EPA-230/1 -73-010
NOVEMBER, 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
For The Fertilizer Industry
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
\
UJ
O
V
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This document is available in limited
quantities through the U.S. Environmental Protection Agency,
Information Center, Room W-327 Waterside Mall,
Washington, D.C. 20460
The document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151
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EPA - 230/1-73-010
ECONOMIC IMPACT OF
COSTS OF PROPOSED EFFLUENT LIMITATION GUIDELINES
FOR THE FERTILIZER INDUSTRY
Milton L. David
J. M. Malk
C. Clyde Jones
October, 1973
Prepared for
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
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This report has been reviewed by the Office of Planning
and Evaluation, EPA, and approved for publication.
Approval does not signify that the contents necessarily
reflect the views and policies of the Environmental
Protection Agency, nor does mention of trade names or
commercial products constitute endorsement or recom-
mendation for use.
AGENCY
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PREFACE
The attached document is a contractor's study prepared for the Office
of Planning and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent limitation
guidelines and standards of performance to be established under sections
304(b) and 306 of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development Document")
supporting the issuance of proposed regulations under sections 304(b) and
306. The Development Document -surveys existing and potential waste
treatment control methods and technology within particular industrial
source categories and supports promulgation of certain effluent limitation
guidelines and standards of performance based upon an analysis of the
feasibility of these guidelines and standards in accordance with the require-
ments of sections 304(b) and 306 of the Act. Presented in the Development
Document are the investment and operating costs associated with various
alternative control and treatment technologies. The attached document
supplements this analysis by estimating the broader economic effects
which might result from the required application of various control
methods and technologies. This study investigates the effect of alter-
native approaches in terms of product price increases, effects upon em-
ployment and the continued viability of affected plants, effects upon
foreign trade and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Planning and Evaluation of EPA. This report was submitted in fulfill-
ment of Contract No. 68-01-1533, Task Order No. 6, by Development
Planning and Research Associates, Inc. Work was completed as of
October, 1973.
This report is being released and circulated at approximately the same
time as publication in the Federal Register of a notice of proposed rule
making under sections 304(b) and 306 of the Act for the subject point
source category. The study has not been reviewed by EPA and is not
an official EPA publication. The study will be considered along with the
information contained in the Development Document and any comments
received by EPA on either document before or during proposed rule making
proceedings necessary to establish final regulations. Prior to final promul-
gation of regulations, the accompanying study shall have standing in any
EPA proceeding or court proceeding only to the extent that it represents
the views of the contractor who studied the subject industry. It cannot be
cited, referenced, or represented in any respect in any such proceeding
as a statement of EPA's views regarding the subject industry.
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CONTENTS
Page
I. INDUSTRY SEGMENTS 1-1
A. Types of Firms I-1
1. Size and Number 1-1
2. Integration and Diversification 1-2
3. Products 1-3
4. Number of Plants by Ownership and
Capacity 1-5
B. Types of Plants I-10
1. Size I-11
2. Age 1-14
3. Location 1-15
4. Technology and Efficiency 1-26
5. Size-age-Process Relationships 1-29
6. Integration 1-29
C. Number of Plants and Employment 1-41
D. Relationship of Segments to Total Industry 1-45
II FINANCIAL PROFILE II-l
A. Plants by Segment II-l
1. Annual Profit Before Taxes H-4
2. Annual Cashflow II-6
3. Market (salvage) Value of Assets II-6
4. Cost Structure 11-11
B. Distribution of Model Plant Financial Data 11-28
1. Raw Material Availability and Prices 11-28
2. Supply/Demand Relationships 11-29
3. Attitudes Toward Pollution Abatement 11-30
C. Ability to Finance New Investment 11-30
1. Industry Profitability 11-31
2. Capital Structure 11-35
3. Ability to Finance New Investment 11-35
III PRICING HI-1
A. Price Determination III-l
1. Demand III-l
2. Supply III-32
3. Pricing III-40
B. Expected Price Effects III-51
1. Future Price Levels III-51
2. Probable Price Effects 111-52
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CONTENTS (continued)
Page
IV ECONOMIC IMPACT ANALYSIS METHODOLOGY IV-1
A. Fundamental Methodology IV-1
1. Benefits IV-6
2. Investment IV-7
3. Cost of Capital - After Tax IV-8
4. Construction of the Cash Flow IV-10
B. Price Effects IV-10
C. Financial Effects IV-12
D. Production Effects IV-12
E. Employment Effects IV-14
F. Community Effects IV-14
G. Other Effects IV-14
V EFFLUENT CONTROL COSTS V-l
A. Proposed Control Requirements V-l
B. Present Effluent Control Status of
Fertilizer Industry V-2
C. Water Pollution Abatement Costs by
Technology V-4
1. Technology Cost Data V-4
2. Investment V-4
3. Annual Operating Costs V-9
D. Water Pollution Abatement Costs by Model
Plant V-13
1. Technology Combinations by Product V-13
2. Best Practical Technology Cost V-13
3. Best Available Technology V-17
4. New Source Performance Standards V-17
5. Alternative Costs V-18
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CONTENTS (continued)
Page
VI IMPACT ANALYSIS VI-1
A. Price Effects VI-4
B. Financial Effects VI-11
1. Profitability VI-11
2. Capital availability VI-16
C. Production Effects VI-16
1. Potential Plant Closures VI-16
2. New Source Performance Standards VI-22
3. Production Curtailment VI-25
D. Employment Effects VI-26
E. Community Impacts VI-27
F. Balance of Payments Effects VI-27
VII LIMITS TO ANALYSIS VII-1
A. General Accuracy VII-1
B. Possible Range of Error VII-1
C. Critical Assumptions VII-2
D. Remaining Questions VII-4
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I. INDUSTRY SEGMENTS
For purposes of analysis, plants in the fertilizer industry have been
classified or grouped into numerous categories or types by type of
firm and plant. These groupings permit generalizations to be made
concerning differences in the effects of pollution control requirements.
The relevant characteristics are discussed below.
A. Types of Firms
1. Size and Number
At the broadest level, producers can be divided into two main groups:
basic chemical producers and mixed fertilizer manufacturers. The
industry has two other basic functional levels -- raw materials produc-
tion and retailing (dealers, blenders and/or liquid mixers). This des-
ignation parallels the chain of distribution from mine to farm -- whole-
sale to retail, large scale producing operations (multimillion dollar
corporations) to small scale retail operations (companies with $50,000
to $150,000 invested capital). The number of firms in each category
is predominately inverse to the unit investment.
Category Number of Firms^ —'
Raw material miner and refiner 41 £'
Basic chemical producer 109
Mixed fertilizer manufacturer and NSP 851
Blenders and liquid mixers 8,000
Dealers 40,000
2 Estimated where actual not firm
_' Excludes natural gas producers and non-captive sulphur
operations
The 109 firms engaged in the production of the basic chemicals for ferti-
lizers are dominated by large, integrated, diversified companies, some
of which are international in scope. These firms are essentially chemical
manufacturers (i.e. , Allied Chemical Co. , E. I. Dupont de Nemours,
Hercules, Inc. , Monsanto Co. , Borden Chemical Co. , Olin Corporation)
or petrochemical companies (i.e. , American Oil Co. , Phillips Petroleum
Co. , Gulf Oil Co.).
1-1
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A listing of the dominate firms and their size in relation to the total
by product is given below in Section I-A-4.
2. Integration and Diversification
A distinguishing characteristic of these firms is their high degree of
diversification. For these companies, fertilizer sales, as a percent
of gross sales, may be relatively small. For example, Allied Chemical
Co. , the largest producer of ammonia, realized only 8 percent of its
gross revenues from fertilizer sales in 1971.
Another characteristic of these large producers is their operation of
multiple plants with multiple products at a single location. This hori-
zontal integration is reflected in the fact that 84.7 percent of basic product
plants are a part of a multiplant complex.
These same companies may be vertically integrated, both backward to
raw material production and forward to the manufacture of mixed ferti-
lizers and/or the retail distribution of fertilizers to the farmer-user.
Data are not available to identify precisely those firms which are verti-
cally integrated; among the largest basic producers, however, there is
widespread backward integration. There is less forward integration into
retail distribution than previously, with basic producers now accounting for
approximately 25 percent of all retail sales through their own outlets.
The extent to which these integrated, diversified companies dominate the
basic production segment of the industry is partially obscured by the fact
that many smaller but important producing companies are operating sub-
sidiaries of the larger companies. In many instances, the operating com-
pany has retained its corporate name, even though it has been integrated"
with the parent company from an operations viewpoint. This is an im-
portant consideration in evaluating the impact of increased costs resulting
from pollution abatement. Whether or not a given plant may close as a
result of increased costs will depend in many cases on the role of that
plant in the total corporate strategy.
In addition to the large, integrated, diversified companies, there are
three other types of firms engaged in basic production of fertilizer
chemicals. These are (1) the cooperatives, which are also generally
1-2
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integrated and diversified; (2) the smaller chemical companies which
have one or two locations and produce only one or two products; and (3)
manufacturers of unrelated products (i.e. , steel) who have by-product
chemicals which move into fertilizer production. These groups account
for a relatively small amount of total capacity.
Most descriptions of the industry have been either product oriented or
organization oriented. Figure 1-1 attempts to combine both to a degree
to render to the reader an overview of the industry. The inter-relationships
among elements are numerous and the extent to which integration is possible
is even greater.
However, from the possibilities shown, there are two general areas of
stratification which may be discerned. One is specialization by product --
nitrogenous, phosphatic or potassic fertilizer. The other is by function --
raw materials, miner and refiner, basic chemicals producer, mixed
fertilizer manufacturer and retailer (dealer, blender and/or liquid mixer).
3. Products
The fertilizer industry has a number of different products, although
most are a matter of changes in degree. The industry is based on
three basic products -- nitrogen, phosphate and potash.
This study by the terms of reference addresses itself to only the basic
chemical producers of nitrogen and phosphates. Included in these cate>
gories are the following products:
Basic Chemical Producer; —'
Ammonia
Ammonium Nitrate
Urea
Phosphoric acid (intermediate)
Diammonium phosphate
Triple superphosphate
— The industry description includes ammonium sulphate and super phosphoric
acid producers. Subsequent pollution control costs furnished by EPA sub-
sequent to the completion of the industry description excluded these two
segments and thus the impact analysis does not include these two products.
1-3
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Figure 1-1. Fertilizer Industry Perspective - Product/FUJK li .,-n Specializations
Raw
Materials
Producers
Basic
Chemical
Producer
Manufacture
and
Retailers
Mixed Fertilizer Manufacturers NS? H7SO
Dealers
Sulphur
H2S°4
__
Blend
/
cr s
Potash
Liquids
M^Hi
^MM
lmmiliinii» •
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Intermediate products of nitric acid and sulphuric acid were actually
outside the scope of this investigation but the cost aspects of these
intermediates were developed in subsequent analysis, of necessity,
because of their integral role in the manufacture of some of the above
listed products.
4. Number of Plants by Ownership and Capacity
The industry has defined for this study 109 basic chemical firms and
312 plants. The number of firms and plants are shown below:
Ammonia
Ammonium nitrate
Urea
Ammonium sulfate
Phosphoric acid
Ammonium phosphate
No. of Firms
57
36
35
24
26
32
Concentrated superphosphate 13
Superphosphoric acid 5
No. of Plants
83
54
42
40
32
41
15
5
312
Ammonia
Within the ammonia segment of the fertilizer industry, the following
companies (one or more plants are the major producers:
Ten Largest Firms
Allied Chemical Corporation
C. F. Industries
E. I. Dupont de Nemours
Collier Carbon and Chemical Co.
Chevron Chemical Co.
American Oil Co.
Agrico Chemical Co.
Phillips Petroleum Co.
U.S.S. Agri-Chem. Co.
Farmland Industries
Total of firms in industry 57
Percent of total capacity of
10 largest firms
Percent of total plants (27/83)
Annual Capacity No. of Plants
4
3
3
2
3
1
2
3
3
_3
27
44%
33%
1-5
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Of the above, C. F. Industries and Farmland Industries are farmer
cooperatives and oriented to agriculture and fertilizers. The others
are recognizable as large multi-product corporations.
Ammonium nitrate
Since most ammonium nitrate facilities are integrated with ammonia
and nitric acid, scale of operation of the intermediates is critical.
Most ammonium nitrate production facilities are somewhat aged and
tied into small scale ammonia production units.
The following companies are the top ten producers:
Ten Largest Firms Annual Capacity No. of Plants
(1,000 tons)
Hercules, Inc. 677 3
Monsanto Co. 625 2
Allied Chemical Co. 497 3
Kaiser Agricultural 396 4
Gulf Oil Corporation 360 1
Farmers Chemical Co. 330 2
Mississippi Chemical Corp. 330 1
USS Agri-Chem. Co. 282 3
Atlas Chemical Co. 273 2
Cooperative Farm Chem. Assn. 270 1^
4,040 22
Total of firms in industry 36 7, 192
Percent of total capacity of
10 largest firms 56%
Percent of total plants (22/54) 41%
Of the above, Hercules and Atlas production is predominantly industrial.
Monsanto1 s split is unknown.
1-6
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Urea
Among the top ten producers are the following companies:
Ten Largest Firms Annual Capacity No. of Plants
(1,000 tons)
Allied Chemical Co. 455 3
Triad Chemical Co. 420 1
Collier Carbon and Chem. Co. 405 2
Vistron Corp. 238 1
Farmer's Chemical Assoc. 210 2
Agrico Chem. Co. (Willchemco) 200 1
Valley Nitrogen Products Inc. 190 2
Nipak, Inc. 186 2
Borden Chemical Co. 165 1
Olin Corp. 160 _!_
2,629 16
Total of firms in industry 35 4,363
Percent of total capacity of 10
largest firms 60%
Percent of total plants (16/42) 38%
Possibly only Farmers Chemical Association, Valley Nitrogen and
Nipak of the listed companies are predominantly fertilizer oriented.
There appears to be sufficient spread between costs due to economies
of scale that several small sized producers will be sensitive to any
increased costs due to pollution abatement.
Ammonium sulfate
Of the 40 plants producing ammonium sulfate, three are of the 200,000
tons and over category. Traditionally, this component of the fertilizer
nitrogen supply industry consisted of synthetic production and by-
product from coke-oven operations. More recently ammonium sulfate
from caprolactum production, a building block for synthetic fibers, has
become a major source.
1-7
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Ten Largest Firms Annual Capacity No. of Plants
(1,000 tons)
Phillips Chemical Co. 383 1
U.S.S. Agri-Chemicals, Inc. 227 5
Allied Chemical Corp. 200 1
Shell Chemical Co. 200 1
Occidental Chemical Co. 132 1
Columbia-Nitrogen Corp. 117 1
Youngstown Sheet & Tube Co. 110 1
Dow Badische Chemical Co. 106 1
E. I. Dupont de Nemours 100 1
Union-Carbide Corp. 100 _!_
1,675 14
Total of firms in industry 24 2,219
Percent of total capacity of
10 largest firms 75%
Percent of total plants (14/40) 35%
The ammonium sulfate industry appears to be in a state of flux. Plant
closures have been numerous and it is difficult to establish industry
norms which will not shortly change.
Phosphoric Acid
The phosphoric acid segment is dominated by the ten largest firms as
shown below:
Ten Largest Firms Annual Capacity No. of Plants
(1000 tons P2O5)
C. F. Industries 880 3
Freeport Minerals Co. 750 1
Gardinier 544 1
Farmland Industries 455 1
Beker Corp. 411 3
Texas Gulf Sulphur Corp. 346 1
Olin Corporation 337 2
W. R. Grace & Co. 315 1
USS Agri-Chemicals, Inc. 266 2
Occidental Chemical Co. 247 _2
4,551 17
Total of firms in industry 26 6,370
Percent of total capacity of 10
largest firms 71%
Percent of total plants (17/32) 53%
1-8
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The industry is concentrated in Florida adjacent to phosphate rock
operations. Several new large facilities are under construction.
Ammonium phosghate
Of the 41 plants, only two are of the large-sized variety -- 300, 000
tons per year or over. However, several new large-sized plants
are presently under construction. Sixteen plants are less than 50,000
tons annual capacity. Ten are from 50,000 tons to 99,000 tons.
Of the 32 companies producing ammonium phosphates, the following
are among the top ten:
Ten Largest Firms Annual Capacity No. of Plants
(1000 tons PzO5)
C. F. Industries 450 1
Beker Ind. Corp. 432 3
Agrico Chem. Co. (Willchemco) 300 1
Brewster Phosphates 200 2
Olin Corporation 198 1
Farmland Industries 184 2
Arco Chemical 170 1
Gardinier 170 1
Mississippi Chem. Corp. 153 1
Allied Chemical Corp. (liquid) 135 1
2,392 ~14
Total of firms in industry 32 3,681
Percent of total capacity of 10
largest firms 65%
Percent of total plants (14/41) 34%
Virtually all ammonium phosphates are used as fertilizer. However,
several multi-line corporations are among the producers. The in-
dustry is largely concentrated in Florida, adjacent to phosphate rock
mining operations.
1-9
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Triple superphosphate
The producers of triple superphosphate and their respective capacities
are:
Firms Annual Capacity No. of Plants
(1000 tons P2OS) "
Gardinier 375 j
W. R. Grace & Co. 365 2
C. F. Industries (2 plants) 209 2
Agrico Chem. Co. (Willchemco.) 165 1
Texas Gulf Sulphur Co. 164 i
Royster Co. 123 i
U.S.S. Agri-Chemical Co. 121 i
J. R. Simplot Co. 89 }
Occidental Chemical Co. 78 i
Mississippi Chem. Corp. 73 j
Farmland Industries 46 i
Stauffer Chemical Co. 41 i
Broden Chemical Co. 33 i
Total industry 1,882 Ts
There are thirteen companies currently producing TPS. The industry
is concentrated in Florida adjacent to phosphate rock mining operations.
B. Types of Plants
This section outlines the type of plants analyzed in the survey. Emphasis
is directed to size, age, location, technology, efficiency, and stage in the
production process. For nitrogen fertilizers, ammonia is the basic building
block. For phosphate fertilizers, phosphoric acid is the basic building
block. The reader is referred back to Figure I-1 to review the inter-
relationships among these products and to recall their various flow posi-
tions in the production process.
The discussion and tables which follow are based on plant lists supplied
by TVA and industry sources. Some of the data may be subject to question
because of plant closures which have gone unreported or because of other
unknown causes. In other words, the plant lists are somewhat tentative
in nature but reflect the best available data.
I-10
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1. Size
Even within product components, there is considerable range between
size of plants in terms of annual capacities. These are summarized
for the basic chemical products as follows:
Product No. Plants Total Capacity
(000 tons)
Ammonia
0-99 (000 tons) 21 1,087
100 - 199 24 3,249
200 - 299 16 3,522
300 - 449 15 5, 160
450 (over) 7 3,870
83 16,888
Ammonium nitrate
0-99 (000 tons) 27
100 - 149 11
150 - 249 9
250 - (over) _T_
54
Urea
0-99 (000 tons) 26
100 - 149 7
150 - 249 7
250 (over) _2_
"42
Ammonium sulfate
0-49 (000 tons) 28
50-99 1
100 - 149 7
150 (over) 4
40
Phosphoric acid
0-74 (000 tons ^2°^ 7
75 - 149 7
150 - 249 11
250 (over) _7
32
I-H
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No. Plants
Total Capacity
(000 tons)
Ammonium phosphate
0-49 (000 tons P2O5)
50 - 99
100- 199
200 (over)
Superphosphoric acid
50 (000 tons P2O5)
100
Concentrated superphosphate
0-99 (000 tons P2C>5)
100 - 199
200 (over)
16
10
13
_2
41
2
_3
5
8
5
2
15
100
300
400
1-12
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Ammonia - Of the 83 ammonia plants, 21 or about one-quarter of the
total number are less than 100, 000 tons annual capacity and account for
only 6 percent of total annual capacity. Twenty-one of these plants are
of the large and super large variety - 300,000 tons per year up to 720,000
tons per year. In the larger plant category, 7 plants or only 8 percent
of the total number account for 23 percent of total annual capacity.
Ammonium nitrate - A review of the distribution of ammonium nitrate
plants reveals that about one-half of them are on the small side (less
than 100,000 tons capacity). Ammonium nitrate production can claim
only standard technology--efficiencies being inherent only in larger
scale of operation.
Urea - A review of the size, of urea plants mainly reveals that of the
42 plants, two are of an extremely large variety. The majority of the
plants are small (less than 100,000 tons capacity). There is nothing
distinctive either in technology of urea production or process. Only
economies of scale of operations appear to differentiate between plants.
Ammonium sulfate - Only seven plants in this group are of the type
which produces ammonium sulfate as a prime product. The others are
excluded from this study insofar as costs are concerned but have been
carried along for overall industry perspective. In fact, the future
of prime product plants will be determined more by the excluded plants
than by additional costs imposed by pollution control.
Phosphoric acid - Seven plants out of 3 account for over one-half of total
production. Economies of scale parallel that of the other producing
plants in the fertilizer industry.
Ammonium phosphate - Almost all of the plants in this product group
are of the conventional type -- neutralization of phosphoric acid with
ammonia. However, a large number of plants are in the small size
category -- perhaps more than any other product group. The nitric
phosphate process is less well known. Two small plants have been
identified. The 21-53-0 plant, in all respects, is of the conventional
type — only thermal acid has been substituted for wet-process.
Superphosphoric acid - This operation consists of further concentration
of phosphoric acid by driving off water and is limited to a few plants.
Concentrated superphosphate - Only 13 plants are included in this group.
The product has almost been made obsolete by DAP, but it still has
specific demand for non-nitrogenous fertilizer grades.
1-13
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2- Age
The fertilizer industry is a relatively young industry in relation to
basic industries such as steel, which is reflected in the age of plants.
As shown below, only 20 percent of the plants are pre-1960 vintage.
Nitrogen plants tend to be older with about half 1965 vintage and older.
The phosphate industry has only 10 to 15 percent of its plants pre-1965.
A summary of the estimated age of plants is shown below by product.
No. Plants by Year Built
Pre
Product I960
Ammonia
No. plants
Capacity (000 tons) 3,
Ammonia nitrate
No. plants
Capacity (000 tons) 3,
Urea
No. plants
Capacity (000 tons)
Ammonium sulfate
No. plants
Capacity (000 tons)
Phosphoric acid
No. plants
Capacity (000 tons P2O5)
Ammonium phosphate
No. plants
Capacity (000 tonsP2O5)
Superphosphoric acid
No. plants
Capacity (000 tons P2O5)
21
170
20
350
8
848
10
305
3
234
1
17
0
0
1960-
1965
27
4,563
20
2, 162
10
608
4
588
3
215
3
105
1
50
1966-
1972
32
8,815
13
1,600
24
2,907
2
129
16
3,507
16
1,818
3
250
Unknown
3
340
1
80
0
0
24
1,197
10
2,414
21
1,741
1
100
Totals
83
16,888
54
7, 192
42
4,363
40
2,219
32
6, 370
41
3,681
5
400
Concentrated super-
phosphate
No. plants
Capacity(000 tons P2O5)
Total
No. plants
64
1
121
69
7
1,057
113
6
671
66
15
1,882
312
Most plants believed to be pre I960 vintage.
1-14
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3. Location
The location of the phosphate segment is now largely raw material
oriented, while the nitrogen segment is both raw material and market
oriented. The manufactured goods component is primarily market
oriented. A detailed discussion of location follows.
The raw materials necessary for the production of the basic fertilizer
compounds are:
Product
Ammonia
Ammonium Nitrate
Urea
Ammonium Sulfate
Phosphoric Acid
Diammonium Phosphate
Triple Superphosphate
Raw Material
Air, natural gas
Ammonia, nitric acid
Ammonia, carbon dioxide
Ammonia, sulfuric acid
Phosphate rock, sulfuric acid
Ammonia, phosphoric acid
Phosphate rock, phosphoric acid
Intermediates
Nitric Acid
Sulfuric Acid
Ammonia, air
Sulfur
The strategic raw materials necessary for both fertilizer products
and intermediates are:
Natural Gas
Sulfur
Phosphate Rock
1-15
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The major source of natural gas in the United States is along the Texas,
Louisiana Gulf Coast. About 50 percent of the ammonia plants, and
especially the newer ones, are located in this area. Ammonia con-
tains 82 percent nitrogen and can be transported at relatively low cost.
The West North Central States is another area of heavy concentration
of ammonia plants. These are market oriented locations and their
natural gas requirements are brought in by pipeline from Texas and
Louisiana.
Sulfur largely comes from brimstone deposits although large quantities
are also recovered from sour natural gas and refinery gases. Brim-
stone deposits are located along the Texas, Louisiana Gulf Coast. Sour
gas is also incidental to this area; however, Canada (Alberta) has been
an increasingly major source of sulfur from sour gas. The Gulf Coast
sulfur is readily transported by water.
The major economic deposits of phosphate rock are in central Florida,
about 50 miles east of Tarnpa. Some new deposits are being mined in
North Florida about 50 miles west of Jacksonville and in North Carolina
on the coast. Tennessee has some minor deposits, but theyare low grade
and used for electric furnace phosphorus production. The Western States
have some major deposits but account for only a minority of phosphate
fertilizer production. Consequently, phosphoric acid plants are concen-
trated in Florida adjacent to the rock mines.
The other raw materials -- air (nitrogen source) and carbon dioxide
(by-product from NH^ manufacture) -- are readily available.
There are 312 plants producing basic fertilizer materials, excluding
nitric acid and sulphuric acid plants. When NA and SA plants operated
in conjunction with other basic products plants are added, there are 391
plants.
Tables I-1 and 1-2 show the regional distribution of basic production
plants and capacities by product. Figures 1-2 through 1-8 show the
plant locations.
1-16
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Table I-L. Distribution of plants by product and geographic region
New
Product England
Mid
Atlantic
South
Atlantic
North Central
East
West
South Central
East West
Mountain
Pacific
Alaska,
Hawaii,
Puerto
Rico
Total
Ammonia
Ammonium
nitrate
Urea
Wet phosphoric
acid
Concentrated
super phosphate
Ammonium
phosphate
Super phosphoric
acid
Ammonium sulphate
0
0
0
0
0
0
0
0
7
3
3
0
0
0
0
13
6
9
4
13
11
10
3
2
4
4
2
3
0
3
0
12
15 7
14
8
1
1
4
0
0
3
5
1
1
3
0
1
29
10
12
6
0
9
1
8
4
3
1
4
2
5
1
1
10
8
6
4
0
7
0
3
1
0
1
0
0
0
0
0
83
54
42
32
15
41
5
40
Source: Developed by DPRA from industry lists published by Tennessee Valley Authority, industry contacts
and own files. All subsequent plant and capacity tables are from this same source. See footnote on
page VII-49 concerning the nature of the plant lists.
-------
Table 1-2. Distribution of capacity by product and geographic region
oo
Product England
Ammonia _' 0
Ammonium
nitrate I/ 0
Ureai/ 0
Wet phosphoric
acid -' 0
Concentrated _ ,
superphosphate — 0
Ammonium .
phosphate — 0
Super phos- .
phoric acid — 0
Ammonium
sulphate i/ 0
Middle
Atlantic
1,067
246
190
0
0
0
0
384
South
Atlantic
1,042
1, 188
298
3,736
1,634
1,222
250
317
North
East
955
402
338
356
0
222
0
227
Central
West
2,417
2,358
620
190
45
353
0
0
South Central
East
)00 Tons
1,786
585
361
160
73
248
0
26
West Mountain Pacific
7,587 306 1,218
1,695 241 477
1,773 50 383
1,427 412 89
0 130 0
1,150 356 130
100 50 0
1,017 33 221
Alaska
Hawaii ,
Pue rto
Rico
510
0
350
0
0
0
0
0
Total
16,88*
7, 192
4,36:
6,37(
1,882
3,68.
40(
2,2i<
±1 Product
U 100 percent ^2°^
-------
Figure 1-2. Location of ammonia plants,
-------
I
N»
O
Figure 1-3. Location of ammonium nitrate plants.
-------
Figure I-4 Location of urea plants.
-------
Figure 1-5. Location of wet-process phosphoric acid plants.
-------
to
OJ
Figure 1-6. Location of concentrated superphosphate plants.
-------
Figure 1-7. Location of ammonium phosphate plants.
-------
Figure 1-8. Location of ammonium sulfate plants.
-------
4. Technology and efficiency
The basic chemicals segments of the industry can be characterized
as high technology, involving continuous chemical processes. In terms
of assets per employee, the fertilizer ranks third as a group with
$80,200 per employee. It follows the petroleum industry with $113,600
per employee and mining with $83,900 per employee. The manufactured
goods segment is characterized with a much lower level of technology
reflecting the much simplier batch type operations.
In labor productivity terms, as indicated by the above data, the ferti-
lizer industry is very efficient. This fact is also borne out by sales
per employee. The fertilizer industry has $62,400 sales per employee
compared to the chemical industry as a whole with $35, 900 per employee.
As with most process products, variations in the method of process can
be found. The processes discussed are those commonly discussed in the
industry in lay terms. For further discussions and detailed descriptions
of processes the reader is referred to:
Wellman Lord, Inc., Draft Copy, Study Report, Industrial Wa^te
Studies Program, Group 6, Fertilizers, EPA, PN 3776,
July 1971.
Battelle Memorial Institute, Inorganic Fertilizer and Phosphate
Mining Industries, Water Pollution and Control, EPA,
12020 FPD 09/71, Sept. 1971.
The basic processes used in basic fertilizer manufacturing are
described below.
Ammonia - Steam Reforming, Natural Gas, Reciprocal Compressor.
About 43. 4 percent of all synthetic ammonia produced in the United
States is produced in plants using the Natural Gas - Steam Reforming
process with multi-cylinder reciprocating compressors. Hydrogen
and nitrogen required for synthesis of ammonia is obtained from
natural gas, steam and air. The gas is compressed in reciprocating
compressors driven by either electric motors or gas engines to 5000
psig in four stages to reach reaction pressure. These plants are small
(less than 600 tons per day), old (built before 1965) and have high oper-
ating costs per ton of ammonia.
1-26
-------
Ammonia - Steam Reforming, Natural Gas, Centrifugal Compressor.
About 51. 5 percent of all synthetic ammonia produced in the United
States is produced in plants using the Natural Gas - Steam Reforming
process with centrifugal compressors using single steam turbine
drivers. Hydrogen and nitrogen required for ammonia synthesis is
obtained from natural gas, steam and air. The centrifugal compressor
is used to bring synthesis and recycle gas up to reaction pressures.
These plants are large (more than 600 tons per day), new (built after
1965) and efficient (low operating costs).
Ammonia - Electrolytic Hydrogen. Only 1.6 percent of the synthetic
ammonia produced in the United States is produced from electrolytic
hydrogen. Compressed air and hydrogen are burned in a combustion
furnace to produce a hydrogen-nitrogen mixture with a three-to-one
ratio. The gas passes through the compression and synthesis section
as in other processes. These plants are small and operated in con-
junction with chlorine manufacture where the source of hydrogen is
from chlorine cells.
Ammonia - Pollutants. About 3.5 percent of the synthetic ammonia
produced in the United States is produced from coke oven gas and
refinery tail gases. Coke oven gas has or is being phased out. Re-
finery tail gases are reformed as with natural gas. These plants are
operated in conjunction with refinery complexes.
Ammonium Nitrate - Prill. Almost all solid ammonium nitrate produced
in the United States is produced in plants with a prilling tower whereby
an ammonia nitrate melt is dropped as a spray through a counter current
of air. The only other process (Stengel) is used at one identifiable plant
whereby the ammonium nitrate melt is spread out to solidify on a
water cooled stainless steel belt and then broken into flakes. Nitric
acid and ammonia, usually produced in an adjacent integrated complex,
are the raw material feed stocks for ammonium nitrate production.
Urea - Total Recycle. Urea is produced by dehydration of ammonium
carbamate synthesized from ammonia and carbon dioxide. Ammonia
and carbon dioxide are obtained from adjacent ammonia plants where
carbon dioxide is a by-product made during the preparation of syn-
thesis gas for ammonia production. In the reactions about 60 percent
of the ammonia is converted to urea per pass. In the total recycle
process, all of the off-gases are recycled to produce urea. Ammonia
conversion is thus almost one hundred percent. The large, newer plants
producing solid urea use the total recycle process.
1-27
-------
Urea - Partial Recycle. Portion of off-gases reused for urea production.
Urea - Once Through. Off-gases not recycled and must be used elsewhere.
This process is usually used to produce relatively small quantities of urea
for use in urea - ammonium nitrate solutions only.
Wet Process Phosphoric Acid. Phosphate rock is reacted with sulphuric
acid to produce phosphoric acid and calcium sulphate (gypsum). The
gypsum is insoluble and can be mechanically separated from the weak
phosphoric acid (41% H^PCK). This is normally accomplished on a
horizontal rotating pan type filter. Process conditions cause fluorine
to be evolved which is recovered by water scrubbing collected gas and
transferring fluorine to a waste water stream. Also, approximately
5 tons of gypsum per ton of P 05 produced must be sluiced to a holding
area (gyp pond). Scale of operation is the distinguishing feature between
most Wet ~P^OC plants. Wet acid is usually produced in conjunction with an
adjacent integrated sulphuric acid plant.
Concentrated P^Oc- Triple superphosphate is produced in a conventional
granulation unit. High grade phosphate rock is acidulated with sufficient
phosphoric acid to convert insoluble tri-calcium phosphate to soluble
monocalcium phosphate forms. The run-of-pile product can flow
directly to a granulation dryer for granulation.
Ammonium Phosphate - Conventional. The TVA process is most popular
in recently built plants. Weak phosphoric acid is partially neutralized
by anhydrous ammonia. Temperature is maintained at about 240 F by
adjusting the acid dilution so that water evaporation balances the heat
of reaction. After initial neutralization step, the slurry formed and
recycling material are fed into a rotating drum where final ammoniation
and granulation occur. About 97 percent of all ammonium phosphate
produced in the United States is produced in plants utilizing the conven-
tional methods.
Ammonium Phosphate - Nitric. Phosphate rock is acidulated with
nitric acid and usually some small quantities of phosphoric acid to
produce low analysis grades of N-P mixtures. Only two plants have
been identified in the United States.
Ammonium Phosphate - 21 - 53 - 0. This is similar to the conventional
process, except that higher analysis furnace phosphoric acid is employed
as the. internal rate raw material instead of wet-process phosphoric acid.
Only two plants have been identified in the United States and their produc-
tion is negligible.
1-28
-------
5. Size - age - Process relationships
Tables 1-3 toI-H summarizes the industry by size-age-process. In
general, the small plants are older. Also as shown, the various seg-
ments tend to concentrate in one process even though several types
exist.
6. Integration
DPRA has identified 44 present plant combinations in which the com-
panies within today's basic fertilizer materials industry are engaged.
These range from single unit operations of either anhydrous ammonia,
ammonium nitrate, urea, wet acid, ammonium phosphate or ammonium
sulphate up to integrated fertilizer complexes with seven plants at a
single location. Single plant nitric and sulphuric acid units have been
excluded from these groupings since they cannot be related to any basic
fertilizer material operation. Numbers of plants and owners are sum-
marized -in Table I- 12. There are 393 plant operations at 166 company
locations producing the 44 product combinations. Of these, 60 company
locations have single unit operations and account for 15.3 percent of the
total number of plants. Another 103 company locations, or 62. 1 percent
of all locations have two to five plants at each location and account for 313
plant operations or 79.7 percent of the total. These seem to be the typical
operation. Table I-13presents the detailed breakdown of number of com-
panies and number of plants per location for each of the 44 product
combinations.
1-29
-------
Table 1-3. Ammonia: Number and capacity of plants by age and capacity range (1,000 tons)
Process and
age group
Steam reforming
natural gas
Pre I960 I'
1960-1965
1966-1972
Unknown
Totals
Electrolytic
hydrogen
Pre I960
1960-1965
1966-1972
Unknown
Totals
Ammonia
>-< Pollutants
u> Pre I960
o
1960-1965
1966-1972
Unknown
Totals
All Processes
Pre I960
1960-1965
1966-1972
Unknown
Totals
0
No. of
plants
4
4
6
1
15
4
1
5
1
~T
9
5
6
1
21
- 99
Total
capacity
265
189
405
30
889
105
23
128
70
70
440
212
405
30
1,087
100
No. of
plants
4
17
0
1
22
1
1
1
1
6
17
1
24
- 199
Total
capacity
540
2,361
0
100
3,001
115
115
133
133
788
2,361,
100
3,249
200
No. of
plants
3
2
10
1
16
3
2
10
1
16
- 299
Total
capacity
642
440
2,230
210
3,522
642
440
2,230
210
3,522
300
No. of
plants
1
1
12
0
14
1
1
1
1
13
15
- 450
Total
capacity
340
340
4,080
0
4,760
400
400
340
340
4,480
5, 160
450
No. of
plants
2
2
3
0
7
2
2
3
7
Totals
Total
capacity
960
1,210
1,700
0
3,870
960
1,210
1,700
3,870
No. of
plants
14
26
31
3
4
5
1
"F
2
1
3
21
27
32
3
83
Total
capacit
2,747
4,540
8,415
340
16,042
220
23
243
203
400
603
3, 170
4,563
8,815
340
16,888
i/ Assume plants built 1965 and earlier are' reciprocal compressor type.
-------
Table 1-4. Ammonium nitrate: Number and capacity of plants by age and capacity range (1,000 tons)
Process and
age group
Prill Process
Pre I960
1960-1965
1966-1972
Unknown
Totals
0
No. of
plants
8
13
5
1
27
- 99
Total
capacity
557
840
313
80
1,790
100 - 149
No. of
plants
3
3
5
0
11
Total
capacity
312
411
655
0
1,378
150
No. of
plants
4*
3
2
0
9
- 249
Total
capacity
786
561
342
0
1,689
250 ---
No. of
plants
5
1
1
0
7
Total
capacity
1,695
350
290
0
2,335
Totals
No. of
plants
20
20
13
1
54
Total
capacity
3,350
2, 162
1,600
80
7,192
*Includes one and only Stengel process plant (187,000 TPY capacity)
-------
Table 1*5. Urea: Number and capacity of plants by age and capacity range (1,000 tons)
Process and
age group
Total Recycle
Pre I960
1960-1965
1966-1972
Unknown
Totals
Partial Recycle
Pre I960
1960-1965
1966-1972
Unknown
Totals
Once Through
Pre I960
1960-1965
1966-1972
Unknown
Totals
Unknown
Pre I960
1960-1965
1966-1972
Unknown
Totals
All Processes
Pre-1960
1960-1965
1966-1972
Unknown
Totals
0
No. of
plants
1
3
5
0
9
2
0
1
0
3
1
6
4
0
11
0
0
3
0
3
4
9
13
0
2T
- 99
Total
capacity
40
240
325
0
605
165
0
20
0
185
40
265
178
0
483
0
0
171
0
171
245
505
694
0
1,444
100 - 149
No. of
jplants
3
1
3
0
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
1
3
0
7
Total
capacity
365
103
368
0
836
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
365
103
368
0
836
150
No. of
plants
0
0
4
0
4
1
0
0
0
1
0
0
2
0
2
0
0
0
0
0
1
0
6
0
7
- 249
Total
capacity
0
0
755
0
755
238
0
0
0
238
0
0
320
0
320
0
0
0
0
0
238
0
1,075
0
1,313
250
No. of
plants
0
0
1
0
1
0
0
0
0
0
0
0
0
0
0
0
0
1
0
1
0
0
2
0
2
Totals
Total
capacity
0
0
350
0
350
0
0
0
0
0
0
0
0
0
0
0
0
420
0
420
0
0
770
0
770
No. of
plants
4
4
13
0
21
3
0
1
0
4
1
6
6
0
13
0
0
4
0
4
8
10
24
0
42
Total
capacity
405
343
1,798
0
2,546
403
0
20
0
423
40
265
498
0
803
0
0
591
0
591
848
608
2,907
0
4,363
-------
Table '3>-6. Ammonium sulfate: Number and capacity of plants by age and capacity range (1,000 tons)
Process and
age group
Prime product process
Pre I960
1960-1965
1966-1972
Unknown
Totals
By product processes
Pre I960
1960-1965
1966-1972
Unknown
£ Totals
**> Caprolactam process
Pre I960
1960-1965
1966-1972
Unknown
Totals
Unknown process
Pre I960
1960-1965
1966-1972
Unknown
Totals
All processes
Pre I960
1960-1965
1966-1972
Unknown
Totals
0 -
No. of
plants
0
2
0
1
3
8
0
1
12
21
0
0
0
1
1
0
0
0
3
3
8
2
1
17
28
49
Total
capacity
0
40
0
6
46
120
0
12
187
319
0
0
0
21
21
0
0
0
35
35
120
40
12
249
421
50 •
• 99
No. of Total
plants capacity
0
0
0
0
0
1
0
0
0
1
0
0
0
0
0
0
0
0
0
0
1
0
0
0
1
0
0
0
0
0
75
0
0
0
75
0
0
0
0
0
0
0
0
0
0
75
0
0
0
75
100
No. of
plants
0
0
0
1
1
1
0
0
1
2
0
0
1
2
3
0
0
0
1
1
1
0
1
5
7
- 149
Total
capacity
0
0
0
132
132
110
0
0
110
220
0
0
117
206
323
0
0
0
100
100
110
0
117
548
775
150
No. of
plants
0
2
0
1
3
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
2
0
2
4
Totals
Total
capacity
0
548
0
200
748
0
0
0
0
0
0
0
0
200
200
0
0
0
0
0
0
548
0
400
948
No. of
plants
0
4
0
3
7
10
0
1
13
24
0
0
1
4
5
0
0
0
4
4
10
4
2
24
40
Total
capacity
0
588
0
338
926
305
0
12
297
614
0
0
117
427
544
0
0
0
135
135
305
588
129
1,197
2,219
-------
Table 1-7.
Phosphoric acid: Number and capacity of plants by age and capacity range (1,000 tons
Process and
age group
Pre I960
1960-1965
1966-1972
Unknown
Totals
0
No. of
plants
1
2
3
1
7
- 74
Total
capacity
17
39
150
15
221
75
No. of
plants
2
0
2
3
7
- 149
Total
capac ity
217
0
204
360
78T
150
No. of
plants
0
1
7
3
TT
- 249
Total
capacity
0
176
1,352
550
2,078
250
No. of
plants
0
0
4
3
7
Totals
Total
capacity
0
0
1,801
1,489
3,290
No. of
plants
3
3
16
10
3T
Total
capacity
234
215
3,507
2,414
673TO
-------
Table 1-8. Ammonium phosphate: Number and capacity of plants by age and capacity range (1,000 tons
0 -
Process and No. of
age group plants
Conventional process
Pre I960
1960-1965
1966-1972
Unknown
Totals
Nitric phosphate process
Pre I960
1960-1965
_ 1966-1972
w Unknown
01 Totals
21-53-0 Process
Pre I960
1960-1965
1966-1972
Unknown
Totals
All Processes
Pre I960
1960-1965
1966-1972
Unknown
Totals
1
2
2
7
12
0
0
1
1
2
0
0
0
2
2
1
2
3
10
16
49
Total
capacity
17
20
75
158
270
0
0
45
20
65
0
0
0
25
25
17
20
120
203
360
50 - 99
No. of
plants
0
1
4
5
To
0
0
0
0
0
0
0
0
0
0
0
1
4
5
To
Total
capacity
0
85
237
376
698
0
0
0
0
0
0
0
0
0
0
0
85
237
376
6~95
100 - 199
No. of
plants
0
0
8
5
TT
0
0
0
0
0
0
0
0
0
0
0
0
8
5
13
Total
capacity
0
0
1, 161
712
1,873
0
0
0
0
0
0
0
0
0
0
0
0
1. 161
712
1,873
200
Totals
No. of Total
plants capacity
0
0
1
1
2
0
0
0
0
0
0
0
0
0
0
0
0
1
1
2
0
0
300
450
750
0
0
0
0
0
0
0
0
0
0
0
0
300
450
750
No. of
plants
1
3
15
18
37
0
0
1
1
2
0
0
0
2
2
1
3
16
21
TI
Total
capacity
17
105
1,773
1,696
3,591
0
0
45
20
65
0
0
0
25
25
17
105
1,818
1,741
3,681
-------
Table 1-9. Superphosphoric acid: Number and capacity of plants by age and capacity range (1,-OOQ tons
Process and
age group
Pre 1960
1960-1965
1966-1972
Unknown
Totals
Table I- 10.
Process and
age group
Pre 1960
1960-1965
1966-1972
Unknown
Totals
0-49
No. of Total
No
50
.of
plants capacity plants
0
0
0
0
0
0
0
0
0
0
0
1
1
0
2
Concentrated superphosphate:
0
No. of
plants
1
0
3
4
8
-
99
Total
capacity
33
0
169
228
430
- 99
Total
100 - 149
No. of
capacity plants
0
50
50
0
100
0
0
2
1
3
Total
150 ---
No. of
capacity plants
0
0
200
100
300
Number and capacity of
100
No. of
plants
0
1
3
1
5
- 199
Total
capacity
0
121
513
123
757
0
0
0
0
0
plants by
200
No. of
plants
0
0
1
1
2
Total
capacity
0
0
375
320
695
Total
capacity
0
0
0
0
0
Totals
No. of
Total
plants capacity
0
1
3
1
5
0
50
250
100
400
age and capacity range (1,000
Totals
No. of
plants
1
1
7
6
15
Total
capacity
33
121
1,057
671
1,882
-------
Table 1-11. Normal superphosphate: Number and capacity of plants by age and capacity range (1,000 tons
Process and
age group
Pre I960
1960-1965
1966-1972
Unknown
Totals
0
No. of
plants
11
11
- 9
Total
capacity
71
71
10 - 19
No. of
plants
34
34
Total
capacity
473
473
20 - 29
No. of
plants
15
15
Total
capacity
339
339
30--
No. of
plants
6
6
Total
capacity
291
291
Totals
No. of
plants
66
66
Total
capacity
1, 174
1, 174
U)
-------
Table 1-12. Horizontal integration of production - distribution of
plants by number of plants at a single location
Plants per
location
1
2
3
4
5
6
7
No. of
Companies
60
45
20
27
11
1
2
% of Total
Companies
36.1
27.1
12. 1
16.3
6.6
.6
1.2
No. of
Plants
60
90
60
108
55
6
14
% of Total
Plants
15.3
22.9
15.3
27.5
14.0
1.5
3.5
Totals 166 100.0 393 100,0
—' Only 109 firms - includes more than one location of plant operations for
some firms.
1-38
-------
Table 1-13. Horizontal integration of production - present product combinations
I
OJ
Comb.
Code
2
3
5
6
8
9
17
25
33
38
41
57
58
185
257
258
260
514
515
516
518
519
520
547
548
550
No. of
Companies
22
2
2
3
3
1
3
6
1
7
3
1
1
25
3
1
2
13
5
3
1
16
1
2
1
NH3 U N.A. A.N. A.S. S.A. Wet A.P TSP SPA
X
X
X
X X
XX X
I/ X
X
I/ X X
X
XX X
I/ X X
I/ X X X
x I/ x x x
I/ X X X X
X
x x
X XX
X X
X X
X XX
XXX
X X X
XXX X
XX X
xxx x
XXX- X
No. of plants
22
2
2
12
9
3
1
6
3
14
9
4
4
25
6
3
4
26
15
9
3
64
3
8
4
-------
Table 1-13 (continued)
Comb.
Code
552
688
772
776
1026
1033
1065
1066
1070
1081
1082
1209
1281
1321
1338
1540
1544
1584
No. of
Companies
4
1
1
1
2
1
2
2
1
1
1
3
7
1
1
1
1
1 ,
TOT?/
NH3 U N.A. A.N.
XXX X
XXX X
X XX
XXX X
X
X
X X
X
X
X XX
XXX X
xxx X
A * S* S. A .
I/
X
X
X
X
X
X
X
X
X
X
X X
X X
X X
X
X
X
Wet
X
X
X
X
X
X
X
X
X
X
A. P. TSP SPA
X
X X
X
X
X
X X
X X
xxx
X
X X
X
No. of plants
20
7
4
5
4
6
8
5
4
5
15
14
4
6
4
5
7
391
— Not identified individually in data used to develop this list, but must assume existence
of sulphuric acid facility as intermediate to wet acid production.
— Only 109 firms -- includes more than one location of plant operations for some firms.
-------
C. Numbe r of Plants and Employment
Number of Employees
Current statistics on the number of employees in the fertilizer in-
dustry are not available. Table I- 14 presents data from the 1967
Census of Manufacturers. While these are not current, they do
suggest the magnitude of manpower utilization in the industry.
Another source of information on employment is the Fertilizer Institute's
"Fertilizer Financial Facts" for June 30, 1972. This publication reported
38,000 workers in their Group II companies (integrated, basic producers -
one or more basic products with wholesale and/or retail outlets). This
figure compares quite closely with the aggregate of employment in the
Census of Manufacturers when the 13,400 employees in the 2,872 classi-
fication (Fertilizers, Mixing only) are excluded.
Unfortunately, these reports do not permit a detailed analysis by product.
For this purpose, DPRA developed its own estimate of manpower require-
ments based on an analysis of individual unit operations. These estimates
include for each industry segment the required shiftwork manpower plus
an estimate of all other workers (foremen, maintenance, shipping, clerical,
etc.). Broadly, the estimate of the manpower requirement is 22,390,
equal to the shift workers. This appears to fit an adjusted industry
pattern between production workers and all employees. These are shown
in Table 1-15.
Total industry manpower requirements are summarized in Table 1-16.
The aggregate number of workers for all industry components is 22, 180.
When adjusted for added terminal and other distribution, sales and head-
quarters personnel, and workers at bulk blend and liquid mix plants, the
grand total approximates 40,000-45,000. This compares with the 38,000
reported by the Fertilizer Institute as total employees in the Group II
participating companies. The Group II companies do not comprise the
entire industry but account for the major portion.
1-41
-------
Table 1-14. Number of Employees by Industry
Specialization and Primary Product Class Specialization - 1967
I
^
Code
28191
28193
28194
2871
28711
28712
(2872)
Source:
Establish-
Industry of Product Class of % ments All
of specialization (number) employees
Syn. NH3, HNO3> NH3 Comp.
(Primary product class of Estab. )
Estab. with 75% or more spec.
Sulphuric Acid
(Primary product class of Estab. )
Estab. with 75% or more spec.
Inorganic acids except nitric & sulphuric
(Primary product class of Estab. )
Estab. with 75% or more spec.
Fertilizers
Entire Industry
Estab. with 75% or more spec.
Superphosphate, other Phosphatic Fert.
(Primary Product Class of Estab. )
Estab. with 75% or more spec.
Mixed Fertilizers (Mat'ls produced at Estab. )
(Primary Product Class of Estab. )
Estab. with 75% or more Spec.
Fertilizers, Mixing only
Entire Industry
Estab. with 75% or more spec.
1967 Census of Manufacturers , no. MC67(2)-28A
74
54
53
34
14
5
213
187
51
34
153
124
721
694
. U. S.
12, 700
8, 000
3,400
1, 100
2, 100
200
20,800
16,900
9, 000
6,400
11,700
8,500
13,400
12,700
Pro-
duction
workers
8,600
5,600
2,500
800
1,500
100
15,200
12,400
6,800
4,900
8,300
6, 100
8,900
8,500
Value of
shipments
(millions)
$778
520
263
107
99
14
1,197
835
608
439
587
392
731
693
Dept. of Commerce, Bureau of the
Census, Washington, D.C., 1970.
-------
Table 1-15..
Estimated Manpower Requirements for Fertilizer
Industry Segments
Product
Ammonia
Ammonia
Ammonia
Ammonia
Ammonia
Nitric Acid
Nitric Acid
Nitric Acid
Prilled ammonium nitrate
Prilled ammonium nitrate
Prilled ammonium nitrate
Prilled urea
Prilled urea
Prilled urea
Ammonium sulphate
Ammonium sulphate
Sulphuric acid
Sulphuric acid
Sulphuric acid
Sulphuric acid
Phosphoric acid
Phosphoric acid
Phosphoric acid
Diammonium phosphate
Diammonium phosphate
Diammonium phosphate
Granular triple superphosphate
Capacity
Tons per year
50,000
105, 000
140, 000
350, 000
525, 000
53,000
105,000
210, 000
105, 000
160, 000
350, 000
105, 000
160, 000
350, 000
100, 000
300,000
200, 000
330, 000
600,000
900, 000
83, 000
200, 000
300, 000
170, 000
330, 000
720,000
170,000
Manpower/ Unit
Shift
9
12
12
15
18
6
6
6
12
12
12
18
18
18
9
9
6
6
6
6
21
21
21
6
6
6
6
Otherl/
9
12
12
15
18
6
6
6
12
12
12
18
18
18
9
9
6
6
6
6
21
21
21
6
6
6
6
Total
18
24
24
30
36
12
12
12
24
24
24
36
36
36
18
18
12
12
12
12
2t
42I
42f
42-
12
12
12
12
_!_/ Includes foreman, maintenance, shipping, clerical, etc.
2/ Includes manpower for sulfuric acid section (integrated operation).
1-43
-------
Table 1-16. Estimated manpower fertilizer industry segments
— ===^=s==^a=a:^===—
Number of
Unit plants
• _
Ammonia
Nitric acid
Ammonium nitrate
Urea
Ammonium sulphate
Sulfuric acid
Phosphoric acid
DAP
TSP
83
55
54
42
40
53 y
32
41
15
===S=====B:
Estimated
average
30
12
24
36
18
12
42
12
12
•
Total production
manpower .i'
2,490
660
1,300
1,510
720
640
1,340
490
180
9", 330
— Excludes terminal and other distribution, sales and headquarters
producers.
personnel.
2/ Less H2SO4 facilities integrated with
1-44
-------
D. Relationship of Segments to Total Industry
To place the industry, as defined for this study, in perspective, the
relationship of the various segments to the total was estimated. Three
relationships--number of plants, production and employment--we re
estimated. Because of the complex nature of the industry, a common
set of measurements could not be made for each of the relationships,
thus the reader is cautioned not to make direct comparisons.
Number of Plants
Based on a total estimate of 1618 plants, which excludes nitric and
sulfuric acid, the manufactured goods segments --NSP and mixed goods -
have the majority of the plants with 81 percent of the total (Table I- 17).
Within the basic chemicals group, ammonia plants are second most
numerous with about 5 percent of the total. Superphosphoric acid and
triple superphosphate plants, together represent only about one percent
of the total number of plants. The remaining segments fall between the
one and five pe rcent range.
Production
Throughout most of this study, units of production or size has largely
been expressed in tons of product or equivalent plant food nutrient con-
tent. Fertilizer is largely a physical quantity --41 million tons of gross
product consumed domestically, another 5 million tons exported. How-
ever, values per unit do differ and this section is designed to give some
overall perspective to the industry segments in a reasonable, if not finite
manner.
In 1972, retail sales of fertilizers are estimated at about $2. 5 billion.
This was comprised of the following plant food nutrients consumed in
all forms--direct or as mixed fertilizer.
Nitrogen (N) 8.0 million tons
Phosphate (P2O5) 4. 9 million tons
Potash (K2O) 4. 3 million tons
Based on estimates of current product mix with each nutrient group,
it is estimated that the weighted average retail values of the nutrients
consumed may approximate the following:
N $175 per ton
P2°5 $150 Per ton
K2O $100 per ton
1-45
-------
Table 1-17. Selected relationships of segments to total
fertilizer industry
No. of Plants
Segment
No.
Percent
Production
Plant
Sales
Employment
Percent!' No.
Percent
($million)
Ammonia
Nitric acid
Ammonium nitrate
Urea
Ammonium sulfate
Phosphoric acid
Diammonium phosphate
Triple superphosphate
Super phosphoric acid
Total
83
55
54
42
40
32
41
15
5
3 12 I/
26.6
17.3
13.5
12.8
10. 3
13. 1
4.8
1.6
100.0
543i/
_ _
302
392
54
--
510
198
--
NA
34
_ _
19
24
3
--
32
12
--
NA
2,490
660
1,300
1,510
720
1,340
490
180
--
8, 690
28.6
22.61
17.4
8.3
15.4
5.6
2. 1
--
100.0
— Excludes nitric acid plants
— Includes product used as an intermediate
— All values a percent of wholesale sales except mixed fertilizer which
is a percent of retail sales.
4/
— Includes nitric acid.
1-46
-------
Thus, at the above unit values and consumption levels, the retail value
of fertilizers consumed may be estimated at about:
Thus at the above values and consumption levels, the retail value
of fertilizers consumed may be estimated at about:
N $1.40 billion
$ .74 billion
K2O $ .43 billion
$2.57 billion
Add total exports $ . 34 billion
$2.91 billion
Less imports $ .20 billion
Net Retail Value of
Domestic Production $2.71 billion
The wholesale value of the various industry segment products range from
50 to 68 percent of retail, thus an order of magnitude estimate of the
wholesale value of all industry fertilizer production (using 60 percent)
maybe $1.6 billion dollars.
Using these values, Table I- 18 was prepared to place some perspective
on the relationship of the industry segments to the whole in terms of
production measured in dollars. Because of the different market levels
involved- -the wholesale level of the basic chemicals group and the retail
level of the mixtures—a direct overal comparison was not made. However
the relatively minor importance, in terms of sales of ammonitim sulfate and
TSP standout against the importance of ammonia, urea and DAP.
Employment
Relationship of the segments to total industry employment for the
segments included in this study demonstrate a pattern similar to the
number of plants, where manufactured goods dominate employment.
(See Table II- 18;. Triple superphosphate employs Hie fewest in the
basic chemicals group, while ammonia employs the largest number
in relation to the total.
1-47
-------
Table 1-18. Estimated wholesale value of industry segments.
Product
Production
(1000 tons
product)
1973
F.O.B.
Price
$/ton
Total
Value
$ million)
Percent of
Estimated
Total Wholesale
Ammonia
14, 300
$38.00
$543
34
/
Ammonium nitrate
Urea
Ammonium sulfate
DAP
TSP
6,872
3,724
2,438
6,800
3,600
44.00
57.00
22.00
75.00
55.00
302
392
54
510
198
19
24
3
32
12
— Includes ammonia used as intermediate for production of other nitro-
genous fertilizers.
1-48
-------
II. FINANCIAL PROFILE
Financial data are extremely limited on the fertilizer industry due to
the complex organization and diverse business interests of firms
owning fertilizer plants. Asa result, it is virtually impossible to
identify segment by segment financial data from external sources.
From the financial data important insights can be gained, but in the
main, it is necessary to resort to model plant budgets representing
the various segments of interest. Thus, to gain these insights, budgets
were prepared for representative plant configurations.
A. Plants by Segment
The fertilizer industry is complex—consisting of many end products
which use intermediate products (see Figure 1-1 for product relation-
ships) and several sizes of operation. The sizes of unit operations
could be generalized as small, medium and large in most all of the
fertilizer product categories considered in this study.
Capital and operating costs were developed for 29 distinct product-
size combinations of plant operations which we believe to be repre-
sentative of the fertilizer industry. This was determined after initial
review of the plants comprising each segment of the industry. —' Also
included were capital and cost estimates of a number of intermediates
necessary to the buildup total capital and cost estimates for the end
products used in this study. Table II-1 shows the products and typical
capacities for which such estimates were developed.
Assumptions were necessary regarding source of intermediate feed-
stocks in some configurations. The detailed assumptions are implicit
in Table II-2. All phosphate rock was charged as if purchased rather
than costing out as integrated mining and processing facilities.
— Additional minor segment variations exist for nitrogen solutions
from urea and ammonium nitrate and superphosphoric acid. How-
ever, these were not budgeted as specific effluent control costs for
these segments were not provided by EPA for this study.
H-l
-------
Table E-1.
Representative plant configurations selected
for cost studies
Product
Ammonia
Nitric acid
Ammonium nitrate ,
prilled
Urea Prills
Capacity
TPY
50,000
105,000
210,000
350,000
525,000
85,000
130,000
285,000
105,000
160,000
350,000
52,000
105,000
160,000
350,000
Product
Sulfuric acid
Wet phosphoric
acid
Diammonium
phosphate
Triple super-
phosphate
Capacity
TPY
200,000
235,000
330,000
600,000
900,000
50,000
83,000
200,000
300,000
170,000
330,000
720,000
170,000
330,000
n-2
-------
Table H-2. Prorate factors used in estimating investment and operating costs (1,000 tons)
Product Produced
Ammonia
Unit
Nitric
"
"
Unit
size
(1000TPY)
acid 85
" 130
11 285
Ammonium nitrate 105
it
"
Urea
ii
it
n
" 160
" 350
52
105
160
Required/
unit size
(1000TPY)
25/210
38/210
82/350
23/210
35/210
76/350
32/105
64/210
98/350
350 214/525
Diammonium phosphate 170
H
it
Triple
" 330
" 720
superphosphate 170
330
39/50
76/105
166/210
Percent
of unit
12
18
23
11
17
22
30
30
28
41
78
72
79
Intermediate Products Used
Nitric Acid Sulfuric Acid
Required/ Percent Required/ Percent
unit size of unit unit size of unit
(1000TPY) (1000TPY)
84/85 100
128/130 100
281/285 100
Phosphoric Acid
Required/
unit size
(1000TPY)
80/83
155/200
338/340
59/83
115/200
Percent
of unit
100
78
100
71
58
-------
1. Annual Profit Before Taxes
Based upon the model plant concept and configurations employed, esti-
mated annual pretax income levels and rates (including after-tax rates
of return) are displayed in Table II-3. These estimates were based upon
current prices and costs at utilization rates which reflect approximate
1972 conditions.
Estimated annual pre-tax income varies greatly depending upon product,
plant size and sales level (price and/or utilization of capacity). Pre-tax
income levels at today's prices were negative for:
The two smallest ammonia units
The two smallest urea units
The smallest DAP unit
The smallest TSP unit
The large units demonstrate relatively high levels of pre-tax income,
in the order of $1.4 to $3. 1 million (excepting the super large DAP unit
with $8.7 million). Other plant configurations show intermediate levels.
An important factor in profitability is the matter of utilization -ates.
In recent years, the fertilizer industry was operating at low prices and
utilization resulting in very low rates of returns. The phosphate segment
approximated 75 percent utilization during the 1969-70 period. With the
recovery of prices and utilization this year (1973-74), the fertilizer in-
dustry is demonstrating strong pre-tax and after-tax income.
However, it should be noted that the phosphate segment is expected to drop
to a 75 percent utilization level by 1977 due to expansion of capacity (see
Chapter III for discussion). This suggests that this segment is likely to ex-
perience declining prices over the next 5 years, reaching negat.ve pre-tax in-
come levels. The key nitrogen segments are now expected to hold or improve
profitability--barring any large distortions in natrual gas prices and supplies.
The invested capital, on which rates of return were calculated, was
estimated by dividing replacement capital by two to obtain an approxi-
mation of average fixed assets, plus net working capital (current assets
less current liabilities). This invested capital estimate is intended to
approximate invested capital in reported financial data. It is recognized
that this estimate Is imperfect but we believe it is of an appropriate mag-
nitude. After-tax income was computed on the basis of a constant 48 per-
cent rate, where applicable, and does not reflect tax carry forward or
back provisions.
II-4
-------
Table II-3. Estimated income and cash flow for industry segments based on model plants
Size
1, 000
Plant Configuration TPD
Ammonia 50
105
210
350
525
Ammonia nitrate 105
160
350
B Urea 52
-------
2. Annual Cash Flow
Annual cash flow (after-tax income plus depreciation) has been estimated
for each model plant in Table II-3. Positive cash flows were obtained for
all sizes except the smallest ammonia and urea plants. The 105,000 TPY
ammonia plant shows a small positive cash flow.
These small plants present a serious financial problem; they can not
be expected to sustain a negative cash flow over the long run. Some of
them are disappearing already.
^3. Market (salvage) Value of Assets
A reliable and comprehensive set of estimates of the value of existing
fixed assets is apparently not available from secondary data sources.
Development of a set of valuations would require a plant by plant ap-
praisal, which is beyond the scope of this inquiry. However, some in-
sights into this issue can be obtained from considering the nature of
fertilizer plant construction, location, type of plant and other factors
and the investment estimates for model plants. To set the scenario
for this discussion, the model plant investment estimates are discussed
first.
a. Estimated Model Plant Investment
The capital estimates developed for the end-products under study pur-
port to represent the capital employment for all production phases of
the operation. Where an intermediate product (ammonia, nitric acid,
phosphoric acid, etc.) is needed for production of an end-product, it
was included as a cost element at the ratio of the use of the intermediate
product by the end-product to the intermediate product's total source
plant production. The appropriate capital prorate for the intermediate
was carried through to the end product.
Available information was sparse and that obtained was somewhat aged.
All capital requirements were based on 1972 dollars and where necessary
available data was inflated by a factor of five percent annually to be repre-
sentative of present conditions. It can also be deflated by this factor to
determine original cost where needed.
Table II-2 shows the intermediate prorate factors used to estimate
total investment and operating costs. In some instances we have scaled
an intermediate plant to match a single end product requirement, which
is not always the actual situation. An example is the nitric acid facilities
scaled to match nitric acid requirements for prilled ammonium nitrate.
II-6
-------
In actual practice, additional nitric acid may be produced at prilled
ammonium nitrate facilities for co-production of a variety of nitrogen
solutions. The effect of our procedure is to slightly increase the cost
of the nitric acid intermediate used in the cost estimates.
The estimated investment in assets for the model plant configurations
is shown in Table II-4. This table shows the basic investment plus any
appropriate pro-rate and the total plant investment. The total figure
for each model plant includes the battery limit plant investment plus
auxiliary investments in land, steam, power, storage and related facil-
itie s.
Networking capital (current assets minus current liabilities) require-
ments were computed at 10 percent of sales for all products based on
100 percent throughput. Table II-5 summarizes net working capital
requirements by end-product used in the analysis. The requirements
were obtained from analysis of financial data reported by the Fertilizer
Institute (Fertilizer Financial Facts), IRS Industry Reports and Dun and
Bradstreet financial reports on agricultural chemical companies for the
period 1967-1972.
b. Estimated Salvage Values
The fertilizer industry is comprised of an extremely wide variety and
size of participants. The firms involved range from the small, local
independent manufacturer of mixed fertilizers with sales of $1-3 million
to the large multi-national diversified company with sales of $9 billion
of which fertilizer is but a small segment. Any consideration of salvage
values for fertilizer producing facilities must necessarily take into ac-
count the nature of the specific operation in relation to the whole of the
firm's business interests.
At the one extreme, the small, local, independent mixed fertilizer manu-
facturer which specializes only in mixed fertilizers would include the
whole of the business--land, buildings, machinery, equipment and office
furniture in his closure decision. At the other extreme, the facilities
for the basic manufacture of nitrogen and phosphate and its fertilizer
derivatives are multi-million dollar units, usually a part of a large
integrated chemical or fertilizer processing complex. Therefore, any
consideration of closure of these fertilizer units will most likely involve
only *ne one component out of several and uot the disposition of land or
common support facilities such as water systems, power and steam,
generation, equipment, maintenance and office buildings. Experience
has revealed that closure of any single unit within these types of com-
plexes is -- whether for technical or economic reason -- has usually
been followed by a larger, more efficient unit to replace the older unit.
II-7
-------
Table II-4,. Estimated investment for alternative fertilizer plant configurations ($1,000)
Plant
Ammonia
Ammonia
Ammonia
Ammonia
Ammonia
Nitric acid
Nitric acid
Nitric acid
Ammonium nitrate
Ammonium nitrate
Ammonium nitrate
Urea
Urea
Urea
Urea
Size
(1000
TPY)
50
105
210
350
525
85
130
285
105
160
350
52
105
160
350
NH3 HNO3 A.N. Urea H2SO4
$8,025
11,600
17, 100
26,650
33,600
2,052$3,400
3,078 4,250
6, 130 6,500
1,881 5,452 $2,350
2,907 7,328 3, 100
5,68312,630 5,100
3,480 $5,000
5,130 6,750
7,462 8,600
13,776 14,500
A.S. P2O5 DAP TSP NSP Mix Total
$ 8,025
11,600
17, 100
26,650
33,600
5,452
7,328
12,630
9,683
13,335
23,413
8,480
11,880
16,062
28,276
Sulfuric acid 235 $2,600
-------
Table II-4. (continued)
Plant
Phosphoric acid
Phosphoric acid
Phosphoric acid
Phosphoric acid
Phosphoric acid
Diammonium
phosphate
*p Diammonium
"° phosphate
Diammonium
phosphate
Triple super-
phosphate
Size NH3 HNO3 A.N.
(1000
TPY)
50
83
200
300
340
170 $6,260
330 8,352
720 13,509
170
330
Urea H2SO4 A.S. ?2°5 DAP TSP NSP
$9,000
12,500
20,300
27,200
30,000
$12,500 $3,100
15,834 4,900
30,000 8,750
8,875 $3,400
11,774 5,374
Mix Total
$ 9,000
12,500
20,300
27,200
30,000
21,860
29,086
52,259
12,275
17, 148
-------
Table II-5. Estimated working capital for alternative
fertilizer plant configurations ($1,000)
Ammonia
M
ii
it
it
Ammonium nitrate
M II
II It
Urea
M
II
II
Diammonium phosphate
ii ii
ti M
Capacity
(1000 TPY)
50
105
210
350
525
105
160
350
52
105
160
350
170
330
720
Investment
($1,000)
$ 205
431
651
1,085
1,628
431
656
1,435
270
546
832
1,820
1, 122
2, 178
4,752
Triple superphosphate 170 782
11-10
-------
Table II-6 presents estimated salvage values for model plants.
These dollar amounts are 8 percent of replacement costs plus net
working capital (estimated as 10 percent of sales at 100 percent
utilization).
The 8 percent factor is derived from (1) an estimated percentage
weight for each plant component multiplied by (2) the expected
salvage value of the component, expressed as a percentage of original
cost. These percentages are as follows:
Component Cost
as a Percent of
Total Cost
Buildings and land 5.8
Process equipment 25.0
Labor -- setting equipment 2. 5
Process materials and labor 28.5
Field expenses 11.7
Engineering and contracting
expenses, including profit 26. 5
100.0
Salvage Value
as a Percent of
Original Cost
25
25
0
0
0
Weighted
Salvage
Value
(Pet)
1.46
6.25
0.00
0.00
0.00
0.00
7.71
The weighted salvage value percentage has been rounded to 8 percent.
4. CostjStructure
Model plant budgets were prepared to estimate the cost structure of
the various segments.
Fixed or plant related expenses were defined as those which do not
directly vary as a function of throughput. These expenses include:
. maintenance and supplies
taxes and insurance
plant and labor overhead
sales, general and administrative
II-ll
-------
Table II-6. Salvage values by product and plant size
Plant
Ammonia
Nitric acid
Ammonium nitrate
Urea
Phosphoric acid
Diammonium
phosphate
Tripe super-
phosphate
Size
50
105
210
350
525
85
130
285
105
160
350
52
105
160
350
50
83
200
300
340
170
330
720
170
330
Total
investment
8,025
11,600
17, 100
26,650
33,600
5,452
7,328
12,630
9,683
13,335
23,413
8,480
11,880
16,062
28,276
9,000
12,500
20,300
27,200
30,000
21,860
29,086
52,259
12,275
17, 148
Salvage
value _'
642
928
1,368
2, 132
2,688
436
586
1,010
775
1,067
1,873
678
950
1,285
2,262
720
1,000
1,624
2,176
2,400
1,749
2,327
4, 181
982
1,372
Working
capital U
205
430
651
1,085
1,627
3/
3_/
I!
430
656
1,435
270
546
832
1,820
3/
°5"/
3/
3/
I/
-
1, 122
2, 178
4,752
782
1,518
Total
847
1,358
2,019
3,217
4,315
436
586
1,010
1,205
1,723
3,308
948
1,496
2,117
4,082
720
1,000
1,624
2, 176
2,400
2,871
4,505
8,933
1,764
2,890
_' Calculated as 8% of original investment
2/ Calculated as 10% of 100% level sales
—' Reflected in end product working capital.
11-12
-------
Additionally cost estimates were made for depreciation and interest
costs. Variable or production related expenses were defined as those
which will generally vary proportionately with throughput -- in other
words, a fixed amount per ton. They include:
raw materials
powe r
. wate r
catalysts, chemicals, etc.
operating labor
plant supervision and fringe benefits
a. Fixed costs
As shown in Table II-7, indirect expenses range from 28 to 71 percent
of sales. These expenses for the small and intermediate basic pro-
ducts plants -- ammonia, ammonium nitrate, urea, DAP -- represent a
significant portion of sales.
Where different sized models were evaluated, the larger plants con-
sistently have lower indirect costs in proportion to sales. This is also
true for all depreciation.
Depreciation is based on "average investment" (50 percent of replace-
ment cost) and estimated life of plant and equipment. This should
approximate book value. A percent of sales, depreciation, ranges from
4.9 to 11.5. These percentages may overstate slightly the actual in-
dustry practice in depreciation. From available published data, the
industry averages from 5 to 8 percent of sales. Interest costs, as
computed, ranged from 1.6 to 2.7 percent of sales.
b. Variable Costs
Variable costs are also shown in Table II-7 for the two major com-
ponents -- raw materials and other. The relatively small variance in
raw material costs within a model segment generally represent differ-
ences in process and process efficiency. Generally the nitrogen seg-
ments have the lowest raw material costs -- 14 to 32 percent of sales;
the phosphate segment has raw material costs of 45 to 54 percent of sales,
Other direct costs, as percent of sales, for the nitrogen products are
generally slightly smaller than raw material costs ranging from about
8 to 28 percent depending on process and plant size. The phosphate seg-
ments have very low other direct costs -- about one to four percent of
sales.
11-13
-------
Table II-7. Estimated sales, costs and expense ratios for industry segments based on model pin, is
Plant configuration
Ammonia
Ammonium nitrate
Urea
Diammonium
phosphate
Triple super-
phosphate
Size
1, 000
TPY
50
105
Z10
350
525
105
160
350
52
105
160
350
170
330
720
170
330
Percent Sales
capacity
utilized $1,000
85
85
85
85
85
90
90
90
83
83
83
83
94
94
94
94
94
1, 743
3, 659
5, 534
9, 223
13, 834
3, 875
5, 904
12, 915
2, 244
4, 532
6, 906
15, 106
10, 547
20, 473
44, 669
7, 351
14,269
Percent
sales
100.0
100.0
100. 0
100.0
100.0
100.0
100. 0
100.0
100.0
100.0
100. 0
100. 0
100.0
100.0
100.0
100.0
100.0
Raw Material Costs
$1, 000
559
1, 175
1,742
2, 904
4, 355
879
1,267
2, 564
599
683
1, 012
2, 176
5, 406
9, 998
19, 939
3, 928
7, 342
Percent
sales
32.1
32.1
31.5
31.5
31.5
22.7
21.5
19.9
26.7
15.1
14.7
14.4
51.3
48.8
44.6
53.4
51.5
Other Direct Costs
$1, 000
477
857
553
815
1, 125
552
703
1,203
627
1, 013
1, 355
2,504
197
307
548
280
468
Percent
sales
27.4
23.4
10. 0
8.8
8. 1
14.2
11.9
9.3
27.9
22.4
19.6
16.6
1.9
1.5
1.2
3.8
3.3
Indirect Costs
$1, 000
918
1, 508
2, 120
3, 336
4, 574
1, 988
2, 699
4, 921
1, 582
2, 378
3, 245
6, 075
4, 202
6, 493
12, 458
2, 603
4, 074
Percent
sa les
52.7
41. 2
38.3
36.2
33. 1
51.3
45.7
38. 1
70. 5
52.5
47.0
40.2
39.8
31.7
27.9
35.4
28.6
Depreciation
$1, 000
201
290
513
933
1, 176
325
458
884
237
390
562
1, Ofa2
750
1, 087
2, 188
481
740
Percent
sales
11.5
7.9
9.3
10. 1
8.5
8.4
7.8
6.8
10.6
8.6
8. 1
7.0
7. 1
5.3
4.9
6. 5
5.2
Interest
Total Costs
Percent
$1,000 sales $1.000
31 1.8
65 1.8
98 1.8
163 1.8
244 1.8
88 2.3
133 2.3
288 2.3
61 2.7
111 2.5
171 2.5
373 2.5
192 1.8
374 1.8
789 1.8
117 1.6
228 1.6
2, 186
3, 895
5,026
8, 151
11, 474
3, 832
5,260
9,860
3, 106
4,575
6, 345
12, 190
10, 747
18, 259
35, 922
7, 409
12, 852
Percent
sale s
125 4
106.4
90.8
88.4
82. 9
98 9
89. 1
76. 3
138 -i
100. 9
91 . 9
80.7
101 9
89. 2
80.4
100 8
90. 1
Note: Based on 1972 prices and costs.
-------
c. Sales
For purposes of pricing, it was assumed that the basic products (that is,
all products excepting small ammonia plants and normal superphosphate)
were produced in Gulf Coast locations. The interior and Pacific Coast
units will be faced with higher costs for raw materials. However, these
units will also realize higher ex-plant prices within their immediate mar-
ket area. Although the local producer will have certain advantages, his
market area is generally small and restricted to a boundary where the
more efficient producers' costs plus transportation equals the local pro-
ducers' price.
Slaes were estimated at 1972 estimated ex-plant prices at throughput
levels which approximate the 1972 utilization rates.
Prices used in estimating sales are shown in Table II-8.
d. Cost Estimates
The cost estimates for each model plant are shown in Tables II-9
through II- 16. The tables contain all the basic values used in arriving
at the cost estimates; they will allow the user of this report to review
all of the underlying computations. The format of these tables is de-
signed to permit relatively easy substitution of new data and recompu-
tation of the estimates. Product related costs are given in dollars per
ton while plant related costs are given as annual dollars. The basis
numbers used in the plant related expenses category are the investments
from Table II-3, or the labor base from the product related expenses used
in computing overhead (production labor/ton X throughput X 100 percent)
or sales as used in computing S, G & A. All plant related costs were
computed on the basis of 100 percent throughput and held constant for
all subsequent utilization rates.
The prorate entries refer to the allocation of plant related expenses of
intermediates to the end product plant expenses. These plant related
costs were allocated according to the prorate percents given in Table
II-2. Product related costs were passed along based on the product
related expense of the respective intermediates. In the event the user
of this report wishes to deal with a complex other than that costed in
this report, he can insert the appropriate new intermediate cost prorate
and multiply by unit requirements and quickly recompute costs.
11-15
7/
-------
Depreciation costs were extimated for each segment on the basis of
estimated replacement investment divided by two and expected typical
life. Age of plant, depreciation methods and modernization programs
will all contribute toward variances from this amount by individual
production units.
Interest costs •were based upon the reported industry relationship,
interest costs to sales of 1.5 to 2.5 percent. This value, based upon
financial data from the Fertilizer Institute and other published sources,
apparently represents long term debt only; short term debt interest
charges are included in sales, general and administrative expenses.
II-16
-------
Table H-8. Prices used in estimating sales for model plants
Product Price
^ per~ton)
Ammonia 31 ±.'
Ammonium nitrate 41
Urea 52
Diammonium phosphate 66
Triple superphosphate 46
I/
— For the two small plants 50,000 and 105,000 TPY, a price of
$41.00 per ton was used to reflect localized conditions assoc-
iated with small units.
II-17
-------
•i -i.ivrt and indirect expenses and costs for anhydrous ammonia plants
Prodxici r-
expense
Natural ca
Powe r
Boile r ff;f
Ccol:nfo v/
makeup
Catalybt n
cherrr.'.' ~ii
Supervision
inge L'CT.
Tola!
i—Plant re la
00
expenses
Maintenanr e,
s upp L1 v . r'
Taxes and in
surant e *~''
Plant and id'-
overh>_-,,< -j
Sales, g. a.j-i
Total
DeprtiC ]••
A mm on ..->
Inte rest
Annual capacity (TPY)
50,000
Units/
; ,- S/unit ton $/ton
,.'.-,<*}• u. .ill/ 28.6 $13. 16
:•<•:, . '>')9 600 5.40
.• 'MI Ib.- . f-5 3 . 15
J: '' - ,>a.L-- .15 2. 1 .32
.85
n:,,n -.re. 4, 50 .50 2.25
(-•,.-. rat in ^
:.-:,;(• ioo"/0 2.25
$24. 38
Basis $/yr
(1,000)
: •,., -luu-ni $5,500 $220
; ,' ,. .nv-r-btrnent $5, 500 $165
I'."" : M'oduc-
'.:;: -p-r ?i. 50 $225
. - -,,; -- $2,050 $308
$918
$4,013 ^201
-,!,., $„' , O-'O i 3 1
105
Units/
ton
28.6
600
3
2. 1
.32
Basis
$8,000
$8,000
$2.88
$4, 3U5
$5, 800
$4, 305
,000
$/ton
$13. 16
5.40
. 15
.32
.85
1.44
1.44
$217T6~
$/yr
(1,000)
$ 320
$ 240
$ 302
$ 646
$1,508
$ 290
$ 65
210
Units/
ton
31.5
20
4
2.5
.16
Basis
$12,000
$12,000
$1.44
$6,510
$8,550
$6,510
,000
$/ton
$ 9.76
. 18
.20
.38
.90
.72
.72
$12.86
$/yr
(1,000)
$ 481
$ 360
$ 302
$ 977
$2, 120
$513
$ 98
350
Units/
ton
31.5
20
4
2.5
. 12
Basis
$19,000
$19,000
$1.08
4> 10 , 850
$13,325
$10, 850
,000
$/ton
$ 9.76
. 18
.20
.38
.90
.54
.54
$12.50
$/yr
(1,000)
$ 760
$ 570
$ 378
$1,628
$3,336
$ 933
$ 163
525,000
Units/
ton
31.5
20
4
2.5
.096
Basis
$24,000
$24,000
$.86
d- i L 0-7 c
Jf J.U , <~ 1 _>
$16,800
$16,275
$/ton
$ 9.76
. 18
.20
.38
.90
.43
.43
$12.28
$/yr
(1,000)
$ 961
$ 720
$ 452
A A 1
4"- ) *• J ^
$4,575
$1, 176
$ 244
?/ Per,-, »
3/ Per • • i
C.'i a>i'i lu-,000 ton plants estimated at $.46 per MSC F
rv i'rmts plant investment.
7, ,,,,- . m 50 percent of total investment to approximate book value.
-------
Table 11-10.
Estimated direct and indirect expenses and costs for nitric acid
Annual capacity (TPY)
Product related
expenses
Ammonia.!'
Power
Catalyst^./
Water I/
Operating labor
Supervision and fringes
Total
Plant related
expenses
Maintenance and
supplies
Taxes and insurance
g Plant and labor
,L overhead
^ Sales, general and
administration
Subtotal
Ammonia prorate
Total
Depreciation
Nitric acid
Ammonia prorate
Total
. Interest
Nitric acid
Ammonia prorate
Total
Units $/unit
tons 12.86
kwh . 009
grams 4. 00
m-gal. .05
men -shift
operating labor 100%
4% of investment
3% of investment
100% of production labor
(in end product)
12, 18 and 23%
respectively
8%ofav. investment
12, 18 and 23%
respectively
(in end product)
(12, 18 and 23% respect-
85,
Units/
ton
.292
10
. 12
40
2
Basis
$3,400
$3,400
$1.78
$2, 120
$1,700
$ 513
$ 98
000
$/ton
$3.76
.09
.48
2.00
.89
.89
$8.11
$/yr
(1,000)
$136
$102
$151
--
$389
$254
$643
$136
$ 62
$198
$ 12
$~~T2
130,000
Units/
ton $/ton
.292 $3.76
10 .09
. 12 . 48
40 2.00
2 .58
.58
$7.49
Basis $/yr
(1,000)
$4,250 $170
$4,250 $128
$1.16 $151
--
$449
$2,120 $382
$831
$2,125 $170
$ 513 $ 92
$262
$ 98 $ 18
$~T8~
285,000
Units/
ton
.292i7
10
.12
40
2
Basis
$6,500
$6,500
$.54
$3,336
$1
$3,250
$ 933
$ 163
$/ton
$3.65
.09
.48
2.00
.27
.27
$6.76
$/yr
(1,000)
$260
$195
$154
--
$609
$767
,376
$260
$215
$475
$ 37
$ 37
I/ 2/
-Assumes 93. 5% recovery -'.292 x $ 12.50
) -i r o r i • c: c;
J Assumes 40% recovery -'Excludes boiler and process wat
F:x<"li'dos steam credit of 300 pounds /ton of product.
-------
Table 11-11. Estimated direct and indirect expenses and costs for ammonium nitrate
Annual capacity (TPY)
Product related
expenses
Ammonia
Nitric acid
Power
Water
Fuel
Diatomaceous earth
Operating labor
Supervision and oper-
ating labor
Plant related
expenses
Maintenance and
supplies
Taxes and insurance
Plant and labor
overhead
Sales, general and
administration
Subtotal
Ammonia prorate
Nitric acid prorate
Total
Depreciation ,/
Ammonium nitrate —
Ammonia prorate
Nitric acid prorate
Units $/unit
tons
tons
kwh .009
m-gal .05
MSCF .31
ton 50.00
Men/ shift
operating labor 100%
4% of investment
3% of investment
100% production labor
times thruput
15% of sales
11, 17, and 22%
respectively
100%
105
Units/
ton
($12.86)
.217
($8.11)
.803
41
7.5
2.3
.03
4
--
Basis
$2,350
$2,350
$2.88
$4,305
$2, 120
643
$1,175
11, IV & 22% respectively $ 513
100%
$ 198
,000
$/ton
2.79
6.51
.37
.38
.71
1.50
1.44
1.44
$15. 14
$/yr
(1,000)
$ 94
$ 70
$ 302
$ 646
$1,112
$ 233
643
$1,988
$ 71
$ 56
$ 198
$ 325
160,000
Units/
ton
($12.86)
.217
($7.49)
.803
41
7.5
2.3
.03
4
--
Basis
$3, 100
$3, 100
$1.92
$6,560
$2, 120
831
$1,550
$ 513
$ 262
$/ton
2.79
6.01
.37
.38
.71
1.50
.96
.96
$13.68
$/yr
(1,000)
$ 124
$ 93
$ 307
$ 984
$ 1,508
$ 360
831
$2,699
$ 109
$ 87
$ 262
$ 4^8
350
Units/
ton
($12.50)
.217
($6.76)
.803
41
7.5
2.3
.03
4
--
Basis
$5, 100
$5, 100
$.86
$14,350
•
$3,336
1,376
$2,550
$ 933
$ 475
,000
$ /ton
2.71
5.43
.37
.38
.71
1.50
.43
.43
$11.96
$/yr
(1,000)
$ 204
$ 153
$ 301
$2, 153
$2,811
$ 734
$1,376
$4,921
$ 204
$ 205
$ 475
$ 884
-------
Table 11-11. (continued)
Annual capacity (TPY)
105,000
R
i
tSJ
H- >
Product related
expenses
Interest
Ammonium nitrate
Ammonia prorate
Nitric acid prorate
Total
Units/
Units $/unit ton
1.5% of sales $4,305
11,17 & 22% respectively 98
100% 12
$/ton
$ 65
11
12
$ 88
160,000
Units/
ton $/ton
$6,560 $ 98
98 17
18 18
$133
350,000
Units/
ton $/ton
$14,350 $215
163 36
37 37
$288
— Rates are 6, 7 and 8 percent; basis is 50 percent of battery limits plant investment.
-------
Table 11-12. Estimated direct and indirect expenses and costs for urea
Product related
expenses
Ammonia
Carbon dioxide
Oil
Electric power
Fuel gas
Water
Clay
Operating labor
* Supervision and
j fringe benefits
Total
Plant related
expenses
Maintenance and
supplies
Taxes and insurance
Plant and labor
overhead
Sales, general and
administrative
Subtotal
Ammonia prorate
Total
Depreciation
Urea JL/
Ammonia prorate
Total
Interest
Urea
Ammonia prorate
Total
Units $/unit
tons
tons 0. 00
gal. .25
kwh .009
MSCF .31
m-gal. .05
tons 50.00
men/ shift
operating
labor 100%
4% of investment
3% of investment
100% of production
labor
15% of sales
30,30,28,41%
respectively
8% of investment
30,30,28,41% res.
1. 5% of sales
30,30,28,41% resp.
52
Units/
ton
(22.76)
.75
3
190
9.7
17
.02
5
Basis
$5,000
$5,000
$7.20
$2,704
$1,508
$2,500
$ 290
$2, '? 04
$ 65
"
,000
$/ton
13.88
.75
1.71
3.01
.85
1.00
3.60
3.60
$28.40
$/yr
(1,000)
$ 200
$ 150
$ 374
$ 406
$1, 130
$ 452
$1,582
$ 150
$ 87
$ 237
$ 41
$ 20
$ 61
Annual
105,000
Units/
.61
.75
3
190
9.7
17
.02
6
Basis
$6,750
$6,750
$4.30
$5,460
$2, 120
$3,375
$ 513
$5,460
$ 98
$ /ton
$ 7.84
,75
1.71
3.01
.85
1.00
2. 15
2.15
$19.46
$/yr
(1,000)
$ 270
$ 202
$ 451
$ 819
$1,742
$ 636
$2,378
$ 236
$ 154
$ 390
$ 82
$ 29
$ 111
capacity (TPY)
160,000
Units/
(i?2.bU}
.61
.75
3
190
9.7
17
.02
6
Basis
$8,600
$8,600
$2.88
$8,320 ,
$3,336
$4,300
$ 933
$8,320
$ 163
$/ton
$ 7.62
.75
1.71
3.01
.85
1.00
1.44
1.44
$17.82
$/yr
(1,000)
$ 344
$ 258
$ 461
$1,248
$2,311
$ 934
$3,245
$ 301
$ 261
$ 562
$ 125
$ 46
$ 171
350
Units/
. 61
.75
3
190
9.7
17
.02
6
Basis
$14,500
$14,500
$1.30
$18,200
$4,574
$ 7,250
$ 1, 176
$18,200
$ 244
,000
$/tnn
$ 7.49
.75
1.71
3.01
.85
1.00
.65
.65
$16. 11
$/yr
(1,000)
$ 580
$ 435
$ 455
$2,730
$4,200
$1,875
$6,075
$ 580
$ 482
$1,062
$ 273
$ 100
$ 373
;'-;;,^-, • v.- '<,, 7, 7 and 8 !><• r.-.-iii: basi
sis is SO percent of battery limits plant investment.
-------
Table 11-13. Estimated direct and indirect expenses and costs for sulfuric acid
Annual capacity (TPY)
Product related
expenses
Sulfur
Water
Power
Operating labor
Supervision and fringe benefits
Plant related
expenses
Maintenance and supplies
Taxes and insurance
Plant and labor overhead
Sales, general and
administrative
Total
Depreciation
Interest
Units $/unit
ton $28.00
m-gals .05
kwh . 009
men/ shift
operating labor 100%
6% of investment
3% of investment
100% of production
labor times thruput
( in end product)
10% of av. investment
In end product
Units/
ton
.333
6
8
2
Basis
$2,600
$2,600
$.64
$1,300
--
235,000
$/ton
$9.32
.30
.07
.32
.32
$10.33
$/yr
(1,000)
$ 156
$ 78
$ 150
$ 384
$ 130
--
Note: No steam credit taken (1.1 tons H.P. steam/ton H2SO4)
-------
Table II- 14.,^ Estimated direct and indirect expenses and costs for phosphoric acid
Product related
expenses
Phosphate rock
(60 BPL)
Sulfur
Water
Steam
Units
tons
tons
m-gal
m-lbs
$/unit
6.50
28.00
.05
self
50
Units/
ton
3.48
.90
14.5
4.6
,000
$/ton
$22.62
25.20
.72
--
83
Units/
ton
3.48
.90
14.5
4.6
,000
$/ton
$22.62
25.20
.72
--
Annual capacity
200,000
Units/
ton $/ton
3.48 $22.62
.90 25.20
14.5 .72
4.6
(TPY)
300
Units/
ton
3.48
.90
14.5
4.6
,000
$/ton
$22.62
25.20
.72
--
340
Units /
ton
3.48
.90
14.5
4.6
,000
$/ton
$22.6;
25. 2C
.72
--
supplied
Power
Defoaming
Gypsum disposal
Rock grinding and
handling
Operating labor
Supervision
Fringes
Total
kwh
--
--
tons
rock
men/ shift
men/ shift
operating
labor
.009
$.50
.50
1.04
80%
200
1
1
3.48
7
4
Total (54% P2Os)
Plant related
expenses
Maintenance and
supplies
6% of investment
Taxes and insurance 3% of "
Basis
$7,000
$7,000
1.80
.50
.50
3.62
5.00
1.20
4.00
$65. 16
$35.19
$/yr
(1,000)
$ 420
$ 210
200
1
1
3.48
7
4
Basis
$9,700
$9,700
1.80
.50
.50
3.62
3.00
.72
2.40
$60.08
$32.44
$/yr
(1,000)
$ 582
$ 291
200 1.80
1 .50
1 .50
3.48 3.62
7 1.25
4 .26
1.00
$57.47
$31.03
Basis $/yr
(1,000)
$15,800 $ 948
$15,800 $ 474
200
1
1
3.48
7
4
Basis
$21,200
$21,200
1.80
.50
.50
3.62
.83
.17
.66
$56.62
$30.57
$/yr
(1,000)
$1,272
$ 636
200
1
1
3.48
7
4
Basis
$23,300
$23,300
1.8C
.5C
.5C
3.62
.72
.12
.5*
$56.40
$30.46
$/yr
(1,000
$1,39*
$ 69C.
Plant and labor
overhead
Sales, general and
administrative
Total
Depreciation —
Interest
100% of produc-
tion labor times
thruput
(in end product)
$10.20 $ 510 $6.12 $ 508 $2.51 $ 502 $1.66 $ 498 $1.44 $ 49C
$4,500
$1,140
$ 315
$1,381 $1,924
$6,250 $ 438 $10,150 $ 812
$2,406
$13,600 $1,224
$2,587
$15,000 $1,35C
(in end product)
Note: Requirements for both phosphoric and sulfuric
1 / r\Tfc..; , ' 7,7,8,0, ;'-"! ? ncrcent; basis is 50 pe
acid.
rcent of total investment.
-------
Table II-. 15. Estimated direct and indirect expenses and costs for DAP
Annual capacity (TPY)
Product related
expenses
Phosphoric acid (54%
P2O5)
Ammonia —
Power
Fuel oil
Operating labor
Supervision and fringe
benefits
Total
Plant related
expenses
B
to Maintenance and supplies
Taxes and insurance
Plant and labor over-
head
Sales, general and
administrative
Subtotal
Ammonia prorate
Phosphoric acid prorate
Total
Depreciation
DAP
Ammonia prorate
Phosphoric acid prorate
Total
Units $/unit
tons
tons
kwh .009
gal . 07
men -shift
operating
labor 100%
6% of investment
3% of investment
100% of production
labor times thruput
15% of sales
170,
Units/
ton
($32.44)
.87
(24.38)
.23
20
3
2
--
Basis
$3, 100
$3, 100
$.84
$41,220
78,72 & 78% respectively $ 918
100, 78 & 100% "
10% of investment
$1,381
$1,550
78, 72 & 78% respectively 201
100, 78 & 100% "
438
000
$/ton
28.22
5.61
.18
.21
.42
.42
35.06
$/yr
(1,000)
186
93
143
$1,683
$2, 105
716
$1,381
$4,202
155
157
438
750
330,
Units/
ton
($31.03)
.87
(22.76)
.23
20
3
2
--
Basis
$4,900
$4,900
$.60
$21,780
$1,508
$1,924
2,450
290
812
000
$/ton
27.00
5.23
.18
.21
.30
.30
33.22
$/yr
(1,000)
294
147
198
$3,267
$3,906
$1,086
$1,501
$6,493
245
209
633
$1,087
720
Units/
ton
($30.46)
.87
(12.86)
.23
20
3
2
--
Basis
$8,750
$8,750
$.42
$47,520
$ 2, 120
$ 2,587
$4,375
513
1,350
,000
$/ton
26.50
2.96
. 18
.21
.21
.21
30.27
$/yr
(1,000)
525
262
302
$7, 128
$8,217
$1,654
$2,587
$12,458
$ 438
400
1,350
$2, 188
-------
Table 11-15. (continued)
Cs)
Annual capacity (TPY)
Product related
expaneses
Interest
DAP
Ammonia prorate
Phosphoric acid prorate
Total
Units $/unit
1. 5% of sales
78,72 & 78% resp.
100%
170,
Units/
ton
$11,220
$ 31
000
$/ton
$168
$ 24
$192
330
Units/
ton
$21,780
$ 65
,000
$/ton
$327
$ 47
$374
720,
Units/
ton
$47,520
$ 98
000
$/ton
$713
$ 76
$789
I/
~ Assumes 95% recovery
— Basis is 50 percent of battery limits plant investment.
-------
Table 11-16. Estimated direct and indirect expenses and costs for TSP
Annual capacity (TPY)
Product related
expenses
Phosphoric acid (54% ^2°^
Phosphate rock (75 BPL)
Power
Fuel oil
Rock grinding and handling
Operating labor
Supervision and fringes
Total
Plant related expenses
Maintenance and supplies
Taxes and insurance
Plant and labor overhead
Sales, general and administrative
Subtotal
Phosphoric acid prorate
Total
Depreciation
TSP
Phosphoric acid prorate
Total
Inte re s t
TSP
phosphoric acid prorate
Total
Units $ /unit
tons $32.44
tons 9.20
kwh .009
gal . 07
tons rock 1. 04
men/ shift
operating labor 100%
6% of investment
3% of investment
100% of production
labor times thruput
15% of sales
71%
10% av. investment
71%
1. 5% of sales
170,000
Units/
ton
.646
.393
25
4
.393
2
Basis
$3,400
$3,400
$.84
$7,820
$1,381
$1,700
$ 438
$7,820
--
$/ton $/unit
$20.96 $31.03
3.62 9.20
.22 .009
.28 .07
.41 1.04
.42
.42
$26.33
$/yr
(1,000)
$ 204
$ 102
$ 143
$1, 173
$1,622
$ 981
$2,603
$ 170
$ 311
$ 481
$ 117
--
$ 117
330,000
Units/
ton
.646
.393
25
4
.393
2
Basis
$5,374
$5,374
$.60
$15, 180
$1,924
$5,374
$ 812
--
$/ton
$20.05
3.62
.22
.28
.41
.30
.30
$25. 18
$/yr
(1,000)
$ 322
161
$ 198
$2,277
$2,958
$1,116
$4,074
$ 269
$ 471
$ 740
$ 228
--
$ 228
to
-a
-------
B. Distribution of Model Plant Financial Data
Without access to segment by segment industry financial data, it is not
possible to acquire the required segment financial parameters from
published sources, thus we had to rely on the model plant cost and re-
turn estimates. These data and their distribution by plant size and by
segment were reported in Section A above and the reader is referred to
that section regarding the distribution of key financial data within and
among segments. Because of the dynamic nature of the fertilizer in-
dustry, some of the key factors are discussed below, since they may
affect costs and returns.
The model plant budgets used in this study to determine profitability and
cash flows are based on the most up-to-date information available to us
and, we feel, they accurately represent the current situation. However,
the fertilizer industry seems to be in a transitory period regarding:
Raw material availability and prices
Supply/Demand relationships
End-product sales prices
Profitability and cash-flow
Attitudes toward pollution abatement
Between now and 1975/76 the following considerations, in our judgment,
serve as guidelines to assess what may be the interim situation.
1. Raw Material Availability and Prices
Natural Gas - Price increases appear imminent for new ammonia producers
Old producers tied to long term contracts will experience escalating prices
upward only at individual natural gas contract expiration dates. Gulf Coast
prices for new contracts are estimated to escalate from today's prices as
follows :
Year
1972 31 ($.26 at wellhead plus $.05
for transmission)
1973 33
1974 42
1975 45
1976 49
1977 51
n-28
-------
The Midwest price is expected to be $0. 15/MSCF above the Gulf Coast
price. The overall outlook may change pending on developments between
energy companies, government regulatory agencies and public interests.
However, the overall natural gas situation would appear relatively favorable
as shown below:
Trillion SCF
1972 1967
Production 22.5 18.4
Additions to Reserves 9.6 21.8
Proven Reserves 266.1 292.9
Potential Reserves 1,178.0 l,200.0est.
Phosphate Rock - The phosphate rock situation has changed from a recent
overcapacity and depressed prices condition to a balanced supply/demand
relationship and rising prices. Prices increased recently by $1.00 per ton.
World capacity is now at 103 million tons per year. An additional 5.2
million tons of capacity is expected in 1973. Operating rates are now at
90 percent. If no new capacity commitments are made, critical shortages
could be experienced after 1975.
Sulfur - The recent price increase of $3.00 per ton largely resulted from
Canadian action to disallow raw sulfur (non-liquid, unflaked) to move through
west coast terminals because of pollution problems. Alberta stocks of 7.0
million tons were frozen and caused temporary supply tightness. Prices
are expected to hold fairly stable.
2. Supply/Demand Re lationships
Ammonia - Critical ammonia shortage appears imminent. The natural
gas shortage and inability to obtain long-term supply commitments has
halted further plant expansion. Prices of ammonia and its derivatives may
experience a short run but substantial increase during 1973-75.
Phosphoric Acid and Derivatives - Plant overcapacity in the phosphate
industry appears imminent by 1975-76, although present supplies are
tight and interim prices may further increase. However, should indi-
cated capacity increases come on stream as planned, a severe and
traumatic price deterioration slightly before and during 1975/76 is expected
to occur.
11-29
-------
3. Attitudes Toward Pollution Abatement
Future trends in sales prices, profitability and cash-flow are implied
by the expectations. Thus the two major segments, nitrogen and phos-
phate, of the fertilizer industry appear to be on divergent paths and
consequently will have divergent attitudes toward pollution abatement.
In general, the nitrogen industry is expected to hold a cooperative attitude
toward pollution abatement. The phosphate industry is expected to hold
a less cooperative attitude. However they have had prior options and
reasons to recover certain fluoride effluents at a profit. Therefore,
compliance in this specific, but major area of abatement, may already
be a fait accompli.
C. Ability to Finance New Investment
The ability of a firm to finance new investment for pollution abatement
is a function of several critical financial and economic factors. In
general terms, new capital must come from one or more of the following
sources: (1) funds borrowed from outside sources; (2) new equity capital
through the sale of new common or preferred stock; (3) internally gener-
ated funds -- retained earnings and the stream of funds attributed to de-
preciation of fixed assets.
For each of the three major sources of new investment, the most critical
set of factors is the financial condition of the individual firm. For debt
financing, the firm's credit rating, earnings record over a period of years,
stability of earnings, existing debt-equity ratio and the lenders' confidence
in management will be major considerations. New equity funds through the
sale of securities will depend upon the firm's future earnings as anticipated
by investors, which in turn will reflect past earnings records. The firm's
record, compared to others in its own industry and to firms in other similar
industries, will be a major determinant of the ease with which new equity
capital can be acquired. In the comparisons, the investor will probably
look at the trend of earnings for the past five or so years.
Internally generated funds depend upon the margin of profitability and
the cash flow from operations. Also, in publicly held corporations,
stockholders must be willing to forego dividends in order to make
earnings available for reinvestment.
11-30
-------
The condition of the firm's industry and the general economy are also
major limiting factors in attracting new capital. The industry will be
compared to other similar industries (other manufacturing industries)
in terms of net profits on sales and on net worth, supply-demand
relationships, trends in production and consumption, the state of
technology, impact of government regulation, foreign trade and other
significant variables. Declining or depressed industries are not good
prospects for attracting new capital. At the same time, the overall
condition of the domestic and international economy can influence
capital markets. A firm is more likely to attract new capital during
a boom period than during a recession. On the other hand, the cost
of new capital will usually be higher during an expansionary period.
Furthermore, the money markets play a determining role in new
financing; the 1973 year has been viewed as especially difficult for
new equity issues.
These general guidelines can be applied to the fertilizer industry by
looking at general economic data, industry performance and available
corporate records.
The general economic outlook for the next few years is for continued
economic expansion at the historic 3.5 percent annual rate, expressed
in constant dollars. The 1973 rapid growth shows evidence of slowing
in the latter part of the year. In spite of cyclical flucuations, the
American economy should sustain its long-term growth through the
1974.77 period. Inflation and unemployment will undoubtedly continue
as major problems and international economic affairs will exert signi-
ficant pressures on the domestic economy. Demand for capital will re-
main high in relationship to supply and interest rates will probably stay
high by historic stands. The cost of financing new investment will be
high compared to the 1950's and early 1960's.
1. Industry Profitability
The fertilizer industry is experiencing a major upswing in prices and
profitability. After a stable period of reasonable earnings during the
early 1960's, the industry suffered declining prices and earnings from
11-31
-------
1966 through 1969. - (See Table II~ 17) Certain basic producers actually
incurred negative pre-tax margins on sales in 1968, 1969 and 1970.
The uptrend began in 1970 after six years of declining margins. The
pretax margin in 1972 rose to 5.85 percent after declining to negative
8. 5 percent in 1969. There is still a substantial gap between 5. 85 percent
and the 12.0 percent pretax margin of 1961.
Further financial data on the fertilizer industry are extremely limited.
The producers are, for the most part, integrated, diversified corpor-
ations or cooperatives which do not report separately on fertilizer
operation. It is not possible to obtain actual data about capital
structure and operating ratios for the fertilizer segments of the large
chemical and petrochemical companies in which fertilizer sales may
constitute only a small percentage of total sales but judgments can be
formed. From limited data, several generalizations are possible.
Comparing the industry's 1972 profitability to other manufacturing
industries as published by Fortune magazine, _' the fertilizer industry
does not fare well. In the Fortune industry medians report, the range
in return on stockholders' equity was from 5.9 percent in the textile
industry to 16.0 percent in foods and cosmetics. The 36 basic producers
reported by the Fertilizer Institute had a pre-tax and pre-interest return
on net worth of 10.9 percent. After estimating interest and taxes, the
return on equity drops to 4.3 percent -- lower than any industry in the
Fortune Survey. Chemicals, as an industry, earned 9.0 percent. Return
on sales (net profit after taxes as a percent of sales) reflects only a
slightly better performance for the industry. The Fortune range was
from 2.2 percent for the food industry to 12.8 percent for mining. The
pre-tax and pre-interest margin for the fertilizer companies was 5. 85
percent; the estimated after tax profit was 2.3 percent. Chemicals
earned 4.4 percent on sales in the Fortune survey.
— The data on the fertilizer industry in this section is from "Fertilizer
Financial Facts" and "Financial Survey," furnished by the Fertilizer
Institute. Data on basic integrated producers (Group II) reflect reports
from 36 companies in 1972 and 38 companies in 1971, with, a variable
• number reporting on different items. Profits are reported only before
taxes and interest. Liabilities are not reported. However, the ratio of
profits before taxes and interest to sales, to invested capital and to net
worth are given, along with dollar figures for total assets, net sales,
net operating income before taxes and interest. From these ratios and
dollar values, it is possible to calculate long-term debt. The after-
tax profit has been calculated by assuming 6 percent interest on long-
term debt and a 48 percent federal income tax on after interest profit.
This results in an after-tax profit of 2. 3 percent on sales and 4. 3 percent
on net worth.
2_/ "Industry Medians," Fortune, May, 1973, p. 244.
11-32
-------
Table II- 17. Averages of certain financial ratios for selected fertilizer companies, I960 - 1972
1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 I960
Net sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 79.8 81.3 83.3 89.6 85.9 79.3 77.8 76.6 76.1 75.6 76.2 75.8 76.4
Gross margin 20.2 18.7 16.7 10.4 14.1 20.7 22.2 23.4 23.9 24.4 23.8 24.2 23.6
S. G. &A. expense
(total) 15.1 15.7 18.9 18.9 17.4 15.8 13.7 13.0 13.1 12.7 12.7 12.2 11.7
Pretax margin 5.9 3.9 (2.2) (8.5) (3.3) 4.9 8.5 10.4 10.8 11.7 11.1 12.0 11.9
Source: The Fertilizer Institute. "Financial Survey," and "Fertilizer Financial Facts," December 31, 1971 and
June 30, 1972.
-------
These comparisons reveal that in 1972, even though the industry im-
proved over the previous five years, the earnings picture was extremely
low in comparison to other manufacturing industries. At the same time,
the trend is sharply upward for fertilizers and 1973 price and production
increases give certain evidence of improved profit margins.
Other comparisons support the view that the industry is improving. Total
net sales outstanding for the 36 basic producers in 1971 equaled 104 days;
this dropped to 90 days in 1972, indicating lower inventories.
Most industry financial series are reported on chemicals as a broad
group or on agricultural chemicals, including fertilizers. As revealed
earlier, chemicals showed much stronger earnings (roughly doubled)
than did the Fertilizer Institute's basic producer's group. In general,
the performance of basic chemicals is not an appropriate measure for
fertilizers. For example, one report— presented data on "fertilizers
and other agricultural chemicals" for the 1967-68 fiscal year, showing
net income to net worth of 5. 1 percent and a 2. 8 percent on invested
capital. For "basic chemicals," the same report showed a 9.0 percent
return on net worth and a 6. 0 percent profit on invested capital.
In another report for 1971, the median firm in "agricultural chem-
icals" earned 2. 1 percent on sales and 7. 1 percent on net worth, while
the median firm in "industrial chemicals" earned 3.67 percent on sales
and 7.7 on net worth. Again, the Fertilizer Institute group showed a
pre-tax and pre-interest profit of 3.9 percent on sales in 1971; no return
on equity can be calculated from the report for 1971.
Another interesting insight can be obtained by comparing total net sales
per employee of fertilizer companies with those achieved by industries
monitored by Fortune. The fertilizer group has $67,697 sales per
employee, second only to the petroleum refining industry ($116,868) which
is the highest of all industries repo'rted; the fertilizer companies have
sales per employee almost twice as large as the chemical industry
($38,602).
y Almanac of Business and Industrial Financial Ratios, 1971 edition,
Prentice-Hall, pp. 61 and 67.
_' , 1971 Key Business Ratios, "Median Firms - Agricultural
Chemicals," Dun and Bradstreet, 1972.
11-34
-------
When comparing assets invested per employee, the fertilizer group has
$75,647 per employee, which would be the third largest average U.S. -
industry. The largest amount of assets per employee in the Fortune
survey is in the petroleum industry ($126,775); the second largest is
the mining industry ($84,775).
Finally, it is worthwhile to compare the total asset-turnover of the
fertilizer industry with those industries listed by Fortune. According
to the 1973 Fortune survey, the ratio was 1. 15 for the 500 industrials
companies. The fertilizer group reported only .89. This shows the
overcapacity in the industry; it also points to older, less efficient
equipment and buildings.
2. Capital Structure
Similar data problems were encountered for capital structure ratios.
The basic chemical industries has a fixed debt to net worth ratio of
about ..4: against a total liabilities to net worth ratio of . 8 in 1970 and
1971. — The 36 basic producers group reported by the Fertilizer Insti-
tue in 1972, the only data available, indicated a fixed debt to net worth
ratio of about .4, but against an indicated total liabilities to net worth'ratio
of 1.1, suggesting that current liabilities are somewhat higher in the
fertilizer industry than basic chemicals.
3. Ability to Finance New Investment
On balance, it would appear that the fertilizer industry as a whole should
not experience serious problems in financing new investment although the
industry appears to have a cyclical earnings pattern. The picture is
confused further by the dominance of large diversified firms. The
basic producers -- ammonia and phosphate products -- have relatively
high cash flows, even in face of low earnings. The new round of phos-
phate expansion suggests that capital can be obtained, at least by the
larger firms, which dominate, and the prospective earnings for the
nitrogen segment suggest this group should not have difficulty in fi-
nancing facilities.
I/
— Almanac of Business and Industrial Financial Ratios, 1971 edition,
Prentice-Hall.
11-35
-------
III. PRICING
A. Price Determination
An examination of pricing practices in the fertilizer industry produces
an impression of a lack of controllable standards. This unstable sit-
uation reflects the competitive nature of the industry and periodic supply-
demand imbalances at both retail and wholesale levels. This situation
is compounded by a lack of price leadership, a changing configuration
in distribution and new production processes.
1. Demand
Aggregate Demand for Fertilizer
Fertilizers are those industrially manufactured compounds used to supply
the principal plant nutrients - nitrogen, phosphorous, and potash. As
is the case for other farm inputs, use is influenced by its own price,
price of other inputs, and by farm product prices. Additionally changes
in farm production technology and acreage restrictions influence fertilizer
use. The price of fertilizer (based on price per unit plant nutrient) gradu-
ally increased from 1932 to the early fifties and has been declining since
then. Fertilizer prices dropped about 5% during the mid-fifties. The
price decline moderated from 1955 to 1961 with a 1. 5% drop in prices.
However, in the ten year period from 1961 to 1971, fertilizer prices
declined 15% - based on the change in the farm price of direct application
products. If the price of fertilizer is the major determinant of fertilizer
use, then the decline in prices would only account for the increase in use
since mid-1950's. Incorporating farm prices greatly improves the
explanation. The price of fertilizer relative to farm product prices
indicates the cost of an input relative to the value of the output.
The price of unit of plant nutrient relative to price of all crops fell
50 percent from 1940 to 1950. This fall was the result of a substantial
rise in the prices received for crops and a relatively small rise in the price
paid for fertilizer. During this same period fertilizer use trebled. The
continued increase in fertilizer use since mid-1 950's also reflects the
decline in this price ratio. However, during the latter period the decline
in fertilizer prices was the contributing factor. Not only has the changes
in product price to input price ratio been favorable, but fertilizer prices
have also declined relative to other farm inputs encouraging substitution
of fertilizers for other farm inputs. The availability of land as an input
III-l
-------
has been restricted through acreage allotments and diversions which
encouraged farmers to increase fertilizer as a means of increasing
output under acreage restrictions. Finally, technological developments
in farming help to encourage fertilizer use.
Griliches found that a lag relationship of fertilizer prices relative to
the price of all crops explained over 95 percent of the variation in per
acre fertilizer use from 1911 to 1956.J_/ Furthermore, he divided the
study period into two subperiods and found no significant difference in
farmer response between the latter and former periods. He estimated
short run price elasticity of demand at -0. 5 and long run elasticity at
-2. 0. The lag structure showed farmers making a 25 percent adjustment
annually towards the desired level. Tweeten has subsequently modified
these findings.—' He concludes that the short run elasticity of demand
is -0. 6 while the long run elasticity is -1.8.
Demand Price Conditions for Basic Plant Nutrients
The three primary plant nutrients supplied by commercial fertilizers are
nitrogen (N), phosphorous ^205) and potash (K^O). Each nutrient serves
a different function in the physiological processes of the plant. Basically,
it is not possible to substitute a primary nutrient for another primary
nutrient. However, production function studies show some interaction effect
on yield resulting from joint use, especially at higher fertilization rates.
Consequently, it is necessary to consider the demand for each individual
primary nutrient. U.S. consumption of plant nutrients since 1950 are
shown in Table III-l. The price of nitrogen has changed most, since 1955
which in turn, has resulted in largest percentage increase in utilization
for nitrogen of the three primary nutrients. Based upon a weighted
average of price of direct application materials used, the price of a unit
of nitrogen fell 9. 5 percent from 1955 to 196land 42. 2 percent from 1955
to 1971. During the same periods the consumption of nitrogen fertilizers
increased 55 percent between 1955 and 1961 and 315 percent between 1955
and 1971. Between 1961 and 1971 the annual percentage increase over
the previous years consumption ranged from a low of 2 1/2 percent for
1969 to a high of 13 percent in 1966. Based on percentage changes during the
eleven year period, there appears to be moderate slackening in the annual
growth rate for fertilizer consumption.
I/ Griliches, Zvi, "The Demand for Fertilizer: An Economic Interpre-
tation of a Technical Change", Journal of Farm Economics, 40:3,
August, 1958, pp. 591-606.
_' Tweeten, Luther, "Market Growth Factors, " Searching the Seventies,
Conf. Proc. , TVA Fertilizer and Production Marketing Conference,
September 15-17, 1971 (Memphis, Tenn. ), pp. 24-30.
Ill-2
-------
Table III-l. U.S. consumption of fertilizers and plant nutrients
Ferti- Total
lizer fertilizer
Year material
1950 18,343,300
1955 22,726,462
I960 24,877,415
1961 25,567,130
1962 26,615,037
1963 28,844,480
1964 30,681,016
1965 31,836,403
1966 34,532,215
1967 37,081,315
1968 38,552,044
1969 38,948,517
197(A{ 39,588,637
1971- 41, 118,272
1972^41,205,839
1973 (est)
- 1970 data from.
Plant Nutrients
Nitrogen
(N)
1,005,452
1,960,536
2,738,047
3,030,788
3,369,980
3,929,089
4,352,809
4,638,538
5,326,303
6,026,997
6,693,790
6,957,600
7,459,004
8, 133,606
8,016,007
8,600,000
Phosphates
(short tons)
1,949,768
2,283,660
2,572,348
2,645,085
2,807,039
3,072,873
3,377,841
3,512,207
3,897, 132
4,304,688
4,451,980
4,665,569
4,573,758
4,803,443
4,873,053
5,200,000
Cojnrnercial Fertilizers. No. 5-72,
Potash
(K20)
1, 103,062
1,874,943
2,153,319
2, 168,533
2,270,537
2,503,462
2,729,693
2,834,537
3,221,245
3,641,799
3,792,013
3,891,576
4,035,511
4,231,369
4,332,016
4,700,000
SRS, USDA,
Total
4,058,282
6,119,139
7,463,714
7,844,406
8,447,556
9, 505,424
10,460,343
10,985,282
12,444,680
13,973,484
14,937,783
15,514,745
16,068,264
17, 168,418
17,221,077
18,500,000
Washington, D.C., May, 1972.
£' 1971 and 1972 data from Commercial Fertilizers, No. 5-73, SRS, USDA,
Washington, D. C. , May 1973.
Source: Fertilizer Trends, no. Y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971, p. 5.
m-3
-------
Unlike nitrogen, the price of phosphorous has increased since 1955.
The retail price of direct application phosphorous materials increased
6 percent during the period from 1955 to 1961. From 1955 to 1971
the total price increase for direct application materials was 8. 3 percent.
Consumption of phosphorous fertilizers increased 16 percent between
1955 to 1961. From 1955 to 1971 the total percentage increase was
111 percent. Annual percentage increase in consumption of phosphorous
over previous years ranged from-2 percent to 11 percent. A slight downward
drift in percentage change appears to be occurring over time. This indicates
adjustment is nearing completion in the face of slightly increasing
prices. The increase in use of phosphorous fertilizers tend to be some-
what related to increase in use of nitrogen which confirms that farmers
consider the two nutrients compliments and that an interaction effect
is observed with the use of both.
The farm price of potash fertilizer has also increased in price since
1955. The increase has been less than that for phosphorous. The
retail price 'of potash in 1955 and 1961 was the same. A 2. 6 percent
price increase occurred between 1955 an d 1971. During the first
period the increase in potash use was 16 percent while for the whole
period it was 126 percent, an increase similar to that for phosphorous
use. The annual percentage increase in use over the previous year
ranged from . 7 percent to 13 percent. Change in use of potash closely
parallels that for phosphates.
In total, corn, cotton, soybeans, and wheat accounted for 62 percent
of all primary plant nutrients used in 1964. ( In 1964 more than
11 percent of plant nutrients went for nonfarm uses. This means that
only 27 percent of all fertilizer was used for all other crops and pasture).
Since 1964 fertilization of these four crops has increased 85 percent -
while total fertilizer consumption has increased only 62 percent. Thus
the share of fertilizers consumed by these four crops have increased
since 1964.
Application rates from 1964 to 1970 for the four crops are shown in
Figure III-l. Total use of plant nutrients and acreages for the same
period are shown in Figure III-2. Corn is the largest users of fertilizers
consuming about a third of all fertilizers. Application rates for those
acres receiving fertilizer have been increasing since 1964. Nitrogen
rates have had the largest increase, but show signs of leveling off.
Ill-4
-------
D" f .' r r r< * f'* *T'' " **r p*•* ^ •' ** . • " !• '^ ' 0
k u i - i % fe k. •- -. it > •- i... - t. f i ^ j n .»i. j . -- I v> V» <» t«. *• «s /
Crt f»*ixf*p'f»^r«/» i«,»f*?*^
Lwf bOfiuj^LuS, L-u-^
POUNDS
160
CORN FOR GRAIN
120
80
40
COTTON
— .**»t«2!f».«tMiii,lu»»'
POUNDS
SOYBEANS FOR BEANS
S1,,.....-»"»"it""i"
5^ y^n era ra ' "l *^vf^
•*-*«_^ '~crT - - ""
i i
I , I
120
80
40
WINTER WHEAT
FOR GRAIN
,-«»*'
.,t,t«lU»IIUUII|
1964 '66 '68 '70 '72 1964 '66 '68 '70 '72
1964 '66 '63 '70 '72 1964 '66 '68 '70 '72
KAT£ fCK ACKC RECEIVING '• CLEMSNTAL BASIS SELCCTCD STATES.
U.S. DEPARTMENT OF AGRICULTURE NEC. ERS8I80-7I (2) ECONOMIC RESEARCH SERVICE
Figure III-l. Fertilizer application rates for selected crops
Source: Fertilizer Situation, ERS, U. S. D. A. , March, 1971.
Ill-5
-------
" p ' " " r? F
"' 1 T v" ," H "D ^1
IT ;f*l
rJ
'' . w 7 *"') r" ^ " ^
fi i^ Ji, \d J
WHEAT FOR GRAIN
_ CORN FOR GRAIN
/0 OF 1964
300
250
SOYBEANS
FOR BEANS
$^~~~
-
•""
1
1
1
COTTON
- Nitrogen
— Phosphorus
Potassium
Acres harvested
50
1964 '66 '68 70 *72 1964 66
70 72
NUTRIENT! APPL/EO -ELEMENTAL BASIS SELECTED STATES. A PRELlMlN A RY.
U.S. DEPARTMENT OF AGRICULTURE
NEC. ERS 3612-72 ; 1) ECONOMIC RESEAOCH SERVICE
Figure III-2. Plant Nutrients applied to corn, cotton, soybeans, wheat
Source: Fertilizer Situation, ERS, U. S. D. A. , January, 1972.
Ill-6
-------
Potassium had next largest increase in application rate. Both potassium
and phosphorous rates of application appear to have leveled off. Figure III-2
indicates, however, that total use of the three plant nutrients has increased
substantially. This increase reflects the rising proportion of acreage
fertilized in addition to increased application rates. Only 85 percent of
the fields surveyed by Statistical Reporting Service, U. S.D. A. , received
fertilizer in 1964 compared with 94 percent of surveyed fields in 1971.
In addition corn acreage increased 15 percent during the same period.
Cotton was one of the earliest users of fertilizers. Application rates
and total use of the three plant nutrients has decreased since 1 964 as
cotton acreage declined. The stability of application rates in the face
of fluctuating fertilizer prices indicates high inelasticity of demand for
plant nutrients for cotton.
Soybeans were not a very important user of fertilizer in 1964 when they
received 160, 000 tons of N-P-K. Since then use has increased almost
200 percent. Both application rates and acres fertilized have increased.
Application rates have increased slowly while the percent of field
receiving fertilizers more than doubled in going from 12 percent in 1964
to 28 percent in 1970. Soybean acres increased from 30. 8 million in
1964 to 42.4 million in 1970. If soybeans would replace some of the corn
acreage, fertilizer demand would weaken since beans are being fertilized
at a rate substantially below that for corn, especially nitrogen. Agrono-
mists at the University of Illinois recommend the same application rates
of phosphorous and potassium for soybeans as for corn.—'
Wheat farmers applied 664, 000 tons of primary nutrient elements or
8 percent of the total consumed in 1964. Rates of application have
increased moderately for nitrogen. Rates of application for phosphorous
and potash first increased moderately, peaked in 1969, and have subsequently
declined slightly. Use of fertilizers on wheat has increased little from
54 percent in 1964 to 59 percent in 1970. This lag is attributed to the
high risk of dry growing season in the Plain States. As can be seen from
Figure III-2, fertilizer use for wheat now tends to be dependent upon wheat
acreage.
Fertilizer Forms and Prices
The most rapid growth in fertilizer usage has been in direct application
materials. Fifty-two percent of all fertilizer materials used in 1972
were mixed fertilizers, compared to 67 percent in 1950 and 63 percent
in I960. Plant nutrient content of mixtures and direct application
Illinois Agronomy Handbook, 1969 , Circular 995, Tables 1 and 20,
Extension Service, Univ. of Illinois, January, 1969.
Ill-7
-------
materials was almost equal in 1972. The heavier use of direct, appli-
cation materials along with higher analysis materials, raised the
average analysis of all materials from 22. 7 percent in!950 to 43. 2
percent in 1972.
Nitrogen - The United States used 8,016 tons of nitrogen as ferti-
lizer in 1972, down 1.5 percent from 1971. Nitrogen from mix-
tures accounted for 2, 135,921 tons in 1972 (up 4 percent from 1971),
while nitrogen from direct application materials was 5,880,086 tons
(down 3 percent from 1971). Table III-2 shows the trend in nitrogen
consumption since 1950.
*
The primary sources of nitrogen by direct application materials in 1972
were anhydrous ammonia (2, 982, 274 tons), ammonium nitrate (1, 015, 548
tons) and nitrogen solutions (1, 009, 119 tons) (Table III-3) These three materials
supplied 85 percent of the nitrogen in the direct application and 62 percent
of all nitrogen. Nitrogen in urea (357, 386 tons), ammonium sulfate
(192, 205 tons), aqua ammonia (150, 165 tons) and phosphate materials
(93, 686 tons) accounted for all but one percent of the remaining nitrogen
in direct application materials.
In 1950, anhydrous ammonia contributed 14 percent of the nitrogen in
direct application materials used, compared to 54 percent in 1971 and
51 percent in 1972. This trend becomes more meaningful when con-
sidered alongside another: Only about 50 percent of all nitrogen con-
sumed as fertilizer in 1950 came from direct application materials,
whereas 73 percent came from that source in 1972. This means that
anhydrous ammonia supplied 37 percent of all nitrogen used as fertilizer
in 1972.
The use of urea also increased markedly from 8, 253 tons in 1950 to
30, 973 tons in 1955 and to 357, 386 tons in 1972. But as a percent of
all nitrogen from direct application materials, urea rose only from 2. 7
percent in 1955 to 6. 1 percent in 1972.
This change in distribution of primary sources of nitrogen resulted
from changes in relative costs of nitrogen products as seen in Table
III-4. Price of anhydrous ammonia declined 44 percent from 1961 to
1972, urea 30 percent, ammonium nitrate 22 percent and ammonium
sulfate 10 percent. A recent Michigan State University study projects
continued adjustments towards the more economical sources of nitrogen,
especially anhydrous ammonia.
Ill-8
-------
Table III-2. U. S. Nitrogen consumption, 1950-1971
Fiscal
Year
Total
Nitrogen
Consumption
Nitrogen
in
Mixtures
Direct Application
Fluid Solid
Materials
Total
(short tons of nitrogen)
1950
1955
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
•J 1970,
1,005,452
1,960,536
2,738,047
3,030,788
3,369,980
3,929,089
4,352,809
4,638,538
5,326,303
6,026,997
6,693,790
6,957,600
7,459,004^
8, 133,606£/
8.016.007*/
1971 and 1972
495,360
803,541
1,017,415
1,071,224
1, 147,266
1,263,641
1,377,033
1,452,084
1,591,927
1,764,372
1,867,091
1,901,393
1,939,077^
2,062,782*'
2, 135, 92 1*/
75,556 434,536
375,316 781,679
862,044 858,588
1,045,289 914,275
1,238,587 984,127
1,594,602 1,070,846
1,832,357 1,143,419
2,041,760 1,144,694
2,520,131 1,214,245
2,935,163 1,327,462
3,423,400 1,403,299
3,560,071 1,496,136
3,957,718 1,562,208
4,218,466 1,651,205
4,141,558*' 1,738, 528*'
data from Commercial Fertilizers , no. 5
510,092
1,156,995
1,720,632
1,959,564
2,222,714
2,665,448
2,975,776
3, 186,454
3,734,376
4,262,625
4,826,699
5,056,207
5,519,927^
6,070,824*.'
5,880,086*7
-72,
SRS, USDA, Washington, D.C., May 1972 and No. 5-73, May 1973.
Source: Fertilizer Trends, no. y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971, p. 9.
in-9
-------
Table III-3. Consumption of nitrogen from major direct application nitrogen materials in the U. S. ,
1950-71
Fiscal
Year
1950
1955
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971*'
1972-'
a/
~ 1971
Anhydrous
Ammonia
70, 123
290,337
581,924
666,234
767,425
1,006,762
1, 148,071
1,281,968
1,606,872
1,973,596
2,457,261
2,576,431
2,844,058
3,254, 160
2,982,274
and 1972 data
Aqua
Ammonia
2,323
46,617
85,380
86,489
99,783
116,448
157,531
163,933
200,814
177, 175
163,047
143,715
143,778
151,321
150, 165
from Commercial
Nitrogen
Solutions
(short tons of
3, 110
38,362
194,740
292,566
371,379
471,392
526,755
595,859
712,445
784,392
803,092
839,925
969,882
1,036,498
1,009,119
Fertilizers, no. 5-72,
Ammonium
Nitrate
nitrogen)
190,595
375,318
415,855
446,585
468,523
499,378
555,320
547,488
610,705
710,503
786,346
863,792
952,861
969,091
1,015,548
SRS, USDA,
Urea
8,253
30,973
64,596
92,448
132,804
165, 198
184,327
193,713
211,615
227,952
243,359
264,755
242,758
273,607
357,386
Washington, D.C.,
Ammonium
Sulfate
46,933
103,994
106,959
115,715
116,687
147, 121
148,865
161,848
165,797
174,834
167,306
157,042
160,911
185,386
192,205
May 1972
and no. 5-73, May 1973.
Source: Fertilizer Trends, no. y-40, Tennessee Valley Authority, Muscle Shoals, Alabama, December 1971, p. 9.
-------
Table III-4. Average prices paid by farmers per 20-pound unit of nitrogen contained in nitrogenous
materials, United States, 1961-72I/
April 15
of year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Ammonium
sulfate
2.84
2.78
2.55
2.57
2.60
2.58
2.64
2.63
2.56
2.56
2.52
2.54
2.69
Ammonium
nitrate
2.47
2.44
2.42
2. 38
2.35
2.28
2.21
2.03
1.84
1.79
1.89
1.93
2.13
Urea
TV 11
2.51
2.40
2.35
2.33
2.29
2.22
2.18
2.02
1.84
1.82
1.80
1.79
1.98
Anhydrous
ammonia
1.73
1.63
1.56
1.54
1.49
1.45
1.38
1.11
.92
.91
.97
.98
1.07
Nitrogen solutions
percent N
28 30
-
-
-
-
-
-
-
1.95 2.09
1.49 1.79
1.64 1.81
1.79 1.87
1.85 1.84
2.05 1.94
32 -
-
-
-
-
-
-
-
2.06
1.80
1.83
1.90
1.96
2.09
— Excludes Alaska and Hawaii
Source:
Fertilizer Situation,
December, 1972;
1973 prices
computed
from Agricultural Prices,
PR 1(4-73), Statistical Reporting Service, USDA, April 1973.
-------
Phosphate - The use of phosphate fertilizers generally increeised in
the United States in 1972. The &2®5 content °^ aH fertilizer materials
in 1972 rose from 4,803,443 in 1971 to 4,873,053 tons.
Table III-5 reveals that the 1972 use of P2O5 was 82 percent through
mixtures (including diammonium phosphates 18-46-0 and 16-48-0) and
18 percent through direct application materials. Diammonium phos-
phates accounted for 18 percent of all PoC^ used and 21 percent of the
^2^5 consumed in mixtures in 1972. Concentrated superphosphates
(over 22 percent P^O,-) supplied 13 percent of all P^Oj- used and 71
percent of direct application materials (excluding 18-46-0 and 16-48-0).
Normal superphosphates, which in 1950 furnished 61 percent of P^Og
in direct application materials and 19 percent of all PzOc used, accounted
for only 43, 553 tons in 1972--less than one percent of total consumption.
The growth in P O consumption has been largely through the use of
18-46-0 and concentrated superphosphates (over 22 percent P2Oc).
In I960, these two sources supplied 194, 157 tons of P^Oc (5 percent
of which was 18-46-0), which accounted for about 7 percent of all
^2^5 consumed. In 1972, the two types furnished 1,439, 323 tons
of PzO_ (60 percent of which was 18-46-0), or 30 percent of all P2°5
used. Grade 18-46-0 passed concentrated superphosphates in im-
portance in 1968. Since that year, 18-46-0 usage has increased 50
percent, while concentrated superphosphates have increased 18 percent.
Thus, 18-46-0 is the most rapidly expanding source of P>Oc ^n com~
mercial fertilizers.
Again shifts in utilization reflect changes in prices of products involved.
Price of concentrated superphosphates declined 5 percent from 1961
to 1972 and ammonium phosphate price declined 12 percent, while normal
superphosphate price increased 35 percent (Table III-6).
Ill-12
-------
Table III-5. U.S. phosphate consumption, 1950-1971
Ferti-
lizer
Year
Direct Application Materials
Total Ammonium
Consumption Mixtures Superphosphates Phosphates—
Diammonium
Total Phosphates^'
(short tons of P2C>5)
1950
1955
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
I97l£/
1972£'
1,949,768
2,283,660
2,572,348
2,645,085
2,807,039
3,072,873
3,377,841
3,512,207
3,897,132
4,304,688
4,451,980
4,665,569
4,573, 758
4,803,443
4,873,053
1,344,295
1,821,087
2,033,316
2,069,425
2,219,444
2,473,599
2,704,985
2,816,056
3, 110,784
3,502,897
3,579, 140
3,724,237
3,709,062
3,943,372
4,006,595
490,605
291,406
287,335
303,256
313,860
318,415
382,287
403,403
506,351
517,470
566, 120
656,713
608,338
610,969
620,059
34,243
84,617
171,329
188,398
204,768
205,457
215,604
204,401
220,908
223,761
227,288
207,448
183,688
178,878
174,277
605,473
462,573
539,032
575,660
587,595
599,274
672,856
696, 151
786,348
801,791
872,840
941,332
864,697
860,071
866,458
113
35,278
63,482
110,074
177,487
244,271
302,088
417,821
451,452
608,296
723,786
726,486
814, 183
882,689
2.' Includes grades 11-48-0, 13-39-0, 16-20-0, 21-53-0, and 27-14-0.
k/ Includes 18-46-0 and
£/ 1971
5-73
Source:
and 1972 data in
, May 1973.
16-48-0 classified as mixed fertilizer
Commercial Fertilizers,
Fertilizer Trends, no. y-40, Tennessee
no. 5-72, SRS, USDA,
Washington,
D. C., May 1972
Valley Authority, Muscle Shoals, Alabama. DecemK^r
and
. 1 Q7 1 r> 1 A
-------
Table III-6. Average prices paid by farmers per ton for selected fertilizers,
United States, 1957-59 average, and 1967-73
Superphosphate A
April 15 Anhydrous
of year ammonia
Average
1957-59 149.00
1967 113.00
1968 91.40
1969 75.60
1970 75.00
1971 79.30
1972 80.00
1973 87.60 .
— Based on equivalent price
Source: Fertilizer Situation,
Agricultural Prices,
and earlier issues.
46 percent
P2°5
82.20
84. 10
78.40
74.00
75. 10
76.60
78.00
87.50
for 55 percent
20 percent
r phosphate
2^5 16-20-0
37.00 89.60
42.10 80.70
43.20 78.40
43.80 77.70
45.40 76.90
47.80 76.70
49.90 79.00
53.70 83.90
K2O reported by SRS.
Potash
60 percent
K20
1/56.80
J/58.50
49. 10
47.80
50.90
58.20
58.80
61.50
Mixed
fertilizer
6-24-24
85.70
81.80
73.20
75.00
80.30
81.00
88.00
FS-3, ERS, USDA, Washington, B.C., December, 1972;
Pr 1 (4-73), Statistical Reporting Service, USDA, April 1973,
-------
Foreign Trade
In 1972, the United States exported 18.8 million tons of fertilizer
materials. The largest single item was phosphate rock (13.6
million tons). Significant amounts of ammonium sulfate, anhydrous
ammonia, ammonium phosphates, concentrated superphosphates,
potassium chloride, urea and mixed fertilizers were also exported.
The declared values of fertilizer exports were in excess of $339
million. Both tonnage and declared values increased in 1971-72
over 1970 and 1971 after declines of two years (see Table III-7).
Total tonnage rose by 7 percent and total declared value rose by 17
percent, reflecting stronger export prices of several materials in
1971-72. Export tonnages of urea, phosphate rock, concentrated
superphosphate, ammonium phosphate and potassium chloride increased
significantly, while tonnages of anhydrous ammonia, ammonium nitrate,
ammonium sulfate and fertilizer materials declined.
Fertilizer exports go to more than 50 countries, with 32 percent of the
tonnage to Europe, 26 percent to Asia, 25 percent to North American
neighbors and 15 percent to South America. The chief countries are
Canada, Japan, Brazil, Italy, West Germany and Mexico in that order.
These six countries buy over 60 percent of U.S. fertilizer exports by
weight. Other countries of some limited importance are the Netherlands,
Belgium-Luxembourg, France, India and Korea.
The largest tonnages to all eleven of the above countries are phosphate
rock, which accounts for 72 percent of all export tonnage. When destin-
ations are analyzed for other important materials, there is a high degree
of concentration of exports.
The export of primary plant nutrients rose about 8 percent in 1971-72 to
2.8 million tons, compared to 2. 6 million tons in 1970-71, after having
declined by about 10 percent in 1969-70. Nitrogen on a nutrients basis
declined slightly: phosphorous content of exports rose by 23 percent and
potash by 6 percent.
Among nitrogen fertilizers, anhydrous ammonia accounted for 34 percent
and urea for 21 percent of the nitrogen exported in 1971-72 (Table III-8).
For phosphate fertilizers, ammonium phosphates furnished 63 percent and
concentrated superphosphates 30 percent of total P->O,- exports in 1971-72
(Table III-9).
Ill-15
-------
Table HI-7. Exports of selected fertilizer materials, 1969-1972
1969
Material
Anhydrous ammonia
Ammonium nitrate
Ammonium sulfate
Urea
Phosphate rock (hard)
Phosphate rock (fertilizer)
Normal superphosphate
Concentrated superphosphate
Ammonium phosphate
Potassium chloride
Potassic chemical fertilizer
Sodium nitrate
Fertilizer materials
Tons
(1,000)
539
110
1, 185
565
12,387
(a)
37
1,089
970
1,057
233
269
Value
(Million)
$30.6
5.0
40.2
35.6
90. 1
8.9
1.3
46.1
57.6
26.0
9.2
. 1
19.8
1970
Tons
(1,000)
764
81
528
670
10,965
(a)
37
711
986
902
186
404
Value
(Million)
$21.7
4.1
16.0
46.5
74.1
8.9
.9
26.2
53.5
23.7
7.3
--
26.0
197
Tons
(1,000)
598
59
601
374
12,737
(a)
18
627
1, 135
772
238
317
1
Value
(Million)
$19.7
3.0
9.2
21.6
86.7
9.5
.6
23.0
59.4
22.4
9.5
--
24.0
1972
Tons
(1,000)
421
34
558
464
13,575
(a)
14
924
1,542
859
211
243
Value
(Million)
$13.2
1.9
9.8
21.4
90.9
11.9
.3
33. 1
91.6
28. 1
9.2
--
27.4
(a) Tonnage included in Phosphate Rock (hard).
Source: Fertilizer Situation, no. FS3, ERS, USDA, Washington, D. C., December 1972, pp. 20,21.
-------
Table III-8. U.S. exports of selected and total nitrogen fertilizers
Year
1964
1965
1966
1967
1968
1969
i— i
E 1969-1970
t— •
1970-1971
1971-1972
1972-1973
Anhydrous
Ammonia
84
98
141
323
590
703
-/ 628
491
346
-^ 469
a/ Calendar years through 1969,
ASCS,
. Supply,
US DA, Washington, D.
1972-73, April 1973.
Ammonium Ammonium
Nitrate Sulfate
29
34
29
14
29
37
27
20
11
5
fiscal years thereafter,
C. , April 1972, 1970-71
102
202
338
220
293
162
111
126
117
92
Urea
17
15
33.
42
207
268
309
172
214
244
1969-70 data from The
and following
Other
NA
NA
NA
NA
NA 1,
NA 1,
253 1,
268 1,
344 1,
449 1,
Fertilizer Supply, 1971
Total
264£/
392£/
546 £/
749£/
045£/
594£/
328
077
032
259
-72,
years data from The Fertilizer
£' Fiscal year ending in indicated year.
Source: Fertilizer Trends, no. y-40, Tennessee Valley Authority, Muscle Shoals, Alabama, December 1971.
-------
Table III-9. U.S. exports of selected and total phosphate fertilizers
Superphosphate Exports
Year
1964
1965
1966
1967
1968
3 1969
i
°° 1969-1970^
1970-1971
1971-1972
1972-1973.E/
Normal
39
17
18
15
19
6
7
4
3
7
Concentrated
276
233
294
* 291
533
361
327
288
333
473
«*/ Estimated average analysis 15-33-0.
k/ Calendar years through 1969, fiscal years
Fertilizer Supply, 1971-72, ASCS, USDA,
Ammonium Phosphates—
127
112
270
445
445
330
441
507
689
916
Other
NA
NA
NA
NA
NA
NA
70
99
77
103
Total
400^
4321/
44 ll/
787d/
1, 145l/
99 51/
845
898
1, 102
1,499
thereafter. 1969-1970 and following years data from The
Washington, D. C. , April 1972 and 1972-73, April
1973.
-' Estimated
_' Fiscal year ending in indicated year.
Source: Fertilizer Trends, 1971, no. y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971.
-------
Fertilizer exports must be viewed alongside imports. In 1971-72 the
United States imported 7.9 million tons of fertilizer materials.
of the tonnage came from Canada, consisting mainly of potassium chloride.
The U.S. bought 4. 9 million tons of potassium chloride from Canada,
which was 62 percent of all fertilizer imports. Table III-10 lists
imports of selected materials for 1967 through 1972.
The United States, in terms of primary nutrient, is currently a net
exporter of nitrogen and phosphates although in the case of nitrogen,
the U.S. became a net exporter in 1965-66 (Table III-l 1). In terms of
products, the U.S. is currently a net importer of only ammonium
nitrate.
Industrial and Governmental Markets
Seventy-five percent of all nitrogen production was consumed in fertilizers
in 1971, with industrial consumption accounting for the rest of the output.—
The use of nitrates in explosives, as one segment of industrial consumption
represents the only substantial area of government purchases. With the
cessation of bombing in Indo-China, this demand could drop sharply,
reducing the overall industrial demand for nitrogen materials. Such a
change could have the net effect of depressing nitrogen prices in the
agricultural sector. Industrial uses of wet process phosphorous and potash
are a minor component of the total market for each product. The major
direct government market of fertilizer products is the U.S. Agency for
International Development (AID) export finance program. Until 1966,
the U.S. had always been a net importer of nitrogen (N), excepting
1947-1949. The net exporting position since 1965 (and 1947-49) have
resulted from the emphasis of AID program on fertilizer use in their deve
development programs. Since 1941, the U.S. has been a net exporter of
phosphate materials, but with the AID requirements, their P2C>5 position
was improved.
However, exports financed by AID are declining as AID has reduced its
emphasis on this program. Also, the requirement that 50 percent of the
AID financed fertilizer go on U.S. flag ships makes it difficult for U.S.
sellers to compete with development programs in other countries. As a
result, the importance of AID financed fertilizer has declined since a peak
in 1967-1968. As shown in Table III-12, AID exports amounted to only
11 percent of total export value, down from 20 percent in 1970. This
compares to about 40 percent in 1967-68.
_' Harre, E. A. , "Trends' in the Supply-Demand Situation", Searching the
Seventies, Proceedings of the Fertilizer Production and Marketing
Conference, Memphis, Tennessee, September 15-17, 1971, no. y-34,
Tennessee Valley Authority, Muscle Shoals, Alabama, September 1971,
pp. 10-11.
Ill-19
-------
Table III-10. U.S. imports of selected fertilizer materials, 1967-1971
ro
o
Material
Anhydrous ammonia
Ammonium nitrate
Ammonium nit rate -
limestone
Ammonium sulfate
Sodium nitrate
Calcium nitrate
Urea
Calcium cyanamide
Nitrogen solutions
Synthetic nitrogenous
material
Phosphate, crude
Ammonium phosphate
Potassium chloride
Potassium sulfate
Pota s s ium - s odium
nitrate
Mixed fertilizers
Source: The Fertilizer
1966-1967
392,502
174,274
1,480
170,581
270,783
48,832
275,157
19,749
82,472
21,445
168,801
193,984
2,578,189
60,716
50,603
175,133
Supply, 1971
1967-1968
420,125
219,529
6,849
143,155
195,495
32,629
241,154
16,979
69,742
15,944
127,650
224,497
3,608,238 3
49,444
28,959
178,738
-72, ACSC, USD A
1968-1969
• ^1 Vi r\ i*t* t*on c f\T
• Oi.l
-------
Table III-ll. U.S. imports and exports of primary plant nutrients,
1951-52 through 1972-73
•^J "P ^x
Fertilizer 2 5
Year
1951-52
1952-53
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73*
Imports
290
429
421
373
330
294
305
294
298
276
337
344
453
470
529
669
675
690
855
929
843
971
Exports
73
44
62
141
255
268
227
223
188
213
234
196
264
392
546
749
1,045
1,594
1,328
1,077
1,032
1,259
Imports Exports
1
39
41
62
61
56
54
59
64
82
67
87
117
100
98
125
165
169
183
273
283
326
373
nno f <~»nc _ - - - -
94
74
88
154
153
256
246
204
177
238
283
275
400
432
441
787
1,145
995
845
898
1,102
1,499
K20
Imports
264
159
121
139
170
179
213
238
282
285
282
486
691
884
1,332
1,643
2,225
1,944
2,646
2,510
3,088
2,857
Exports
63
54
54
91
180
315
252
310
418
484
503
411
526
625
664
678
714
798
681
620
657
866
*
Estimated
Source:
Fertilizer Supply, ASCS,
USDA,
Washington, D.
C. , April
1973, p. 18.
HI-21
-------
AID financed exports include ten of the popular fertilizers. The single
largest product, in absolute and relative terms, is urea which is domin-
ated by AID (Table 111-12). Mixed fertilizers and ammonium phosphates
are the second and third most important products in the AID program.
111-22
-------
Table IH-12 . Relationship of AID financed exports to total U.S. exports, 1970 and 1971
1970
AID financed
Total
Value Percent
(million $)(000)
Ammonium sulfate
Ammonium phosphate
Diammonium phosphate
Urea
Triple superphosphate
Potassium chloride
Potassium sulfate
Mixed fertilizer
Anhydrous ammonia
Sulfate of potash-
magnesia
Other
Total
16.0
53.5
46.5
26.2
23.7
y
26.0
21.7
jy
95.3
$308.9
$ 1
10
28
3
16
$62
,607
,620
,802
,153
379
472
,497
--
--
--
,584
10
20
64
12
2
NA
63
0
0
0
20
197
1
AID financed
Total Value
Percent Total
(million $) (000)
$ 9.
59.
21.
23.
22.
24.
19.
109.
$288.
2 $
4
5,
6 15,
0 1,
4
I/
0 8,
7
_
3
6 $33,
469
37
956
508
770
264
589
097
364
36
--
090
5
10
72
8
1
NA
34
2
NA
0
11
1972
AID financed
Value
Percent
(million $) (000)
$ 9.8
91.6
21.4
33. 1
28. 1 ,
I/
27.4
13.2
--
--
$338.9
$ 395
20
16,944
14,829
3, 117
241
546
12,344
431
--
--
$48,867
4
--
19
69
9
1
NA
45
3
--
--
14
Included in "other"
Source: Fertilizer Situation, no. FS2, ERS, USDA, Washington, D. C., January, 1972 and no. FS3, December, 1972.
-------
Demand Projections
Continued growth of food and fiber demands will increase the demand for
fertilizers in agricultural production. Recent surges in exports of agri-
cultural commodities have raised agricultural prices and is stimulating
production. Cropland in production is estimated to increase 25 million
acres in 1973. Foreign demand increase resulted from poor crop years
in various countries and from low production of fish meal in South
America. For projection purposes much of this recent increase in
prices and exports is considered a short run phenomena, and is not
considered to continue at the same level through the projection period.
A portion of this increase in agricultural exports is assumed to continue
during the projection period.
Fertilizer rates on crops acres already receiving fertilizer are showing
declining rates of increase and in some cases appear to have stabilized.
Nitrogen appears to have the greatest potential for increased application
rates. For the major crops receiving fertilizer applications, the pro-
portion of total acres receiving fertilizer is nearing the maximum. Use
of fertilizer on soybeans is least wide spread with only Z8 percent re-
ceiving fertilizer. With rates stabilizing and proportion of crop acres
covered reaching maximum, the major increases in demand for fertilizers
will be from increases in lands cropped. Projected percentage annual
rates of increase in consumption of three plant nutrients, 5, 3, and 4,
for nitrogen, P^Og and K2O, respectively. These rates are lower than
average annual rates of increase for previous 10 years. Annual rates
were reduced to the above levels for the reasons given above. This is
further supported by the fact that average annual rates of increase appear
to be declining.
Berry evaluated U.S. food production as it relates to world needs,
determined the amount of fertilizer required to meet agricultural experi-
ment station recommendations for various crops, and then estimated how
rapidly farm use would approach those levels. I/ His conclusion was that
annual growth rates would decrease during the 1970's. For period 1970
to 1980, he estimated growth rates of 5, 3, and 3 percent for nitrogen,
P2Oci and K^O, respectively. These estimates correspond closely
with the estimates above.
_' Berry, John H. , "A Comparison of Projections of Fertilizer Use
by 1980", Fertilizer Situation, March 1971, U. S.D.A. , ERS.
111-24
-------
Projected U.S. fertilizer consumption for the three plant nutrients are
shown in Table III-13.. The average consumption for the years 1969 to
1973 were used as 1971 base point for making the projections. Nitrogen
fertilizer consumption is expected to increase from 8. 7 million tons in
1973 to 12. 7 million tons in 1980, P^Os fertilizer consumption from 5. 1
million tons to 6. 3 million tons, and KoO fertilizer consumption from
4. 9 million tons to 6 million tons. These projections assume no major
changes in price relationships for fertilizers.
Total U.S. ammonia requirements to meet demands are shown in Table III-14
Domestic nitrogen fertilizer consumption projection are obtained from
Table III-13above. Industrial nitrogen consumption is broken into two
parts for projection purposes - synthetic fiber production and other uses.
Nitrogen consumption for synthetic fiber production is assumed to
increase 10 percent annually. Other industrial uses of nitrogen should increase
at same rate as industrial production. This demand is assumed to
increase 3. 5 percent annually. Total industrial consumption (Table III-14) is
projected to increase from 3. 16 million tons in 1972 to 4. 82 million
tons in 1980.
U.S. trade position for nitrogen changed with the construction of new low
cost ammonia plants incorporating centrifugal compressors. The drasti-
cally reduced costs associated with the new technology encouraged con-
struction of new capacity and the eventual over capacity in the industry
(73 percent utilization from 1968-1970). Wholesale ammonia prices dropped
from $78 per ton in 1966 to $36 per ton in 1970 (54 percent drop in price) and
the U.S. trade in nitrogen reversed itself. Plant utilization is nearing
full capacity and is projected to exceed full capacity by mid-1 970's.
When all U.S. capacity will be required to meet U.S. consumption require-
ments, net exports will fall to zero. Total ammonia requirements (based
on 82 percent nitrogen content) to meet demands in 1972 was 13, 820,000 tons.
This is projected to increase to 21, 300, 000 tons by 1980. Production to
meet this requirement (including allowance for a 3. 5 percent loss in pro-
duction processes) are projected to increase from 14. 3 million tons in
1972 to 22. 1 million tons in 1980.
World P~O consumption is projected to increase 5 percent annually to 33. 3
million metric tons in 1980, (Tablelll- 15).World trade in P2Oc was
12. 2 percent of world consumption in 1966 and increased to 16.9 percent of
world consumption in 1968. Subsequently this figure has dropped to
about 15 percent. Projections of world trade in PoOc assume world trade
at 15 percent of world trade. U. S. share of world trade in ?2O5 increased
III-25
-------
Table III-13. Projected U.S. consumption of primary plant
nutrients, 1973-1980.
Year
1973
1974
1975
1976
1977
1978
1979
1980
Nitrogen
8,719
9,198
9,704
10,238
10,800
11,400
12,000
12,700
P205
(000 short tons)
5, 117
5,270
5,430
5,593
5,760
5,930
6, 110
6,290
K2O
4, 584
4, 767
4, 960
5, 156
5, 360
5, 600
5,800
6,000
Projections based on 5.5 percent annual increase in nitrogen consumption,
3 percent annual increase in phosphorous consumption, and 4 percent
annual increase in potash consumption. Projections made by DPRA.
111-26
-------
Table III-14. Actual and projection nitrogen consumption and required NH3 production
Fertilizer
Year
1967
1968
1969
1970
1971
1972
Projected
1973
~ 1974
5 1975
1976
1977
1978
1979
1980
Domestic
fertilizer
consumption
6,026
6,693
6,957
7,459
8, 133
8, 016
8, 700
9,200
9,700
10,200
10, 800
11,400
12, 000
12, 700
Industrial
consumption
2, 747
2, 600
2, 730
2,870
3,000
3, 160
3, 320-
3, 500'
3,690
3,880
4, 090
4,320
4, 560
4,820
Total
consumption
(000 short tons)
8, 773
9,293
9,687
10, 329
11, 133
11, 176
12, 020
12, 700
13,390
14, 080
14, 890
15, 720
16, 560
17, 520
Net
Import/ export
-80
-370
-904
-473
-148
-189
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Total
ammonia
requirements
10, 760
11, 750
12, 900
13, 130
13, 700
13, 820
14, 600
15,440
16,280
17, 120
18, 100
19, 100
20, 100
21, 300
-------
Table III- 15. World consumption, world trade, and U.S. exports of
(actual and projected)
CS)
oo
Year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Projected
1974
1975
1976
1977
1978
1979
1980
World P2O5
consumption
(1, 000 metric tons)
9,970
10,430
11, 100
12,230
13, 580
14, 772
15,998
16, 878
17, 995
18, 617
19, 788
22, 375
23, 700I/
24, 900
26, 100
27, 500
28, 800
30, 300
31, 800
33, 300
World P2O^
(1,000 metric tons)
1,210
1, 383
1,428
1, 635
1,672
1,802
2, 266
2,845
2,892
2, 717
2, 759
3, 130l/
3, 560I/
3, 735
3,900
4, 120
4, 320
4, 550
4, 700
5, 000
Exports
% of consumption
12. 1
13. 3
12.9
13.4
12.3
12. 2
14.2
16.9
16.1
14. 6
13.9
14.0 I/
15.0 I/
15. 0
15. 0
15. 0
15.0
15.0
15. 0
15. 0
U.S. P2O5 Exports
(1, 000 metric tons) % world exports
209
256
250
363
392
400
713
1,039
902
767
775
i, oool/
1, 200I/
1, 100
1, 000
1, 100
1, 200
1, 250
1, 300
1,400
17.3
18.5
17.5
22. 2
23.4
22.2
31.5
36. 5
31.2
28.2
28. 1
31. 9l/
33. 7 1/
29
26
27
28
28
28
28
_!_/ Estimate
Projections by DPRA. World consumption projections based on 5% annual growth rate, world export at 15%
of world consumption and U.S. exports declining and then stabilizing at 28% world exports.
Sources: Years 1960/61 through 1970/71 from Annual Fertilizer Review (1966 and 1971), Food and Agriculture
Organization of the United Nations.
Years 1972 and 1973 estimated by DPRA to reflect existing supply and market conditions.
Years 1974-1980 projected by DPRA to reflect a return to normally historic conditions and ancitipated
trends. World consumption projected to grow at an annual rate of 5 percent compared to 7.4 percent
annually over previous 7-year period.
-------
slowly from 22. 2 percent in 1966. Following the introduction of wet
process P^O^ plants in 1966 and subsequent years capacity expansion
exceeded consumption. Wholesale price of P2Oc dropped and U.S.
exports increased to 36. 5 percent of world trade. It has since declined
to 33. 7 percent in 1973. U.S. exports are projected to decline to 28
percent of world trade by 1980. U.S. P^O. exports for 1980 are pro-
jected at 1.4 million metric tons.
Total change in consumption of P?O5 in U.S. from 1972 to 1980 is pro-
jected to be 1, 857 million tons (liable III-16). This projection is based
on 1.417 million ton increase in domestic production and .44 million
ton increase in U.S. exports.
World potash consumption is projected to increase to 27. 3 million tons
in 1980. U.S. consumption is projected to increase to 5.44 million
tons in 1980. U.S. consumption as percent of world consumption is
falling (from 23. 6 percent in 1973 to 19. 9 percent in 1980) because world
consumption is growing faster than U.S. consumption (Table III-17).
Ill-29
-------
Table III-16. Changes in consumption and export of
for 1973-1980
i projections
Year
1973
1974
1975
1976
1977
1978
1979
1980
Total
Increase
Increase in
U.S.
exports—
220
(110)
(110)
110
1 10
55
55
110
440
Increase in Net change,
domestic domestic consumption
consumption^/ and exports
(000 tons)
244
153
160
163
167
170
180
180
1,417
464
43
50
273
277
225
235
290
1, 857
Projected
P2°5
consumption
5,914
5,957
6, 007
6, 280
6, 557
6, 782
7, 017
7, 307
_
]J Net annual change in column 2, Table
_' Net annual change in column 4, Table
Estimated that at future P,O5 fertilizer growth filled by wet-process
P2O_ derived products.
Ill-30
-------
Table 111-17. World and U.S. K2O consumption, 1961-1980
Year
1960/61
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Projected
1973
1974
1975
1976
1977
1978
1979
1980
World
(000 metric
8,500
8,670
9,280
10, 020
10,990
12, 090
12,982
13,955
14, 636
15,449
16,522
17, 100
18, 100
19,200
20,400
21,600
22,900
24, 300
25,800
27, 300
U.S.
tons)
1,967
2, 060
2, 271
2,476
2,566
2,922
3,304
3,441
3, 530
3,661
3,839
3,931
4,264
4, 330
4,500
4,680
4,860
5,080
5,260
5,440
U.S. %
of world
23. 1
23.8
24.5
24.7
23.3
24. 2
25.4
24. 7
24. 1
23.7
23.2
23.0
23. 6
22.6
22. 1
21.6
21.2
20.9
20.4
19.9
Source:
lit-31
-------
2. Supply
Technological Change in Fertilizer Industry
The current technology for the fertilizer industry, described under
production processes in Chapter I, Section B, can be generally evaluated
as advanced. No revolutionary new technologies have been announced
for the immediate future. Predictably, existing technology will be adopted
increasingly by producers with older, smaller plants which are replaced
or rebuilt. This will be especially true in ammonia production, where
the centrifugal compressor was introduced in the mid-1960's.
Compression of gases is vital to ammonia production since in some of
the processes the pressure of synthesis gases'must be raised to 2, 000
to 5, 000 psig for reaction. The introduction to the ammonia industry
of single unit centrifugal compressors (steam turbine driven) revolu-
tionized production conditions. Prior to this, compression was achieved
through use of multi-stage reciprocal compressors driven by electric
motors or gas engines. Trie centrifugal compressor was decidedly more
efficient, but in order for these efficiencies to be achieved, it had to be
geared for use in an ammonia plant with capacities in excess of 600 tons
per day. Typical plant size up to 1965 was 150, 300 and 400 tons per
day.
Similarly, in phosphate production, further conversion from ortho-
phosphate to polyphosphate forms can be expected. This development
permitted the increased use of liquid materials in the 1960's.
The current technology is adequate for meeting market demands, both
current and projected. Barring unforeseen drastic changes in the
demand picture, the current technology will not only be adequate but
will be adaptable to larger scale units, especially in the ammonia and
wet phosphoric acid segments of the industry.
Capacity and Capacity Utilization
The fertilizer industry has recently emerged from a period of severe
overcapacity in basic ammonia and phosphoric acid. Capacity utilization
of these two primary products reached low points of 73 percent and 69
percent respectively in 1969 (see Table III-18 ). This was the result
of a rapid buildup of capacity for both ammonia and phosphoric acid which
began in 1965.
Ill-3 2
-------
Spurred by the anticipated economies (absolute savings in power costs)
of production inherent in the use of centrifugal compressors --discussed
in the preceding section on technology--and also by the economies inherent
in large scale operations, the industry rapidly adopted this new technology.
The result was severe overcapacity and ultimate closure of many smaller
plants because of price deterioration.
In the phosphate area, the industry simple overbuilt because of a rosy
outlook. The newer plants, however, were vastly larger than the tradi-
tional production unit. Here, too, overcapacity resulted in price deter-
ioration and forced closure of many smaller production units.
Presently, operating rates for ammonia and phosphoric acid are at 89
percent and 93 percent, respectively. Conditions are expected to further
improve in ammonia (price increases expected) and some major capacity
increases are required (beyond what has been indicated after 1973 in Table
III-18. However, because of the inability of prospective producers to
secure natural gas supplies (due to gas shortage) expansion plans virtually
have come to a standstill.
Presently, the phosphate chemical industry is enjoying a boom. As a
result of recent price increases, prospective returns on investments
have reached favorable levels for P^Oc products. Aggressive expansion
plans for phosphoric acid production already have been announced -
an increase of almost 40 percent over current levels^- If these plans
come to fruition, indicated phosphoric acid operating rates should
drop to a low of 69 percent by 1975. Therefore, price outlook for
1975-1979 appears immently unfavorable.
— Based upon a special survey of companies on announced construction
in the phosphate industry. This survey was conducted in 1972 and
updated in 1973 by Malk Associates.
HI-3 3
-------
Table III-18. Production vs. capacity - United States indicated
and projected
Anhydrous Ammonia
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
Capacity
8.6
11.0
13.4
16.6
17.5
18.8
17.0
16.9
16.9
17.4
17.9
17.9
17.9
17.9
17.9
17.9
Production
-million tons-
8.9
10.6
12.2
12. 1
12.8
13.8
14.0
14. 3
15. 1
16.0
16.9
17.7
18. 7
19.8
20.8
22. 1
Percent
103
96
89
73
73
73
82
85
89
92
94
99
(104)
(111)
(116)
(123)
Wet Process Phosphoric Acid
Capacity
-1000
2900
3879
5012
5392
6232
5532
5532
5652
6370
7137
8757
8757
8757
8757
8757
8757
Production
tons P2C>5
2895
3596
3993
4152
4328
4642
5286
5450
5914
5957
6007
6280
6557
6782
7017
7307
Percent
100
92
80
77
69
84
96
96
95
84
69
72
75
77
80
83
Source: Developed by DPRA from a variety of published and unpublished
data collected over a period of years.
Ill-34
-------
Capacity utilization for end-products are sketchy, but some operating
rates for selected materials can be developed by piecing together
available trend information from TVA with DPRA estimates of current
capacity.
Ammonium Nitrate - At present there are 54 ammonium nitrate plants
in the U.S. with a total annual capacity of 7, 192, 000 short tons of
product. Production has increased over five-fold in the last twenty
years--about 8. 5 percent annually, compounded growth rate (see Table
111-19 . Growth in recent years, however, has leveled off considerably
because of inroad made by urea in competition for similar markets.
Table 111-19. Total #/ammonium nitrate capacity utilization
~ ( 1.000 tons)
Year
1950
1955
1960
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Production
1,214
2.078
3, 122
4, 663
5, 117
6, 005
5, 737
5,891
6,456
6,605
6,872
7, 1 bO —
7,430
7, 730
8, 040
8, 360 I/
Capacity
NA
NA
NA
NA
NA
6,954
7,297
7,474
7,491
7,400
7,432
7,200
7, 200
7,460
7,460
7,460
Percent
NA
NA
NA
NA
NA
86
79
79
86
89
92
99
103
104
108
112
^J Approximately one-half is solid fertilizer grade ammonium nitrate.
i/ Projected production at 4 percent annual growth rate.
Source: TVA, Fertilizer Trends, No. Y-40, Tennessee Valley Authority,
Muscle Shoals, Ala., December 1971 and Current Industrial
Reports, Inorganic Chemicals, 1971, no. M28A(71)-4, U.S.
Dept. of Commerce, Bur. of the Census, Wash., B.C., Oct., 1972.
Ill-35
-------
Urea - There are present 42 urea plants in the U.S. with a total
capacity of 4, 363, 000 short tons of product. Production has in-
creased four-fold during the last ten years - about 15 percent
annually, compounded growth rate. (See Table III-20 ).
Table III-20. Urea production (1, 000 tons )
Year
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Source:
Total
Primary
Solution
747
915
1,029
1, 106
1,244
1,400
1, 768
2, 180
2,436
2,976
3,119
2,820
3, 724
Fertilizer
Solution
247
313
342
276
435
472
666
825
996
1, 105
NA
NA
NA
TVA, Fertilizer Trends
Solid
302
421
466
479
546
546
693
876
985
1, 351
NA
NA
NA
, No. Y
Total
548
734
808
854
981
1, 018
1,359
1, 700
1, 981
2,457
2, 611
NA
NA
Other
Feed Grade
95
102
111
126
119
150
193
231
282
335
336
NA
NA
-40, Tennessee Valley
Muscle Shoals, Ala. , December 1971 and
Reports,
Inorganic Chemicals,
1971, No.
Industrial
91
86
91
111
109
118
164
160
172
180
172
NA
NA
Authority,
Current Industrial
M28A(71) -4,
U.S.
Dept. of Commerce, Bureau of the Census, Washington, D. C.
October, 1972.
111-36
-------
Table III-21. Total urea capacity utilization (1, 000 ton)
Year Production Capacity Percent
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1,400
1, 768
2, 180
2,436
2,976
3,119
2, 820i/
3, 724 1/
4, 1001/
4,400
4, 800
5,200
5, 700
NA
NA
3,032
3,262
3,948
4,369
4,538
4,462
4,362
5, 100
5,315
5, 315
5, 315
NA
NA
72
75
75
71
62
83
94
86
90
98
107
: _— — ..! -'v* •*• * v» -twnn^oo^c v CL xxc y .n.LiniOc. It is anticipated that 75 percent of expected new phosphoric
acid capacity will be directed toward ammonium phosphate production. This
is based on the industry facilities survey conducted by Malk Associates in
1972 and 1973.
Ill-37
-------
Table III- 22. Ammonium phosphate capacity utilization (1, 000 tons
Production
Year
1950
1955
1960
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Ammonium
phosphate
--
--
269
1,081
1,376
1,747
1,633
1,844
2,070
2,395
2,569
Other
131
172
239
284
215
288
361
468
570
Total!/
11
8
400
1,253
1, 615
2, 031
1,848
2, 132
2,431
2,863
3,139
3, 500
3, 550 */
3, 600 1/
3,800
4,000
Capacity?.'
1,729
2,545
3,073
3, 326
3,913
3, 100
2,900
3,355
3, 681 1'
4, 300 1'
5, 500 2.1
5, 500 2J
5, 500 2.1
Percent
72
63
66
56
54
78
99
94
95
83
65
69
73
— Projected annual growth rates which reflect lower future total
fertilizer PzOg growth rates. Future fertilizer P£C>5 consumption
in the U.S. projected at 3. 5 percent annually.
2/ Capacity data - Malk Associates files
_' Assumes return to lower level export requirements compared to
previous years.
_' Assumes 75 percent of new phosphoric acid capacity will be directed
toward ammonium phosphates.
Source: Production data, Fertilizer Trends, No. Y-40, Tennessee Valley
Authority, Muscle Shoals, Ala., December, 1971.
111-38
-------
Triple superphosphate - There are thirteen producers of triple super-
phosphate at 15 plant sites. Production capacity is 1, 882, 000 tons
P2C". Production had increased rapidly during the early sixties
but peaked out in 1966, the result of partial displacement by the
heavily demanded diammonium phosphate. (See Table III-2 3. )
Table III-2 3. Triple superphosphate capacity utilization (1, 000 tons
Year
1950
1955
I960
1965
1966
1967
1968
1969
1970
1971
1972
1973
1977
Production
309
707
986
1,466
1,696
1,481
1,389
1,354
1,395
1, 503
1,650
1,800^
Capacity!.'
1, 300
1,603
2,190
2, 300
1, 750
1, 750
1, 750
1, 750
1,882
1,882
Percent
100
100
68
60
77
80
86
94
96
— Capacity data, Malk Associates files.
— Projected to only r<3ach present capacity operations - industry is in
transitional state and not expected to show further growth.
Source: Production data, Fertilizer Trends, No. Y-40, Tennessee Valley
Authority, Muscle Shoals, Ala., December, 1971.
Ill-39
-------
3. Pricing
An examination of pricing practices in the fertilizer industry produces
an impression of a lack of controllable standards. Standard levels
of gross margins do not exist to assure the operation of long-term,
viable production and retailing functions. Even credit charges and
service fees vary from company to company and from area to area
and discount practices, it seems, abound according to each company's
individual formula. This unstable situation reflects the competitive
nature of the industry, characterized by a lack of price leadership,
a changing configuration in distribution, new processes and production
technology and periodic supply-demand inbalances at both retail and
wholesale levels.
Market Structure
The 109 firms engaged in the production of the basic chemicals for
fertilizers are dominated by large, integrated, diversified companies,
some of which are international in scope. These firms are essentially
chemical manufacturers (i.e., Allied Chemical Co. , E. I. Dupont
de Nemours, Hercules, Inc. , Monsanto Co. , Borden Chemica.1 Co. ,
Olin Corporation) or petrochemical companies (i. e. , American Oil
Co., Phillips Petroleum Co. , Gulf Oil Co.).
The first distinguishing characteristics of these firms is their high
degree of deversification. For these companies, fertilizer sales, as
a percent of gross sales, may be relatively small. For example, Allied
Chemical Co. , the largest producer of ammonia, realized only 8 percent
of its gross revenues from fertilizer sales in 1971.
Another characteristic of these large producers is their operation of
multiple plants with multiple products at a single location. This hori-
zontal integration is reflected in the fact that 84. 7 percent of basic
product plants are a part of a multiplant complex.
These same companies may be vertically integrated, both backward to
raw material production and forward to the manufacture of mixed ferti-
lizers and/or the retail distribution of fertilizers to the farmer-user.
Data are not available to identify precisely those firms which are verti-
cally integrated; among the largest basic producers, however, there is
widespread backward integration. There is less forward integration into
retail distribution than previously, with basic producers now accounting
for approximately 25 percent of all retail sales through their own outlets.
Ill-40
-------
The extent to which these integrated, diversified companies dominate
the basic production segment of the industry is partially obscured by the
fact that many smaller but important producing companies are operating
subsidiaries of the larger companies. In many instances, the operating
company has retained its corporate name, even though it has been inte-
grated with the parent company from an operations viewpoint. This is
an important consideration in evaluating the impact of increased costs
resulting from pollution abatement. Whether or not a given plant may
close as a result of increased costs will depend in many cases on the
role of that plant in the total corporate strategy.
In addition to the large, integrated, diversified companies, there
are three other types of firms engaged in basic production of ferti-
lizer chemicals. These are (1) the cooperatives, which are also
generally integrated and diversified; (2) the smaller chemical com-
panies which have one or two locations and produce only one or two
products; and (3) manufacturers of unrelated products (i.e., steel)
who have by-product chemicals which move into fertilizer production.
These groups account for a relatively small amount of total capacity.
Fertilizer moves from the mines and basic plants to farmers through
a rather complex set of alternative distribution avenues. The most
involved avenue follows the steps below:
• Shipment to independent mixers and/or distributors
• Processing by mixers
• Shipment to dealers
• Delivery to farmers
The least involved avenue is distribution directly from the basic ferti-
lizer production plant directly to the consumer. However, generally
the product will have to move to a retail outlet. Figure III-4 is a
simple diagram of the domestic distribution system.
MX moEucns n-r-K MTEIMU
CMt1VE HUD OOOB
mm
CATT1VE RETAIL
onurs
PUITTJ
OUTLETS
Figure III-4. Domestic fertilizer distribution channels
111-41
-------
As shown in Figure III-4, the channels are identified as either captive
or independent. The captive units are those owned by cooperative and
investor basic producers. Independent outlets on the other hand are
owned by firms without a basic production position. Investor owned firms
have tended to integrate forward from basic production to mixing to
retailing whereas the cooperatives have tended to integrate backward
from retail outline. Integration has been quite prevalent since 1950.
Currently, at the retail level, distribution to the farmer is divided
among independent retailers (38 percent), cooperatives (37 percent)
and investor owned national producers' outlets (25 percent). _.' The
independents and cooperatives tend toward farm service stores with
diversified farm product lines, while the investor owned nationals
tend more toward specialization.
Prior to the 1950's, most fertilizer reached the customer through a
nonintegrated channel — raw material producers sold to mixing plants
which sold to retail dealers who sold to farmers. Most of the product
was produced in local dry mixing plants and sold in bags.
The late 1950's and early 1960's saw profound changes in distribution,
resulting largely from new technology in manufacturing. The spread
of the TVA ammoniator-granulator process after 1953 led to the building
of regional granulator plants for diammonium phosphates. This brought
on the use of bulk fertilizers and saw the local dry mixing plants re-
placed by local dry bulk blend plants. Simultaneously, the number of
liquid blending plants increased rapidly as synthetic ammonia production
rose sharply in the 1960's.
The trend has been toward a more economic movement of fertilizer
materials from the producer to the farmer-user. Granulator plants,
bulk blending plants, liquid mixed plants, farm service centers and
specialized retail outlets were established in unprecedented numbers
in the 1960's. Large-scale production plants contributed greatly to
the opening of a great many retail outlets as producers feared they
could not move their output through non-captive outlets. Many of these
outlets have either closed or have been purchased by cooperatives or
independents. Also, the advent of bulk blending and liquid mixing
limited the distribution area, because the specialized spreading equip-
ment could not be tied up too long for trips from the supply center to
the farm. This contributed to the rapid growth in number of plants in
the 1960's.
— Henderson, C. M. , "Change in Retail Marketing." Agricultural Chemical
Marketing in the Changing '70's, Proceedings, Chemical Marketing Re-
search A ssociation, Atlanta, Ga. , 1972.
111-42
-------
The most dramatic change has been the shift from dry bagged fertilizers
to dry bulk fertilizers. In I960, 15 percent of the dry fertilizer was sold
in bulk. By 1970, this had increased to 50 percent (Table 111-24). This
development has been accompanied by a phenomenal increase in bulk blend-
ing units, increasing from 201 in 1959 to 5, 158 in 1970. This development
has been pronounced in the North Central region which contains 70 percent
of all bulk blend plants in the United States. I/ (Table 111-25. )
The advent of bulk blending has also drastically altered the role of the
conventional mixed fertilizers. In 1950, 70 percent of the dry fertilizers
were mixed, but by 1970 mixed fertilizers had declined to 60 percent.
A third factor development in distribution has been the liquid mixed
fertilizer plant which is generally a corollary to the dry bulk blend
plant and thus is an integral part of the retail outlet. The number of
these units have increased from 335 in 1959, to 2, 751 in 1970. Growth
in the tonnage of liquids was similar (Table III-26).
These trends toward more economic distribution systems have had
important implications in terms of fertilizer materials demanded.
These trends have resulted in shifts toward D.A.P. , triple super-
phosphate, ammonia, etc., which these systems use, away from the
mixtures and NSP.
The rapid expansion of new distribution systems has required con-
siderable new investment; in fact this investment is probably greater
than the investment in basic production facilities. The rapidity with
which all of this has occurred--largely prompted by the desire of pro-
ducers to control retail outlets--has resulted in overcapacity at the
retail level. Thus, the producers have been faced not only with excess
productive capacity but with excess retail distribution capacity.
Fertilizer Pricing
Wholesale pricing and prices - Prices of nitrogen and phosphate fertilizers
have been and will continue to be largely determined by two factors -
absorption of new production technology and supply/demand relationships.
These two factors have exerted major influences upon industry structure
and organization as well as upon prices.
}J Bulk blend plants normally are synonymous with retail outlets.
m-43
-------
Table 111-24. Consumption of fertilizer by class—United States,
1950-1970
Fiscal
Year
1950
1955
i960
1961
1962
963
9(.4
965
966
')(,7''
968
969
1970
Dry
Bagged
19,257
18.957
1 5.48')
13,900
13,144
12,146
Total Fertili/er
Dry
Bulk
3,309
3,847
1 :. 1 .S9
14,313
15,199
15,822
Materials
Liquid
2,311
2,763
4,089
4,742
5,352
7,676
8,427
8,937
9,977
Total
Mixed Fertilisers
Dry
Bagged
(000 tons ol material)
18,343
22.726
24,877
'25,567
26,615
28,844
30.681
3 1 ,836
34.532
35.324
38,552
37,280
37.945
14.071
13,799
12.088
IO.S28
9.935
l'.203
Dry
Hulk
1.100
1.357
7,145
8.214
8.799
8.974
Liquid
Total
479
579
782
878
1.032
1 .828
I.9K9
2.24')
2.541
12.309
15.348
15.650
15.735
16.205
17.157
18.093
IX. 3 86
I'l.fiV)
21.061
21.324
20.983
20.718
•'I'xilndes Alask.i, HJW;MI, ,ind Pucilti KILO .mil so.nnd.iry .nul niiLnmuliivnt imtm.iK
Source: Fertilizer Trends, No. Y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971.
Ill-44
-------
Table III-25. Bulk blend plants in the United States
year
1959
I960
1961
1962
1963
1964
1965
1966
1968
1969
1970
New England
and
Middle Atlantic
t'-ijS* .m <*__<»-*.'**"_"*••
1
. . .
25
158
153
190
South Atlantic
and
East South Central
4
. . .
73
362
343
458
East
North
Central
103
515
900
1.360
1.622
West
North
Central
83
708
1,110
1,554
2,041
West
South
Central
—
65
254
• • •
325
388
Mountain
and
Pacific3
10
. . .
ISO
369
405
459
Total
20T
441
T*fL
/JO
VUo
1,326
1,536
2,551
3,153
3,650
4,140
4,649
5,158
'Including Hawaii.
Source: Fertilizer Trends, No. Y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971.
Table 111-26. Liquid mix fertilizer plants in the United States
Year
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
New England
and
Middle Atlantic
17
'23
34
42
52
South Atlantic
and
East South Central
20
. . .
. . .
72
...
103
176
285
East
North
Central
104
• . .
...
. . .
190
339
394
722
West
North
Central
59
...
201
375
626
1,088
West
South
Central
26
56
125
173
209
Mountain
and
Pacific3
109
• .
. -
175
255
316
395
Total
335
390
538
556
617
717
975
1,231
1,480
1,727
2,239
2,751
Including Hawaii.
Source: Fertilizer Trends, No. Y-40, Tennessee Valley Authority,
Muscle Shoals, Alabama, December 1971.
111-45
-------
The industry is highly competitive with a relatively large number of
producers. No one supplier can be considered as dominant in the industry.
One company may be an exception among phosphate producers but it
is a cooperative enterprise. And, in consideration of its recently altered
supply-purchase relationships and commitments, this singular enterprise
possibly is now a net purchaser of fertilizer materials. However, even if
a producer did emerge as a dominant entity in any individual product
segment, the cross elasticity of demand would reduce its dominance to
negligible proportions.
At the same time, on the demand side, the industry is comprised of many
buyers. Until recently, there has been some concentration of purchasing
power in the cooperatives: however, they have since integrated to basic
production of fertilizer raw materials and subsequently have reduced their
buying power . The industry, by and large, appears to have now stabilized
and no one buyer dominates the field. Quite probably, the former
buying power of the cooperatives may have had a long-term effect in low-
ering prices in the industry; but any such influence was probably slight
compared to the substantial price decline brought about by adoption of
new, low-cost technology and mounting over-supply of most fertilizer
materials in the late sixties.
Consequently, the fertilizer industry is highly competitive. Market infor-
mation is exchanged freely through trade associations and personal
communication and, in the short run, prices reflect changing supply/
demand relationships. In the past, high cost firms have felt these
ramifications and were forced to adjust accordingly.
In the longer run, prices have reflected the acceptance of new technology.
In both the basic nitrogen (ammonia) and phosphate (wet-process phos-
phoric acid) industry components with the advent of (1) centrifugal com-
pressors and large scale single unit ammonia production lines and (2) large-
scale phosphoric acid production units, the prices of both these products
and their derivatives have decreased substantially by as much as 50 percent
in some few instances. Many older, smaller, high-cost producing units
have since closed as a result of the competitive impact brought about by
the adoption of this new lower-cost technology. Moreover, in addition to
acceptance of this new technology, the industry overexpanded during the
mid-to-late sixties thereby forcing a reduction in rates of operations for
all firms. Operating rates dropped to 73 and 69 percent for N and P£O5
respectively and prices deteriorated to break-even levels for large firms
which equated to less than break-even for smaller firms.
Today, even though operating rates have recovered and are up to 90 to
95 percent levels, prices have not regained their former levels prior
to the introduction of this new technology -- nor are they expected to
regain such levels.
111-46
-------
The production of ammonia and wet-process phosphoric acid, the basic
intermediates for most nitrogen and phosphate fertilizer derivatives,
is a capital intensive industry. Prices have tended to range from below
and up to the levels which would yield a 15 percent after-tax return on
total investment. This appears to be a characteristic of the fertilizer
industry and the observer may be able to conclude that this is the minimum
return for which most companies will invest capital for expansion or for
maintenance of existing operations.
Since the industry has usually tended to over-react to high prices and
subsequently over-expand, actual returns appear to average out at
approximately 8 percent.
While the 15 percent return factor appears to set the upper limits on price,
a break-even situation appears to set the lower limit. The industry, in
its present stage of progression, is moving toward the upper limit on
price and is being encouraged to expand.
Even though the cost of capital goods has continually escalated, the
economics inherent in large-scale unit operations in the fertilizer
industry has resulted in a lowering of investment per annual ton of
capacity. From small to large scale of operation, the investment
per ton of annual capacity has dropped from $120 to $51 for ammonia
and from $140 to $71 for phosphoric acid. According to our behavioral
formula for the fertilizer industry and knowing the intrinsic costs
of operations, these investments must yield about a 42-46 percent
return before capital charges to cover depreciation, maintenance,
local taxes, insurance, in order to provide an after-tax 15 percent
return, assuming a 50 percent tax rate.
In absolute dollars, the price of ammonia (plant net-back) for a large
size unit could be $29 per ton less than that of a small size unit and
provide equal return on investment, while the price of phosphoric
acid (plant net-back) for a large size unit could be $31 per ton less
than that of a small size unit and provide equal returns. For diammonium
phosphate, a comparable plant net-back price would be $20 per ton less.
These figures are based on operating rates of 100 percent. At lower
operating rates, the spread would widen. This relationship undoubtedly
accounts for the emergence of the large sized plant and the disappearance
of small sized plants -- and also accounts for the lower prevailing
prices in the market place.
Ill-47
-------
Recently, and especially during the years 1967 - 1970, excess capacity,
price instability and erosion have been initiated at the producer or whole-
sale level of the industry. Most majors -- even the more vertically-
integrated producers who advocate pure stability -- stand relatively
helpless before price degenerating situations. This situation has been
aggravated by pricing policies of new corporate entrants with limited
knowledge about the industry. Many decisions have been made without
a full knowledge of their far-reaching ramification.
The price situation also has been aggravated by market-share pricing.
During recent years, many producers were forced to cut back production.
They were concerned about maintaining market share. They wanted to
move product volumes and they sought to maintain viable outlets. Price-
cutting has been the major mechanism for accomplishing this end and
prices have generally eroded over the latter part of the past decade. The
entrance of outside interests and the progress of vertical integration
have increased competition; it has been severe, and a serious effort
has not been made to maintain producer margins -- only to protect
variable costs.
In short, the wholesale pricing of fertilizer materials has been on a
competitive basis without price leaders or attention to the economic
structure of the industry. Each producer has been willing to meet
competitors' prices and the general price level has declined.
It should be noted that ammonia is priced in a fashion similar to gaso-
line, whereby freight equalization and intercompany trades are made,
so that companies can be competitive in one another's supply territories.
Manufactured nitrogen fertilizer and other fertilizers are not subject
to these pricing mechanisms.
Wholesale list prices for fertilizers have become virtually meaningless
over the past ten years due tothe various concessions (i. e. , volume
discounts, terms) which manufacturers offer buyers. As a consequence,
no reliable wholesale price series exist. In order to provide some
insights into wholesale prices, Table III-27 presents estimates of
prices which the Contractor has developed at various times over the
years. These prices in relation to the average retail prices shown in
Table 111-28 are much lower, indicating the significant distribution
costs for storage and transportation.
Retail prices and pricing - Until recent years the retail market was
served by many dealers who in turn were serviced by numerous suppliers
D.A. materials from basic producers and mixtures from mixed goods
111-48
-------
Table III-27.Estimated average realized wholesale prices for selected fertilizer products, f. o.b. plant
i
*•
\O
Ammonia
Year
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Source:
small
plant
$78.00 $
78.00
78.00
72.00
50.00
37.00
36.00
40.00
41. 00
48.00
large Ammoniun
plant
62.00
40.00
27.00
26.00
30.00
31.00
38.00
Estimates developed
Chemical
nitrate
$57.00
56.00
53.00
51.00
45.00
39.00
37.00
40.00
41.00
44.00
Urea
$80.
78.
75.
73.
64.
54.
53.
52.
52.
57.
by DPRA and
Pricing Patterns,
Third
00
00
00
00
00
00
00
00
00
00
J.M.
Granular
Triple
ammonium Diammonium Super-
sulfate
$34.
34.
34.
34.
28.
26.
26.
26.
26.
27.
Malk,
00
00
00
00
00
00
00
00
00
00
phosphate
$75.
73.
70.
63.
49.
54.
58.
62.
66.
75.
consultant, at
Edition, Schnell
Publishing
00
50
00
75
75
00
00
00
00
00
phosphate
$48.
49.
48.
43.
37.
38.
40.
42.
46.
55.
50
25
00
75
00
00 -
00
00
00
00
various points in time.
Co. ,
Ind. , New
York.
Chemical Marking Reporter, various issues, Schnell Publishing Co. , Inc. , New York.
-------
Table 111-28. Average prices paid by farmers per ton for selected fertilizers, United States,
1957-59 average, and 1967-73
Superphosphate
April 15
of year
Anhydrous
ammonia
40 percent
P2°5
20 percent
P2°5
Ammonium
phosphate
16-20-0
Potash
60 percent
K20
Average
1957-59
1967
1968
1969
1970
1971
1972
1973
149.
113.
91.
75.
75.
79.
80.
87.
00
00
40
60
00
30
00
60
82.
84.
78.
74.
75.
76.
78.
87.
20
10
40
00
10
60
00
50
37.
42.
43.
43.
45.
47.
49.
53.
00 89.
10
20
80
40
80
90
70
80.
78.
77.
76.
76.
79.
83.
60
70
40
70
90
70
00
90
1/56.
1/58.
49.
47.
50.
58.
58.
61.
80
50
10
80
90
20
80
50
— Based on equivalent price for 55 percent K^O reported by SRS.
Source: Agricultural Prices, Statistical Reporting Service, USDA, April, 1973, and earlier issues.
-------
manufacturers. As a result, each dealer and his supplier priced com-
petitively consistent with their best interest. Even today with some
control of the retail function exercised by majors, none is strong enough
to exercise price leadership sufficient to stabilize pricing and the margins
received. Retail margins on mixed goods of 15 to 20 percent a few years
ago have shrunk to 10 to 15 percent today. The advent of bulk blending
and fluid mixing have brought additional pressure to cut retail prices.
In some of the new products particularly fluid mixtures where the demand
and supply situation is relatively tight, it is interesting to note that pricing
appears to be normally more nearly on the basis of achieving given tar-
gets of rate of return. However, the more traditional products appear
to be influenced more by market share targets and coverage of variable
production and distribution costs.
Traditionally, the fertilizer industry has been more concerned about price
instability at the retail level that would be passed back to the producer.
The industry still has this concern, but over the past five to seven years
anxiety has grown because of price instability at the wholesale levels.
B. Expected Price Effects
Evaluation of probable price effects in the fertilizer industry should be
considered separately for nitrogen and phosphate products — , since it
now appears that the directional change of future price levels will differ
between the two segments. Thus, in evaluating probable price effects
of imposition of stricter pollution standards, the situation without im-
position of standards needs to be established to serve as guidelines in -
assessing price impacts of pollution control.
1. Future Price Levels
Primary producers of fertilizer respond readily to plant underutilization
by lowering prices. Fertilizer plants have high proportion of their costs
in fixed capital investment. These plants react to undercapacity by
lowering prices until it is no longer economical to do so. When this
point is reached, plant shutdown occurs. Marginal plants will shut-
down first is such a situation. Shutdowns or price reductions will
occur until the amount of capacity offered for production equals the
demand at the time.
J./ Consideration on a product by product basis would be desirable, but the
necessary supply demand relationships are virtually nonexistent. Further
base nitrogen and phosphate are the key components to fertilizer products.
Ill-51
-------
Past reactions to changes in capacity utilization are shown in Table 111-31.
Following the introduction of the large ammonia plants in 1966 was a price
reduction to $36/ton, wholesale, in response to 73 percent capacity utilization.
Capacity utilization for ammonia during the next seven years is expected
to be the opposite of what occurred in mid-1960"s. Capacity utilization
required to meet 1980 projected demands based on announced expansion
is 123 percent which is not feasible. Additional capacity will be required from
either additional expansion or from importation. Domestic expansion
will be retarded by the shortage and uncertainties regarding natural
gas. In any event this undercapacity should result in substantial price
increases unless major changes occur in this situation.
Phosphorous consumption is not expected to keep pace with plant expansion.
Table III-31 predicts capacity utilization for phosphorous to reach a low
of 69 percent in 1975 and to improve slowly during the latter seventies,
returning to 83 percent by 1980. Phosphorous capacity greatly exceeded con-
sumption in the late sixties in much the same way as is predicted for
mid-1970's. During that period of underutilization, wholesale prices
fell to $49. 75 /ton for ammonium phosphate. Since that time labor and
other operating costs have risen with the general inflation which has been
experienced. With these higher costs diammonium phosphate prices
probably will fall to the $55/ton range. Prices should improve somewhat
during the late seventies as capacity utilization increases in order to bring
into operation those plants which closed during the low point in utilization.
2. Probable Price Effects
The imposition of stricter water quality standards will affect the nitrogen
and phosphorus fertilizer industries differently. In the case of nitrogen
ammonia production is predicted to fall short of demand requirements based
on prevailing price conditions. Assuming that a highly price competitive
alternate source for ammonia is not found, prices will rise until qg = q
With 20 percent deficit in supply to meet projected demand at present
prices, it would take a 33 percent rise in ammonia price to obtain market
equilibrium, taking a short run elasticity of -.6. With a long run elasticity
of-1.8 the price adjustment required for equilibrium in the long run would
be 11 percent increase. Fa rmer adjustment to changing fertilizer prices
is gradual with only .25 percent adjustment to desired fertilizer level
occurring in any year. Thus in three years the adjustment is only one-
half complete. In this case, the price increase after three years could
be expected to be around 22 percent. Assuming a moderate increase in
pollution control costs, the industry should be able to cover these costs
with the expected price increases.
Ill-52
-------
Table HI-29. Capacity Utilization^/ and wholesale prices for ammonia
and phosphate.?/
Ammonia
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
Projected
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
Utilization
(pet)
103
96
89
73
73
73
82
85
89
92
94
99
104
111
116
123
NA
NA
NA
Wholesale
$/ton
(small plants)
/n \_------_
NA
NA
62
40
27
26
30
31
38
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
P2°5
Utilization
(pet)
100
92
80
77
69
84
96
96
95
84
69
72
75
77
80
83
87
90
94
Wholesale price
diammonium
phosphate
($/ton)
73.50
70.00
63. 75
49. 75
54.00
58.00
62.00
66.00
75. 00
67.00
53.00
50.00
52.00
55.00
57.00
61.00
65.00
70.00
75.00
Capacity utilization from Table III-18.
Prices from Table 111-28.
IH-53
-------
The phosphate case appears to be much different as this industry will be
in a position of over capacity during the period of implementation of the new
pollution control standards. Because of the capital structure in the fertilizer
industry, high portion of total cost is fixed investment costs and firms
historically have responded to underutilization by cutting prices.
Given the high fixed cost structure and the nature of the industry, it
seems probable that the supply curve has at least two distinct elasticity
conditions--being elastic below a point defined by full operating capacity
and inelastic above this point.
Unfortunately the magnitude of these elasticities is not known. With the
announced capacity expansion, the supply curve will shift to the right.
Further, we suspect that the elasticity will increase as one moves to the
right on the new supply curve relative to the present situation, meaning
the present and future supply curves will diverge to the right, since demand
for phosphate is increasing, although at a lesser rate than supply.
(Should demand growth be stable, the price decline would be much more
pronounced.) Effect of this is expected to be a significant fall in phos-
phate prices by 1975 to 1976.
Imposition of pollution control standards in this framework suggest to us
that associated costs can be passed along in the long run. Thus the resultant
price level will be in the mid-1970's and will be somewhat lower than
present, but likely higher than would be the case without pollution control.
The exact nature of the price level will depend upon the size of the
pollution control costs in relation to the out-of-pocket costs of the larger
plants. The more efficient plants will likely cut price to p point approximating
variable costs in an effort to maximize plant utilization. The less efficient
production units will have to meet these prices (excepting conditions where
location or other special conditions will permit a higher price). With
significantly higher out-of-pocket costs, the marginal plants will likely
close. Such plant closures will result in a new supply curve located to the
right of the present supply curve, but left of the future supply curve (without
pollution control).
Location of equilibrium point would require an interative analysis since
a new intermediate supply curve, with a higher price would induce some of
the less marginal plants to continue operations creating a different industry
supply curve. However, the essential point is that it is likely price for basic
phosphate products will decline during a period when pollution controls may
be implemented. However, the price decline in the longer run is not ex-
pected to be as great with pollution control as without control. The extent
of this decline will, however, depend upon the change in costs of the larger
firms. If it is small, a number of marginal firms may be facing closure;
if large, the number should be less.
IH-54
-------
IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The following economic impact analysis utilizes the basic industry infor-
mation developed in Chapters I-III plus the pollution abatement technology
and costs provided by Environmental Protection Agency. The impacts
examined include:
Price effects
Financial effects
Production effects
Employment effects
Community effects
Other effects
Due to the crucial nature of potential plant shutdowns (financial and
production effects) to the other impacts, a disproportionate amount of
time will be devoted to the financial and plant closure analysis.
In general, the approach taken in the impact analysis is the same as that
normally done for any feasibility capital budgeting study of new invest-
ments. In the simplest of terms, it is the problem of deciding whether
a commitment of time or money to a project is worthwhile in terms of
the expected benefits derived. This decision process is complicated by
the fact that benefits will accrue over a period of time and that in prac-
tice the analyst is not sufficiently clairvoyant nor physically able to re-
flect all of the required information, which by definition must deal with
projections of the future, in the cost and benefit analysis. In the face
of imperfect and incomplete information and time constraints, the industry
segments were reduced to financial relationships insofar as possible and the
key non-quantifiable factors were incorporated into the analytical thought
process to modify the quantified data. The latter process is particularly
important in view of the use of model plants in the financial analysis. In
practice, actual plants will deviate from the model and these variances
will be considered in interpreting financial results based on model plants.
A. Fundamental Methodology
Much of the underlying analysis regarding prices, financial and produc-
tion effects is common to each kind of impact. Consequently, this case
methodology is described here as a unit with the specific impact interpre-
tations being discussed under the appropriate heading following this
section.
IV-1
-------
The core analysis for this inquiry was based upon synthesizing physical
and financial characteristics of the various industry segments through model
or representative plants. Estimated financial profiles and cash flows for
1972 conditions were presented in Chapter II. However, as pointed out in
Chapter III, significant price and cost changes are expected to occur over
the next few years in the fertilizer industry. In order to reflect these
expected conditions, model plant budgets were adjusted from the 1972 base
data to form the underlying financial base for the economic analysis
described below. The extent of these changes are described in the
appropriate sections of Chapter VI--Impact Analysis. The primary factors
involved in assessing the financial and production impact of pollution control
are profitability changes, which are a function of the cost of pollution control
and the ability to pass along these costs in higher prices. Admittedly, in
reality, closure decisions are seldom made on a set of well defined common
economic rules, but also include a wide range of personal values, external
forces such as the ability to obtain financing or considering the production
unit as an integrated part of a larger cost center where total costs must be
considered.
Such circumstances include but are not limited to the following factors:
1. There is a lack of knowledge on the part of the owner-operator
concerning the actual financial condition of the operation due to
faulty or inadequate accounting systems or procedures. This is
especially likely to occur among small, independent operators
who do not have effective cost accounting systems.
2. Plant and equipment are old and fully depreciated and the owner
has no intention of replacing or modernizing them. He can con-
tinue in production as long as he can cover labor and materials
costs and/or until the equipment deteriorates to an irrepairable
and inoperative condition.
3. Opportunities for changes in the ownership structure of the plants
(or firms) exist through the acquisition of the plants by grower
cooperatives where the principal incentive is that of maintaining
sugar beet acreages in a situation where grower returns from
sugar beet production are substantially above returns from
alternative cropping opportunities. In this situation, which
presently exists in the sugar beet industry, growers may elect to
form producer-processor cooperatives and acquire ownership of
processing plants which they would continue to operate at levels
of return which would be unattractive to private owners.
4. Personal values and goals associated with business ownership that
override or ameliorate rational economic rules is this complex
of factors commonly referred to as a value of psychic income.
IV-2
-------
5. The plant is a part of a larger integrated entity and it either
uses raw materials being produced profitably in another of
the firm's operating units wherein an assured market is
critical or, alternatively, it supplies raw materials to
another of the firm's operations wherein the source of supply
is critical. When the profitability of the second operation
offsets the losses in the first plant, the unprofitable oper-
ation may continue indefinitely because the total enterprise
is profitable.
6. The owner-operator expects that losses are temporary and
that adverse conditions will dissipate in the future. His
ability to absorb short-term losses depends upon his access
to funds, through credit or personal resources not presently
utilized in this particular operation.
7. ! There are very low (approaching zero) opportunity costs for
the fixed assets and for the owne r-opera to r1 s managerial
skills and/or labor. As long as the operator can meet labor
and materials costs, he will continue to operate. He may
even operate with gross revenues below variable costs until
he has exhausted his working capital and credit.
8. The value of the land on which the plant is located is appreci-
ating at a rate sufficient to offset short-term losses, funds
are available to meet operating needs and opportunity costs
of the owner-operator's managerial skills are low.
The above factors, which may be at variance with common economic
decision rules, are generally associated with proprietorships and
closely held enterprises rather than publicly held corporations.
While the above factors are present in and relevant to business decisions,
it is argued that common economic rules are sufficiently universal to
provide an useful and reliable insight into potential business responses1
to new investment decisions, as represented by required investment in
pollution control facilities. Thus, economic analysis will be used as the
basic analytical procedure. Given the pricing conditions, the impact on
profitability (and possible closure) can be determined by simply computing
the ROI (or any other profitability measure) under conditions of expected
prices and incremental investment in pollution control. The primary
consequence of profitability changes is the impact on the plant regarding
plant shutdown rather than making the required investment in meeting
pollution control requirements.
IV-3
-------
In the most fundamental case, a plant will be closed when variable ex-
penses (Vc) are greater than revenues (R) since by closing the plant,
losses can be avoided. However, in practice plants continue to operate
where apparently Vc > R. Reasons for this include:
• lack of cost accounting detail to determine when Vc>R.
* opportunity cost of labor or some other resource is less
than market values. This would be particularly prevalent
in proprietorships where the owner considers his labor as
fixed.
* other personal and external financial factors.
expectations that revenues will shortly increase to cover
variable expenses.
A more probable situation is the case where Vc £. R but revenues are
less than variable costs plus cash overhead expenses (TCc) which are
fixed in the short run. In this situation a plant would likely continue
to operate as contributions are being made toward covering a portion of
these fixed cash overhead expenses. The firm cannot operate indefinitely
under this condition, but the length of this period is uncertain. Basic to
this strategy of continuing operations is the firm's expectation that re-
venues will increase to cover cash outlay. Factors involved in closure
decisions include:
• extent of capital resources. If the owner has other business
interests or debt sources that will supply capital input, the
plant will continue.
lack of cost accounting detail or procedures to know that TCc>R,
particularly in multiplant or business situation.
labor or other resources may be considered fixed and the
opportunity cost for these items is less than market value.
Identification of plants where TCc > R, but Vc < R leads to an estimate
of plants that should be closed over some period of time if revenues do
not increase. However, the timing of such closures is difficult to predict.
The next level of analysis, where TCc A R, involves estimating the
earnings before and after investment in pollution abatement. So long
as TCc^-R it seems likely that investment in pollution control will be
made and plant operations continued so long as the capitalized value
IV-4
-------
of earnings (CV), at the firms (industry) cost of capital, is greater
than the scrap or salvage value (S) of the sunk plant investment. If
S > CV, the firm could realize S in cash and reinvest and be financially
better off. This presumes reinvesting at least at the firms (industry)
cost of capital.
Computation of CV involves discounting the future earnings flow to
present worth through the general discounting function:
k-n
where
V = present value
An = a future value in n"1 year
i = discount rate as target ROI rate
n = number of conversion products, i.e.,
1 year, 2 years, etc.
It should be noted that a more common measure of rate of return is
the book rate, which measures the after-tax profits as a ratio of in-
vested capital, is net worth or sales. These ratios should not be
viewed as a different estimate of profitability as opposed to DCF
measures (discounted cash flow) but rather an entirely different
profitability concept. The reader is cautioned not to directly compare
the DCF rates with book rates.
The two primary types of DCF measures of profitability are used. One
is called the internal rate of return or yield and is the computed discount
rate (yield) which produces a zero present value of the cash flow. The
yield is the highest rate of interest the investor could pay if all funds
were borrowed and the loan was returned from cash proceeds of the
investment. The second DCF measure is the net present value concept.
Rather than solve for the yield, a discount rate equivalent to the firms
cost of capital is used. Independent investments with net present values
of above zero are accepted; those below zero are rejected. The concept
of comparing capitalized earnings with the sunk investment value is
a variation of the net present value method.
rv-5
-------
The data input requirements for book and DCF measures are derived,
to a large extent, from the same basic information although the final
inputs are handled differently for each.
1. Benefits
For purposes of this analysis, benefits for the book analysis have been
called after-tax income and for the DCF analysis after-tax cash proceeds
The computation of each is shown below:
After tax income = (l-T)x(R-E-I-D)
After tax cash proceeds = (1 - T)x(R - E - D) + D
where
T = tax rate
R = revenues
E = expenses other than depreciation and interest
I = = interest expense
D = depreciation charges
Interest in the cash proceeds computation is omitted since it is reflected
in the discount rate, which is the after-tax cost of capital, and will be
described below. Depreciation is included in the DCF measure only in
terms of its tax effect and is then added back so that a cash flow over
time is obtained.
A tax rate of 48 percent was used throughout the analysis where a positive
pre-tax value existed. In the case of model plants with negative pre-tax
values, zero tax rate was assumed. Accelerated depreciation methods,
investment credits, carry forward and carry back provisions were not
used due to their complexity and special limitations. It is recognized
that in some instances the effective tax rate may be lower in a single
plant situation, but with the dominance of multiplant firms, the firm's
tax rate will be close to the 48 percent rate.
IV-6
-------
2. In ve s tm e nt
Investment is normally thought of as outlays for fixed assets and working
capital. However, in evaluating closure of an on-going plant where the
basic investment is sunk, the value of that investment must be made in
terms of its liquidation or salvage value, that is, its opportunity cost or
shadow price. —' For purposes of this analysis, sunk investment was
taken as the sum of equipment salvage value plus land at current market
value plus the value of the net working capital (current assets less current
liabilities) tied up by the plant (see Chapter II for values). This same
amount was taken as a negative investment in the terminal year.
The following impact analysis was based on total salvage value as de-
fined above. The rationale for this was that the cash flows did not in-
clude any interest charges but rather brought interest charges into the
analysis in the weighted cost of capital. This procedure required the
use of total capital (salvage value) regardless of source. An alternative
procedure would be to use as capital, net cash realization (total less debt
retirement) upon liquidation of the plant. (In the single plant firm debt
retirement would be clearly defined. In the case of the multi-plant firm,
delineation of debt by plant would likely not be clear. Presumably this
could be reflected in proportioning total debt to the individual plant on
some plant parameter such as capacity or sales.) Under this latter
procedure of using net realization, interest and debt retirement costs
would have to be included in the cash flows.
The two procedures will yield similar results if the cost of capital and
interest charges are estimated on a similar basis. The former procedure,
total salvage value, was used as it gives reasonable answers and simplifies
both computation and explanation of the cash flows and salvage values.
Replacement investment for plant maintenance was taken as equal to
annual depreciation, which corresponds to operating policies of some
managements and serves as a good proxy for replacement in an on-going
business.
Investment in pollution control facilities was taken as the estimates
provided by EPA and shown in Chapter V. Only incremental values
were used, to reflect in-place facilities. Only the value of the involved
land was taken as a negative investment in the terminal year.
— This should not be confused with a simple buy sell situation which
merely involves a transfer of ownership from one firm to another.
In this instance, the opportunity cost (shadow price) of the invest-
ment may take on a different value.
IV-7
-------
The above discussion refers primarily to the DCF analysis. Investment
used in estimating book rates was taken as invested capital - book value
of assets plus net working capital. In the case of new investment, its
book rate was estimated as 50 percent of the original value.
3. Cost of Capital -^After Tax
Return on invested capital is a fundamental notion in U.S. business.
It provides both a measure of actual performance of a firm as well
expected performance. In this latter case, it is also called the cost
of capital. The cost of capital is defined as the weighted average of
the cost of each type of capital employed by the firm, in general terms
equities and interest bearing liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.
The cost of equities was estimated by two methods -- the dividend yield
method and the earnings stock price (E/P ratio) method. Both are
simplifications of the more complex DCF methodology. The dividend
method is:
where
k = cost of capital
D = dividend yield
P = stock price
g = growth
and the E/P method is simply
k = E/P
where
E = earnings
P = stock price
and is a further simplication of the first. The latter assumes future
earnings as a level, perpetual stream.
IV-8
-------
The after tax cost of debt capital was estimated from reported (annual
financial reports and financial statistics) company outlays for interest
expenses and multiplying by .52 -- assuming a 48 percent tax rate.
These values wjere weighted by the respective equity to total asset and
total liabilities— to total asset ratios.
The average cost of capital for the fertilizer industry was estimated
using the equity and debt data from Chapter II as follows:
Dividend Yield Plus Growth
Capital Weight Cost Growth
Equity .74 .039 .04
Debt .26 .039
Average cost of capital . 068
E/P
Equity .74 .063
Debt .26 .039
Average cost of capital . 057
As shown in the above computations, the estimated after-tax cost
is 5.7 to 6.8 percent. The subsequent analysis was based on 6.0
and 7.0 percent. The upper estimate presumes a four percent growth
factor which is roughly equal to inflation expectations.
— It is recognized that liabilities contain non interest bearing liabilities,
but its weight is believed to be an adequate proxy for the weight of
debt.
IV-9
-------
4. Construction of the Cash Flow
A seventeen period cash flow was used in the analysis of BPT (Best Prac
tical Technology) and BAT (Best Available Technology) effluent control
and was constructed as follows:
1. Sunk investment (salvage market value of fixed assets plus
net working capital) taken in year to, assumed to be
equivalent to 1976,
2. After tax cash proceeds taken for years t^ to
i /
3. Annual replacement investment, equal to annual current
depreciation taken for years tj to t,^ (in certain cases this
was assumed to be deferred. The cases are described in
Chapter VI).
4. Terminal value equal to sunk investment taken in year tiy.
5. Incremental pollution control investment taken in year tQ
for 1977 standards and year t^ for 1983 standards.
6. Incremental pollution expenses taken for years t\ to t, /
for 1977 standards and years ty to t, / for 1983 standards,
if additive to the 1977 standards.
7. Replacement investment taken in year tjj on incremental
pollution investment in BPT on assumption of a 10 year life
as provided by EPA. No replacement was taken for the
BAT investment as it completed its life in year tj£.
8. No terminal value of pollution facilities was taken in year tj
since the land value was assumed to be very small and/or
zero.
B. Price Effects
At the outset, it must be recognized that price effects and production
effects are intertwined with one effect having an impact upon the other.
In fact, the very basis of price analysis is the premise that prices and
supplies (production) are functionally related variables which are simul-
taneously resolved.
Solution of this requires knowledge of demand growth, price elasticities,
supply elasticities., the degree to which regional markets exist, the degree
IV-10
-------
of dominance experienced by large firms in the industry, market concen-
tration exhibited by both the industry's suppliers of inputs and purchasers
of outputs, organization and coordination within the industry, relation-
ship of domestic output with the world market, existence and nature of
complementary goods, cyclical trends in the industry, current utilization
of capacity and, exogenous influences upon price determination (e. g. ,
governmental regulation).
In view of the complexity and diversity of factors involved in determin-
ation of the market price, a purely quantitative approach to the problem
of price effects is not feasible. Hence, the simultaneous considerations
suggested above will be made. The judgment factor will be heavily em-
ployed in determining the supply response to a price change and altern-
ative price changes to be employed.
Asa guide to the analysis of price effects, the estimated price required
to leave the model plant segment as well off will be computed. The re-
quired price increase at the firm level will be evaluated in light of the
relationship of the model plant to the industry and the understanding of
the competitive position of the industry. The required price increase can
be readily computed using the DCF analysis described above, but dealing
only with the incremental pollution investment and cash proceeds.
Application of the above DCF procedure to these costs will yield the present
value of pollution control costs (i.e. , investment plus operating cost less
tax savings). If this is known, the price increase required to pay for
pollution control can readily be calculated by the formula
JPVP) (100)
•"" " (l-.T) (PVR)
where:
X = required percentage increase in price
PVP = present value of pollution control costs
PVR = present value of gross revenue starting in the year
pollution control is imposed
In the case of phosphates, where significant price and supply changes are
expected, the above approach was not used. Rather, unit costs of effluent
controls were examined over the 1977 to 1983 period and the expected price
increase was based on the analysts judgment of the amount of costs that
could be passed on in any time period. During 1977 and 1978, it is an-
ticipated that cash flows will be near zero or zero, and in this situation only
the out-of-pocket costs will be passed along. As conditions improve, full
costs would then be passed along. The details of this analysis are
included in Chapter VI under Price Effects.
IV-11
-------
C. Financial Effects
In Chapter II, the financial characteristics of model plants were presented
as reflecting 1972 conditions. As indicated above, adjustments were in-
corporated to reflect expected future economic conditions in the fertilizer
industry. These adjusted financial data will serve as the base point for
the analysis of financial effects of effluent control. Conditions without and
with effluent controls will be computed, so that differences can be noted.
The primary focus of analysis will be upon profitability in the industry
and the ability of the firms to secure external capital. Hence, it is
obvious that this portion of the analysis cannot be divorced from pro-
duction effects since profit levels and the ability to finance pollution
abatement facilities will have a direct influence on supply responses --
utilization of capacity and plant closures.
In addition to these factors, an additional measure of economic
profitability was examined: present values estimated by the
procedures described in Section A above. This measure was
calculated on pre-and post-pollution control bases.
Given these financial measures, the ability of the industry to finance
the required pollution control expenditures will be reexamined in light
of the financial results and the information shown in Chapter II. This
ability will vary from one industry sub sector to another due to differ-
ential financial structures, profitability and abatement requirements.
Hence, capital availability and cost will probably have to be examined
on a model plant by model plant basis.
D. Production Effects
Potential production effects include reductions of capacity utilization
rates, plant closures and stagnation of industry growth. It is antici-
pated that reductions in capacity utilization will be estimated via quali-
tative techniques given the analysts' knowledge cf the industry. The
same is true for assessing the extent to which plant closures may be
offset by increases in capacity utilization on the part of plants remaining
in operation. Data limitations and time constraints are expected to re-
quire that the impact of pollution control standards upon future growth
of the industry al^o be estimated via qualitative methods.
IV-12
-------
The remaining effect, plant closures, is very difficult to estimate as
discussed above in Section A. As a starting point in the plant closure
analysis, the economic shutdown model will be employed to indicate
which model plants might close. These conclusions will be based upon
the decision rule that a plant will be closed when the net present value
of the cash flow is less than zero.
It is recognized that the use of models to represent an industry is
imperfect and that not all of the relevant values or factors can be
included in the models. Hence, in this industry, the appropriate
model plant results will be equated with each fertilizer plant and
the variances to the model plant parameters will be subjectively eval-
uated to arrive at an estimate of the probability of closure. Three
closure levels will be estimated -- high, medium and low.
The above analysis will be done under a without pollution control con-
dition and a with pollution control condition. The former (and including
historical trends) will establish a baseline against which total closures
after pollution control will be compared, to arrive at an estimate of
closures due to pollution control.
As discussed under fundamental methodology above, plants may continue
to operate in face of more worthwhile uses of capital tied up by the plant.
In such cases the plant, particularly single or few plant firms and closely
held firms would at least have to meet cash flow requirements, where
cashflow is defined as sales less operating expenses, depreciation,
interest, and taxes plus depreciation less debt amortization. Although
the model plant data is not of sufficient quality for a plant by plant analysis
model plants were also examined on a cash flow basis.
IV-13
-------
E. Employment Effects
Given the production effects of estimated production curtailments,
potential plant closings and changes in industry growth, a major con-
sideration arises in the implications of these factors upon employment
in the industry. The employment effects stemming from each of these
production impacts will be estimated. To the extent possible, the
major employee classifications involved will be examined as will the
potential for re-employment.
F. Community Effects
The direct impacts of job losses upon a community are immediately ap-
parent. However, in many cases, plant closures and cutbacks have a
far greater impact than just the employment loss. Multiplier effects
may result in even more unemployment. Badly needed taxes for vital
community services may dwindle. Community pride and spirit may be
dampened. However, in some cases, the negative community aspects
of production effects may be very short-term in nature with the total
impact barely visible from the viewpoint of the overall community. In
a few cases, the closure of a plant may actually be viewed as a positive
net community effect (e.g., a small plant with a high effluent load in an
area with a labor shortage).
These impact factors will be qualitively analyzed as appropriate.
G. Other Effects
Other impacts such as direct balance of payments effects will also be
included in the analysis. This too will involve qualitative analyses.
IV-14
-------
V. EFFLUENT CONTROL COSTS
Water pollution control costs used in this analysis were based on cost
parameters furnished by the Effluents Guidelines Division of the Environ-
mental Protection Agency from a study by Davy Powergas Inc. _' and
EPA's own internal guidelines and cost estimates.
For the purposes of the impact analysis, three levels of effluent control
was considered for each segment of the fertilizer industry studied. The
levels were as follows:
BPT - Best practicable control technology currently
available - to be achieved July 1, 1977.
BAT - Best available technology economically achievable -
to be achieved by July 1, 1983.
NSPS - New source performance standards - to be applied
to all new facilities that discharge directly to navi-
gable waters - to be met by approximately January
1, 1974.
A fourth level - new source pretreatment standards - which would be
applied to all facilities that use municipal systems constructed after
promulgation of the proposed guidelines was not considered further in
this report. Cost data were not provided for these standards. Further,
fertilizer industry effluents are not generally considered compatible for
treatment in normal municipal treatment systems.
It is further noted that the new source performance standards (NSPS)
are equal to the BAT standards.
A. Proposed Control Requirements
The proposed control guidelines, in terms of allowable contaminant
levels, were not provided for this analysis. In lieu of this, and of more
importance to this impact analysis, the various BPT and BAT technologies
were provided. As a point of reference, these technologies, described
— U. S. Environmental Protection Agency, Development Document for
Effluent Limitations Guidelines and Standards of Performance -
Fertilizer and Phosphate Manufacturing Industry, prepared by
Davy Powergas Inc., June, 1973.
V-l
-------
in the Development Document — are summarized in Table V-l,, for each
of the end and intermediate products examined. _' It should be noted that
alternative technologies were examined by Davy Powergas, but for various
reasons were excluded from further consideration.
B. Present Effluent Control Status of Fertilizer Industrv
Comprehensive data are not available regarding the existing degree of
water pollution control in the fertilizer industry. It is believed that
effluent levels for present fertilizer plant operations are, for the most
part, unacceptable in terms of the proposed effluent limitation guidelines.
However, the fertilizer industry has taken strides toward pollution con-
trol and a few plants are reported to be close to or achieving the proposed
effluent limitations.
The Fertilizer Institute recently released an industry survey of capital
expenditures and operating costs for pollution control for the period
1967 through 1971. The basic producers, the group most nearly repre-
senting the products being examined in this study, have about $35 million
capital outlays for this period, with annual operating costs of between
$5.4 and $6. 1 million. These companies reported anticipated capital
expenditures of $61 million in 1972, 1973 and 1974. Most of this invest-
ment in pollution control is believed to have been in air pollution control.
As pointed out in the Development Document, some technology, such as
steam stripping and hydrolysis, is used by a few plants. The extent of
industry use is not reported nor known. Double lining in phosphoric acid
production has been used for about 15 years. However, an enumeration
of its use throughout the industry is not available.
Although the industry has taken strides toward effluent controls, it is
believed that waste loads in general are untreated. For purposes of this
analysis, it was assumed that the only in-place technology was double
lining in the phosphate segment. In this instance, it was assumed that
50 percent of the industry currently practice double lining and 50 percent
practice no gypsum pond treatment.
I/ Ibid.
2/ As shown in Table V-l, certain modifications in treatment processes
were discussed after the analysis was completed. Because these
matters were not conclusively given to DPRA prior to the completion
of this final report, the basic impact analysis is based on the tech-
nologies shown in Table V-l. The relative importance of these changes
are shown under the pollution abatement cost section in the next sections,
V-2
-------
Table V-l. Proposed BPT and BAT water effluent treatment process by fertilizer product
u>
Process Ammonia
BPT
Ammonia /condensate
stripping X
Chromate reduction — X
Oil separation X
Ion exchange
Stamicarbon urea
hydrolysis
Pond water treatment
(triple liming)
Gypsum pond seepage
Sulfuric acid effluent
control
DAP self-contained
Triple
Ammonium Sulfuric Phosphoric Diammonium super-
nitrate-' Urea acid acid -' phosphate phosphate
X
XXX
X5/ X
x-
X
X
X
X
V
BAT
Ammonia/air stripping—.' X
Biological treatment _' X
Ion exchange
Sulfuric acid dilution-
pond water
X
X
X
X
_!/ Includes treatment of nitric acid intermediate
2/ Phosphoric acid treatment also serves DAA and TSP end products
"$) Information received subsequent to completion of analysis suggests that chromate removal may not be required.
The relative importance of this cost is discussed in the next section.
4/ Information received subsequent to completion of analysis suggests that possibly only one of these treatments may
be required. The relative importance of this cost is discussed in the next section. It should be noted that imposition
of BAT as defined (two treatments) is not expected to impact the nitrogen fertilizer industry.
£.' The impact of excluding ion exchange was analyzed in the impact analysis shown in Chapter VI.
-------
C. Water Pollution Abatement Costs by Technology
1. Technology Cost Data
The technological processes, summarized in Table V-l for BPT and
BAT levels, has been separated for cost analysis into two groups:
(1) nitrogen and (2) phosphate fertilizers. The Environmental Pro-
tection Agency furnished cost data as of August, 1971, based upon
1,000 tons of product per day which is an approximation of a 350,000
ton per year plant.
Table V-2 and V-3 present investment costs and annual operating
costs for each treatment process. Since these 1971 data were for
a 350,000 ton per year plant, it was necessary for the contractor to
adjust all costs to 1972 price levels and to varying model plant sizes.
The price level change factor was 1.076, based on an average treatment
plant construction index provided by EPA. For each plant under 350,000
a scale factor of .5 was used to estimate costs for smaller plants; for
each plant over 350, 000, a scale factor of . 6 was used. _'
2. Investment
a. Nitrogen products manufacturing
Table V-2 shows effluent control investment costs for nitrogen products.
The largest investment is for the ion exchange process -- $624,000 for
a 1,000 ton per day plant. Only ammonium nitrata plants
must install this technology. Hydrolysis/stamicarbon treatment requires
$249,000 and applies only to urea plants. The next largest investment --
$234,000 for steam stripping -- impacts ammonia, and am-
monium nitrate producers. Other BPT level investment costs are rela-
tively lower for nitrogen fertilizer producers. Chromate removal and
oil separation call for $76,000 and $22,000 respectively. Table V-l
indicates the products affected by these processes.
At the BAT level, ammonia, ammonium nitrate and urea plants must
install facilities for air stripping and biological treatment at investment
costs of $104,000 and $118,000 respectively.
- 'cost of A\ . /^Capacity ^ -5 or. 6
i Cost of B 1 Capacity B
V-4
-------
Table V-2. Estimated investment and annual costs for effluent control technology in nitrogen fertilizer manufacturing
Nitrogen (annual capacity, 1,000 TPY)
Ammonia condensate/ steam stripping
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation - 10 percent
Interest (7.5%x.5)
Total
Chromate Removal
Investment
i
, Annual costs
Material
Energy and power
O & M
Subtotal
Depreciation - 10 percent
Interest (7.5% x .5)
Total
50/52
91
83
4
87
9
3
99
29
3
.4
1.2
4.6
2.9
1. 1
8.6
85
117
105
5
110
12
4
126
38
5
.5
1.5
7.0
3.8
1.4
12.2
105
129
116
5
121
13
5
139
42
6
.6
1.7
8.3
4.2
1.6
14.1
130
143
129
6
135
14
5
154
46
8
.6
1.8
10.4
4.6
1.7
16.7
160
* i ()(
161
146
6
152
16
6
174
53
9
.7
2.1
11.8
5.3
2.0
19.1
210
in
181
164
7
171
18
7
196
58
12
.8
2.3
15.1
5.8
2.2
23.1
285/295
209
188
8
196
21
8
225
68
16
1
2.7
19.7
6.8
2.6
29.1
I/
340/350—
234
212
9
221
23
9
253
76
20
1. 1
3.0
24.1
7.6
2.9
34.6
525
299
269
12
281
30
11
322
97
30
1.4
3. c.
35.2
9.7
3.6
48.6
continued
-------
Table V-2. Estimated investment and annual costs for effluent control technology in nitrogen fertilizer manufacturing
(continued)
Nitrogen (annual capacity, 1, 000 TPY)
Oil
Ion
Separation
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation
Interest
Total
Exchange
(Ammonium Nitrate)
Investment
Annual costs
Energy and power
O & M
Extra manpower
Subtotal
Depreciation
Interest
Total
50/52 85
9 11
t
2.4 3.0
.4 .4
2.8 3.4
.9 1.1
.3 .4
4.0 4.9
312
71
13
172
256
31
11.7
298.7
105
12
3.3
.5
3.8
1.2
.5
5.5
343
78
14
172
264
34.3
12.9
247.2
130
13
3.7
.5
4.2
1.3
.5
6.0
381
87
15
172
274
38
14.3
326.3
160 210
4:1 nno- - -
15 17
4.2 4.6
.6 .7
4.8 5.3
1.5 1.7
.6 .6
6.9 7.6
430
98
17
172
287
43
16.1
334. 1
285/295
19
5.4
.8
6.2
1.9
.7
8.8
555
126
22
172
320
56
20.8
396.8
340/350^-
22
6.0
.9
6.9
2.2
.8
9.9
624
142
25
172
339
62.4
23.4
412.8
525
28
7.6
1. 1
8.7
2.8
1. 1
12.6
continued
-------
Table V-2. Estimated investment and annual costs for effluent control technology in nitrogen fertilizer manufacturing
(continued)
Nitrogen (annual capacity, 1, 000 TPY)
Hydrolysis/Stamicarbon
(Urea)
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation
Interest
Total
Ammonia condensate/air stripping
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation
Interest
Total
50/52 85
97
63
4
67
9.7
3.6
80.3
41
2
2
4
4
1.5
9.5
105 130
137
88
5.5
93.5
13.7
5.1
112.3
57
3
2
5
6
2.1
13.1
160 210 285/295
$1, UUU
171
111
7
118
17.1
6.4
141.5
72 .80 94
445
334
779
789
2.7 3.0 3.5
16.7 18.0 21.5
340/350^ 525
249
161
10
171
24.9
9.3
205.2
104 132
6 7
4 5
10 12
10 13
3.9 5.0
23.9 30.0
continued
-------
Table V-2.
Estimated investment and annual costs for effluent control technology in nitrogen fertilizer manufacturing
(continued)
I
oo
Nitrogen (annual capacity, 1,
000 TPY) 50/52 85
105 130
160
41
210
ooo
285/295
340/350^-
525
Biological treatment
Investment
Annual costs
Energy and power
O & M
Extra manpower
Subtotal
Depreciation
Interest
Total
46
5
2
20
27
4.6
1.7
33.3
65
7
3
20
30
6.5
2.4
38.9
82
9
3
20
32
8.
3.
43.
91
10
4
20
34
2 9.1
1 3.4
3 46.5
— Data points provided by Environmental Protection Agency in Development Document for
and Standards - Fertilizer
and Phosphate Manufacturing
Industry, June
1973,
106
12
5
20
37
10.6
4.0
51.6
Effluent
118
13
5
20
38
11.8
4.4
53.2
Guidelines
151
17
6
20
43
15.
5.
63.
1
7
8
supplemented by direct com-
munications to DPRA.
-------
b. Phosphate fertilizer manufacturing
Investment costs for phosphate manufacturers are shown in Table
V-3. Pond-water treating, at $591, 000 for triple liming and $376,000
for double liming, is the biggest investment outlay at the BPT level.
The self-contained diammonium phosphate process demands the next
largest amount of $337,000, followed by sulfuric acid effluent control
at $250,000 and gypsum pond seepage control at $176,000. Sulfuric acid
plants also have chromate control at a $76,000 cost.
The BAT level adds sulfuric acid dilution with pond water for phosphoric
acid plants at a cost of $396, 000.
3. Annual Operating Costs
Nitrogen products manufacturing
Annual operating costs are also presented in Table V-2. These are
broken down into raw material, energy and power, operation and main-
tenance, extra manpower (where required), depreciation and interest.
Raw material costs are incurred only in chromate removal and are a
function of tons of product. Energy and power generally is a function
of investment with the percentage ratio varying by process. Operation
and maintenance is 4 percent of investment. Depreciation assumes a
10-year life and is 10 percent of investment; no salvage value is further
assumed. Interest is 7.5 percent of the average investment over the
expected 10-year life or 3. 75 percent of the original cost.
Again, the ion exchange process has the highest operating costs
($413,000), with steam stripping ($253,000) and hydrolysis/stamicarbon
($205,000) also imposing significant annual costs. The other processes
in both BPT and BAT levels have substantially lower annual costs. It
should be noted that the extra manpower requirements of the ion exchange
process represent a major portion of the annual costs.
Phosphate fertilizer manufacturing
Annual costs (shown in Table V-3) of treatment technology in the phosphate
segment are very high in pond water treating and in the self-contained di-
ammonium phosphate process ($374,000 and $477,000 respectively). Other
processes impose relatively small annual incremental operating costs
ranging from $37,000 to $95,000.
V-9
-------
Table V-3. Estimated investment and annual costs for effluent control
technology in phosphate fertilizer manufacturing
Annual Capacity, l.OOOTPY 83 200 340^
($1,000) ($1, 0000 ($1,000)
Phosphoric Acid
Pond water treating (triple lining)
Investment 591 591 591
Annual costs
Raw materials 260 260 260
Energy and power 99 9
O&M 24 24 24
Subtotal 293 293 293
Depreciation 59 59 59
Interest 22 22 22
Subtotal 81 81 81
Total 374 374 374
Pond treating (double lining)
Investment 376 376 376
Annual costs
Raw materials l6l l6l 161
Energy and power 66 6
O&M 15 15 15
Subtotal 182 182 182
Depreciation 38 38 38
Interest 14 14 14
Subtotal 52 52 52
Total 234 234 234
Gypsum pond seepage
Investment 176 176 176
Annual costs
Energy and power 55 5
O&M 7 7 7
Subtotal 12 12 12
Depreciation 18 18 18
Interest 7 7 7
Subtotal 25 25 25
Total 37 37 37
V-10
-------
Table V-3. Estimated investment and annual costs for effluent control
technology in phosphate fertilizer manufacturing (continued)
Annual Capacity, 1, 000 TPY
Phosphoric Acid
H_SO . dilution - pond water
Investment
Annual costs
Raw materials
Energy and power
O&M
Subtotal
Depreciation
Interest
Subtotal
Total
Sulfuric Acid (annual capacity, 1000 TPY)
Effluent control
Investment
Annual costs
Energy and power
O&M
Subtotal
Depreciation
Interest
Subtotal
Total
Chromate control
Investment
Annual cost
Materials
Energy and power
O&M
Subtotal
Depreciation
Interest
Subtotal
83
($1,000)
193
-
12
8
20
19
7
26
46
250
211
4
8
12
21
8
29
41
64
14
1
3
18
6
2
8
($1
342I7
250
5
10
15
25
9
34
49
76
19
1
3
23
8
3
11
200
,000)
299
-
18
12
30
30
11
41
71
600
345
7
14
21
34
13
47
68
105
33
1
4
38
10
4
14
340-i'
($1, 000)
396
-
24
16
40
40
15
55
95
1,000
470
10
19
29
47
18
65
94
143
55
2
6
63
14
5
19
Total 36 34 52 82
V-ll
-------
Table V-3. Estimated investment and annual costs for effluent control
technology in phosphate fertilizer manufacturing (continued)
Annual Capacity, l.OOOTPY 170 330~I7720
($1,000) ($1, 000) ($1,000)
DAP
AP self-contained
Investment 235 337 520
Annual cost
Energy and power 259 371 572
Labor 46 46 46
O&M 9 13 21
Subtotal 314 430 639
Depreciation 24 34 52
Interest 9 13 20
Subtotal 33 47 72
Total 347 477 711
V-12
-------
D. Water Pollution Abatement Costs by Model Plant
The costs of treatment technology by process must be applied to inter-
mediate and end products in order to analyze the ultimate impact of
these costs. This section explains the methodology by which the various
investment and annual costs are combined for each product and plant
size.
1. Technology Combinations by Product
The cost analysis of the various treatment processes to products requires
not only the combining of costs of all processes for each product (as sum-
marized in Table V-l); it also must account for the flow-through of in-
vestment and operating costs of intermediate product treatment processes.
Table V-4 lists the prorate factors used in determining the allocation
of intermediate product treatment costs to the end product effluent con-
trol costs. These were the same prorate factors used in the Phase I model
plant investment and operating cost studies. The costs for BPT ammonia
effluent control have been calculated by adding the investment cost for
steam stripping, chromate removal and oil separation. There is no pro-
rating necessary for ammonia.
Ammonium nitrate, with very high BPT investment and annual costs
for effluent control, reflects not only the combining of steam stripping,
chromate reduction and ion exchange, but also a prorata share of the
investment and annual costs of the ammonia used in the production of
ammonium nitrate. Other products have been analyzed in the same
manne r.
2. Best Practical Technology Cost
The product combinations discussed above have been fur.ther broken down
by model plant size. Table V-5 reports the initial investment required
and the estimated annual operating costs for each model plant.
In computing the various costs for Table V. this analysis assumed a
separate treatment facility for each required process. It must be
recognized that a common treatment facility might be feasible in a
multiplant complex. For example, a complex for ammonia,
and ammonia nitrate production could conceivably install a steam stripping
V-13
-------
Table V-4. Plant sizes, configurations and prorate factors used in estimating effluent control costs for model plants
Ammonia Sulfuric Acid
Product Capacity
(1000TPY)
Ammonia 50
105
210
350
525
i Ammonium nitrate 105
£ 160
350
Urea 52
105
160
350
Diamrnonium phosphate 170
330
720
Triple superphosphate 170
Capacity
(1000TPY)
210
210
350
105
210
350
525
50
105
210
Prorate Prorate
factor Capacity factor
(Pet) (1000TPY) (Pet)
11
17
22
30
30
28
41
78 250 100
72 600 78
79 1,000 100
250 71
Phosphoric Acid
Prorate
Capacity factor
(1000TPY) (Pet)
83 100
200 78
340 100
83 71
-------
Table V-5. Estimated incremental investment and annual costs for BPT and BAT effluent controls in model plants
Ul
Best Practicable Technology
Product and Condition Capacity
(1,000 TPY)
Ammonia
Ammonium nitrate
Urea
Diammonium phosphate
(no liming in place)
Diammonium phosphate-
(double liming in place)
50
105
210
350
525
105
160
350
52
105
160
350
170
330
720
170
330
720
Invest-
ment
129
183
256
332
424
542
688
1,007
190
268
332
521
1,375
1,418
2, 103
999
1, 125
1,727
EX- 11
penses—
94
133
191
252
325
362
483
639
115
163
206
335
720
810
1, 188
537
666
1,005
Depreci-
ation
$1, uuu
13
18
26
33
42
54
69
101
19
27
33
52
138
142
210
101
113
173
Interest .
5
7
10
12
15
20
26
38
7
10
12
20
52
53
80
38
42
63
Best Available Technology
Invest-
ment
87
122
171
222
283
141
178
249
124
173
216
338
259
321
532
259
321
532
EX~ I/
penses—
-------
Table V-5. Estimated incremental investment and annual costs for BPT and BAT effluent controls in model plants (con't)
Best Practicable Technology
Product and Condition Capacity
(1,000 TPY)
Triple superphosphate
(no liming in place)
Triple superphosphate
170
330
170
(double liming 'in place)330
Invest-
ment
740
740
473
488
E*- i/
penses—
d;
•p
238
211
107
105
Depreci-
ation
1 OflO
'
74
70
48
48
Interest
28
27
18
19
Best Available Technology
Invest-
ment
137
173
137
173
Ex-
penses—
_ _<
14
17
14
17
Depreci-
ation
1 1 non
p >
13
17
13
17
Interest
5
6
5
6
_' Excludes depreciation and interest.
-------
facility large enough to accommodate the combined output of all three
product plants. Through economy of scale, both investment and annual
operating costs per ton of product would be appreciably lower.
Including costs of separate rather than common treatment facilities
results in the maximum of estimated incremental costs. If impact
analysis shows that a model plant can financially absorb these maxi-
mum costs, it follows that a lesser impact will result from savings
through common treatment.
It was noted earlier that some producers may already have some of
the required control technology in place. No allowance has been made
for this contingency, except in the phosphate segment. Recognizing that
some phosphoric acid plants may already be double-liming ponds,
Table V-5 includes costs for such plants. Those will have appreciably
lower investment and operating costs than plants which must triple-lime
their ponds.
3. Best Available Technology
Table V-5 also includes the BAT investment and annual operating costs
for each model plant. These have been computed in the same manner
as those for the BPT level. BAT costs are additive to BPT costs.
4. New Source Performance Standards
New source performance standards, effective July 1, 1974, are equi-
valent to those ascribed to BAT. Costs for NSPS technology were not
provided by EPA. Thus to evaluate NSPS, it was assumed that these
costs would be equal to the sum of BPT and BAT costs. It is recognized
that in new construction, that effluent controls will be built into the process
rather than end of the pipe changes presumed for existing plants. It seems
probable that this method of constructing effluent control facilities would
reduce costs, both investment and operating costs. Thus it seems likely
that NSPS costs used in the impact analysis may be overstated. The extent
of this is not known.
V-17
-------
5. Alternative Costs
As described in Table V-l and the accompanying discussion information
received subsequent to completion of the impact analysis, indicated possible
adjustments in control technology. To provide an indication of the magni-
tude of these possible adjustments, Table V-6 shows the investment and
annual costs for excluding chromate control and biological treatment in
the nitrogen segments plus exclusion of ion exchange technology in the
ammonium nitrate segment. In comparing Tables V-5 and V-6, it can
be seen that exclusion of chromate control does not materially reduce
investment outlays and annual costs. Elimination of ion exchange tech-
nology in the ammonium nitrate segment significantly reduces costs to
a level of about 40 percent for investment and 45 percent for operating
expenses.
Exclusion of biological treatment under BAT conditions in the nitrogen
segment, materially reduces investment and annual costs, particularly
annual operating expenses. Conversely use of biological treatment only
would not greatly change costs over use of both biological and ammonia/
air stripping.
V-18
-------
Table V-6. Estimated incremental investment and annual costs for BPT and BAT effluent controls in mode plants excluding
chromate control and biological treatment in nitrogen segments
Best Practicable Technology
Product and Condition Capacity
(1,000 TPY)
Ammonia 50
105
210
350
525
2/
Ammonium nitrate — 105
160
350
f Urea 52
5 105
160
350
Diammonium phosphate 170
(no liming in place) 330
720
Diammonium phosphate 170
(double liming in place) 330
720
Invest-
ment
100
141
198
256
327
494
625
914
148
208
258
405
1,291
1,307
1,913
915
1,014
1,537
Ex-
penses
90
125
176
228
290
352
469
610
108
151
187
297
701
804
1, 122
518
656
939
Depreci-
-' tion
10
14
20
26
33
49
62
91
15
21
26
40
129
131
191
92
101
154
Interest
4
5
8
10
12
19
24
35
6
8
10
15
49
50
73
35
39
58
Best Available Technology
Invest-
ment
41
• 57
80
104
132
63
82
117
58
81
121
158
225
274
459
225
274
459
Ex-
penses
t
4
5
7
10
12
6
8
11
6
7
10
15
23
27
46
23
27
46
Depreci-
•.< tion
l onn - -
4
6
8
10
13
6
8
12
6
8
12
16
22
27
46
22
27
46
Interest
2
2
3
4
5
2
3
4
2
3
5
6
9
10
17
9
10
17
continued--
-------
Table V-6 (continued)
<
o
Best
Practicable Technology Best Available Technology
Invest- Ex- Depreci- Invest- Ex- Depreci-
Product and Condition Capacity ment penses L' ation Interest ment penses JL' ation
n nnn TPY\
Triple superphosphate 170 694
(no liming in place) 330 645
Triple superphosphate 170 427
(double liming in 330 427
place)
— Excludes depreciation and interest.
$i nnn
226
190
95
83
69
65
43
43
_' Exclusion of ion exchange technology reduces investments and
(l.OOOTPY) Investment
105 199
160 258
350 383
Expenses
* l
150
196
300
,000 -
.......... ... _ . . . . 4; i nnn
26 137 14 13
25 173 17 17
16 137 14 13
16 173 17 17
costs to the following:
Depreciation Interest
20 7
26 10
38 14
Interest
5
6
5
6
-------
VI. IMPAC T A NALYSIS
The impacts considered in this analysis include the following:
A. Price effects
B. Financial effects
C. Production effects
D. Employment effects
E. Community effects
F. Balance of payment effects
A comprehensive and detailed impact analysis of each of the above was
beyond the scope of this study. Consequently, efforts were allocated
more to financial and plant closure analyses, with lesser detail allocated to
macro-impacts.
In analyzing price, financial and production impacts, certain assumptions
about industry conditions after 1977 had to be made. These assumptions
are quite different for the nitrogen and phosphate segments.
There is much uncertainty about the future of the nitrogen fertilizer
industry, engendered primarily by the natural gas situation. At the
present writing, there are strong indications that natural gas will be
in short supply for the next decade and that industrial users will un-
doubtedly be on interruptable supply. This analysis assumes that little
expansion will take place in the ammonia industry, although demand will
increase. Accordingly, prices are expected to improve substantially
over 1972 levels.
Estimated wholesale prices per ton, listed below, assume a 90 percent
utilization level for model plants:
Ammonium
Year Ammonia nitrate Urea
($/Ton) ($/Ton)WTTon)
1973 $38 ($48) -( $44 $57
1974 $40 ($50)-i', $46.50 $60
'5 and
after
1975 and $43 ($53) -1 $49 $63
— The figure in parenthesis allows a higher local price for 50,000 and
105,000 TPY plants.
VI-1
-------
The 90 percent utilization factor is based on the assumption that ammonia
plants will probably operate at full capacity while natural gas is available
but will cease production periodically during gas shortages. There is no
way to forecast accurately actual levels of utilization. New sources of
natural gas feedstock, other feedstocks or new technologies, not cur-
rently in use, could radically alter the outlook.
In addition to the foregoing price assumptions, certain cost assumptions
had to be made. There are no current reliable guides to future cost data.
Obviously inflation will occur at some indeterminate rate but should affect
prices and costs at roughly the same rate. At the same time, there will
probably be real cost increases due to shifts in supply-demand relation-
ships. This analysis has assumed a real cost increase rate of four per-
cent annually for labor and materials costs; 1977 costs have been ad-
justed to reflect this annual rate. After 1977, prices of nitrogen fertilizer
products and costs have been held constant on the assumption that they
will change at the same rate after that date.
The phosphate segment offers a sharply different picture. Prices and
profit margins are attractive in 1973 and have prompted some producers
to announce plans to build new plants. Phosphoric acid capacity is ex-
pected to rise sharply in 1974 and 1975 if current plans for new construction
are carried out. This expectation is based upon a survey of industry
carried out in 1972 and updated in 1973 by Malk Associates, who also
served as consultants for this study. Further detail on capacity changes
in the phosphate segments is contained in Chapter III. The pattern of
prices and utilization of the 1967 to 1972 period, also described in
Chapter III, can reasonably be expected to reappear.
Prices will undoubtedly fall after peaking in 1973. The analyses which
follow contain these wholesale price per ton and utilization assumptions:
Year DAP TSP Utilization (pet)
1973 $75 $55 95
1974 67 47 84
1975 53 37 69
1976 50 35 72
1977 52 37 75
1978 55 39 77
1979 57 40 80
1980 61 43 83
1981 65 46 87
1982 70 49 90
1983 and 75 53 94
after
VI-2
-------
These prices are stated in 1972 dollars; consequently, the costs used
to calculate model plant expenses and income are also in 1972 dollars.
Under the conditions described above, certain pragmatic actions by
producers can be assumed. Since prices are projected to fall
to a point near or equal to cash outlays, producers can be ex-
pected to reduce their costs as much as possible. Certain costs ordinarily
considered fixed in the short-run can be adjusted downward in the face of
falling production.
Cost adjustments will probably occur as follows:
(1) Maintenance will be deferred as much as possible.
(2) Replacement of plant and equipment -- assumed equal to
annual depreciation in the model plant simulation -- will
be deferred in whole or in part.
(3) Plant and labor overhead, sales, general and administrative
expenses will be curtailed by laying-off personnel both to
reflect the proportional decline in production and to meet
the critical need to reduce expenses.
Examining the components of fixed costs used in the model plant cost
data, it is reasonable to assume the following changes:
(1) Maintenance and supplies -- from 6 percent of investment
to 2 percent.
(2) Taxes and insurance -- no change.
(3) Plant labor and overhead -- reduce by one-third
(4) S.G. & A. -- reduce from 15 percent of sales at 100 percent
utilization to 12 percent of actual sales; also reduce the pro-
rate from intermediate plants proportionately.
(5) Depreciation --no change in amount.
(6) Interest --no change in amount.
In addition to these cost reductions, we have assumed that plant and
equipment replacement expenditures will be deferred until cash flows
become positive; in the 170,000 TPY model plant analysis, depreciation
has been added to after-tax cash proceeds for four years.
In addition to the above assumptions, it should be noted that the pollution
abatement costs used represent the technologies shown in Table V-l. It
should be recognized that this technology might be modified by omitting
chromate reduction and biological treatment in ammonia air stripping. If
this becomes the case, outlays and costs for pollution control will be slightly
VI-3
-------
reduced, as shown in Table V-6. However, this reduction is not expected to
be sufficient to significantly change the following impact analyses. Because
of the very high costs of control in the ammonium nitrate segment (relative
to the other nitrogen segments) caused by the Ion Exchange technology, an
alternative plant closure analysis was made, assuming no Ion Exchange
technology. The other analyses (price, employment, etc.) presume the
presence of Ion Exchange technology.
A. Price Effects
As pointed out above, significant changes of price over 1972 levels are
expected. In the case of nitrogen products, a constant price level was
assumed to hold from 1977 onward. (It is recognized that higher prices
may occur, but, short gas supplies are expected to hold down utilization
rates, thus offsetting the higher prices with higher operating costs.)
Price levels in the phosphate segment are expected to be quite different,
with price declines through 1977, followed by increase through 1983,
after which prices were assumed to be constant. Thus, imposition of
stricter water quality standards will affect the nitrogen and phosphate
segments differently.
In the case of nitrogen, ammonia production is projected to fall short
of demand requirements based on prevailing price conditions. Assuming
that a highly price competitive alternate source for ammonia is not found,
prices will rise until qg = q. With 20 percent deficit in supply to meet
projected demand at present prices, it would take a 33 percent rise in
ammonia price to obtain market equilibrium, taking a short run elasticity
of -.6. With a long run elasticity of -1.8 the price adjustment required
for equilibrium in the long run would be 11 percent increase. Farmer
adjustment to changing fertilizer prices is gradual with only 25 percent
adjustment to desired fertilizer level occurring in any year. Thus in
three years the adjustment is only one-half complete. In this case, the
price increase after three years could be expected to be around 22 percent.
Assuming a moderate increase in pollution control costs, the nitrogen
industry in general should be able to cover these costs with the expected
price increases.
It is expected that costs of pollution controls will be passed on in the
form of higher prices for anhydrous ammonia and urea. Because of
competitive relationships, the full price increase required by the
ammonium nitrate segment is not expected to be passed along.
VI-4
-------
Table VI- 1. Required percentage price increases to maintain industry
profitability with effluent controls
Model Configuration
Product
Ammonia
2/
Ammonium nitrate —
Urea
Capacity
(1000 TPY)
50
105
210
350
525
105
160
350
52
105
160
350
BPT
Pet.
I/
4.8-
3.4
3.0
2.4
1.9
9. 6 LI
8.8
5.4
2.71'
3.6
3.0
2.2
BPT &
BAT
Pet.
I/
2.0-
1. 1
.9
.6
.5
1.3 LI
1. 1
.9
1.2i'
1.4
1. 1
.7
Total
Pet.
I/
6.8-
4.5
3.9
3.0
2.4
10. 9 LI
9.9
6.1
3.9-L/
5.0
4. 1
2.9
Portion of
Segment
Pet.
6.4
19.2
20.9
30.6
22.9
44.0
23.5
32.5
33. 1
19.2
30. 1
17.6
— No income taxes assumed because of negative profits thus required increase
is not proportionate to models with taxable income.
£.' Exclusion of Ion Exchange technology reduces required price increases to
the following:
1000 TPY BPT BPT & BAT Total
(pet) (pet)
105 3.9 1.3 5.2
160 3.5 1.1 4.6
350 2.4 .7 3.1
VI-5
-------
The underlying rationale is that ammonium nitrate has little, if any,
fundamental technical advantage relative to ammonia and urea, thus
ammonium nitrate prices are not expected to increase relative to
ammonia and urea price increases. All size segments within a product
segment are not expected to be able to recover all of the pollution control
costs due to the lower costs and competitive position of the larger units.
Table VI-1 presents the required price increase needed to maintain profit-
ability for each product and size segment of the nitrogen industry. These
rates run from 2.0 to 5. 0 percent for ammonia at the BPT level, plus . 5
to 2.0 percent for the addition of BAT. Urea runs slightly higher, while
the ammonium nitrate rate is significantly higher, reflecting higher cost of
pollution control. Considering that larger plants have the bulk of capacity,
it is projected that the price increase due to pollution control will tend to be
set by these units. Based on this postulation the following price increases
due to pollution control are projected:
Expected price increase
Percent $ per ton
Product Base Price BPT BPT & BAT BPT BPT % BAT
($/ton)
Ammonia L1 43 3.0 4.0 1.30 1.70
Ammonium
nitrate 49 3.5 5.0 1.70 2.45
Urea 63 3.5 5.0 2.20 3.15
i' For small plants with an estimated high sales price the absolute
increase would amount to $1.60 and $2. 10 per ton respectively.
The ammonium nitrate price increase was held to that of urea on the
assumption that ammonium nitrate is generally competitive with urea and
its prices could not become far out of line with urea, yet maintain sales.
The cross elasticity between these two products is not known, but as shown
in Table VI-2, urea and ammonium nitrate prices have maintained a close
relationship on a unit of plant food basis. In this connection, it should be
noted that these expected price increases will further favor ammonia on a
plant nutrient content basis. But as shown in Table VI-2, ammonia has
had an historical price advantage, and these adjustments are not expected
to materially change these competitive relationships.
In subsequent economic analysis, the BPT price increase was used through
1982, with the BPT and BAT price increase used thereafter.
The above price increase estimates do not differentiate between urea
and ammonium nitrate solutions and prills. The manufacturing costs used
in the analysis reflect prilled production. The effluent control costs pro-
vided by EPA do not identify the type of product with which they are assoc-
iated. However, it seems doubtful that the solution component will differ
significantly in that several plants produce both prilled and solution forms
of ammonium nitrate and urea.
VI-6
-------
Table VT-2. Comparison of average realized price per pound of nitrogen
in anhydrous ammonia, ammonium nitrate and urea, 1964-1973
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1977 E
Anhydrous
Product
($/ton)
78
78
78
62
40
27
26
30
31
38
43
Ammonia
Nutrient
(Cents /lb. )
4.75
4.75
4.75
3.78
2.44
1.65
1.59
1.83
1.89
2.32
2.62
Ammonium Nitrate
Product
($/ton)
57
56
53
51
45
39
37
40
41
44
49
Nutrient
(Cents /lb. )
8.51
8.36
7.91
7.61
6.72
5.82
5.52
5.97
6.12
6.57
7.31
Product
($ /ton)
80
78
75
73
64
54
53
52
52
57
63
Urea
Nutrient
Cents /lb. )
8.70
8.48
8. 15
7.93
6.96
5.87
5.76
5.65
5.65
6.20
6.85
Source: Calculated from wholesale prices in Table III-29.
VI- 7
-------
Price effects in the phosphate case appear to be much different as this
industry is expected to be in a position of over capacity during the period
of implementation of the new pollution control standards (see Chapter II
for supply discussion). Because of the capital structure in the fertilizer
industry, a high portion of total cost is fixed investment costs and firms
historically have responded to under-utilization by cutting prices. (An
immature oligopolistic industry characterized by unorganized and non-
collusive action and resultant "price wars." This is contrasted to a mature
oligopolistic industry characterized by price rigidity and nonprice compe-
tition.) Given the high fixed cost structure and the historical performance
of the industry, it seems probable that the supply curve has at least two
distinct elasticity conditions -- being elastic below a point defined by full
operating capacity and inelastic above this point.
Unfortunately the magnitude of these elasticities is not known. With the
announced capacity expansion, the supply curve will shift to the right.
Further, we suspect that the elasticity will increase as one moves to the
right on the new supply curve relative to the present situation, meaning
the present and future supply curves will divurge to the right. The demand
for phosphate is increasing, although at a lesser rate than supply. The
effect of this is expected to be a significant fall in phosphate prices by
1977. (Should demand growth be stable, the price decline would be much
more pronounced. )
Imposition of pollution control standards in this framework suggest that
associated costs can be passed along in the long run. Thus the resultant
price level will be in the mid-1970's and will be somewhat lower than
present, but likely higher than would be the case without pollution control.
The exact nature of the price level will depend upon the size of the pollu-
tion control costs in relation to the out-of-pocket costs of the larger
plants. The more efficient plants will likely cut price to a point approxi-
mately equal to out-of-pocket costs in an effort to maximize plant utilization.
The less efficient production units will have to meet these prices (excepting
conditions where location or other special conditions will permit a higher
price). With significantly higher out-of-pocket costs, the marginal plants
will likely close. Such plant closures will result in a new supply curve
located to the right of the present supply curve, but left of the future supply
curve (without pollution control).
Location of equilibrium point would require an interative analysis since
a new intermediate supply curve, with a higher price would induce some
of the less marginal plants to continue operations creating a different in-
dustry supply curve. However, the essential point is that it is likely price
for basic phosphate products will decline during a period when pollution
controls may be implemented. However, the price decline in the longer
VI-8
-------
run is not expected to be as great with pollution control as without control.
The extent of this decline will, however, depend upon the change in costs
of the larger firms. If it is small, a number of marginal firms may be
facing closure; if large, the number should be less.
Given this scenario, price increases equivalent to those needed to main-
tain profitability are not expected. Rather it is anticipated that price in-
creases will initially approximate out-of-pocket pollution control costs
and then full pollution control costs. The level of price increase is com-
pounded by the nature of pollution control costs, as shown in Chapter V,
which are largely independent of size and throughput. Thus, the units with
lower throughputs are at a significant disadvantage when viewed on a per
ton basis. Further, as throughput increases, the unit cost of pollution
control falls in this situation.
As a basis for estimating price increases, the 330,000 ton diammonium
phosphate and triple superphosphate plant data were used, since these
units are believed to be the most likely trendsetters. It was further assumed
that one-half of the units had double liming in place and one-half did not.
The per ton costs of each situation were weighted according to arrive at an
average per ton cost. With the phosphate industry in period of expected
overcapacity at the time of imposition of BPT (1977), it is anticipated that
only out-of-pocket costs will be passed along initially, that is 1977 and 1978.
Following this, as prices strengthen, it is anticipated that full costs will be
passed along. Since unit costs for BPT will decline as utilization rates
improve, but will experience an increase with the addition of BAT in 1983,
a single second stage price increase is projected beginning in 1979. This
line of reasoning lead to the following expected phosphate price increases due
to effluent controls:
Product
Diammonium
phosphate
Triple super-
phosphate
Year
1977 and 1978
1979 and after
1977 and 1978
1979 and after
Expected price increase
($/ton)
3.25
3.50
.75
1.00
It is recognized that new triple superphosphate capacity is not anticipated.
However, it is thought that the decline in DAP prices will also drive down
TSP prices due to the competitive relationship of these two products.
Table VI-3 displays the computed unit costs for effluent control.
VI-9
-------
Table VI-3. Estimated effluent control costs per ton for selected phosphate segments
No Lime in Place
Product
Year
O & M Depreciation Total
Double
Lime in Place
O & M Depreciation Total
Average
O & M Depreciation Tota]
Diammonium phosphate
330,000 TPY
Triple superphosphate
330,000 TPY
1977
1978
1979
1980
1981
1982
1983
1983
1977
1978
1979
1980
1981
1982
1983
3.48
3.40
3.27
3. 15
3.01
2.91
2.78
2.98
.96
.94
.90
.87
.83
.80
.77
.57
.56
.54
.52
.49
.48
.46
.56
.28
.28
.27
.26
.24
.24
.23
4.04
3.96
3.81
3.67
3.50
3.39
3.24
3.54
1.24
1.22
1. 17
1. 13
1.07
1.04
1.00
2.85
2.79
2.68
2.58
2.47
2.38
2.28
2.48
.50
.49
.47
.45
.43
.42
.40
.46
.44
.43
.41
.39
.38
.36
.47
.19
. 19
. 18
. 18
. 17
.16
. 15
3.31
3.23
3. 11
2.99
2.86
2.76
2.64
2.95
.69
.68
.65
.63
.60
.58
.65
3. 16
3. 10
2.98
2.87
2.74
2.64
2.53
2.73
.73
.72
.68
.66
.63
.61
.58
.52
.50
.48
.46
.44
.43
.41
.52
.24
.24
.22
.22
.20
.20
. 19
3.68
3.60
3.46
3.33
3. 18
3.07
2.94
3.25
1.97
.96
.90
.88
.83
.81
.77
1983
.84
.28
1. 12
47
21
.68
.66
24
90
-------
It should also be noted that although diammonium phosphate is the major
component of the ammonium phosphate segment, minor quantities of
other grades, nitrophos, 2 1-53-0 and N-P- K, exist in this segment.
These products were not specifically analyzed, either in terms of
effluent control costs or manufacturing costs. However, it is believed
that effluent control costs and pricing response will not substantially
differ from DAP.
Price changes from BPT and BAT controls were used in the NSPS impact
analysis. Generally, no additional price impact is expected from the
implementation of NSPS in the nitrogen segment.
In the phosphate segment, NSPS could result in decisions to delay con-
struction of new diammonium phosphate plants, in which case DAP prices
might not fall as much as shown in the introductory comments of this
chapter. However, it seems probable that construction will proceed as
scheduled and the projected prices will be applicable.
B. Financial Effects
A financial profile of the fertilizer industry has been presented in
Chapter II. Financial data, both for model plants and for the
industry, reveal basic instability and widely fluctuating earnings. In
1973, the industry shows considerable strength after passing through
critical years of overcapacity and low prices in the late 1960's. For the
nitrogen products producers, the near future is clouded by natural gas
shortages but looks basically encouraging. Phosphate producers, in
response to high earnings, have announced expansion plans which threaten
to depress the industry again by 1974-75. Thus, the two major segments
of the industry seem to be headed into somewhat different futures.
1. Profitability
a. Nitrogen segment
The 1972 data for model plants show satisfactory levels of earnings for
large plants, with ample cash flows. Net income as a percent of sales
ranges from 6.0 to 12.3 percent and cashflows from $1.5 to $2.6 million.
Small ammonia and urea plants show sizeable losses in 1972 with the
50,000 TPY plants having negative cash flows. The small ammonium
nitrate plant (105,000 TPY) is at about the breakeven point, although it
has a positive cash flow of $347, 000.
VI-11
-------
Intermediate-sized plants are producing 4 to 6 percent net income to
sales, with modest cash flows.
Translating these model plant returns into meaningful terms for oper-
ating companies, is extremely difficult. A company's financial strength
depends upon many factors, including its degree of diversification and
its size. If a company is operating only small plants, it is obviously in
financial difficulty. If, on the other hand, it has a mix of large and
small plants, it can carry the small plants. As noted previously, plants
•which are in an integrated complex may have economic values not re-
flected in the model plant analysis. Further, diversified companies may
operate small plants at a deficit for a short period.
It is reasonable to expect ammonia and urea producers to pass on pollu-
tion control costs in the form of higher prices, with only the smaller sized
plant suffering a negative impact on cash flow and profitability. Ammonium
nitrate producers probably cannot increase prices enough to avoid a serious
negative impact.
Table VI-4. presents estimated cash flows and net present values for
model plants, both before and after pollution control costs have been
added.
The smallest ammonia (50,000 TPY), ammonium nitrate (105,000 TPY)
and urea (52,000 TPY) plants suffer declining cash flows with the addition
of BPT and BAT costs, while already negative net present values grow
worse. The 105,000 TPY ammonia plant has a positive net present value
which decreases with the successive addition of BPT and BAT costs,
although the cash flow actually increases. The intermediate and large
ammonia and urea plants have increasing cash flows and level or increasing
net present values. Only the large ammonium nitrate (350,000 TPY) plant
retains a positive net present value in that subsegment, with cash flow and
value declining as a result of pollution control costs.
In summary, nitrogen products producers may see profitability reduced
slightly as a result of pollution control costs, with owners of large plants
actually gaining in profitability over the long run, with the exception of
ammonium nitrate producers.
b. Phosphate segment^
The phosphate segment is represented in the model plant analysis by di-
ammonium phosphate and triple superphosphate. DAP serves as a surrogate
for ammonium phosphates in general and should fairly reflect conditions
in this sub segment.
VI-12
-------
Table VI-4. Estimated casn now ana net present values lor moaei plants without and with effluent controls--
with expected price adjustment
Model Plant Capacity
(!,'
Ammonia
Ammonium
nitrate
£ Urea
OJ
Diammonium phosphate
(No liming in place)
Diammonium phosphate
(Liming in place)
Triple superphosphate
(No liming in place)
Triple superphosphate
(Liming in place)
OOOTPY;
50
105
210
350
525
105
160
350
52
105
160
350
170
330
170
330
170
330
170
330
2.' Exclusion of Ion Exchange
Cash
Flow
\
i
-97
395
1,542
2,804
4,442
355
866
2,904
-655
557
1,222
3,582
21
y
21
'L'
21
If
21
21
Base
BPT
Net Present Value
6.0
-3,233
539
9,647
17,748
31,585
9
3,737
18,844
-8,998
1,333
6,238
24,867
2,341
14,767
2,341
14, 767
3, 471
10,371
3,471
10,371
technology yields
Capacity
(1000 TPY)
Ammonium nitrate
105
160
350
Cash flow
367
900
2,940
7.0
-3,099
381
8,833
16,296
29, 130
-101
3,336
17,313
-8,498
1, 109
5,638
22,871
1,351
12,986
1,351
12,986
3,014
9, 144
3,014
9, 144
Cash Net Present Value
Flow
-124
408
1, 577
2,894
4,603
163
763
2,782
-674
589
1,290
3,784
21
I'
21
2_l
21
2J
21
21
$
N>-
-2,
9,
18,
32,
2,
1,
17,
-9,
1,
6,
26,
14,
15,
1,
9,
3,
10,
6.0
1,000 -
,624
442
657
214
636
134
785
304
714
297
479
212
904
189
339
130
932
916
401
776
7.0
-2,624
280
8,829
16,713
30,087
-2, 131
1,477
15,823
-9,176
1,062
5,846
24, 104
-1,288
12, 157
-177
13,238
1,524
8,670
2,923
9,490
Cash Net Present Value
Flow
-135
421
1,603
2,946
4,687
188
799
2,877
-682
612
1,334
3,923
21
II
2_l
U
II
II
21
21
6.0
-2,749
430
9,689
18,352
32,907
-2,077
1,869
17,633
-9,660
1,314
6,576
26,734"
-1, 142
13,907
75
14,828
1,831
9,759
3,299
10,032
7. 0
-2,605
264
8,850
16,827
30,377
2,085
1,545
16, 109
-9, 132
1,068
5,926
24,561
-1,512
11,891
-426
12,971
1, 127
8,521
2,827
8,813
the following results:
BPT
Net Present Value
6.0
- 133
3,737
19,703
7.
-
3,
18,
0
245
322
097
Cash flow
3,
387
936
035
BPT
and BAT
Net Present Value
6.0
- 117
3,820
20,048
7.
-
3,
18,
0
235
390
398
21 Varies by year. See Table VI-5.
-------
Table VI-5. Estimated cash flows for selected phosphate plants--with
expected price adjustment
Plant Capacity
(1,000 TPY)
Diammonium 170
phosphate
(No liming in place)
Diammonium 330
phosphate
(Double liming in place)
Triple 170
superphosphate
(No liming in place)
Triple s 330
superphosphate
(Double liming in place)
Year
1977
1978
1979
1980
1981
1982
1983
1977
1978
1979
1980
1981
1982
1983
1977
1978
1979
1980
1981
1982
1983
1977
1978
1979
1980
1981
1982
1983
Base
-767
-389
-83
489
953
852
1,395
393
1, 115
1,435
2,025
1,694
2,631
3,686
-166
83
242
574
819
613
1,038
524
893
1,062
575
1,223
1,794
2,600
No Lime in Place
BPT &
BPT BAT
-------
In 1972, the 170,000 TPY DAP and TSP model plants show negative income
to sales percentages, with modest positive cashflows. The 330,000 TPY
plants have net income to sales of 5 to 6 percent and $1.5 to $2. 2 million
cash flows. The 720,000 TPY DAP plant shows a healthy 10 percent net
income to sales ratio and a $6.7 million cash flow. With prices up sharply
in 1973, these positions will be much improved; the smaller plants will
yield a substantial profit at the 1973 price of $75 and $55 per ton.
This strong financial position will probably have eroded by 1975. Even
without pollution control costs added, negative earnings •will result in the
model plants for several years until prices improve substantially.
Theoretically, pollution abatement costs should further depress profit-
ability. The cash flows and net present values in Table VI- 4 show
this to be generally true. These values reflect the cost savings assumed
in the introduction to this chapter and would be greatly lower without
those reductions.
The 170,000 TPY DAP plant, with a positive net present value without
pollution control drops to a negative value with BPT and declines further
with BAT, assuming no pond liming in place and using an either 6. 0 or 7. 0
percent discount rate. The net present value of a 330,000 TPY plant re-
mains approximately level under these assumptions.
A 170,000 TPY DAP plant with double pond liming in place would incur
lower BPT costs and would have a positive net present value at a 6.0
percent discount rate; net present value falls to negative with a 7.0
percent rate. The 330,000 TPY DAP plant has large present values
under either set of assumptions.
TSP plants of both sizes have positive net present values under both
pond lining assumptions. Only the 170,000 TPY plant with no liming
in place suffers a significant drop in net present value.
It must be repeated that negative earnings occur for these model plants,
•while prices and utilization remain at low levels. The apparent profit-
ability for all but the 170, 000 TPY DAP plant results from greatly im-
proved prices and utilization around 1981.
In conclusion, DAP producers may suffer further losses of profitability as
a result of pollution controls. Plants smaller than 170,000 TPY will be
impacted even more severely; it is doubtful that operators of such plants
can cut costs sufficiently to survive the predicted low prices.
VI-15
-------
2. Capital availability
Companies in the fertilizer industry which are diversified and integrated
will experience little difficulty in financing the incremental investment in
pollution control. Except for the ion exchange process for ammonium
nitrate , the capital outlays are not proportionally large compared to
original investment.
Cash flows and capital structures are both favorable for raising funds.
It would appear that internally generated funds, plus some borrowing, can
adequately cover most required capital outlays.
For companies which are not diversified and which have small plants,
one can foresee some difficulty. In the phosphate segment,
where earnings may be severely depressed in 1975 and 1976, small
companies without diversification will probably be hardpressed to finance
pollution control investment. Internal funding will not be generally avail-
able and such companies will not be very good credit risks.
It is not possible to apply these generalizations to specific companies
and plants. Financial data are simply not available for such analysis.
C. Production Effects
Of real and fundamental interest is the production impact which intro-
duction of BPT and BAT effluents controls may cause. Of particular
interest are potential plant closures. As discussed in Chapter IV, the
methodology used was the use of an economic shutdown model or model
plant data, comparison of these results with plants in the fertilizer in-
dustry and the drawing of inferences regarding closure for each based
its relationship to the model and factors not reflected in the model data.
In order to obtain tractable models, the fertilizer industry was
characte rized by specific product segments. It is recognized that many
multi-product complexes do exist and that the economics of these complexes
may not be fully reflected in the building block models employed in this
analysis. However, it is DPRA's opinion that the building block economics
do not greatly differ from those found in the complex situation and that use
of this procedure will produce useable and reasonable conclusions.
1. Potential Plant Closures
The underlying model plant financial parameters relating to the closure
analysis are shown in Table VI-4 above. These data, reflect expected
price changes for the conditions of effluent control. Two kinds of data are
VI-16
-------
reported -- cash flows (after tax income plus depreciation) and net
present values based on investment and after tax cash proceeds (sales less
operating expenses, depreciation and taxes excluding interest plus de-
preciation). The cash flows indicate the cash position of the plant.
Clearly, if it is negative over time the plant cannot continue operations.
Also if only slightly positive replacement investment might not be able
to be met, meaning eventual plant closure.
Net present values, computed at 6. 0 and 7. 0 percent after tax cost of
capital, present a better long run analysis of future financial per-
formance, since they include returns over time and replacement invest-
ment as well as a measure of the efficiency of capital use. In interpreting net
present values (NPV) in Table VI-4 , values less than zero indicate that
the firm would be financially better off by liquadating the sunk investment
and reinvesting where that money could yield the firms target return on
capital.
The smallest units shown for all three nitrogen products show significant
negative NPV's indicating closure. It should also be noted that excepting
ammonium nitrate, these units also have significant negative NPV's in
the base condition. Additionally the 105,000 ton ammonia unit has NPV's
near zero. It should also be noted that the small ammonium nitrate units
with negative present values have a positive cash flow after effluent con-
trols. However, the negative NPV's suggest that returns are not sufficient
to sustain a facilities replacement and modernization program.
In the phosphate component, the small DAP plant with no liming in place
has a significant negative NPV under conditions of effluent control and a
near zero NPV where double liming is in place.
The significant impacts of pollution control on the ammonium nitrate
and diammonium phosphate components reflect the high costs of effluent
controls relative to the other segments.
None of the model plants fit actual plants exactly, so these results must
be interpreted in light of what is known about actual plants. Unfortunately
a serious deficiency exists regarding the amount of pollution control in
place. As indicated in Chapter V, it was assumed that none was in place
in the nitrogen segments and that one-half of the phosphate plants had double
liming in place. None were assumed to be using triple liming technology.
Factors considered in the closure analysis, other than the capacity-return
relationships included known industrial use of production and association
with integrated multi-product complexes. This latter item was weighted
VI-17
-------
heavily in evaluating the phosphate plants where much of the effluent
control system is common to all the complex and is purportedly not a
direct function of plant size. The deficiency of not knowing inplace
pollution control in the phosphate segment presented a difficult problem.
This was handled by estimating ranges of closures, whereby the high
probability of closure estimate was based on the assumption of double
liming in place and the maybe estimate on no liming in place.
In general, the expected closures are the smaller plants and generally
single plant or simple multiplant complexes.
The results of this evaluation of potential closures are displayed in
Tables VI-6 and VI-7 . The first condition shown was the baseline
closures. These estimates purport to show normal attrition due to oper-
ating conditions, before imposition of pollution control. The next con-
dition represents estimated probability of closures under an alternative
of BPT only. The third condition reports estimates of closures under
BPT and BAT. Potential closures were reported as high probability,
maybe and low. These basic estimates were arranged into ranges which
are reported in the lower half of Tables VI- 6 and VI-7.
Adjusting out the estimated baseline closures, the most serious impact on
plant closures is in the ammonium nitrate and diammonium phosphate seg-
ments where 16 to 24 percent and 9 to 29 (or 19 percent based on expected
new capacity) of the respective capacities are projected to close due to
effluent controls. Each of the products is briefly discussed below.
In the ammonia sector, less than one percent of the capacity (one to four
percent of the plants) is projected to close due to effluent control. This
compares about one percent of capacity (one to 11 percent of the plants)
projected to close under the baseline condition. It is interesting to note
that during the past year, three smaller units have ceased operations.
The ammonium nitrate segment appears to be particularly hard hit due
to the high cost of the ion exchange technology and their inability to pass
along full incremental pollution costs in the form of higher prices. Net
of baseline closures, 16 to 24 percent of the capacity (30 to 44 percent of
the plants) is expected to close. It is recognized that prices for nitrogen
products will strengthen over the next few years, but as stated in the
introduction of thin Chapter, operating margins are not expected to pro-
portionately improve, due to increasing operating costs. In evaluating
closures of ammonium nitrate plants, it should be noted that ammonia
represents both a primary direct application fertilizer and a feedstock
for urea and ammonium nitrate. With the proportionately higher pollution
control costs involved in ammonium nitrate production, it seems likely
VI-18
-------
Table VI-6. Projected number of plant closures due to effluent contracts
Base
High May be
Ammonia
7
Ammonium nitrate 2
Urea
Ammonium
phosphate
Triple
superphosphate
Ammonia
Ammonium
nitrate
Urea
Ammonium
phosphate
Triple
superphosphate
1
0
0
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
2
5
2
9
0
No.
1
0
2
6
1
3
0
9
0
0
BPT Only
BPT
Low High May be Low High
74
47
39
32 -7
15
Pet. U
8.4
10.8
3.7
11. 1
2.4
7. 1
0.0
22.0
0.0
0.0
10
23 3
5 6
12 4
1 2
Ranges
No.
1
3
16
24
2
10
3
16
1
3
73 10
28 23
31 5
25L/ 12
13 1
Pet, i/
1.
3.
29.
44.
4.
23.
7.
39.
6.
20.
2
6
6
4
8
8
3
0
7
0
& BAT
May be
-
3
8
4
2
No.
1
3
16
24
2
12
3
16
1
3
Low
73
28
29
25l
13
Pet
1.
3.
29.
./
• «
2
6
6
44.4
4.
28.
7.
39.
6.
20.
8
6
3
0
7
0
— Includes six plants of 130, 000 tons of capacity producing NPK grades.
These were excluded from closure estimates.
U Of industry
VI-19
-------
Table VI-7. Projected capacity of plant closures due to effluent controls
Base BPT Only BPT & BAT
High May be Low High May be Low High May be Low
Ammonia 178 63 16,647 296 0 16,592 296 0 16,592
Ammonium nitrate 38 240 6,914 1,443 290 5,4591,443 290 5,459
Urea 55 55 4,253 195 232 3,936 195 326 3,842
Ammonium phosphate 0 316 3.365I/ 661 390 2,630-/661 390 2.630-/
Triple superphos- 0 0 1,882 41 156 1,685 41 156 1,685
phate
Ranges
Range
(1000 .
tons) (Pet. )-
1 78 1.1
241 1.4
(1000 2/
tons) (Pet. ) —
55 .3
118 .7
(1000
tons) (Pet. )-
55 .3
118 .7
Ammonia Minimum
Ammonium Minimum 38 .5 1,165 16.2 1,165 16.2
nitrate Maximum 278 3.9 1,695 23.6 1,695 23.6
Urea Minimum 55 1.3 85 1.9 85 1.9
Maximum 110 2.5 372 8.5 466 10.7
Ammonium Minimum 0 0.0 _ 345 9.3 -, 345 9.3 ,,
phosphate Maximum 316 8. 6 (5. 7) - 1, 051 28. 6 (19. 1)-• 1, 051 28.6(19.1)-
Triple super- Minimum 0 0. 0 41 2.2 41 2.2
phosphate Maximum 0 0.0 197 10.5 197 10.5
— Includes six plants of 130, 000 tons of capacity producing NPK grades.
These were excluded from closure estimates.
i/ Of industry.
3/ Based on projected capacity.
VI-20
-------
that ammonia would be marketed in increasing quantities as direct
application materials or as urea feedstocks, where the profit margin
would be greater than in ammonium nitrate. As pointed out in the
preceding discussion of price impacts, it seems unlikely that the full
cost of pollution controls in ammonium nitrates can be passed on, since
this action would upset price relationships with urea, to a point where
urea would be much more competitive.
As previously suggested, the impact on the ammonium nitrate segment
results largely from the high cost ion exchange technology. To test this
proposition in greater detail, the ammonium nitrate segment was analyzed,
excluding ion exchange technology, using the cost estimates shown in
footnote 1 of Table V-6. As shown in footnote 1 of Table VI-4, exclusion
of ion exchange costs results in NPV's of just under zero. Evaluating
these results, suggest that 5. 1 to 8.4 percent (11. 1 to 16.7 percent of
plant numbers) of capacity would be projected to close under both BPT
and BAT. This closure rate is more similar to that projected for urea.
Although potential urea capacity and plant closings are higher than the
ammonia segment, they are significantly lower than the ammonium
nitrate segment. Closure due to pollution control (BPT and BAT) ranges
from 2 to 11 percent of the capacity (5 to 29 percent of the plants).
As suggested earlier, estimates of plant closings in the ammonium
phosphate segment are complicated by the expected deterioration of
prices and profits due to increased industry capacity as discussed in
Chapter III. The estimated economics suggest that a number of plants
would close in face of declining prices. However, most plants remained
open during the low prices and negative returns experienced during the
late 1960's. This suggests that the industry is willing to withstand these
losses, apparently on the expectation of the return of higher prices and
profits. It is generally noted that the industry places considerable emphasis
on maintaining market share, which also explains this sort of action.
Thus, the base line estimate of closure is from zero to six percent of
capacity (zero to 22 percent of the plants). Imposition of effluent control
technology is projected to result in closure of 9 to 19 percent of capacity.
Because of possibility of already inplace double liming facilities, the
upper range could be reduced since some or all of the potential closed
plants may have this technology. However, it seems likely that these
smaller units would be less likely to have double liming than the larger
units.
VI-21
-------
Closure projections in the phosphate segments are predicated on the
projection of substantially increased industry capacity coming on stream
by 1973 to 1977. As previously discussed, this projection is based upon
reported industry intentions for new construction. Although this con-
struction could be delayed, it does represent firm plans for expansion.
There are six small units with 130,000 tons capacity that produce special
ammonium phosphate type of products or N-P-K grades. These units were
not included in the closure estimates, since it is not known whether or not
the pollution control costs provided by EPA are applicable. Should the
costs be similar, it is likely that these plants would also close. However,
the tonnage involved is not large.
Triple superphosphate plants would appear to be in a better position with
only two to 10 percent of the capacity potentially impacted. This estimate
was based on a downward extrapolation of the model plant data and the
potential closures include only the very small units - under 40,000 tons
per year.
2. New Source Performance Standards
New facilities on line after approximately January 1, 1974, must meet
the Best Available Technology standards for direct discharge into
navigable waters. In analyzing the impact of NSPS on the industry, it
has been necessary to make certain assumptions about new facilities.
In the nitrogen segment, the contractor has learned of one new ammonia
plant announcement. Because of general uncertainty, it is reasonable
to expect further expansion to be delayed. It is doubtful that new capacity
will be on line before 1975 or 1976. We have therefore used 1977 as the
base year of operations for price and cost data used in the impact analysis.
Investment costs, prices and operating costs are expressed in 1972 dollars;
operating costs have been adjusted to reflect anticipated real cost increases
because of shifting supply-demand relationships.
We have further assumed that only large plants will be constructed in
the near future and that these will operate at 90 percent of capacity.
Sales revenues are based on the estimated new price levels in 1977 and
1983 which include the estimated change in prices resulting from BPT
and BAT effluent controls.
VI-22
-------
Different assumptions have been made for the phosphate segment.
As indicated earlier, overcapacity and falling prices after 1973
will probably occur. We have estimated changing price levels in
each year through 1983, after which we assume constant prices.
Costs were retained at the 1972 level.
In evaluating BPT impact, we assumed that existing plants would cut
costs as much as possible during the years of depressed prices. For
newly opened facilities, it is doubtful that operating costs will be re-
duced, therefore, we have assumed that new plants, if opened, will
probably operate at cost ratios similar to the model plants presented
in Chapter II. A breakthrough in technology could, of course, change
expense ratios.
For both segments, we assumed one half of the capital investment in the
first year and one half in the second year with operating proceeds starting
in the third year. Working capital, equal to 10 percent of sales, has been
provided in the third year.
The analysis also includes the assumption that there will be no replace-
ment of plant. Salvage values are estimated at 8 percent of original cost
plus net working capital.
Table VI- 8 presents cash flows and net present values for model plants
without and with NSPS effluent controls. In the nitrogen segment, ammonia
and urea producers would have lower cash flows and net present values
with NSPS included; but with positive net present values, it is likely
that plants such as these would be built. Ammonia nitrate presents a
totally different picture. With the large investment required to meet
NSPS, a 350,000 tons per year ammonium nitrate plant takes on a negative
net present value, given the set of assumptions used to compute prices and
costs. Since urea offers a competitive source of nitrogen, ammonium
nitrate producers could not expect to raise their prices sufficiently to
achieve a positive (or zero) net present value. It appears that NSPS
would cause a delay in the building of additional ammonium nitrate
plants unless some new technology emerges.
VI-23
-------
Table VI-8. Estimated annual cash flows and net present values for model plants without and with NSPS effluent
controls with expected price adjustments
Model Plant
Ammonia
Ammonium nitrate
Urea
DAP
TSP
Capacity
(1,000 TP
350
525
350
350
330
720
330
Period I
Cash Flow
Y\ -_
1 /
3,418
5,260
3,085
3,879
I/
I/
I/
Without
Period II
Cash Flow
3,492
5,365
3,206
4,034
4,772
11,845
3,039
Controls
Net Present
6.0%
7,069
17,776
7,377
10,980
-5,754
10,274
-4, 167
With NSPS
Value
7.0%
$1,000
4,715
14, 153
5,192
8, 185
-7,660
6,303
-5,308
Period I
Cash Flow
3,275
5,243
2,419
3,684
I/
iy
iy
Period II
Cash Flow
3,345
5,348
2,540
3,838
4,391
11,378
2,944
Net Present
6.0%
5,008
13,608
-1,634
8,092
-11,729 -
3,755
-6, 154
Value
7.0%
2,778
10, 155
-3,266
5,468
13,400
-857
-7,237
— Varies by year.
-------
Diammonium phosphate and triple superphosphate plants show negative
present values both without and with NSPS controls, except for the super
large (720,000 TPY) DAP plant. Even here, the net present value is
negative when a 7.0 percent discount rate is used. Since NSPS makes the
present values much more negative for the 330,000 TPY DAP and TSP
plants, one could reasonably expect delays in construction of any new
DAP and TSP plants in this size range. With the higher prices expected
in the early 1980's, such plants could be profitable again as they are in
1973. The very large DAP plants for which commitments are already
existing are expected to proceed with construction.
3. Production Curtailment
Although capacity reduction for all segments, excepting ammonium nitrate
and DAP, are relatively small, it is conceivable that production curtail-
ment might occur, particularly in the nitrogen products area in the sense
that sufficient new capacity to meet demand will not be built. NSPS
effluent technology of itself is not expected to limit new construction
for these products; uncertainty about an actual natural gas shortage
may limit new construction. Further, if such shortages limit profit
margins as postulated, plant closures due to pollution control could have
a curtailing effect on production relative to the quantity the market
would take.
In the case of ammonium nitrate, a definite curtailment of production
appears likely under the assumption of the analysis, that is all plants
installing ion exchange. If competing nitrogen sources -- ammonia and
urea -- do not expand with demand, this curtailment could be of conse-
quence. However, if expansion in these segments occurs, this curtail-"
ment should not be serious.
Potentially closed capacity of ammonium phosphate plants should not
significantly curtail production as it appears there will be sufficient
capacity to absorb the lost production.
VI-25
-------
D. Employment Effects
Being capital intensive, the segments of the fertilizer industry studied
here employ few people relative to sales. Based upon labor requirements
for production and plant supervision, the following estimate of job losses
and an indication of the order of magnitude of lost payroll is given.
Ammonia
Ammonium
ni trate -'
Urea
Ammonium
phosphate
Triple
s upe r pho s pha te
Total
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
Job
reduction
20
50
400
700
75
420
85
250
10
50
590
1,620
Payroll
reduction
($1,000)
240
600
4,800
8,400
900
5,040
1,020
3,000
120
600
7,080
19,440
As shown above, the total job loss ranges from 590 to 1,470 representing
a payroll of $7. 1 to $17. 6 million.
Possibilities for reemployment in other plants would not appear likely
and the displaced workers would have to be abosrbed into other
industries since lew new plants are expected,plus che fact that any new
plants will likely be very large,highly automated units.
Secondary impacts on employment are not expected to be significant, since
supporting activities, i.e., transportation suppliers, would likely direct
their activities to other fertilizer plants and economic activity.
_L' Exclusion of ion exchange costs could reduce job reduction to about
150 to 260, from the projected level of 400 to 700 jobs.
VI-26
-------
E. Community Impacts
Impacted fertilizer plants are dispersed throughout the United States
and plant closures are not expected to greatly impact any single area.
A single plant closure could represent up to 40 jobs in a single com-
munity. Such a loss could reduce the economic base of the community
by $1.2 million assuming a multiplier of 2.5. An inspection of the
location of potentially impacted plants indicates that plants often are
physically located in communities of under 50,000 but that these loca-
tions are often near or a part of a larger industrial area.
Although community impacts will likely be important to the community
involved, there does not appear to be any significant geographical con-
centration of closures.
F. Balance of Payments Effects
As shown in Chapter III, the United States exported 18.8 million tons of
fertilizer materials of which phosphate rock represented 13.6 million
tons. The contribution of fertilizer exports to United States foreign
exchange has been as follows:
Year Fertilizer Exports
($ million)
1969 370.5
1970 308.9
1971 288.6
1972 339.0
The product segments on which this study reports in the main have a
positive trade balance (see Table VI-9 ), but ammonia and urea
demonstrate a narrowing of the balance. Ammonium nitrate, on the
other hand, shows a growing negative trade balance, while ammonium
phosphate shows a growing favorable trade balance. These products
constitute the majority of the U.S. exports in fertilizer materials, excepting
phosphate rock.
The expected price increases due to effluent controls are small in rela-
tion to normal swings in the export price (for instance the DAP export
price was $80 to $100 per ton in late 1972 compared to $50 to $60 per
ton in 1971). However, it seems probable that this may exert a further
dampening effect on exports, particularly when taken with limited or
VI-27
-------
Table VI-9. Foreign trade balance of selected fertilizer materials in 1, 000 tons
Products
Ammonia
Ammonium nitrate
Urea
Concentrated superphos-
Exports
764
SI
670
711
1970
Imports
477
306
422
NR
Balance
287
-225
248
_
Exports
598
59
374
627
1971
Imports
501
366
330
NR
Balance
97
-307
44
_
Exports
421
34
464
924
1972
Imports
392
390
365
NR
Balance
29
-356
99
I-H phate
ro
°° Ammonium phosphate 986 395 591 1,135 472 663 1,542 488 1,054
-------
uncertain natural gas supplies. It is expected that in the case of
ammonium nitrate, the imposition of effluent controls will accen-
tuate an already negative trade balance in this product.
It is concluded that effluent controls will likely serve to contribute to
a loss of export markets, but with the possible exception of ammonium
nitrate, further loss will be primarily due to other factors.
VI-29
-------
VII. LIMITS TO ANALYSIS
A. General Accuracy
Data gathered were of secondary nature drawn from published reports
of the USDA, TVA, National Plant Food Institute, annual company reports,
financial statistics services and private sources.
Throughout the study, an effort was made to evaluate and cross check
the data and other information used and to update these materials wherever
possible. Checks were made with informed sources in industry and govern-
ment to help insure that data and information used was as reliable and as
representative as possible. For example, plant investment costs were
checked with several fertilizer engineering firms. Costs were reviewed
with contacts with the various companies.
It is believed that the data are in an order of magnitude and the metho-
dology used provide the basis to systematically evaluate the impact of
increased water pollution controls on the fertilizer industry. However,
with the many plant complexes, plant to plant variance is likely.
B. Possible Range of Error
Specifications of the contract required the Contractor to use effluent
control costs as provided by EPA and thus, comment on these costs
by the Contractor is not appropriate. Different data series and dif-
ferent sections of the analysis will have varying possible ranges of
error. Estimated error ranges as an order of magnitude, of the
basic data and use of the EPA cost and technology data are as follows;
Error Range
1. Number, and location of facilities _+1.0
2. Capacity, age, processes of plants _+5.0
3. Price information for products and raw
materials +15. 0
4. Sunk investment value +20.0
5. Plant operating costs _+lO. 0
6. Water pollution control costs Not estimated
7. Plant closures +35. 0
VII-1
-------
Given the basic effluent control costs, some error may occur in
estimating these costs for the model plants due to the method of
using the base cost data. For purposes of this analysis, the nitrogen
product effluent costs were estimated on a building block basis.
This procedure assumed that control facilities will be sized and
attached to each component. In practice it seems likely that some
plants will be able to use a common treatment facility for all components
in a complex given the size-cost relationships in this technology, use of a
common treatment facility would be less costly on a unit basis than
summing individual treatment units . This situation was discussed
with EPA and it was concluded that the building block procedure would
be a fairer and more reasonable estimate, since many plants may not be
able to use common facilities.
It should also be noted that nearly all effluent investment and operating
costs for the phosphate segment were reported to be independent of plant
size. The effect of this is that small plants have proportionately higher
unit control costs. In practice it seems probable that small plants may be
able to achieve some savings in absolute outlays and O&M costs over
large plants, thus reducing their unit costs. To the extent this is possible,
these costs have been overestimated.
C. Critical Assumptions
In any analysis of this sort, a number of underlying assumptions are
required. Some of the more critical assumptions used in this analysis
are given below.
VII-2
-------
1. All plants within a product and size segment were assumed
to have similar manufacturing costs and salvage values.
No doubt variations will occur due to locational advantages,
association with complexes and market outlets (possible
industrial sales in addition to fertilizers).
2. Process chemical intermediates (ammonia, nitric acid, sul-
furic acid, phosphoric acid) were assumed to be self-produced
and taken at cost with appropriate prorates. In reality,
raw material and intermediate products inputs will vary in cost
by company in accordance with proximity to raw materials sources,
ability to self produce, size of the unit for self-produced materials,
and unique purchasing arrangements.
3. All end-product plants were treated individually without con-
sideration to an almost infinite number of combinations of
different plants by product. These many multi-end-product
complexes have possibilities for savings through joint service
facilities (water, power, cooling), labor, supervision, plant
overhead, etc.
4. All plants within the same industry segment will operate at
equal capacity utilization rates.
5. Prices and plant netbacks were assumed to be uniformly
the same for plants in each segment (excepting the two small
ammonia plants which were assumed to have higher prices) --
graduated only by plant size to compensate for differences in
distribution distances (freight equalization costs).
6. Sales, general and administrative costs were assumed to be
similar for all plants within an industry segment.
7. A key assumption (projection) in the analysis of the phosphate
segment was that announced DAP plant construction would
occur and that the projected capacity would be realized.
8. From this assumption follows the assumption (projection)
of price declines throv-^h 1977 followed by gradual improve-
ment. This is also predicated on the notion that the industry
will respond as in the late 1960's as an immature oliogopoly.
This serves to greatly depress profitability in the phosphate
segment.
VII-3
-------
9. Given this situation, it was further assumed that phosphate industry
management would respond in the short run by deferring
maintenance and replacement investment and reducing sales,
general and administrative expenses, rather than make
immediate cross the board closures.
10. It was assumed that new competitive feedstocks for ammonia
production would not be forthcoming and that natural gas would
become available on an interruptable basis. It was further
assumed that any price improvement due to tight nitrogen
supplies would be offset by increased costs of natural gas and
for lower utilization rates resulting in a constant operating margin.
11. Both solution and prilled forms of ammonium nitrate and
urea were assumed to reflect in the manufacturing and
effluent control costs used in the analysis. It may be that
solution forms will have a cost advantage because they are
produced in a simpler process.
D. Remaining Questions
Because the products studied in this analysis are the primary fertilizer
building blocks for most other fertilizer products, exclusion of the other
products is not believed to be serious. However, it may be possible
that effluent controls on the other products will place them at a more
serious price disadvantage, thereby improving the market basic materials
as direct application materials. This, of course, remains to be determined.
A major question concerns the phosphate industry and its projected new
capacity and its response to this excess capacity. The projections in this
report represent the best information available and DPRA's interpretation
of this information. In this case only developments over time can lead to
resolution of this question.
In the nitrogen segment, a major question revolves around future feedstock
sources. Rapid development and utilization of new sources of natural
gas (for example, Alaskan) and/or the import of large quantities of liquid
natural gas could hasten plant closures or extend closures to intermediate
plant sizes in present locations as new, larger plants are built nearer the
new gas sources. A severe shortage of and substantial increase in the price
of natural gas could result in a restructuring of the nitrogen industry.
This could lead to the utilization of alternative feedstocks (i.e. , coal, off-gas)
for nitrogen production or the use of imported feedstocks.
VII-4
-------
Another related question is the rate of development of overseas nitrogen
and phosphate manufacture. Offshore development, particularly if lower
cost producers, could significantly reduce U.S. exports and thereby in-
crease the U.S. domestic supply through loss of export markets. This
could lead to further price weakening, particularly in the phosphate area.
Development of overseas producers coupled with ammonia feedstock
shortages and/or high prices could conceivably, along with effluent
controls, create a condition where fertilizer imports would be lower cost
than domestic supplies. If this were to happen, further closures of U.S.
capacity would be expected. Answers to this issue would require a world
wide study of new fertilizer manufacturing and the future feedstock situation
regarding prices and technology.
VII-5
-------
BltJL.JOKACrilC DATA
SHEET
Hi-port No.
EPA 230/1-73-010
3. Recipient's Accession No.
5. Repoct Date October, 197
(Date of completion)
4. Ti.lc and Subtitle
Economic Analysis of Proposed Effluent Guidelines -
Fertilizer Industry
6.
7. Author (a)
Milton L. David. J. M. Malk, C. Clyde Jones
8. Performing Organization Rcpc.
No. 121
i[9. Performing Organization. Name and Address
t Development Planning and Research Associates, Inc.
P. O. Box 727
Manhattan, Kansas 66502
10. Project/Task/Uork Unit No.
Task Order No. 6
11. Contract/Grant No.
Contract No.
68-01-1533
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S.W.
r>- C. 20460
13. Type ot Repoct & Period
Covered
Final Report
14.
IS. Supplementary Notes
16. Abstracts The nitrogen and phosphate fertilizer industry, SIC 2873 and 2874, studied
herein involved five segments of 312 plants. The industry has experienced cyclical
earnings and even with the higher prices of 1972, return on equity ranks well below
the average manufacturing performance. Nitrogen capacity is growing slower.than
demand, whereas phosphate capacity is expected to. expand faster than demand.
. Nitrogen producers are expected to pass along control costs with higher prices
excepting the ammonium nitrate segment which has high controA costs.. The phosphate
segment is expected to pass along a portion of control costs, limited by costs -of larger
producers and in-place pollution control facilities.
Closures due to pollution control, are projected to be under one percent of
capacity in the ammonia segment, 16 to 24 percent in ammonium nitrate, and two to
ten percent in the urea segment. In the phosphate segments, projected closures are
17. Key V'ords and Document Analysis. 17c. Descriptors
Pollution, water pollution, industrial wastes, fertilizers, nitrogen, phosphates,
anhydrous ammonia, urea, ammonium nitrate, ammonium phosphate, triple super-_
phosphate, nitric acid, phosphoric acid, economic, economic analysis, discounted
cashflow, demand, supply, prices, fixed costs, variable costs, community, production
capacity, fixed investment
17k. Idcntifiers/Open-Endei Terms
05 Behavioral and Social Sciences, C- Economics
06 Biological and Medical Sciences, H-Food
17e.
18. .\vji.jbi,icy itatcr.icnt
National Technical Information Service
Springfield, Virginia 22151
IV. Mciurin t. i.iss. lni!>
Report i
20. ?>ti utity v i.i-.* I in i a
21. .-
22. i rue
ri j-jt INUV.
-------
16. Abstracts (continued)
nine to 19 percent of the ammonium phosphate capacity and two to 10
percent of superphosphate capacity.
External impacts on employment and community are not expected to be
large, as the industry is capital intensive. Pollution impacts on foreign
trade of fertilizer is not expected to be as great as with other factors.
------- |