formaldehyde-releasing preservatives.64 Non-formaldehyde-releasing alternatives, in this
case, could be:
                     Methylparaben, ethylparaben, propylparaben, butylparaben,
                     benzylparaben
                     Methylchloroisothiazolinone
                     Methylisothiazolinone
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                     Methyldibromoglutaronitrile/phenoxyethanol
                     Sorbic acid


64
     DermNet NZ.


All Other Uses of Formaldehyde and Derivative Benefits                                           80
                     Propylene glycol

Controlled Release Fertilizers

The presence of nitrogen, phosphorous, and potassium in fertilizers provide increased
growth rates and greening to the plants upon which they are applied. Fertilizers are
classified as fast-release or controlled-release. Fast-release fertilizers release their nutrients
all at once. Controlled release fertilizers (CRFs) release their nutrients at a specific rate
over a period of time, providing a more constant source of nutrients to plants, soils, and
turf. Controlled-release fertilizers are safer for plants and the environment and offer more
convenience (fewer applications) than fast-release alternatives.

Urea-formaldehyde reaction products have been commercially available since the mid
1950s. Ureaform, methylene ureas and natural organic nutrient sources were the only
CRFs available until the mid-1960s and early 1970s. These materials are slow-acting
because of their chemical properties and modes of nitrogen release. The leading European
producers of manufactured urea-formaldehyde CRFs include Compo GmbH, Scotts
International, Wilhelm Haug GmbH, and Sadepan Chimica.
Properties and Advantages of Controlled Release Fertilizers

Urea-aldehyde reaction products are produced by reacting urea with various aldehydes,
including formaldehyde. This approach to controlled nutrient release for nitrogen
fertilizers produces materials with controlled or low water solubility. UF reaction products
are produced by reacting excess urea under controlled conditions of pH, temperature,
reaction time, and ratio to formaldehyde.

Controlling the rate or release of material allows the user to tailor the dosage to the
requirement at hand, eliminate wasteful overdosing and repeated applications, and
minimize release of unutilized material to the environment. The release pattern of nitrogen
from UF fertilizers is a multi-step process involving both dissolution and decomposition.
In general, there is some proportion of nitrogen slowly released initially. This is followed
by a more gradual release over a period of several (3-4) months, depending on the type of
product.65 However, the release pattern is also influenced by temperature, moisture, and
soil organisms.

CRFs containing formaldehyde include UF concentrates, ureaform, methylene ureas,
methylene diurea/dimethylene triurea, UF solutions, urea-triazone solutions, and other
slowly soluble fertilizers such as spikes, stakes, tablets and briquettes. Ureaform is the
oldest type of UF fertilizer product and continues to be used in blended fertilizers. It is a
granular substance produced by reacting urea and formaldehyde. Ureaform is composed
largely of higher molecular weight UF polymers. First introduced in the 1960’s, methylene
ureas (MU) were produced and marketed as two types: straight nitrogen products and
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granular mixed nitrogen-phosphorus-potassium (NPK) products containing methylene


65
   Dr. Martin E. Trenkel, "Controlled-Release and Stabilized Fertilizers in Agriculture,"
International Fertilizer Industry Association, Paris, 1997.


All Other Uses of Formaldehyde and Derivative Benefits                                               81
ureas. New production techniques have improved the release time of nitrogen, resulting in
longer-term feeding and healthier turf.

Methylene diurea/dimethylene triurea (MDU/DMTU) compositions are a class of urea-
formaldehyde products developed in the 1980s. Like NPK MUs, MDU/DMTU
compositions are produced by reacting UFC with other fertilizer materials in a granulation
process to manufacture blended fertilizers that are used for direct application to lawns and
gardens. MDU/DMTU compositions are predominantly shorter-chain, lower-weight
polymers that contain higher percentages of unreacted urea than ureaforms and MUs.

Urea-formaldehyde products can be produced as clear water solutions. They contain
unreacted urea and a UF reaction product characterized as having low molecular weight
and being water-soluble (e.g., methylolureas, methylolurea ethers, MDU, DMTU or
triazone). UF solutions have nitrogen release periods of eight to twelve weeks.

Blending a binder with fertilizer ingredients produces a solid, compacted product sold as a
spike, stake, tablet or briquette. Some of these formulations include controlled-release
nitrogen materials such as ureaform, while others include the IBDU substitute. Spike and
stake products are used to fertilize trees and shrubs, while smaller spikes are used on
houseplants. This form of fertilization has advantages over soluble fertilizer applications
because of the labor and cost savings they provide.
Controlled Release Fertilizer Consumption

Consumption of controlled release fertilizers in the European Union and Norway amounted
to 110,000 metric tons in 2004. Non-agricultural markets dominate CRF applications – the
two largest markets non-agricultural markets are professional horticulture (ornamental
crops, greenhouses, and commercial nurseries) and landscaping (public parks, golf greens,
sports fields, and professional lawn care). Agricultural applications amount to about 22%
of consumption and include strawberries, vegetable crops, citrus, melons and fruit trees.




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All Other Uses of Formaldehyde and Derivative Benefits                                         82
                                   Figure 16
         Urea-Formaldehyde CRF Products Demand by End-Use Market, 2004




                                                                                Agricultural Crop
                  Professional                                                   Markets, 22%
                Horticultural, 28%




                                                                                          Consumer, 22%

                             Landscape, 28%




  Source: SRI International, Chemical Economic Handbook. Data does not include ureaform
  formulated in spike, stake and tablet products.


New solid UF products, specifically MUs, have become more available and are being used
increasingly in professional horticulture and landscape maintenance. In order to compete
against substitute sulfur-coated fertilizers, the UF products must either have equivalent
performance characteristics at lower costs, or must offer enhanced performance.

                                      Table 32
          Selected Product Applications of Urea-Formaldehyde CRF Products
Major Supplier                           Trade Name                             UF Fertilizer Product
Compo GmbH                               Floranid®/Isodur®                      IBDU
                                         Basacote®                              Coated fertilizer
Wilhelm Haug GmbH                        Azolon®                                Urea reaction product
                                         Plantosan®                             UF-based NPK-Mg fertilizer
                                         Plantacote®                            PU-coated NPK fertilizer
Kemira GrowHow Oy                        Duralene/Enduro®                       Urea reaction products
Scotts International                     KB®, Micromax®, Osmoform®              Urea reaction products
                                         Osmocote®                              Coated fertilizer
Sadepan                                  Sazolene®                              Granular and liquid
Source: SRI International, Chemical Economic Handbook and product literature.

Substitutes for Urea-Formaldehyde CRF

The rate of release of the nutrient materials may be controlled in a variety of ways,
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including encapsulating them within polymer matrices. Incorporating them directly within
soluble matrices based on formaldehyde and urea is usually the most cost effective
approach. Manufactured UF products compete with other CRFs, with lower-cost soluble
fertilizers and with processed natural organic fertilizers, such as processed sludge and fish
and bone meal. In non-agricultural markets, UF products compete based on advantages in


All Other Uses of Formaldehyde and Derivative Benefits                                                       83
labor cost savings and increased convenience. In agricultural markets, CRFs are not widely
used due to their higher costs. However, because of increasing environmental concerns
about nitrate pollution caused by leaching and run-off of nitrogen fertilizers, the slow-
release and non-leaching properties of controlled-release nitrogen sources have become
more important product selection criteria.

Among the manufactured slow and controlled-release fertilizers, urea-formaldehyde based
products still have the largest market share. Urea-formaldehyde competes with urea-
isobutyraldehyde (IBDU) and urea-crotonaldehyde (CDU) as the two other nitrogen
reaction products designed for professional turf and landscaping. Coated or encapsulated
CRFs such as sulfur-coated fertilizers (SCU) are another type of controlled release fertilizer
that competes with the UF-based products. These are conventional soluble fertilizer
materials with rapidly available nutrients which are given a protective coating to control the
water penetration and nutrient release. The greatest increase in consumption in recent years
for CRFs has been with the polymer-coated fertilizer types. Costing about twice as much
as a conventional fertilizer, sulfur-coated fertilizers are the least expensive alternative to
CRF, while polymer-coated fertilizers are the most expensive type. The increased cost
reflects the more complex manufacturing process and higher cost of materials.

Another alternative to urea-formaldehyde CRFs is fast-release fertilizer. While fast-release
fertilizers are less expensive than CRFs, they have many disadvantages in many non-farm
applications. The nitrogen in the fast-release fertilizers is exhausted quickly, and the
application can be washed away. They need to be applied more than once, making it easy
to apply in excess and thereby damaging plants and turf. Controlled-release fertilizers
provide a high-value alternative to traditional fertilizers, offering consumers the
convenience of fewer treatments per season, reduced labor costs, less risk of environmental
harm, and better turf quality.

Chelating Agents

Chelating agents are used in many applications, including a wide variety of cleaners, pulp
and paper manufacturing, water treatment, photography, agriculture, and textile treatments.
Formaldehyde is used in the production of aminopolycarboxylic acids and sodium salt
chelating agents. BASF, Akzo Nobel, Protex International, Dow Chemical, and S.A.
Dabeer are the aminopolycarboxylic chelating agent producers in the European Union.
Properties and Advantages of Chelating Agents

Chelating agents are compounds whose molecules can form several bonds, usually in ring
structures, to metal ions. Chelating agents remove metal ions by sequestration or through
metal buffering and solubilization.66 Chelating agents can be used to help control such
undesirable metal ions as iron, copper, calcium, lead, and magnesium in solution.

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Aminopolycarboxylic acids have many properties that make them desirable in a wide
variety of applications. Chelating agents can be synthesized and are stable at high
temperatures, are inert to most chemicals, can be used over a wide pH range, are insoluble

66
     Ibid.


All Other Uses of Formaldehyde and Derivative Benefits                                           84
in organic solvents, and have a low toxicity. Chelating agents boost performance of many
end-use applications: they prevent discoloration and rancidity, improve rinsability of soaps
and detergents, improve bleachability of pulp, control water hardness, and preserve color
and flavor of foods, beverages, and pharmaceuticals.
Chelating Agents Consumption

Consumption of aminopolycarboxylic chelating agents in the European Union and Norway
amounted to 78,000 metric tons in 2004. Four types of aminopolycarboxylic acids account
for the majority of chelating agents produced in the European Union. There are currently
no Norwegian producers of aminopolycarboxylic chelating agents.

Ethylenediaminetetraacetic acid (EDTA) is the primary chelating agent used, accounting
for almost half of aminopolycarboxylic chelating agent consumption in the European
Union and Norway.67 Diethylenetriaminepentaacetic acid (DTPA),
hydoxyethylethylenediaminetriacetic acid (HEDTA), nitrilotriacetic acid (NTA),
methylglycinediacetic acid (MGDA), 1,3 propylenediamine tetra acetic acid (PDTA),
di(hydroxyethyl)glycine (DHEG), ethanoldiglycinate (EDG), and glutamic acid – N,N-
diacetic acid (GLDA), are also produced. Pulp and paper manufacturing was the primary
end use of aminopolycarboxylic chelating agents.

EDTA, in its tetrasodium form, is the strongest and most widely used aminopolycarboxylic
chelating agent in the European Union and Norway. Strong chelating power and good
stability make it ideal for many general purpose product applications and due to its high
strength only small concentrations of EDTA are needed. EDTA chelates calcium and
magnesium ions above pH 4, iron below pH 8, and most other metal ions throughout the
pH range making it suitable for many end uses.

Over 50% of all EDTA consumption is used in pulp and paper manufacturing, cleaners,
and water treatment applications68. In pulp and paper manufacturing, chelating agents are
used to prevent decomposition of sodium hydrosulfite and hydrogen peroxide, improve
bleachability, and increase brightness. Metal ions that would hinder the bleaching process
are sequestered, thus improving the system’s performance with less need to overbleach,
which lowers costs and reduces downtime and environmental impacts.

Many types of cleaners benefit greatly from the use of chelating agents. Chelating agents
boost cleaning performance of household cleaning agents, (dishwashing and other
detergent products) and industrial and institutional products (surface cleaners and
disinfectants). Chelating agents can help to eliminate dishwasher spots, bathtub rings and
water stains as well as prevent discoloration, rancidity, and clouding. They also improve
detergency and rinsing in water and stabilize foaming to improve cleaning action, thereby
reducing the amount of detergent required.

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Chelating agents also control water hardness and scale control in treating boilers,
evaporators, and heat exchangers. Scale inhibitors benefit from chelating agents, which

67
     Ibid.
68
     SRI International, Chemical Economics Handbook, and European Chemicals Bureau


All Other Uses of Formaldehyde and Derivative Benefits                                         85
isolate the “hard” metal ions of calcium and magnesium to prevent deposits from collecting
on surfaces that would interfere in heat transfer.

A variety of agricultural and photographic applications are improved through the use of
chelating agents. Chelants provide micronutrients as fertilizers to fruits, vegetables, grasses
and plants. Specific essential elements are delivered through fertilizers aiding in growth
and yield. They also stabilize agricultural chemical emulsions formulated with hard water.
In photographic applications, most chelants are used as bleaching agents and as antioxidant
and softeners in developing and recovery of silver halide in fixer solutions.69 EDTA and
DTPA aid developer solutions leading to higher quality and longevity prints and negatives.

Other important applications for chelating agents include preservation of color, flavor, and
stability of our food and beverages and vitamins, increased performance of oil, creams,
soaps and shampoos, activation of styrene-butadiene polymerization in rubber processing,
and minimization of oxidation in metals. Textile treatment, dyeing, bleaching, and de-
sizing, applications are also important. Chelants remove metals for the prevention of
streaking and spotting and reduction of color.
Substitutes for Chelating Agents

Hydroxycarboxylic acids (gluconic acid), polyphosphates and organophosphonate-based
chelating agents are the primary substitutes for the aminopolycarboxylic chelating agents.
The choice of the preferred chelating agent depends on pH range and temperature of the
system, the metal ions to be sequestered, the presence of other interfering materials, and on
biodegradability. While most chelating agents cannot be used interchangeably and do not
compete with each other, some products of the major chelating groups can be
interchangeable for others.70 Usually, there is significant loss of utility for imperfect
substitutes for chelates.

It would also be possible to produce some formaldehyde-based chelating agents using
alternative, formaldehyde-free chemistries. For example, EDTA can be synthesized by the
reaction of EDA and chloracetic acid. However, this route involves the use of more costly
starting materials and the product price would have to increase still more to justify
investments in the new plant and equipment required.

Trimethylolpropane (TMP)

Trimethylolpropane (TMP) is a trifunctional alcohol and was one of the first polyalcohols
to be used in the resin producing industry. One major use of TMP is in industrial stoving
or baking alkyds and saturated polyesters. It is also an important component in various
polyurethane systems for coatings and foams. One of its growing application areas is
radiation-cured acrylates in the printing, coating and electronics industries. The largest
European producers of TMP are Perstorp Chemicals, LANXESS, BASF, and Polioli. TMP
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production amounted to 89,000 metric tons in 2004.

69
     Ibid.
70
     Ibid.



All Other Uses of Formaldehyde and Derivative Benefits                                            86
Another trifunctional alcohol similar to TMP is neopentyl glycol (NPG). Its major end
uses include coating resins, unsaturated polyester resins, and neopolyol esters for
lubricants. The largest European producers of NPG are BASF, Perstorp Chemicals, Oxea
(Celanese), and Polioli. The NPG market in the European Union and Norway amounted to
nearly 130,000 metric tons in 2004.
Properties and Advantages of Trimethylolpropane

Trimethylolpropane is a neopentyl polyhydric alcohol produced from formaldehyde and n-
butyraldehyde. TMP is a white hygroscopic solid that is soluble in water and various
alcohols. TMP and other neopentyl polyhydric alcohols are characterized by having no
hydrogens in the highly reactive beta position, increasing their stability at high
temperatures. Largely used in surface coating applications, TMP imparts high UV and
chemical resistance. It also enhances heat resistance of coating resins so that it remains
stable at baking conditions.71
Trimethylolpropane Consumption

Nearly 65,000 metric tons of trimethylolpropane (TMP) were consumed in the European
Union and Norway in 2004. The primary product applications of TMP are coating resins
for surface coatings, NPEs for lubricants, multifunctional acrylates/methacrylates for
radiation-curable coatings, polyether polyols for urethanes, surface treatment of pigments
(TiO2) and isocyanate adducts for PUR.

Coating applications are the largest use of TMP, accounting for approximately 61% of
European consumption. Nearly all TMP coating resins are used in surface coatings, both
polyesters and alkyd. Manufacturers of coating resins blend TMP with other polyhydric
alcohols to balance a coating's properties with its cost. Polyester coating resins are
excellent for exterior applications because of high UV and chemical resistance, and the
improved heat resistance of the resin. These resins can be manufactured into high-solids,
waterborne coatings, and powder coatings, making them environmentally friendly. Some
polyester resins are used to produce urethane surface coatings. The high-cost, high-
performance urethane coatings benefit from low-temperature curing, high flexibility,
excellent abrasion resistance and good outdoor weathering characteristics.

Esterification of TMP results in the formation of neopolyol esters (NPEs). TMP-based
NPEs are primarily used as lubricants in aviation and automotive applications and metal
working. Less expensive NPEs used in fire-resistant hydraulic fluids face competition and
potential substitution by phosphate esters.

In the European Union and Norway, TMP-based multifunctional monomer coatings
account for 6% of the industrial coatings market. TMP acrylates and methacrylates are
used as in radiation-curable coatings, printing inks, and adhesives. They cure rapidly and
create a harder, more brittle and heat-resistant coating than other systems. Radiation-
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curable coatings and inks that are used as overprint varnishes provide high gloss, blocking
and surface protection to the printing ink. Radiation-curable coatings on plastics are used

71
 Sebastian N. Bizzari with Thomas Kalin and Akihiro Kishi, "Neopentyl Polyhydric Alcohols,"
Chemical Economics Handbook, December 2002: 62.


All Other Uses of Formaldehyde and Derivative Benefits                                        87
to create resilient vinyl flooring with a desirable decorative finish, and a hard, durable, and
abrasion-resistant surface. These floors compete with laminates and hardwood floors.



                                          Figure 17
                         EU 25 + Norway TMP Demand by End-Use Market




                                                 Trimethylolpropane Allyl
                                                         Ethers
                                                           3%
                                  Multifunctional                           Other
                              acrylates/methacrylates                        2%
                                        6%




            Neopolyol esters for
                lubricants
                   28%                                                              Coating resins
                                                                                         61%




    Source: SRI International, Chemical Economics Handbook.

Substitutes for Trimethylolpropane

Radiation-curable coatings are used in both wood and plastic for finishes on flooring. Both
wood and resilient vinyl flooring benefit from the hard and durable qualities of the surface
coatings. Product enhancements of the TMP-based surface coatings continue to result in
increased demand of the coatings for wood and vinyl flooring.

Phosphate esters are the largest competitor of TMP-based fire-resistant hydraulic fluids.
While phosphate esters are intrinsically more fire resistant, TMP-based hydraulic fluids can
be enhanced by using additives to make them more fire resistant. Since these materials can
be used almost interchangeably, the TMP-based fire-resistant hydraulic fluids will continue
to replace phosphate esters at minimal cost.

Polyether polyols for urethanes are manufactured with a hydrogen-containing initiator,
such as water, glycols, and polyols including TMP. TMP-based polyether polyols for
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urethanes can be substituted by polyether polyols made from some other initiator.
However, the functionality of the polyether polyol depends on the functionality of the
initiator used. The non-TMP initiators would not produce polyether polyols with the same
properties and would not be perfect substitutes since loss of utility would result from their
use.


All Other Uses of Formaldehyde and Derivative Benefits                                               88
Not all polyester and alkyd coating resins or NPEs are produced using TMP. Other
neopentyl polyhydric alcohols also produce these resins and lubricants, but they are also
manufactured by the reaction of formaldehyde with another aldehyde and so would not be
available to substitute for TMP.

Pyridines

Until the 1950's, pyridines were mainly obtained by isolating them from the coal tars
produced in coking operations. Now, pyridines are produced synthetically to provide a
more consistent product and to meet the much larger demand. Pyridines are produced
synthetically by reacting acetaldehyde and ammonia, with or without formaldehyde.
Properties and Advantages of Pyridines

Pyridine is a heterocyclic molecule that consists of five carbon atoms and one nitrogen
atom. Pyridine is the parent compound of the pyridine bases, including: alpha-picoline,
beta-picoline and gamma-picoline. Pyridines can be produced synthetically or derived
from coal to produce a mix of these bases.

When formaldehyde or methanol/formaldehyde is reacted with acetaldehyde, a pyridine/
beta-picoline mix is produced. An alpha- and gamma-picoline mix is produced when
formaldehyde is not added. Formaldehyde is commonly added to alpha-picoline to
produce 2-vinylpyridine (2-VP), the largest derivative of alpha-picoline. Pyridine and
picolines are flammable, colorless liquids with a penetrating odor. They are soluble in
water and in alcohol and form azeotropes with water.
Consumption of Pyridines

The European Union and Norway consumed over 41,000 metric tons of pyridines in 2004,
of which 90% were produced using formaldehyde. Pyridine and beta-picoline account for
over 75% of world consumption of pyridines, and 55% of European consumption.

Pyridine accounts for 41% of the total demand for pyridines in the European Union and
Norway. Pyridine is used as an intermediate to produce agricultural chemicals, 2-
chloropyridine, piperidine, and solvents. Agricultural chemicals, mainly paraquat and
diquat, account for most consumption of pyridine. The herbicide paraquat is used to
control broadleaf weeds and grasses in vegetable, field, forage and tree crops. It can also
be used as a drying agent. Diquat is used primarily to control aquatic weeds.

2-Chloropyridine is converted to pyrithione salts. One of these, zinc pyrithione (ZPT),
inhibits growth of bacteria and mildew in adhesives, carpet backing, cushion and mattress
foam, marine antifouling paints, wire and cable insulation, and weather stripping materials.
Another pyrithione salt, sodium pyrithione, acts as a fungicide in metalworking fluids and
latex paint. Additional uses for 2-chloropyridine include the syntheses of the antihistamine
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pheniramine and the antiarrhythmic disopyramide.




All Other Uses of Formaldehyde and Derivative Benefits                                         89
                                       Figure 18
                   EU 25 + Norway Pyridine Demand by End-Use Market




                                                                          Pyridine
                   Non-formaldehyde                                         41%
                       pyridines
                          41%




                         gamma-Picoline                                       alpha-Picoline
                             0.2%                beta-Picoline
                                                                                   3%
                                                     15%




        Source: SRI International, Chemical Economics Handbook, Pyridines, April 2004.


Pyridine is used to produce piperidine, used in the production of dipentamethylene thiuram
tetrasulfide (DPTT). DPTT is used to improve the strength, resiliency, and freedom from
stickiness and odor of rubber. Other piperidine applications include pharmaceutical
specialty solvents, epoxy resin curing agents, and in dye production.

Alpha-picoline is primarily used to produce 2-vinylpyridine (2-VP), which in turn is a
component of styrene-butadiene-2-vinylpyridine terpolymer latexes (SBV latexes). These
latexes are used in tire cord adhesives and other adhesives for bonding textiles to
elastomers. 2-VP also produces acrylic fibers used as a dye assistant, and methridine, a
veterinary agent used to eliminate parasitic intestinal worms.

Beta-picolines account for about 15% of the total demand for pyridines in the European
Union and Norway. Beta-picolines are used in niacinamide, noncaptive 3-cyanopyridine,
and agricultural chemicals. The noncaptive form of 3-cyanopyridine is used as a
niacinamide intermediate. Additional uses of beta-picoline include the production of
indivar sulfate, a protease inhibitor for the treatment of HIV infections.

Beta-picoline is used to manufacture niacinamide and niacin, two basic forms of vitamin
B3. The body uses the water-soluble vitamin B3 in the process of releasing energy from
carbohydrates, fats and proteins. The niacin form of vitamin B3 also regulates cholesterol,
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though niacinamide does not. The largest market for niacin is in feed supplements for
poultry, dairy cattle, swine, and in pet food. Pharmaceutical-grade niacin is used to fortify
flour, pasta, rice, breakfast cereals, infant formula, and baby food, and is found in vitamin
tablets. Niacinamide is also used in cosmetics and personal care products.



All Other Uses of Formaldehyde and Derivative Benefits                                          90
In Western Europe, niacin is produced by oxidizing 2-methyl-5-ethylpyridine (MEP) with
nitric acid. A different process is undertaken in the United States: beta-picoline is
ammoxidated to 3-cyanopyridine, which is hydrolyzed to niacinamide. As for gamma-
picoline, 4-vinylpyridine, which is polymerized and used in the regeneration of nuclear
fuel, is the largest application in Europe. Also, oxidation of gamma-picoline yields
isonicotinic acid, which is a precursor for clidinium bromide, an anti-cholinergic drug, and
for isoniazid, an anti-tuberculosis agent.72
Substitutes for Pyridines

Synthetic processes account for most European production of pyridines. Pyridines from
other sources are a poor substitute for synthetically produced pyridines since they are more
costly, can be of variable composition, and can only supply a small fraction of demand.
Pyridines are not present in raw coal, but are synthesized during the coking process without
the use of formaldehyde. The amount of pyridine bases isolated from coking operations is
very small, amounting to about 0.04-0.12 kg per metric ton of coke.

The most likely approach to substitute for formaldehyde-based synthetic pyridines is to
employ alternate chemistries for their synthesis. Chemistries based on acetone and
acrylonitrile, or on acrolein, acetaldehyde or propionaldehyde and ammonia are possible,
but it is not clear whether they can be effective in producing all the isomers and derivatives
currently available. An alternate route to beta-picoline is the conversion of 1,5-
diaminopentanes to pyridines. This is accomplished by hydrogentating 2-methyl-
glutaronitrile, cyclizing to methylpiperidine, and then dehydrogenating to beta-picoline.

Economic Contribution and Benefits of Other End Uses

The economic benefits of these five uses of formaldehyde are:

     o For HMTA, 95% is used in the production of novolac resins. For these
       applications, regular epoxies are the most likely replacements. This would involve
       some performance losses in utility and higher cost since no other material has the
       functional properties of HMTA. We estimate the cost of substitution in this end use
       to be about €40 million per year.

     o If formaldehyde chemistry were not available to produce CRF's, more expensive
       alternative encapsulates such as IBDU or CDU might be used since they would be
       the closest "drop-in" replacement products. Conversely, repeated low dose
       applications of fast-release fertilizers could be substituted since they are cheaper
       than urea-formaldehyde CRFs, but their performance tradeoffs are inferior since
       they require more applications and can easily be washed away. This would result
       in less efficient use of material, higher labor costs, and potential environmental
       damage. Overall, we estimate the substitution cost for replacing urea-formaldehyde
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       CRF products with other fertilizers is approximately €35 million per year, most of


72
 Sebastian N. Bizzari with Thomas Kälin and Akihiro Kishi, "Pyridines," Chemical Economics
Handbook, December 2004


All Other Uses of Formaldehyde and Derivative Benefits                                           91
        which is for the increased cost of more expensive capsulation systems and the new
        capacity required to apply them.

    o For chelating agents, there are a number of formaldehyde-free chemistries that are
      possible alternatives to the formaldehyde-based materials. These alternatives
      include hydoxycarboxylic acid, polyphosphates, and organophosphates. We
      estimate the cost of substitution in this end use to be approximately €55 million per
      year, driven by the higher cost of material and significant loss of utility. In
      addition, approximately €65 million worth of capital costs for new plant and
      equipment to produce and use substitutes is avoided through the continuing use of
      formaldehyde-based chelating agents.

    o For TMP, we found no alternative chemistries or products that possessed the same
      functionality and performance as TMP. For example, exterior coating applications
      that require high UV protection, chemical resistance, and heat resistance use TMP
      to achieve this balance at a reasonable cost. We estimate the cost of substitution in
      this end use to be about €115 million per year with high utility loss in many
      applications. Also, approximately €80 million in capital investments are avoided
      through access to formaldehyde-based TMP

    o For pyridines, we found that consumers could not find reasonable direct substitutes
      to pyridines, so that substitution would occur at the manufacturing level. Recovery
      of pyridines from coking ovens is technically possible but this is an impractical
      alternative due to the environment issues surrounding coke production and the
      small amount of pyridine that can be recovered. We estimate the cost of
      substitution to be approximately €70 million per year, and the investment required
      for the process plants using alternate chemistries to be about €140 million.

We estimate that these uses of formaldehyde, excluding pyridines, generated over €1,248
million in sales and purchased nearly €540 million worth of raw materials and utilities. In
addition, these uses support approximately 2,300 jobs.




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All Other Uses of Formaldehyde and Derivative Benefits                                        92
                                        Table 33
                              Economic Benefits of Other Uses
                                                                              Cost of
                                                         Performance       Substitution
         Material          Ease of Substitution
                                                             Loss
                                                                           (€ MM/year)
      HMTA (epoxies)              Moderate               Low – moderate         40
           CRFs                   Moderate                 Moderate             35
      Chelating agents       Moderate – difficult          Moderate             55
           TMP               Moderate – difficult          Moderate             115
         Pyridines         At manufacturing level            None               70
           Total                                                                315



Health Care Applications
Manufacture of Vaccines

Formaldehyde is a strong antimicrobial agent. It is used widely to attenuate or inactivate
bacteria and virus in vaccine production. Vaccines provide protection against 400 diseases,
and the worldwide vaccine market is approximately €6.2 billion. Economic benefits for
every Euro spent on childhood vaccine administration are estimated to be around €20.8.73

There are four types of vaccines: inactivated or killed, live attenuated, toxoid, and
component. Formaldehyde is used in most inactivated vaccines, toxoid vaccines, and
component vaccines. Inactivated vaccines are stable and safe; they cannot revert to the
virulent form. They often do not require refrigeration, a quality that makes them accessible
to the people of many developing countries, as well as practical for vaccinating people who
are highly mobile, such as members of the armed forces. However, most inactivated
vaccines stimulate a relatively weak immune response and must be given more than once.
Some of the common inactivated vaccines include the flu shot as well as vaccines for
cholera, plague, and hepatitis A.

Toxoid vaccines are made by treating the toxins (or poisons) produced by infectious agents
with heat or chemicals, such as formalin, to destroy their ability to cause illness. A toxoid
is an inactivated toxin, the harmful substance produced by a microbe. Many of the
microbes that infect people are themselves not harmful. It is the powerful toxins they
produce that can cause illness. Even though toxoids do not cause disease, they stimulate
the body to produce protective immunity just like the germs' natural toxins. Examples of
toxoid vaccines are diphtheria toxoid vaccine and tetanus toxoid vaccine.74
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73
     "Sometimes, Vaccines Can Be Good for Business," The New York Times, October 29, 2004.
74
     Center for Disease Control.


All Other Uses of Formaldehyde and Derivative Benefits                                          93
                                 Table 34
                Examples of Vaccines That Use Formaldehyde
        Company      Vaccine                 Type
                                                                  6-valent DTPa HepB IPV Hib
                                                                  combined vaccines (diphtheria,
                                                                  tetanus, acellular pertussis,
        Aventis Pasteur          Hexavac®                         hepatitis B, inactivated
                                                                  poliomyelitis and Haemophilus
                                                                  influenzae type b conjugate
                                                                  vaccine)
                                                                  Diphtheria, tetanus, five
                                                                  component acellular pertussis,
        Aventis Pasteur          PEDIACEL®                        inactivated poliomyelitis and
                                                                  Haemophilus influenzae type b
                                                                  conjugate vaccine
                                                                  Diphtheria, tetanus, acellular
        SBL Vaccin AB            IPV
                                                                  pertussis vaccine
        SBL Vaccin AB            Dukoral™                         Cholera vaccine
        Chiron                                                    Influenza virus vaccine
        Corporation,             Fluad®
        Aventis Pasteur
                                                                  Haemophilus b Conjugate
        Sanofi Pasteur                                            (Meningococcal Protein
                                 Procomvax®
        MSD                                                       Conjugate) and Hepatitis B
                                                                  (Recombinant) vaccine
                                                                  Diphtheria, tetanus, pertussis
        GlaxoSmithKline          Tritanrix HepB®
                                                                  and hepatitis B vaccine
        GlaxoSmithKline          Fluarix®                         Influenza vaccine
        GlaxoSmithKline          TWINRIX®                         Hepatitis A, hepatitis B
                                                                  6-valent DTPa HepB IPV Hib
        GlaxoSmithKline          Infanrix HeXa®
                                                                  combined vaccines
        GlaxoSmithKline          HAVRIX                           Hepatitis A
                                                                  Measles, mumps, and rubella
        GlaxoSmithKline          Priorix®
                                                                  vaccine
        Source: Drugs Information Online, European Medicines Agency, GlaxoSmithKline,
        PRNewswire


Possible direct substitutes for formaldehyde in vaccine production are glutaraldehyde, beta-
propiolactone, and application of heat. Glutaraldehyde is used mostly to inactivate toxins
in acellular pertussis (whopping cough) vaccines, and beta-propiolactone mostly used to
inactivate rabies virus. With the application of heat to inactivate virus, there is a risk of
under-attenuation, as well as overheating and denaturing, which renders the vaccine
ineffective.

Live attenuated vaccines are usually created from the naturally occurring infectious agent
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itself and formaldehyde is usually not used. In this case, viruses are attenuated by growing
them over and over again through many generations in a laboratory cell culture. This
process lessens the disease-causing ability of the virus. Vaccines are made from viruses
whose disease-causing ability has deteriorated from multiple passages. Examples of



All Other Uses of Formaldehyde and Derivative Benefits                                             94
vaccines that fall in this category include measles vaccine, mumps vaccine, rubella
(German measles) vaccine, oral polio vaccine (OPV), and varicella (chickenpox) vaccine.75
Although there are advantages to live vaccines (e.g. single dose and long-lasting immunity)
there is one significant disadvantage: there is a remote possibility that the organism may
revert to a virulent form and cause disease. As such, people with compromised immune
systems – such as people who are taking immunosuppressive drugs, people who have
cancer or people living with HIV – are usually not given live vaccines.76
Manufacture of Gelatin Capsules

Formaldehyde is also used to crosslink gelatin to produce enteric capsules or hard capsules
that contain and deliver drugs. The enteric coating slows the dissolution of the capsule and
promotes maximum absorption of its contents. Examples of drugs that use such capsules
are Prosec®, Nexium®, Prevacid®, and Zelnorm®. Hard and soft gelatin capsules market
in Europe is well over €2.5 billion and consumes nearly 20,000 metric tons of animal-
derived gelatin.77 In terms of substitution, fish gelatin and starch provide alternatives to
bovine-based gelatin in soft and hard capsule manufacturing. The desire for alternatives to
gelatin capsules, however, stems mostly from concern over BSE (mad cow disease) risk
from using bovine gelatin, not from formaldehyde consumption.
Laboratory Usage

The importance of formaldehyde in its support of the €25 billion life sciences sector is
evident.78 Formaldehyde is used in research laboratories as a tissue preservative (fixative)
or organic chemical reagent. The most widely used fixatives in diagnostic histology
laboratories are formalin-based (formalin is a formaldehyde-methyl alcohol mixture).79

Also, formaldehyde is employed in electrophoresis, which is a technique used to separate
macromolecules on the basis of charge and mass. Proteins, DNA, and RNA, are examples
of macromolecules that can be electrophoresed. Electrophoresis is a standard "workhorse"
procedure in life science research. In this process, tissue samples are usually fixed with
formaldehyde and electrophoresed through a denaturing gel (e.g. formaldehyde-agarose
gels, polyacrylamide-urea gels). Agarose electrophoresis of RNA requires the inclusion of
denaturing agents in the gel. Of the variety of denaturants which can be used for RNA
analysis, all are toxic or noxious to some extent. Methylmercuric hydroxide (MMH) reacts
reversibly with amino groups on RNA and is a very effective denaturant. However, its
toxicity and high volatility make its use inconvenient and hazardous. Formaldehyde also
denatures RNA but is safer than MMH. Formaldehyde agarose gels provide a denaturing
environment that allows more accurate size determinations and efficient binding to
membrane supports.80 Today, proteomics (study of proteins) and genomics (study of
DNA, RNA) play an increasing and critical role in pharmaceutical research.


75
   Ibid.                 http://technician.zxq.net
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76
   Immune Central.
77
   Bioprogress; Norfico; Capsugel
78
   European Commission; Global Insight estimates
79
   Haematological Malignancy Diagnostic Service (HMDS).
80
   National Diagnostics; Icoria, Inc.; EMD Bioscience.


All Other Uses of Formaldehyde and Derivative Benefits                                         95
Other Uses
Embalming

Formaldehyde is the most widely used substance in embalming. Concern for mortuary
workers' exposures to formaldehyde has prompted research into alternative embalming
chemicals. Ethyl alcohol/polyethylene glycol, glutaraldehyde, and phenoxyethanol are
alternatives to formaldehyde but may possess other worker health and safety concerns.81

___________________________________________

Derivative Benefits

In addition to the direct and indirect benefits enumerated in the preceding chapters,
consumers also obtain derivative benefits from access to formaldehyde-based products.
These benefits arise from the derivative effects of the avoidance of capital expenditures,
and the necessary returns to that capital that would be required to produce substitute
materials. The direct costs of making any necessary investments in new or retrofit capacity
for substitutes have been included in the estimates cited in this and the previous chapters.
However, the producers of the additional material required to displace formaldehyde-based
products would not only pass the cost increases required of the new capacity to consumers
of the displaced materials, they also would pass the corresponding increases in price to all
other consumers of the substitutes.

Thus, the economic impacts would be spread more widely throughout the economy and
avoidance of these impacts is a derivative benefit that accrues to formaldehyde. We
estimate that suppliers of substitute materials would be required to make investments of
about €22 billion. Capital recovery charges on these investments, spread throughout the
economy, would cost consumers about €6.4 billion per year, which is the magnitude of the
derivative benefits.




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81
     The Massachusetts Toxics Use Reduction Institute.


All Other Uses of Formaldehyde and Derivative Benefits                                         96
11.     MACROECONOMIC AND COUNTRY LEVEL IMPACTS

The previous chapters evaluated the economic benefits and contributions in the European Union
and Norway of each formaldehyde derivative. In this chapter, we provide estimates of the
impact of the formaldehyde industry at the country level for employment, wages, and
investment.

Following are the highlights of the economic contributions of the formaldehyde industry to the
economies of the European Union and Norway in 2004. For purposes of this portion of the
study, a narrow definition of the industry has been used, as described more fully in Chapter 12.
        Sales:
             Almost €330 billion worth of sales resulted from this industry’s activities.
        Employment:
             Over 1.7 million workers are employed directly in chemical processing and
             downstream fabrication facilities in the European Union and Norway. The
             fabrication facilities are primarily in the wood products industry. These workers
             operate and maintain the formaldehyde and downstream user facilities, and have
             responsibilities for management, research and development, and sales and
             marketing.
             Additionally, nearly 4 million workers are employed indirectly in the European
             Union and Norway. These individuals are employed in the wide network of
             supplier industries that provide goods and services (e.g. raw materials, utilities,
             capital goods, services) to the formaldehyde industry.
             Thus, the total number of workers in the European Union and Norway who
             depend on the formaldehyde industry is approximately 5.7 million.
        Wages:
             Using the same definitions as for employment, wages of direct employees
             amounted to over €42 billion for the year (€24,300 per worker).
             An additional €128 billion of wages was earned by workers in the companies
             that supply the formaldehyde industry (indirect workers).
             Total wages for all of these workers amounted to over €170 billion.
        Value of Business Fixed Investment:
             Direct formaldehyde-related business fixed investment amounted to nearly €195
             billion in 2004.
        Number of Plants:
             There are approximately 20,300 plants that are critically dependent on
             formaldehyde operating in the European Union and Norway with all countries
             represented. This estimate includes 395 chemical processing plants and 19,900
             fabrication plants primarily in the wood products and furniture industry. This
             estimate excludes facilities with fewer than 10 workers, of which there are tens
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             of thousands.http://technician.zxq.net
In summary, the products of the formaldehyde industry are pervasive in the economies of the
European Union and Norway. They generate a substantial volume of sales, provide a sizable



Economic Contributions and Benefits Methodologies                                            97
number of jobs, and contribute to the local economies in countless visible and not-so-visible
ways. The direct economic contributions of the formaldehyde industry are summarized below:

                                        Table 35
             Highlights of the Economic Contributions of Formaldehyde, 2004
                                                                Units             EU 25 + Norway
               Value of Sales                              €Billion/Year                         329.0
               Total Plants                                 Plants                             20,305
                 Chemical processing                        Plants                                 395
                 Wood products and furniture*               Plants                             19,910
               Total Employment                             Workers                        5,723,000
                 Direct:                                    Workers                        1,736,000
                   Chemical processing                      Workers                            38,400
                   Wood products and furniture              Workers                        1,221,600
                   Other manufacturing                      Workers                           476,000
                 Indirect                                   Workers                        3,987,000
               Total Wages                                  €Billion/Year                        170.3
                 Direct:                                    €Billion/Year                         42.2
                   Chemical processing                      €Billion/Year                           1.1
                   Wood products and furniture              €Billion/Year                         28.5
                   Other manufacturing                      €Billion/Year                         12.5
                 Indirect                                   €Billion/Year                        128.1
               Fixed Investment                             €Billion                             194.9
               Purchases                                    €Billion/Year                        144.8
                 Raw materials                              €Billion/Year                         86.9
                 Utilities                                  €Billion/Year                         57.9
        Source: Global Insight, Inc.
        * Represents the estimated number of plants with 10 or more workers. This estimate excludes facilities with fewer
        than 10 workers, of which there are tens of thousands.
        Note: These economic values are not additive



The economic contributions of the formaldehyde industry at the country level are presented in
the tables below.




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Economic Contributions and Benefits Methodologies                                                                       98
                                      Table 36
         EU 25 + Norway: Direct Employment, Wages, and Fixed Investment, 2004

                                                                                                        Fixed
                                             Employment1                    Wages1                   Investment2
                                              (workers)                    (million €)                (million €)
        Austria                                      49,229                          1,198                     5,546
        Belgium                                      30,082                            748                     3,601
        Cyprus                                        3,113                             75                       339
        Czech Republic                               65,245                          1,594                     7,167
        Denmark                                      25,109                            606                     2,810
        Estonia                                      19,283                            465                     2,085
        Finland                                      31,288                            775                     3,416
        France                                      162,570                          3,998                    18,141
        Germany                                     288,759                          7,159                    32,786
        Greece                                       20,489                            381                     2,288
        Hungary                                      39,497                            970                     4,355
        Ireland                                      10,593                            262                     1,208
        Italy                                       211,331                          5,113                    23,820
        Latvia                                       29,601                            723                     3,146
        Lithuania                                    32,739                            790                     3,585
        Luxembourg                                   10,976                            334                     1,221
        Malta                                        10,873                            206                     1,200
        Netherlands                                  35,668                            880                     4,213
        Norway                                       16,843                            414                     1,864
        Poland                                      180,705                          4,322                    20,114
        Portugal                                     55,491                          1,324                     6,326
        Slovakia                                     21,472                            527                     2,397
        Slovenia                                     17,182                            415                     1,919
        Spain                                       164,825                          3,969                    18,547
        Sweden                                       43,592                          1,077                     4,825
        United Kingdom                              159,444                          3,873                    17,935
          Total                                   1,736,000                         42,196                   194,855
  (1)
      Direct workers (and their wages) include those workers in the formaldehyde-based chemical
  processing industry and the wood products fabrication industry and portions of the furniture and other
  manufacturing industries.
  (2)
      Defined as the value of the stock of business fixed investment in the formaldehyde-based chemical
  processing industry and the wood products fabrication industry and portions of the furniture and other
  manufacturing industries.




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Economic Contributions and Benefits Methodologies                                                                      99
                                         Table 37
            EU 25 + Norway: Direct and Indirect Employment, and Wages, 2004


                                             Employment                                     Wages
                                               (workers)                                   (million €)
                                        Direct         Indirect                     Direct           Indirect
     Austria                                49,229          75,380                       1,198             2,422
     Belgium                                30,082          73,724                         748             2,369
     Cyprus                                  3,113           4,697                          75               151
     Czech Republic                         65,245         151,371                       1,594             4,864
     Denmark                                25,109          51,414                         606             1,652
     Estonia                                19,283          16,244                         465               522
     Finland                                31,288          50,757                         775             1,631
     France                               162,570          478,931                      3,998             15,388
     Germany                              288,759          889,742                      7,159             28,588
     Greece                                 20,489          39,870                         381             1,281
     Hungary                                39,497         100,617                         970             3,233
     Ireland                                10,593          27,576                         262               886
     Italy                                211,331          490,437                      5,113             15,758
     Latvia                                 29,601          20,731                         723               666
     Lithuania                              32,739          32,708                         790             1,051
     Luxembourg                             10,976          59,805                         334             1,922
     Malta                                  10,873          19,935                         206               641
     Netherlands                            35,668          93,581                         880             3,007
     Norway                                 16,843          31,740                         414             1,020
     Poland                               180,705          280,733                       4,322             9,020
     Portugal                               55,491         104,698                       1,324             3,364
     Slovakia                               21,472          50,395                         527             1,619
     Slovenia                               17,182          28,765                         415               924
     Spain                                164,825          307,446                       3,969             9,878
     Sweden                                 43,592          90,958                       1,077             2,923
     United Kingdom                       159,444          414,745                      3,873             13,326
       Total                            1,736,000        3,987,000                     42,196           128,103
        Note: Direct workers (and their wages) include those workers in the formaldehyde-based
        chemical processing industry and the wood products fabrication industry, and portions of the
        furniture and other manufacturing industries. Indirect workers (and their wages) include workers
        in the network of supplier industries who provide goods and services to the direct industries.




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Economic Contributions and Benefits Methodologies                                                                  100
12.      ECONOMIC CONTRIBUTIONS AND BENEFITS METHODOLOGIES

Economic Contributions

In this chapter, we define key terms and the conceptual framework which underlies the
approach to estimating the economic contributions and benefits of the formaldehyde industry.

A Euro spent on formaldehyde-based products will result in direct and indirect changes in the
economy. We divide the total contribution into (a) direct and (b) indirect impact.

      o Direct wages, for example, are the wages earned by employees in the formaldehyde
        industry. They operate and maintain formaldehyde and downstream user plants, have
        responsibility for management, finance, research and development, marketing and
        sales.
      o Indirect wages are the wages earned by employees in all the many layers of the
        supplier industries who provide raw materials, utilities, capital goods, and other goods
        and services to the formaldehyde industry.

The direct and indirect activities are measured in terms of final demand, investment by the
manufacturers, and net trade.
Establishing an Operational Definition of the Formaldehyde Industry

For this study, Global Insight used a very conservative definition of the formaldehyde industry
for the purpose of this portion of the analysis. To implement this narrow definition, we
determined the point in the production chain where the economic activity is critically dependent
on formaldehyde-based products versus where formaldehyde is incidental. These limits are
process and material specific, and defining them is somewhat subjective and the resulting
definition of the formaldehyde industry may not reflect common parlance either inside or
outside the formaldehyde industry. However, this narrow definition allows us to claim with
assurance that the numbers derived from the contributions portion of the analysis are not
overstated. Therefore, in defining the scope of the formaldehyde industry from which direct
contributions were estimated, we used this major criterion: a manufacturing activity is counted
in the formaldehyde industry if, in the absence of formaldehyde, the manufacturing activity
would be forced to undergo a major conversion.

To elaborate, producers of formaldehyde and phenol formaldehyde resin are included here in
the defined industry because their output contains formaldehyde. However, producers of
products derived from phenol formaldehyde resin may or may not be included in the definition
of the formaldehyde industry, depending on whether the manufacturer could substitute another
material and remain in their core business. For example, producers of consumer products such
as toaster ovens and other household appliances use phenolic resins in part for their resistance to
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high temperatures. These manufacturers could substitute other materials (e.g. more expensive
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polymers) and by modifying their fabrication equipment. They would not be considered to be
part of the defined formaldehyde industry for the purpose of this analysis because they would
continue to produce their products in the absence of formaldehyde. Producers of other
formaldehyde-based products such as particleboard or plywood manufacturing plants are


Economic Contributions and Benefits Methodologies                                             101
considered here as part of the formaldehyde industry because the substitute products (solid
wood, metal, etc.) could not be easily made in their facilities, and they would be unlikely to
remain in business in the absence of the formaldehyde-based product.

In all cases, we assumed that the existing distribution and sales networks would be capable of
supporting the movement of the substitute products, and these networks have not been included
in Global Insight’s definition of the formaldehyde industry. Since we did not take into account
the significant dislocations that would occur in the distribution networks, our estimate of
economic contributions is understated.
Estimating Direct Impacts

We assembled a formaldehyde database to measure the direct economic contribution of the
formaldehyde industry, as defined above. Key elements of the database and their sources are:

    •   Sales and production (output) of formaldehyde-based products for 2004 were obtained
        from members of the formaldehyde industry and cross-checked against other data
        sources.

    •   Number of employees by sector was estimated using data from various sources,
        including confidential company reports and Eurostat.

    •   Plant capacities and locations for formaldehyde and downstream user industries were
        obtained from industry sources.

Value of Sales

Global Insight established three primary objectives for measuring the value of these sales:
            o First, the definition of value should be clear: there should be no double
              counting in the estimate. Economic studies of other industries have tended to
              inflate the value of sales by counting sales of raw materials, intermediate
              products, equipment, and other expendables, thus greatly exaggerating the
              importance of an industry. Global Insight eliminates this problem by
              measuring the value of sales only once.
            o Second, the measurement of value should occur as close as possible to the
              point of formaldehyde consumption, which also results in a conservative
              estimate because we do not consider any value-added contributions through
              further processing steps.
            o Third, the unit of association should be based on clearly identifiable plants
              whenever possible. This will minimize the use of “government classification
              systems” that do not distinguish formaldehyde and downstream user facilities
              at a fine level of detail nor identify the nature of the plant’s output. Where this
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              plant-level data can be crosschecked with publicly available data from other
              sources, it becomes more reliable and credible.
            o With these objectives in mind, Global Insight’s methodology of measuring the
              value of sales is straightforward. For formaldehyde and the first-level major
              derivatives, we multiply the production volumes in 2004 by the market price.


Economic Contributions and Benefits Methodologies                                                102
                For the formaldehyde-dependent fabrication plants, we applied the share of
                formaldehyde for each of these industries to the output as reported by Eurostat
                and other sources.

Employment and Wages

Having identified the formaldehyde processing plants in the database, we estimated direct
employment for each separately identified manufacturing site. This information was checked
against other data sources such as the trade press, Eurostat, and industry reports. For
formaldehyde-derivative fabrication plants (e.g. wood products plants and furniture
manufacturing facilities), Global Insight used industry data sources by type of fabrication plant
and by the estimated volume of output. Global Insight estimated the employment of these
fabrication plants by type and size on a country-by-country basis, using information from
Eurostat and other sources. Global Insight used data from Eurostat to estimate direct wages by
multiplying the average annual wage by the number of direct employees in the sector.
Gross Domestic Fixed Investment

Global Insight estimated the value of the stock of business investment for the formaldehyde and
downstream user industry using data from Eurostat. This information was checked against data
from other sources, such as the trade press and industry reports.
Estimating Indirect Impacts

In order to measure the indirect contribution of the industry to the European economy, we used
Global Insight’s World Industry Service model, which uses a modified input/output analysis of
demand by industry, to determine repercussions of direct impact on industrial output and
employment by sector. This model depicts the flow of material from the industries producing
commodities to the industries and final consumers using them. It is a fully comprehensive and
inclusive representation of the European economy, including Norway.

Inspecting the data in the model shows the economy’s complexity. All individual industries
depend on several other industries for the materials they use in their production processes.
Consequently, the inter-industry commodity flows weave an extensive and intricate web of
mutual interdependence among the producing sectors. An industry may not only use its own
and other industries’ output directly in its production processes, but it may also find that it
“indirectly” depends on its own product because some of its suppliers use this product. For
example, the petroleum refining industry consumes some of its own products directly in the
form of fuel burned for energy to run its refineries. It also consumes its own products indirectly
as it uses raw materials and supplies that involve refinery-produced fuels or feedstocks in their
production. From this perspective, the inter-industry transactions data provide insights into the
extent to which formaldehyde “cascade” through the economy. As described earlier, they may
be used directly or indirectly. Moreover, the production streams are not in just one direction;
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some of the downstream products may be channeled back upstream to support earlier industry
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production. The contribution of formaldehyde from this perspective consists of the employment
and wages that are generated in the industries that use formaldehyde directly or indirectly.




Economic Contributions and Benefits Methodologies                                            103
To initiate the analysis, Global Insight converted the components of Gross Domestic Product
(consumption, investment, government spending, and net trade) from the macroeconomic
model into estimated industrial deliveries to final demand. Second, standard input/output
techniques were used to derive estimates of the industrial output required to produce this bill of
goods for final use. Finally, we applied statistical equations that measure the impacts on
industrial output and employment. The assumed changes in exports and imports produce an
aggregate change in output and employment. This change is later used as a yardstick for
evaluating the macroeconomic impact.

For this research, Global Insight needed to establish the distinct linkages of the formaldehyde
industry to the rest of the economy. To accomplish this objective, we re-structured the standard
inter-industry model to disaggregate the formaldehyde industry from the rest of the chemical
industry. This task was undertaken in the input/output block, as well as the stochastic block of
the model. Purchases by type and sales by end-use market data were developed and employed
to re-direct the flows of sales to the corresponding end users and reconfigure the formaldehyde
purchases by the corresponding industries. The result was an expanded input/output block that
addresses the relative importance and contribution of the formaldehyde industry separately from
the chemical product industry. Thus, Global Insight used a tailored inter-industry model linked
to a model of the European economies in order to address the impact of the formaldehyde
industry on all other industries and to derive indirect impacts on output and employment.
Consumer Benefits

As discussed in Chapter 2, the economic benefits provided by formaldehyde-based products in
the economy are simply the total net value in euros of the savings that consumers enjoy by
using them instead of substitutes. Viewed from another perspective, consumer savings are the
increased costs that consumers would have to bear if they lost access to the formaldehyde-based
products they now enjoy. The benefits arise from the properties of formaldehyde that allow
products to be manufactured at lower costs than possible with alternative materials and provide
greater utility to consumers in the forms of extended use, improved performance, and more
desirable aesthetics.

Estimating the costs of perfect substitution of an alternative material for a formaldehyde-based
product is simple, conceptually: we calculate the price difference between products and
multiply by the aggregate sales volume. In the case of “perfect” substitution, the formaldehyde-
based and substitute products have identical attributes, including ease of manufacturing and
performance-in-service, so that the consumer notices only the difference in the initial cost of the
product.

This theoretical situation is approached most closely when a formaldehyde-based product is
replaced by an alternative product in an end-use or application where both materials currently
share the market. This is the case with many products fabricated from polyacetal and other
resins, for example. Because of the differences in physical properties—such as tensile or
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impact strength, softening temperature, and density—the formaldehyde-based product and its
substitute product may not have precisely the same dimensions or weight, but they will function
in approximately the same way and have the same usefulness to the consumer. Differences in
weight or volume between the formaldehyde-based product and its substitute are estimated
based on the materials’ properties and the design requirements of the items being manufactured.


Economic Contributions and Benefits Methodologies                                             104
In general, resin substitution will require that the fabricator of the consumer product re-tool to
mold or extrude the new material. Periodic re-tooling is a normal feature in the thermoplastics
parts manufacturing industry and does not normally contribute to the net costs of substitution.
In most cases, however, the substitute resins are not as easy to process as the formaldehyde-
based ones they might displace, which would force the component manufacturers to modify
their equipment and processing conditions to accommodate the new material’s properties.
Significant changes can have substantial effects on the cost of the parts being produced, since
conversion costs per part generally range from one half to twice the cost of the material being
processed. Any increases in capital-related charges and manufacturing costs that would result
from such changes would be added to the aforementioned materials cost differences.

The unit prices for formaldehyde-based materials and any potential substitute material depend
on the specific grades of material under consideration, which varies over the business cycle in
response to the supply-demand balance for the materials, the cost of energy, and the relative
costs of alternate materials. It is beyond the scope of this project to estimate the appropriate
average price levels over the business cycle for all grades of formaldehyde-based materials and
for all of their possible substitutes. Instead, two prices have been estimated and are used in this
analysis: the average prevailing price for the formaldehyde-based materials and their substitutes
in 2004; and the reinvestment prices necessary to justify new investment in the alternate
materials that would be in short supply if they were, in fact, used as substitutes for
formaldehyde-based materials.

The latter case may arise, for example, when the amount of a substitute material required to
displace a formaldehyde-based product would exceed about 10% to 20% of the current effective
manufacturing capacity for that material in the European Union and Norway. Under these
circumstances, the producers of the substitute material would demand a price that was high
enough to provide them with an acceptable return on the investments in new plant and
equipment necessary to produce it. In general, prices for the relevant materials in 2004 were
below reinvestment levels, and substantial capacity additions would be required for some of the
substitutes. In these cases, we estimated the amount of new capital required and the
reinvestment price in calculating the net costs of direct or “perfect” substitutions.

The increases in the price of materials necessary to obtain reinvestment-level returns for the
substitutes would be passed on to all of the consumers of these materials, not solely to the
consumers that would use them as substitutes for formaldehyde. Thus, access to formaldehyde
provides derivative benefits to consumers in that it permits them to avoid higher prices for a
very large range of products that are produced and consumed in other sectors of the economy.
We have also calculated the magnitude of these derivative benefits.

Estimating the costs of “perfect” substitution using this approach is an example of a “bottoms-
up” method, which identifies and monetizes all elements of cost and sums up the total to
produce the final estimate. This quantitative estimating technique is valid as long as reliable
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estimates of the individual elements or components of cost can be developed.

In many cases, it is not possible to identify a perfect, drop-in substitute for a formaldehyde-
based product in a particular end use or application. This occurs most often in situations where
the formaldehyde-based product currently commands an overwhelming share of the market,


Economic Contributions and Benefits Methodologies                                             105
particularly if it has done so for many years. This is the case, for example, with urea
formaldehyde resins used in particleboard manufacturing and MDI used in rigid polyurethane
foam applications. In these applications, substitution for formaldehyde-based products would
entail a loss of utility to the consumer, for example in decreased product quality or shorter
product life. In other instances, the substitute product may have attributes that are similar to the
formaldehyde-based product it would displace, but would be more difficult and costly to
manufacture, install, or use, or would have a reduced service life.

In these situations, the costs of materials substitution and increases in manufacturing costs are
calculated in the same way described above for direct substitution. It is also necessary,
however, to calculate the additional costs that would be borne by the consumer if the substitute
for the formaldehyde-based product lacked one or more of the attributes that the consumer
desired. The method used to estimate these costs depends on the nature of the imperfection and
the consumer response to it. For example, if the service life of the substitute were half that of
the displaced formaldehyde-based product, the consumer would be forced to buy twice as many
items over time. Subtler, difficult-to-quantify imperfections may be present, however. For
example, if a substitute binder for plywood is not as easily or rapidly processed as the
formaldehyde-based product it displaces, manufacturers may be forced to de-rate their
production lines or invest in additional capacity to make the same volume of output. This could
necessitate design changes in a system that would increase its cost or complexity.

In other cases, a formaldehyde-based product may be selected because its properties provide the
optimal balance of attributes in a complex system. Substitution of an alternate material, such as
the use of casein (derived from milk) or soy-based adhesives in particleboard or medium
density fiberboard production instead of urea formaldehyde, could force the manufacturer to
redesign the system completely to re-optimize its performance. Even with a redesigned system,
the substitute material may not provide the product attributes desired by the consumer, and the
resulting loss of utility is a real cost. For example, casein adhesives possess high dry strength
and intermediate temperature resistance, but they have only moderate moisture resistance and
require longer cure times compared with urea formaldehyde-based adhesives.

Under these circumstances, estimates are more subjective than in the case of direct substitution
because there is usually no good information on the loss of utility for an imperfect substitute.
Rational consumers do not normally want to buy a flawed product when a better one is
available, so there is little data on which to base the analysis. In these cases, a combination of
“bottoms-up” and “top-down” estimating methodologies has been used to determine the
approximate costs of imperfect substitution across the end use or application in question.

The “top down” approach seeks to identify the cost of imperfect substitutions to consumers by
examining the state of the current market for the use or application in question. Estimates of the
current market share and the value of the sales in the market held by formaldehyde-based
products are used to establish the base case for what consumers are willing to pay to obtain the
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attributes they desire. Then, we estimate the loss in utility for consumers in increasing overall
costs. These cost increases are treated as a loss in consumer benefits that must be added to the
materials and manufacturing cost differences described earlier.




Economic Contributions and Benefits Methodologies                                              106
                            Assumptions Used for this Analysis



 The major assumptions used for this analysis are summarized below.

 The market for formaldehyde-based products, their costs, and substitute material costs are
 based on 2004 data and conditions. In a few cases, data from 2004 were not available and
 data from other years were used. All prices, costs, and values are in Euros.

 For the economic benefits analysis, Global Insight postulates a new, steady-state
 equilibrium for the formaldehyde substitutes. The effects of transient conditions are
 discussed qualitatively where appropriate. For this analysis, we assume that the substitute
 will be used at the level of economic activity prevailing in the base year, and that
 consumption patterns would not be altered. That is, we ignore the drag on the economy that
 would likely result from the replacement of formaldehyde with more costly substitutes.
 Also, we assume that policies would be enacted that would prohibit the importation of lower
 cost substitutes from abroad.

 Only major uses of formaldehyde are evaluated in detail, representing about 95% of
 formaldehyde consumption. Therefore, the scope of the contributions and benefits
 estimated here is conservative because other uses account for about 5% of consumption.

 The estimate of the steady-state product costs for substitute materials is based on a “first-
 level” analysis of the manufacturing costs and is not exhaustive. For example, although
 new capital requirements for producing substitute materials are included, we have not
 included estimates of capital requirements for infrastructure to support these facilities
 (power plants, water supplies, transportation systems, etc.).

 Often we found that the substitutes for the formaldehyde-based products were older
 products or technologies that had been displaced by more efficient or less costly
 formaldehyde-based products. Wherever possible, we have chosen substitutes from among
 products that are currently in use. The rationale for this approach is that these products are
 already providing consumers with options that do not involve the use of formaldehyde.
 They compete in markets and provide consumers with benefits in use that can be compared
 with benefits derived from formaldehyde-based products. Where more than one product
 might be substituted, we have used our best business judgment as to the substitute most
 likely to be used. In most cases, this is based on our estimate of the lowest likely delivered
 cost to the consumer that meets the required functionality.

 All information for this report came from publicly available sources and contact with
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 experts in both the public and private sector and references to these sources are cited where
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 appropriate. Our estimate of costs and losses caused by substitution, and our design of
 economic models of consumer behavior, are also based on our best business and
 engineering judgment.




Economic Contributions and Benefits Methodologies                                            107
        APPENDIX I




   AUTHORS OF THE REPORT




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Dr. Ronald M. Whitfield, Managing Director of Global Insight, was the Principal Investigator
for this research. He is a seasoned consultant who has conducted numerous assignments in the
chemicals and plastics industry. He has studied issues dealing with strategy development,
economic analysis, environmental policy, international trade, and competition. Dr. Whitfield has
testified before Congressional committees, regulatory commissions, Governor’s Task Forces,
public hearings, courts of law, and arbitration panels on various issues. He developed and
founded DRI’s Chemical Service and later went on to establish the chemicals and plastics
practice at Charles River Associates. Dr. Whitfield was the Principal Investigator of two similar
studies that assessed the economic benefits of styrenics to the U.S. economy and the economic
benefits of chlorine chemistry to the North American economy. He holds a Ph.D. in Business and
Applied Economics from the University of Pennsylvania.

Dr. Francis C. Brown, Senior Consultant to Global Insight, served as a technical advisor for this
research. He has over 30 years of experience in staff positions and management consulting in the
chemical, manufacturing, and process industries. His areas of specialization include project
organization and management; technical feasibility studies dealing with market analysis,
economics, safety, and environmental control, and process development and optimization. He
also has extensive experience in chemical and extractive metallurgical process technology, and
materials development, and in the use of computer-aided techniques for process design,
evaluation, and synthesis. Dr. Brown completed his Ph.D. in Chemical Engineering and a Ph.D.
in Biochemical Engineering.

Rowena Low, Consultant to Global Insight, has six years of consulting experience. She has
worked extensively on industry studies, cluster analyses, and competitive analyses. She
contributed to a study that estimated the economic benefits of the styrenics industry to the U.S.
economy. Prior to consulting, she was an economist at the Development Bank of Singapore in
Singapore. Ms. Low holds a B.A. in Economics from Boston University and a Master of City
Planning from Massachusetts Institute of Technology.

The authors wish to acknowledge several other individuals who ably assisted in this research. We
are especially grateful to Mr. Mohsen Bonakdarpour of Global Insight created the tailored
input-output analysis for the formaldehyde industry and used these models to estimate economic
contributions.




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                APPENDIX II




PRODUCT TREE FOR THE FORMALDEHYDE INDUSTRY




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                                             110
                                           Figure 21
                             Product Tree for Formaldehyde, 2004



                                     Urea Formaldehyde
                                           Resins                 55%


                                         Melamine
                                    Formaldehyde Resins            14%
    Formaldehyde
                                    Phenol Formaldehyde
                                           Resins                  7%


                                      Polyacetal Resins
                                                                   6%
                                                                                          Pyridines

                                                MDI                                          TMP
                                                                   5%
                                                                                 Hexamethylenetetramine
                                           Butanediol
                                                                   4%                 Chelating Agents

                                                                                         Health Care
                                        Pentaerythritol
                                                                  3%
                                                                                     Controlled Release
                                                                                         Fertilizers
                                                Other
                                                                  5%
                                                                                            Other




Note (1): The percentages represent estimated EU 25 and Norwegian formaldehyde consumption for each end
use.

Note (2): Totals may not add due to rounding.




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