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Gas Costs Hurting Kaolin Industry

Posted on: Wednesday, 6 July 2005, 21:00 CDT

Jul. 6--Middle Georgia's kaolin industry, already in a five-year slump, says it's being hurt even worse by the rising cost of natural gas.

Kaolin profits continue to be "dismal" and energy costs are driving things from bad to worse, according to a recent profits report from the state's kaolin industry.

The industry group reports that its production is at an all-time high, but profits are being squeezed by rising costs and low prices.

"The cost of energy has doubled or tripled since 2002, and (that has) eroded profitability," said Lee Lemke, executive vice president of China Clay Producers Association, which just released the 2004 calendar-year earnings of Georgia's four largest kaolin producers.

The four companies reported after-tax profits of $28.7 million last year. That's better than the $4.6 million after-tax profit in 2003, but short of the $36 million made in 2002, Lemke said.

Kaolin, a white alumina-silicate also called China clay, is used in paper, plastic, paint, rubber and other products. It's found in 13 counties along Georgia's Fall Line, including Twiggs, Washington, Wilkinson, Hancock, Baldwin, Houston and Macon counties.

The kaolin group estimates it represents a $1.1 billion industry in Georgia.

But kaolin employment has declined in the past decade - peaking at 4,500 in the mid-1990s, but dropping to 2,600 last year and now to 2,568.

In Georgia, kaolin is largely mined by four companies dispersed throughout the state. Engelhard Corp. has mines in Wilkinson and Washington counties, IMERYS has its Georgia headquarters in Roswell, Thiele Kaolin is based in Sandersville, and J.M. Huber Corp. has Atlanta offices. These four have a negative 1 percent profit for the past five-year period.

Thiele Kaolin President Sam Smith said he projects the company's energy costs will be about $20 million this year, up from $8 million just five years ago. Even with a kaolin price increase of 4 percent to 6 percent, Smith said he does not expect to see a bottom-line improvement and that he has had to eliminate about 50 jobs since 2000.

"We are just trying to do more with fewer people," Smith said. "We are just trying to tighten our belts and run more efficiently."

Georgia produces about 83 percent of the U.S. kaolin supply, Lemke said.

State Rep. Jeffery Lewis, a White County Republican, has sponsored a bill to eliminate the state sales tax on energy used in manufacturing processes, including kaolin production. He said he hopes to bring the bill before the General Assembly in the 2006 session for a vote.

Smith said he expects natural gas state sales tax to cost Thiele Kaolin an additional $750,000 this year.

"That's very substantial when you see what our profits are," Smith said. "The margins are very thin."

Lewis estimates the bill would eliminate $110 million from the state budget and said it would at first present a "challenge for the state.""As time moved along, I'm convinced the state would make it up 3 to 4 times," Lewis said. "You may be closing the revenue in one area, but you may be opening up the revenue in other areas."

This exemption will make the state more competitive by lowering the overall operating cost, a strong incentive when companies evaluate whether to come to the state or expand their current operations already here, Lewis said. It would put Georgia more in line with South Carolina, Arkansas and Florida, states that Lewis said offer similar incentives.

Georgia counties are feeling the strain of the reduced work force.

Twiggs County Commission Chairman Ray Bennett said he didn't need to see the report to know the state of kaolin production in the county.

"We've been aware of the downturn of the kaolin industry for many years now," Bennett said.

The industry once made up nearly 50 percent of the county's tax digest, but that number has dropped to less than 30 percent, Bennett said.

"We have basically lost a fifth of the tax digest in five years," he said.

Washington County Commission Chairman Horace Daniel said his county wants to help Thiele Kaolin. The county wrapped up a $300,000 bridge improvement project on Brook Chambers Road three months ago so that kaolin and logging trucks can use the road, said Daniel.

"The kaolin industry is like family to us," Daniel said. "I want to see them do good."

Cutting cost is crucial because other factors prevent kaolin from being sold at a higher price, Lemke said.

Competition from Brazil, which has purer clay deposits, easier access to trade ports, and the paper industry's recent consolidation, has also kept prices low, Smith said.

"More and more of our product goes to fewer customers," he said.

Even with diminished employment and unsatisfactory profits, Lemke said "production is at an all-time high."

Meanwhile, the Middle Georgia counties that are home to kaolin plants are trying to respond to the industry's decline.

Bennett said Twiggs County is trying to replace the lost kaolin jobs by working with economic developers to build an industrial area.

"We're pulling ourselves up by the boot straps," he said.

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Copyright (c) 2005, The Macon Telegraph, Ga.

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Source: The Macon Telegraph (Macon, Ga.)

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