Economic Impact Analysis of the Refractory
Product Manufacturing NESHAP -
Final Rule
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EPA452/R-03-004
February 2003
Economic Impact Analysis of the Refractory Product
Manufacturing NESHAP - Final Rule
Final Report
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies and Standards Division
Innovative Strategies and Economics Group
Research Triangle Park, North Carolina
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CONTENTS
Section Page
Executive Summary ES-1
1 Introduction 1-1
1.1 Introduction 1-1
1.2 Organization of this Report 1-2
2 Industry Profile 2-1
2.1 The Supply Side 2-1
2.1.1 Production Process, Inputs, and Outputs 2-1
2.1.1.1 Machines Used in the Production Process 2-4
2.1.1.2 Final Commodities 2-8
2.1.1.3 Emissions and Controls in Refractory
Manufacturing 2-10
2.1.1.4 Inputs to Production of Refractory Products 2-10
2.1.2 Types of Products 2-12
2.1.3 Costs of Production 2-12
2.1.3.1 CostData 2-12
2.2 Industry Organization 2-17
2.2.1 Refractory Manufacturing Facilities 2-17
2.2.1.1 Refractories Database Facilities 2-17
2.2.1.2 Facility Location 2-17
2.2.2 Capacity Utilization 2-25
2.2.3 Industry Concentration and Market Structure 2-27
2.2.3.1 Measures of Industry Concentration 2-28
2.2.3.2 Market Structure 2-29
2.2.3.3 Small Businesses that Own Refractory Facilities .... 2-29
2.2.4 Current Trends in the Refractory Industry 2-33
2.3 The Demand Side 2-33
2.3.1 Product Characteristics 2-34
2.3.2 Uses and Consumers 2-34
2.3.3 Substitution Possibilities in Consumption 2-37
2.4 Markets 2-37
2.4.1 Market Data 2-37
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2.4.1.1 Domestic Production 2-38
2.4.1.2 International Trade 2-38
2.4.2 Market Prices 2-40
2.4.3 Industry Trends 2-40
3 Engineering Cost Analysis 3-1
3.1 Overview of Emissions from Refractory Manufacturing 3-1
3.2 Compliance Cost Estimates 3-2
3.2.1 Emission Control Costs 3-4
3.2.2 Compliance Testing Costs 3-5
3.2.3 Monitoring, Recordkeeping, and Reporting Costs 3-5
3.2.4 Total Annualized Costs 3-5
4 Economic Impact Analysis: Methods and Results 4-1
4.1 Markets Affected by the Proposed NESHAP 4-1
4.2 Conceptual Approach 4-2
4.2.1 Producer Characterization 4-2
4.2.2 Consumer Characterization 4-3
4.2.3 Foreign Trade 4-4
4.2.4 Baseline and With-Regulation Equilibrium 4-5
4.2.4.1 Bricks and Shapes Market 4-5
4.2.4.2 Monolithics and RCF Markets 4-6
4.3 Economic Impact Results 4-6
4.3.1 Market-Level Impacts 4-7
4.3.2 Industry-Level Impacts 4-7
4.3.2.1 Facility Closures and Changes in Employment 4-8
4.3.3 Social Cost 4-9
VI
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5 Small Business Impacts 5-1
5.1 Identify Small Entities 5-1
5.2 Economic Analysis 5-2
5.3 Assessment 5-3
References R-l
Appendix A: Overview of Refractories Market Model A-l
Appendix B: Economic Welfare Impacts on Refractory Industry B-l
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LIST OF FIGURES
Number Page
2-la Refractory Manufacturing Process Flow Diagram 2-2
2-lb Specific Production Processes 2-3
2-2 Mixing and Kneading Machines 2-5
2-3 Vacuum Press (Friction, Hydraulic Press) 2-6
2-4 Friction Press (A), and Hydraulic Screw Press (B) 2-6
2-5 Vibrating Press 2-6
2-6 Cross Section of CIP 2-6
2-7 Tunnel Kiln 2-7
2-8 Round Kiln with Downdraft 2-8
2-9 Shuttle Kiln 2-8
2-10 Clay and Nonclay Refractory Manufacturers' Expenditures 2-13
2-11 Location of Refractory Manufacturing Facilities 2-26
2-12 Historical Refractory Production Trends 2-38
4-1 Supply Curve for a Representative Directly Affected Facility 4-3
4-2 Market Equilibrium for Bricks and Shapes Refractories without and with
Regulation 4-4
Vlll
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LIST OF TABLES
Number Page
2-1 Types and Descriptions of Refractories Produced 2-9
2-2 Types and Characteristics of Raw Materials used in Refractory
Manufacture Type 2-11
2-3 Labor, Material, and New Capital Expenditures for Clay Refractory
Manufacturers (NAICS 327124) ($106) 2-14
2-4 Labor, Material, and New Capital Expenditures for Nonclay Refractory
Manufacturers (NAICS 327125) ($106) 2-15
2-5 Costs of Materials Used in Refractory Production and Manufacture 2-16
2-6 Selected Refractory Manufacturers, by Type 2-18
2-7 Number of Refractory Manufacturing Facilities by State 2-25
2-8 Full Production Capacity Utilization Rates for Clay and Nonclay
Refractories: Fourth Quarters 1993 through 1998 2-27
2-9 Market Concentration Measures for SIC 3255 Clay Refractory
Manufacturing and SIC 3297 Nonclay Refractory Manufacturing 2-28
2-10 Characteristics of Small Businesses in the Refractory Industry 2-30
2-11 Characteristics and Types of Refractories 2-35
2-12 Steel and Nonferrous Production (103 Metric Tons) 2-37
2-13 Production of Refractories: 1977-1998 ($106) 2-39
2-14 Exports and Imports of Refractories: 1993-1999 ($106 1998) 2-40
2-15 Average Price for Refractory Products ($/ton) 2-41
3-1 Summary of Revised Annual Compliance Costs for Refractory Products
Manufacturing NESHAP 3-3
4-1 Market-Level Impacts: 1998 4-7
4-2 Industry-Level Impacts: 1998 4-8
4-3 Distributional Impacts Across Facilities: 1998 4-9
4-4 Distribution of Social Costs: 1998 4-10
5-1 Summary of SBREFA Screening Analysis: 1998 5-2
5-2 Small Business Impacts: 1998 5-3
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EXECUTIVE SUMMARY
The U.S. Environmental Protection Agency's (EPA's) Office of Air Quality Planning
and Standards (OAQPS) has developed National Emission Standards for Hazardous Air
Pollutants (NESHAP) under Section 112 of the 1990 Clean Air Act for the refractory
manufacturing industry. This economic impact analysis (EIA) of the NESHAP for the refractory
products manufacturing industry provides information about the estimated costs and economic
impacts of the final rule. This section presents a summary of the costs of complying with the
NESHAP and the estimated economic impacts resulting from these costs.
ES.l Costs of Compliance
Out of 147 facilities producing refractory products, the Agency has identified eight
refractory manufacturing facilities as possible major sources of HAPs. Of these eight, six are
projected to incur emissions control costs to comply with the NESHAP and the other two are
projected to incur only recordkeeping and reporting costs. Five facilities are estimated to incur
costs to install and operate emissions control capital equipment. Based on the model, EPA
expects the sixth facility will close its operation because the costs of control will exceed revenue.
The capital costs of control technology range from $383,400 to $1.37 million and total $4.6
million. The total annualized costs of the NESHAP are $2.31 million, including $655,700 in
annualized capital costs; $1,419,400 in annual operating and maintenance costs for emissions
controls; and $239,100 in monitoring, recordkeeping, and reporting costs. Among the facilities
incurring costs, the total annualized costs range from $1,200 to $677,600 and average $289,275
per facility.
ES.2 Estimated Economic Impacts of the Refractories NESHAP
EPA used a simulation model of the market for refractory products to estimate
impacts of the NESHAP, including changes in market prices and quantities for refractory
products; changes in costs, revenues, profits, and output for refractory manufacturers; and
impacts on companies owning refractory manufacturing facilities, including impacts on small
businesses.
EPA estimates that the price for refractory products will be essentially unchanged,
and the quantity of refractory products produced domestically will decrease by less than 0.3
percent. One refractory manufacturing facility is projected to become unprofitable and shut
down under the rule unless it chooses to become a nonmajor source by altering its production
processes. Overall, eight facilities incurring compliance costs are projected to become less
profitable and reduce their output, while 139 facilities not incurring costs are projected to remain
ES-1
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as profitable as without the rule. Overall, the net effect of the rule is to decrease the industry's
profit. Despite a single facility closure, output and employment are projected to decline only
slightly as a result of the rule. EPA estimates the social cost of the rule (computed as described
in Appendix B) to be $2.09 million, representing entirely a loss in industry profitability.
For its analysis, EPA defined small businesses as those with 750 employees or fewer.
EPA estimates that 56 of the 76 companies owning refractory manufacturing facilities may be
small businesses. Three of the facilities incurring compliance costs are owned by small
businesses, but none of them is projected to incur costs exceeding 1 percent of sales. Thus, the
Agency does not project any significant adverse economic impacts for small businesses as a
result of the rule.
ES-2
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SECTION 1
INTRODUCTION
1.1 Introduction
A refractory is a material that retains its shape and chemical identity when subjected
to high temperatures and is used in applications that require extreme resistance to heat.
Specifically, refractories must be able to withstand temperatures above 538°C (1000°F).
Refractories are mechanically strong and heat resistant to withstand rapid temperature change
and corrosion and erosion by molten metal, glass, slag, and hot gas. Refractories are used in
kilns, furnaces, boilers, incinerators, and other applications.
Section 112 of the Clean Air Act lists 189 hazardous air pollutants (HAPs) and
requires EPA to develop a list of categories of industries that emit HAPs. Section 112 then
states that every major source of HAPs emissions will be required to reduce emissions to levels
that are equivalent to the average of the top 12 percent of the best performers. The Act defines
major sources as those facilities that emit or have the potential to emit at least 10 tons per year of
any single HAP or at least 25 tons per year of any combination of HAPs.
Refractory products manufacturing facilities have been identified as sources of
several HAPs. The specific types and quantities of HAPs emitted from any particular facility are
largely a function of the types of raw materials used and how those materials are processed.
Many processes are used to produce refractory products. These processes can emit phenol,
formaldehyde, methanol, and ethylene glycol, depending on the type of resin used. When used
as binders or additives in the production of nonresin-bonded refractory shapes, ethylene glycol
and methanol also are emitted from shape dryers and kilns. Pitch-bonded refractory heated pitch
storage tanks, shape dryers, and kilns emit polycyclic organic matter (POM). The heated pitch
storage tanks, shape preheaters, defumers, and coking ovens used to produce pitch-impregnated
refractories also emit POM. Hydrogen fluoride (HF) and hydrochloric acid (HC1) are emitted
from kilns that are used to fire clay refractory products. Exposure to these substances has been
demonstrated to cause adverse health effects such as irritation of lung, skin, and mucous
membranes; effects on the central nervous system; and damage to the liver, kidneys, and
skeleton. Formaldehyde and POM have also been listed as probable human carcinogens. EPA
estimates that, of 147 refractory manufacturing facilities currently in operation, eight facilities
may be major sources of HAPs. The Agency estimates that six of the eight major sources of
HAPs will incur incremental costs to comply with the NESHAP, beyond recordkeeping costs.
Emissions are treated as a free good but have a cost to society. These externalities
include emission effects on humans and ecosystems. Environmental regulations such as this
NESHAP reduce these externalities and attempt to assign some of the costs of the pollution to
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the polluter. The major sources of HAPs in the refractory products industry that incur costs to
reduce emissions will face economic consequences. The economic impacts to these eight
facilities will also affect the prices and quantities of refractories in the industry's market. This
report evaluates the economic impacts associated with the NESHAP and reports estimated
changes in price, production, profitability of facilities, and impacts to sensitive subsectors of the
market, such as small businesses and foreign trade.
1.2 Organization of this Report
This EIA report is organized as follows. Section 2 provides a detailed description of
the production process for refractories, with discussion of individual refractory products, inputs,
costs of production, demand, industry organization, and market structure for the refractories
industry. Section 3 describes the estimated costs of complying with the NESHAP. Section 4
discusses the economic impact analysis methodology and presents the results of the analysis.
Section 5 presents the results of analyses to assess the impacts of the rule on small businesses.
Appendix A describes the methodology in detail and Appendix B describes computation of
social cost.
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SECTION 2
INDUSTRY PROFILE
In this section, we provide a summary profile of the refractory products industry in
the United States, including the technical and economic aspects of the industry that must be
addressed in the economic impact analysis. Section 2.1 provides an overview of the production
processes and the resulting types of refractory products. Section 2.2 summarizes the
organization of the U.S. refractory products industry, including a description of U.S.
manufacturing plants, the companies that own these plants, and the markets for refractory
products. Finally, Section 2.3 presents historical data on the refractory product industry,
including U.S. production and consumption and foreign trade.
2.1 The Supply Side
Estimating the economic impacts associated with the options to regulate the
refractory manufacturing industry requires characterizing the industry. This section describes
the production process and inputs to and outputs of this process. In addition, characterizing the
supply side of the industry involves describing various types of refractory products, by-products,
and input substitution possibilities. This section also describes costs of production and
economies of scale.
2.1.1 Production Process, Inputs, and Outputs
The manufacturing process for refractories depends on the particular combination of
chemical compounds and minerals used to produce a specified level of thermal stability,
corrosion resistance, thermal expansion, and other qualities. Refractory manufacturing involves
four processes: raw material processing, forming, firing, and final processing. Figure 2-la
illustrates the basic refractory manufacturing process, and Figure 2-lb depicts specific
production processes for various refractory products. The production of refractories begins with
processing raw material. Raw material processing involves crushing and grinding raw materials,
classifying by size, calcining, and drying. The processed raw materials may then be dry-mixed
with other minerals and chemical compounds, packaged, and shipped as product.
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TRANSPORTING
STORAGE
w
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PM EMISSIONS
© GASEOUS EMISSIONS
WEATHERING
CRUSHING/
GRINDING
(SCC 3-05-005-02)
_ _ _">^^
SCREENING/
CLASSIFYING
STORAGE
MIXING
FORMING
DRYING
(SCC3-05-005-01, -08)
4 1
FIRING
(SCC 3-05-005-07, -09)
i i
CALCINING/
DRYING
(SCC 3-05-005-02)
(OPTIONAL)
(OPTIONAL)
DRY-MIXING/
BLENDING
PACKAGING
(OPTIONAL)
COOLING
MILLING/
FINISHING
SHIPPING
Figure 2-la. Refractory Manufacturing Process Flow Diagram
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-------
Following the mixing process, the raw materials are formed into desired shapes.
Liquids are added to the dry raw materials to facilitate adhesion in the pressing/forming phase.
After the refractory is formed, the material is fired. Firing involves heating the refractory
material to high temperatures in a periodic batch or continuous tunnel kiln to form a ceramic
bond. This process gives the raw materials their refractory properties. The final processing
stage includes milling, grinding, and sandblasting the finished product. For some products, final
processing may also include impregnation with tar and pitch and product packaging (EPA, 1994;
The Technical Association of Refractories, Japan, 1998).
2.1.1.1 Machines Used in the Production Process
Several types of machines are used to produce refractories: mixing/kneading
machines, presses, and kilns.
Mixing/Kneading Machines. Figure 2-2 illustrates different machines used to mix or
knead refractory products. There are two types of mixing and kneading machines: fixed vessel
and driven vessel. Mixing homogenizes more than two types of bulk materials, and kneading
machines make a uniform coating layer. Mixing and kneading machines are equipped with
mixing blades or muller wheels. Heating, cooling, or de-airing equipment may also be applied
to the vessel. Mixing and kneading machines are used for manufacturing shaped and unshaped
refractories. Unshaped refractories, however, are not processed any further (The Technical
Association of Refractories, Japan, 1998).
Presses. Refractory pressing machines are broadly categorized into three groups:
impact and static, vibrating, and cold isostatic press. Choosing between the three groups of
presses largely depends on the type of raw materials used.
•• Impact and Static Presses: Figure 2-3 illustrates a friction and a hydraulic screw
press, two types of impact presses. Figure 2-4 is a diagram of a hydraulic screw
press, a type of static press. Impact and static presses are typically equipped with a
vacuum deaerator. Impact presses have a higher allowable maximum compacting
force than static presses. However, static presses are finding increasing application in
the production of sophisticated refractories such as submerged nozzles and shrouds
and in the production of industrial ceramics. Bricks formed with static presses are
flat, uniform, and compact (The Technical Association of Refractories, Japan, 1998).
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Figure 2-2. Mixing and Kneading Machines
•• Vibrating Press: Vibrating presses, shown in Figure 2-5, are classified into two
types: air cylinder type and hydraulic cylinder. The vibrator in the air cylinder type
is attached to the table, and the air cylinder compacts the material. The hydraulic
vibrating press is constructed with the hydraulic pulse generator attached to the
pressure block, and the hydraulic cylinder compacts the material. Vibrating presses
are typically used for the compaction of complexly shaped refractories (The
Technical Association of Refractories, Japan, 1998).
•• Cold Isostatic Press (CIP): A CIP, illustrated in Figure 2-6, is a molding device that
provides homogeneous hydrostatic pressure over the entire surface of a
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— De-airing \ Vacuum chamber
Motor
Diskplate
Hydraulic cylinder^ „
Screw shaft
Metal mokj
(A)
(B)
Figure 2-3. Vacuum Press
(Friction, Hydraulic Press)
Figure 2-4. Friction Press (A), and Hydraulic
Screw Press (B)
Air cylinder
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Figure 2-5. Vibrating Press
Figure 2-6. Cross Section of CIP
2-6
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rubber mold filled with powder. This method, also referred to as a hydrostatic press
or a rubber press method, is a materials processing technique in which fluid pressure
is applied to a powder part at ambient temperature to compact it into a predetermined
shape. The powder part is consolidated into a dense compacted shape. Water or oil
is usually used as the presser medium. CIPs are based on either the wet bag method,
where the mold is placed in pressurized liquid, or the dry bag method, in which the
mold does not touch the pressurized liquid. High pressurized molding provides
uniform density, which leads to a reduction of internal stresses; the elimination of
cracks, strains, and laminations; the ability to make complex shapes; and the ability to
press more than one shape at the same time (The Technical Association of
Refractories, Japan, 1998).
Kilns. Refractories are fired to develop the materials' refractory properties. The
unfired ("green") refractories pass through a heat treatment, which results in a thermally stable
refractory and or crystallization. The industry uses three types of kilns:
•• Tunnel Kiln: In a tunnel kiln, refractory products consecutively pass through
preheating, firing, and cooling zones (see Figure 2-7). The combustion gas from the
firing zone is typically used to preheat the refractories. Heat can be recovered from
cooling fired refractories and reused as combustion air. Approximately 80 percent of
shaped refractories are fired in tunnel kilns (The Technical Association of
Refractories, Japan, 1998).
Burner
Double
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Combustion chamber
Exhaust gas vent
Figure 2-8. Round Kiln with Downdraft
System
Figure 2-9. Shuttle Kiln
2.1.1.2 Final Commodities
Refractories are manufactured in two forms—shaped objects and unshaped, and
unshaped refractories come in granulated or plastic compositions. Briefly described here,
shaped and unshaped refractories are the two broad categories of refractories. Section 2.2
contains more information on the types of refractory products.
Shaped Refractories. Preshaped refractories include bricks, shapes, and crucibles.
Shaped refractories are pre-fired to exhibit their ceramic characteristics. Table 2-1 lists each
type of shaped refractory and a description of its use.
Unshaped Refractories. The unshaped products include mortars, gunning mixes,
castables (refractory concrete), ramming mixes, and plastics. Unshaped refractories are often
referred to as "monolithics." The manufacture of unshaped refractories differs slightly from
shaped refractories. Unshaped refractories typically do not go through a firing process until they
reach the final consumer. These unshaped refractories can be installed by spraying, casting,
molding, or ramming. Table 2-1 lists each type of refractory and a description of its use.
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Table 2-1. Types and Descriptions of Refractories Produced
Kind
Definition
Shaped Refractories
Bricks
Refractories that have shapes and are used to line furnaces, kilns, glass tanks,
incinerators, etc.
Insulating firebrick
Low thermal conductivity firebrick.
Unshaped Refractories
(Monolithic)
Mortar
Castables
Plastics
Materials for bonding bricks in a lining. The three types of mortar—heat-setting, air-
setting, and hydraulic-setting—have different setting mechanisms.
Refractories for which raw materials and hydraulic-setting cement are mixed. They are
formed by casting and used to line furnaces, kilns, etc.
Refractories in which raw materials and plastic materials are mixed with water. Plastic
refractories are roughly formed, sometimes with chemical additives.
Gunning mixes
Ramming mixes
Refractories that are sprayed on the surface by a gun.
Granular refractories that are strengthened by gunning formulation of a ceramic bond
after heating. Ramming mixes have less plasticity and are installed by an air rammer.
Slinger mixes
Refractories installed by a slinger machine.
Patching materials/coating Refractories with properties similar to refractory mortar. However, patching materials
materials have controlled grain size for easy patching or coating.
Lightweight castables
Refractories in which porous lightweight materials and hydraulic cement are mixed.
They are mixed with water and formed by casting. Lightweight castables are used to
line furnaces, kilns, etc.
Fibrous Materials
Ceramic fiber Man-made fibrous refractory materials. There are several different types of ceramic
fiber, including blanket, felt, module, vacuum form, rope, loose fiber, etc.
Source: The Technical Association of Refractories, Japan. 1998. Refractories Handbook. Tokyo: The Technical
Association of Refractories, Japan.
2-9
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2.1.1.3 Emissions and Controls in Refractory Manufacturing
Refractory products manufacturing facilities are sources of several HAPs. At most
refractory product manufacturing facilities, the primary sources of HAP emissions are the
thermal process units, such as dryers, curing ovens, and kilns. The specific types and quantities
of HAPs emitted from any particular facility are largely a function of the types of raw materials
used and how those materials are processed. Among others, thermal process units used to
produce resin-bonded, pitch-bonded, and pitch-impregnated bricks and shapes may be sources of
HAP emissions. Resin-bonded refractory curing ovens and kilns can emit phenol, formaldehyde,
methanol, and ethylene glycol, depending on the type of resin used. When used as binders or
additives in the production of nonresin-bonded refractory shapes, ethylene glycol and methanol
also are emitted from shape dryers and kilns. Pitch-bonded refractory heated pitch storage tanks,
shape dryers, and kilns emit POM. The heated pitch storage tanks, shape preheaters, defumers,
and coking ovens used to produce pitch-impregnated refractories also emit POM. HF and HC1
are emitted from kilns that are used to fire clay refractory products.
2.1.1.4 Inputs to Production of Refractory Products
The inputs in the production process for refractories include general inputs, such as
labor, capital, and raw materials such as clay and nonclay materials. Two specific raw material
inputs are discussed below.
Clays. Clay is composed mainly of fine particles of hydrous aluminum silicates and
other minerals and is plastic when moist but hard when fired. In 1998, approximately 3.09
million tons (Mt) of clays were used in the manufacture of refractories. Table 2-2 lists different
clays used in refractory products and their characteristics. Fireclay is the predominant clay used
in firebrick; bentonite, in foundry sand; common clay, in refractory mortar and cement; and
kaolin, in calcine, grog, high alumina brick, kiln furniture, and plug, tap, and wad (Virta, 1998).
2-10
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Table 2-2. Types and Characteristics of Raw Materials used in Refractory Manufacture
Type
Type
Characteristics
Clay Refractories
Fireclay Consists of kaolinite (Al2O32SiO22H2O) and minor amount of other clay materials.
Fireclay refractories can be low, medium, high, or super-duty based on their
resistance to high temperature or refractoriness. Fireclay refractories are used to
produce bricks, insulating refractories, and two types of ladle brick.
High-alumina Composed of bauxite or other raw materials that contain 50 to 87.5 percent alumina.
High-alumina refractories are generally multipurpose, offering resistance to chipping
and higher volume stability. High-alumina refractories are used to produce brick
and insulating refractories.
Nonclay Refractories
Basic Produced from a composition of dead-burned magnesite, dolomite, chrome ore, and
small amounts of other minerals. Basic refractories can be further subdivided into
magnesia, dolomite, chrome, and combination bricks. Basic refractories are
typically used to line kilns used to make bricks.
Extra-high alumina
Mullite
Silica
Silicon carbide
Zircon
Made predominately from bauxite or alumina (A12O3), extra-high alumina
refractories contain from 87.5 to 100 percent alumina and offer good volume
stability. They are typically poured into special shapes using a fused casting
process.
Made from kyanite, sillimanite, andalusite, bauxite, or mixtures of alumina silicate
materials; mullite refractories are about 70% alumina. They maintain a low level of
impurities and high resistance to loading in high temperatures.
Silica refractories are characterized by a high coefficient of thermal expansion
between room temperature and 500°C (930°F). Silica brick is available in three
grades: super-duty (low alumina and alkali), regular, and coke oven quality. Silica
compositions can be used for hot patching, shrouds, and bricks.
Produced by the reaction of sand and coke in an electric furnace, silicon carbide
refractories are used to make special shapes, such as kiln furniture, to support
ceramicware as it is fired in kilns. It has high thermal conductivity, good load
bearing characteristics at high temperatures, and good resistance to changes in
temperatures.
Containing siconium silicate (ZrO2SiO2), zircon refractories maintain good volume
stability for extended periods or exposure to high temperatures. Zircon refractories
are widely used for glass tank construction.
2-11
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Nonclays. Nonclay refractories are composed of alumina, mullite, chromite,
magnesite, silica, silicon carbide, zircon, and other nonclays. Table 2-2 lists various minerals
used in the production of nonclay refractories, the type of refractory produced, and
characteristics of the refractory.
2.1.2 Types of Products
As noted earlier, Table 2-1 lists the different forms of refractories and describes them
briefly. Refractories are generally categorized as either clay or nonclay products. To further
classify the products, refractories are labeled as acidic or basic. Refractories are typically
produced as shaped refractories, unshaped refractories, and fibrous materials. Shaped
refractories include bricks, shapes, and crucibles. Bricks and shapes are formed by mixing raw
materials with water and/or other binders and pressing or molding the mixture into a desired
shape.1 Crucibles are ceramic containers used for melting metal. Unshaped refractories, also
called monolithics, are unformed products that are dried to form a unified structure after
application. These refractories can be used as mortars, plastics, ramming mixes, castables, and
gunning mixes. Monolithic refractories are applied by either pouring, pumping, troweling, or
gunning (spraying).
2.1.3 Costs of Production
In the production process, the costs incurred by refractory manufacturers include
labor, materials, and capital. This section provides data on these costs and discusses economies
of scale.
2.7.3.7 Cost Data
Between 1994 and 1998, on average clay refractory manufacturers spent more than
70 percent of expenditures on input materials and nonclay refractory producers spent almost 64
percent. Figure 2-10 illustrates the percentage breakdown of refractory manufacturing
expenditures by refractory type. Tables 2-3 and 2-4 also provide expenditures in dollars for
wages, materials, and new capital from 1977 to 1998 in both current and 1997 dollars. Costs of
materials include all raw materials, containers, scrap, and supplies used in production, repair, or
maintenance during the year, as well as the cost of all electricity and fuel consumed. Costs are
included for materials whether they are purchased from outside the company or transferred from
within the company. New capital expenditures include permanent additions and alterations to
Refractory bricks and shapes can be formed by a variety of methods, including hand molding, air ramming,
pressing, extruding, or casting.
2-12
-------
New Capital
3%
Materials
70%
Average Percentage
(1994-1998)
Wages
27%
New Capital
6%
Materials
64%
Wages
30%
(a) Clay Refractory
Manufacturers' Expenditures
(b) Nonclay Refractory
Manufacturers' Expenditures
Figure 2-10. Clay and Nonclay Refractory Manufacturers' Expenditures
facilities and machinery and equipment used for expanding plant capacity or replacing existing
machinery.
These tables show that the cost of materials is by far the greatest cost to refractory
producers. Refractory producers spend as much as two and a half times more on materials than
they do on labor. For 1998, the Annual Survey of Manufactures reported that the clay refractory
industry spent $31.6 million and the nonclay refractory industry spent $52.7 million on energy,
almost 6 and 8 percent, respectively, of the total materials cost for that year. Energy costs for
manufacturers of refractory bricks and shapes are generally greater than energy costs for
manufacturers of monolithic refractories because of the energy-intensive nature of operations
that require using forming equipment, curing ovens, shape and coking ovens, pitch and brick
pre-heaters, dryers, and kilns. Table 2-5 contains a more detailed breakdown of the costs of
materials used in producing and manufacturing refractory materials.
2-13
-------
Table 2-3. Labor, Material, and New Capital Expenditures for Clay Refractory
Manufacturers (NAICS 327124)3 ($106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Wages
Current
146.8
171.8
191.5
183.6
199.6
155.2
147.1
176.6
166.8
160.4
150.2
160.0
176.7
168.8
166.0
183.8
163.9
179.0
199.0
196.4
210.0
201.8
1997
224.30
254.08
273.16
253.02
266.09
204.68
191.19
226.17
211.69
202.68
188.05
193.46
207.39
196.28
191.22
196.57
180.42
191.44
205.37
200.88
210.42
201.80
Materials
Current
296.8
364.6
384.7
363.1
410.6
339.0
358.5
438.2
397.5
412.6
387.5
401.7
451.3
475.3
464.8
452.8
377.0
494.0
510.3
510.7
566.0
536.5
1997
453.48
539.21
548.74
500.39
547.37
447.07
465.94
561.20
504.47
521.36
485.15
485.70
529.69
552.68
535.40
484.27
415.00
528.33
526.63
522.34
567.13
536.50
New
Current
20.0
23.1
29.4
31.5
36.1
21.2
12.0
22.0
22.1
15.8
11.7
14.0
11.9
15.2
18.5
24.6
7.2
16.5
16.6
18.6
30.1
25.6
Capital
1997
30.56
34.16
41.94
43.41
48.12
27.96
15.60
28.18
28.05
19.96
14.65
16.93
13.97
17.67
21.31
26.31
7.93
17.65
17.13
19.02
30.16
25.60
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001. .
Sources: U.S. Department of Commerce, Bureau of the Census. 1994b. 1992 Census of Manufactures, Industry
Series—Cement and Structural Clay Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995. 1993 Annual Survey of Manufactures. M93(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1996a. 1994 Annual Survey of Manufactures. M94(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997. 1995 Annual Survey of Manufactures. M95(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures. M96(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufactures, Industry
Series—Manufacturing: Clay Refractory Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 2000. 1998 Annual Survey of Manufactures. M98(AS)-1.
Washington, DC: Government Printing Office.
2-14
-------
Table 2-4. Labor, Material, and New Capital Expenditures for Nonclay Refractory
Manufacturers (NAICS 327125)3 ($106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Wages
Current
134.3
162.7
172.5
177.4
196.5
148.4
129.5
147.5
152.0
162.7
202.5
209.6
232.6
239.9
241.3
249.2
279.3
247.6
274.9
278.6
288.4
307.1
1997
205.20
240.62
246.05
244.47
261.95
195.71
168.31
188.90
192.90
205.59
253.53
253.43
273.00
278.96
277.95
266.52
307.45
264.81
283.70
284.95
288.98
307.10
Materials
Current
336.4
434.9
434.6
482.3
484.7
343.3
312.8
347.1
369.2
372.1
443.5
470.7
480.4
499.0
500.6
541.4
578.8
562.5
588.3
574.0
621.3
650.9
1997
513.99
643.17
619.91
664.66
646.15
452.74
406.55
444.53
468.55
470.19
555.26
569.12
563.85
580.24
576.64
579.03
637.14
601.59
607.13
587.09
622.54
650.90
New
Current
37.1
43.1
24.4
47.2
69.7
48.5
20.8
24.7
32.5
13.7
16.3
18.0
36.3
30.3
26.5
44.9
62.5
41.1
35.9
42.7
88.8
96.8
Capital
1997
56.69
63.74
34.80
65.05
92.92
63.96
27.03
31.63
41.25
17.31
20.41
21.76
42.61
35.23
30.53
48.02
68.80
43.96
37.05
43.67
88.98
96.80
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001. .
Sources: U.S. Department of Commerce, Bureau of the Census. 1994a. 1992 Census of Manufactures, Industry
Series—Abrasive, Asbestos, and Miscellaneous Mineral Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995. 1993 Annual Survey of Manufactures. M93(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1996a. 1994 Annual Survey of Manufactures. M94(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997. 1995 Annual Survey of Manufactures. M95(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures. M96(AS)-1.
Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 1997 Census of Manufactures, Industry
Series—Manufacturing: Nonclay Refractory Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 2000. 1998 Annual Survey of Manufactures. M98(AS)-1.
Washington, DC: Government Printing Office.
2-15
-------
Table 2-5. Costs of Materials Used in Refractory Production and Manufacture"
Material
Clay NAICS 327124
Materials, ingredients, containers,
and supplies
Clay, ceramic, and refractory
minerals
Dead-burned magnesia or
magnesite
Refractories, clay or nonclay
Other stone, clay, glass, and
concrete products
Industrial chemicals
All other materials and
components, parts, containers, and
supplies
Nonclay NAICS 327125
Materials, ingredients, containers,
and supplies
Clay, ceramic, and refractory
minerals
Dead-burned magnesia or
magnesite
Refractories, clay or nonclay
Other stone, clay, glass, and
concrete products
Industrial chemicals
All other materials and
components, parts, containers, and
supplies
1997
Delivered Cost
($106)
35.2
284
6.9
90.8
4.4
6.5
65.1
50.4
224.2
38.7
NA
NA
21.4
73.9
Percentage of
Material Costs
6.22
50.18
1.22
16.04
0.78
1.15
11.50
8.11
36.09
6.23
NA
NA
3.44
11.89
1992
Delivered Cost
($106)
26.7
209
8.4
79.6
5.2
2.2
76.8
65.4
156.2
59.1
65.6
NA
21.1
75.3
Percentage of
Material Costs
6.55
51.26
2.05
19.52
1.28
0.53
18.83
11.12
26.58
10.05
11.16
NA
3.58
12.82
NA = Not available.
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001.
.
Source: U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufactures, Industry
Series—Manufacturing: Clay Refractory Manufacturing. Washington, DC: Government Printing Office.
2-16
-------
2.2 Industry Organization
This section examines the organization of the U.S. refractory industry, including
plant location and production characteristics, commercial and captive producers, firm
characteristics, market structure, and degree of integration. Understanding the industry's
organization helps determine how it will be affected by complying with the refractory production
NESHAP.
2.2.1 Refractory Manufacturing Facilities
A facility is a site of land with a plant and equipment that combine inputs (mineral
products, organic and inorganic liquids, fuel and labor) to produce an output (refractory
products). Companies that own these facilities are legal business entities that conduct
transactions and make decisions that affect the facility. The terms "facility," "establishment,"
and "plant" are synonymous in this analysis and refer to the physical location where products are
manufactured. Likewise, the terms "company" and "firm" are used interchangeably to refer to
the legal business entity that owns one or more facilities. This section presents information on
the companies that own refractory plants.
2.2.1.1 Refractories Database Facilities
Table 2-6 presents a list of 117 refractory manufacturers obtained from a publicly
available financial database, including the location of the facility, its estimated sales volume in
millions of dollars, and its employment. This list includes many of the facilities potentially
affected by the refractory products NESHAP but does not correspond precisely to the set of
facilities EPA believes may be affected, because data on those facilities were provided to EPA in
confidential questionnaire responses. EPA's data indicate that the United States has 147
refractory manufacturing facilities.
2.2.1.2 Facility Location
Census data indicate that refractory materials are produced in 37 states. Table 2-7
lists the number of refractory facilities in the 50 states and Puerto Rico, based on the Census of
Manufactures. The leading refractory-producing states are Pennsylvania and Ohio, which also
contain a large number of steel mills. Figure 2-11 illustrates the distribution of the refractory-
producing facilities in the United States, together with the location of plants in the
2-17
-------
Table 2-6. Selected Refractory Manufacturers, by Type
oo
Company
Clay
Able Supply Co.
Alsey Refractories Co.
B&B Refractories, Inc.
Bay State Crucible Co.
Bloom Engineering Co.,
Inc.
BNZ Materials, Inc.
Carpenter EPG Certech,
Inc.
Carpenter Technology
Corp.
Ceradyne, Inc.
Certech, Inc.
CFB Industries, Inc.
Christy Refractories Co.
LLC
Clay City Pipe
Cooperheat-MQS, Inc.
ER Advanced Ceramics,
Inc.
Ermhart Glass
Manufacturing, Inc.
Pels Refractories, Inc.
Ferro Corp.
Freeport Area Enterprises,
Inc.
Freeport Brick Co.
Location
Houston, TX
Alsey, IL
Santa Fe Springs, CA
Tauton, MA
Pittsburgh, PA
Littleton, CO
Wilkes Barre, PA
Reading, PA
Costa Mesa, CA
Wood Ridge, NJ
Chicago, IL
St. Louis, MO
Uhrichsville, OH
Houston, TX
East Palestine, OH
Owensville, NJ
Edison, NJ
Cleveland, OH
Freeport, PA
Creighton, PA
Sales
(S106)
NA
10 to 20
2.5
to 5
5 to 10
38
25
14
1,000
26
62
23
14
14
120
NA
NA
1 to 2.5
331
10
NA
Employment
NA
20 to 49
10 to 19
20 to 49
187
150
150
5,324
300
758
176
80
200
1,200
NA
NA
NA
6,693
150
NA
Company Sales
Type Owning Company (S106)
NA NA NA
Private
Private
Private
Subsidiary Sterling Industries PLC, NA
England
Private
Subsidiary Carpenter Technology Corp. 1,000
Public
Private
Subsidiary Carpenter Technology Corp. 1,000
Private
Private
Private
Private
NA NA NA
NA NA NA
Private
Public
Private
NA NA NA
Employment
NA
NA
5,324
5,324
NA
NA
NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
VO
Company
Clay (continued)
Global Industrial
Technologies, Inc.
Green AP Refractories, Inc.
Heater Specialists, Inc.
Holland Manufacturing
Corp.
Howmet Corp.
Industrial Ceramic
Products, Inc.
Industrial Product
International
Inland Enterprise, Inc.
Insul Co., Inc.
International Chimney
Corp.
Lousiville Firebrick Works
Martin Marietta Magnesia
Specialties, Inc.
Maryland Refractories Co.
Mono Ceramics, Inc.
Morganite Crucible, Inc.
Mt. Savage Firebrick Co.
National Refractories &
Minerals Corp.
New Castle Refractories
Location
Dallas, TX
Mexico, MO
Tulsa, OK
Dolton, IL
Whitehall, MI
Columbus, OH
Englewood, CO
Avon, OH
East Palestine, OH
Williamsville, NY
Grahm, KY
Raleigh, NC
Irondale, OH
Benton Harbor, MI
North Haven, CT
Frostburg, MD
Livermore, CA
Massillon, OH
Sales
(S106)
142
25
17
2.5
to 5
1,300
NA
1 to 2.5
14
15
18
NA
1 to 2.5
11
15
NA
115
14
Employment
4,262
300
160
20 to 49
10,350
NA
5 to 9
100
77
140
NA
NA
45
75
NA
600
122
Company
Type
Public
Subsidiary
Private
NA
Subsidiary
NA
Private
Private
Private
Private
NA
Subsidiary
Private
Subsidiary
Subsidiary
NA
Subsidiary
Subsidiary
Owning Company
RfflAG
NA
Cordant Technologies, Inc.
NA
NA
Martin Marietta Materials,
Inc.
Monocon International
Refractories, England
Morgan Crucible Co. PLC,
England
NA
National Refractory Holding
Co., Inc.
Dixon Ticonderoga
Sales
(S106)
1,580
NA
2,513
NA
NA
1,057
NA
1,394
NA
NA
115
Employment
14,500
NA
17,200
NA
NA
570
NA
16,885
NA
810
1,354
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Clay (continued)
North America Refractories
Co.
P-G Industries, Inc.
Plibrico Co.
Porvair Corp.
Premier Refractories, Inc.
Premier Refractories
International, Inc.
Pryotech, Inc.
Refco, Inc.
Refractories Sales and
t° Service Co., Inc.
to
o
Reno Refractories, Inc.
Resco Products, Inc.
RHI Refractories America
Riverside Clay Co., Inc.
Riverside Refractories, Inc.
Rutland Products
Servsteel, Inc.
SGL Carbon Corp.
Shenango Refractories, Inc.
Sterling Industries of
Delaware, Inc.
The Nock and Son Co.
Location
Cleveland, OH
Pueblo, CO
Oak Hill, OH
Hendersonville, NC
King of Prussia, PA
King of Prussia, PA
Spokane, WA
Boylston, MA
Bessemer, AL
Morris, AL
Norristown, PA
Pittsburgh, PA
Pell City, AL
Pell City, AL
Jacksonville, FL
Morgan, PA
Charlotte, NC
New Castle, PA
Pittsburgh, PA
Oak Hill, OH
Sales
(S106)
331
12
10 to 20
18
64
90
45
34
NA
16
50
NA
15
14
NA
255
5 to 10
57
2.5
to 5
Employment
1,500
160
20 to 40
200
778
900
650
88
NA
85
500
NA
100
100
NA
1,891
20 to 49
312
10 to 19
Company
Type
Subsidiary
Private
Private
Private
Private
Subsidiary
Private
Subsidiary
NA
Private
Private
NA
Subsidiary
NA
Subsidiary
Private
Subsidiary
Private
Owning Company
Didier-Werke AG, Germany
Alpine Group, Inc.
Industrial Distribution
Group, Inc.
NA
RHI Refractories AG
Riverside Clay Co., Inc.
NA
SGL Aktiengesellschaft,
Germany
Sterling Industries PLC,
England
Sales
(S106) Employment
448.5 NA
1,370 6,600
273 1,200
NA NA
1,580 14,500
15 100
NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
to
Company
Clay (continued)
The Whitacre-Greer Fire
Proofing Co.
Thermal Ceramics, Inc.
Thorley Refractories, Inc.
Transit Mix Concrete Co., Inc.
TYK America, Inc.
Unifrax Corp.
Universal Refractories, Inc.
Utah Refractories Co.
Wahl Refractories, Inc.
Zero Refractories, Inc.
Nonclay
Advanced Ceramics Corp.
Advanced Ceramics
International, Inc.
Allied Mineral Products, Inc.
Alpine Group, Inc.
Aluminum Company of America
(ALCOA)
AMPAC
B S C Holding, Inc.
Baker Holding Co., Inc.
Baker JE Co.
Bartley Crucible & Refractories,
Inc.
Location
Alliance, OH
Augusta, GA
Southgate, CA
Colorado
Springs, CO
Clairton, PA
Niagara Falls,
NY
Wampum, PA
Lehi, UT
Fremont, OH
Taylor MI
Cleveland, OH
Cleveland, OH
Columbus, OH
New York, NY
Pittsburgh, PA
Amsterdam, NY
Shawnee
Mission, KS
York, PA
York, PA
Trenton, NJ
Sales (S106)
5 to 10
138
5 to 10
25
37
85
24
NA
17
0.5
25 to 50
21
56
1,370
15,300
13
23
190
190
NA
Employment
NA
1,200
20 to 49
210
122
285
130
NA
68
Ito4
NA
175
240
6,600
103,500
100
15
1,300
1,050
NA
Company
Type
Private
Subsidiary
Private
Subsidiary
Subsidiary
Subsidiary
Private
NA
Subsidiary
Private
Private
Private
Private
Public
Public
Private
Private
Public
Subsidiary
NA
Owning Company
Morgan Crucible Co. PLC,
England
Continental Materials
Corp., Delaware
TYK Corp., Japan
Kirkland Capital Partners
LP
NA
Thermatex Corp.
Baker Holding Co., Inc.
NA
Sales
(S106) Employment
1,394 16,885
NA NA
133.5 NA
90 808
NA NA
10 148
190 1,300
NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Nonclay (continued)
Bethlehem Advanced
Materials Corp.
Blash Precision Ceramics,
Inc. (Texas United)
BNZ Materials, Inc.
CCPI, Inc.
Cercom, Inc.
Certech, Inc.
CFB Industries, Inc.
Chicago Firebrick Co., Inc.
Coors Porcelain Co., Inc.
Dixon Ticonderoga Co.,
i Inc.
to
to ETS Schaefer Corp.
Foseco, Inc.
Global Industrial
Technologies, Inc.
Harbison- Walker
Refractories Co.
Insul Co., Inc.
JW Hicks, Inc.
Magneco, Inc.
Martin Marietta Magnesia
Specialties, Inc.
Minco Acquistion Corp.
Minco, Inc.
Minerals Technologies, Inc.
Minteq International, Inc.
Location
Knoxville, TN
Houston, TX
Zelienople, PA
Blanchester, OH
Vista, CA
Streetsboro, OH
Chicago, IL
Chicago, IL
Lake Mary, FL
Macedonia, OH
Cleveland, OH
Dallas, TX
Pittsburgh, PA
East Palestine, OH
Merrellville, IN
Addison, IL
Raleigh, NC
Midway, TN
Midway, TN
New York, NY
New York, NY
Sales
(S106)
14
63
1 to 2.5
25 to 50
11
62
23
18
304
85
13
71
142
263
15
5 to 10
19
21
15
609
205
Employment
110
515
5 to 9
NA
76
758
176
58
2,900
1,562
195
500
4,262
1,615
77
20 to 49
150
170
135
2,260
1,800
Company
Type
Subsidiary
Private
private
private
Private
Subsidiary
Private
Private
Subsidiary
Public
Subsidiary
Subsidiary
Public
Subsidiary
Private
NA
Subsidiary
Subsidiary
Private
Subsidiary
Public
Subsidiary
Owning Company
The Bethlehem Corp.
Carpenter Technology Corp.
ACX Technologies, Inc.
Alumitech, Inc.
Foseco Holding BV,
Netherlands
RfflAG
NA
Magneco/Metrel, Inc.
Martin Marietta Materials,
Inc.
Minco Acquisition Corp.
Minerals Technologies, Inc.
Sales
(S106)
14
1,000
988
21
1,580
NA
34
1,057
21
609
Employment
117
5,324
5,600
210
14,500
NA
570
170
2,260
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Nonclay (continued)
Mitsubishi Cement Corp.
Mixed Mineral Products,
Inc.
Monofrax, Inc.
Morganite Crucible, Inc.
National Refractories &
Minerals Corp.
New Castle Refractories
Newport Sand & Gravel
^ Co., Inc.
00 North American
Refractories Co.
Norton Co., Inc.
Osram Sylvania, Inc.
Osram Sylvania Products,
Inc.
Pell Industries
Prefromix Technologies
LTD
Premier Refractories
International, Inc.
Premier Services, Inc.
Pyrotek Inc.
Rex Roto Corp.
Location
Ontario, CA
Columbus, OH
Falconer, NY
North Haven, CT
Livermore, CA
Massillon, OH
Newport, NH
Cleveland, OH
Worcester, MA
Danvers, MA
Danvers, MA
Grove City, PA
Warren, OH
King of Prussia, PA
Bettsville, OH
Spokane, WA
Fowlerville, MI
Sales
(S106)
74
NA
50 to 100
15
115
14
13
331
1,500
5,200
1,800
5 to 10
10
90
NA
50 to 100
14
Employment
619
NA
250 to 499
75
600
122
100
1,500
9,000
13,000
1,100
20 to 49
75
900
NA
NA
80
Company
Type
Subsidiary
NA
Private
Subsidiary
Subsidiary
Subsidiary
Private
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Private
Private
Subsidiary
NA
Private
Private
Sales
Owning Company (S106)
Mitsubishi Materials Corp., 9,354
Japan
NA NA
Morgan Crucible Co. PLC, 1 ,394
England
National Refractory Holding
Co., Inc.
Dixon Ticonderoga 115
Didier-Werke AG, Germany NA
Saint-Gobain, France 23,113
Siemans Corp.
Siemans Corp.
Alpine Group, Inc. 1 ,370
NA NA
Employment
6,556
NA
16,885
1,354
NA
165,000
6,600
NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Nonclay (continued)
Saint-Gobain Advanced
Materials Corp.
Selee Corp.
Silicon Carbide Products,
Inc.
Spar, Inc.
Thermatex Corp.
(Thermalite)
TYK America, Inc.
UCAR Carbon Co.
Universal Refractories, Inc.
Varsal Instruments, Inc.
Vesuvius Crucible Co.
i Vesuvius USA Corp.
4^
Wulfrath Refractories, Inc.
Zircar Products, Inc.
Zircoa, Inc.
Location
Louisville, KY
Hendersonville, NC
Elmira, NY
Jacksonville, FL
Fremont, OH
Clairton, PA
Danbury, CT
Wampum, PA
Warminster, PA
Champaign, IL
Champaign, IL
Tarentum, PA
Florida, NY
Solon, OH
Sales
(S106)
533
5
1 to 2.5
NA
10
37
105
24
15
400
400
22
12
20
Employment
3,300
190
5 to 9
NA
148
122
1,506
130
224
2,500
1,600
115
85
140
Company
Type
Subsidiary
Subsidiary
Private
NA
Private
Subsidiary
Subsidiary
Private
Private
Subsidiary
Subsidiary
Private
Private
Subsidiary
Sales
Owning Company (S106)
Norton Co., Inc.
Porvair PLC, England
NA NA
TYK Corp., Japan 133.5
UCAR International, Inc. 947
Cookson Group PLC, 3,011
England
Cookson Group PLC, 3,011
England
Didier- Werke AG, Germany 448 . 5
Employment
NA
NA
4,952
17,101
17,101
4,717
NA = Not available.
Source: Dun & Bradstreet. 2000. D&B Million Dollar Directory. Series 2000. Bethlehem, PA: Dun & Bradstreet, Inc.
Note: The data used to analyze company impacts of the NESHAP are similar but not identical to these data. The actual data used include confidential survey
responses and thus cannot be made public.
-------
Table 2-7. Number of Refractory Manufacturing Facilities by State
State
Alabama
California
Georgia
Illinois
Indiana
Kentucky
Maryland
Michigan
Missouri
New York
New Jersey
North Carolina
Ohio
Pennsylvania
Texas
West Virginia
Totals
Clay (NAICS
8
10
5
7
4
9
27
30
7
107
Number of Refractory Plants
327124) Nonclay (NAICS 327125)
6
4
7
7
6
7
3
o
J
1
2
24
22
3
101
Source: U.S. Department of Commerce, Bureau of the Census. 1999a. 1997 Census of Manufactures.
Washington, DC: Government Printing Office.
industries that are the major consumers of refractory products. States with a large number of
refractory plants typically also have substantial numbers of iron and steel, cement, and/or
nonferrous metal plants, indicating that refractory plant location may depend at least in part on
customer location. This is likely to be particularly true for unfired shaped refractories, because
they have not undergone firing and are somewhat fragile and thus difficult to transport
successfully.
2.2.2 Capacity Utilization
Capacity utilization indicates how well the current facilities meet demand, which can
be measured by the capacity utilization rate. A capacity utilization rate is the ratio of actual
production volumes to full-capacity production volumes. For example, if an industry is
2-25
-------
Figure 2-11. Location of Refractory Manufacturing Facilities
producing as much output as possible without adding new floor space for equipment, the
capacity utilization rate would be 100 percent. On the other hand, if under the same constraints
the industry were only producing 75 percent of its maximum possible output, the capacity
utilization rate would be 75 percent. On an industry basis, capacity utilization is highly variable
from year to year depending on economic conditions. It is also variable on a company-by-
company basis depending not only on economic conditions, but also on the company's strategic
position, within its particular industry. While some plants may have idle production lines or
empty floor space, others need additional space or capacity.
Table 2-8 lists the capacity utilization rates for clay and nonclay refractory
manufacturers for 1993 though 1998. Reduction in the demand for refractory replacements parts
led to lower capacity utilization rates throughout this time period. Nonclay refractories,
2-26
-------
Table 2-8. Full Production Capacity Utilization Rates for Clay and Nonclay Refractories:
Fourth Quarters 1993 through 1998
Clay (NAICS 327125)
1993 75
1994 80
1995 63
1996 61
1997 49
1998 54
Nonclay (NAICS 327125)
71
75
81
82
78
72
Source: U.S. Department of Commerce, Bureau of the Census. 1999d. 1998 Survey of Plant Capacity.
Washington, DC: Government Printing Office.
which include specialty refractory products, have seen increased demand, allowing that part of
the industry to maintain an approximately 70 percent capacity utilization rate.
2.2.3 Industry Concentration and Market Structure
Market structure, which characterizes the level and type of competition among
refractory producers, determines the behavior of producers and consumers in the industry,
including their power to influence market price. If an industry is perfectly competitive, then the
individual producers have little market power; they are not able to influence the price of the
outputs they sell or the inputs they purchase. Perfectly competitive industries have large
numbers of firms, the products sold are undifferentiated, and the entry and exit of firms are
unrestricted.
Conversely, imperfectly competitive industries or markets are characterized by a
smaller number of firms, differentiated products, and restricted entry or exit. Product
differentiation can occur both from differences in product attributes and quality and from brand
name recognition of products. Entry and exit of firms are restricted in industries when
government regulates entry (e.g., through licenses or permits), when one firm owns the entire
stock of critical input, or when a single firm is able to supply the entire market.
When compared across industries, firms in industries with fewer firms, more product
differentiation, and restricted entry are more likely to have the power to influence the price they
receive for a product by reducing output below perfectly competitive levels. At the extreme, a
single monopolistic firm may supply the entire market and hence set the price of the output. On
the input market side, firms may be able to influence the price they pay for an input if few firms,
both from within and outside the industry, use that input.
2-27
-------
2.2.3.1 Measures of Industry Concentration
To assess the competitiveness of an industry, economists often estimate four-firm
concentration ratios (CR4), eight-firm concentration ratios (CR8), and Herfmdahl-Hirschman
indexes (HHI) for the subject market or industry. The CR4s and CR8s measure the percentage
of sales accounted for by the top four and eight firms in the industry. The HHIs are the sums of
the squared market shares of firms in the industry. Table 2-9 provides concentration ratios for
the refractory industry.
Table 2-9. Market Concentration Measures for SIC 3255 Clay Refractory Manufacturing
and SIC 3297 Nonclay Refractory Manufacturing
Measure
Herfindahl-Hirschmann Index (HHI)
Four-firm concentration ratio (CR4)
Eight-firm concentration ratio (CR8)
Number of companies
Number of facilities
Value of shipments
Value
Clay
578
40
62
95
145
886.8
Nonclay
527
36
58
102
142
1,203.8
Source: U.S. Department of Commerce, Bureau of the Census. 1996b. Concentration Ratios in Manufacturing.
MC92-S-2. Washington, DC: Government Printing Office. Available at
.
Unfortunately, there is no objective criterion for determining market structure based
on the values of these concentration ratios. However, there are criteria for determining market
structure based on the HHIs for use in merger analyses, which are provided in the 1992
Department of Justice's Horizontal Merger Guidelines (U.S. Department of Justice and the
Federal Trade Commission, 1992). According to these criteria, industries with HHIs below
1,000 are considered unconcentrated (i.e., more competitive), and those with HHIs between
1,000 and 1,800 are considered moderately concentrated (i.e., moderately competitive). Firms in
less-concentrated industries are more likely to be price takers, while firms in more-concentrated
industries are more likely to be able to influence market prices. These measures of market
concentration can be computed using four-digit Standard Industrial Classification (SIC) codes
based on U.S. Bureau of the Census data (U.S. Department of Commerce, 1993). Based on the
HHI criteria, the refractory industry is not concentrated, and, therefore, competitive in structure.
These indices are measures of concentration of the industry at the national level.
2-28
-------
2.2.3.2 Market Structure
The majority of products of the refractories industry are used as inputs for the steel
industry. The relatively small numbers of steel companies that are prominent users of refractory
products may result in the buyers maintaining some measure of control over the input price
(monopsony or oligopsony).
A monopsony occurs when a firm is the sole purchaser of an input. The monopsonist
has the market power in the input market and can reduce the price paid without losing all input.
An oligopsony is characterized by the presence of a few large buyers (even though there may
also be many small buyers of insignificant size). In oligopsony, large firms are aware of their
competitors for purchasing inputs and determine their purchasing price and quantity based on
their expectations of their competitors' behavior. Although there may be some degree of market
power exerted by steel companies on the demand side of the refractories market, our analysis
treats the markets for refractory products as competitive.
2.2.3.3 Small Businesses that Own Refractory Facilities
To determine the possible impacts on small businesses, both clay and nonclay
refractory manufacturers are categorized as small or large using the Small Business
Administration (SBA) general size definitions (SBA, 1998). For clay refractory manufacturers,
a small company has 500 or fewer employees. For nonclay refractory manufacturers, small is
defined as having 750 or fewer employees.
Table 2-10 lists the employment and sales data for small companies that are owners
of refractory-producing facilities. Again as in Table 2-6, these data are based on information
available from publicly available sources. EPA's database provides information on company
size, and its analysis of small business impacts is based on the best data currently available
2-29
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry
Company
Able Supply Co.
Alsey Refractories Co.
B&B Refractories Inc.
Bay State Crucible Co.
Ceradyne Inc.
Christy Refractories Co. LLC
Clay City Pipea
ER Advanced Ceramics Inc.
Ermhart Glass Manufacturing
Inc.
Pels Refractories Inc.
Freeport Area Enterprises Inc.3
Freeport Brick Co.
Heater Specialists, Inc.a
Holland Manufacturing Corp.
Industrial Ceramic Products Inc.
Industrial Product International
Inland Enterprise Inc.
International Chimney Corp."
Lousiville Firebrick Works
Maryland Refractories Co.
Mt. Savage Firebrick Co.
P-G Industries Inc.
Plibrico Co.
Porvair PLC
Refractories Sales and Service
Co. Inc.
Reno Refractories Inc.
Resco Refractories, Inc.
Riverside Clay Co. Inc.
Rutland Products
Location
Houston, TX
Alsey, IL
Santa Fe Springs, CA
Taunton, MA
Costa Mesa, CA
St. Louis, MO
Uhrichsville, OH
East Palestine, OH
Owensville, NJ
Edison, NJ
Freeport, PA
Creighton, PA
Tulsa, OK
Dolton, IL
Columbus, OH
Englewood, CO
Avon, OH
Williamsville, NY
Grahm, KY
Irondale, OH
Frostburg, MD
Pueblo, CO
Oak Hill, OH
United Kingdom
Bessemer, AL
Morris, AL
Norristown, PA
Pell City, AL
Jacksonville, FL
Sales
($106)
NA
10 to 20
2.5 to 5
5 to 10
26
14
14
NA
NA
1 to 2.5
10
NA
17
25 to 5
NA
1 to 2.5
14
18
NA
1 to 2.5
NA
12
10 to 20
88.2
NA
16
50
15
NA
Employment
NA
20 to 49
10 to 19
20 to 49
300
80
200
NA
NA
NA
150
NA
160
20 to 49
NA
5 to 9
100
140
NA
NA
NA
160
20 to 49
658
NA
85
500
100
NA
Organization
Type
NA
Private
NA
NA
Private
Private
Private
NA
NA
Private
Private
NA
Private
Private
NA
Private
Private
Private
NA
Private
NA
Private
NA
Public
NA
Private
Private
NA
NA
(continued)
2-30
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry (continued)
Company
Servsteel Inc.
Shenango Refractories, Inc.
Nock and Son Co., The
Whitacre-Greer Fire Proofing
Co., The
Thorley Refractories Inc.
Utah Refractories Co.
Zero Refractories, Inc.
BNZ Materials Inc.
CFB Industries Inc.3
Insul Co. Inc.
Pyrotek Inc.3
Thermatex Corp. (Thermalite)
Universal Refractories Inc.
Advanced Ceramics3
International Inc.
Allied Mineral Products Inc.
Alumitech Inc.3
AMPAC3
B S C Holding Inc.3
Bartley Crucible & Refractories,
Inc.
Blash Precision Ceramics, Inc.
(Texas United)
CCPI Inc.
Cercom Inc.3
Chicago Firebrick Co. Inc.3
JW Hicks Inc.
Magneco/Metrel Inc.
Minco Acquistion Corp.3
Location
Morgan, PA
New Castle, PA
Oak Hill, OH
Alliance, OH
Southgate, CA
Lehi, UT
Taylor MI
Littleton, CO
Chicago, IL
East Palestine, OH
Spokane, WA
Fremont, OH
Wampum, PA
Cleveland, OH
Columbus, OH
Canada
Amsterdam, NY
Shawnee Mission, KS
Trenton, NJ
Houston, TX
Blanchester, OH
Vista, CA
Chicago, IL
Merrellville, IN
Addison, IL
Midway, TN
Sales
($106)
5 to 10
2.5 to 5
5 to 10
5 to 10
NA
0.5 to 1
25
23
15
50 to 100
10
24
21
56
77
13
23
NA
63
25 to 50
11
18
5 to 10
34
21
Employment
20 to 49
10 to 19
NA
20 to 49
NA
Ito4
150
176
77
NA
148
130
175
240
447
100
15
NA
515
NA
76
58
20 to 49
150
170
Organization
Type
Private
Private
Private
Private
NA
Private
Private
Private
Private
Private
Private
Private
Private
Private
Public
Private
Private
NA
Private
Private
Private
Private
Private
Private
Private
(continued)
2-31
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry (continued)
Company
Mixed Mineral Products Inc.a
Monofrax Inc.a
Newport Sand & Gravel Co.
Inc.a
Pell Industries
Prefromix Technologies LTDa
Premier Services, Inc.
Rex Roto Corp.
Silicon Carbide Products Inc.
Spar, Inc.
Bethlehem Corporation, Thea
Varsal Instruments Inc.a
Wulfrath Refractories Inc.
Zircar Products Inc.
Location
Columbus, OH
Falconer, NY
Newport, NH
Grove City, PA
Warren, OH
Bettsville, OH
Fowlerville, MI
Elmira, NY
Jacksonville, FL
Easton, PA
Warminster, PA
Tarentum, PA
Florida, NY
Sales
($106)
NA
50 to 100
13
5 to 10
10
NA
14
1 to 2.5
NA
14
15
22
12
Employment
NA
250 to 499
100
20 to 49
75
NA
80
5 to 9
NA
117
224
115
85
Organization
Type
NA
Private
Private
Private
Private
NA
Private
NA
NA
Private
Private
Private
Private
These companies were listed by Ward's Business Directory under the NAICS codes 327124 and 32712. However,
they were not linked to a facility in the database. These companies are ignored in the remaining small business
analysis.
about the size of companies owning refractory products manufacturing facilities, including both
questionnaire responses and publicly available information. To avoid revealing confidential
questionnaire data, however, we present only the publicly available data in this section. Data on
employment and sales for many of these companies are difficult to acquire from public sources,
because they are privately held. Publicly available data suggest that a total of 56 small
businesses own 71 facilities that produce refractory products. These are shown in Table 2-10.
In its analysis of small business impacts, EPA has chosen to use a small business size
criterion of 750 employees regardless of the primary North American Industry Classification
System (NAICS) code of the company. EPA made this decision because some companies in the
industry produce both clay and nonclay refractories, making it difficult to assign such companies
to a single NAICS code. Using the higher 750 employee small business criterion for all affected
companies may overstate the number of small businesses affected by the rule. EPA has obtained
company employment and sales data from potentially regulated facilities, some of which are
confidential. Based on this information and a small business size criterion of 750 employees,
EPA has identified 56 small businesses that are potentially affected by the NESHAP, out of a
total of 76 companies owning refractory manufacturing facilities.
2.2.4 Current Production Trends in the Refractory Industry
2-32
-------
To remain competitive, refractory manufacturers have continued to improve raw
materials and manufacturing and testing processes. The trend toward increased lining life in
most applications has reduced the costs of repair and replacement to refractory consumers.
Improvements in the production process of steel, glass, and petrochemicals in combination with
improvements in refractory products and linings have culminated to reduce the amount of
refractory consumption. Recently, the basic oxygen steelmaking furnace linings have exceeded
20,000 heats. The glass industry has experienced increased time between repairs in glass
furnaces from every 4 years to 13 years, with little or no preventative maintenance (Sheppard,
2000; Ceramic Industry, 2000). From 1998 to 1999, the refractory industry reported a 6 percent
decline in production and a 12 percent decline in turnover (DHAN, 1999).
Because of improved quality of refractory products, increased life span of refractory
products, and the availability of cheaper refractory imports, the steel industry has decreased
consumption of refractories from 25 to 30 kg per ton of steel to 10 kg in Japan and the United
States (Semler, 2000). Other consumers of refractory products, including the petroleum industry
and concrete industry, are following the steel industry's pattern of reducing consumption of
refractories.
2.3 The Demand Side
Estimating the economic impacts of the regulation on the refractory manufacturing
industry requires characterizing various aspects of the demand for refractory products. This
section describes the product characteristics desired by end users; the uses for refractories,
including use in the glass, metal, and electronics industries; and possible substitutes for
refractories.
2-33
-------
2.3.1 Product Characteristics
Because the quality and characteristics of refractories vary considerably, consumers
often employ chemical and physical tests to ensure that the refractories purchased meet their
requirements. The American Society for Testing and Materials (ASTM) provides specifications
and tests for various kinds and uses of refractory products. Depending on the intended end use,
consumers may test refractories for thermal conductivity, resistance to abrasion and corrosion,
permeability, oxidation resistance, pyrometric cone equivalence, and other characteristics (ASM
International, 1987).
Most refractory products are sold as preformed shapes. However, they are also
available in special purpose clays; bonding mortars; monolithic, plastic refractories; ramming
mixes; and gunning mixes. A variety of processed refractory grains and powders are also
produced (DHAN, 1999). From the physical form, refractory products can be further classified
into oxide bricks, nonoxide bricks, and composites. Table 2-11 lists types of oxide, nonoxide,
and composite refractories; their characteristics; and their applications.
2.3.2 Uses and Consumers
Principle end-use markets for refractory products include the iron and steel, cement,
and nonferrous metal industries. The steel industry consumes the largest percentage of
refractories, estimated between 50 and 80 percent of the refractory production (Semler, 2000).2
Table 2-12 presents metric ton production of raw steel and nonferrous metals for the period 1994
to 1999. Refractory products are used in the steel industry to line coke ovens, blast furnaces,
blast furnace stoves, basic oxygen vessels, electric furnaces, open-hearth furnaces, and other
heat-related manufacturing equipment (ASM International, 1987). As described above,
refractory products are used by steel, cement, and nonferrous metals producers. Refractory
products manufacturing facilities are typically located close to their consumers (see map in
Figure 2-11).
2The U.S. International Trade Commission (USITC) estimated consumption of the steel industry at over 50 percent,
and DHAN estimated it at 75 percent.
2-34
-------
Table 2-11. Characteristics and Types of Refractories
Refractory Type
General Characteristics
Application
Oxide Bricks
Silica
Fused silica
Chamotte
(fireclay)
Alumina
High alumina
Roseki
Zircon
Zirconia
Alumina zirconia
silica
Lime
Magnesia
Magnesia-chrome
High strength at high temperatures, residual expansion,
low specific gravity, high expansion coefficient at low
temperatures, low expansion coefficient at high
temperatures
Low thermal expansion coefficient, high thermal shock
resistance, low thermal conductivity, low specific
gravity, low specific heat
Low thermal expansion coefficient, low thermal
conductivity, low specific gravity, low specific heat, low
strength at high temperatures, less slag penetration
High refractoriness, high mechanical strength, high slag
resistance, high specific gravity, relatively high thermal
conductivity
High refractoriness, high mechanical strength, high slag
resistance, high specific gravity, relatively high thermal
conductivity
Low thermal expansion coefficient, high thermal shock
resistance, low thermal conductivity, low specific
gravity, low specific heat
High thermal shock resistance, high slag resistance, high
specific gravity
High melting point, low wettability against molten metal,
low thermal conductivity, high corrosion resistance, high
specific gravity
High slag resistance, high corrosion resistance against
molten glass
High slag resistance, low hydration resistance
High refractoriness, relatively low strength at high
temperature, high basic slag resistance, low thermal
shock resistance, low durability at high humidity
High refractoriness, high refractoriness under load, high
basic slag resistance, relatively good thermal shock
resistance (low MgO bricks), high strength at high
temperature (direct bonded and fusion cast)
Glass tank crown, copper refining furnace,
electric arc furnace roof
Coke oven, hot stove, soaking pit, glass
tank crown
Ladle, runner, sleeve, coke oven, annealing
furnace, blast furnace hot stove, reheating
furnace, soaking pit
Hot stove, stopper head, sleeve, soaking pit
cover, reheating furnace, glass tank, high-
temperature kiln
Slide gate, aluminum melting furnace, skid
rail, ladle, incinerator, reheating furnace
hearth, skid rail, ladle, incinerator
Ladle, runner, sleeve, coke oven, annealing
furnace, blast furnace hot stove, reheating
furnace, soaking pit
Ladle, nozzle, stopper head, sleeve
Nozzle for continuous casting, glass tank,
high-temperature furnace, crucible
Glass tank, incinerator, ladle, nozzle for
continuous casting
Special refining surface
Hot-metal mixer, secondary refining
vessel, rotary kiln, checker chamber of
glass tank, electric arc furnace
Hot-metal mixer, electric arc furnace,
secondary refining vessel, nonferrous
refining furnace, rotary cement kiln, lime
and dolomite kiln, copper furnace, ladle,
checker chamber for glass tank, slag line
of electric arc furnace, degasser for copper,
nonferrous smelter
(continued)
2-35
-------
Table 2-11. Characteristics and Types of Refractories (continued)
Refractory Type
General Characteristics
Application
Oxide Bricks (continued)
Chrome
Dolomite
Spinel
High refractoriness, low strength at high temperature,
low thermal resistance
High refractoriness, high refractoriness under load, high
basic slag resistance, low durability in high humidity,
high thermal expansion coefficient
High thermal shock resistance, high strength at high
temperatures, high slag resistance
Buffer brick between acid and basic brick
Basic oxygen furnace, electric arc furnace,
secondary refining vessel, rotary cement
kiln
Rotary cement kiln, ladle
Nonoxide Bricks
Carbon
Silicon carbide
Silicon carbide-
graphite
Silicon nitride
High refractoriness, high slag resistance, low oxidation
resistance
High refractoriness, high strength at high temperature,
high thermal conductivity, high thermal shock resistance,
reduced oxidation resistance at high temperature, high
slag resistance
High refractoriness, high strength at high temperature,
high thermal conductivity, high thermal shock resistance
High strength, high thermal shock resistance, relatively
high oxidation resistance
Blast furnace hearth, electric arc furnace
Kiln furniture, incinerator, blast furnace
Incinerator
Kiln furniture, blast furnace
Composite
Silicon carbide
Containing
High corrosion resistance against low iron oxide, high
strength at high temperatures, high thermal shock
resistance
Magnesia-carbon High slag resistance, high thermal shock resistance
Alumina-carbon High refractoriness, high thermal shock resistance, high
corrosion resistance
Ladle, blast furnace, electric arc, torpedo
ladle, iron ladle
Basic oxygen furnace, electric arc furnace,
ladle
Submerged entry nozzle, slide gate
Source: The Technical Association of Refractories, Japan. 1998. Refractories Handbook. Tokyo: The Technical Association
of Refractories, Japan.
2-36
-------
2.3. Table 2-12. Steel and Nonferrous Production (103 Metric Tons)
3
Su
bsti
tuti
on
Pos
sibi
liti
es
Year
1994
1995
1996
1997
1998
1999
Raw Steel Production
91,300
95,200
94,700
98,500
98,700
95,300
Nonferrous
11,216
13,606
11,608
14,501
14,811
15,215
in
^° Source: U.S. Department of Commerce, and International Trade Administration. 1999. U.S. Industry & Trade
nsu Outlook 2000. New York: The McGraw-Hill Companies and U.S. Department of Commerce.
mp
tion
Although there is no direct substitute for refractories, industries that use refractory
products have reduced the amount of the product consumed. Since the 1980s, the steel industry
has closed inefficient facilities and modernized remaining plants. The industry developed and
implemented technologies, such as the basic oxygen furnace (EOF), that significantly reduced
the amount of refractories used per ton of steel (USITC, 1994; DHAN, 1999). Also, the
refractory industry has made significant strides in developing more durable refractories. These
two factors have reduced the overall consumption of refractory materials.
2.4 Markets for Refractory Products
This section provides data on domestic production, domestic consumption, imports,
exports of refractories, and gross margin growth in prices. It also discusses trends and
projections for the refractory industry.
2.4.1 Market Data
This section provides data on volumes of refractory products produced and consumed
in the United States, the quantities imported and exported, and prices. Figure 2-12 illustrates
historic trends in refractory production.
2-37
-------
3,000
2,500
2,000
o 1,500
1,000
500
A cbQjC}ixfVfhV^ofo'\. cbQjC} ^ fV ^ V V> fo *\.
& g & & $ cTcTcrcrcrcrcrcrc^cg' cr
-------
Table 2-13. Production of Refractories: 1977-1998 ($106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Clay
Current
607.2
717.3
776.9
761.6
864.2
670.3
745.5
868.6
803.0
843.5
788.2
836.7
906.3
922.9
850.4
886.8
758.0
938.8
958.2
977.3
1,101.6
1,082.8
1998
848.9
956.4
983.5
922.4
976.0
738.4
813.8
920.1
849.2
931.4
851.2
851.0
892.5
927.0
872.6
930.6
784.6
929.5
896.2
953.6
1,072.9
1,082.8
Nonclay
Current
680.2
864.2
934.9
975.9
1020.9
691.0
588.9
701.4
755.3
768.5
954.5
,078.1
,113.3
,077.6
,009.2
,203.5
,282.2
,232.2
,370.4
,459.4
,631.2
,535.8
1998
950.9
1,152.3
1,183.5
1,182.0
1,153.0
761.2
642.9
743.0
798.7
848.6
,030.8
,096.5
,130.3
,082.4
,035.5
,263.0
,327.1
,220.0
,281.7
,424.0
,588.7
,535.8
Total
Current
,287.4
,581.5
,711.8
,737.5
,885.1
,361.3
,334.4
,570.0
,558.3
,612.0
,742.7
,914.8
2,019.6
2,000.5
1,859.6
2,090.3
2,040.2
2,171.0
2,328.6
2,436.7
2,732.8
2,618.6
1998
1,799.8
2,108.7
2,167.0
2,104.4
2,129.0
1,499.5
1,456.7
1,663.1
1,647.9
1,780.0
1,882.1
1,947.5
2,022.8
2,009.5
1,908.1
2,193.6
2,111.7
2,149.5
2,178.0
2,377.6
2,661.6
2,618.6
Sources: U.S. Department of Commerce, Bureau of the Census. 1994b. 1992 Census of Manufactures, Industry
Series—Cement and Structural Clay Products. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995. 1993 Annual Survey of Manufactures.
M93(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1996a. 1994 Annual Survey of Manufactures.
M94(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1997. 1995 Annual Survey of Manufactures.
M95(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of Manufactures.
M96(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999b. 1997 Census of Manufactures, Industry
Series—Manufacturing: Clay Refractory Manufacturing. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 2000. 1998 Annual Survey of Manufactures.
M98(AS)-1. Washington, DC: Government Printing Office.
2-39
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Table 2-14. Exports and Imports of Refractories: 1993-1999 ($1061998)
Year
1993
1994
1995
1996
1997
1998
1999
Exports
Clay
72.8
62.1
76.8
71.7
81.8
59.6
53.2
Nonclay
251.9
262.9
298.0
314.7
290.1
278.9
287.4
Total
324.7
325.5
374.8
386.4
372.0
338.6
340.6
Imports
Clay
28.8
26.4
33.2
27.0
27.8
30.9
104.0
Nonclay
177.7
183.7
198.6
211.1
248.3
225.1
218.7
Total
206.5
210.1
231.8
238.2
275.9
256.0
323.2
Apparent Consumption
Clay
740.3
843.3
873.8
856.9
863.5
942.0
934.5
Nonclay
1,065.2
992.8
1,045.6
1,077.4
1,197.5
1,113.3
989.0
Total
1,805.5
1,836.1
1,919.3
1,934.3
2,061.0
2,055.3
1,923.6
Source: U.S. Department of Commerce, Bureau of the Census. 1993-1999. Current Industrial Reports:
Refractories. MA 32C. Available at .
of U.S. refractory products, with over 38 percent of all exports, followed by Mexico. Emerging
foreign markets for the United States include India, China, and other countries in Central and
South America. Japan and Canada are the top suppliers of imports to the United States (USITC,
1994). Recently, exports of refractory products have fallen and imports of refractory products
have increased.
2.4.2
Market Prices
Table 2-15 lists average prices for refractory products for 1989, 1993, and 1998.
Monolithic refractory prices have decreased 2 percent and bricks and shapes have increased 4.8
percent since 1993. Most refractory products are typically used in kilns and ovens and are
engineered for a particular use. Price is typically based on the consumer's requirements.
2.4.3 Industry Trends
In the last decade, the refractory industry has experienced significant restructuring.
Two large conglomerates, RHI and Vesuvius, dominated refractories markets (Sheppard, 2000).
In 1999, Alpine Group sold its Premier Refractories unit to Cookson Group of the U.K., and
Global Industrial Technologies (parent of Harbison-Walker Refractories) was acquired by RHI
AG (formerly Radex Heraklith Industriebeteiligungs) of Austria. Other leading refractory
producers are Allied Mineral Products, Baker Refractories, Minerals
2-40
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Table 2-15. Average Price for Refractory Products" ($/ton)
Form
Monolithics
Bricks and shapes
Otherb
1989
Current 1998
451 526
709 826
394 459
1993
Current 1998
491 544
782 866
442 490
1998
Current
533
910
497
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001.
.
b Other refractory forms consist of ceramic fibers and refractory raw materials that are supplied in lump or ground
form used to manufacture refractories "in-house."
Source: Freedonia Group. September 1999. "Refractories in the United States to 2003." Profound WorldSearch
Technologies (via MINTEQ), Morgan Crucible, National Refractories Holding Co., Resco
Products, and Compagnie de Saint-Gobain.
In recent years, consumption of domestically produced refractory products has
declined somewhat, as a result of several compounding trends. First, the quality of refractory
products has increased, resulting in longer life and fewer replacements. Thus, the tons of
refractory products consumed per ton of steel produced have declined somewhat. In addition,
imports of refractory products have increased approximately 57 percent from 1993 to 1999, so a
smaller share of the refractory products consumed domestically are produced domestically.
2-41
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SECTION 3
ENGINEERING COST ANALYSIS
Control measures implemented to comply with the MACT standard will result in
higher production costs for affected refractory facilities. The engineering analysis computed
estimates of these compliance costs (annual capital, operating, testing, monitoring, reporting and
record keeping) for each affected facility under baseline economic conditions. These estimates
serve as key inputs to the economic model.3 The following section presents a brief overview of
emissions from refractory products manufacturing and the estimated costs refractory products
manufacturers are projected to incur to comply with the rule. More detailed information is
provided in technical memoranda (Marinshaw and Fields, 2003a and 2003b).
3.1 Overview of Emissions from Refractory Manufacturing
Refractory products manufacturing facilities are sources of several HAPs. The
specific types and quantities of HAPs emitted from any particular facility are largely a function
of the types of raw materials used and how those materials are processed. Resin-bonded
refractory curing ovens and kilns can emit phenol, formaldehyde, methanol, and ethylene glycol,
depending on the type of resin used. When used as binders or additives in the production of
nonresin-bonded refractory shapes, ethylene glycol and methanol also are emitted from shape
dryers and kilns. Pitch-bonded refractory heated pitch storage tanks, shape dryers, and kilns
emit POM. The heated pitch storage tanks, shape preheaters, defumers, and coking ovens used
to produce pitch-impregnated refractories also emit POM. HF and HC1 are emitted from kilns
that are used to fire clay refractory products.
Section 112 of the Clean Air Act lists 189 HAPs and defines major sources as those
facilities that emit or have the potential to emit at least 10 tons per year of any single HAP or at
least 25 tons per year of any combination of HAPs. Area sources are those with potential
uncontrolled emissions of less than 10 tons per year of any HAPs and less than 25 tons per year
of combined HAPs. Synthetic area sources are area sources that would be major sources if
existing controls at those facilities were not in place. In other words, synthetic area sources are
those sources whose uncontrolled HAP emissions exceed the major source thresholds of 10 tons
per year of a single HAP or 25 tons per year of combined HAPs. Synthetic area sources are of
particular significance because those facilities are included in the MACT floor analysis for
existing sources, whereas "true" area sources are not included in the floor determinations and are
not subject to the requirements of the rule.
3In the market model, the engineering cost inputs are expressed per unit of refractory product ($/ton) and used to
shift the refractory supply functions in the market model to predict the response in price and production levels.
Details can be found in Section 4 and Appendix A.
3-1
-------
Based on the HAP emission estimates within the refractory products manufacturing
industry five facilities emit at least 10 tons per year of a single HAP and two other facilities emit
more than 8.5 tons/yr of a single HAP. In view of the uncertainties in emission estimation
techniques, these two facilities also could be major sources. One facility is a considered major
source for co-located process operations. The Agency estimates that, of the 147 refractory
products manufacturing facilities currently in operation in this source category, 133 are area
sources, eight are major sources, and six are synthetic area sources.
The Agency estimates that of the eight major sources two emit major amounts of HF
emissions and HC1 emissions resulting from clay calcining and/or clay refractory manufacturing
and are not expected to be subject to the rule (because only new clay kilns, and not existing
kilns, would be subject to substantive requirements of the rule for reducing HF and HC1). New
kilns used to fire chromium refractories would similarly be subject only to new source MACT
and would not be required to control existing sources for reducing chromium emissions from
kilns.
Therefore, six existing major sources would have costs associated with compliance
with the standard for organic HAPs, in addition to two facilities required to do recordkeeping
and reporting. Costs for these facilities are shown in Table 3-1.
3.2 Compliance Cost Estimates
Sources of emissions at refractory manufacturing facilities that are covered by the
NESHAP for refractory manufacturing are
•• new kilns that fire chromium refractories and clay refractories and
•• heated processes that emit organic HAPs at new and existing sources, including
- curing ovens, drying ovens (shape dryers), and kilns used at refractory product
manufacturing facilities that are major sources emitting organic HAPs from the
affected sources, and
3-2
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Table 3-1. Summary of Estimated Annual Compliance Costs for Refractory Products Manufacturing NESHAP
Control Costs
Plant ID
R004
R012
R027
R065
Rill
R126
R128
R178
Total
Initial
Capital Cost
($)
$1,115,200
$1,368,200
$944,100
$383,400
$0
$0
$0
$794,100
$4,605,000
Annual-
ized
Capital
Cost
($/yr)
$158,800
$194,800
$134,400
$54,600
$0
$0
$0
$113,100
$655,700
Annual
Overhead
Cost
($/yr)
$15,600
$48,300
$8,500
$12,400
$0
$0
$0
$19,900
$104,700
Annual
Taxes, Ins.,
Admin. Cost
($/yr)
$44,600
$54,700
$37,800
$15,300
$0
$0
$0
$31,800
$184,200
Annual
Maintenance
Material Cost
($/yr)
$10,300
$31,900
$5,600
$8,200
$0
$0
$0
$13,100
$69,100
Annual
Energy
Cost
($/yr)
$376,000
$222,200
$72,700
$179,600
$0
$0
$50,200
$55,300
$956,000
Annual
Labor
Cost
($/yr)
$15,700
$48,600
$8,600
$12,500
$0
$0
$0
$20,000
$105,400
Total
Annualized
Control
Costs
($/yr)
$621,000
$600,500
$267,600
$282,600
$0
$0
$50,200
$253,200
$2,075,100
Annual
Testing
Cost
($/yr)
$31,800
$36,500
$14,400
$4,600
$0
$0
$36,300
$16,300
$139,900
Annual-
ized
Monitor-
ing Cost
($/yr)
$16,800
$8,000
$4,800
$1,600
$0
$0
$12,800
$4,800
$48,800
^YllllUill-
ized
Record-
keeping
Cost
($/yr)
$8,000
$8,000
$8,000
$8,000
$1,200
$1,200
$8,000
$8,000
$50,400
Total
Annualized
Cost
($/yr)
$677,600
$653,000
$294,800
$296,800
$1,200
$1,200
$107,300
$282,300
$2,314,200
-------
- brick preheaters, pitch working tanks, defumers, and coking ovens used at pitch-
impregnated refractory manufacturing facilities.
As noted above, HAPs that EPA has identified as being emitted from refractory manufacturing
facilities include chromium, HF, HC1, phenol, POM, ethylene glycol, methanol, and
formaldehyde.
The costs associated with improved emissions control are estimated based on what each
plant may have to do to control organic HAP emissions. Controlled sources include thermal
process units (i.e, dryers, curing ovens, kilns, coking ovens, defumers, and heated pitch storage
tanks) that emit one or more organic HAPs. As shown in Table 3-1, the Agency estimates the
nationwide costs of the rule are $2.31 million. EPA estimates that initial capital costs will total
$4.6 million. These capital costs, annualized over a period of 20 years at a 7 percent rate of
interest, result in annualized capital costs of approximately $655,700. The total annualized costs
include these annualized capital costs, $1,419,400 of annual overhead, administrative, and
operating and maintenance costs for emissions controls, and $239,100 of testing, monitoring,
recordkeeping, and reporting costs. Among the six facilities incurring control costs, the total
annualized costs range from $1,200 to $677,600 and average $289,300.
3.2.1 Emission Control Costs
Emission control costs include the costs of purchasing and installing emission control
capital equipment and operating and maintenance costs including the costs of labor, materials,
and energy to operate the controls, and any associated costs such as administrative costs,
insurance, or taxes associated with the emission controls. Five facilities are projected to incur
capital emissions control costs under the refractories NESHAP, ranging from $383,400 to $1.37
million. Because the cost of this capital equipment is a large lump-sum expenditure, companies
typically finance the cost over a period of years. Thus, EPA estimates the annualized capital
costs of the rule by annualizing the lump-sum capital costs over a period of 20 years at a 7
percent discount rate. The annualized capital costs range from $54,600 to $194,800. Among the
annual emissions control costs, the highest costs are associated with incremental energy required
to operate the controls. Energy control costs range from $50,200 to $376,000 per year and total
$956,000. Total annualized emission control costs for the refractories NESHAP range from
$50,200 to $621,000 and total $2.08 million, which is 90 percent of the total annualized costs of
the rule. Of this total, $1.42 million represent annual operating and maintenance costs of the
controls (61 percent of the rule's total costs), and $655,700 represent the annualized cost of the
control equipment (28 percent of the rule's total annualized costs).
3.2.2 Compliance Testing Costs
Affected thermal process sources of organic HAP can demonstrate compliance with
either the 20 ppmvd THC limit (testing for THC at the outlet of the control device or in the stack
using Method 25 A) or the 95 percent THC reduction limit (testing for THC at the control device
inlet and outlet using Method 25 A). The compliance test must be repeated every 5 years.
3-4
-------
Testing costs were annualized over a 5-year period using a 7 percent discount rate. Testing costs
at the six refractory manufacturing facilities incurring control costs range from $4,600 per year
to $36,500 per year and total $139,900 or 6 percent of the total annualized costs of the
regulation.
3.2.3 Monitoring, Recordkeeping, and Reporting Costs
Monitoring costs include the cost of installing and operating a system to measure and
record control device operating temperatures on a continuous basis. System components include
a thermocouple and a data acquisition system. Annualized costs were computed assuming a data
acquisition system life of 15 years, a thermocouple life of 2 years, and a 7 percent discount rate.
Monitoring costs for facilities incurring control costs range from $1,600 to $16,800 and total
$48,800 or 2 percent of the rule's total annualized costs. Annual reporting and recordkeeping
costs were estimated using Standard Form 83 and were considered one-time costs annualized
over a 5-year period at a 7 percent discount rate. Recordkeeping and reporting costs are
estimated to range from $1,200 to $8,000 for facilities incurring costs. Overall, the $50,400
recordkeeping and reporting costs represent 2.2 percent of the rule's total annualized costs.
3.2.4 Total Annualized Costs
Summing all categories of costs together, the six refractory manufacturing facilities are
projected to incur total annualized costs ranging from $1,200 to $677,600. Total annualized
costs for the rule are estimated to be $2,314,200.
3-5
-------
SECTION 4
ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS
The underlying objective of the EIA is to evaluate the effect of the regulation on the
welfare of affected stakeholders and society in general. Although the engineering cost analysis
presented in Section 3 does represent an estimate of the respective plants' resources required to
comply with the regulation under baseline economic conditions, the analysis does not account
for the fact that the regulations may cause the economic conditions to change. For instance,
producers may elect to discontinue production rather than comply, thereby reducing market
supply. Moreover, the control costs may be passed along to other parties through various
economic exchanges (such as price increases). The purpose of this section is to develop and
apply an analytical structure for measuring and tracking these effects as they are distributed
across the stakeholders tied together through economic linkages.
4.1 Markets Affected by the NESHAP
Refractory products are in fact fairly specialized, and each batch could be considered a
unique product. For modeling the impacts, however, EPA aggregated the refractory products
produced by manufacturers in the industry into broad markets. We considered two aggregation
schemes: by type of input or material (clay and nonclay) or by form of output. Although the
Census of Manufactures divides refractories into clay and nonclay, we have concluded that the
consumers of refractory products are more concerned about their form than their raw material.
Therefore, EPA estimated impacts in three broad refractory product markets:
•• bricks and shapes,
•• monolithics (not directly affected by the NESHAP), and
•• refractory ceramic fibers or RCF (not affected by the NESHAP).
These are the refractory products for which EPA's database provides information. For each
facility in the industry, EPA has estimated quantities of each of these products manufactured on-
site.
4.2 Conceptual Approach
Industry comments on the rule indicated that the depressed condition of the steel
industry, coupled with increased pressure from imported refractories, limit refractory
manufacturers' ability to pass cost increases along to their customers in the form of increased
prices. In response to these comments, EPA has chosen to model the supply of imported
refractories (in the bricks and shapes market) as perfectly elastic. That is, any decrease in
domestic production will be offset by increased imports; thus, no price increase occurs. As a
result, the Agency has adopted different methods to model the markets for each refractory
4-1
-------
commodity. The bricks and shapes market is represented by a full-cost-absorption model, where
costs are imposed on facilities and are added to baseline production costs at directly affected
plants. Neither market price nor quantity is permitted to adjust in response to higher costs.
Thus, the only impact of the higher costs is to reduce the profits of directly affected facilities.
This model incorporates a perfectly elastic international supply component, which assumes that
foreign producers expand output as affected firms reduce supply due to increased production
costs. In the monolithics and RCF markets, simple national competitive market models were
developed to estimate the economic impacts to society. In these markets, buyers and sellers
exert no individual influence on market prices for refractory commodities potentially affected by
the rule. Prices in these markets are set by the collective actions of producers and consumers,
who take the market price as a given in making their production and consumption choices.
4.2.1 Producer Characterization
Many refractory plants produce multiple refractory products. Therefore, individual
product-line supply decisions for existing domestic producers were modeled in this analysis.
These decisions were modeled as intermediate-run decisions, assuming that the plant size,
equipment, and technologies are fixed. Given the existence of these fixed production factors,
each product line was characterized by an upward-sloping supply function (see Figure 4-1). A
profit-maximizing firm will select its output level according to this schedule as long as the
market price is sufficiently high to cover average variable costs (i.e., greater than C0 in
Figure 4-1). Thus, in the short run, a profit-maximizing firm will not pass up an opportunity to
recover even part of its fixed investment in plant and equipment. These individual supply
decisions for domestic producers were aggregated (i.e., horizontally summed) to develop a
market supply curve for each refractory product. The majority of the industry is not affected
directly; however, they are affected indirectly by the decrease in the output of refractory
4-2
-------
$/lb
short tons/year
Figure 4-1. Supply Curve for a Representative Directly Affected Facility
products by the industry. Foreign refractory producers, who are assumed in this model to have
perfectly elastic supply curves, may respond to the decrease in refractories production in the U.S.
by supplying more to the U.S. market.
4.2.2 Consumer Characterization
Demand for refractory products comes mainly from the iron and steel industry, cement
industry, and nonferrous metals industry, although smaller shares are sold for use in glass
manufacturing and oil refining. The U.S. International Trade Commission (1994) estimates that
over 50 percent of refractories are used in the iron and steel industry; DHAN (1999) estimated
this share to be 75 percent. There are no direct substitutes for refractory products. Nevertheless,
over time, consumers of refractory products have reduced the amount of refractory products
consumed. Over the past 20 years, the iron and steel industry has restructured, closing
inefficient facilities and modernizing remaining plants. Newer steelmaking technologies
significantly reduced the amount of refractories used per ton of steel. Given data limitations,
each commodity market will be modeled as having a single aggregate consumer with a
downward-sloping market demand curve (see Figure 4-2).
4-3
-------
P/Q
P/Q
+ P
Q/T
Affected Facilities
= p
Indirectly Affected
(including international)
a) Baseline Equilibrium
(Bricks and Shapes Refractories)
Q Q/T
Market
P/Q
P/Q
+ p'
Q/T
P/Q
Affected Facilities
= P'
Q/T
Indirectly Affected
(including international
b) With-Regulation Equilibrium
(Bricks and Shapes Refractories)
DM
Q'= Q Q/T
Market
Figure 4-2. Market Equilibrium for Bricks and Shapes Refractories without and with
Regulation
4.2.3 Foreign Trade
Although the NESHAP will directly affect domestic facilities that produce refractory
products, the rule may have indirect foreign trade implications. Industry stakeholders have
commented that foreign suppliers have lower prices than domestic suppliers. If this is true,
affected refractory producers may be unable to increase their prices in response to the increased
4-4
-------
costs associated with compliance. Thus, to characterize the refractory market for bricks and
shapes, the Agency has developed a full-cost-absorption model that incorporates international
trade. Under full-cost-absorption, foreign imports may become more attractive to U.S.
refractory consumers and U.S. exports may become less attractive to foreign refractory
consumers. On the import side, the model assumes that foreign firms that produce bricks and
shapes refractories have perfectly elastic supply curves and thus can adjust output to meet
demand by using excess capacity in their existing plants. On the export side, foreign demand for
refractories produced in the United States may decrease if they become relatively more
expensive because of the regulation. Finally, domestic facilities could relocate to foreign
countries with laxer environmental regulations if domestic production costs increase. However,
given the relatively small size of the expected compliance costs it is unlikely that the regulations
will trigger industrial flight at least in the short run. This assumption is consistent with empirical
studies in the literature that have found little evidence of environmental regulations affecting
industry location decisions (Levinson, 1996).
4.2.4 Baseline and With-Regulation Equilibrium
Impacts of the Refractory Products NESHAP are concentrated in the market for Bricks
and Shapes. The markets for other types of refractories, including monolithics and RCF, are
unaffected.
4.2.4.1 Bricks and Shapes Market
Under the baseline scenario for bricks and shapes refractories (Figure 4-2[a]), a market
price and quantity (p,Q) are determined by the intersection of the downward-sloping market
demand curve (Dm) and the market supply curve (Sm). The individual supply curve for each
affected domestic plant is defined as upward sloping to reflect factories' willingness to produce
additional units of output as the price of each unit rises. The market supply curve for affected
plants (Sa) is constructed by summing horizontally across the individual supply curves. For
indirectly affected firms (including foreign suppliers), output is characterized by a perfectly
elastic market supply curve (Su), that reflects their ability to rapidly adjust production levels.
With the regulation, the costs of production increase for affected suppliers. These
additional costs include a variable component consisting of the operating and maintenance costs
and a fixed component that does not vary with output (i.e., expenditures for control-related
capital equipment to comply with the regulatory alternative). The imposition of regulatory
control costs is represented as an upward shift in the supply curve for each product line. The
upward shift of individual supply curves causes the market supply curve for affected refractory
products to contract as shown in Figure 4-2(b). Under a full-cost-absorption scenario, the costs
that are imposed are added to baseline production costs at directly affected facilities. Market
price and quantity do not adjust in response to the higher costs, because indirectly affected firms
have the opportunity to expand output along their supply curve (from quto qu») by an amount
equivalent to the reduction in supply by affected producers.
4-5
-------
In baseline without the standards, the bricks and shapes refractories industry produces
total output at quantity, Q, and at price, p, with directly affected facilities producing the amount
qa and indirectly affected facilities accounting for Q minus qa, or qu. With the regulation, the
only impact of the higher regulatory costs is to reduce the profits of directly affected facilities.
Indirectly affected firms are able to compensate for the loss of output at affected firms by
increasing supply to the market. The net result is that market quantities (Q = Q*) and prices (p =
p«) remain constant for bricks and shapes refractories.
4.2.4.2 Monolithics and RCF Markets
The monolithic refractory sector and the RFC sector are not projected to be directly
impacted under the regulation. Thus, prices are projected to remain constant and no change in
quantity is anticipated as a result of the MACT standards.
4.3 Economic Impact Results
To develop quantitative estimates of these impacts, EPA developed a computer model
using the conceptual approach described above.4 Using this model, EPA characterized supply
and demand of three refractory commodities—bricks and shapes, monolithics, and refractory
ceramic fiber (RCFs)—for the baseline year, 1998; introduced a policy "shock" into the model
by using control cost-induced shifts in the supply functions of affected producers; and used a
solution algorithm to determine a new with-regulation equilibrium in each refractory market.
We report the market, industry, and societal impacts projected by the model below.
4.3.1 Market-Level Impacts
Under the regulation, the price and quantities of refractory products are expected to vary
marginally from 1998 baseline levels. As shown in Table 4-1, regulatory costs will reduce
domestic production of refractory products (bricks and shapes) by less than 1 percent. However,
this reduction will be offset by an equal increase in the quantity of foreign imports; thus, the
domestic price will remain unchanged. The regulation is not projected to have a measurable
4Appendix A includes a description of the baseline data set, model equations, and solution algorithm.
4-6
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Table 4-1. Market-Level Impacts: 1998
Baseline With Regulation Change Absolute
Bricks and Shapes
Price ($/ton)
Quantity (short tons)
Domestic
Imports
Monolithics
Price ($/ton)
Quantity (short tons)
RCF
Price ($/ton)
Quantity (short tons)
$910.00
1,863,000
1,679,400
183,500
$533.00
684,361
$497.00
34,490
$910.00
1,863,000
1,675,500
187,300
$533.00
684,361
$497.00
34,490
$0.00
0
-3,970
3,970
$0.00
0
$0.00
0
Relative
0.00%
0.00%
-0.24%
2.16%
0.00%
0.00%
0.00%
0.00%
impact on the monolithics and RCF markets.
4.3.2 Industry-Level Impacts
Industry revenue, costs, and profitability change as prices and production levels adjust to
increased production costs. As shown in Table 4-2, the economic model projects that profits for
refractory producers will decrease by $2.1 million, or 2.38 percent reflecting the cost of
implementing regulatory controls. Under the regulation, total revenues decline by $3.6 million,
or a change of 0.2 percent below the baseline. Production costs decline by $3.5 million, as
output is reduced at facilities incurring compliance costs. Overall, total costs decline by $1.5
million under the regulation, which represents less than 0.1 percent change from the baseline.
4-7
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Table 4-2. Industry-Level Impacts: 1998
Change
Total revenue ($106/yr)
Total costs ($106/yr)
Control
Production
Pre-tax earnings ($106/yr)
Facilities (#)
Employees (FTEsa)
Baseline
$1,910.2
$1,822.3
$0.0
$1,822.3
$87.9
147
12,440
With Regulation
$1,906.6
$1,820.7
$2.0
$1,818.8
$86.1
146
12,382
Absolute
-$3.6
-$1.5
$2.0
-$2.1
-$1.8
-1
-91
Relative
-0.19%
-0.08%
NA
-0.18%
-2.38%
-0.68%
-0.73%
a FTEs = full-time equivalent employees.
Additional distributional impacts of the rule within each producer segment are not
necessarily apparent from the reported decline or increase in their aggregate operating profits.
The regulation creates both gainers and losers within each industry segment based on the
distribution of compliance costs across facilities. As shown in Table 4-3, facilities incurring
compliance costs (i.e., eight plants, or 5 percent) are projected to become less profitable under
the regulation with a total loss of $2.1 million. However, 139 facilities are projected to
experience no change in profit due to the NESHAP. Foreign producers will also experience
increased revenues as they assume a slightly larger share of the refractories market.
4.3.2.1 Facility Closures and Changes in Employment
EPA estimates that one facility is likely to close prematurely as a result of the regulation.
However, this facility has options to reduce the emissions or change the processes so that they
would no longer be classified as a major source and not incur any compliance costs. The cost to
this facility would then be the amount necessary to convert to nonmajor source status. Because
we do not know how this facility will respond, our model imposes the MACT regulation costs on
this facility and predicts a closure because the with-regulation cost of production exceeds
revenue. This facility is estimated to employ fewer than 50 employees at baseline; other plants
4-8
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Table 4-3. Distributional Impacts Across Facilities: 1998
Operating Profit
Loss" Gain or No Change Total
Facilities (#)
Compliance costs
Total ($106/yr)
Change in pre-tax earnings ($106/yr)
8
$2.31
-$2.09
139
$0
$0.00
147
$2.31
-$2.09
aThe loss column includes one projected facility closure.
incurring costs may reduce employment slightly as their output declines. On balance, EPA
expects industry employment to change by less than 100 employees, less than 1 percent of
industry employment.
4.3.3 Social Cost
The social impact of a regulatory action is traditionally measured by the change in
economic welfare that it generates. The social costs of the rule will be distributed across
producers of refractory products and their customers. Consumers of refractory products
experience minimal welfare impacts due to minimal changes in market prices and consumption
levels associated with the rule. Domestic producers experience welfare impacts resulting from
changes in profits corresponding with the changes in production levels and market prices.
However, it is important to emphasize that this measure does not include benefits that occur
outside the market, that is, the value of reduced levels of air pollution with the regulation.
The national compliance cost estimates are often used as an approximation of the social
cost of the rule. The engineering analysis estimated annual costs of $2.31 million. In cases
where the engineering costs of compliance are used to estimate social cost, the burden of the
regulation is measured as falling solely on the affected facilities, which experience a profit loss
exactly equal to these cost estimates. Thus, the entire loss is a change in producer surplus with
no change (by assumption) in consumer surplus, because all factors of production are assumed to
be fixed and firms are unable to adjust their output levels when faced with additional costs.
In contrast, the economic analysis conducted by the Agency accounts for behavioral
responses by producers and consumers to the regulation, as affected producers shift costs to
other economic agents. This approach results in a social cost estimate that may differ from the
engineering compliance cost estimate and also provides insights on how the regulatory burden is
distributed across stakeholders. The computation of social costs is discussed in detail in
Appendix B. As shown in Table 4-4, the economic model estimates the total social cost of the
rule to be $2.09 million. Although society reallocates resources as a result of the increased cost
of refractory production, only a relatively small change in social welfare occurs. Users of
4-9
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refractory products (i.e., consumers such as the steel industry) are projected to incur no change
in their social welfare, because prices of refractory products remain unchanged. Industrywide,
refractory domestic producers experience a net loss of $2.09 million. This net loss includes
welfare changes experienced by facilities incurring compliance costs (which experience
increased costs and decreased output and profit) and welfare changes experienced by producers
that do not incur compliance costs (who may produce more in response to declines in production
at affected facilities). It also reflects the projected premature closure of one refractory
manufacturing facility. Overall, however, the impacts on both refractory manufacturers and their
customers are projected to be relatively small.
Table 4-4. Distribution of Social Costs: 1998
Value ($106/yr)
Consumer surplus -$0.00
Bricks and shapes -$0.00
Monolithics -$0.00
RCF $0.00
Producer surplus -$2.09
Domestic -$2.09
Foreign $0.00
Total social cost -$2.09
4-10
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SECTION 5
SMALL BUSINESS IMPACTS
Environmental regulations like this rule potentially affect all businesses, large and small,
but small businesses may have special problems complying with such regulations. The
Regulatory Flexibility Act (RFA) of 1980 as amended in 1996 by the Small Business Regulatory
Enforcement Fairness Act (SBREFA) generally requires an agency to prepare a regulatory
flexibility analysis of a rule unless the agency certifies that the rule will not have a significant
economic impact on a substantial number of small businesses, small governmental jurisdictions,
and small organizations. This section examines the proposed rule's impact on these entities.
5.1 Identify Small Entities
For purposes of assessing the impacts of the proposed rule on small entities, a small
entity is defined as (1) a small business according to Small Business Administration (SBA) size
standards for NAICS code 327124 (Clay Refractories) of 500 or fewer employees or NAICS
code 327125 (Nonclay refractories) of 750 or fewer employees;5 (2) a small governmental
jurisdiction that is a government of a city, county, town, school district, or special district with a
population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise
that is independently owned and operated and is not dominant in its field.
The Agency collected data on facility and company employment from the industry;
additional data were collected from publicly available sources such as financial databases.
Based on this employment data, EPA determined that 56 small entities within this source
category would be subject to this proposed rule. Of the 76 companies owning refractory
manufacturing facilities in the EPA database, only 20 have company-level employment data
showing that they have more than 750 employees. These are classified as large companies for
purposes of this analysis. The remaining 56 companies are classified as small entities.
5.2 Economic Analysis
The Agency conducted a screening analysis to assess the impacts of the proposed rule on
small businesses and to compare the impacts on small businesses with impacts on large
businesses. These results are shown in Table 5-1. Three of the estimated 56 small businesses in
the refractory manufacturing industry are projected to incur costs averaging $99,700 to comply
For purposes of this analysis, small businesses were defined as having 750 or fewer employees. Some of the
companies in the refractory industry produce both clay and nonclay refractories, which does not allow us to
assign companies unambiguously to a single NAICS code. For this reason, we selected the higher NAICS
criterion, 750 employees, as the small business criterion for all companies. Note that this conservative criterion
may overstate the total number of small companies.
5-1
-------
with the regulation. The five large companies projected to incur compliance costs experience
costs averaging $403,000 (TACC) per company. Of the 33 small companies with sales data and
17 large companies with sales data, none of these companies is projected to experience costs
exceeding 1 percent of baseline sales.
Table 5-1. Summary Statistics for SBREFA Screening Analysis: 1998
Small Large Total
Total number of companies
Total annual compliance costs (TACC)
($/year)
Average TACC per company ($/year)a
56 20 76
$299,200 $2,015,000 $2,314,200
$99,700 $403,000 $289,000
Number Share Number Share Number Share
Companies with sales data
Compliance costs <1% of sales
Compliance costs 1% to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios (CSRs)
Mean
Median
Maximum
Minimum
33 100% 17 100% 50 100%
33 100% 17 100% 50 100%
0 0% 0 0% 0 0%
0 0% 0 0% 0 0%
NR NR 0.018%
NR NR 0.000%
NR NR 0.369%
NR NR 0.000%
aAverage over companies incurring compliance costs.
NR = not reported to avoid revealing confidential data.
5-2
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The Agency analyzed the economic impacts on small businesses under with-regulation
conditions expected to result from implementing the proposed rule. This approach examines
small business impacts in light of the expected behavioral responses of producers and consumers
to the regulation. As shown in Table 5-2, overall revenue and operating profits for facilities
owned by small businesses are projected to decline slightly under the recommended alternative.
No small businesses will be significantly affected by the rule. In response to the projected
increase in control costs for refractory production, most facilities owned by small businesses are
projected to decrease their output slightly. As a result, they experience decreased production
costs, and decreased revenues and profits, but essentially no change in employment.
Table 5-2. Small Business Impacts: 1998
Total revenue ($106/yr)
Total costs ($106/yr)
Control
Production
Pre-tax earnings ($106/yr)
Facilities (#)
Employees (FTEsa)
Baseline
$482.3
$465.5
$0.0
$465.5
$16.8
71
3,256
With
Regulation
$482.0
$465.5
$0.3
$465.2
$16.5
71
3,255
Change
Absolute
-$0.3
$0.0
$0.3
-$0.3
-$0.3
0
-1
Relative
-0.06%
0.00%
NA
-0.06%
-1.77%
0.00%
-0.02%
a FTEs = full-time equivalent employees.
5.3 Assessment
The proposed refractories NESHAP is only expected to result in increased costs for three
small businesses. Because of the imposition of control costs, small companies are projected to
decrease their production; revenues and profits are projected to decline slightly. Overall, they
are expected to experience minor losses as a result of the proposed rule. No business, either
large or small, is projected to incur costs exceeding 1 percent of sales. Thus the rule is not
expected to result in significant adverse economic impacts to any small business.
5-3
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REFERENCES
Allen, R.G.D. 1938. Mathematical Analysis for Economists. New York: St. Martin's Press.
ASM International. 1987. Engineered Materials Handbook. Volume 4: Ceramics and Glasses.
Metals Park, OH: ASM International.
Ceramic Industry. 2000. "U.S. Demand for Refractories to Reach $2.8 Billion through 2003."
Ceramic Industry. Available at .
Contos, George and Ellen Legel. 2000. Corporation Income Tax Returns, 1997. [Computer
File]. Available at . As obtained January
26,2001.
DHAN. 1999. "Industry Report: Refractories Passing through Difficult Times." Available at
.
Dun & Bradstreet. 2000. D&B Million Dollar Directory. Series 2000. Bethlehem, PA: Dun &
Bradstreet, Inc.
Freedonia Group. September 1999. "Refractories in the United States to 2003." Profound
WorldSearch .
Hicks, J.R. 1961. "Marshall's Third Rule: A Further Comment." Oxford Economic Papers
13:262-65.
Hicks, J.R. 1966. The Theory of Wages. 2nd Ed. New York: St. Martin's Press.
Information Access Co. 2000. Ward's Business Directory. Belmont, CA.
Lawson, A. 1997. "Benchmark Input-Output Accounts for the U.S. Economy, 1992:
Requirements Tables." Survey of Current Business. December, pages 22-47.
Levinson, Arik: 1996. "Environmental Regulations and Industry Location: International and
Domestic Evidence." In Fair Trade and Harmonization: Prerequisite for Free Trade?
Jagdish Bhagwal; and Robert Hudec, eds. Washington, DC: MIT Press.
Marinshaw, R. and J. Fields. February 2003a. Memorandum from RTI, International to
Fairchild, S., EPA/ESD. Revised Estimate of Major and Area Sources of HAP
Emissions.
Marinshaw, R. and J. Fields. February 2003b. Memorandum from RTI, International to
Fairchild, S., EPA/ESD. Revised Estimated Compliance Costs for the Refractory
R-l
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Products Manufacturing Industry.
R.S. Means Company, Inc. 1997, 1998 Building Construction Cost Data. Kingston, MA: R.S.
Means Company, Inc.
Semler, Charles E. 2000. "More about Industry Changes." Ceramic Industry. Available at
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Sheppard, Laural M.. 2000. "Trends in Refractories Technology: Highlights of the AcerS
Annual Meeting." Refractories Applications.
Slade, M.E. 1996. "Uniform Compliance Costs for Mineral Commodities: Who Gains and Who
Loses?" Land Economics 72(1): 17-32.
The Technical Association of Refractories, Japan. 1998. Refractories Handbook. Tokyo: The
Technical Association of Refractories, Japan.
U.S. Bureau of Labor Statistics. 2001. "Producer Price Index." .
U.S. Department of Commerce, Bureau of the Census. 1994a. 1992 Census of Manufactures,
Industry Series—Abrasive, Asbestos, and Miscellaneous Mineral Products. Washington,
DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1994b. 1992 Census of Manufactures,
Industry Series—Cement and Structural Clay Products. Washington, DC: Government
Printing Office.
U. S. Department of Commerce, Bureau of the Census. 1995. 1993 Annual Survey of
Manufactures. M93(AS)-1. Washington, DC: Government Printing Office.
U. S. Department of Commerce, Bureau of the Census. 1996a. 1994 Annual Survey of
Manufactures. M94(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1996b. Concentration Ratios in
Manufacturing. MC92-S-2. Washington, DC: Government Printing Office. Available
at .
U. S. Department of Commerce, Bureau of the Census. 1997. 7995 Annual Survey of
Manufactures. M95(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1998. 1996 Annual Survey of
Manufactures. M96(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999a. 7997 Census of Manufactures.
Washington, DC: Government Printing Office.
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U.S. Department of Commerce, Bureau of the Census. 1999b. 7997 Census of Manufactures,
Industry Series—Manufacturing: Clay Refractory Manufacturing. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999c. 7997 Census of Manufactures,
Industry Series—Manufacturing: Nonclay Refractory Manufacturing. Washington, DC:
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1999d. 7995 Survey of Plant Capacity.
Washington, DC: Government Printing Office.
U. S. Department of Commerce, Bureau of the Census. 2000. 7995 Annual Survey of
Manufactures. M98(AS)-1. Washington, DC: Government Printing Office.
U.S. Department of Commerce, and International Trade Administration. 1999. U.S. Industry &
Trade Outlook 2000. New York: The McGraw-Hill Companies and U.S. Department of
Commerce.
U.S. Environmental Protection Agency (EPA). 1994. AP-42, Fifth Edition, Volume I, Chapter
11: Mineral Products Industry. Washington, DC: Government Printing Office.
Available at .
U.S. Environmental Protection Agency (EPA). 2001. Refractories Industry Database.
U.S. Department of Justice and the Federal Trade Commission. Horizontal Merger Guidelines.
April 8, 1992. .
U.S. International Trade Commission (USITC). 1993. Industry & Trade Summary: Refractory
Ceramic Products. USITC Publication 2692. Washington, DC: U.S. International Trade
Commission.
U.S. International Trade Commission (USITC). 1994. Industry & Trade Summary: Refractory
Ceramic Products. USITC Publication 2692. Washington, DC: U.S. International Trade
Commission.
U.S. International Trade Commission. 2001. Trade Database, .
U.S. Small Business Administration. 1998. "Small Business Size Regulations: Size Standards
and the North American Industry Classification System." 13 CFR Part 121.
Virta, Robert L. 1998. Minerals Information: Clay and Shale. Reston, VA: U.S. Department
of the Interior, U.S. Geological Survey. Available at .
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APPENDIX A
OVERVIEW OF REFRACTORIES MARKET MODEL
To develop estimates of the economic impacts on society resulting from the refractory
product NESHAP, the Agency developed a computational model using a framework that is
consistent with economic analyses performed for other rules. This approach employs standard
microeconomic concepts to model behavioral responses expected to occur with the regulation.
This appendix describes the spreadsheet model in detail and discusses how the Agency
•• characterized the supply and demand of three refractory commodities—bricks and
shapes, monolithics, and RCFs;
•• introduced a policy "shock" into the model by using control cost-induced shifts in the
supply functions of affected producers; and
•• used a solution algorithm to determine a new with-regulation equilibrium in each
refractory market.
A.I Baseline Data Set
Much of the data used in modeling the refractory industry come from the EPA Refractory
Industry Database, which contains confidential survey responses from potentially affected
facilities. Among the critical data included in this database are product-specific output. Table
A-l lists additional plant and company data elements and their sources. Table A-2 shows prices
of refractory products obtained from Freedonia Group. Although "other" refractory forms
include not only RCF but refractories that are shipped in bulk, EPA used this price for RCF.
A.2 Supply and Demand Elasticities
Unfortunately, empirical estimates of demand or supply elasticities for refractory
products are limited. The option of estimating a system of demand and supply equations using
three-stage least squares (3SLS) was not feasible because of limitations of time-series data.
Although these limitations prevent estimation of these parameters, knowledge about the
A-l
-------
Table A-l. Types and Sources of Refractory and Processing Facility Data
Data Category Data Element Data Source
Plant data
Company data
Market data
Plant name
Plant location
Plant ownership
Types of refractory products
produced
Employment
Quantity produced of each
refractory product
Company name
Company sales
Employment
Prices
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Estimate
EPA Refractory Industry Database
Ward's Business Directory
Ward's Business Directory
Ward's Business Directory
Freedonia Group
Sources:Freedonia Group. September 1999. "Refractories in the United States to 2003." Profound WorldSearch
.
Information Access Co. 2000. Ward's Business Directory. Belmont, CA
U.S. Environmental Protection Agency (EPA). 200Ib. Refractory Industry Database.
factors influencing the elasticity of derived demand makes it possible to develop informed
assumptions about producer and consumer responses to price changes. Economic theory states
that the elasticity of the derived demand for an input is a function of the following (Hicks, 1961;
Hicks, 1966; and Allen, 1938):
•• demand elasticity for the final good it will be used to produce,
•• the cost share of the input in total production cost,
•• the elasticity of substitution between this input and other inputs in production, and
•• the elasticity of supply of other inputs.
Using Hicks' formula,
A-2
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Table A-2. Refractory Products Pricing ($/ton)
Form
Monolithics
Bricks and Shapes
Other1
1989$
451
709
394
1998$
526
826
459
1993$
491
782
442
1998$
544
866
490
1998$
533
910
497
a Other refractory forms consist of ceramic fibers and refractory raw materials that are supplied in lump or ground
form used to manufacture refractories "in-house."
Note: Prices were inflated using the producer price index for stone, clay, glass, and concrete products available
through the Bureau of Labor Statistics at .
Source: Freedonia Group. September 1999. "Refractories in the United States to 2003." Profound WorldSearch
.
= [s(n+ e) + Ke(n- s)]
[n+e-K(n- s)]
(A.1)
where
•» = elasticity of demand for the refractory product i,
s = elasticity of substitution between refractory product i and all other inputs to steel
production,
n = elasticity of demand for final product (steel products),
e = elasticity of supply of other inputs, and
K = cost share of refractory product i in total production cost.
In the appendix to The Theory of Wages, Hicks (1966) shows that, if n > s, the demand
for the input is less elastic the smaller its cost share. If the data were available, this formula
could be used to actually compute the elasticity of demand for each refractory product. The final
products for which the refractory is an input include iron and steel products, other nonferrous
metal products, and cement. The iron and steel industry dominates the demand for refractory
products, perhaps constituting as much as 75 percent of total refractory consumption. For this
reason, EPA concentrated on the elasticity of demand for refractories in steelmaking. For the
analysis of the Integrated Iron and Steel NESHAP, the Agency estimated the elasticity of
demand for iron and steel products to be -0.59. Values in the literature have been in the same
range, both for ferrous (-0.7) and nonferrous (-0.6) metals (Slade, 1996). Lacking estimates of
other elasticities of final demand and of the other parameters in the formula makes direct
computation of the elasticity of demand, • • impossible. In spite of this, the formula is useful
because it identifies factors that influence the magnitude of the elasticity of derived demand.
A-3
-------
Knowledge of the general magnitude of those factors makes it possible to make an educated
assumption about the magnitude of • ?
The elasticity of substitution, s, between refractory products and other inputs is likely to
be very low but nonzero. Although there are no substitutes for refractories in the short run, over
time, capital equipment has been substituted for refractories as technology has evolved requiring
less use of refractories per ton of steel. We thus expect that n>s. This implies that the
magnitude of • is proportional to the magnitude of K, the cost share of refractories in overall
building construction. Based on the benchmark input-output accounts for the United States,
stone and clay products (including refractories) are 1.5 percent of primary iron and steel
manufacturing and 0.02 percent of primary nonferrous metals manufacturing (Lawson, 1997).
Given that the cost share of stone and clay products in the total production cost of ferrous
and nonferrous primary metal manufacturing is small, the elasticity of demand for one of the
final products (steel mill products) is relatively low and ease of substitution between inputs very
limited, the elasticity of demand for refractory products would be inelastic (i.e., less than 1 in
absolute value). In fact, we suspect it may be substantially lower. Assuming the elasticity of
supply of other inputs is 1, and the elasticity of substitution between refractory and other inputs
is 0.1, the elasticity of demand for refractories would be approximately 0.1 in absolute value.
A.3 Operational Model
The Agency developed an operational model of the refractories industry using
spreadsheet software. This model characterizes market supply and demand, allows the analyst to
introduce a policy "shock" into the model by using control cost-induced shifts in the supply
functions of affected producers, and uses a solution algorithm to determine a new
with-regulation equilibrium for each refractory market. This section describes the computer
model in detail.
A. 3. 1 Market Supply
Domestic supply for product i can be expressed as
where
si =
(A.2)
s' = product i supply from domestic plant (j) and
n = the number of domestic suppliers producing commodity i.
A3.1.1 Product Line Supply
EPA used a simple Cobb-Douglas (CD) supply function for each facility product line
A-4
-------
expressed as follows:
A,.(P, /' (A.3)
where
Sj = the supply of product i for domestic plant (j),
Aj = a parameter that calibrates the supply equation to replicate the estimated 1998
level of production,
P; = the 1998 market price for product i, and
S; = the domestic supply elasticity.
O
Regulatory Induced Shifts in the Supply Function (Cj). The upward shift in the supply
function [of domestic facilities] (Cj) is calculated by dividing the total annual compliance cost
estimate by baseline output. Computing the supply shift in this manner treats the compliance
costs as the conceptual equivalent of a unit tax on domestic output.
A-5
-------
, - c/' (A3)
International Trade. In response to public comment, EPA analyzed economic impacts in
the bricks and shapes market using a full cost absorption approach. To implement this approach,
EPA's model assumes that foreign suppliers of bricks and shapes increase their supply to offset
any decreases in output by affected domestic suppliers. Thus, the model projects no change in
the market price or quantity of bricks and shapes due to the regulation.
Plant Closure Analysis. One of the most sensitive issues to consider in the EIA is the
possibility that the regulation may induce a producer to shut down operations rather than comply
with the regulation. The data (i.e., direct observations of plant-level costs and profits) necessary
to make definitive projections of these impacts are unavailable from the survey data. Therefore,
EPA developed a crude method of identifying plant closure decisions using firm-specific or
broad industry measures of profitability as described below.
The plant closure criterion used for this analysis is defined as follows:
j - TCj < 0 (A.4)
where total revenue (TRj) is the sum of the product revenue from plant j's product lines, and
total cost (TCj) is the sum of the plant's total variable production costs, total avoidable fixed
production costs, and total control costs. The conceptually correct view would assume the plant
also has some positive liquidation value or opportunity value in an alternative use that is not
captured in the TC elements used to compute • ». However, no data are available to estimate
these opportunity costs. Therefore, the Agency has assumed they are exactly offset by the costs
of closing a plant (i.e., equal to zero).
Given the estimated 1998 values of revenue and variable production costs implied by the
calibrated product line supply functions, the Agency developed an estimate of the total avoidable
fixed costs so that the profit ratio for each plant exactly matches either the parent company's
profit margin or an industry profit ratio reported by the U.S. Internal Revenue Service (Contos
and Legal, 2000).
A. 3. 2 Market Demand
Domestic demand is expressed as follows:
qD;= B.-PV (A.5)
A-6
-------
where
D; = domestic demand for product i,
B; = a parameter that calibrates the demand equation to replicate the 1998 level of
domestic demand,
P; = the 1998 market price for product i, and
D; = the domestic demand elasticity for product i.
A. 3.3 With-Regulation Market Equilibrium Determination
Producer responses and market adjustments can be typically be conceptualized as an
interactive feedback process. Plants facing increased production costs due to compliance are
willing to supply smaller quantities at the baseline price. Typically, market supply would fall,
price would rise, and suppliers would recompute their desired supply at the new price; this
process would continue until both demanders and suppliers are satisfied at a given price. In the
case of the refractories market, however, EPA is modeling foreign supply as perfectly elastic, so
that it compensates for any reduction in domestic supply and no changes in price or market
quantity result.
The algorithm for determining with-regulation equilibria can be summarized as:
1. Impose the control costs on all affected plants, thereby affecting their supply
decisions.
2. Recalculate the market supply in each product market.
3. Compute change in imports to offset reduction in domestic supply.
In the affected bricks and shapes market, because foreign supply is assumed to be perfectly
elastic, the market achieves equilibrium immediately as increased foreign supply exactly offsets
decreased domestic supply.
A-7
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APPENDIX B
ECONOMIC WELFARE IMPACTS ON REFRACTORY INDUSTRY
The economic welfare implications of the market price and output changes with the
regulation can be examined using two different strategies, each giving a somewhat different
insight but the same implications: changes in the net benefits of consumers and producers based
on price and quantity changes and changes in the total benefits and costs of these products based
on the quantity changes. This analysis focuses on the first measure—the changes in the net
benefits of consumers and producers. Figures B-l and B-2 depict the change in economic
welfare by first measuring the change in consumer surplus and then the change in producer
surplus. In essence, the demand and supply curves previously used as predictive devices are
now being used as valuation tools.
This method of estimating the change in economic welfare with the regulation divides
society into consumers and producers. In a market environment, consumers and producers of the
good or service derive welfare from a market transaction. The difference between the maximum
price consumers are willing to pay for a good and the price they actually pay is referred to as
"consumer surplus." Consumer surplus is measured as the area under the demand curve and
above the price of the product. Similarly, the difference between the minimum price producers
are willing to accept for a good and the price they actually receive is referred to as "producer
surplus" or profits. Producer surplus is measured as the area above the supply curve and below
the price of the product. These areas can be thought of as consumers' net benefits of
consumption and producers' net benefits of production, respectively.
In Figure B-l, baseline equilibrium occurs at the intersection of the demand curve, DM,
and the supply curve, SM. Price is P{ with quantity Q,. The regulatory costs will cause the
market supply curve for affected facilities (Sal) to shift upwards to (Sa2). Indirectly affected
firms will expand production along their supply curve by an amount equivalent to the reduction
in supply from affected firms. The new equilibrium price of bricks and shapes refractories is P2,
the same price that existed prior to the regulation. As shown in Figure B-l a, because market
price and quantity do not change, there is no change in consumer welfare.
B-l
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P/Q
P = P
r r
Q! = Q2 Q/T
(a) Change in Consumer Surplus with Regulation
P/Q
P = P
rl r2
DM
\ \ Q,=Q2 Q/T
(b) Change in Producer Surplus with Regulation
P/Q
Q/T
(c) Net Change in Economic Welfare with Regulation
Figure B-l. Economic Welfare Changes with Regulation (Bricks and Shapes): Consumer
and Producer Surplus
B-2
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Producer welfare does change as a result of the regulation. Affected facilities are
assumed to be unable to pass the regulatory costs they incur on to consumers in the form of
higher prices. Thus, these facilities will restrict output to the level that maintains the original
market price, Pj. In Figure B-l(b), area A represents the loss in producer surplus that the
affected firms experience. It is the difference in the area under the supply curve up to the
original market price. Indirectly affected facilities expand output to meet demand. However,
since their supply curve is highly elastic, these firms do not experience any gain in producer
surplus. Thus, the only change in producer welfare is represented by area A.
The change in economic welfare attributable to the compliance costs of the regulation is
the sum of consumer and producer surplus changes. Under the assumption that bricks and
shapes producers are unable to raise prices, the impacts are restricted to producers. The loss of
area B represented the net (negative) change in economic welfare associated with the regulation.
However, this analysis does not include the benefits that occur outside the market (i.e., the value
of the reduced levels of air pollution with the regulation). Including this benefit may reduce the
net cost of the regulation or even make it positive.
B-3
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B-4
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TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
1. REPORT NO. 2.
EPA-452/R-03-004
4. TITLE AND SUBTITLE
Economic Impact Analysis of the Refractory Product Manufacturing NESHAP -
Final Rule
7. AUTHOR(S)
Lisa Conner, Innovative Strategies and Economics Group
9. PERFORMING ORGANIZATION NAME AND ADDRESS
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies and Standards Division
Research Triangle Park, NC 27711
12. SPONSORING AGENCY NAME AND ADDRESS
Steve Page, Director
Office of Air Quality Planning and Standards
Office of Air and Radiation
U.S. Environmental Protection Agency
Research Triangle Park, NC 27711
3. RECIPIENT'S ACCESSION NO.
5. REPORT DATE
February 2003
6. PERFORMING ORGANIZATION CODE
8. PERFORMING ORGANIZATION
REPORT NO.
10. PROGRAM ELEMENT NO.
11. CONTRACT/GRANT NO.
13. TYPE OF REPORT AND PERIOD COVERED
14. SPONSORING AGENCY CODE
EPA/200/04
15. SUPPLEMENTARY NOTES
16. ABSTRACT
This report presents a technical analysis of the economic impacts associated with the National Emissions Standard for Hazardous
Air Pollutants to control emissions of air toxic pollutants from Refractory Product Manufacturing. The analysis evaluates
adjustments in the refractory products market (through price and production changes), social cost, and the resulting affects on
employment, international trade, and small businesses.
17. KEY WORDS AND DOCUMENT ANALYSIS
a. DESCRIPTORS
Economic Impact Analysis (EIA)
Regulatory Flexibility Analysis (RFA)
18. DISTRIBUTION STATEMENT
Release Unlimited
b. IDENTIFIERS/OPEN ENDED TERMS
Air Pollution control
economic analysis
small business analysis
19. SECURITY CLASS (Report)
Unclassified
20. SECURITY CLASS (Page)
Unclassified
c. COSATI Field/Group
21. NO. OF PAGES
22. PRICE
EPA Form 2220-1 (Rev. 4-77)
PREVIOUS EDITION IS OBSOLETE
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United States Office of Air Quality Planning and Standards Publication No. EPA 452/R-03-004
Environmental Protection Air Quality Strategies and Standards Division February 2003
Agency Research Triangle Park, NC
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