Robert Thiele, manager of company affairs for Theile Kaolin Co., shows the company's stockpile of raw kaolin at its refinery near Wrens, Ga. MICHAEL HOLAHAN/AUGUSTA BUSINESS CHRONICLE

Riches of the Earth

Increasing international competition threatens the once abundant kaolin industry -- the ``white gold'' of many economies in the South

Web posted September 6, 1999

 Kaolin by the numbers

By Damon Cline
Staff Writer

You'll find it in everything from toilets to toothpaste.

It makes magazine paper glossy and cosmetics creamy. It can also be found in the soles of your shoes, the tires on your car and the fiberglass insulation in your house.

It's a white clay called kaolin. And one of the world's largest deposits is found in a 20-mile-wide, 60-mile-long strip running along the fall line from Macon to Augusta.

Kaolin, named for the Chinese region Kao-Ling, where it was used to make porcelain during the T'ang Dynasty, is called something else in the small cities and towns along the strip: white gold.

Economies of entire counties are driven by the companies that mine and refine this chalky mineral, which was formed more than 50 million years ago when half the state was covered by the Atlantic Ocean.

In rural Washington County, Ga., as in many of the 13 kaolin belt counties, clay mining is the No. 1 employer. Even the county's No. 2 employer, Lapp Insulator Co., a manufacturer of ceramic electrical insulators, is kaolin dependent.

The Albion Kaolin Company mine located near Hephzibah. Economies of entire counties are driven by the companies that mine the chalky mineral. MICHAEL HOLAHAN/AUGUSTA BUSINESS CHRONICLE

``There's no question -- it's the largest single industry,'' said Theo McDonald, executive director of the Washington County Chamber of Commerce.

The five major kaolin producers, known collectively as the China Clay Producers Association, claim to pump more than $180 million into the kaolin belt economies each year.

In the Jefferson County, Ga., city of Wrens, the three kaolin companies are a top employer as well as a big customer of the municipal natural gas company.

``They just mean a heck of a lot to the community,'' said 74-year-old Wrens Mayor J.J. ``Juddy'' Rabun, whose son works at one of the kaolin plants. ``They've been mining here since I was born.''

Some of the kaolin companies' largess comes in the form of scholarships and contributions to civic organizations, but it's mostly in the form of the average $800 paychecks that go into kaolin workers' pockets each week.

The industry puts nearly 4,400 middle Georgians to work each year.

Click on graphic to view a larger version. STAFF

``We create wealth. If we didn't have mining in middle Georgia, what would we have?'' asked Lee Lemke, executive vice president of the Georgia Mining Association. ``Scrub oak trees and a little farming.''

Tough times

Georgia entered the global kaolin market in the 1920s and has been the world's dominant global kaolin producer since the 1960s, a title it took from England.

But some say the golden days of Georgia's white gold are coming to an end.

The industry's profitability has eroded throughout the decade as Georgia producers have had to slash prices to compete with low-cost imports, mostly from the world's newest major player, Brazil.

Making matters worse, kaolin's No. 1 consumer, the paper industry, has turned to calcium carbonate, a cheaper filler and coating material.

Kaolin's tough times are reflected in the financial performance of Georgia's ``Big Five'' producers: Dry Branch Kaolin, J.M. Huber Corp., ECC International, Thiele Kaolin Co. and Engelhard Corp. (French metals conglomerate Imetal SA, owner of Dry Branch Kaolin, is acquiring ECC International. The deal is awaiting federal regulatory approval.)

A front-end loader drops raw Kaolin into a hopper for transportation to the refinery. The Wrens plant processes 35,00 tons of finished kaolin for sale each month, mostly to paper mills in the northern United States. DAMON CLINE/AUGUSTA BUSINESS CHRONICLE

All are known in the industry as ``water-wash'' companies because their intense refining process yields the high-grade, ultra-white product used by paper makers.

The group's 1998 after-tax profit was $65.4 million, and its return on net investment was 5.8 percent, down from $74.5 million and 6.8 percent in 1997. The industry posted a $45 million loss in 1996, its first ever.

The average return during the past five years was 4.5 percent.

``That's disappointing,'' said Kenneth W. Jackman, executive vice president of the China Clay Producers Association. ``You can do almost as well at the local savings bank with your passbook account.''

The next Georgia

Georgia's kaolin industry views Brazil as a sleeping giant.

Producers in the South American country are just beginning to tap into deposits that some say are larger and purer than what's found in Georgia's kaolin belt.

The United States imported 36,455 tons of Brazilian kaolin last year, an increase from 17,400 tons in 1997 and 502 tons in 1996. More than half of it was delivered by boat to paper producers in Maine.

Imports of Brazilian kaolin amounted to less than 1 percent of Georgia's production, but industry officials are worried that the rapid import growth will continue.

Brazilian kaolin is attractive because it's cheap. Producers there have the benefit of low-cost labor and lax governmental restrictions. And the refining process, which accounts for more than 80 percent of kaolin's production costs, is much less intense because of its natural purity.

Brazil can also transport its kaolin to Northeast destinations by ship. Georgia producers say the Jones Act, an 80-year-old law that allows only American-made ships to travel between U.S. ports, makes that impossible for them because American-made ships are not capable of transporting kaolin slurry in the pure form the paper mills demand. So they must ship by rail at a cost of $15 to $20 a ton more than it costs their Brazilian counterparts.

Republican U.S. Rep. Charlie Norwood said he will push legislation to grant kaolin companies a Jones Act exemption if a suitable American ship cannot be found.

``We're waiting right now to hear back from the shipping industry,'' said John Stone, Mr. Norwood's press secretary. ``If a U.S. ship can't be found, we will go forward with our legislation.''

Increased imports will not kill Georgia's kaolin industry, but most contend it will continue eroding margins and market share and ultimately eliminate job growth.

A 1996 report from the Georgia Department of Labor forecasts that kaolin will ``remain constant or experience a slight decrease'' in the next decade.

``Back in the early '70s, the U.S. car manufacturers thought they had the world by the tail. Then the Toyota showed up,'' Mr. Jackman said. ``That's kind of the situation we're in.''

A cheap substitute

More than two-thirds of all refined kaolin is used by paper makers to ``fill'' in the spaces between pulp fibers and to ``coat'' the outer layer to create a glossy appearance.

But more paper manufacturers are beginning to use calcium carbonate, a white crystalline powder derived from limestone, because it is cheaper to produce and more plentiful than kaolin.

Calcium carbonate was once used only as a filler, but recent technological advancements have yielded a calcium carbonate product suitable for paper coating as well, said Alan Rooks, editor of PIMA Magazine, a trade publication of the Paper Industry Management Association.

Some paper producers have even set up on-site ``precipitated calcium carbonate'' plants to pipe the substance directly to the mill, Mr. Rooks said.

``This has been happening gradually over the last 20 years,'' he said.

The calcium carbonate industry has mirrored the paper manufacturers' 3 percent growth rate while the kaolin industry remained flat.

Calcium carbonate works so well in certain paper applications that it has made several grades of the lower kaolin grades obsolete.

Several producers, including ECC International and J.M. Huber, have responded by building calcium carbonate plants of their own.

``Certainly we are aware of the migration toward carbonate,'' J.M. Huber spokesman Joe Dunning said. ``We are in that market as well.''

Niche markets thriving

The little guys in the kaolin industry have held up the best. They are known as the ``air-float'' companies because they use a stream of air to separate pulverized kaolin from sand and other impurities.

This less expensive process produces a lower-grade of kaolin that is used in ceramics, bricks, rubber and fiberglass.

Air-float companies operating around Augusta and Aiken include Kentucky-Tennessee Clay Co., Dixie Clay Co., Grace-Davidson Kaolin and the world's largest air-float company, Albion Kaolin Co.

Albion, located on a 1,500-acre kaolin deposit in Hephzibah, employs 80 local and another 60 people at a secondary operation in McIntyre, Ga., outside Macon.

The company, a division of United Catalysts Inc., whose parent company is German-based Sud-Chemie AG, posted annual sales in excess of $20 million last year. It has managed to avoid head-to-head competition with both imports and calcium carbonate by specializing in lower-grade products used in products other than paper.

``We're not serving the same markets,'' said Jeffery Bruns, Albion Kaolin's technical director. ``We're sort of filling a niche where our customers aren't willing to pay for a more expensive water-washed kaolin.''

Albion, which exited the paper-filler market in 1992, concentrates on the building-products industry. Its kaolin products are used in everything from bathtubs and toilets to rubber and fiberglass insulation. One of its largest and oldest customers is firebrick manufacturer Thermal Ceramics in Augusta.

At a time of stagnant growth in the kaolin industry, Albion has doubled employment and increased production six-fold during the past 15 years, all without much technological advancement.

``My R&D budget is a salary line at the other companies,'' joked Mr. Bruns.

The fear among small producers is that the much larger water-wash companies may eventually try to grow business by expanding into traditional air-float markets.

``If the water-wash people wanted to tap our market, they could take it over right away,'' Mr. Bruns said.

Kaolin by the numbers

$820 million:

Statewide economic impact

$197 million:

Total industry payroll

$47 million:

Federal, state and local taxes paid

$46,000:

Industry's average annual salary

$800:

Industry's average weekly wage

4,400:

Number of employees statewide

3,000:

Number of people employed by kaolin contractors

400:

Number of employees in five-county Augusta-Aiken metro area

Source: 1996-1999 data provided by China Clay Producers Association and Georgia Department of Labor

Damon Cline covers business for The Augusta Chronicle. He can be reached at (706) 823-3486.