the economic benefits of fa to the us and canadian economies (2005)

The Economic Benefits of Formaldehyde to the United States and Canadian Economies

PREPARED FOR:

Formaldehyde Council Inc.

PREPARED BY:

24 Hartwell Avenue Lexington, MA 02421-3158

August 2005

Copyright 2005 by Global Insight (USA), Inc. ALL RIGHTS RESERVED.

Reproduction or distribution of this report in whole or in part prohibited, except by permission of Global Insight, Inc. or the Formaldehyde Council Inc.

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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 .................................................................................................... 20 SUBSTITUTES FOR UREA FORMALDEHYDE ............................................................................................... 22

Particleboard and medium density fiberboard (MDF) ....................................................................... 22 Asphalt roofing shingles ..................................................................................................................... 25 Hardwood plywood............................................................................................................................. 26 Molding Compounds........................................................................................................................... 26 Other ................................................................................................................................................... 26

ECONOMIC BENEFITS OF UREA FORMALDEHYDE ..................................................................................... 27 4. PHENOL FORMALDEHYDE RESINS......................................................................................... 30

INTRODUCTION......................................................................................................................................... 30 ECONOMIC CONTRIBUTIONS OF PHENOL FORMALDEHYDE RESIN PRODUCERS ........................................ 31 PROPERTIES AND ADVANTAGES OF PHENOL FORMALDEHYDE RESINS..................................................... 31 PHENOL FORMALDEHYDE CONSUMPTION ................................................................................................ 32 SUBSTITUTES FOR PHENOL FORMALDEHYDE............................................................................................ 34

Plywood and oriented strand board.................................................................................................... 34 Insulation binder................................................................................................................................. 37 Paper Lamination ............................................................................................................................... 37 Molding Compounds........................................................................................................................... 38 Abrasives binders................................................................................................................................ 38 Other ................................................................................................................................................... 39

ECONOMIC BENEFITS OF PHENOL FORMALDEHYDE ................................................................................. 40 5. MELAMINE FORMALDEHYDE RESINS................................................................................... 43

INTRODUCTION......................................................................................................................................... 43 ECONOMIC CONTRIBUTIONS OF MELAMINE FORMALDEHYDE RESIN PRODUCERS ................................... 43 PROPERTIES AND ADVANTAGES OF MELAMINE FORMALDEHYDE RESINS ................................................ 44 MELAMINE FORMALDEHYDE CONSUMPTION ........................................................................................... 44 SUBSTITUTES FOR MELAMINE FORMALDEHYDE....................................................................................... 46

Laminates............................................................................................................................................ 46 Surface Coatings................................................................................................................................. 47 Molding compounds............................................................................................................................ 47 Paper treatment .................................................................................................................................. 47 Specialty wood applications................................................................................................................ 48

ECONOMIC BENEFITS OF MELAMINE FORMALDEHYDE............................................................................. 48 6. POLYACETAL RESINS ................................................................................................................. 50

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. 1,4-BUTANEDIOL ........................................................................................................................... 57

INTRODUCTION......................................................................................................................................... 57 ECONOMIC CONTRIBUTIONS OF 1,4-BUTANEDIOL.................................................................................... 57 PROPERTIES AND ADVANTAGES OF 1,4-BUTANEDIOL .............................................................................. 58 1,4-BUTANEDIOL CONSUMPTION.............................................................................................................. 58 SUBSTITUTES FOR 1,4-BUTANEDIOL......................................................................................................... 60 ECONOMIC BENEFITS OF 1,4-BUTANEDIOL............................................................................................... 61

8. METHYLENEBIS(4-PHENYL ISOCYANATE) .......................................................................... 62 INTRODUCTION......................................................................................................................................... 62 ECONOMIC CONTRIBUTIONS OF MDI ....................................................................................................... 62 PROPERTIES AND ADVANTAGES OF MDI.................................................................................................. 63 MDI CONSUMPTION ................................................................................................................................. 63 SUBSTITUTES FOR MDI ............................................................................................................................ 66 FORMALDEHYDE FREE ROUTE TO MDI.................................................................................................... 68 ECONOMIC BENEFITS OF MDI .................................................................................................................. 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. CONTROLLED RELEASE FERTILIZER .............................................................................. 78 INTRODUCTION......................................................................................................................................... 78 ECONOMIC CONTRIBUTIONS OF CONTROLLED RELEASE FERTILIZERS ..................................................... 78 PROPERTIES AND ADVANTAGES OF CONTROLLED RELEASE FERTILIZERS................................................ 79 CONTROLLED RELEASE FERTILIZER CONSUMPTION................................................................................. 80 SUBSTITUTES FOR UREA-FORMALDEHYDE CRF ...................................................................................... 82 ECONOMIC BENEFITS OF UREA-FORMALDEHYDE CRF PRODUCTS .......................................................... 84

11. ALL OTHER USES OF FORMALDEHYDE AND DERIVATIVE BENEFITS .................. 85 HEXAMETHYLENETETRAMINE (HMTA)................................................................................................... 85

Introduction ........................................................................................................................................ 85 Properties and Advantages of Hexamethylenetetramine .................................................................... 85 Hexamethylenetetramine Consumption .............................................................................................. 85 Substitutes for Hexamethylenetetramine............................................................................................. 87

CHELATING AGENTS ................................................................................................................................. 88 Introduction ........................................................................................................................................ 88 Properties and Advantages of Chelating Agents................................................................................. 88 Chelating Agents Consumption........................................................................................................... 88 Substitutes for Chelating Agents ......................................................................................................... 90

TRIMETHYLOLPROPANE (TMP)................................................................................................................. 91 Introduction ........................................................................................................................................ 91 Properties and Advantages of Trimethylolpropane ............................................................................ 91 Trimethylolpropane Consumption ...................................................................................................... 91 Substitutes for Trimethylolpropane..................................................................................................... 93

PYRIDINES ................................................................................................................................................ 93 Introduction ........................................................................................................................................ 93 Properties and Advantages of Pyridines............................................................................................. 93 Consumption of Pyridines................................................................................................................... 94 Substitutes for Pyridines ..................................................................................................................... 95

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ECONOMIC CONTRIBUTION AND BENEFITS OF OTHER END USES ............................................................... 96 HEALTH CARE APPLICATIONS ................................................................................................................... 97

Manufacture of Vaccines .................................................................................................................... 97 Manufacture of Gelatin Capsules ....................................................................................................... 99 Laboratory Usage ............................................................................................................................... 99

OTHER USES........................................................................................................................................... 100 Embalming ........................................................................................................................................ 100

DERIVATIVE BENEFITS ........................................................................................................................... 100 12. MACROECONOMIC AND STATE/PROVINCIAL LEVEL IMPACTS ........................... 101 13. ECONOMIC CONTRIBUTIONS AND BENEFITS METHODOLOGIES......................... 107

ECONOMIC CONTRIBUTIONS................................................................................................................... 107 Establish an Operational Definition of the Formaldehyde Industry................................................. 107 Estimate Direct Impacts.................................................................................................................... 108 Estimate Indirect Impacts ................................................................................................................. 109 Estimate Expenditure-Induced Impacts ............................................................................................ 111

CONSUMER BENEFITS............................................................................................................................. 111 ASSUMPTIONS USED FOR THIS ANALYSIS............................................................................................... 114

APPENDIX I............................................................................................................................................. 115 AUTHORS OF THE REPORT.............................................................................................................. 115

APPENDIX II ........................................................................................................................................... 117 PRODUCT TREE FOR THE FORMALDEHYDE INDUSTRY .......................................................... 117

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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 plywood, asphalt shingles, 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, 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 vaccine manufacturing, 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 less than 1% of consumption. Products that contain formaldehyde or materials made from formaldehyde have a broad role in the U.S. economy, 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. The Formaldehyde Council, Inc., acting on behalf of the entire 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 United States and Canadian economies. 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 properties of formaldehyde and the qualities that it imparts to major categories of products that contain 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 Insights research was focused on quantifying the benefits of formaldehyde by asking, "What would be the costs to the consumers if they were forced to switch to substitute products that do not contain formaldehyde?"

Executive Summary 6

Secondly, Global Insight researched the contributions of the formaldehyde industry to the U.S. and Canadian economies 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 United States and Canadian economies and its citizens.

Figure 1 Economic Contributions and Consumer Benefits

Focus on producers

Production economics: jobs, sales, business fixed investment, trade

Q: how does this industry contribute to economic welfare?

Local geographicimpacts

Focus on consumers

Substitution economics

Q: what are the costs to the consumer if forced to switch to substitute products?

Nationwide consumer impacts

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

Consumers would have to spend an additional $17 billion per year (the equivalent of nearly $3,500 per metric ton of formaldehyde currently consumed) if formaldehyde-based products were replaced by substitute materials. Nearly 60% of the estimated benefits are attributed to three major applications: urea formaldehyde resins, phenol formaldehyde resins, 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.

Urea formaldehyde (UF) resin is one of the mainstays in the building and

construction industry. Nearly 95% of UF resins are used as a binder or adhesive

Executive Summary 7

in particleboard and medium density fiberboard for composite panels, roofing tiles, hardwood plywood, and coatings. In its main 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.

Phenol formaldehyde (PF) resin is another mainstay in the building and

construction industry. Nearly 75% of PF resins are used in this end use for applications like structural panels, insulation binder, and laminates. Other significant 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 in manufacturing plywood or in laminating wood products 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).

Other materials, mostly alternate resins, can usually be substituted for

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.

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 over $10.5 billion in additional investments.

Executive Summary 8

Table 1 Economic Benefits of Formaldehyde

(Consumer Perspective) Economic Value

in 2003 ($ billion per year)

Formaldehyde End Use Urea formaldehyde resin (UF) $3.41 Phenol formaldehyde resin (PF) $4.64 Polyacetal resin $0.22 1,4-Butanediol (BDO) $0.14 MDI $2.33 Pentaerythritol $0.14 Controlled Release Fertilizers $0.11 Melamine formaldehyde resin (MF) $0.37 All other products & derivative benefits $5.85 Total benefits to consumers $17.22

Source: Global Insight, Inc. Note: These economic values are additive. Totals may not add due to rounding.

Economic Contributions of Formaldehyde Producers Formaldehyde and derivative manufacturing facilities located throughout the U.S. and Canada generate economic contributions at the local, state, 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 U.S. and Canadian economies in 2003, using a narrow definition of the industry:

Sales: o Over $145 billion worth of sales resulted from this industrys

activities. Employment:

o Nearly 700,000 workers are employed directly in monomer, polymer and downstream fabrication facilities in the U.S. and Canada (primarily in the wood products industry). These workers operate and maintain the formaldehyde and derivative facilities, and have responsibility for management, research and development, and sales and marketing. Of these, over 600,000 jobs are in the United States and over 90,000 are in Canada.

o An additional 1.8 million workers are employed indirectly in the U.S. and Canada. 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 An additional 1.5 million individuals in the U.S. and Canada are supported because of the personal expenditures of all the direct and

Executive Summary 9

indirect workers. We define this category as expenditure-induced employment. People who fall into this "expenditure-induced" category include those who work in stores where people from the formaldehyde industry shop or those who perform services to people who work in the formaldehyde industry.

o Thus, the total number of workers in the U.S. and Canada who depend on the formaldehyde industry is 4.0 million workers.

Wages: o Using the same definitions as for employment, wages of direct

employees amounted to nearly $20 billion for the year (an average of $28,300 per worker).

o An additional $58 billion of wages was earned by workers in the companies that supply the formaldehyde industry (indirect workers).

o Lastly, over $50 billion of wages was earned by workers in the general economy (expenditure-induced employees).

o Total wages for all of these workers amounted to nearly $130 billion.

Value of Business Fixed Investment: o Formaldehyde and derivatives production was carried out in

facilities with an aggregate investment value of nearly $90 billion in the U.S. and Canada.

Number of Plants: o There are approximately 11,900 formaldehyde and derivative

plants operating in the U.S. and Canada, with nearly all states and provinces represented.

In summary, the products of the formaldehyde industry are pervasive in the United States and Canadian economies. 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.

Executive Summary 10

Figure 2 Employment Contributions of the Formaldehyde Industry

Total and by Segment

Indirect Employment42.9%

Expenditure-Induced Employment

40.5% Fabrication16.2%

Direct Employment16.69%

Formaldehyde Derivative

0.4%

Formaldehyde 0.1%

Source: Global Insight, Inc.


Table 2 Highlights of the Economic Contributions of Formaldehyde, 2003

(Producer Perspective)

Units United States Canada Total Value of Sales $Billion/Year 127.3 19.3 146.5 Total Plants Plants 10,045 1,942 11,987

Processing plants Plants 229 51 280 Fabrication plants Plants 9,816 1,891 11,707

Total Employment Workers 3,634,750 596,332 4,231,082 Direct Workers 607,270 90,890 698,160 Indirect Workers 1,557,480 274,060 1,831,540 Induced Workers 1,470,000 231,382 1,701,382

Total Wages $Billion/Year 112.1 16.8 128.9 Direct $Billion/Year 17.1 2.5 19.5 Indirect $Billion/Year 50.7 7.6 58.3 Induced $Billion/Year 44.4 6.6 51.0

Fixed Investment $Billion 77.4 11.0 88.4 Purchases $Billion/Year 56.0 8.5 64.5

Raw materials $Billion/Year 33.6 5.1 38.7 Utilities $Billion/Year 22.4 3.4 25.8

Source: Global Insight, Inc. Note: These economic values are not additive.


Figure 3 Formaldehyde in the House

House Construction Asphalt shingles Sheathing & cladding Walls & wall panels Floors Roof Insulation House Interior Electrical bFurni

oxes & outlets ture

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

Exterior primer, clear coat, & trim

Seats Interior

Pump housings Filters Steering wheel Impellers Interior trim

Reservoirs Brake pads Senders Dashboard & fascias Gas caps Instrument knobs

Hooks, fasteners, clips Locks Speaker grilles Trunk release levers Door handles Door panels Window cranks Seatbelt buckles Windshield wiper parts Cup holders Head rests

Molded components Under the Hood

Engine & metallic parts Automatic transmission parts Carburetor floats

Exterior

Tire cord adhesive Bumper


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


2. THE NATURE OF THE RESEARCH

This chapter describes the methodology undertaken on behalf of the Formaldehyde Council Inc. by Global Insight, Inc. to quantify the contributions of the formaldehyde industry to the U.S. and Canadian economies 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 U.S. and Canada in 2003, 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 Industrial Analysis 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 industrys suppliers; it then used its Macroeconomic Model to capture the expenditure-induced impacts that flow from the personal expenditures for goods and services of the workers employed in all these companies. A detailed description of these methods can be found in Chapter 13.

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 pound. 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.

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. 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 conditions, product formability, material cost, and aesthetics. All of these factors would

The Nature of the Research 15

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 U.S. and Canadian economies 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 dollar value 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 2003 was separated into nine major derivatives shown in Table 3. These derivatives account for approximately 84% of current consumption.

Table 3

U.S./Canada Formaldehyde Consumption, 2003

Formaldehyde Derivative

United States ('000 of

Metric Tons)

Canada ('000 of

Metric Tons)

Total ('000 of

Metric Tons) Urea Formaldehyde Resins 990 375 1,365 Phenol Formaldehyde Resins 725 275 1,000 Polyacetal Resins 540 - 540 Melamine Formaldehyde Resins 136 36 172 Pentaerythritol 213 - 213 MDI 395 - 395 1,4-Butanediol 430 - 430 Controlled Release Fertilizers 140 - 140 All Other Consumption 743 10 753 TOTAL CONSUMPTION 4,312 696 5,008 Source: SRI International, Chemical Economics Handbook, 2004.

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 usedor might be usedin each end-use or application were also identified, together with the salient reason that formaldehyde 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.


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 Drop-InSubstitute

Calculate Price Difference Between Products

Switch to Approximate Substitute

Calculate Price Difference Between Products

Calculate Other Costs of Approximate Substitute

Forego Consumption Altogether

Calculate Tangible Costs of Losing Product

Multiply Per Unit Costs Times Aggregate Sales Volume


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 many 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 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.


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 13.

Organization of this Report

The following nine 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 macroeconomic and state level impacts, a chapter on methodology, and a list of major assumptions used in the analysis.


3. UREA FORMALDEHYDE RESINS

The U.S. and Canada consumed about 1.2 million metric tons of urea formaldehyde resins in 2003, with 80% 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 is, pound for pound, 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 $3.41 billion per year. In addition, some $2.6 billion in capital expenditures for capacity additions or plant retrofit are avoided because of the presence of urea formaldehyde in the marketplace. In 2003 urea formaldehyde manufacturers generated over $2 billion in sales and bought over $900 million worth of raw materials and utilities. The sector supported some 2,900 jobs in the U.S. and Canada.

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 moisture content of about 50%. They are cured through the application of heat, which removes the moisture or solvent, resulting in fusion of the resin into a polymeric matrix.

Economic Contributions of Urea Formaldehyde Resin Producers

In the U.S. and Canada, there are three major producers of urea formaldehyde resins: Hexion Chemicals (formerly Borden), Dynea Chemicals, and Georgia Pacific Resins Inc. There are a number of much smaller participants, many of whom produce for captive use. In 2003 producers made 1.16 million metric tons of urea formaldehyde resins. Manufacturers in the United States made 861 thousand metric tons of urea formaldehyde, and their Canadian counterparts manufactured another 302 thousand metric tons. Together, producers in the U.S. and Canada bought $902 million worth of raw materials and utilities from their suppliers, and generated over $2 billion in sales. The sector supported approximately 2,900 jobs in the U.S. and Canada.

Urea Formaldehyde Resins 19

Table 4 U.S./Canada Urea Formaldehyde Resin Economic Contributions

2003 Production ('000 MT) 1,163 Sales (MM$) 2,050 Purchases (MM$) 902 Employment 2,900


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 and roofing tiles). UF resins typically compete with other formaldehyde resins within its end-use applications; since UF resins are generally sold for about 75% of the cost of a PF resin of similar solids content, and about 50% 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) Good flame resistance

Urea Formaldehyde Consumption

The U.S. and Canadian market for UF resins is approximately 1.2 million metric tons (dry-weight basis). Building and construction applications, including composite panels, roofing


tiles, hardwood plywood, and coatings, account for approximately 95% of UF resin demand in the U.S. and Canada.

Figure 7 U.S./Canada UF Resin Demand by End-Use Market, 2003

Medium density fiberboard (MDF)

20% Particleboard (PB)60%

Textiles1% Other

2%Molding compounds

3%

Surface coating1%

Hardwood plywood (HWPW)

6%

Roofing mats7%

Source: SRI International, Chemical Economics Handbook, 2004

Urea formaldehyde resin is consumed principally in the production of construction and building materials, such as particleboard, medium density fiber board, hardwood plywood, and fiberglass based roofing tiles. 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 color ability. 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 (a market now dominated by a minor class of formaldehyde


resins based on glyoxal), fertilizers, and additives to PF-based foundry and insulation binders.1

Table 5 Major Product Applications for UF Resins

Category Material Applications

Composite panels (Particleboard, Medium density fiberboard)

Cabinets, furniture, flooring countertops, decorative molding

Glass fiber roofing mats (for asphalt shingles) Roofing Hardwood plywood Furniture, interior finishing Fiberglass insulation Architectural insulation Surface coatings (alkyd-urea finishes)

Kitchen cabinets, furniture, lacquers

Construction Materials and Home Improvement. Wood Adhesive

Countertops (laminating adhesive)

Molding Compounds Molded plastic products

Electrical switches, circuit breakers, stove hardware, buttons, housings

Paper Treatment Coatings, wet strength resins Coated paper, paper towel, tissue

Textiles Textile treatment Finishing compound Other Slow release fertilizer, foundry binder

Source: SRI International, Chemical Economics Handbook, 2004 and industry sources

Substitutes for Urea Formaldehyde

Since most urea formaldehyde resins are used to provide a binding, adhesion, or coating service to an end-product 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 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 1 Greiner, Elvira O. Camara, Amino Resins, Chemical Economics Handbook, SRI International, February 2004: 1-87.


produce particleboard and MDF using polymeric MDI-type (or pMDI) adhesives. Potential substitute adhesives for particleboard and MDF include natural adhesives such as soybean, blood, casein, or lignocellulosic, 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 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 May 2005 several companies announced the development of a new type of soy-based adhesive that incorporates synthesized mussel protein. The first commercial application for this product by Columbia Forest Products will be hardwood plywood (HWPW).2 The advantage of this product is that it possesses high dry and wet strength, good dimensional stability and abrasion resistance. The high viscosity of the current generation of modified soy adhesives has thus far limited its application to HWPW.

Blood adhesive, made from dried blood albumen, is applied in a liquid state, and cured using heat pressing.3 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 flies. 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.4 Pot life is the amount of time available for use after the resin and curing agent are mixed. 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. 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 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. 4 Eckelman, Carl A., Brief Survey of Wood Adhesives, Purdue University, Forest and Natural Resources, November 2004: 110.


Emulsion polymer isocyanate (EPI) is a possible synthetic alternative to UF.5 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 draw backs 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 pound of MDI would be up to three times the current market price (see Chapter 8).

Other polyurethane adhesives include solvent-based elastomeric polyurethane, polyurethane dispersions and reactive polyurethane hot-melts.6, 7 Of these, 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 50C), moist or humid conditions, and their tendency to creep under load. In addition, they have higher viscosity than water-based adhesives, thus requiring industry to invest in 5 Wood Adhesives Science and Technology, U.S. Department of Agriculture Forest Service Product Laboratory, Publication # FS-FPL-4703. 6 Petrie, Edward M., Reactive polyurethane adhesives for bonding wood, www.specialchem4adhesives.com, Jan. 4, 2004: 19. 7 Cognard, Philippe, Adhesive bonding of wood and wood based products, www.specialchem4adhesives.com, May 11, 2005: 111.


application technology 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.8

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, factors that panel board producers would need to consider.

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. Asphalt roofing shingles

Due to their low cost, long life, and fire safety rating, asphalt roofing is the most prevalent roofing material in the U.S. and Canada, accounting for over 60% of residential roofing and 80% of commercial roofing.9 Current U.S. and Canadian asphalt shingle production is 210 million squares (21 billion square feet), of which approximately 92% is of the asphalt fiberglass type and 8% is of the organic, cellulose fiber type. The use of wet laid glass fiber mats, which provide increased service life, strength, and improved fire resistance, has largely replaced the older cellulose felt mat technology. However, fiberglass lacks the natural inter-fiber bonding that is inherent in the natural organic fiber such as cellulose and requires the use of a suitable binder.10

In the making of the fiberglass shingles, the fiberglass mats are only coated with asphalt, rather than impregnated. While this results in an approximately 30% reduction in the amount of asphalt used (and hence a significant cost reduction over organic type shingles), it also gives a significant decrease in the rigidity of the shingle. 11 Therefore, the binder of the fiberglass mat must be capable of providing good mat strength for handling without loss of flexibility. Also, the fiberglass mats require a binder that will produce physical properties of high inherent stability and good aging, as well as good bonding of the glass fibers to each other and with the asphalt. UF resins have these properties and are also significantly less costly than any other polymeric binding system. UF/polyvinyl acetate

8 Jewitt, Jeff, Woodworking Glues Some Facts That Will Stick, Homestead Finishing Products, 2000. See www.homesteadfinishing.com. 9 Estimate based on telephone interview with Asphalt Roofing Manufacturers Association, February 21, 2004. 10 Hannes, George John et al (Inventors), Fibrous mat especially suited for roofing products, U.S. Patent # 4,112,174, Johns Mansville Company (Assignee), September 5, 1978: 110. 11 White, Sr., et al. (Inventors), Water soluble one-component polymeric resin binder system for fiberglass mats, U.S. Patent# 4,571,356, Reichold Chemicals Incorporated (Assignee), February 18, 1986: 18.


copolymer and UF/acrylic blends have also been developed for this application. Acrylic lattices are the only identified non-formaldehyde binder for this application. Hardwood plywood

Hardwood plywood is used primarily for furniture and decorative interior applications. Much of U.S. and Canadian hardwood plywood is produced by laminating surface sheets onto imported cores. 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 a 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 HWPW, and it is already used to make some specialty exterior panels.

Columbia Forest Products, North Americas largest HWPW manufacturer, has recently announced its intention to switch from UF resins to modified soybean adhesive at all of its mills. This adhesive is described as possessing equivalent performance attributes of UF resins at a comparable cost. However, there is a question of availability on the merchant market, as Columbia has exclusive rights to its use for this application. Molding Compounds

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. Other

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 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. As for textile treatment applications, the principal substitutes for UF resins are glyoxal resins, which have already supplanted UF for much of the market. 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

End-use Market Substitute binder or resin Substitute end-use material

Particleboard (PB) Soy, blood, EPI, VAE Edge glued solid wood Medium density fiberboard (MDF) Soy, blood, EPI, VAE Edge glued solid wood

Roofing mats Acrylic Organic type asphalt shingles Hardwood plywood (HWPW) Modified soy, EPI, PU Solid wood

Molding compounds ABS, epoxy, silicone, polyester

Surface coating Epoxy Radiation curing (furniture)

Textiles Glyoxal resins Source: Global Insight, Inc.

Economic Benefits of Urea Formaldehyde

The most significant economic benefit of UF is its application as an adhesive and binder. Due to its simple molecular structure, relatively low feedstock costs, and inexpensive conversion costs UF is, pound for pound, the least expensive synthetic adhesive material available. The panel board and roofing shingle industries rely 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. 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 $3.4 billion per year. This annual cost includes a capital recovery charge that reflects the investment to produce the incremental volumes of the substitute material, 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 is


approximately $2.6 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 hardwood plywood. In addition, there will be some increase in the use of natural adhesives for panel board applications (blood, soy), but limitations in the effectiveness and/or supply of these materials will restrict more widespread adoption. Acrylic emulsions will be used primarily as the binder for fiber glass roofing representing approximately 8% of UF consumption. Other thermoplastic and thermoset materials (ABS, polyester, polyurethanes, and glyoxal) would replace approximately 5% of current UF consumption primarily in molding, coating, and textile 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 7. Successful development of this alternative would reduce new capital requirements somewhat although significant investments could be required in the mills to form products with properties that differ from UF, and economic benefits would be reduced as well.

Indirect substitutes would account for approximately 6% of UF substituted. These include edge-glued solid wood panels and other wood products. Cost and restricted availability 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 U.S. and Canada.

The total specific benefits of UF, that is, the dollar benefits per metric ton of UF displaced, are about $3,000 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 7 Economic Benefits of Urea Formaldehyde

End-use market Direct

($ MM/year) Indirect

($ MM/year) Total

($ MM/year) Particle board (PB) 2,120 50 2,170

Medium density fiberboard (MDF) 700 5 705

Roofing mats 275 - 275

Hardwood plywood (HWPW) 95 20 115

Molding compounds 90 - 90

Surface coating 50 - 50

Textiles neg - neg

Total 3,330 75 3,405 Source: Global Insight, Inc. Note: Totals may not add due to rounding.


4. PHENOL FORMALDEHYDE RESINS

The U.S. and Canadian market for phenol formaldehyde (PF) resins is approximately 915,000 metric tons (dry-weight basis), of which building and construction applications account for approximately 75% of PF resin demand, while automotive applications, friction materials, and foundry binders accounts for another 15%. 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 $4.65 billion per year. Moreover, approximately $2.7 billion worth of capital costs for new equipment to produce and use substitutes is avoided through the continuing use of PF. In 2003 PF manufacturers generated sales of $1.8 billion, and purchased raw materials and utilities valued at over $800 million. The sector also supported some 2,550 jobs in the U.S. and Canada.

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 100C under alkaline conditions. 12 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 end-use applications that emphasize end product 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 as high toughness, such as in friction, foundry, and abrasive binder applications.

12Greiner, Elvira O. Camara, Phenolic Resins, Chemical Economics Handbook, SRI International, April 2002: 1-63.

Phenol Formaldehyde Resins 30

Economic Contributions of Phenol Formaldehyde Resin Producers

Three producers, Hexion Chemicals, Dynea Chemicals, and Georgia Pacific Resins Inc. (GPRI), account for a substantial proportion of the PF resins produced in the U.S. and Canada. Hexion and Dynea operate plants in both the U.S. and Canada, while GPRI has facilities throughout the U.S. Additionally, there are some smaller regional and/or captive suppliers to the forest products sector (Tembec, Uniboard, Woodchem) and a number of producers of specialty phenolics for industrial (i.e., non-wood) applications (Ashland, Schenectady, Cytec, Plenco, DSM, Durez). In 2003 PF manufacturers in the United States and Canada purchased $803 million of raw materials and utilities from their suppliers and produced 974 thousand metric tons of PF resins, which commanded some $1.8 billion in sales for the industry. Approximately 59 thousand metric tons of PF resin was exported. The PF resin sector supported about 2,550 jobs in the U.S. and Canada.

Table 8 U.S./Canada Phenol Formaldehyde Resin Economic Contributions

2003 Production ('000 MT) 974 Sales (MM$) 1,825 Purchases (MM$) 803 Employment 2,550


Properties and Advantages of Phenol Formaldehyde Resins

Like UF, PF resins are among the least expensive adhesives available. Typical PF resins cost about 25% to 30% more than a UF resin of similar moisture content. 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 for structural grade board material, such as plywood and oriented strand board. 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 Excellent resistance to creep


Excellent moisture resistance (better than UF or MF) Excellent thermal stability Excellent chemical resistance Very good flame and smoke resistance Toughness

Phenol Formaldehyde Consumption

The U.S. and Canadian market for PF resins is approximately 915,000 metric tons (dry-weight basis). Building and construction applications, including structural panels, insulation binders, and laminates account for approximately 75% of PF resin demand, while automotive applications, including molding compounds, friction materials, and foundry binders accounts for about 15%.

Figure 8 North America PF Resin Demand by End-Use Market, 2003

Oriented strand board34%

Other5%

Protective coatings1%

Specialty wood adhesives

2%

Plywood, LVL25%

Coated & bonded abrasives

1%

Foundry6%

Molding compounds

5%

Friction materials3%

Paper impregnation

8%

Insulation binder10%

Source: SRI International, Chemical Economics Handbook, 2004

Resol phenolics are used in a wide variety of applications, including structural panel boards, glass insulation binders, high pressure laminates, coating abrasives, phenolic foams, and fiber reinforced panels.

The two principal structural panel applications for phenolic resins are plywood and oriented strand board (OSB.) Plywood and OSB are used in residential construction, remodeling and repair uses, and in industrial applications, such as packaging, transportation, and


furniture making. In 2003 North American production of plywood and OSB was 42 billion square feet, with total market value (FOB mill) of $15 billion. 13 According to the APA-Engineered Wood Association, approximately 85% of U.S. housing starts (including wood frame, panelized, and modular construction) involve the use of structural panel boards directly. 14 As structural panels are also used extensively as forms in concrete construction, it is clear that they comprise a keystone material for the construction industry in North America.

PF resin is also used in the manufacture of fiberglass insulation 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. The fourth 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 (1,0001,500 p.s.i.) and temperature (130C). 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 countertops, furniture tops, cabinet and drawer faces, wall cladding, automobile interiors, laminated flooring, and wall coverings.

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.

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. 15 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 13Jannke, Paul et al, North American Wood Panels Forecast, Resource Information Systems Inc. (RISI), April 2004: 1219. 14 Craig Adair, Regional Production and Market Outlook for Structural Panels and Engineered Wood Products: 2002 -2007, APA The Engineered Wood Association, 2002: 161. 15 Greiner, op. cit., 2002.


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.

Table 9 Major Product Applications of PF Resins

Market Material Applications

Structural panels (plywood and oriented strand board)

Cabinets, furniture, flooring countertops, decorative molding

Hardboard, molded wood, particleboard

Tabletops, furniture, paneling, door material, flooring, window assemblies

Construction Materials & Home Improvement

Fiberglass insulation Architectural insulation, pipe insulation

Decorative laminates

Countertops, cabinets, furniture, flooring, wall covering, sheathing, automobile interiors

Molding compounds Under-the-hood components (engine, transmission, brakes)

Friction materials Brakes, clutches, automatic transmissions

Automotive

Foundry resins Cast metal parts

PF Saturated paper or cloth Gears, bearings, rings, valves, printed circuits Coated and bonded abrasives Grinding wheels, sand-paper Industrial

Sheet molding, phenolic composites

Train and aircraft interiors, automotive

Coatings Protective coatings Food containers, drum linings, storage tanks Other Rubber processing chemicals, oil field, phenolic foams


Substitutes for Phenol Formaldehyde Plywood and oriented strand board

Plywood and oriented strand board are used extensively 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. 16

Phenol formaldehyde resin is the primary adhesive/binder used for plywood and OSB 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, hydrophilia), it is not used for plywood. In North America it is used as a binder for only about 25% of OSB produced. 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 or OSB. 17, 18 The raw materials for blood and casein adhesives are also limited: North American slaughterhouses produce sufficient blood albumin for only about 5% of the total adhesive requirements for panel board production while most of the feedstock for casein adhesives are used by the food products industry. Soybean adhesives have been touted 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 or OSB applications.

pMDI adhesives are likely substitutes for PF in OSB and plywood production as they are already used in about 25% of OSB plants. However, the conventional route to produce MDI involves the use of formaldehyde, and a potential alternative route results in a 16 Blackmore; Kenneth A. E. et al Phenolic Adhesives, U.S. Patent# 3,956,207, Georgia Pacific Corporation (Assignee), May 11, 1976: 111. 17 Vick (1999). 18 Eckleman (2004).


substantially higher product cost (see Chapter 8 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 in niche applications, such as some structural wood products. 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. 19 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 of plywood or OSB would increase due to the higher adhesive cost and processing considerations. Dimensional wood and structural panel construction technology is the most prevalent construction method in North America used in about $500 billion worth of home and commercial construction, as well as in repair and renovation work. Higher panel board costs would result in some switching to alternative materials and construction technologies. Before the development of synthetic resins and the expansion of the plywood industry in the 1950s, wood frame houses generally used solid wood (1x8 or 1x10) as sheathing and c

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