NEW CHEMICALS POLICY (R.E.A.CH)NEW CHEMICALS POLICY (R.E.A.CH)

PRELIMINARY EVALUATION OF THE BUSINESS IMPACT, IN PRELIMINARY EVALUATION OF THE BUSINESS IMPACT, IN ITALY, ON THE CHEMICAL SECTOR AND ON SOME SEGMENTS ITALY, ON THE CHEMICAL SECTOR AND ON SOME SEGMENTS

OF THE MANUFACTURING INDUSTRY OF THE MANUFACTURING INDUSTRY

November 2003November 2003

Centro per l’Innovazione e la Ricerca Chimica

Ettore dell’IsolaEttore dell’Isola

INDEXINDEX

1. THE STUDY: METODOLOGY, AIMS, SCENARIOS1. THE STUDY: METODOLOGY, AIMS, SCENARIOS

2. ITALY AND EU15: ADDITIONAL COSTS FOR CHEMICAL INDUSTRY2. ITALY AND EU15: ADDITIONAL COSTS FOR CHEMICAL INDUSTRY

3. REACH EFFECTS ON PRODUCTION CHAINS OF “MADE IN ITALY”3. REACH EFFECTS ON PRODUCTION CHAINS OF “MADE IN ITALY”

4. THE EFFECTS OF NCP ON ITALIAN MANUFACTURING INDUSTRY4. THE EFFECTS OF NCP ON ITALIAN MANUFACTURING INDUSTRY

Additional costs by Additional costs by product classproduct class

Impact assessment Impact assessment on Italian chemical on Italian chemical

industryindustry

ME

TO

DO

LO

GY

ME

TO

DO

LO

GY

AIM

SA

IMS

To identify the segments of the italian chemical industry with intensive “costs pressure”

To identify the segments of italian manufacturing industry with high risk to loose competitiveness edges

THE STUDY: METODOLOGY AND AIMSTHE STUDY: METODOLOGY AND AIMS

Impact assessment Impact assessment on “made in Italy” on “made in Italy”

value chainsvalue chains

For example

Impact assessment on Impact assessment on Italian manufacturing Italian manufacturing

industryindustry

THE STUDY: SCENARIOSTHE STUDY: SCENARIOS

Consortium within producers, to minimize the R.E.A.CH costs, are Consortium within producers, to minimize the R.E.A.CH costs, are not considerednot considered

Ended in the second half of September with relevant up-datingEnded in the second half of September with relevant up-dating

The study is focused on the economic effects on the chemical The study is focused on the economic effects on the chemical and manufacturing industry more than on macro-economics of and manufacturing industry more than on macro-economics of the Countrythe Country

The pharmaceutical sector is not considered as well as the segment of active principles. The segment of intermediates to the pharmaceutical industry is included

CHLORINE CHLORINE

INDUSTRIAL GASESINDUSTRIAL GASES

YEASTESYEASTES

CERAMICSCERAMICS

SYNTETHIC RUBBERSSYNTETHIC RUBBERS

PLASTIC POLIMERS PLASTIC POLIMERS

ORGANIC BASIC CHEMICALS ORGANIC BASIC CHEMICALS

INORGANIC BASIC CHEMICALSINORGANIC BASIC CHEMICALS

MAN-MADE FIBERSMAN-MADE FIBERS

FINE CHEMICALSFINE CHEMICALS

EXPLOSIVESEXPLOSIVES

ADHESIVES AND GELATINEADHESIVES AND GELATINE

SOAP AND DETERGENTSSOAP AND DETERGENTS

PAINTS, VARNISHIS AND PAINTS, VARNISHIS AND SIMILAR COATING, PRINTING SIMILAR COATING, PRINTING INK AND MASTICSINK AND MASTICS

MATRIX OF R.E.A.CH EFFECTS ON SOME CHEMICALS, IN ITALY MATRIX OF R.E.A.CH EFFECTS ON SOME CHEMICALS, IN ITALY E

CO

NO

MIC

IM

PA

CT

EC

ON

OM

IC I

MP

AC

TL

ow

Lo

wm

ediu

mm

ediu

mh

igh

hig

h

VO

LU

ME

VO

LU

ME

Hig

hH

igh

med

ium

med

ium

low

low

COMPLEXTY OF PRODUCTION CHAIN COMPLEXTY OF PRODUCTION CHAIN

SimpleSimple ComplexComplex Very complexVery complex

PESTICIDES AND OTHER PESTICIDES AND OTHER AGRO-CHEMICALSAGRO-CHEMICALS

Source: CIRC srl

Manufacture of basic chemicals39,10% 43,29% 8,49 9,12

Manufacture of industrial gases3,00% 2,08% 0,00 0,00

Manufacture of inorganic basic chemicals4,50% 5,50% 0,20 0,24

Manufacture of organic basic intermediates 8,00% 10,60% 7,58 9,72

Manufacture of fertilizers and nitrogen compounds1,30% 3,02% 0,08 0,19

Manufacture plastics in primary forms21,10% 20,96% 0,62 0,60

Manufacture of synthetic rubber in primary forms1,20% 1,13% 0,00 0,00

Manufacture of man-made fiber4,40% 3,40% 0,00 0,00

subtotal 43,50% 46,70% 8,49 9,12

Manufacture of dyes and pigments 1,80% 3,30% 6,06 11,06

Manufacture of pesticides and other agro-chemical products

2,10% 2,70% 3,90 4,76

Manufacture ofpaints, varnishes and similar coating, printing ink and mastics

10,00% 8,00% 18,66 14,46Manufacture of soap, detergents, cleaning and polishing preparations, perfumes and toilet preparations 17,70% 14,00% 7,85 6,00

Manufacture of other fine chemicals 16,80% 14,80% 37,36 31,90

Manufacture of fine organic intermediates 8,00% 10,60% 17,69 22,68

subtotal 56,50% 53,30% 91,51 90,88

total (million euros) 45.769 381.583

BASIC CHEMICAL

FINE CHEMICAL

PRODUCTS Production (%) REACH direct

costs (%)

Italia EU 15 ITALy EU15

ADDITIONAL COSTS FOR CHEMICAL INDUSTRY: ITALY VS EU15ADDITIONAL COSTS FOR CHEMICAL INDUSTRY: ITALY VS EU15

REACH hits fine chemical sector

R.E.A.CH burden varies in every chemical segments!

In Italy there are ~ 1180 SME (with more than 9 employees) in the fine chemical sector (70%of total chemical SME)Source: ISTAT, CIRC srl

The Italian chemical industry is going to pay about 1,5 2,0 billion

euros of extra costs

90% of the extra costs will be payed by fine chemical sectors (50%

of the value of total production)

The sectors with highest bill to pay will be: complex organic fine

chemicals, dyes and pigments, paints and varnishes

HIGHLIGHTSHIGHLIGHTS

IMPACT BY SEGMENTSIMPACT BY SEGMENTS

LOW

MEDIUM

HIGH

Organic fine chemicals

Dyes and pigments

Other fine chemicals

Paints and varnishes

Pesticides and other agro-chemical products

Organic basic chemicals

Soap and detergents

Industrial gases

Plastics

Fertilizers and nitrogen compounds

THE SEGMENTS OF CHEMICAL INDUSTRY WITH HIGH RISK TO LOOSE THE SEGMENTS OF CHEMICAL INDUSTRY WITH HIGH RISK TO LOOSE COMPETITIVENESS EDGESCOMPETITIVENESS EDGES

Source: ISTAT, CIRC srl

PRODUCTSYearly EBITDA (million euros)

% on EBITDA

Manufacture of basic chemicals 1569,1 9,82

Manufacture of industrial gases323,7 0,00

Manufacture of inorganic basic chemicals338,9 1,07

Manufacture of organic basic intermediates 287,6 47,86

Manufacture of fertilizers and nitrogen compounds81,5 1,89

Manufacture plastics in primary forms579,6 1,95

Manufacture of synthetic rubber in primary forms-42,2 0,00

Manufacture of man-made fiber 194,3 0,00

Manufacture of dyes and pigments 107,2 102,60

Manufacture of pesticides and other agro-chemical products114,6 61,76

Manufacture ofpaints, varnishes and similar coating, printing ink and mastics 481,9 70,31

Manufacture of soap, detergents, cleaning and polishing preparations, perfumes and toilet preparations

1093,7 13,06Manufacture of other fine chemicals 849,7 79,83Manufacture of fine organic intermediates 287,6 111,68

TOTAL (million euros) 4698,1 38,65

BASIC

CHEMICAL

FINE

CHEMICAL

THE MAIN INTEGRATED INDUSTRIAL THE MAIN INTEGRATED INDUSTRIAL SYSTEMSSYSTEMS

SimpleSimple

ComplexComplex

Very Very complexcomplex

Ceramics

Yeast for breadmaking and wine

Hide and LeatherHide and LeatherMan made fiber and Man made fiber and

cottoncotton

SOME EXAMPLES ON THE PRODUCTION CHAINS OF “MADE IN SOME EXAMPLES ON THE PRODUCTION CHAINS OF “MADE IN ITALY”ITALY”

PRODUCTS N° PRODUCTS N°

2020

5050

350350

250250

200200

Note: are not included pigments and dyestuffs

TOTAL REACH TOTAL REACH COST COST (milion euros)(milion euros)

Wood and furnishing

70,070,0

50,050,0

65,065,0

12,012,0

7,07,0

Source: CIRC srl

HideFleshed, depiled and limed hide Neutralized hide

Pickled hide Leather Greased leather

Retanned leather Dyed leather

Preliminary operationsNeutralizationRetting

Pickling Tanning Greasing

Mordating/Retanning Dying Bleaching

ImbibentsDegreasesDepilersLime pit auxiliaries

Lattic acid Other organic acidsRetting agents

SaltHydrogen clorideAlum

AlumSodium carbonate

LanolineMineral oilTriethanolamineQuaternary ammonium salts

Tannic extracts orAluminium, titanium, vanadium, cromium saltsMascheranti

Formic acidDyes Sodium Perborate

PRODUCTION FLOW CHART OF HIDE AND LEATHER (1/2) PRODUCTION FLOW CHART OF HIDE AND LEATHER (1/2)

Dyed leather

Waterproofing leather

Fireproofing leather

Treated and scented leather

Sized leather Painted leatherPainted leather

waterproofing

fireproofing Scenting

SizingLaquering, painting,waxing

SiliconesParaffinAluminium starateAcrilic emulsions

SurfactantsChlorinated paraffins

Essential oilsFixers

Albumine CaseineBoraxSurfactantsPolyurethane and Acrilic Resins

Polyurethane paints Emulsified nitro-celluloseCarnauba and synthetic wax

PRODUCTION FLOW CHART OF HIDE AND LEATHER (2/2) PRODUCTION FLOW CHART OF HIDE AND LEATHER (2/2)

CHEMICAL INDUSTRY

OTHER SECTORS

Less competitiveness

Price increase

Withdrawn products

Less competitiveness

Less production

AD

AP

TIO

N C

OS

TS

INC

RE

AS

E I

N R

AW

MA

TE

RIA

L C

OS

TS

Less internal consumption

Less production

Less growth Less capexLess jobs available

- More costs- Less profit- Less financial

available to:

- -

THE EFFECTS OF NCP ON ITALIAN MANUFACTURING INDUSTRY THE EFFECTS OF NCP ON ITALIAN MANUFACTURING INDUSTRY

• research• HR formation• capital expenditure

- More time to market

NEW CHEMICALS NEW CHEMICALS POLICYPOLICY

R.E.A.CH COSTS ON R.E.A.CH COSTS ON CHEMICAL INDUSTRYCHEMICAL INDUSTRY

COSTS TRANSFERRED TO COSTS TRANSFERRED TO MANUFACTURING MANUFACTURING

INDUSTRYINDUSTRY

New costs inside industrial New costs inside industrial sectors to substitute chemical sectors to substitute chemical products no more availableproducts no more available

Trend to “oligopoly” with price Trend to “oligopoly” with price increase for the available increase for the available products products

Costs increase for the “tests” Costs increase for the “tests” because of the lack of qualified because of the lack of qualified laboratorieslaboratories

MULTIPLYING FACTOR

(Canton/Allen Model - DG Enterprise EU 7 July 2003)

IMPACT ON MANUFACTURING INDUSTRY IN ITALYIMPACT ON MANUFACTURING INDUSTRY IN ITALY

To meet our aims to evaluate the effects of NCP (REACH) on Italian

manufacturing industry we have evaluated a “vulnerability index” to NCP

of each sector

VULNERABILITY VULNERABILITY INDEXINDEX

Elasticity factor “cost/price”

Pressure on EBITDA

Competitiveness vs extra EU countries

VULNERABILITY INDEXVULNERABILITY INDEX

““PRESSURE ON EBITDA”: DATA PROCESSINGPRESSURE ON EBITDA”: DATA PROCESSING(1) (2) (3) (1)-(2) (4)

Produzione (mln €)

VA (mln €)

MOL (mln €)

Costi Intermedi (mln €)

Input chimici (mln €)

ALIMENTARE, BEVANDE, TABACCO 95752 18478 8850 77274 469TESSILE E ABBIGLIAMENTO 76320 21452 9284 54868 1587 -- tessile 45284 13253 5712 32032 1332---di cui finissaggio 7970 2333 1005 5638 1015 -- abbigliamento 31036 8256 3594 22780 256CUOIO E CALZATURE 22784 5203 2271 17581 520 -- Cuoio e articoli in cuoio 5013 1145 500 3868 296 -- Calzature 17772 4058 1772 13713 224LEGNO E MOBILI 41538 11308 5473 30230 1261 -- legno e prodotti in legno 17838 5364 2738 12474 477 -- Mobili e strumenti musicali 23700 6153 2895 17547 784CARTA E STAMPA 45079 13134 5879 31944 2712 -- carta 20495 4563 2043 15932 1850 -- stampa 24583 8571 3836 16012 862PROD. DI COKERIA E PETROLIFERI 52059 3138 2157 48921 753TRASF. GOMMA E PLASTICA 28628 8306 3521 20322 8659MINERALI NON METALLIFERI 41165 13626 6340 27539 1588 -- vetro e ceramica 18009 5961 2774 12048 1221 -- altri 23156 7665 3567 15491 367METALLI E PRODOTTI IN METALLO 99491 30024 13460 69467 2401MACCH. E APP. MECCANICI 87993 26190 10484 61803 888MACC. ELETTR. E ELETTRONICA 63200 18084 7385 45116 1368MEZZI DI TRASPORTO 54416 10260 2996 44156 807 -- Autoveicoli 39541 6701 1957 32840 562 -- Altro 14875 3252 950 11622 245

ALTRE MANIFATTURIERE 13292 3451 1624 9841 710MANIFATTURIERA (senza chimica) 721716 182653 79724 539063 23723

Source: ISTAT

TRASF. GOMMA E PLASTICA 100,0

CARTA E STAMPA 77,2

CUOIO E CALZATURE 76,4

TESSILE E ABBIGLIAMENTO 35,8

LEGNO E MOBILI 14,7

MEZZI DI TRASPORTO 13,4

MINERALI NON METALLIFERI 10,7PROD. DI COKERIA E PETROLIFERI 9,6

METALLI E PRODOTTI IN METALLO 7,8

ALIMENTARE, BEVANDE, TABACCO 5,3MACC. ELETTR. E ELETTRONICA 4,7

MACCH. E APP. MECCANICI 3,4

““PRESSURE ON EBITDA”: THE INDUSTRIAL SECTORS UNDER PRESSURE ON EBITDA”: THE INDUSTRIAL SECTORS UNDER PRESSUREPRESSURE

Source: CIRC srl

INDUSTRIAL SECTORS Pressure on EBITDA

Competitiveness vs extra EU15

countries

Elasticity factor

“cost/price

VULNERABILTY INDEX

LEATHER AND LEATHER PRODUCTS 76.4 100.0 99.5 100.0

RUBBER AND PLASTIC PRODUCTS (Processing)

100.0 38.4 96.9 78.8

TEXTILE AND TEXTILE PRODUCTS 35.8 72.1 100.0 69.8

PAPER, PUBLISHING AND PRINTING 77.2 22.9 96.8 60.9

TRANSPORT EQUIPMENT 13.4 64.1 97.4 47.9

WOOD AND FURNISHING 14.7 48.3 97.9 45.1

BASIC METALS AND FABRICATED METAL PRODUCT

7.8 46.9 98.8 36.3

ELECTRICAL AND OPTICAL EQUIPMENT 4.7 71.2 95.9 34.8

COKE, REFINED PETROLEUMPRODUCTS AND NUCLEAR FUEL

9.6 29.7 92.8 32.6

OTHER NON-METALLIC MINERAL PRODUCTS

10.7 21.3 93.2 30.4

MACHINERY AND EQUIPMENT 3.4 53.3 99.1 28.8

FOOD PRODUCTS, BEVERAGES AND TABACCO

5.3 21.9 95.3 24.4

THE ITALIAN MANUFACTURING INDUSTRY WITH HIGH RISK TO THE ITALIAN MANUFACTURING INDUSTRY WITH HIGH RISK TO LOOSE COMPETITIVENSS EDGESLOOSE COMPETITIVENSS EDGES

Source: CIRC srl

INDUSTRIAL SECTORS Employees Turnover Companies Investments

in .000 in % bln € in % n° in % bln € in %

LEATHER AND LEATHER PRODUCTS

205,1 4,3 26,6 3,2 23.887

4,3 0,7 1,8

RUBBER AND PLASTIC PRODUCTS (Processing)

214,4 4,4 32,8 4,0 13.600

2,4 1,9 4,9

TEXTILE AND TEXTILE PRODUCTS

616,9 12,8 69,0 8,4 78.213

13,9 2,3 6,0

PAPER, PUBLISHING AND PRINTING

257,1 5,3 43,6 5,3 32.553

5,8 2,2 5,7

TRANSPORT EQUIPMENT 270,5 5,6 64,6 7,9 6.754 1,2 2,3 6,0

WOOD ANDFURNISHING 394,0 8,2 42,0 5,1 88.175

15,7 2,5 6,5

TOTAL 1958,0 40,6 278,6 34,0 243.182 43,4 11,9 30,8

MANUFCATURING INDUSTRYMANUFCATURING INDUSTRY 4821,84821,8 100,0100,0 819,2819,2 100,0100,0 560.956560.956 100,0100,0 38,638,6 100,0100,0

SIZE OF THE ITALIAN SECTORS SIZE OF THE ITALIAN SECTORS

Source: ISTAT

Added value (%) Total effect

Effect EU Germany France Italy EU Germany France

Italy

100,00

LEATHER AND LEATHER PRODUCTS 0,7 0,2 0,7 2,3 71,6 24,3 73,1 234,9

100,00

RUBBER AND PLASTIC PRODUCTS (Processing)

4,6 4,9 5,2 4,9 460,0 487,0 524,3 490,0

100,00

TEXTILE AND TEXTILE PRODUCTS 3,8 2,0 3,4 8,8 377,1 204,6 337,9 876,2

70,00

PAPER, PUBLISHING AND PRINTING 9,0 7,3 7,1 6,1 631,9 508,1 500,0 424,9

55,00

TRANSPORT EQUIPMENT 11,3 15,2 13,9 7,6 620,1 837,7 765,9 417,7

50,00

WOOD ANDFURNISHING 2,7 3,3 2,8 3,7 134,3 164,3 138,4 184,9

45,00

BASIC METALS AND FABRICATED METAL PRODUCT

11,9 12,3 11,9 13,9 535,8 553,5 535,7 625,3

25,00

ELECTRICAL AND OPTICAL EQUIPMENT 13,9 15,7 14,6 10,8 347,3 393,7 364,1 270,2

20,00

COKE, REFINED PETROLEUMPRODUCTS AND NUCLEAR FUEL

2,2 1,4 3,4 2,5 45,0 28,9 68,2 50,6

15,00

OTHER NON-METALLIC MINERAL PRODUCTS

4,4 3,7 3,9 5,6 65,3 55,2 59,0 84,6

10,00

MACHINERY AND EQUIPMENT 10,7 14,9 7,4 14,7 106,9 149,4 74,3 146,7

5,00 FOOD PRODUCTS, BEVERAGES AND TABACCO

12,9 7,7 11,3 8,0 64,6 38,4 56,7 40,1

3459,8 3445,3 3497,7

3846,1

GENERAL INDEX 100,0 99,6 101,5

110,0

THE INDUSTRIAL SECTORS MORE VULNERABLE: ITALY VS EU15THE INDUSTRIAL SECTORS MORE VULNERABLE: ITALY VS EU15

Source: ISTAT, CIRC srl

The “average data” could hide a broad range of diversified reality: some of which with a terrific impact !

The effects of NCP are in addition to these of other norms and regulations

No one of extra EU competitors will have those burdens in competiting with non European Actors in extra EU markets!!

SOME OBSERVATIONSSOME OBSERVATIONS

ProcedureNew or existing

substancesCost item

Cost estimates (€ X chemical)

Registration NewPreparation of base set data(direttiva 67/548 ECC)

85.000 - 128.000

Existing

Dossiers for registration of all chemicals > 1 t (costant across all quantities, relates to in vitro testing, preliminary risk assessment and risk reductionas required)

37.000

TestingExisting Base set data required for testing and evaluation

of quantity 10-100 t85.000 - 128.000

Base set and level 1 testing for 100 – 1000 t 315.000 - 450.000

Base set and level 1 & 2 testing for > 1000 t 618.000 - 1.200.000

Testing for downstream users 75.000

Evaluation New/existing Competent authority spot check of data 13.000

Notification and authorisation

New/existingRisk assessmants for unintented downstream users of chemicals of concern

75.000

Additional testing for chemicals of concern where those chemicals are not covered by other testing and evaluation requirements

400 - 1.200.000

COSTS ESTIMATES FOR R.E.A.CH PROCEDURECOSTS ESTIMATES FOR R.E.A.CH PROCEDURE

Source:RPA (Risk and Policy Analysts, London – UK)