EPA-230 1-74-035
September, 1974
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
FOR THE
FERTILIZER MANUFACTURING INDUSTRY
(PHASE II)
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 2O46O
C3
T
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This document is presently available in limited quantities
through £he U. S. Environmental Protection Agency, In-
formation Center, Ruth Brown, 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 - 230/1-74-035
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
FOR THE
FERTILIZER MANUFACTURING INDUSTRY
(PHASE II)
Milton L. David
C. Clyde Jones
J. M. Ma Ik
September, 1974
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.
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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 proposal 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 re-
quirements 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 alternative
approaches in terms of product price increases, effects upon employment
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. 10 by Development
Planning and Research Associates , Inc. Work was completed as of
September, 1974.
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 is not an official EPA publication. It will be con-
sidered 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 promulgation 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 in-
dustry. 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 1-3
1. Size and Number of Firms by
Product 1-3
2. Integration and Diversification 1-6
B. Types of Plants 1-7
1. Size 1-7
2. Age 1-10
3. Location 1-12
4. Technology and Efficiency 1-13
5. Level of Integration (Production) 1-16
C. Numbers of Plants and Employment 1-16
D. Relationship of Segments to Total Industry 1-18
1. Number of Plants 1-18
2. Production 1-18
3. Employment 1-19
E. Likely Impacted Segments 1-19
II. FINANCIAL PROFILE II-1
A. Plants by Segment II-1
1. Industry Profitability II-1
2. Capital Structure II-5
3. Cost of Capital II-5
4. Pro Forma Income Statements -
Model Plants II-7
5. Invested Capital - Model Plants 11-10
6. Cost Structure - Model Plants 11-11
B. Distribution of Data II-ll
C. Ability to Finance New Investment 11-15
III. PRICING III-l
A. Price Determination III-l
1. Ammonium Sulfate III-l
2. Mixed Fertilizers III-4
B. Price Changes III-17
IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY IV -1
A. Fundamental Methodology IV-1
1. Returns IV-5
2. Investment IV-6
3. Cost of Capital - After Tax IV-7
4. Construction of the Cash Flow IV-7
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CONTENTS (Continued)
Page
B. Price Effects IV-8
C. Shutdown Analysis IV-10
D. Production Effects IV-11
E. Employment Effects IV-11
F. Community Effects IV-11
G. Other Effects
V. EFFLUENT CONTROL COSTS V-l
A. Proposed Control Requirements V-l
1. Ammonium Sulfate V-2
2. Mixed Fertilizers V-2
B. Present Effluent Control Status V-2
1. Ammonium Sulfate V-2
2. Mixed Fertilizers V-2
C. Effluent Control Costs V-3
1. Investment Costs V-3
2, Annual Operating Costs V-4
VI. IMPACT ANALYSIS VI-1
A. Price Effects VI-2
B. Financial Effects VI-4
1. Profitability VI-4
2. Capital Availability VI-9
C. Production Effects VI-9
1. Baseline Closures VI-9
2. BPT and BAT Effects VI-11
3. New Source Performance Standards VI-11
D. Employment and Community Effects VI-12
E. Balance of Payments Effects VI-12
F. Other Effects VI-12
VII. LIMITS OF THE ANALYSIS VII-1
A. General Accuracy VII-1
B. Possible Range of Error VII-1
C. Critical Assumptions VII-2
D. Remaining Questions VII-2
APPENDIX
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EXECUTIVE SUMMARY
INTRODUCTION
This report on ammonium sulfate and mixed fertilizer manufacturing
analyzes the economic impacts of proposed water pollution controls on
these two segments of the fertilizer industry. It is one of a series of
studies prepared under the supervision of and reviewed by the Office of
Planning and Evaluation, U. S. Environmental Protection Agency, as
required by the Federal Water Pollution Control Act Amendments of
1972.
Under the provisions of Sections 304 and 306 of the Federal Water Pollu-
tion Control Act, EPA has proposed effluent guidelines for ammonium
sulfate and mixed fertilizer manufacturing plants. This study evaluates
the potential economic impacts of these prior to the implementation of
the effluent guidelines.
The evaluation approach utilized is generally one of describing and
analyzing the two segments in terms of industry structure; number and
types of firms and plants; location, age and technology of plants; finan-
cial data for model or representative plants; and pricing practices
and supply-demand relationships. Then, pollution control costs are
superimposed on the model plant profiles to determine such micro econ-
omic effects as price increase and potential closures. Macro impacts
on the industry are then analyzed for effects on employment, com-
munities, balance of payments and related matters.
In gathering data for the study, industry sources proved valuable in
supplying descriptive material about firms and plants. Published
government and private reports provided additional information for
both micro and macro analysis.
I. INDUSTRY SEGMENTS
Two four-digit Standard Industrial Classification code numbers are
included in this report:
SIC 2873 Ammonium sulfate
SIC 2874 Mixed fertilizer manufacturing
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These two segments are a part of the total fertilizer industry, which
is structured vertically with raw materials producers, basic chemical
manufacturers, mixed fertilizer manufacturers, dry blenders and liquid
mixing plants and fertilizer dealers. Ammonium sulfate is in the basic
chemical group.
Ammonium sulfate has three major sources: (1) direct production in
plants which neutralize ammonia with sulfuric acid; (2) co-production,
primarily in caprolactum plants and (3) by-production in coke-oven
plants. There are an estimated 64 plants in the U.S. producing
ammonium sulfate.
In 1973 there were six direct production plants with an estimated annual
capacity of 615,000 tons of product; six caprolactum and acrylic fiber
plants with an annual capacity of 1, 370,000 tons; 46 coke-oven plants
with 675,000 tons and six other by-product plants with 136,000 tons.
This study excludes the caprolactum and other co-product plants for
purposes of pollution control impact analysis; such plants were included
in a study of a separate industrial classification. They are included here
for purposes of industry perspective, since co-product provided 53 per-
cent of U. S. a-nmonium sulfate in 1972-73.
Direct production plants range in size from 20,000 to 320,000 tons per
year. Coke-oven plants are generally small and produce 2,000 to
50,000 tons per year.
Integrated petro-chemical and chemical companies operate most of the
direct production plants, while integrated steel companies own the coke-
oven plants.
Mixed fertilizer manufacturing is limited to plants which produce various
grades of N-P-K fertilizers through chemical reaction processes, speci-
fically ammoniation-granulation and ammoniation. Dry blenders and
liquid mixing plants have no known effluent problems and are excluded
from the analysis.
There are an estimated 269 ammoniation-granulation and 93 ammoniation
plants with annual capacity in 1973 of 10,455,000 tons of materials.
"Capacity" is not an accurate picture of the physical size of mixed manufacturing
plants; annual production is a function of plant size and the number of hours
(days) of operation per year. Operating seasons vary by geographic location
and by local market conditions, with northern plants generally utilizing
a shorter season. Plants are small in size, with 93 percent producing
50,000 tons per year or less.
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About half of all mixed manufacturing plants are owned by nine large,
integrated farm chemical companies, dozens of other firms own two to
ten plants, with varying degrees of backward and forward integration.
Age - Plants in both segments are generally old, with no direct production
ammonium sulfate plants having been built since 1965. No reliable age
information exists for mixed manufacturing plants; ages range from a
few years to 40 years;. It is believed that the larger plants are the more
recent ones.
Location - Both Texas and Idaho have one direct production ammonium
sulfate plant. Six are located in California. Coke-oven plants are
scattered among 13 steel producing states, with the largest number of
plants in Pennsylvania, Ohio and Alabama. Caprolactum and acrylate
plants are mostly along the East Coast.
Mixed manufacturing plants are located near their markets throughout
the nation with their heaviest concentration in the East North Central
and South Atlantic states.
Technology and Efficiency - Plants in both segments have relatively
low levels of technology. Ammonium sulfate plants are inefficient as
producers of nitrogen when compared to co-product and by-product plants
and also in comparison to other fertilizer nitrogen sources (anhydrous
ammonia and urea). Mixed manufacturing plants are suffering losses
to dry blenders and liquid mixers, both of which have more flexibility
and lower operating costs.
Employment - Estimates of total employment in the total fertilizer industry
range from 40,000 to 45,000. Based on model plant data, ammonium sul-
fate direct production plants employ an estimated 13Z persons and mixed
manufacturing plants have approximately 4. ZOO employees s No precise
data are available from industry to verify these estimates.
II. FINANCIAL PROFILE
The fertilizer industry in general has a history of wide cyclical fluctu-
ations in pricf-s and profitability. After a stable period of reasonable
earnings in the early 19fcO's, "he industry ove rcxpanded and suffered
declining. pric.es and earnings -ro-n i 9 oh through 1969. By 1973, industr-
sources 'ere rcpr rting pretax and premieres margins of 9.7 percent on
sales, which probably equates to about 4 percent on sales and 7 percent
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on net worth. This return on net worth is low in comparison to other
industry averages.
Examination of published data over a five-year period for fertilizer com-
panies provides an "average" corporate profile of about 27 percent long-
term debt to total invested capital, earnings on common stock of just
under 6 percent and a dividend yield of about 3.6 percent. A weighted
average cost of capital, based on these findings, ranges from 5.5 to
6.6 percent.
In the absence of specific plant data, DPRA constructed pro forma income
and expense statements for model or representative plants in each segment.
No data were available for coke-oven plants, because of the unique relation-
ship to the steel industry and the wide variety of accounting practices in
pricing and costing ammonium sulfate by-product.
Based on 1973 prices and cost data, model plant analysis showed the
smallest ammonium sulfate plant (24, 500 tons per year capacity) oper-
ating at a large loss, while larger plants were profitable at a price of
$40 per ton of product. It should be noted that quoted wholesale prices
of ammonium sulfate were around $27.00 in 1973, reflecting the pressures
from lower-cost co-product and by-product output. Thus, the $40.00
estimated price maybe difficult to achieve. A 70,000 tons per year plant
has an estimated after-tax i3turn on invested capital of 11 percent.
Mixed manufacturing plants also generally looked profitable at $71.00
per ton for ammoniation-granulation product and at $57. 50 for ammoniation
output. The smallest sized plants, operating for a short season, are the
only ones showing losses. After-tax returns on estimated invested capital
range upwards to 28 percent, with a 30,000 tons per year A.G. plant
earning an estimated 10 percent. Estimated book values of invested
capital are low, however, owing to the age of facilities.
No additional observations should be made about these financial profiles.
First, older plants are probably depreciated out and would have little
depreciation in their cash flows. This would have an important bearing
on their ability to finance new investment from internal sources. Secondly,
the cost structure in mixed manufacturing is heavily oriented toward
raw materials and accounts for about three-fourths of total costs.
Changes in costs ot intermediate fertilizer products are critical,
especially for the smaller plants.
Although the fertilizer industry as a whole appears to be in sound finan-
cial condition, based on 1973 financial data, specific plants might find it
extremely difficult to raise new capital to meet pollution control costs.
Small, marginal producers would probably not have sufficient earnings
for internal financing nor for an expansion of credit.
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III. PRICING
Ammonium sulfate prices are largely determined by market forces.
U. S. consumption in 1973 amounted to approximately 2, 180,000 tons
of product, of which about 57 percent was consumed in mixtures.
This was an increase over the 1, 365, 000 to 1,917, 000 tons of product
consumed during the 1960's, but ammonium sulfate declined in im-
portance as a source of nitrogen from 11 percent in I960 to 5 percent in
1973. U. S. production was about 2,366,000 tons in 1973, down from
approximately 2, 900, 000 tons in 1971. Exports declined drastically
during the 1960's to an estimated 449,000 tons in 1973, down from
1,649,000 tons in 1966. Imports accounted for 263,000 tons in 1973,
as compared to 156,000 tons in 1966.
Wholesale prices, reflecting the pressures of low cost co-product from
caprolactum plants, fell from an estimated $34.00 per ton in 1967 to
$27. 00 in 1973. West Coast prices , insulated by high shipping costs ,
are estimated at about $40. 00 per ton.
Mixed fertilizer prices vary by grade and by geographic location of plants and
tend to follow prices of the basic chemical products used as raw materials.
Demand for all mixtures was approximately 19,400,000 tons of materials
in 1972, with mixed fertilizer manufacturing accounting for about 50 per-
cent of the market, or 9,700,000 tons. Bulk blends and liquid mixtures
made up the remainder. Ammoniated products have declined from 75
percent of the market in the early 1960's and will probably continue to
fall in importance. Foreign trade in mixsd fertilizers represents an
insignificant portion (about one percent) of total consumption. Supply
tends to equate to demand, with production geared to local markets.
Average mixed fertilizer prices have risen from a low point in 1969 of
$59.35 per ton to $71. 46 in 1973, with actual prices of specific grades
of N-P-K varying around these prices. Low analysis grades, such as
5-10-15, averaged $54.50 in 1973, while high analysis mixtures like
8-32-16 brought $96. 50 as an average U.S. price.
Ammomation-granulation plants tend to sell higher grade materials;
ammomation plants produce lower grades.
Recent fertilizer shortages have tended to drive mixed goods' prices
upward an additional 50 to 60 percent by April, 1974, Future price
levels remain highly uncertain.
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IV. IMPACT METHODOLOGY
The fundamental methodology used in the impact analysis is the same as
that normally used in capital budgeting studies of new investments. The
aforementioned model plant budgets provide the basic data for the analysis.
The model plants do not precisely represent any single operation, but they
reflect financial and physical characteristics of the industry. Adjustments
to model plant budgets to reflect pollution control investment and annual
operating costs permit pre-and post-pollution control economic analysis
for impacts on prices, profitability and production.
Probable plant closures, a key part of the analysis, are determined
through a net present value analysis, by which expected future cash
proceeds are discounted at the firm's estimated cost of capital rate.
A net present value of less than zero implies that the owner would be
better off to liquidate his plant and reinvest the salvage proceeds at
the cost of capital rate.
Price increases required to return the plant to pre-pollution control
levels of profitability are then calculated to determine expected price
effects. An evaluation of ability to pass on required price increases
follows.
Finally, broader macroeconomic effects on agricultural production,
employment, communities and balance of payments are assessed, using
for the most part a qualitative approach.
A detailed description of the methodology appears in the Final Report.
V. POLLUTION CONTROL COSTS
Investment costs and annual operating expenses for pollution controls
were furnished by the Effluent Guidelines Division of EPA, based upon
proposed guidelines. The development of these costs and full descriptions
of the technologies appear in the Draft Development Document, separately
published by EPA.
The proposed control requirements call for no discharge of effluents by
July 1, 1977 for all plants in both segments under study. The best practical
control technology currently available (BPT) is synomous with the best
available technology economically achievable (BAT) and with new source
performance standards (NSPS).
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The treatment technologies are simple. Ammonium sulfate plants (both
direct production and coke-oven) need only a simple trench and sump
pump system to collect and recirculate minor contaminated effluent
streams. Mixed manufacturing plants must have a closed loop con-
taminated water system with a small retention pond for settling and
clarifying contaminated process water. The process water passes
through a wet scrubber which removes noxious gases and particulates.
In-place technology - Based on EPA estimates, all of the direct production
ammonium sulfate plants and none of the coke-oven plants have the tech-
nology in place.
An estimated 85 percent of all mixed fertilizer manufacturing plants have
wet scrubbers in place ; 25 percent of these do not have retention ponds.
Effluent control costs - The estimated investment and annual operating
costs for effluent controls, stated in 1973 dollars, are presented in
Table 1. These costs have been scaled to reflect various model plant
sizes. The following cost assumptions were used:
Energy and power
Ammonium sulfate
Mixed fertilizers
Operation and maintenance
Depreciation
Interest
$ .05/hr
$3.09/hr
4% of investment
10 percent of investment
7. 5 percent of half of investment
Table Z compares the annual pollution control operating costs to base plant
costs and to 1973 prices.
VI. IMPACT ANALYSIS
No further impact analysis will be performed for ammonium sulfate,
because all direct production plants have in-place systems and
because no reliable economic data are available on coke-oven plants.
In any event, the small investment required for coke-oven plants would
not appear large enough to cause closures.
Mixed fertilizer manufacturing will be only minimally effected by pollu-
tion controls. Price increases of no more than one or two percent are
required for the vast majority of impacted plants, but a general price
increase is not expected. The large amount of in-place technology
precludes any general price increase. But, plants insulated from
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Table 1. Estimated investment and annual costs for effluent control technology
in fertilizer manufacturing
(1973 dollars)
Ammonium Sulfate
Tons per year
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation- 10 percent
Interest (7. 5% X . 5)
Total
Mixed Fertilizer Manu-
facturing
Tons per hour
Operating hours per year
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation- 10 percent
Interest (7.5% X .5)
Total
Base plant
12, 000
$ 8,912
420
3;>6
776
891
224
$ 2,001
40 10
2,702 2,300
$ 245, 700 $106,900
8,349 1,771
9,828 4,276
18, 177 6, 047
24,570 10,690
9,214 4, 00<->
$ 51,961 $20, 716
75
24,
$ 13,
1,
1.
$ 3,
1.
$ 106,
1,
2,
10,
A,
$1 ',
TPD
500
711
858
548
406
371
514
291
10 15
000 3,250
900$ 136, 400
770 3,758
859 5,456
629 9,214
690 13,640
009 5, 115
328 $ 27, 969
200 TPD
70, 000
$25, 709
2,450
1, 028
3,478
2,571
964
$ 7,013
15 20
2,000 3,600
$ 136, 400 $162, 000
<
2,310 5,544
3,354 6,480
5,664 12,024
13,640 16,200
5,115 6,075
$ 24, 419 $ 34, 299
20 30 30
2,250 3,600 2,250
$162, 000$206, /00206.700
3,456 8, 316 5, 198
4,050 8,268 5, 168
7,515 16,584 10,366
16,200 20,670 20,670
6,075 7,751 7,751
$29, 790$ 45,005$38,787
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Table 2. Estimated effluent control operating costs as a percent of
base costs, as a cost per ton of product and percent of base price
Percent of Cost Percent of
Base Costs per ton Base Price
Ammonium Sulfate
24, 500TPY 0.28 $0.13 0.33
70, OOOTPY 0.26 0.10 0.25
Mixed Fertilizers (Amm-
oniation-. granulation)
10 TPH (1,000 hrs) 2.3 $1.73 2.44
10 TPH (2,300 hrs) 1.3 .90 1.27
15 TPH (2,000 hrs) 1.2 .81 1.14
15 TPH (3,250 hrs) 0.8 .57 0.80
20 TPD (2,250 hrs) 1.0 .66 0.93
20 TPH (3,600 hrs) 0.7 .48 0.68
30 TPD (2,250 hrs) 0.8 .57 0.80
30 TPD (3,600 hrs) 0.6 .42 0.59
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competition in particular local markets could pass on increases if
necessary. The small increases indicated by higher costs appear
small in comparison to recent price changes of 50 to 60 percent for
mixed fertilizers.
Production effects of pollution controls are also expected to be minimal.
Most of the plants without wet scrubbers are undoubtedly older, smaller
plants, although this cannot be verified. Such plants have negative net
present values (NPV) before pollution controls and will probably close in
the near future. DPRA estimates that 97 baseline closures are likely
by 1977, -- 27 percent of all plants.
NPV analysis reveals that a one percent price increase would restore
all other impacted plants to their pre-pollution control levels of profit-
ability and that there would be no closures attributable to controls.
It is likely that the imposition of controls will speed up baseline
closures,
New source performance standards (NSPS) would not appear to be a
factor, in decisions to build new mixed manufacturing plants. Using 1973
replacement investment values, a 30-ton per hour ammoriiator-granulator
has a baseline negative net present value, indicating little likelihood of
future construction.
Since prices and production are not affected by pollution controls, there
should be no employment, community or Balance of trade effects,
VII. . LIMITS OF THE ANALYSIS
The data used in the preparation of this report has Keen carefully evaluated
for reliability and are believed to be generally accurate. There are, however,
variances in local conditions, technologies and management techniques
which will cause specific plant operations to vary from the model plant
profiles.
There will be ranges of errors of _+ 5 percent in the number and location
of plants and + 15 percent in prices. One can also expect to find invest-
ment values and plant operating costs varying by as much as + 10 to 20 percent.
The range of errors would not, however, affect significantly the basic
Conclusions of the report. At the same time, several critical assumptions
were used in the study, and any change in those assumptions could change the
analysis. Furthermore, there are some important unanswered questions
concerning the future of both nitrogenous and phosphatic fertilizer supplies
which could affect these two segments.
10
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The critical questions are:
(1) Will a natural gas shortage really occur? The current
evidence is quite mixed on this issue.
(2) Will new announced phosphate construction be implemented?
(3) Will the energy shortage in the phosphate industry be
repeated in future years?
11
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I. INDUSTRY SEGMENTS
This report covers two groups of fertilizer producers which were not
included in a recent U. S. Environmental Protection Agency report on
the fertilizer industry. _' The two groups are, by Standard Industrial
Classification code numbers, as follows:
SIC 2873 Ammonium Sulfate, Direct Production
Ammonium Sulfate, Co-product (Caprolactum,
Acrylates and Hydrogen Cyanide)
SIC 2874 Ammonium Sulfate, By-product (Coking and mis-
cellaneous other processes)
Mixed Fertilizer Manufacturing (ammoniation and
ammoniation-granulation plants)
These two four-digit industries are an integral part of the total fertilizer
industry which consists of thousands of establishments located throughout
the nation. Figure I-1 presents an overview of the industry, showing how
the ammonium sulfates and mixed goods relate to other products and
where they stand in the organizational framework of the industry.
Further, it is important to note the magnitude of the various functional
levels within the fertilizer industry:
Category Number of firms
Raw material mines and refiners 41 _'
Basic chemical producers 109
Mixed fertilizer and NSP manufacturers 150
Blenders and liquid mixers 8,000
Dealers 40,000
Estimated where actual number is not firm.
b/ Excludes natural gas producers and non-captive sulphur operations.
Economic Analysis of Proposed Effluent Guidelines for the Fertilizer
Industry, EPA-230/1-73-0 10 , U. S. Environmental Protection Agency.
Office of Planning and Evaluation, Washington, D. C. , November, 1973,
1-1
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Figure 1-1. Fertilizer Industry Perspective - Product/Function Specializations
( ;:!;!::!! Segments in this study. )
Raw
Materials
Producers
Basic
Chemical
Producer
Manufacture]
and
Retailers
Mixed Fertilizer Manufacturers NSP H SO
_ . _ 24
___ .... I ___
Farmer-Consumers
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Within the two segments included in this study, there are important
delineations in the selection of subsegments for analysis.
There are three major sources of ammonium sulfate: (1) direct production,
(2) co-product and (3) coke-oven by-product. In this chapter, all three
sources are included to give perspective to the ammonium sulfate seg-
ment. Later, in considering pollution control standards and their impacts,
only direct production and coke -oven by-product sources will receive
attention. Co-product, which accounts for over half of U. S. production
of ammonium sulfate, is derived largely from plants producing capro-
lactum (source of Nylon 6). Such plants have been included in a separate
EPA report on industrial organic chemicals. Mixed fertilizer manu-
facturing is limited by definition to those plants which produce grades of
N-P-K fertilizers through chemical reaction processes, as opposed to
the single combining of basic fertilizer products. SIC 2874 included dry
blenders--designated as "fertilizer formulator and packagers," a sub-
segment which is becoming increasingly important in the production of
mixed fertilizers. Since dry blending has no known effluent problems,
that subsegment will be excluded from this report.
Also, normal superphosphate (NSP), which was included in an earlier
draft of this report, will be excluded, except for limited reference to
integrated mixed fertilizer manufacturing plants. Full coverage of NSP
production will be included in a revision of the aforementioned report ' on
the basic fertilizer industry.
Mixed fertilizer manufacturing, therefore, will be limited to plants
which ammoniate or ammoniate-granulate phosphate materials.
A. Types of Firms
1. Size and Number of Firms by Product
Ammonium Sulfate
Ammonium sulfate is produced either directly in plants which neutralize
ammonia with sulfuric acid or in plants which it is a co- or hy-product
of a basic product. DPRA has determined that 40 firms operated 64
plants in all of the ammonium sulfate subsegments in 1973. Though
additional plants in each subsegment may exist, industry sources have
indicated that the following list accurately reflects 1973 operations.
I/
~ Economic Analysis of Proposed Effluent Guidelines for the Fertilizer
Industry, EPA-23Q/1-73-0 10 , U. S. Environmental Protection Agency,
Office of Planning and Evaluation, Washington, D. C., November, 1973,
1-3
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Direct Production--5 Firms
Firm Name
Valley Nitrogen Producers
Occidental Petroleum
Standard Oil of California
J. R. Simplot
AFC, Inc.
Total
Annual Capacity No. of
(1, OOP tons product) Plants
320 1
180 2
60 1
35 1
20 J_
615 6
Capr olactum-- 3 Firms
Allied Chemical Corp.
Dow- Badische
Columbia Nipro
Acrylates and HCN--2 Firms
Rohm and Haas
American Cyanamid
Total
160
70
230
Coke Oven--25 Firms
Bethlehem Steel
U. S. Steel
Republic Steel
Jones & Laughlin Steel
Great Lakes Steel
Inland Steel
Wheeling-Pittsburg Steel
U. S. Pipe and Foundry
Youngstown Sheet & Tube
Woodward Iron
I/
Other iron, steel and coke
I/
Annual Capacity
|_1, OOP tons product)
170
108
75
45
41
36
29
16
16
14
125
Total
675
No. of
Plants
D
6
7
T
U
1
1
2
1
1
1
II
46
Fifteen firms operate 19 plants, ranging in size from 2,000 to
12,000 tons per year.
1-4
-------
Other By-Product--5 Firms (plus one unknown)
Filtronic 50 1
Unknown 40 1
C. F. Industries 25 1
Olin 12 1
Mallinckrodt Chemical Works 5 1
Wah Chang 4 1
Total 136 "6
Grand Totals 2,796 64
Mixed Fertilizers
The numbers of firms and plants in this segment are estimates based
on TVA and industry sources. TVA is currently conducting a survey
of mixed-manufacturing plants which should be available in the summer
of 1974. Until the new estimates are available, it must be recognized
that the numbers reported here may be off by 20 to 30 percent. There
are an estimated 100 firms operating 269 ammoniation-granulation plants
and 68 firms operating 93 ammoniation plants. Frequently firms will
operate both kinds of plants.
Nine Largest Firms Operating Mixed Fertilizer Plants
No. of No. of
Ammoniation-Granulation Ammonia- Total
Firm Name Plants tion Plants Plants
Esmark (Swift) 35 4 39
Agrico Chemical 29 3 32
International Minerals 16 4 20
U. S. S. Agricultural Chemicals 15 5 20
Agway 12 3 15
W. R. Grace 14 14
Kerr-McGee 8 6 14
Borden 10 1 11
Royster 10 _1 U
Total 149 17 776
Percent of all N-P-K plants (176/362) 49
1-5
-------
2. Integration and Diversification
The major producers of ammonium sulfate and mixed goods are large,
diversified corporations with varying degrees of vertical integration.
These firms are large petro-chemical or chemical companies for the
most part, with a few agricultural cooperatives. Many large steel
companies produce ammonium sulfate.
The company lists for mixed goods include a number of medium-to-small
agricultural chemical companies, some of which are integrated vertically.
In addition, there are dozens of small, one or two plant firms, including
cooperatives, whose integration is limited to retailing functions.
Ammonium Sulfate
The firms engaged in direct production of ammonium sulfates fall into
three categories:
1. Three are integrated and diversified firms, including two
large, integrated petroleum firms with chemical divisions.
2. One is a small fertilizer company with forward integration.
3. One is a cooperative, producing, at the same site, several
basic agricultural chemical products as well as ammonium
sulfate,
Caprolactum, acrylate and HCN plants with ammonium sulfate as a co-
product are owned by large diversified chemical companies with varying
degrees of forward and backward integration.
Though some small iron and steel companies and a few coke companies
produce by-product ammonium sulfate, most are primarily large, inte-
grated steel producers. Only one of these larger companies appears to
have an agricultural chemicals division which is forward integrated.
Mixed Fertilizers
Mixed fertilizer manufacturers include four groups:
1. Large diversified, integrated corporations.
2. Large, integrated chemical companies having agricultural
chemical divisions which account for a relatively small
amount of corporate sales.
1-6
-------
3. Agricultural chemical companies--most are integrated
but with little or no diversification.
4. Agricultural cooperatives--some are both integrated
and diversified.
Production is dominated by the first two groups.
B. Types of Plants
Plants for each of the products have been analyzed by size, age (whenever
known), location, technology, efficiency and stage of production. Plant
lists are from TVA and industry sources and reflect the best estimates
of current operations, products, and capacities. Because plant closures
in all of the segments may have gone unreported, the data is somewhat
tentative.
1. Size
Plants have been grouped into size ranges, based on annual capacities.
As with plant numbers, annual capacities in many cases represent
estimates. A plant's capacity may be a function of physical size and
the number of hours per day and days per year of operation. Thus,
two plants of identical size could be reported under different annual
capacities. While these qualifying remarks apply to all product
segments, they are especially applicable to the mixed goods plants.
1-7
-------
Product and Capacity Range
Ammonium Sulfate
(Direct Production)
0-49 (000 tons)
50 - 99
100 - 149
150 & over
(Caprolactum)
0 - 99 (000 tons)
100 - 149
150 - 300
300 & over
(Acrylates and HCN)
0 - 49 (000 tons)
50 - 99
100 - 149
150 & over
No. of Plants
Total Capacity (1973)
(000 tons per year)
55
140
100
320
615
0
140
275
725
1, 140
15
55
0
160
230
(Coke Oven By-Product)
0 - 49 (000 tons)
50 & over
44
_2
46
575
100
675
1-8
-------
Product and Range (cont'd)
(Other processes)
0-49 (000 tons)
50 & over
Totals
No. of Plants Total Capacity
5
_!_
6
64
86
50
136
2,796
Normal Superphosphate - A. G. Complex
0-40 (000 tons NSP)
41 - 60
61 - 80
81 & over
Totals
Mixed Fertilizer Plants
(Ammoniation-Granulation)
0 - 25 (000 tons)
26 - 50
51 - 75
76 & over
Totals
(Ammoniation)
0-25 (000 tons)
26 - 50
51 & over
Subtotal
Total Mixed Goods
16
14
17
10
sT
465
722
1, 254
1,019
3,460
138
105
20
6
I/
269-
73
19
93
372 y
2,474
4, 030
1,240
796
8, 640
1,089
673
53
1, 815
10, 455
I/
Approximately 57 of these are a part of an NSP-AG complex.
1-9
-------
Ammonium Sulfate (direct production) -- The direct production plants
are distributed evenly with two small, two medium, and two large plants.
One of the large plants accounts for just over half of the direct produc-
tion capacity and 11 percent of total capacity.
(Caprolactum) -- One of the three caprolactum plants accounts for 64
percent of the caprolactum capacity and 26 percent of all ammonium
sulfate capacity.
(A cry late s and HCN) -- One of these three plants accounts for 70 percent
of acrylates and HCN capacity and 6 percent of total ammonium sulfate
capacity.
(Coke oven by-product) -- All of these plants are small--50, 000 tons
or less, with most of them producing fewer than 25, 000 tons per year.
Some are as small as 2,000 to 6,000 tons per year.
(Other processes) -- These plants are also small, with one at 50,000
and one at 40,000 tons per year. The smallest is 4,000 tons per year.
Normal super phosphate-A. G. Complex -- The 57 normal superphosphate-
mixed manufacturing complexes are rather evenly distributed throughout
the four size ranges of NSP capacities. They range in size from 15,000
to 126,000 tons per year. The mixed goods plants are scattered from
10,000 to over 100,000 tons per year.
Mixed fertilizers -- These are relatively small plants, with only a small
proportion exceeding 50,000 tons of product per year. The annual capacity
of NSP and mixed fertilizer plants is not an accurate picture of plant
physical size. It is an estimate of "average" annual production, given
certain assumptions concerning the physical size of production facilities
and the number of hours of operation per year. A 10-ton per hour plant,
operating 200 days per year with one shift per day would produce 16, 000
tons of material. That same plant, operating two shifts per day for 200
days would produce 32,000 tons. Obviously, the critical variables are
the tons per hour capacity, the number of hours per day, and the number
of days per year which a plant operates. The operating season can be
expected to vary according to geographic location (shorter season in the
Northern States), whether the plant is a part of a complex, and local mar-
ket conditions. Accordingly, one must use the plant size data with caution.
2. Age
Little is known about the age of most of the plants in this study. The
age of ammonium sulfate plants has been determined from industry
sources. Plant ages for other product groups are based on generalized
data.
I-10
-------
Ammonium sulfate^
A summary of the age distribution of known operating ammonium sulfate
plants, by process, with number of plants and capacities in each age
group, is shown below:
Number of Plants by Year Built
Process
Direct production
No. Plants
Capacity (000 tons)
Pre-1960
2
140
1960-
1965
4
475
1966-
1973 Unknown
Totals
6
615
Caprolactum
No. Plants 1 2 3
Capacity ;000 tons) 140 1,000 1,140
Acrylates and HCN
No. Plants 3 3
Capacity (000 tons) 230 230
Coke oven
No. Plants 20 1 1 24 46
Capacity (000 tons) 222.5 2 5.5 445 675
Other Processes
No. Plants 1 5 6
Capacity (000 tons) 12 124 136
Total Plants 23 5 2 34 64
Several older direct production ammonium sulfate plants have been shut
down. It is noteworthy that no new plants have been built since 1965.
Some of the facilities which have been shut down might be reactivated
under favorable economic circumstances. Two of the 1960-65 plants are
small, one is medium-large (100,000 TPY) and one is large (320,000 TPY).
Little is known about the age of the co- and by-product plants, except for
a group of small coke-oven plants which are quite old. They represent
a declining segment of ammonium sulfate production and some of them
may no longer produce ammonium sulfate.
1-11
-------
Mixed fertilizer manufacturing plants
These plants probably range in age from a few years to 40 years. The
larger plants are doubtless the more recent ones.
3. Location
Ammonium sulfate--direct production
Four of the six plants are located in California and one each in Texas
and Idaho. Over three-fourths of the capacity is in California.
Ammonium Sulfate - Co-product
The three caprolactum plants are in Virginia, Georgia and Texas. The
three acrylate and HCN plants are in Louisiana, New Jersey and Texas.
Ammonium Sulfate - Coke Oven
These 46 plants are scattered, as follows, within the steel producing
areas.
State No. Plants Capacity (OOP tons)
Pennsylvania 10 137
Ohio 9 101
Alabama 7 85
Illinois 5 35
Indiana 4 94
West Virginia 3 35
New York 2 62
Maryland 1 50
Connecticut 1 5
Michigan 1 41
Texas 1 4
Utah 1 24
Minnesota 1 2
Total "46 "675
1-12
-------
Ammonium Sulfate - Other Processes
These six plants are located in Florida, California, North Carolina,
Texas, New York and Oregon.
Mixed Fertilizer Manufacturing Plants
Of the 269 estimated ammoniation-granulation plants, 65 are in the East
North Central region, and 57 in the South Atlantic States. They account
for 45 percent of plants and 49 percent of ammoniation-granulation capa-
city. The East South Central, West North Central and Mid-Atlantic regions
have another 42 percent of plants and 40 percent of capacity. There are 22
plants in the West North Central and only 11 in the other three regions (New
England - 5, Pacific - 4 and Mountain -2).
Ammoniation plants are concentrated in three regions--South Atlantic - 44,
Mid-Atlantic - 18, and East South Central - 17. These plants represent
85 percent of the 93 plants and 86 percent of capacity.
The mixed fertilizer manufacturing plants are located reasonably near
their markets (usually within 100 miles). Intermediate products are
shipped in bulk to the mixed goods plants. These plants produce those
grades needed for farm crops in their regions.
4. Technology and Efficiency
Ammonium Sulfate
When directly produced,ammonium sulfate is a residual crystallized
product resulting from the reaction of synthetic ammonia with sulfuric
acid. Technologically simple, when compared to the production of
other N products, directly produced ammonium sulfate is productively
inefficient.
Direct production is further disadvantaged by the production of ammonium
sulfate which is a co- or by-product of other chemical and metal manu-
facturing processes. Caprolactum, acrylates, HCN and coke manu-
facturing produce crystalline ammonium sulfate which can be sold at
prices well below the costs of producing ammonium sulfate directly.
Under some processes, caprolactum (the source of Nylon 6) yields
4 to 5 tons of ammonium sulfate for each ton of caprolactum. More
recently developed processes have reduced the ratio to 2 or 2.5:1.
Acrylates yields approximately 0.6 tons of ammonium sulfate per ton
of product. Coking ovens may produce 15 to 27 pounds of crystalline
ammonium sulfate per ton of coal.
1-13
-------
Table 1-1. Estimated number and capacity of NSP and mixed fertilizer plants by product and region
Product
NSP -A. G. Complexes
No. plants
Capacity (000 TPY)J7
Ammoniation-Gran.
No. plants
Capacity (000 TPY)
Ammonia tion
No. plants
Capacity (000 TPY)
New
Eng.
:
5
118
1
19
Mid
Atl.
4
252
31
914
18
261
So.
Atl.
29
1,732
57
1,893
44
972
E.N.
Central
7
475
65
2, 320
5
101
W.N.
Central
2
135
40
963
5
53
E.S.
Central
9
606
42
1,603
17
312
W.S.
Central
4
174
22
693
3
77
Mount-
ain
1
15
2
28
-
U.S.
Pacific Total
1 57
71 3,460
4 269
108 8,640
93
1,795
- NSP capacity only. The A.G. plants are included in the 269 A. G. plants.
-------
Some indications suggest that nylon and acrylic fiber producers are
succesfully seeking processes which may lessen the supply of co-
product ammonium sulfate. What happens in this regard will play
a major role in the future of direct production ammonium sulfate plants.
Mixed Fertilizer Manufacturing -- The mixed fertilizer manufacturing
segment covered in this study excludes two major sources of mixed fer-
tilizers: bulk blending of dry materials and liquid mixing. It includes
only mixing plants which ammoniate or ammoniate-granulate phosphatic
fertilizer. Fifty percent of all mixed fertilizers consumed in the U.S.
in 1972 was produced in ammoniation or ammoniation-granulation plants.
The smaller ammoniation-granulation plants are mechanically rather
simple. Though the chemistry involved is fairly complex, the plants
are relatively low-cost and simple. Most plants use the TVA process --
a rotary-drum ammoniator, with or without a granulator and/or a drier.
Almost all of the currently known operating plants indicate that they have
granulators. The few without achieve a less desirable granular product
from the ammoniator drum. Larger, more modern plants have more
elaborate and costly continuous process plants but can produce only a
limited number of grades (3 to 6} at lower unit costs.
Depending upon the grade of mixed goods to be produced, the granulation
plants use a variety of intermediate products. Their flexibility makes
anhydrous ammonia and nitrogen solutions popular for ammoniation.
Crystalline ammonium sulfate from caprolactum and acrylate producers
provides a low-cost ingredient which is not readily used in bulk blending.
Low analysis grades (such as 5-10-10) can be produced from normal
superphosphate. Higher analysis grades (such as 6-24-24) depend largely
upon triple superphosphate and diammonium phosphate. Muriate of potash
is used to furnish the r^O content.
The vast majority of granulation plants are small and uneconomic when
compared to bulk-blending plants for most grades and quantities. Less
flexibility than the bulk-blender or liquid mixing plants, these small
plants continue to function, however, because they produce grades needed
by farmers in their immediate locale. They can also make use of normal
superphosphate produced on site. There are an estimated 57 such plants.
1-15
-------
5. Level of Integration (Production)
Ammonium Sulfate
Direct production ammonium sulfate plants are found in various com-
plexes with ammonia, ammonium nitrate, nitric acid, sulfuric acid,
phosphoric acid and mixed goods plants. Lending itself readily to
the granulation process, more than half of the ammonium sulfate
consumption is in mixtures.
Mixed Fertilizer Manufacturing
Some 57 mixed fertilizer manufacturing plants have NSP plants at the
same location. About half of the NSP plants appear to use captive rock
and about one-third have captive sulfuric acid. These conditions indicate
a fairly high degree of vertical integration in this subsegment.
The level of integration of the remaining mixed fertilizer manufacturing
plants is not clear. There are some in conjunction with superphosphoric
acid production, but generally, there is not a great deal of vertical inte-
gration in this segment.
C. Numbers of Plants and Employment
The number of employees in each of the segments in this study cannot
be precisely determined. Published census data for the fertilizer industry
are not sufficiently refined to permit an identification of these segments
above. Accordingly, employee numbers are estimated based upon man-
power requirements and operating parameters of the model plant con-
figurations. These estimates are presented in Table 1-2.
The average number of production workers for each plant size category
is based upon the estimated production labor and supervisory personnel
required for the model plant in the corresponding size range. The labor
requirements were obtained through industry sources and offer a reason-
able basis for estimating employment by segment. The figures, however,
are rough estimates at best.
There is a further problem in estimating employment. The mixed ferti-
lizer manufacturing plants do not operate on a yearly basis. Some plants
operate over a fairly short season and provide much less than annual
full-time employment. An indeterminate number of workers in these
plants depend on other employment during the non-operating season.
1-16
-------
Table 1-2. Estimated employees by industry segment
Product- No. of
Plant Size Plants
Av. No.
Prod.
Workers
Av. No.
All
Others Employees Total
Ammonium Sulfate
0-49 (000 TPY)
50-99
100-149
150 & over
Sub-total
2
2
1
1
9
12
12
12
9
12
12
12
18
24
24
24
36
48
24
24
132 1/
Arnmoniation- Granulation
0-25 (000 TPY)
26-50
51-75
76-100
100 & over
Sub- total
138
105
20
3
3
269
5
10
12
18
18
3
6
8
12
12
8
16
20
30
30
1, 104
1, 680
400
90
90
3,364
Ammoniation
0-25 (000 TPY)
26-50
5 1 & over
Sub- total
73
19
1
93"
10
12
3
6
8
8
16
20
TOTAL
584
304
20
908
4,404
Excludes co- and by-product plants.
1-17
-------
The largest number of employees within the segments under study is
in the small (0 - 50,000 tons per year capacity) ammoniator-granulator
plants. These employees are estimated at 2,784 persons, 63 percent
of the total for ammonium sulfate and mixed manufacturing.
The fewest employees, 132 persons, appear to be in the ammonium sul-
fate plants. This segment estimate excludes the employment in co-
product and by-product establishments.
D. Relationship of Segments to Total Industry
The relationship of the four segments in this study to the total fertilizer
industry can be shown by comparing the number of plants, production,
and employment in each segment to similar data for the total industry.
1. Number of Plants
The total estimate of all fertilizer plants (excluding nitric and sulfuric
acid plants and dry blenders and liquid mixers) is 768. The estimated
number of plants in each segment in this study as a percentage of that
total is as follows:
No. Plants % Total
Ammonium sulfate
Direct production 6 < 1
Caprolactum, Acrylate, HCN 6 <1
Coke oven 46 6
Other _6
-------
Ammonium sulfate 5 percent of nitrogen (N)
Mixed fertilizers 10 percent of nitrogen (N)
30 percent of phosphate (P2C>5)
30 percent of potash
Ammonium sulfate constitutes a relatively small portion of total nitrogen
production. The direct production plants constitute about one-fifth of
ammonium sulfate capacity, meaning that the six direct production plants
would be only about one percent of total nitrogen production.
Mixed fertilizer plants, with an estimated 9,400,000 tons of material
produced annually, account for an estimated 10 percent of all nitrogen,
30 percent of all P2O5 and 30 percent of all K2O5. These are, of course,
significant proportions . Mixed goods produced in ammoniator-granulator
plants have been yielding to dry blends and liquid mixtures as well as to
direct application materials. This trend is expected to continue.
3. Employment
There are an estimated 40,000 - 45,000 employees in the total industry. -
Estimates of the relationships of the segments in this study to that total
are as follows :
Ammonium sulfate (direct production)
-------
The major costs of production for co- and by-product ammonium sulfate
plants are determined by the internal transfer prices for raw materials.
Since these prices vary according to market conditions, any additional
minor costs can be absorbed by these producers (if they can not be
passed forward) in an effort to make some cash contribution to the basic
manufacturing activity, whether Nylon 6 or steel. Thus, direct pro-
ducers will be limited in their ability to pass forward cost increases.
However, direct producers will not feel the eventuating price dis-
advantage evenly. The large direct plants appear reasonably profit-
able and will be able to absorb some cost increase. (They will be
excluded from further analysis.) The smaller direct product plants
are financially marginal and their inability to absorb significant cost
increases makes them vulnerable.
1-20
-------
II. FINANCIAL PROFILE
Financial data relating to individual operating plants are not available.
There are published financial data for the large, publicly held companies,
but since these are generally widely diversified corporations, the data
do not reflect accurately the fertilizer divisions nor segments of the
firms. Nor do they adequately describe small, one or two plant fertil-
izer manufacturers or agricultural cooperatives.
Given this limitation, model plant budgets provide the most reasonable
insight into the financial aspects of the various operations. Model plant
configurations, matched to the size and product combinations of typical
operating plants, have been established in each of the segments and are
presented in Table II-1.
A. Plants by Segment
Before looking at the financial profiles as represented by model plant
data, some observations about the fertilizer industry and the seg-
ments in this study are in order.
For perspective, it is helpful to look at Table II-2. This table shows
sales and operating ratios for producers of basic fertilizer products,
as reported by the Fertilizer Institute. The figures relate only to the
fertilizer segment of the 36 to 40 companies which participate in the
annual survey and constitute the vast majority of production and sales.
Significantly, these same companies are fully integrated and are in-
volved in ammonium sulfate and mixed goods production to varying
degrees. The ratios for cost of goods sold, sales, general and ad-
ministrative expenses, and profit before interest and taxes provide
excellent check points for model plant construction. The Fertilizer
Institute report also indirectly furnishes industry ratios for capital
structure, long-term interest, and return on sales, net worth and
invested capital.
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
II-1
-------
Table II-1. Model plant configurations by segment
Ammonium sulfate (direct production)
(tons per day) (annual operating days)
70 350
200 350
( annual tons material)
24,500
70,000
Normal superphosphate - ammoniation-granulator
(NSP tons per day) (AG tons per hour) (annual operating hrs) (annual tons
material)
200
300
300
400
400
400
400
A mmoniato r- g ranulato r
(tons per hour)
10
10
15
15
20
20
30
30
10
15
15
15
15
20
20
(annual operating hours)
2,300
1,000
3,250
2,000
3,600
2,250
3,600
2,250
2,
3,
2,
3,
2,
3,
300
250
000
250
000
600
2,250
23,000
48,800
30,000
48,800
30,000
72,000
45,000
(annual tons material)
23,000
10,000
48,800
30,000
72,000
45,000
108,000
67,500
A mmoniato r
(tons per hour)
10
10
15
15
20
20
(annual operating hours)
2,300
1,000
3,250
2,000
3,600
2,250
(annual tons material)
23,000
10,000
48,800
30,000
72,000
45,000
II-2
-------
Table II-2. Averages of certain financial ratios for selected fertilizer companies, I960 - 1973
1973 197Z 1971 1970 1969 1968 1967 1966 1965 1964 1963 196Z 1961 I960
Net sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 78.1 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 21.9 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) 12.7 15>i i5-7 18o9 ig-9 17>4 15>8 13>7 13o0 13.1 12.7 12.7 12.2 11.7
Pretax nnd pre- 9.7 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, "Finanrial Survey," and "Fertilizer Financial Facts," December 31, 1971 and
June 30, 1972.
i
oo
-------
1966 through 1969. (See Table II-2). These years were characterized
by over expansion and under utilization of capacity. Certain basic pro-
ducers 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 pre-tax and pre-interest margin in 1973 rose to 9- 7
percent after declining to a negative 8. 5 percent in 1969- There is still
a substantial gap between 9- 7 percent and the 12. 0 percent margin of 1961.
A comparison of the industry's 1972 profitability to other manufacturing
industries as published by Fortune_' shows that 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 pro-
ducers 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. Re-
turn 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 40 companies in 1973 and 36 companies in 1972, 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 per-
cent on net worth for 1972, and 4. 1 percent on sales and 7.2 percent on
net worth for 1973.
- "Industry Medians, " Fortune, May, 1973, p. 244.
II-4
-------
These comparisons reveal that in 1972, even though the industry im-
proved over the previous five years, the earnings picture was bleak
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.
2. Capital Structure
Similar data problems were encountered for capital structure ratios.
The basic chemical industries have a fixed debt to net worth ratio of
about .4 against a total liabilities to net worth ratio of . 8 in 1970 and
1971. _L' The 36 basic producers group reported by the Fertilizer Insti-
tute 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 in basic chemicals. An analysis of the capital
structure of the large, diversified corporations producing ammonium
sulfate, and mixed goods reveals long term debt to net worth ratios
of .5 for ammonium sulfate and .65 for NSP and mixed goods.
3. Cost of Capital
An estimated cost of financing new investment has been derived from an
analysis of the financial reports of the publicly held companies. This
method has two obvious shortcomings: (1) the companies for the most
part are widely diversified corporations whose earnings and capital
structure reflect multi-product operations and (2) the smaller one and
two plant companies may have substantially different financial conditions,
In spite of these weaknesses, there are no better available data for esti-
mating cost of capital.
The methods used to estimate the cost of capital involved a computation
of debt and equity ratios to total invested capital and the calculation of
five-year averages for dividend yield and earnings on common stock.
Almanac of Business and Industrial Financial Ratios, 1971 Edition,
Prentice-Hall.
II-5
-------
The estimated averages were as follows:
Common equity/Invested capital .731
Long-term debt/Invested capital .269
Dividend yield, 5-year average .0357
Earnings on common stock, 5-year average .0596
In estimating the cost of capital, other assumptions were made: (1)
long-term interest rates average 1. 5 percent, (2) the corporate tax
rate is 48 percent and (3) the growth rate in dividends will be at least
equal to the annual inflation rate, estimated at 4 percent.
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:
k = D +
\vhe re
k = cost of capital
D = dividend yield
P = stock price
g - growth
The E/P method is simply
k = E/P
\vhe re
E = earnings
P = stock price
The E/P ratio method is a further simplification of the dividend yield. The
E/P ratio method assumes future earnings as a level, perpetual stream.
The after tax cost of debt capital was estimated by taking reported (annual
financial reports and financial statistics) company outlays for interest
expenses and multiplying by . 52 -- assuming a 48 percent tax rate.
These values were weighted by the respective equity to total asset and
total liabilities _' to total asset ratios.
±1 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.
II-6
-------
The average cost of capital for the fertilizer industry was estimated
using the equity and debt data reported earlier as follows:
Dividend Yield plus Growth Weight Cost Growth
Equity .731 .0357 .04 .055
Debt (7.5% x 52%) .269 .0390 -- .011
Av. Cost of Capital .066
Earnings /Price
Equity .731 .0596
Debt (7. 5% x 52%) .269 .0390
Av, Cost of Capital
Thus, the estimated range of cost of capital is 5. 5 to 6.6 percent.
4. Pro Forma Income Statements - Model Plants
Table II-3 contains pro forma income statements and financial returns for
selected model plants in each of the segments. This table includes the
model plant Configuration which most nearly resembles the "average" or
"typical" operating plant from the plant data in Section 1-B. Other model
plant pro forma statements appear in the Append;x. The assumptions on
which th-_ various direct and indirect expenses have been calculated also
are inclu
-------
Table II-3. Pro forma income statements and financial returns for selected model plants by industry segments
Ammonium sulphate
200 TPD
70,000 TPY
Invested Capital
Sales
Direct Expenses
Raw materials
Labor and supervision
Other
Subtotal
Indirect Expenses
Total operating expense
Depreciation
Interest (long-term)
TOTAL COSTS
Net income before tax
Net income after tax
Cash flow
Net income before tax as
percent of invested capital
Net income after tax as
percent of invested capital
$1,000
777
2,800
961
179
111
1,251
1,208
2,459
136
55
2,650
150
84
220
19
11
% Sales
100
34
6
4
45
43
88
5
2
95
5
3
8
NSP-Animoniation-
gramilation L'
30,000 TPY
$1,000
560
2, 130
1,483
69
32
1,584
448
2,032
39
--
2,071
59
37
76
11
7
% Sales
100
70
3
2
75
21
96
2
--
98
2
2
4
Ammoniation- granulation 2/
30, 000 TPY
$1,000
359
2, 130
1,545
61
29
1,635
420
2,055
17
_-
2,072
58
37
34
16
10
% Sales
100
73
3
1
77
20
97
1
__
97
3
2
3
Ammonia ticn 2.*
23,000 TPY
$1,000
200
1,323
948
56
17
1,021
252
1,273
6
1,279
44
2V
3h
I?
ib
% Sales
100
72
4
1
77
19
96
^1
_ _
97
3
->,
3
Note: Percentages may not add to 100 percent due to
Combines a 300 TPD NSP plant with a 15 TPH ammomator-granulator op.-rating 2, COO hours per year.
2/ 15 TPH plant operating 2,000 hours per year
_3_/ 10 TPH plant operating 2,300 hours per year.
II-8
-------
There are certain qualifying considerations regarding the operating
ammonium sulfate plants which help to explain their continued operation
in the face of sizeable losses. The plants have captive sources of
ammonia and/or sulfuric acid and may be transferring these materials
at less than full cost. They may be charging off only direct costs or
their accounting records may not provide full-costing. For whatever
reason, the ammonium sulfate plants may be receiving their raw
materials at costs below these assumed in the model plant. If one
eliminates a pro-rata charge for ammonia and sulfuric acid indirect
expenses, depreciation and interest, the 24,500 TPY model plant be-
comes profitable.
The other significant circumstance surrounding ammonium sulfate plants
is their market. Though ammonium sulfate is a co- or by-product of
caprolactum, acrylates and HCN and coke has reduced prices in regions
near the co- and by-product plants, their relatively low nitrogen content
and inability to support high shipping costs limit their sales to proximate
regions. Thus , the West Coast is insulated to a degree from the intense
competitive pressures of the cheaper product. West Coast ammonium
sulfate plants can obtain a higher price than would be possible in most
other locations. In addition, the form of the product and the sulfur
value make the product attractive for certain uses. For example,
crystalline ammonium sulfate has advantages in certain grades of mixed
fertilizers over higher analysis intermediates such as urea or ammonium
nitrate. For these and possibly other reasons, ammonium sulfate pro-
ducers may be showing a profit. On the other hand, if they are operating
with the costs and prices shown in the model plant study, five of the sLs
had losses in 1973.
NSP-Am moniat or-Granulate r Complex - The NSP-NPK plant shown in
Table II-3 produces $37,000 before tax. This assumes a relatively low
rate of operation (2, 000 hours per year). Appendix Table 4 shows that
profits increase to $108, 000 with 3, 250 annual operating hours. The
$37, 000 profit, is on sales of $2, 130, 000 with a book investment of
$560,000.
It is assumed that these plants produce only enough NSP for their mixed
plant sales. If they produce beyond that level of sales to other markets,
they could conceivably increase profitability by spreading their indirect
costs and depreciation. It is not known for certain whether or not there
are such sales. In any event, they would be insignificant.
Ammoniator-Granulator - The 15 ton per hour NPK plant in Table II-3
shows a $37, 000 profit after tax on $2, 130, 000 sales and a $359, 000
book investment. This also assumes 2, 000 annual operating hours and
would increase to $93, 000 profit at 3, 250 operating hours Appendix Table 8),
II-9
-------
Ammoniator - The "typical" ammoniator shown in Table II-3 has $29, 000
profit after tax on $1, 323, 000 in sales and a $200, 000 book investment.
This plant operates 2, 300 hours annually. If operations were dropped to
1,000 hours, the plant would lose $5,000 (see Appendix Table 10 ).
Annual Cash Flow
Annual cash flow for each of the model plants is shown in Table II-3 as
the sum of net income after tax plus depreciation. The cash flows for
other model plant configurations can be found in the Appendix in the
pro forma statements.
It should be noted that plants in the ammonium sulfate and normal super-
phosphate segments are fairly old and have been largely depreciated out.
Actual cash flows may not include much depreciation, which would in-
crease the before tax profit. At the same time, maintenance and repairs
would probably be higher, offsetting the lower depreciation charges.
Except for ammonium sulfate and one NSP plant (200 days per year),
all plants have positive cash flows.
5. Invested Capital - Model Plants
Investment has been estimated for each of the model plant configurations,
including replacement, salvage, and book value. Ammonium sulfate
models assumed a 1962 construction date. The NSP-NPK plants were
assumed to be constructed in 1948. These ages are typical of those
found in these segments. Because much of the equipment (plant) com-
ponent is labor and engineering, salvage value of the sunk investment
is believed to be quite low. Salvage values were estimated on the
following basis:
Percent
of
total
Salvage as a
percent of
replacement
Weighted
salvage
percent
Ammonium sulfate
Storage100
Plant
Process equipment 27
Labor-construction 33
Field expense 12
Engineering and fees 28
Subtotal 100
Mixed fertilizer manufacturing
~~~
Site preparation
Storage
Plant
100
100
100
100
33
25
0
0
0
100
33
33
4
33
7
0
0
_0
7
100
33
33
4
11-10
;\
-------
Storage can be used for storing other fertilizers. It should have a higher
salvage value than plantthus, the 33 percent estimate. Plant (equipment)
in the mixed fertilizer manufacturing segment was estimated at four per-
cent, compared to seven percent for ammonium sulfate. This reflects
the plant's age and resultant wear and tear. Labor and engineering ex-
penses have not been estimated, but salvage value of these components
is zero.
Net working capital, assumed at 10 percent of sales, has a 100 percent
salvage value. Table II-4 presents salvage values, along with 1973 estim-
ated replacement costs and estimated book values. Book values reflect
age.
6. Cost Structure - Model Plants
The pro forma tables in the Appendix present the fixed and variable cost
structures for each of the segments. Table II-3 shows these costs for
selected model plants and have been calculated as a percent of sales.
Raw materials represent a higher percentage of sales for ammoniator-
granulator and ammoniator plants (72-73 percent) than in other segments.
Raw materials costs in ammonium sulfate are the lowest of any of the
segments (46 percent).
Again, the reader is referred to the parameters set forth in the Appendix
tables to see how these various costs were developed.
B. Distribution of Data
Table II-5 is a summary of the after tax profits, return on invested capital,
return on sales and cash flows for all of the model plant configurations.
The ranges of these are. presented in Table II-6.
The "typical" plant is the representative model plant used in the pro forma
summary table (Table II-3) and represents the most common size plant
among known operating plants. This set of data should, therefore, be most
representative.
I/
This estimate is based on an examination of current assets, current
liabilities and annual sales for the industry. The actual net working
capital for an operating plant could vary widely.
11-11
-------
Table II-4. Estimated replacement, book and salvage values of
estimated investment for model plants by segment
Model Plant
Tons/Day
Ammonium sulfate
70
200
11
NSP-AG complex
200-10
300-15
300-15
400-15
400-15
400-20
400-20
I/
Ammoniation- granulation
10
10
15
15
20
20
30
30
Replacement
1,208
2, 440
1,418
2, 005
1, 871
2, 221
2, 087
2, 675
2,484
1, 071
979
1, 571
1,437
2, 042
1, 851
2, 777
2,489
Book
-------
Table II-5. Ranges of after tax profits, financial returns and cash
flows of model plants by industry segments
Model Plant
Ammonium sulfate
70 TPD
200 TPD
NSP-AG complex
200 TPD NSP-10 TPH AG (2, 300 hrs. )
300 TPD NSP-15 TPH AG (3, 250 hrs.)
300 TPD NSP-15 TPH AG (2, 000 hrs. )
400 TPD NSP- 15 TPH AG (3, 250 hrs. )
400 TPD NSP-15 TPH AG (2, 000 hrs.)
400 TPD NSP-20 TPH AG (3, 600 hrs. )
400 TPD NSP-20 TPH AG (2, 250 hrs. )
Ammonia tor -Granula tor
10 TPH (2,300 hrs.)
10 TPH (1, 000 hrs.)
15 TPH (3, 250 hrs.)
15 TPH (2, 000 hrs. )
20 TPH (3, 600 hrs.)
20 TPH (2, 250 hrs.)
30 TPH (3, 600 hrs. )
30 TPH (2, 250 hrs. )
Ammoniator
10 TPH (2, 300 hrs.)
10 TPH (1, 000 hrs. )
15 TPH (3,250 hrs.)
15 TPH (2, 000 hrs. )
20 TPH (3, 600 hrs. )
20 TPH (2, 250 hrs.)
$000
-243
84
21
108
37
102
29
318
79
23
- 29
93
37
158
74
237
113
29
- 5
91
44
150
79
After tax profits
Percent of
Invest, cap.
<0
11
5
16
5
14
4
33
8
9
< 0
19
10
22
14
24
16
15
< 0
24
16
28
21
Sales
<0
3
1
3
2
3
1
6
3
1
<0
3
2
3
2
3
2
2
<0
3
3
4
3
Cash
flows
$000
-143
220
52
147
76
147
74
367
128
35
- 17
110
54
179
95
265
141
35
1
100
53
162
91
11-13
-------
Table II-6. Ranges of after-tax profit, returns on invested capital and sales and cash flows by industry
segments
i
K-'
0-
Profit
After Tax
($000)
Return on Return on
Invested Capital Sales
<%)
(%)
Cash Flow
($000)
Ammonium sulfate
NSP -
High
Low
AG
High
Typical
Low
84
-214
318
37
21
11
< 0
33
5
4
3
<0
6
2
1
220
-143
367
76
52
Ammonia tor -Granula tor
High
Typical
Low
237
37
-29
24
10
<0
3
2
<0
265
54
-17
Ammoniator
High
Typical
Low
150
29
-5
28
15
<0
4
2
<0
162
35
1
-------
C. Ability to Finance New Investment
This 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
derived from the sale of new common or preferred stock; (3) internally
generated funds -- retained earnings and the stream of funds attributed
to depreciation 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 potential investors' anticipation of a
firm's future earnings; an anticipation reflecting a firm's past earnings
record, compared to others in its own industry and to firms in other
similar industries. 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 a firm's margin of profitability and its cash flow from
operations. In publicly held corporations, stockholders must be willing
to forego dividends in order to make earnings available for reinvestment.
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 manufacturing industries in terms of net profits on
sales and on net worth, supply-demand relationships, trends in produc-
tion and consumption, the state of technology, impact of government
regulation, foreign tr;-de and other significant variables.
Declining or depressed industries are not good prospects for attracting
new capital. Obviously, too, the overall condition of the domestic and
international economy will influence capital markets. A firm is more
likely to attract new capital during a boom period than during a reces -
sion. (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.
11-15
-------
The general economic outlook for the next few years has been clouded
by the critical shortages of many basic resources, especially energy
and by the uncertainties surrounding economic policies. Such uncertainty
intensified by politic?! instabilities--makes accurate economic forecasts
impossible. On the other hand, U. S. economy faces the possibility of
direct wage and price controls, with or without rationing, but with vir-
tually certain accompaniment of severe shortages in critical materials.
Such conditions subject consideration of rates of economic growth, in-
flation and capital spending to mere speculation. On the other side,
the economy may undergo adjustments to present conditions, relying
largely on market pressures to cope with scarcities, inflation and
problems of growth.
In any event, the rate of economic growth slowed in the fourth quarter
of 1973 and the first quarter of 1974, and recovery to the historic annual
growth rate of 3. 5 percent will probably not occur prior to the last half
of 1974. Even then, continued concern with energy problems and inflation
will exert heavy influence on growth rates. Unemployment will undoubtedly
rise in 1974, requiring a period of adjustment to new growth rates and
patterns. Inflation, which soared in late 1973 to annual rates of 8 and 9
percent, cannot be expected to drop below 5 or 6 percent in the immediate
future.
These conditions will strongly affect capital availability and costs. In
the search for new energy sources and new production technologies, both
public and private institutions will continue to exert a heavy demand on
capital funds and will more than offset the decline in private investment
demand resulting from economic slowdown. This will keep upward
pressure on money rates. In addition, inflation will push interest rates
higher as lenders demand a larger inflation premium. In the next few
years, capital funds are likely to be available, but only at rates approach-
ing the historic high levels of 1969-70 when long-term, high grade corpor-
ate bonds yielded 9 to 10 percent. The cost of financing new investment
will be high compared to that of the 1950's and early 1960's.
Section II-A contains a discussion of the profitability, capital structure,
and cost of capital for the industry and for the segments under consider-
ation.
On balance, it would appear that, although characterized by a cyclical
earnings pattern, the fertilizer industry as a whole should not experience
serious problems in financing new investment. The picture is confused
by the dominance of large diversified firms. The basic producers --
11-16
-------
ammonia and phosphate products -- have relatively high cash flows,
even in face of low earnings. The new round of phosphate expansion
suggests that capital can be obtained, at least by the larger, dominant
firms, and the prospective earnings for the nitrogen segment suggest
this group should not have difficulty in financing facilities. At the same
time, small companies with only one or two old plants would find it
much more difficult to raise new funds. The small, marginal mixed
fertilizer manufacturers without pollution control technology in place
probably could not raise the necessary funds for meeting the proposed
pollution control requirements.
11-17
-------
III. PRICING
A. Price Determination
The pricing of ammonium sulfate and mixed fertilizers is a function of
a number of factors which differ from those associated with the pricing
of basic fertilizer materials. The following, pricing discussion is organ-
ized by product. Each group will discuss demand, supply and prices.
1. Ammonium Sulfate
Demand
Precise data on ammonium sulfate consumption are not readily available.
Reliable data on dirert application materials appear in Commercial
Fertilizers: Consumption in the United States and has been summarized
by the Tennessee Valley Authority in Fertilizer Trends, 1971. The
amount consumed in mixtures must be estimated from production data,
adjusted for foreign trade balances. Table III-l presents these data
for the period 1955-1980.
Based on these data , total consumption fluctuated in the period 1966 to
1969 between 280,000 tons (of nitrogen) to 392,000 tons. Consumption
increased sharply in 1970 and 1971, declined in 1972, arid rose slightly
in 1973. The fluctuations appear to occur mainly in the use of mixtures,
with direct application materials showing a more constant use pattern
from 1965 through 1970.
More significant is the steady decline in ammonium sulfate as a. percent
of all nitrogen consumed in fertilizers. From a level of 1 8 percent in
1955, the product fell to approximately 5 perctnt in 1973.
Foreign trade in ammonium sulfate has also fluctuated- Under the
influence of AID-financed exports, volume rose to over half of U- S.
production in 1966 and 1968. Since 1968, exports have declined to
92, 000 tons (of nitrogen) and 22 percent of production. Brazil has been
the primary customer.
Imports, essentially from Canada, have ranged from 7 to 14 percent of
U. S. consumption.
The future of ammonium sulfate demand is must uncertain. Asa low
III-l
-------
Ammonium suilate, 1955-1980: Estimated produc rioii, exports-imports and U.S. consumption
l/\; -ii.Li.ior
y -ar
l«55
1960
i '65
J '*b6
: ".(.I
l^bS
i ()69
1970
1971
1972
1973 ±1
1975 ^
'"°-'
1 ' 1971-72
;. 1971-75
P reduction
542
306
544
586
^79
558
526
198
598 1'
!97
185
150
150
dat from Fertilize
data from Commerc
E port
i29
50
202
338
220
293
162
104
126 I/
117
92
50
50
r Supply,
Import
(000
35
42
36
32
34
26
28
44
46 I/
55
54
50
50
1972-73,
ial Fertilizers , va
Direct
U. S, Consumption
application Mixtures
short tons of
104
107
162
166
175
167
157
161
185 2/
192
190
190
190
ASCS, USDA,
rious numbers
N)
244
191
216
114
218
124
235
277
333
243
257
260
260
Washington, D.C. April
Total 1
348
298
378
280
393
291
392
438
518
435
447
450
450
1973
Ammonium sul-
fate consumption
as % of Total M
18
11
8
5
7
4
6
6
6
5
5
5
4
, SRS, USDA, Washington, D. C.
Calculated from net domestic supply and direct application.
Ksmnated from Current Industrial Reports: Inorganic Fertilizer Materials M-28B.
K:,!imatcd by PPRA.
. jve: Fertile".- Trends, 1971, no. y-40, Tennessee Valley Authority, Mus cle Shoals , Ala,, December, 1971.
-------
analysis material which cannot support high shipping charges, it is
logical to expect usage to continue to fall as a percent of total nitrogen
consumption. The uncertainty is heightened by the shortages of natural
gas for producing anhydrous ammonia and the extrernely plentiful supply
of co-product and by-product ammonium sulfate at relatively low costs.
Best current estimates are that consumption will remain fairly constant
during the 1970"s at about the 1973 level of 447, 000 tons (of nitrogen).
Production of ammonium sulfate is from three sources: (1) prime pro-
ducers of ammonium sulfate; (2) co-product from synthetic fiber manufac-
turers (especially caprolacturn) and (3) by-product from coke ovens and
steel mills.
Reliance on these three sources has altered substantially in recent years,
with prime producers giving ground to the other sources, As recently
as 1966, prime product accounted for 41 percent of total production--
and co-product 33 percent. In 1973, prime had fallen to 24 percent, with
co-product output rising to 53 percent. By-product was 26 percent of
total production in 1966 and 23 percent in 1973.
Ammonium Sulfate Production by Source
1965-66 1972-73
(pet.) (pet.)
Synthetic 41 24
Co-product 33 53
By-product 26 23
100 TOO
Although total production declined only 17 percent from 1966 to 1973,
prime production fell approximately 50 percent. It is logical to assume
that this trend will continue, with production in the 1970's leveling off
at about 450, 000 tons (of nitrogen). This estimate is contingent on the
assumption that current problems in the nitrogen industry will be resolved.
However, if solutions are not forthcoming, the production of ammonium
sulfate could increase as farmers look to AS as a nitrogen source.
Ill-3
-------
Prices
Table III-2 presents estimated retail prices in cents per pound of nitrogen
for ammonium sulfate, ammonium nitrate and urea. These latter products
are major solid nitrogen sources. The retail price series represents
average prices paid by farmers throughout the United States and shows
remarkable stability compared to ether solid nitrogen fertilizer products
and declining consumption. Additionally, ammonium sulfate prices have
been higher in terms of cents per pound of nitrogen than either ammonium
nitrate and urea. As shown in Table III-2, this advantage has ranged
from 2. 0 to 3. 6 cents per pound of nitrogen. The primary explanation of
this is that ammonium sulfate is used on certain soils and crops as a
sulfur source, especially in California. Also, ammonium sulfate is a
product of choice in some cases for bl-nding and mixing.
As shown in Table III-2, ammonium sulfate has tended to follow primary
nitrogen prices, although it has risen faster since 1970 than either
ammonium nitrate and urea. Although, the differential for ammonium
sulfate may erode, ammonium sulfate prices will likely increase as
nitrogen products based on anhydrous ammonia increase due to short
supply brought about by natural gas limitations and increased feedstock
costs.
With the bulk of ammonium sulfate production (currently about 75 percent of
total production) coming from co-product and by-product sources, these
products will set the overall ammonium sulfate price. Pricing of co- or
by-product ammonium sulfate is very hazy, since the costs of producing
these goods are basically internal transfer prices (or credits to primary
product) that can be varied depending on market price. Prices for syn-
thetic or direct ammonium sulfate is limited by the actions of co- and by-
product producers.
Reliable wholesale price series from secondary sources are not available.
Based on our best judgement, wholesale prices are as shown in Table III-3.
Indicated spread between retail and wholesale prices is in the order of
$26. 00 per ton of ammonium sulfate.
2. Mixed Fertilizers
Demand and Supply
Reported data on consumption of mixed fertilizers require interpreta-
tion because of the manner of reporting. Some grades of N-P goods
reported as mixtures in U. S. Department of Agriculture fertilizer
statistics are direct application materials.
Ill-4
A
-------
Table III-2. Prices paid by farmers for selected solid nitrogen fertilizers, 1967-1973.
April of
Year
Ammonium Sulfate
Ammonium Nitrate
Differential
Price /Ib.N Index Price /Ib.N Index to AS
Urea
Differential
Price /Ib.N Index to AS
(cents /Ib.N)
1967
1968
1969
1970
1971
1972
1973
12.9
12.8
12.5
12.5
12.3
12.4
13. 1
100. 0
99.2
96.9
96.9
95.3
96. 1
101.6
11. 0
10.2
9.2
9.0
9.4
9.6
10.8
100.0
92.7
83.6
81.8
85.5
87.3
98.2
-1.9
-2.6
-3.3
-3.5
-2.9
-2.8
-2.3
10.9
10. 1
9.2
9. 1
9.0
8.8
9.8
(cents /Ib.N)
100.0
92.7
84.4
83.5
82.6
80.7
89.9
-2.0
-2.7
-3.3
-3.4
-3.3
-3.6
-3.3
Source: Selected issues of Agricultural Prices, Statistical Reporting Service, USDA, Washington, D. C.
-------
Table III-3. Retail and wholesale prices for ammonium sulfate, 1967-73.
April of
Year Retail
price Wholesale price
($/ton) ($/ton)
1967
1968
1969
1970
1971
1972
19.73
1973 (September)
Rounded
Source: Retail prices
54.
54.
52.
52.
52.
52.
55.
60.
00 34.00
00 28.00
00 26.00
00 26.00
00 26.00
00 26.00
00 27.00
00 N.A.
from Agricultural Prices, Statistical
Margin
($/ton)
20.00
26.00
26.00
26.00
26.00
26.00
28.00
N.A.
Reporting
Service, USDA, Washington, D. C. and wholesale prices
estimated by DPRA and J. M. Malk, fertilizer consultant.
Ill-6
-------
Harre and Mahan have provided an estimate of the mixed goods market
which classifies the types of goods. _' Their estimates are presented
in Table III-4.
They have classified mixed fertilizers into three types, based on the
source of 1*2^5' (1) ammoniation-granulation, based on NSP and/or
phosphoric acid and TSP; (2) blended ammonium phosphates or TSP
and nitrogen and potash materials and (3) liquids. Harre and Mahan
then made certain assumptions concerning the distribution of phosphate
materials into various product markets: (1) that the P^Og content of
all solid mixtures is the same (2) that all ammonium phosphates and
half of all TSP goes into bulk blending and (3) that direct application
of ammonium phosphates and TSP should be excluded.
The Harre and Mahan study snows that total mixtures have declined as a
percent of total fertilizer materials from 60 percent in 1962 to 47 percent
in 1972, with mixtures leveling off in absolute tonnage from 1967 through
1972.
At the same tiine, the composition of the mixtures market changed sig-
nificantly. In 1962, 77 percent of all mixed goods were classified as
ammoniation-granulation, in 1972 that percentage had declined to 50.
Bulk-blending increased its share of the mixed goods market by 113
percent, while liquid mixtures increased 386 percent.
This report is concerned only with the demand for the chemically mixed
goods and excludes bulk and liquid blending. In absolute terms, consump-
tion of these mixtures remained fairly constant from 1962 through 1967
at just over 12 million tons. In 1968 it rose to 13. 8 million tons and
then declined through 1971 to 9- 6 million tons. In 1972 consumption held
almost constant at 9- 7 million tons.
In summary, then, the consumption of mixed goods from ammoniation -
granulation plants has been affected by three developments: (1) growth
in direct application materials, (2) increased bulk blending and (3)
rising popularity of liquid mixtures.
The future role of ammonium-granulation plants is difficult to predict.
It is probable that the bulk-blending and liquid-mixing plants will con-
tinue to take a larger share of the mixed goods market. At the same
Edwin A. Harre and John N. Mahan, "The Supply Outlook for Blending
Materials," TVA Fertilizer Bulk Blending Conference. August 1 -2,
1973, No. Y-62, Tennessee Valley Authority, Muscle Shoals, Ala.,
Aug. 1973, p. 10.
Ill-7
-------
Table III-4. Estimated U. S. mixed fertilizer market, 1962-1972
(millions of tons of materials)
i
CO
Fe rtilizer
Year
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1980 I/
Ammoniation-
granulation
12.3
12.4
12. 1
11.3
12.2
12. 1
13.8
12.2
10.9
9.6
9.7
8.7
Percent
total
mixtures
77
74
69
63
65
61
70
63
57
49
50
_ -
Bulk
blends
3.0
3.5
4.5
5.5
5.0
4.4
4.0
5.0
5. 8
7.0
6.4
Liquid
mixture
0.7
0.8
0.9
1.0
1.4
1.8
2.0
2.2
2.5
2.9 ^
3.4
_ _
Total
mixtures
15.9
16.7
17.5
17.8
18.7
20.0
19.8
19.5
19.2
19.6
19. 4
"
Total
fertilizer
materials
26.6
28.8
30.7
31.8
34.5
37. 1
38.6
38.9
39.6
41. 1
41.2
"
Mixtures
as
% of total
60
58
57
56
54
54
51
50
48
48
47
Includes mixtures from NSP.
-/ Ma v not add precisely due to rounding. Excludes 16-48-0, 18-46-0, 11-55-0, 13-52-0, 23-23-0, 28-14-0
and 30-10-0 as direct application materials.
T /
Estimated by DPRA, using estimated NSP decrease of 1 million tons.
Source: Edwin A. Harre and John N. Mahan, "The Supply Outlook for Blending Materials," TVA Fertilizer Bulk
Blending Conference, August 1-2, 1973, No. y-62, Tennessee Valley Authority, Muscle Shoals, Alabama,
August, 1973, p. 10.
-------
time, the direct application of materials should follow the historic
trend of an increasing percentage of total fertilizer use. These two
trends make it unlikely that ammonium-granulation plant capacity
will expand during the 1970's- in the meantime, some older, smaller
plants may reduce output or close. Assuming the loss of NSP output
is carried forward in the same proportion to ammoniation-granulation
output, there will be a decline of at least another million tons of pro-
duct by 1980.
Leading Mixtures
There are approximately 500 grades (and possibly 3, 500 unreported
grades) of mixed fertilizers reported by the Crop Reporting Board of the
U. S. Department of Agriculture in Consumption of Commercial Fertil-
izers. _/ The top 150 of these grades accounted for approximately three -
fourths of all mixtures consumed in 1972. Table III-5 presents, by region,
the nine leading mixtures. They represent about 30 percent of total mix-
ture consumption, _' and they range from 1. 2 million tons of 6-24-24
to 366,000 tons of 10-20-10.
In recent years, this list of nine leading mixtures has undergone change.
The 1972 list contained six mixtures from the nine 1967 leading mixtures,
with three new listings -- 13-13-13, 10-20-20, and 10-20-10. This is
not a major shift in usage, since all three of these grades were among
the top twenty grades in 1967. In relative terms, however, 13-13-13
experienced a 92 percent increase in usage and 10-20-20 rose 35 per-
cent. All other leading mixtures decreased in usage -- with decreases
ranging from 9 to 47 percent.
The consumption of these mixtures is regionally concentrated. An exam-
ination of Table III-6 reveals that one to three regions account for about
two-thirds or more of each of the leading grades. For example, 98 per-
cent of 6-10-15 .s consumed in the South Atlantic and East South Central
regions the two North Central regions use 94 percent of the 8-32-16
and 84 percent of the 6-24-24.
_' The Series stopped reporting grades of less than 2,500 tons after 1967;
in that year, it reported 3, 899 grades plus an "unreported group. "
_' Excludes direct application diammonium phosphates 16-48-0, 18-46-0,
11-55-0, 13-52-0, 23-23-0, 28-14-0 and 30-10-0 from the Commer-
cial Fertilizer Series.
Ill-9
-------
Table III-5 . Leading mixtures by grade and region, June 30, 1972 (1,000 tons material consumed)
Grade
Region 6-24-24
New England
Mid -Atlantic
So. Atlantic
E. N. C.
W. N. C.
E. S. C.
W. S. C.
Mount.i in
Pacific
U. S. fetal 1,
% Total Mixtures
0.
35.
723.
242.
71.
75.
0.
0.
162.
6
9
2
6
2
9
9
6
1
1
5
5-10-1E)
0.
10.
638.
10.
0.
151.
0.
0.
0.
811.
4
02
7
6
0
01
7
1
01
0
1
10-10-10
23. H
175. 8
446.5
20. 7
4. 5
120.2
8.3
0. 1
9. 5
809. 4
4
5- 10-10
14.
157.
379.
16.
1.
11.
3.
0.
2.
587.
3
9
5
6
8
6
3
0
04
8
5
12-12
3.
8.
7.
198.
120.
13.
162.
0.
37.
553.
3
-12
5
6
9
6
7
7
7
1
8
6
13-13
0.
3.
24.
13.
22.
332.
102.
0.
4.
502.
3
-13
02
4
9
0
3
2
3
01
6
7
10-20-20
6.0
174.9
116.8
36.8
31.2
40. 7
44.3
0. 02
6. 0
456. 8
2
8- 3?.- 16 10-20-10
0.3
15.8
0. 4
204.4
185.5
2. 2
4. 7
0. 0
0.2
413. 6
2
6.
44.
7.
20.
14.
1.
267.
0.
2.
365.
2
7
8
7
6
0
6
1
5
1
6
Source: Commercial Fertilizers, Sp. Cr. 7 (!>-73), SRS , USDA, Washington, D. C. , May, 1973.
-------
Table III- 6. Percentage distribution of leading mixtures by region, 1972
Grade
Region ~6-24-24 5-10-15 10- 10-TO "~5- 10- 10 12-12-12 13-13-13 10-20-20 8-32-16 10-20-10
Mid-Atlantic 22 27 38
So.-Atlantic 79 55 65 26
E. N. C. 63 36 49
W. N. C. 21 22 45
E. S. C. 19 15 66
£ W. S. C. 29 20 73
(-H
I
Total 84 98 92 92 87 86 64 94 73
Source: Commercial Fertilizers, Sp. Cr. 7 (5-73), SRS, USDA, Washington, D. C. , May, 1973.
-------
On a national basis, the average analysis of the 19- 4 million tons of
mixtures is 9- 28 - 15. 74 - 14. 34 ^.
Prices
The only published data available on mixed fertilizer prices are the
average retail prices paid by farmers. These are reported in Table
III-7 for the nine leading grades discussed earlier.
Mixed goods orices followed the general downward trend of fertilizer
prices in 1968 and 1Q69, with prices bottoming out in 1969. The greatest
decline occurred in 6-24-24 and 12-12-12 prices. Grades 12-12-12,
13-13-13 and 6-24-24 experienced the least recovery by 1972. Table
III- 8 compares the 1972 changes in price and usage since 1967 for the
nine leading grades. There appears to be little correlation between price
change and consumption Change.
The 1972 retail prices per ton range from $51. ?0 for 5- -0-15 "c $88. 30
for 8-32-16. The retail prices reflect materials cost at the mixing plant,
including freight charges from the basic producers and the level of analy-
sis of the final product.
To reduce prices to a more understandable number; a weighted" retail
price of the seven leading mixtures was constructed. These mixed fer-
tilizers had a composite ""itrient content of about 8-15-15 in 1972 which
is similar to all mixtures. As shown in Table III- 9 mixed good prices
reached a lov. of $59. 35 per ton in 1969 and rose steadily to $71. 46 per
ton in 1973. Because, by definition, mixed goods are composed of two or
three different nutrients, the unit nutrient price is not directly comparable
to any single nutrient. In order to gain an indi ation o" this relationship
an imputed price based on retail prices of urea, triple superphosphate
and muriate of pjtash was developed. As shown ir. Table III- 9 , the per
pound price of nutrients in mixtures is about 1.5 cents greater than if
these nutrients had been purchased as direct materials.
Converting these data to an index basis, it can be seen that mixed goods
prices have generally followed the prices of basic nutrient at the retail
level, although the fall in tne price of mixed goods was not so drastic as
that for basic nutrients ui tne 'ate 19°0's and the subsequent increases
greater. (S^e Figar*. Iil-l.) This nas occ irr«=d in fac^ of a declining market.
- Commercial Fertilizers, Sp Cr 7 (5-73), 5RS, USDA, Washington,
D. C- , May 1973. Data adjusted to exclude direct application
ammonium phosphate rr.aut: rials.
Ill-12
-------
Table III-7. Mixed fertilizer prices , 1967-1973.
Selected Grades
Year (April 15) 5- 10- 10
1967
1968
1969
1970
1971
1972
1973
1967
1968
1969
1970
1971
1972
1973
$51. 60
51. 30
48. 70
51. 10
54. 00
55. 70
59. 80
100. 0
99.4
94. 4
99. 0
104. 7
107. 9
115.9
5-10-15 6-24-24 8-32-16 10-10-10 10-
$45. 80
45. 90
44. 30
47. 70
51.20
51.30
54. 50
100. 0
100.2
96.7
104. 1
111.8
112. 0
119. 0
$85. 70
81. 80
73. 20
75. 00
80. 30
81. 00
88. 00
100. 0
95.4
85. 4
87.5
93. 7
94.5
102. 7
N. A.
N.A.
82. 60
82. 90
87. 00
88.80
96. 50
Index
_
100.0-'
100.4
105. 3
107.5
116.8
20-10 10-20-20 12-12-12
$63.00 $70.00
62. 70
58. 80
59, 80
61.90
63.50
68. 70
1967 = 100
100. 0
99. 5
93,3
94.9
98. 3
100. 8
108. 3
68. 10
66. 10
69. 10
70. 40
72.30
77. 70
100. 0
97.3
94.4
98. 7
100.6
103.3
111.0
N.A. $70.60
N. A.
N.A.
N.A.
86. 80
84. 10
92.30
^
_
2 /
100. 0-
96.9
106.3
69. 10
64. 10
65.20
69. 10
69.50
75.30
100. 0
97.9
90.8
92.4
97.9
98.4
106. 7
13-13-13
$68.80
67.80
64.40
67. 00
66.60
67.80
70.50
100.0
98.5
93.6
97.4
96.8
98.5
102.5
-' 1969 = 100
2- 1971 - 100
Source: Agricultural prices, Pr. 1, SRS, USDA, Washington, D. C. , April issues for various years.
-------
Table III- 8. Price and consumption change for nine leading grades
of mixed fertilizers, 1967-1972
Grade
6-24-24
5-10-15
10-10-10
5- 10-10
12-12-12
13-13-13
10-20-20
8-32- 16
10-20- 10
% Price Change
-5.5
12. 0
0.8
7. 9
-1.6
- 1. 5
N.A.
N.A.
3. 3
% Consumption Change
-9.4
-21.6
-12. 0
-47. 4
-32.4
92. 0
34.8
-11.9
-19.6
III-14
-------
Table III-9- Weighted retail price for mixed goods
April of
Year
1967
1968
1969
1970
1971
1972
1973
Weighted
$/ton
64. 68
64. 08
59.35
61.92
65.66
66.55
71.46
price
Index
100.0
99. 1
91. 8
95.7
101. 5
102.9
110. 5
Price
Actual
8.9
8.8
8. 1
8.3
8. 7
8.8
9.5
per pound^ of
nutrient
Imputed Difference
7.8
7. 1
6.7
6.8
7. 1
7. 1
7.8
-1.2
-1.8
-1.3
-1.6
-1.5
-1.7
-1.6
- Based on prices and quantities of 5-10-10, 5-10-15, 6-24-24, 10-10-10,
10-20-10, 12-12-12, and 13-13-13.
Imputed on basis of retail prices of urea, triple superphosphate and
muriate of potash.
Ill- 15
-------
Price
Index
114 .
110
106
102 .
98
94 -
90
86
1967
1968
1969
1970
Year
1971
Figure III-1. Retail price indexes oi mixo'l fertilisers.
1972
1973
Per ton of material
Actual per pound of nutrient
-Imputed per pound of nutrient
-------
Pricing in these industries is affected by technical crop production
factors. Soils and crops requiring sulfur applications tend to continue
the use of NSP as sulfur sources. Continued use of mixed goods, although
generally believed to be uneconomic sources of fertilizer as opposed to
direct application and mechanical blending (or liquids) appears to be con-
ditioned by special crop requirements and the tradition of using mixed
goods as a fertilizer material. An example of the former situation is
the use of 6-24-24 as a soybean fertilizer. Soybeans are nitrogen fix-
ing plants and, thus, require only small quantities of nitrogen as a
starter fertilizer before the plant reaches sufficient size to fix its own
nitrogen.
Wholesale prices series are not available in published form. Because
mixed goods utilize large quantities of basic fertilizer materials as
raw materials (which represent the major cost of production), the indus-
try has tended to price output at 142 percent of the cost of raw materials.
Because some of the producers have captive input sources, i.e. , normal
super, phosphoric acid and/or nitrogen products, raw material prices will
vary depending on company transfer price policy. Traditionally, firms
with a phosphate mining position have tended to transfer phosphate mat-
erials at a high price in order to raise the rock price at the mine and
maximize depletion allowances.
B- Price Changes
The price changes exhibited over recent years suggest that future price
changes are indeed likely for these fertilizer products. Events since
the de-control of fertilizer prices in October, 1973, bear this out. Since
de-control, fertilizer prices have virtually sky-rocketed, with nitrogen
prices expected to be maybe 50 percent higher by the spring of 1974.
Any analysis of the fertilizer situation leads to the conclusion that prices
will change, however, the real question is the degree of change.
Overall, it is anticipated that fertilizer use will grow from increased de-
mands for farm output, probably in the order of 2. 0 to 2. 5 percent
annually. Additional growth attributable to movement toward more op-
timum fertilization rates, technology changes, and increased acreages
is expected. Domestic consumption will be the primary demand factor
for nitrogen and potash products. In the case of phosphate, exports
are anticipated to contribute toward demand growth.
Supply trends are mixed, with domestic nitrogen supply now appearing
to be relatively constant and phosphate supply increasing. Although most
potash is imported, supply is expected to keep pace with market growth.
Ill-17
-------
The nitrogen supply appears to be fixed by existing capacity and
natural gas supplies. Utilization rates will probably be limited to
about 90 percent by feedstock availability. Phosphate capacity is ex-
panding and utilization rates are likely to fall from the present level
of 95 percent to the lower 70's during the last half of the 1970's.
Tables 111-10 and III-ll contain estimates of demand, supply and in-
dicated net trade for nitrogen and phosphate. Both the nitrogen and
phosphate situation appears uncertain. In nitrogen the amount of new
anhydrous ammonia caprolactum and imports are uncertain. The
phosphate situation depends on the size of the export market.
These phosphate projections presume that exports will stabilize about
1. 0 million tons and that operating rates will be reduced. If exports
increase, operating rates can be increased correspondingly; however,
foreign producers are rapidly developing phosphate production and
great export expansion does not appear likely.
All of this suggests that overall nitrogen prices will continue to
strengthen in the face of expected shortages, reliance on imports,
and continued growth of nitrogen use. Phosphate prices on the other
hand are expected to weaken.
Estimates of price elasticity for fertilizer in general is . 6 in the
short run (1-2 years) and -1. 8 in the long run Estimates for spe-
cific products and regions are not available. Inspection of price and
quantity data suggest that demand for nitrogen is more elastic than
the demand for phosphate and potash and that the demand for ammon-
ium sulfate and mixed goods is less elastic than nitrogen.
With the growing demand and expected nitrogen supply tightness, it
seems likely that prices for nitrogen products in general will increase
over the next few years, particularly in the near term. Current price
expectations for nitrogen product s, 100 percent or more over 1973, "'ould
suggest that perhaps nitrogen demand is not as elastic, in face of a
deficit, as previously thought. The longer run Situation is confused,
but a tailing off is expected in the last half of the 1970's to a long term
price increase of 10 to 15 percent.
With ammonium sulfate prices generally following the general price
level and being more inelastic, prices should strengthen. However, it
should be noted that since co-product and by-product ammonium sulfate
constitute the bulk of production, they will set the pace for direct pro-
duction of ammonium sulfate.
Tweeten, Luther. "Market Growth Factors," Searching the Seventie
TVA, Sept. , 1971.
Ill-18
-------
Table III-10. Demand and supply balance for nitrogen, 1970-1980.
Year
1970
1971
1972
1973L/
1974!/
19753/
1976L/
19773_7
197837
1979I/
1980L/
Fertilizer
Million
7. 5
8. 1
8. 0
8. 7
9.2
9. 7
10.2
10. 8
11. 4
12. 0
12.7
Demand
Industrial
tons of N -
2.9
3. 0
3. 2
3. 3
3. 5
3. 7
3.9
4. 1
4.3
4. 6
4.8
Supply (Ammonia)
Total
10. 4
11. 1
11. 2
12. 0
12. 7
13. 4
14. 1
14. 9
15. 7
16. 6
17. 5
Capacity Production!/
Million
15. 4
13.9
13.9
13.9
14. 3
14. 7
14. 7
14. 7
14. 7
14. 7
14. 7
tons of N
11. 3
11. 5
11. 7
12.4
12.9
13.2
13. 2
13.2
13.2
13.2
13.2
Utilization
(Pet)
73
83
84
89
90
90
90
90
90
90
90
Net Trade
4/
Imputed Trade
Million tons of N
. 5
. 1
.2
. 3
- .2
- .2
- .9
-1.7
-2.5
-3.4
-4.3
' Excludes about . 4 million tons oi co- and by-product ammonium sulfate.
Preliminary.
_' Estimated.
4/ Supply minus demand equals imported trade; 1970-73 estimates are reported exports in excess of imports.
Source: Estimates based on data from David, M. L. , et al. Economic Analysis of Proposed Effluent
Guidelines for Fertilizer Industry, EPA-230/1-73-010, Nov. 1973.
-------
Table III-11. Demand and supply balance for phosphates, 1970-1980.
Year
1970
1971
1972
1973 L/
1974 1/
1975 U
3 1976 1/
N 1977 1/
0 1978 1/
1979 I/
1980 L/
Demand
Supply
Phosphoric Acid
Fertilizer
( Million tons
P2°5>
4.6
4.8
4.9
5. 1
5.3
5.4
5.6
5.8
5.9
6. 1
6.3
Capacity
Production
(Million tons P2O5)
5.5
5. 5
5. 7
6.4
7. 1
8.8
8. 8
8.8
8.8
8.8
8.8
4.6
5.2
5.4
5.9
6.0
6.0
6.3
6.6
6.8
7.0
7.3
Utilization
(Pet)
84
95
95
92
85
68
72
75
77
80
83
Acid for
Fertilizer
4. 4
4. 7
5.0
5.3
5. 4
5.4
5. 7
5.9
6. 1
6.3
6.6
Other
Sources
- Million
1. 3
1.2
1.3
1. 3
1.0
.9
.9
.9
.9
.9
.9
Total
tons PC
5. 7
5.9
6.3
6.6
6.4
6.3
6.6
5.8
7.0
7.2
7.5
Net Trade
or
Imputed Trade4.'
D -
.6
.6
.7
1. 1
1. 1
.9
1.0
1.0
1. 1
1. 1
1.2
Assumes 10 percent losses and other fertilizer uses unaccounted for by thermal acid.
Preliminary
\I Estimated
_' Supply minus demand equals imported trade; 1970-73 estimates are reported exports in excess of imports.
Source: David, M. L. , et al. , op. cit.
-------
Phosphate prices may weaken and may offset price increases in nitrogen
products. With a stable condition for potash, prices stabilize or drift
upward slightly and then tail off with nitrogen prices. Current shortages
in basic fertilizers may create some shortages in mixed goods with
corresponding upward price movements. With the estimated elasticity
being less for mixed goods, moderate increased production costs might
be passed through, particularly if other sources also have higher costs.
Ill-21
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IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The economic i npact analysis utilized the basic industry information
developed in Chapters I-III plus the pollution abatement technology and
costs data provided by the Environmental Protection Agency. The im-
pacts examined included:
Price effects
Financial effects
Production effects
Employment effects
Community effects
Other effects
The required rnpact analysis was not a simple sequestial analysis but,
rather, it comprised a number of interacting steps on feedback. The
schematic of the analytical approach is shown in Figure IV-1. Due to
the fundamental relationship among potential plant shutdown effects
(financial and production effects) and other impacts, a disproportionate
amount of time -as devoted to the plant closure analysis.
The fundamental Aspect of the impact analysis is similar to that normally
done for any capital budgeting study of new investments. The problem is
one of deciding whether a commitment of time or money to a project is
worthwhile in terms of the expected benefits derived. The problem is
complicated by the fact that benefits and investments will accrue over a
period of time and that, in practice, the analyst is not sufficiently clair-
-. oyant nor physically able to reflect all of the required information which,
by definition, must deal with projections. In the face of imperfect and
incomplete information and time constraints, the industry segments are
described in t*he form of financial budgets of model plants. Key non-
quantifiable factors are incorporated into the analytical thought process
to interpret the quantified data. Actual financial results deviate from
the model results, and these variances are considered in interpreting
the findings based on model plants.
A. Fundamental Methodology
The fundamentals for analysis are basic to all impacts. The core
methodology described here is a unit with the specific impact analysis
discussed under the appropriate heading following this section.
IV-1
-------
Industry
Industry
Structure
Industry
Financial
Data
EPA Pollution
Control Costs
Base
Closures
Plant Closures
Due to Control
Employment
Effects
Community
Effects
Segmentation
Model Plant
Parameters
Budget
Data
Development
Model
Financial
Analyses
Price
Increases
Shutdown
Analysis
Production
Expected
Effects
Foreign
Trade
Effects
Industry
Pricing
Financial
Profiles
Figure IV-1. Schematic of impact analysis of efflue .. control guidelines.
IV-2
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The core analysis for this inquiry was based upon synthesizing the
physical and financial characteristics of the various industry segments
for representative (model) plants. Estimated financial profiles and
rash flows were presented in Chapter II. The primary factors involved
in assessing the financial and production impact of pollution control are
profitability changes, changes which are a function of the cost of pollu-
tion control and the ability to pass along these costs in higher prices.
In reality, closure decisions are seldom made on a set of well-defined
and documented economic rules. They include a wide range of personal
values, external forces such as the ability to obtain financing, or
consideration of 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. 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 pro-
cedures. This is especially likely to occur among small,
independent operators who do not have effective cost
accounting.
2. Antiquated and depreciated plant and equipment too in-
sufficient to modernize. Production continues as long
as management can cover labor and materials costs
and/or until the equipment is economically inoperative.
3. Personal values and goals associated with business owner-
ship that override or ameliorate rational economic rules.
This complex of factors may be referred to as a value of
psychic income.
4. 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 operation may continue indefinitely
because the total enterprise is profitable.
IV-3
-------
5. The owner-operator expects that adverse con-
ditions and consequent losses are temporary.
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.
6. There are very low (approaching zero) opportunity costs
for the fixed assets and for the owner-operator'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.
7. The value of the land on which the plant is located is
appreciating 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.
These factors 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 sufficient to provide useful
and reliable insight into potential business responses to required invest-
ment and operating costs in pollution control facilities.
The following discussion presumes investment in pollution control
facilities. However, the rules presented apply to on-going operations.
In the simplest case, a plant will be closed when variable expenses (Vc)
are greater than revenues (R) since by closing the plant, losses can be
avoided.
A more probable situation is 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 likeiy 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
revenues will increase to cover cash outlay. 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. The
timing of such closures, however, is difficult to predict.
IV-4
A
-------
The next level is where TCc < R. If TCc < R it is likely that
plant operations will continue so long as the capitalized value of earnings
(CV) at the firm's (industry) cost of capital is greater than the realiz-
able value (S) of sunk plant investment. If S >CV or CV - S > O, the firm
could realize S in cash and reinvest and be financially better off, assum-
ing reinvesting at least at the firm's (industry) cost of capital.
Computation of CV involves discounting the future earning flows to
present value through the discounting function:
t
NPV Y, A (l+i)"n
n
where
NPV = net present value
A = a future value in n year
i = discount rate at cost of capital
n = number of conversion periods, i. e. ,
1 year, 2 years, etc.
It should be noted that a more common measure of profitability is
return on investment (ROI) where profits are expressed as a percent of
invested capital (book value), net \vorth or sales. These measures
should not be viewed so much as different estimates of profitability as
compared to present value measures but rather an entirely different
profitability concept.
The data requirements for ROI and NPV measures are derived from the
same basic financial information although the final inputs are handled
differently for each.
1. Returns
For purposes of this analysis, returns for the ROI analysis were
defined as pre-tax and after-tax income and for the NPV analysis as after<
tax cash proceeds. The computation of each is shown below:
Pre-tax income = (R-E-I-D)
After-tax income = (1 - T) x (R - E - I - D)
IV-5
-------
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. Depreciation
is included in the NPV measure only in terms of its tax effect and is then
added back to obtain cash flow.
A tax rate of 22 percent on the first $25,000 income and 48 percent on
amounts over $25,000 was used throughout the analysis. Accelerated
depreciation methods, investment credits, the carry forward and carry back
provisions were not used due to their complexity and special limitations.
2. Investment .
Investment is normally thought of as outlays tor fixed assets and working
capital. However, in evaluating closure of an on-going plant with sunk
investment, the value of that investment is its liquidation or salvage value
(opportunity cost or shadow price), i/ For this analysis, sunk investment
was taken as the sum ol liquidation \alue of fixed assets plus 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 rationale for using total shadow priced investment was that the cash
flows do not include interest expenses with interest charges reflected in
the weighted cost of capital. This procedure requires the use of total
capital (salvage value) regardless of source. An alternative would be to
use as investment, net cash realization (total less debt retirement) upon
liquidation of the plant. (In the single plant firm debt retirement would
This should not be confused with a simple buy-sell situation which
merely involves a transfer oi 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-6
-------
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, interest and
debt retirement costs would 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 simpli-
fies 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 were from estimates provided
by EPA. Only incremental values were used, to reflect in-place
facilities and only the value of the land for control was taken as a
negative investment in the terminal year.
The above discussion refers primarily to the NPV analysis. Investment
used in estimating ROI was taken as invested capital--book value of
assets plus net working capital.
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 as
expected performance. In this latter case, it is also called the cost of
capital. The cost of capital is defined as the v.eighted 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
resonable bounds. The methodology was explained in Chapter II, pages
5-7, and will not be repeated here.
4. Construction of the Cash Flow
The cash flow to be used in the analysis of BPT (Best Practical Tech-
nology) and BAT (Best Available Technology) effluent control and will be
constructed as follows:
IV-7
-------
1. Sunk investment (salvage market value of fixed assets
plus net working capital) taken in year tQ, assumed to be
equivalent to 1976,
2. After tax cash proceeds taken for years t, to tn
3. Annual replacement investment, equal to annual current
depreciation taken for years t. to tn>
4. Terminal value equal to sunk investment taken in year tn.
5. Incremental pollution control investment taken in year t
for 1977 standards and year t/ for 1983 standards.
6. Incremental pollution expenses taken for years t. to t
for 1977 standards and years t to t for 1983 standards.
if additive to the 1977 standards.
7. Replacement investment taken in year t on incremental
pollution investment in BPT on assumption of life of
facilities as provided by EPA,
8. No terminal value of pollution facilities was taken in year t .
Land value was assumed to be very small and/or
zero, unless the costs provided indicate otherwise.
The length of the cash flow will depend upon the life of the pollution control
technology provided by EPA. The length of the cash flow equaled the life
of control equipment specified for 1983 installation.
Construction of the cash flows for analyzing new source standards was
similar to BPT and BAT, excepting plant investments. Costs and returns
were based on current values as though the equipment was now being built.
B. Price Effect
As shown in Figure IV-1, price and production effects are interrelated.
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, thus the feedback loop shown in Figure IV-1.
Solution of this requires knowledge of demand growth price elasticities,
supply elasticities, the agree to which regional markets exist, the
degree of dominance exerted by large firms in the industry, market
concentration exhibited by both the industry's suppliers of inputs and
IV -t
-------
purchasers of outputs, organization and coordination within the industry,
relationship 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 determina-
tion of the market price, a purely quantitative approach to the problem
of price effects was not feasible for this study. Hence, the simul-
taneous considerations suggested above were made. The judgment
factor was heavily employed in determining the supply response to a
price change and alternative price changes employed.
As a guide to the analysis of price effects, the estimated required price
increase to leave the model plant as well off after pollution control,
according to costs provided by EPA, as before were computed. The
required price increase was computed by using the NPV analysis
described above, but dealing only with the incremental pollution cash flow
and sales.
Application of the above NPV procedure to pollution control costs
yielded the present value of pollution control costs (i. e. , investment plus
operating costless tax savings excluding interest expenses). Given this,
the price increase required to pay for pollution control was calculated
as
(PVP) (100)
P = (1-T) (PVR)
\vhere:
P = required percentage increase in price
PVP - present value of pollution control costs
PVR - present value oi gross revenue (sales)
starting in the year pollution control
is imposed
T = tax rate appropriate following imposition
of pollution control
The next step was to evaluate the required price increases against
expectations regarding the ability to raise prices. As pointed out above,
this was a function of a number of factors. In cases where a few
IV-9
-------
large plants represented the bulk of production, their required price
increase set the upper limit. For the products in this study, other
factors were overriding. These included expected price changes for
basic fertilizer materials due to future supply-demand conditions and
impacts such as pollution control, as well as the declining consump-
tion of these products per se. From this quantitative analysis an
initial estimate of expected price increases was made.
Following this, the initial shutdown analysis (production curtailment)
was made. The decrease in production was evaluated in the light of
price impacts and, when warranted by production decreases, the ex-
pected price increase was revised upward.
C. Shutdown Analysis
The basic shutdown analysis was based upon the technique described
above under Section A and the expected price increase from the preceding
step. In addition to this analysis, other analyses also established estim-
ated plant closures without imposition of pollution control, or so-called
"base line" closures. These involved the same financial analysis tech-
nique, without pollution control, and the factoring in of other information
such as trends in the industry itself and in competing products.
Based on the results of the NPV analysis of model plants, likely closures-
identified where NPV O. Segments or plants in the industry were
equated to the appropriate model (on interpolation) results. Mitigating
items, such as association with a complex, captive raw material
sources, unique market advantages, existing in-place controls, and the
ability to finance new non-productive investment (cash flow) were factored
in quantitatively to obtain an estimate of likely closures. If BAT costs
differed from BPT costs, closure estimates were required for each con-
dition.
The analysis of new source standards was the conventional NPV feas-
ibility analysis based upon expected prices. In this case, it was a matter
of whether new plants were built without or with effluent controls.
The impact of these closures were evaluated as the next step (see Figure
IV-1). Where production impacts were of sufficient magnitude, the
expected prices were re -evaluated and the shutdown analysis repeated.
IV-10
-------
D. Production Effects
Potential production effects included changes of capacity utilization rates>
plant closures, and the stagnation of industry growth. Plant closures
were offset in total or in part by increases in capacity utilization on the
part of plants remaining in operation. Expected new production facilities
were estimated. The end result was an estimated production under the
conditions presumed for the above closure analysis.
The estimated production under these expectations was feedback into
the price analysis to verify or revise expected price changes.
E. Employment Effects
Given the production effects of estimated production curtailments,
potential plant closings, and changes in industry growth, a major consider.
ation arose in the implications of these factors upon employment in the
industry. The employment effects stemming from each of these produc-
tion impacts in terms of jobs lost was estimated using the model plant
information.
Locations of closed plants with respect to their importance to that loca-
tion's labor base were evaluated. The analysis was directed toward re-
employment potentials.
F. Community Effects
The direct impacts of job losses upon a community are immediately
apparent; however, in many cases, plant closures and cutbacks have a
far greater impact than just the employment loss. These multiplier
effects were reflected in evaluating payroll losses and in income multipliers.
In addition to these direct and indirect impacts on communities, broader
potential impacts were evaluated. Fertilizer production losses could
result in increased food costs through curtailed farm production (assum-
ing a lack of substitutes). In turn, this would have widespread implications
for the general economy and feed and fiber industries.
IV-11
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G. Other Effects
Other impacts involving qualitative analysis, such as direct balance of
payments effects were included in the analysis.
IV-12
-------
V. EFFLUENT CONTROL COSTS
Water pollution control coats used in this analysis were based on cost
parameters furnished by the Effluent Guidelines Division of the Environ-
mental Protection Agency from a study by Davy Powergas, Inc. _'
For the purposes of the impact analysis, three levels of effluent control
were 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. Cost data
were not provided for these standards.
Effluent limitations guidelines for normal superphosphate were developed
for an earlier report; the costs and impact analysis will be included in a
revision of that earlier report. _'
A. Proposed Control Requirements
For all segments in this study, the proposed control guidelines are the
same --no discharge of effluents BPT, BAT and NSPS.
Within each segment, the technology discussed is the same for BPT,
BAT and NSPS.
' U. S. Environmental Protection Agency, Draft Development
ment for Effluent Limitations Guidelines and Standards Performance -
The Fertilizer Manufacturing Industry, prepared by Davy Powergas.Inc.
Economic Analysis of Proposed Effluent Guidelines for the Fertilizer
Industry, EPA-230/1-73-010, U. S. Environmental Protection Agency,
Office of Planning and Evaluation, Washington, D. C. , November, 1973.
V-l
-------
1. Ammonium Sulfate
The control technology consists of a trench and sump pump system,
which collects and recirculates minor contaminated effluent streams
from crystal wash, spills and leaks and where it exists, gas conden-
sate. The collected effluents are returned on a controlled basis to
the process stream.
2. Mixed Fertilizers
The control technology for ammoniator - granulators and for ammonia-
tors is a closed-loop, contaminated water system which includes a re-
tention pond for settling and clarifying the contaminated water and a pump
to return the clarified water to the process equipment. Process water is
used in a wet scrubber to remove noxious gases and particulates. In-
soluble particulates must be partially removed from the scrubber water
by using a hydrocyclone or by settling (gravity) in the retention pond,
The pond solids must be removed (mucked out) periodically. Hydro-
cyclone equipment can return reasonably well-concentrated particles
to the granulator as slurry.
B. Present Effluent Control Status
Information on the present status of effluent control for the various seg-
ments in this study has been furnished by EPA. In the mixed fertilizer
segment, the estimate of "in place" technology is based on a small sample
of operating plants.
1. Ammonium Sulfate
According to EPA, all six of the synthetic plants meet the no-discharge
standard.
In the by-product (coke oven) group of plants, EPA reports no in-place
technology for any of the 46 plants. These are essentially very old
plants, and presumably, they do not meet the no-discharge standard.
2. Mixed Fertilizers
Estimates of in-place technology from EPA indicate that 85 percent of
all mixed fertilizer plants have wet scrubbers. An estimated 25 percent
V-2
-------
of plants with wet scrubbers do not have retention ponds. Thus, 15
percent of all plants do not have wet scrubbers and an additional 21
percent do not have ponds. This indicates that about a third of all
plants do not meet no-discharge standards.
DPRA has identified 57 mixed manufacturing plants with an on-site
normal superphosphate plant. EPA estimates that all of these NSP
plants meet the no-discharge standard and will not need further pollu-
tion controls .
C. Effluent Control Costs
Investment and annual operating cost data have been provided by EPA,
based on August, 1971 figures. These costs have been adjusted to re-
flect 1973 dollar values, using the EPA Sewage Plant Treatment Cost
index.
Mixed fertilizer manufacturing analyzed in Phase I of this study included
three types of plants: (1) ammoniator-granula tors, (2) ammoniators,
and (3) ammoniator-granulators with a normal superphosphate plant
on-site. EPA furnished just one set of effluent guidelines data for
mixed fertilizer manufacturing plants, assuming that all three types
mentioned above are the same.
Therefore, in the analysis of the impact of pollution control costs, the
various mixed fertilizer model plants presented eerli.i in thii si-.:.'',
will be considered identical in terms of pollution control investment
and operating cost requirements (except for variations in size and
product throughput). No pollution control costs will be included for
the NSP component in an A.G. NSP complex. The rationale for this
assumption is that all NSP plants reportedly have in-place pollution
controls; therefore, pollution control costs are already included in the
transfer price of NSP charged to the ammoniator-granulator plants.
1. Investment Costs
Investment costs (and annual operating costs) are summarized for each
segment in Table V-l.
Ammonium sulfate - The investment costs for ammonium sulfate plants
are for a small concrete sump, a pump, piping and control instruments,
EPA furnished data for a small plant (12, 000 to 18, 000 TPY), at a cost
of $8,912 (1973) values). A scale factor of . 6 to estimate investment
costs for the two model plants used in this study. _L'
'Cost_A\ /Capacity A
Cost B / ' [Capacity Bl V-3
-------
The technology and the costs are reportedly the same for synthetic and
for by-product (coke oven) plants.
Mixed fertilizers - EPA based its estimated investment for mixed
fertilizer manufacturing on a 40 tons per hour plant. The investment
cost of $245,700 (1973 values) includes a small retention pond
(12' x 150' x 10'), a wet scrubber, a pump, fans, ductwork, hydro-
cyclones, piping and control instruments.
A scale factor of . 6 to estimate investment for the various model
plant sizes was used in the study of mixed fertilizer plants.
2. Annual Operating Costs
Estimated annual incremental costs for effluent control are reported in
Table V-l for ammonium sulfate and mixed fertilizer plants. These costs
were provided by EPA, based upon the following considerations:
Energy and power
Ammonium sulfate $.05/hr
Mixer fertilizers $3.09/hr
Operation and maintenance 4 percent of investment
Depreciation 10 percent of investment
Interest 7. 5 percent of average
investment
Mixed fertilizer plants operate on a seasonal basis, depending on
location; thus, in .calculating estimated operating costs for mixed
fertilizer manufacturing, a critical variable is the length of the oper-
ating season. EPA's estimates assumed that the 40 TPH plant oper-
ated for four months at two shifts per day, six days a week and for six
months at one shift per day, five days a week, for a total of 2,702 hours.
DPRA's model plant estimates were developed on different operating
seasons. Accordingly, cost estimates for eftluent controls reflect
.h.-se different operating hours. Plants in the Northern regions
generally use a shorter reason.
Table V-2 shows thest annual incremental costs as a percent of base
operating costs and as a cost per ton of product and as a percentage of
plant net back price. The costs as a percent of base costs are one per-
._<-.nt or le.
-------
Table V-l. Estimated investment and annual costs for effluent control technology
in fertilizer manufacturing
(1973 dollars)
i
01
Base plant
Ammonium Sulfate
Tons per year
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation- 10 percent
Interest (7. 5% X .5)
Total
Mixed Fertilizer Manu-
facturing
Tons per hour
Operating hours per year
Investment
Annual costs
Energy and power
O & M
Subtotal
Depreciation- 10 percent
Interest (7. 5% X . 5)
Total
12,000
$ 3,912
420
356
776
891
224
$ 2,001
40 10
2,702 2,300
$ 245, 700 $106,900
8,349 1.771
9,828 4,276
18,177 6,047
24,570 10,690
9,214 4,009
$51,961 $20,746
75 TPD
24,500
$ 13, 711
858
548
1,406
1, 371
514
$ 3,291
10 15
1,000 3,250
$ 106,900$ 136,400
770 3,758
1,859 5,456
2,629 9,214
10,690 13,640
4, 009 5, 115
$17,328 $27,969
200 TPD
70, 000
$25, 709
2,450
1, 023
3,478
2, 571
964
$ 7,013
15 20
2,000 3,600
$ 136,400 $162, 000
2,310 5,544
3,354 6,480
5,664 12,024
13,640 16,200
5,115 6,075
$24,419 $ 34,299
20 30 30
2,250 3,600 2,250
$162, 000&06, 700206, 700
3,456 8,316 5,198
4, t50 8,268 5,168
7,515 16,584 10,366
16,200 20,670 20,670
6,075 7,751 7,751
$29, 790$45,005$38,787
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Table V-2. Estimated effluent control operating costs as a percent of
base costs, as a cost per ton of product and percent of base price
V - 6
L
Percent of Cost Percent of
Base Costs per ton Base Price
Ammonium Sulfate
24~500 TPY 0.3 $0.13 0.3
70, 000 TPY 0.3 0. 10 0. 3
Mixed Fertilizers (Amm-
oniation . granulation)
10 TPH (1 , 000 hrs) 2.3 $1.73 2.4
10 TPH (2, 300 hrs) 1.3 .90 1.3
15 TPH (2, 000 hrs) 1.2 .81 1.1
15 TPH (3, 250 hrs) 0.8 .57 0.8
20 TPD (2,250 hrs) 1.0 . c6 0. 'J
20 TPH (3, 600 hrs) 0. 7 . 45
30 TPD (2,250 hrs) 0.8 . 57
30 TFD (3, 600 hrs) 0. o . 42
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VI. IMPACT ANALYSIS
The impacts to be considered in this analysis will include the following:
A. Price effects
B. Financial effects
C. Production effects
D. Employment effects
E. Community effects
F, Balance of payments effects
For a variety of reasons, no impact analysis will be included in this
study for ammonium sulfate. These reasons are as follows:
for synthetic production - According to EPA, the six plants
in this subsegment have control technology already in place.
No further impact analysis will be performed for these plants.
for by-product (caprolactum and acrylic) - The plants in this
subsegment were included for perspective only. The impact
analysis for these plants have been covered in another EPA
study under another product classification.
for by-product (coke oven) - Though these plants will be subject
to effluent controls, no financial profiles were developed under
Phase I of this study because of their unique relationship to the
steel industry. There are no separate financial data available
for ammonium sulfate production in coke-oven plants because
the costing and pricing of the product are functions of internal
accounting and management decisions; thus meaningful financial
profiles for such operations cannot be developed.
Since the proposed pollution control investment for ammonium
sulfate is minor, it is unlikely that a coke oven would be shut
down to avoid installation. Furthermore, the incremental in-
vestment and annual cost per ton of ammonium sulfate would
be insignificant, especially in relationship to the on-going coke-
oven operation. Any increased cost for ammonium sulfate
production would undoubtedly be absorbed into the costs of
producing steel.
VI-1
-------
For these reasons, no further analysis for coke oven ammonium
sulfate plants will be included in this study.
The impact analysis which follows will apply to mixed fertilizer manu-
facturing only. As noted in Chapter V, the three types of mixed ferti-
lizer manufacturing plants have been treated alike for pollution control
investment and operating costs. Each will be handled as a subsegment
for model plant impact analysis.
A. Price Effects
The following analysis of the impact of pollution controls on mixed
fertilizer manufacturing shows that effects on prices will be minimal.
There are two major reasons for this conclusion: First, about 85 percent
of all mixed fertilizer manufacturing plants have most of the pollution
control technology in place, making general price increases due to
pollution control unlikely. Second, pollution control costs amount to a
relatively small percentage of base operating costs, as was snown in
Table V-2. Most of the impacted model plants would have pollution con-
trol costs in t.ae magnitude of 1 to 1.5 percent of base operating costs.
Normally, wit i so much pollution abatement tec mology in place, one
would not expect any of the ircreased costs to be passed on in the ferti-
lizer industry. However, the mixed fertilizer manufacturing segmen;
nas some locational characteristics whicn will permit certain plants to
pass on some increased costs due to pollution controls. In particular,
plants whica are sufficiently insulated from competition m their locales
could undoubtedly pass on a part or all of the increased costs of the
amounts described earlier. Where a plant is the orl\ supplier of N-P-K
grades within a radius of 100 miles or more, one or two percent price
increases would be readily passed on.
These relatively small pri.ce differentials must also be viewed in the lia'it
of general pri^^ movements. Fertilizer prices ^ave exploded upward
since the lifting of controls in October, J973. Prices of selected grades
of mixed fertilizers rose from 45 to 63 percent from September 15, 1973
to April 15, 1974, as shown in Table VI-I. Viewed in this perspective,
even two or tiiree percent increases appear insignificant.
-------
Table VI-1. Prices paid by farmers for selected grades of mixed
fertilizers, September 15, 1973 and April 15, 1974
September 15,
1973
5-10-10
5-10-15
6-24-24
8-32-16
10-10-10
10-20-10
10-20-20
12-12-12
13-13-13
$ 61.
56.
90.
99.
70.
80.
95.
78.
72.
50
70
80
50
80
60
00
90
30
April 15,
1974
$89.
88.
139.
155.
103.
131.
140.
123.
110.
50
00
00
00
00
00
00
00
00
Percent
Increases
46
55
53
56
45
63
47
56
52
Source: Agricultural Prices, SRS, USDA, .April, 1974.
-------
The relative insignificance of potential price effects can also be seen in
Table VI-2. It presents the percentage price increases whicii would be
required to maintain model plant profitability, using 1973 financial data.
The table indicates that, except for two of the model plants (the smallest
ammoniator and ammoniator granulator), required price increases are
less than 2 percent.
These conclusions about price effects rest on the assumption that 1973
price-cost relationships are representative of those ti-iat will prevail in
1977 and 1983. Only some generalizations are possible to justify this
assumption. Certainly, 1974 profits and prices are exceptionally high
by past standards. Furthermore, the depressed industry conditions of
the late 1960's and early 1970's do not reflect "average" conditions.
Thus, even though 1973 may not represent any specific future point of
reference, it offers a suitable vantage point for normal price-cost re-
lationships when compared to earlier or later years.
Based on t.ie foregoing commentary, tnere should be minor price increases
attributable to pollution controls in the mixed fertilizer manufacturing
segment. These price increases, amounting to one to two percent, should
not be general in nature but can be expected to occur in certain limited
geographic markets. These increases will appear minor in comparison
with the fluctuations in fertilizer prices which have occurred in the past
decade.
E. Financial Effects
Chapter II of Phase I of this study presented financial profiles for 21 me del
mixed fertilizer manufacturing plants in three subse g m<=nts. These
profiles have been used to evaluate the financial impact of pollution controls
on the various model plants.
1. _ Profitability
The impact of pollution controls on profitability has been evaluated in tv^o
v*ays. First, after-tax incomes and cash flows have been compared
before and after the imposition of pollution controls. Secondly, the net
present values before pollution control costs have been compared with
NPV's after controls.
Table VI- 3 shows the impact of effluent control investment and operating
costs on after-tax incomes assuming no price a tb ustrr*. er.t. Tne table also
compares return on sales and investment and cash fiovs !or each mode!
plant before and after controls.
VI-4
-------
Table VT-2. Required percentage price increase to maintain
industry profitability with effluent controls. _'
Model Plants
NSP-AG Complexes
Ammoniator Granulator
Ammoniator
Capacity
200-10
300-15(L)
300-15(5)
400-15(L)
400-15(5)
400-20(L)
400-20(5)
10(L)
10(5)
15(L)
15(5)
20(L)
20(5)
30(L)
30(5)
10(L)
10(5)
15(L)
15(5)
20(L)
20(5)
Required
price increase
1.30
0.96
1.40
0.96
0.95
0.79
1. 13
1. 50
2.48
0.96
1.40
0.79
1. 13
0.69
0.98
1.88
3.06
1. 19
1. 72
0.98
1.39
Cost of capital equals 6. 6%
VI-5
-------
Table VI-3. After tax-income, return on sales, return on total invested capital
and cash flow before and after the imposition of proposed effluent guidelines,
assuming no price change.
Model plant Capacity
NSP-AG Complexes 200 10
300- 15(L)
300- 15(S)
400- 15(L)
400- 15(S)
400-20(L)
400-20(5)
Ammomator- Granulator 10(L)
10(S)
15(L)
15(S)
20(L)
20(S)
30(L)
30(S)
Ammomator 10(L)
10(S)
15(L)
15(S)
20(L)
20(S)
After
Befc
Contr
(T00(
21.
108.
37.
102.
29.
318.
79.
38.
-29.
93.
37.
158.
74.
237.
113.
29.
-5.
91.
44.
150.
79.
-tax income
jre
ols
TT
0
0
0
0
0
0
0
7
0
0
0
0
0
0
0
0
0
0
0
0
0
After
Control s
($000')
5. 7
93.9
24. 5
87. 1
14. 5
300. 6
63.8
30. 1
-46. 3
78. 8
24. 0
140. 0
58. h
214. 0
92. 9
18. 1
-22. 3
76. 2
31.2
132. 2
63. 8
Return on Sales
Be fore
Control s
(°
1.
3.
1.
2.
1.
6.
2.
2.
-4.
2.
1.
3.
2.
3.
2.
2.
-0.
3.
2.
3.
3.
0 )
3
1
7
9
4
2
5
3
1
7
7
1
3
1
4
2
9
2
6
6
1
After
Controls
(°J(
0.
2.
1.
2.
0.
5.
2.
1.
-6.
2.
1.
2.
1.
2.
1.
1.
-3.
2.
1.
3.
2.
)
3
7
1
5
7
9
0
8
5
3
1
7
8
8
9
4
9
7
8
2
5
Return on
Before
Controls
(%)
4.9
15.6
6.6
13. 7
4. 8
33. 3
10. 3
14.3
-16.2
18.9
10.3
22. 2
14.2
23.5
15. 7
14. 5
-4.0
24. 0
16.2
28. 0
20. 7
Investment Cash Flow
After
Controls
(7o)
1. 1
11. 3
3.5
9.9
1.9
26.9
6.9
8.0
-25.9
12.5
4.8
16. 0
7. 5
17.6
10.0
5.9
-9.6
14.8
7.7
18.9
11. 7
Be fore
Controls
($UOO)
52. 0
147.0
76.0
147. 0
74. 0
367.0
128. 0
50.7
-17. 0
110. 0
54.0
179.0
95.0
265.0
141. 0
35.0
1. 0
100.0
53.0
162. 0
91.0
After
Controls
($000)
47.3
146.5
77. 1
145.8
73. 1
365.8
129.0
52.8
-23. 6
109.4
54.6
177.2
95.8
262.6
141. 6
34.8
-5. 6
98.8
53.9
160.4
92.0
Note: L represents long - operating season
S represents short - operating season
-------
The change in after-tax income varies widely in each subsegment. NSP-
AG model plants experience decreases ranging from 73 percent for the
smallest unit to 5 percent for the largest. The range of decreases among
ammoniator-granulators is from 60 percent for the 10 TPH (1,000 hours)
unit to 10 percent for the 30 TPH (3,600 hours) unit. Among ammon-
iators, the decline ranges from 346 percent for the smallest plant (10
TPH, 1,000 hours) to 12 percent for the largest (20 TPH, 3,600 hours).
In each subsegment, after-tax profits are most severely impacted for
the smaller units, especially those operating for shorter seasons.
Two of the small plants (AG 10S and ammoniator 10S) had negative re-
turns on investment prior to pollution controls. These losses were in-
creased after pollution controls were imposed. Five other units had
post-pollution control returns under 6 percent, but two of these (NSP-
AG 200-10 and NSP-AG 400-15S) were under 6 percent prior to pollution
controls. All other units had after-tax returns of over 6 percent after
controls.
Cash flows were affected very little by the imposition of controls. De-
clines in after-tax incomes were generally offset by increases in de-
preciation on pollution control facilities. The smallest units in each
subsegment experienced relatively small decreases in cash flows.
Table VI-4 compares net present values before and after pollution controls,
assuming no price adjustment. Two discount rates (5.5 and 6.6 percent)
were used to reflect the two methods of calculating cost of capital,
described in Chapter II.
The imposition of pollution controls produced negative net present values
for two units which had positive baseline NPV's. These were the 300-15(S)
NSP-AG plant and the 15(S)AG plant. Also, the 10(L) ammoniator had its
NPV reduced to near zero at the 6.6 percent discount rate. The other
four negative NPV's were already negative prior to the imposition of
controls.
The impact of pollution controls on profitability will depend largely on
the ability of producers to pass on price increases. If one assumes that
the entire cost of pollution control can be passed on in the form of higher
prices, then controls will have little impact. Small producers who would
require larger percentage increases may not be able to pass on the entire
amount since prices may be determined more by the larger producers.
As noted earlier, the small producer may enjoy local market advantages
and may command higher prices for fertilizer grades needed by local
farmers. This probably explains the ability of numerous small plants
(under 30,000 tons per year) to continue operations long after economic
conditions would appear to dictate closure.
VI-7
-------
Table VI-4. Estimated cash flows and net present values before and after
the imposition of effluent controls, assuming no price change.
Baseline
With Effluent Controls
Net Present Value
Model Plants Capacity
NSP-AG Complexes 200-10
300-15(L)
300-15(5)
400-15(L)
400-15(5)
400-20(L)
400-20(5)
< Ammoniator-Granulator 10(L)
£ 10(S)
15(L)
15(5)
20(L)
20(5)
30(L)
30(5)
Ainmomn tor 10(L)
10(5)
15(L)
15(5)
20(L)
20(5)
Cash Flow
($000)
52. 0
147.0
76. 0
147. 0
74. 0
367. 0
128. 0
35.0
-17. 0
110. 0
54. 0
179. 0
95. 0
265. C
14i. 0
35. 0
1.0
100. 0
53.0
162.0
91.0
5. 5
($000)
. 7
496.3
63.4
476. 1
- 13. 1
2, 029. 6
311. 6
166.9
-302. 7
466. 8
99.3
857. 6
311.5
1, 300. 0
491.5
112. 9
- 122. 3
485. 0
180. 3
85. . 7
386. 7
6.6
($000)
-16.9
435.3
36. 1
419. 5
-38. 1
1,885. 1
263.8
144. 5
-296.7
416. 7
74. 4
777. 0
268. 1
1, 179.9
426.3
95. 0
- 125. 5
438.2
154. 3
776.4
343. 6
Cash Flow
($000)
47. 3
146. 5
77. 1
145.8
73. 1
365. 8
129.0
31.5
-23. 6
109.4
54. 6
177.2
95.8
262. 6
141.6
34.8
-5.6
98.8
53.9
160.4
92.0
Net Present Value
5. 5
($000)
-118. 1
373. 1
-45.9
352.9
-124.9
1,879. 0
178.8
75.0
-429.4
343. 6
-10.0
707. 1
178.7
1, 103. 1
319. 0
21. 0
-249. 0
361.8
71.0
700.2
253.9
6.6
($000)
-135.2
311.5
-74.6
295.7
-151.2
1,733.9
129.5
51.8
-422.5
292.8
-36.8
625.9
133.8
982.2
252.0
2.3
-251.2
314.4
43.7
625.3
209. 3
1, represents long-operating season
S represents short-operating season
-------
2. Capital Availability
The large, integrated owners of mixed fertilizer plants should experience
no difficulty in financing pollution control. Cash flows and capital structures
are favorable for these companies for raising funds. Good profits in 1974-
75 should provide internal funding for many companies. Only in the am-
moniator subsegment do pollution control investments loom large in rela-
tion to original (replacement) investment.
Small, one-plant companies, especially small ammoniator operators,
may face a difficult situation. These are mostly old plants which are
essentially depreciated out. Their cash flows would probably not be
adequate to cover the incremental investment in effluent controls. Esti-
mates indicate that the plants without wet scrubbers are mainly the
smaller, older plants. With pollution control investment amounting to
about one-third of replacement costs, and with indicated negative net
present values, it is doubtful that these operators could finance new
investment. The same general situation prevails for the smallest
ammoniator-granulator operating only 1,000 hours per year. Such plants
as these except where local circumstances keep them profitable, should
close even without pollution controls.
C. Production Effects
Production effects from the imposition of pollution abatement standards
on mixed fertilizer manufacturing should be negligible if not non-existent.
About 85 percent of the plants have wet scrubbers already in place. The
21 percent estimated to require small retention ponds to accommodate
wet scrubbers already in place would incur minor ($10,000) investment
costs. The 15 percent believed to require wet scrubbers are probably
the smaller older plants. As the following discussion shows, most of
these plants would probably close even without effluent controls.
1. Baseline Closures
The net present values in Table VI-4 indicate that four model plants
should close under 1973 operating conditions, without regard to ef-
fluent controls. These are as follows:
VI-9
-------
NSP-AG Complex 200-10
NSP-AG Complex 400-15(3)
AG-IO(S)
A-10(S)
These four model plants are representative of smaller mixed fertilizer
manufacturing plants of the sort primarily located in Northern areas.
The two NSP-AG complex models pose particular problems in regard
to baseline closure analysis. It is not possible to identify precisely
the number of NSP-AG plants by size category, since mixed goods
tonnages are not known for the NSP plants with on-site AG plants.
Therefore, the conclusions regarding baseline closures apply only to
the AG component of the NSP-AG complex. It should be recognized
that a profitable NSP plant owner might continue to operate an on-site
AG plant, when a stand-alone AG plant of that size appears unprofitable.
The question inevitably arises as to why plants continue to operate under
the apparent unprofitable conditions indicated by the model plant profiles.
The reader is referred to Chapter II for a general discussion of this
matter. Also, reference has been made to special locational factors
which might keep a plant operating. The fact remains, however, that
many small, old fertilizer plants have closed over the last few years
as larger, more modern plants invade their markets. Thus, more
closures can be expected in the near future. It is possible that pollu-
tion controls could hasten these baseline closures.
Baseline closures, based on best estimates of number of plants in each
size category, would be as follows:
Total Plants Likely Baseline Closures
NSP-AG 57 20
AG 269 74
A 93 23
It should be noted that the 20 NSP-AG plants are included among the 74
AG plants. They are reported separately in order to identify the possible
impact on NSP plants resulting from on-site AG plant closures. The esti-
mated capacity of the potential closures is about 9 percent of total mixed
goods capacity. Larger plants operating under capacity should absorb
the difference in locations where they serve the same markets. Where
small plants have a protected market, they probably will continue to
operate with higher prices.
VI-10
-------
This closure rate at first glance may appear high. However, as shown
in Table III-4, the production of ammoniation-granulation goods has
fallen rapidly from a level of 1.2 to 1.3 million tons in the late 1960's
to a current level of 9. 5 million tons. Production of NSP, a key material
in mixed goods, also demonstrates a significant downward trend from 1.0
to 1.2 million tons in the early 1960's to a current level of about . 5 to .6
million tons. Although historical series of plant numbers are not avail-
able, evidence does suggest that number of mixed good plants has fallen
over the last 10 to 15 years from about 1,000 to the current level of 420.
This has occurred in face of an expanding fertilizer market served by
the newer and less costly liquid mixing, bulk blending and direct appli-
cation technologies.
The high current fertilizer prices may slow the decline of the mixed
goods segment, but as prices bail off, the closure of plants in this
segment are expected to increase rapidly.
2. BPT and BAT Effects
Pollution controls should not force any plant closures. Only two model
plants with positive NPV's before controls had negative NPV's after
controls. These were the 300-15(3) NSP-AG and the 15(S) ammoniator-
granulator plants. A one percent price increase would restore both
of these models to positive NPV's; therefore, no closures are predicted
as a consequence of pollution controls.
3. New Source Performance Standards
In order to evaluate the effects of NSPS on new construction, the net
present value of a 30 ton per hour ammoniator-granulator plant without
pollution controls was calculated, using 1973 replacement investment.
Such a plant has a negative NPV of $298,000, using a 6.6 percent dis count
rate. It is unlikely that any new plants of this size or smaller would be
constructed under baseline conditions. NSPS costs would not be a factor
in the decision to build or not to build new facilities.
Net present value analysis reveals that the two largest ammoniators
(20 TPH and 15 TPH), operating over the long season, would be profit-
able using replacement investment values, both with and without NSPS
costs. Other sized plants would have negative NPV's without controls.
Again, it is doubtful that new ammoniators will be built; the trend has
been toward dry blenders and liquid mixing plants.
VI-11
-------
It is highly unlikely that there will be any new ammonium sulfate (synthetic)
plants under present conditions. Producing co-product ammonium sulfate
in caprolactum plants makes direct production potentially too costly for
new producers. (See pricing discussion in Chapter III.) NSPS costs
would not be a major consideration, in any event.
D. Employment and Community Effects
Since no closures are expected as a result of pollution controls, there
will be no direct employment or related community effects.
E. Balance of Payments Effects
There should be no significant balance of payments effects because
pollution controls are not expected to affect production and prices
significantly. The U. S. exported approximately $27 million of mixed
fertilizers in 1972, -while importing about three-fourths of that amount.
A one or two percent change in U.S. price would have at most a negli-
gible effect on balance of payments.
F. Other Effects
It should be noted that pollution control costs for the basic chemical
producers may have some effect on intermediate fertilizer products
used as raw materials by mixed fertilizer manufacturers. To the ex-
tent that these costs are passed through to mixed goods plants, there
may be further shifts in usage of N-P-K grades. It is not possible to
estimate the potential of this impact. A qualitative evaluation indicates
that such an influence would serve primarily to intensify the trend al-
ready underway toward larger mixed plants and greater dependence
upon bulk blenders and liquid mixing plants.
VI-12
\
s
-------
VII. LIMITS OF THE ANALYSIS
A. General Accuracy
Date used in this study were drawn from published government reports,
TVA, the fertilizer industry, corporate annual reports and industry
sources. Every effort was made to cross check and verify data.
Plant investment costs, operating costs and prices were reviewed
with various companies for validation.
The use of the model plant concept require" a synthesizing of data to
develop representative model plant profiles. Locational factors will
produce plant to plant variances, as will differences in management
techniques.
Even with these variances, it is believed that the data generally reflect
conditions in the fertilizer industry and that they provide an accurate
basis for evaluating the impact of increased effluent controls on the
industry.
B. Possible Range of Error
Estimated ranges of error for data used in this study are presented below:
Error Range (%)
1. Number and location of facilities _+ 5
2. Capacity and age +10
3. Price information for products and raw
materials _+15
4. Sunk investment value +2-0
5. Plant operating costs HrlO
6. Water pollution control costs Not estimated
7. Plant closures +25
Pollution control costs for a specific plant size by segment were furnished
by EPA and are assumed to be accurate. In applying these costs to model
plants, size scaling was required and some error may have occurred in
estimating costs for various sized plants. Since the investment and costs
are not generally large in relationship to original cost and base operating
VII-1
-------
costs, it is not believed that the basic conclusions would be altered
by
C. Critical Assumptions
Several critical assumptions were used in this study. Any change in
any of these assumptions would change the results of the analysis.
These assumptions were discussed throughout the report. Some of
the major ones are:
1. All plants within a product segment and size category
were assumed to have similar manufacturing and salvage
values; however, iocational, management and economic
factors would create variations.
2. All plants in a product segment and size group were assumed
to operate at equal capacity utilization rate.
3. Prices and plant net backs were assumed to be uniform for
all plants in a segment.
4. Raw material costs were estimated at a uniform level for
plants in each segment, except in the two model ammonium
sulfate plants.
5. The NSP-AG complexes were modeled on the assumption that
the NSP component was matched to a certain sized AG plant.
The NSP output (see Appendix Table 7 of Phase I) assumptions
determined the pro-rata costs of the NSP plant to AG plant.
6. Sales and general and administrative expenses were assumed
similar for all plants within a segment.
D. Remaining Questions
The position of ammonium sulfate as a source of nitrogen is clouded by
the role of caprolactum co-prcduct. Ammonium sulfate from caprolactum
plants has kept prices depressed and will probably continue to be a key
factor in synthetic and coke oven ammonium sulfate production. Adding
to the uncertainty surrounding ammonium sulfate is the current nitrogen
shortage and the probability of greater imports of nitrogen products.
VII-2
V
-------
As natural gas shortages drive up domestic nitrogen costs, foreign
producers will seek access to U. S. nitrogen markets. On balance,
there is much doubt about the future of both synthetic and coke oven
ammonium sulfate.
Mixed fertilizer manufacturing also has some uncertainty arising from
potential energy shortages and new phosphate capacity. Since manu-
facturers can use a variety of N and P intermediate products, future
production and prices can not be determined with any high degree of
accuracy. Phosphate capacity is scheduled to expand and should support
a further expansion of liquid mixing and bulk blending plants at the possible
expense of mixed manufacturing plants. At the same time, the shortage
of electrical energy may keep phosphate production below capacity.
However, this does not seem to be a long term situation, but it is not
possible to predict with certainty what may happen in three to five years.
Nitrogen fertilizers also affect mixed manufacturing forecasting. Owing
to a possible natural gas shortage (which may or may not in fact occur)
and the possibility of foreign producers supplying more nitrogen products
to U. S. markets, the amount of nitrogen intermediate products for manu-
facturing of mixed goods is most uncertain. Markets for mixed fertilizers
can also be affected by the amount of nitrogen available from direct appli-
cation materials. These questions must remain unanswered at this time.
VII-3
-------
APPENDIX
-------
Appendix Table 1. Pro forma income statement and financial returns for model plants - ammonium sulfate
Capability
Sales ($40/ton)
Direct expenses
Sulfuric Acid
Ammonia
Fuel gas
Power
Water
Operating labor and supervision
Subtotal
Indirect expenses
Maintenance of supplies
Taxes and insurance
Plant and labor overhead
Selling, general and administrative
Subtotal
Pro-rate indirect expenses
Ammonia (13, 17 and 39 %)
Sulfuric acid (27, 22 and 70 %)
Subtotal
Total expenses
Depreciation
Ammonium sulfate
Ammonia pro-rate (13, 17 and 39 %)
H SO pro-rate (27, 22 and 70 %)
Subtotal
Units
Unit Cost Units/Ton
Tons $40 1
Tons _!/ .773
Tons 2/ .261
MCF $..60 1.19
KWH $ .01 27
M-gals $ .05 10
man hours $4.50 3/
Basis
6 % of replacement investment
3 % of replacement investment
100 % of labor and supervision
15 % of sales
Ton 4/ 1
70 TPD
24,500 TPY
$1.
980
198
160
18
7
13
135
531
67
33
135
147 .
382
105
86
191
1, 104
38
26
7
71
200 TPD
70,000 TPY
000
2,800
541
420
53
20
38
179
1,251
130
65
179
420
794
212
202
414
2,459
74
49
13
136
continued--
-------
Appendix Table 1.
Pro forma income statement and financial returns for model plants - ammonium sulfate
(continued)
Capability
Units Unit Cost Units/Ton
70 TPD
24, 500 TPY
200 TPD
70, 000 TPY
Interest
Ammonium sulfate (1.5 % of sales)
Ammonia pro-rate (13, 17 and 39 %)
H SO pro-rate (27, 22 and 70 %)
Subtotal
$1,
11
4
4
19
000 --
32
11
12
55
Total costs
Net income before tax
Income tax
Net income after tax
Casli flow
Return on invested capital
Before tax
After tax
1. 194
-2i4
-214
-143
0
0
2,650
150
66
84
220
-pe rcent-
19
11
Return on sales
Refore tax
After tax
J./ $10.45 and 9.99 respectively
2,7 $Z5.00 and 23.00 respectively
3/ 1.22 and .57 respectively
4/ $543 and $370 respectively
Note; Sulfuric acid costs based on Appendix Uible
is ol Proposed Effluent Guidleines fur
5
3
tit id ammonia cosis >r
I er: i liiicr Indufttrv, J-^
O;: ;d, M. L. et al. , Economic
\-:, .0/1-73-010, Novernb?r7T9T3.
-------
Appendix Table 2. Estimated costs for model plant - sulfuric acid
Direct expenses
Sulfur
Water
Power
Labor and supervision
Subtotal
Indirect expenses
Maintenance and supplies
Taxes and insurance
Plant and labor overhead
Sales, general and administrative
Subtotal
Total expenses
Depreciation
Interest
Units Unit cost Units /ton
Tons $27 .333
M-gals .05 6
KWH . 01 8
man hrs $4.50 (70) .24
man hrs 4.50 (245) .14
man hrs 4.50 (350) . 11
Basis
6% replacement cost
3% replacement cost
100% labor
15% sales @ $15/ton
2.5% replacement cost
1.5% sales @ $15/ton
Annual
70
$/ton
899
30
08
108
1,045
82
41
108
2Z5
456
1,501 1
35
23
1,593 1
cap. 1,
245
$1.
899
30
08
62
999
58
29
62
225
374
, 373
25
23
,445
000 TPY
350
000
899
30
08
48
985
52
26
48
225
351
1, 336
22
23
1,402
-------
Appendix Table 3. Estimated invested capital for model plants - ammonium sulfate
Plant
Land
Plant - battery limits
Storage
Ancillary equipment
Total
Working capital
Current
II
650
300
160
1, 110
98
70 TPD
Salvage
I/
46
99
11
156
98
Book
-------
Appi nchx iable 4- I'm Innni iiuoiii. statement and tin.tni.ial returns tor model plants-normal s upo rphosphate-ammomalor-g ranulation complexes (continued)
Units, 400 1 PD \SP-15 TP1] AG
1,'mt p. r NSP AG Coin-
Units i ost tun t>2"IIPY 2.0001IPY plex
S . k -: 1 ons/ \G ':-7 1 . 00 1 'i, 1 30
Dl ri i t e x pi uses
Kaw materials (exrl. NSP) 'li.ns 41.75 1.03 ],2<>0 1 , 2'H)
Phosphat. roek Ions Is. 7s .1, 'HI '!<)
Sultnru ai id I ons 2s. 00 . -is? 'I I ') 1
l''uel, huht and p.AVCi See Appends tabk 3 21 24
Op< ratmu, labor Si ., upe r\ i .s ion Six A ppi mil s t i ble K t> 1 (>9
Misi ellaneons Si t . 25 1 H 8
rtl.bl.it a 1 1.SH4
1 n. b r i ct i . pi i- s» s l'>a M s
Maintenance & supplies J"!i o[ nplacemi nt 37
laxes and insurance i"', ol i i plai cnient sn
Planl J^ lalmr o\erbead os"'. i't labor and supi ivi.siop IS
S i les , ee tie ral 8j ridmi in ' . 1 s"(, ol sa li s i20
Sublol.il l'iH
lolal opi-r-uui). . xpens, 2,012
Deprei i, -it i,.n S. i Appeiulr- table -i >
Irtei e.st (Inny-li rni)
1 ,,lal io,l 2, OK7
1 4 '
III! ol lie I.I . 11
Not in. nine .liter tax Zl<
Cash llo\\ 7 1
" "l ',~to re T.TT '-> «
Alter tax ^ "
l' i ! U I'll on sales
' 'v'-'x l.-l
400 TPD NSP-20TPH AG
Com -
1, 509HPY 3, 600IIPY plex
5,112
3,096 3,096
238 238
225 225
7 50 57
18 109 127
18 18
3, 76 1
43
65
83
51 1
702
4, 463
2,s 21 49
-
4,512
600
282
318
367
62.7
33. 3
11.7
6.2
400 TPD NSP-20TPH AG
Com-
946HPY 2.250HPY plex
3, 195
1,935 1,935
149 149
141 141
5 32 37
11 77 88
11 11
2, 361
43
65
57
480
645
3,006
49
-
3,055
140
61
79
128
14.6
8.3
4.4
2.5
-------
Appendix Table 4 . Pro forma income statement and financial returns for model plants-normal superphosphate-ammoniator-granulation complexes
Sa Icb
Direct expenses
Haw materials(excl. NSP)
Phosphate rock
Sulfuric acid
Fuel, light, power
Opt1 rat ing labor&supervis
Miscellaneous
Subtotal
Indirect expenses
Maintenance & supplies
Taxes and insurance
Plant & labor overhead
Sales, general & adminis.
Subtotal
Total expense
Depreciation
Interest (Long-Term)
Total costs
Net income before tax
Income tax
Net income after tax
Cash flow
Before tax
Aflqr tax
Return on sales
Before tax
After tax
Units 200 TPD
Unit per NSP
Units cost ton 964HPY
Tons/ AC $71.00 1
Tons 41.25 1.03
Tons 15.25 .6 76
Tons 25.00 .357 71
See Appendix table 2
ion See Appendix table 8
Set .25 1
Basis
2% of replacement
3% of replacement
65% of labor and supervision
15% of sales
See Appendix table 19
NSP- 10 TPH AC
AC Com-
2, 300HPY plex
1,633
989 989
76
71
16 18
56 64
6 6
1, 224
25
38
42
245
350
1, 574
12 31
_
1,605
28
7
21
52
6.5
4.9
1.7
1.3
300 TPD NSP-15TPH AC
NSP AC Com-
1.360HPY 3.250HPY plex
--$1 000
3,465
2,098 2,098
161 161
152 152
5 34 39
14 86 100
12 12
2,562
33
50
65
520
668
3,230
22 17 39
_
3,269
196
88
108
147
28.2
15.6
5.7
3. 1
300 TPD NSP- 15 TPH AG
NSP AG Com-
840HPY 2, OOOHPY plex
2, 130
1,290 1,290
99 99
94 94
3 21 24
8 61 69
8 8
1,584
33
50
45
3ZO
448
2,032
22 17 39
.
2,071
59
22
37
76
8.5
5.3
2.3
400 TPD NSP- 15 TPH AG
NSP AG Com-
1.018HPY 3,250 plex
3,465
2,098 2,098
161 161
152 15Z
5 34 39
"'"' 12 86 98
12 12
2,560
37
56
64
5ZO
677
3,237
28 17 45
3, 28Z
183
81
102
147
Z4.6
13.7
5.3
Z.9
-------
Appendix Table 5. Capacities and outputs of model plants -- normal superphosphate ammoniation-
granulation complexes
TPD
200
300
300
400
400
400
400
NSP
TPH
8.3
12.5
12. 5
Ib. 7
16.7
16.7
16.7
Hrs. /Yr.
964
1,360
840
1,018
629
1,509
946
TPH
10
15
15
15
15
20
20
A. G.
Hrs. /Yr.
2,300
3,250
2,000
3,250
2,000
3,600
2,250
TPY
(000)
23. 0
48.8
30.0
48.8
30.0
72.0
45.0
Tons NSP
Required
(000)
8.0
17.0
10.5
17.0
10.5
25.2
15.8
L' Assumes that each ton of A. G. raw materials contain 700 pounds (35 percent) NSP.
-------
Appendix Table 6 . Selected input requirements for model plants -- normal superphosphate, ammoniation-
granulation.
Electric power
Fuel, light & power
Operating labor &;
supervisor
Depreciation
Electric power
Fuel, light & power
Operating labor &
supervisor
Depreciation
dOO TPB
10 TPH
NSP
kwh $ . 014 20. 8
Set . 70
Man hours 4.00 .24
Tons /day 1.00 95
400 TPD
15 TPH
NSP
kwh $ .014 20.8
Set . 70
Man hours 4. 00 . 18
Tons
Tons /day 1.00 70
NSP -
AG
AG
1
.61
1190
NSP -
AG
AG
1
.51
1100
Units per
300 TPD NSP -
15 TPH AG
NSP AG
20. 8
1
.20 .44
73 1100
400 TPD NSP -
20 TPH AG
NSP AG
20.8
1
.18 .38
70 1070
Ton
300 TPD
15 TPH
NSP
20.8
.20
73
400 TPD
20 TPH
NSP
20.8
. 18
70
NSP - 4UO TPD" NSP -
AG 15 TPH AG
AG NSP AG
20.8
1 1
.51 .18 .44
1100 70 1100
NSP -
AG
AG
1
.43
1070
-------
Appendix Table 7
Investment for Model NSP - AG complexes
NSP
Plant
Land 60
Site preparation 45
Acid dilution 25
Dens 25
Acidulation 25
Storage &t handling 155
Buildings (excl. storage) 65
Ammonia tor- granulator
Contingencies
TOTAL
Working capital
Long season
Short season
Total Invested Capital
Long season
Short season
200 TPD NSP - 10TPH AG
AG Replace-
ment
-------
Appendix Table 7
(cont'd) Investment for Model NSP - AG complexes
Plant
Land
Site prepa. ration
Acid dilution
Dens
Acidulation
Storage &: handling
Buildings (excl. storage)
Ammonia tor- granulator
Contingencies
TOTAL
Working Capital
Long season
Short season
Toto.1 Invested Capital
Long season
Snort season
400 TPD NSP - 1
NSP AG Replace-
ment
-------
Appendix Table 8. Pro forma income statement and financial returns for model plants-ammoniation-granulation
Sales
Direct expenses
Raw materials
Fuel, light and power
Operating labor & supervision
Miscellaneous
Subtotal
Indirect expenses
Maintenance and supplies
Taxes and insurance
Plant-labor overhead
Sales, general and admims.
Subtotal
Total expense
Depreciation
Interest (long-term)
Total costs
Net income before tax
Income tax
Net income after tax
Cash 'low
Before tax
After tax
Return on sales
Before tax
After tax
Units 10
Unit per 2,300
Units cost ton hrs.
Tons $71.00 1 1,633
Tons 50. 00 1.03 1, 185
Set .70 1 16
Manhours 4.00 I/ 56
Set .25 1 6
1,263
Basis
2% of replacement value 18
3% of replacement value 27
65% of labor & supervision 36
15% of sales 245
326
1,589
$ per ton of capacity 12
-
1,601
32
9
23
35
11.8
8.5
2.0
1.4
TPH
1, 000
hrs.
710
515
7
31
3
556
18
27
20
106
171
727
12
_
739
(29)
0
(29)
(17)
(16.2)
(16.2)
(4.1)
(4.1)
15
3,250
hrs.
3,465
2,513
34
86
12
2,645
24
36
56
520
636
3,281
17
_
3,298
167
74
93
110
33.8
18.9
4.8
2.7
TPH
2, 000
hrs.
4 1
- - $ i,
2, 130
1, 545
21
61
8
1, 635
24
36
40
320
420
2, 055
17
- -
2, 072
58
21
37
54
p,
16.2
10.3
2.7
1.7
20
3, 600
hrs .
onn
5, 112
3,708
50
109
18
3, 885
31
46
71
767
915
4,800
21
_
4,821
291
133
158
179
40.8
22. 2
5.7
3. 1
TPH
2,250
hrs .
3, 195
2,318
32
77
11
2,438
31
46
50
479
606
3,044
21
-
3, 065
130
56
74
95
24.9
14.2
4. 1
2.3
30
3,600
hrs .
7, 668
5,562
76
168
27
5, 835
40
60
111
1, 150
1, 361
7, 196
28
-
7,224
444
207
237
265
44.0
23.5
5.8
3.1
TPH
2,250
hrs.
4,793
3,476
47
122
17
3,662
40
60
79
719
898
4, 560
28
-
4,588
205
92
113
141
28.5
15.7
4.3
2.4
J./ .61, .77, .44, .51, .38, .43, .39 and . 45 respectively.
I/ $1, 190, $1,100, $1, 070 and $940 respectively.
-------
Appendix Table 9. Estimated invested capital for model plants -- ammomation-granulation
10
15 TPH
20 TPH
30 TPH
Current Salvage . Book Current Salvage Book
Current Salvage Book Current Salvage Book
Plain
I a IK! 50
SH>' preparation 38
Sti.r.igf 140
Plant equipment 395
1 uildings (excluding storage) 205
C ontin^encies
Total
Working Capital
Long reason
Short Koa son
'! cjtal Invested Capital
Long season
Short season
KO
908
163
71
1,071
979
50
10
40
15
3
118
163
71
281
189
-
-
108
163
71
271
179
65
49
245
500
255
110
1,224
347
213
1, 571
1,437
65
15
80
20
5
185
347
213
532
398
(
-------
Appendix Table 10. Pro forma income statement and financial returns for model plants - ammoniation
Sales
Direct expenses
Raw materials
Fuel, light and power
Operating labor and supervision
Miscellaneous
Subtotal
Indirect expenses
Maintenance and supplies
Taxes and insurance
Plant and labor overhead
Sales, general and administrative
Subtotal
Total expenses
Depreciation
Interest (long term)
Total costs
Net income before tax
Income Tax
Units
Tons
Tons
Set
man hrs
Set
2% of
Unit cost
57.50
40.00
.50
4.00
.20
Basis
replacement
3% of replacement
65% of
15% of
Units/ton
1
1.03
1
I/
1
investment
investment
labor and supervision
sales
$ Ton of capacity-
10
2, 300
hrs
1,323
948
12
56
5
1,021
7
11
36
198
252
1,273
6
1,279
44
15
TPH
1,000
hrs
575
412
5
31
2
450
7
11
20
86
124
574
6
-_ _
580
-5
_ . _
15
3,250
hrs
*
q>
2,806
2,011
24
86
10
2, 131
11
16
56
421
504
2,635
9
_ _ _
2,644
162
71
TPH
2,000
hrs
t finn
1,725
1,236
15
61
6
1, 318
11
16
40
259
326
1,644
9
_ * -
1,653
72
28
20
3,600
hrs
4, 140
2,966
36
109
14
3, 125
14
21
71
621
727
3,852
12
- - -
3,864
276
126
TPH
2,250
hrs
2,588
1,854
23
77
9
1,963
14
21
50
388
473
2,436
12
-__
2,448
140
61
continued--
-------
Appendix Table 10. Pro forma income statement and financial returns for model plants - ammoniation
(continued)
10 TPH
15 TPH
20 TPH
Net income after tax
Cash flow
Units Unit cost Units/ton 2,300 1,000 3,250 2,000 3,600 2,250
hrs hrs hrs hrs hrs hrs
-$1,000
29 -5 91 44 150 79
Return on invested capital
Before tax
After tax
35
22
15
1
-4
-4
100
53
--percent-
43 27
24 16
162
52
28
91
37
21
Return on sales
Before tax
After tax
3.3 -0.9
2.2 -0.9
5.8
3.2
4.2
2.6
6.7
3.6
5.4
3.1
I/ .61, ,77, .44, .51, . 38 and . 43 man hours per ton respectively
2/ $550 and 585 respectively.
-------
Appendix Table 11. Estimated invested capital for model plants - ammoniation
P]
w
T(
la.it
Land
Site preparation
Storage and handling
Plant equipment
Buildings (excluding storage)
Contingencies
Total
oiking capital
Long season
Short seasoi.
/i,)l invested capital
Long season
Short season
Current
50
40
14C
65
35
30
' 360
132
58
492
418
10 TPH
Salvage
50
13
45
3
1
112
132
58
244
190
Book
- -..
68
132
58
200
126
Current
65
50
245
85
45
50
540
281
173
821
713
15 TPH
Salvage
--1.1 000-
65
16
80
3
2
166
281
173
447
339
Book
._.
98
281
173
379
271
Current
: 75
55
350
100
55
65
700
414
259
1, 114
959
20 TPH
Salvage
75
18
115
4
3
215
414
259
629
474
,Book
if
---
«!
122
414
259
536
381
>
" t
-------
Dlt)LHJljHAr-MIC DATA - '-'j,^, '--/,-, o e IJ'
SHEET LiPA iJu/ 1-74-035 j
4. I it if .IP. : >ul>liilc.
Economic Analysis of Proposed Effluent Guidelines -
Fertilizer Manufacturing Industry (Phase II)
7. ^othorlO
Milton L. David, C. Clyde Jones, J. M. Malk
9. I'crtornmii; Urbanization Njmv aaJ AJJn-s*
Development Planning and Research Associates, Inc.
P. O. Box 727
Manhattan, Kansas 66502
12. >p 'n-or.n,; Dr. ani/.iti.'r. \.»mt .inJ A.!.iri->.--
Environmental Protection Agency
Wa rsrside Mall
4th and M Street, S.W.
Washington. D. C. 20460
3.N<<-( ipiont'^ Acn ssinn Ni>. i
'^emter, 1974 ^ |
*' 1
l'crNo. 131 j
10. I'roji-ct/ Task/Work IJoit Nt>. j
Task Qrder No. 10 j
11. Contract 'Orant No.
Contract No. ,
68-01-1533 i
13. I>ri "1 Kcpott & I'rrii'i! j
CoVCTL-J I
Final Report |
14. :
i
15. > !'pr!(.'.TH maiy Notes ]
(
i
i
16.
The fertilizer manufacturing industry study, SIC 2873 and 2874, involved two seg-
ments -- 64 ammonium sulfate plants and 362 mixed fertilizer manufacturing plants.
Production in both segments is declining rapidly, in both absolute and relative
terms. Closures due to pollution control in the ammonium sulfate aepjnents are
net expected due to the existence of in-placc control systems in direct production
plants and the small investment by product unit?. In the mixed goods segmert,'
pollution controls are not expected to create a general price increase nor cause
plant closures. Baseline closures in this segment are expected to be high (97
pl&uts). Little or no new construction is expected in the mixed goods segment, ~,
with or without imposition of pollution controls.
17.
-.-Js .inj DociMiK-r.: \nahsis. 17o. lV<»nptor»
Pollution, water pollution, industrial wastes , fertilizers, nitrogen, phosphates,
ammonium sulfate, mixed goods, ammoniation, ammoniation-granulation,
economic, economic analysis , discounted cashflow, demand, supply, prices,
fixed costs, variable costs, community, production capacity, fixed investment
I7b. IJt-n-il t-rs Opvr.-l-'nccJ Tu
05 Behavioral and Social Sciences , C-Economics
06 Biological and Medical Sciences, K-Food
18.
National Technical Information Service
Gprinofield, Virginia 22151
' UKM V.AV
__
19. -,.,u:
Kept r!
! \f
2J. S-.-.-L;;.--
P..,;,
'.^
C lass 1 1 nis
.[.\SSIIMI-p
( las.- ( 1 his
i \ssrir n
21- No. .,: P.i...-,
125
22. ljfc,
------- |