SEPTEMBER 1974
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
PAVING AND ROOFING MATERIALS
(Tars and Asphalt)
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
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This document is available in limited quantities through
Ruth Brown at the U.S. Environmental Protection Agency,
Information Center, Room W-327 Waterside Mall, Washington,
D.C. 20460
The document will subsequently be available through the
National Technical Information Service, Springfield, Virginia
22151.
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ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
PAVING AND ROOFING MATERIALS
(Tars and Asphalt)
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
EPA-230/1-74-055
September 1974
U.S. Environmental Protection Agency,
Region V, L'brary
230 South Dearborn Street .x"'
Chicago, Illinois 60604 " ,,-<-,
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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 recommendation 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") support-
ing 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 requirements 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 tech-
nologies. 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 fulfillment of Contract
No. 68-01-1541, Task Order No. 28 by Arthur D. Little, 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 considered along with the information contained in the
Development Document and any comments received by EPA on either document before or
during proposed rule making proceedings necessary to establish final regulations. Prior to
final 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 industry. It cannot be cited, referenced, or represented
in any respect in any such proceeding as a statement of EPA's views regarding the subject
industry.
in
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TABLE OF CONTENTS
Page
List of Tables vii
List of Figures - ix
EXECUTIVE SUMMARY 1
BACKGROUND AND OBJECTIVES 1
CONCLUSIONS 1
PAVING MIXTURES AND BLOCKS (SIC 2951) 2
1. Asphalt Concrete 2
2. Asphalt Emulsions 4
ASPHALT FELTS AND COATINGS (SIC 2952) 5
ASPHALT BASED FLOORING PRODUCTS (SIC 3996) 7
METHODOLOGY 9
PART I: ASPHALT PAVING MIXTURES AND BLOCKS
(SIC 2951) 11
A. INDUSTRY STRUCTURE 11
1. Products and Demand 11
2. Manufacturing and Ownership Profile 21
3. Financial Profile 30
4. Prices and Price Setting 34
B. PROPOSED EFFLUENT LIMITATIONS, TECHNOLOGIES
AND COSTS 41
C. ECONOMIC IMPACT ANALYSIS 45
1. Price Effects 45
2. Financial Effects 48
3. Production Effects 49
4. Employment Effects 49
5. Community Effects 49
6. Balance of Trade Effects 49
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TABLE OF CONTENTS (Continued)
Page
PART II: ASPHALT FELTS AND COATINGS
(SIC 2952) 51
A. INDUSTRY STRUCTURE 51
1. Products and Demand 51
2. Manufacturing and Ownership Profile 56
3. Financial Profile 64
4. Prices and Price Setting 66
B. PROPOSED EFFLUENT LIMITATIONS, TECHNOLOGIES
AND COSTS 67
C. ECONOMIC IMPACT ANALYSIS 68
1. Price Effects 68
2. Financial Effects 70
3. Production Effects 72
4. Employment Effects 72
5. Community Effects 72
6. Balance of Trade Effects 72
PART III: ASPHALT-FELT BASE FLOOR COVERINGS
(SIC 3996) 73
A. INDUSTRY STRUCTURE 73
1. Products and Demand 73
2. Manufacturing Profile 75
3. Prices and Price Setting 77
B. PROPOSED EFFLUENT LIMITATIONS, TECH-
NOLOGIES AND COSTS 77
C. ECONOMIC IMPACT ANALYSIS 78
LIMITS OF THE ANALYSES 79
VI
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LIST OF TABLES
Table No. Page
1-1 Shipments of Petroleum Asphalt for Paving by Product 12
I-2 Sales of Petroleum-Asphalt Paving Products for Con-
sumption in the United States by P.A.D. Districts and
States 13
I-3 Shipments of Asphalt Concrete 14
I-4 Asphalt Paving Materials Value of Shipments 15
I-5 Value of Shipments of Asphalt Paving Mixtures and
Emulsions (SIC 2951) 16
I-6 Estimated Cost of Construction Materials and Supplies
Used for Interstate and Federally-Aided Primary
Highways, and All Public Highways for Selected Years 17
I-7 Distribution of 1972 Production 20
I-8 Integration of Company Operations 22
I-9 End Uses of Emulsified Asphalts 22
1-10 Number of Hot Mix Asphalt Plants by Size of Mixer 23
1-11 Existing Asphalt Hot Mix Plants in the United States
by Region (January 1974) 24
1-12 General Statistics by Geographic Area (1967) 26
1-13 SIC 2951 General Statistics, by Employment Size
of Establishment (1967) 27
1-14 Concentration Ratios: Percent of Total Business
(SIC 2951) 28
1-15 Hot-Mix Asphalt Production of Reporting Companies
Grouped by Volume of Production 29
1-16 SIC 2951 Selected Statistics for Operating Manufacturing
Establishments, by Type of Operation and Legal Form
of Organization for Major Industry Groups and Industries 31
1-17 Selected Statistics SIC 2951 (1963-1971) 32
1-18 Selected Operating Ratios SIC 2951 (1963-1971) 33
1-19 Financial Profile - SIC 2951 34
I-20 Average Operating Statement for Asphalt Hot Mix
Plants (1972) 36
1-21 Average Operating Statement for Asphalt Emulsion
Plants (1972) 37
I-22 Average Bid Price Trends on Federal Aid Highway
Contracts 37
I-23 Asphalt Concrete Prices 39
I-24 Materials Consumed by the Asphalt Paving Industry (1967) 39
I-25 Relative Average Prices (Asphalt Concrete) 40
I-26 Relative Average Prices (Emulsions) 41
Vll
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LIST OF TABLES (Continued)
Table No. Page
1-27 Effluent Limitations for Asphalt Emulsion Plants 42
1-28 Effluent Limitations for Asphalt Concrete Plants 42
1-29 Treatment Costs for Asphalt Emulsion Plants 44
1-30 Treatment Costs for Asphalt Concrete Plants 44
11-1 Total Shipments of Asphalt Felts & Coatings:
1963-1972 53
II-2 Shipments of Asphalt Felts and Coatings by Product
Type, 1967-1972 54
II-3 Shipments of Asphalt and Tar Roofing and Siding
Products, 1972 54
II-4 SIC 2952-Industry Operating Profile 57
II-5 General Statistics, by Geographic Areas: 1967 60
II-6 General Statistics, by Geographic Areas: 1972 61
II 7 Materials Consumed in the Manufacture of Asphalt
Felts and Coatings, 1967 62
II-8 Materials Consumed in the Manufacture of Asphalt
Felts and Coatings, 1972 62
11-9 Selected Statistics for Operating Manufacturing
Establishments, by Type of Operation and Legal Form
of Organization for Major Industry Groups and Industries:
1967 63
11-10 Income Statement-Typical Plant, 1973 65
11-11 Wholesale Price Index for Prepared Asphalt Roofing 66
II-12 Effluent Limitations for Asphalt Roofing Plants 67
11-13 Treatment Costs - Asphalt Roofing Plants (Small) 69
11-14 Treatment Costs - Asphalt Roofing Plants (Typical) 70
11-15 Treatment Costs Asphalt Roofing Plants (Large) 71
111-1 Value of Shipments of Hard Surface Floor Coverings 74
III-2 SIC 3996-Industry Operating Profile 76
III-3 Effluent Limitations for Linoleum and Asphalt
Printed Felt Plants 77
III-4 Treatment Costs - Linoleum and Asphalt Felt Plants 78
via
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LIST OF FIGURES
Figure No. Page
1-1 Estimated Cost of Construction Materials and Supplies
Used for Interstate and Federally-Aided Primary Highways,
and All Public Highways for Selected Years 18
1-2 Selected Statistics SIC 2951 (1963-1971) 35
11-1 SIC 2952 - Industry Operating Profile 58
IX
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EXECUTIVE SUMMARY
BACKGROUND AND OBJECTIVES
The purpose of this report is to present an analysis of the potential economic impact
on the asphalt roofing and paving industries of pollution abatement requirements under the
Federal Water Pollution Control Amendments of 1972 for each of three levels of effluent
treatment:
Proposed best practicable control technology currently available (BPT).
Proposed best available technology economically achievable (BAT).
Proposed new source performance standards (NSPS).
The segments of the asphalt paving and roofing materials industries are contained
within:
SIC 2951 paving mixtures and blocks
SIC 2952 - asphalt felts and coatings
SIC 3996 asphalt-felt-base floor coverings
Mobile and stationary asphalt paving plants operated by highway contractors
(SIC 1611) are also discussed with SIC 2951.
The report is presented in two principal parts for each SIC category. The first part is a
characterization of the industrial category based on the U.S. Bureau of the Census statistics,
on trade association and other industry data, and on other primary and secondary sources
investigated by the contractor. The second part analyzes the probable economic impact on
the industries arising from the promulgation of the effluent treatment Guidelines.1
CONCLUSIONS
The proposed effluent Guidelines will not have a significant impact on the economic
performance of the asphalt paving, roofing and flooring industries.
Of the 4750 plants operating in the asphalt concrete sector of the paving industry,
approximately 500 (10.5%) must meet Guidelines. Of these latter, 10-15 plants will
probably choose to close as a direct result of the Guidelines. The remainder of the 500
plants will pass on the incremental costs of pollution control, representing a maximum price
1. As detailed in Development Document for Proposed Effluent Limitations Guidelines and New Source
Performance Standards for Paving & Roofing Materials (Tars and Asphalt). The report was prepared by
the National Field Investigations Center Cincinnati, U.S. Environmental Protection Agency, August,
1974.
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increase of about 1%. Closure of the 10-15 plants will affect about 50 employees in urban
areas where alternative employment opportunities exist.
Full cost pass through, with no other economic impact, is anticipated in the asphalt
emulsion sector of the paving industry and in the asphalt roofing industry. Price increases to
meet BAT requirements will be a maximum of 1.2^ per ton on a 1973 average selling price
of $63.45 per ton for asphalt emulsions, and 46$ per ton (0.58%) for asphalt roofing.
Baseline closures are anticipated in the asphalt-based flooring products sector so the
industry will probably not be in existence by 1977.
More specific conclusions are summarized in the following paragraphs.
PAVING MIXTURES AND BLOCKS (SIC 2951)
Approximately 4,800 plants in the United States produce asphalt-based paving
mixtures. The great majority of these plants (4,750) produce asphalt concrete, while the
remainder produce asphalt emulsions.
1. Asphalt Concrete
Industry Characterization
The asphalt concrete segment has grown steadily over the past few decades, reflecting
largely the increased levels of federal, state, and local funding for the expansion of roadways
in the United States. In 1973, this segment of the industry reached a record level of
production of 358 million short tons, but a 16% decline is anticipated in 1974. It is unlikely
that the 1973 level of production will be equalled before 1980, primarily because of a
decline in new road construction as the Federal Interstate and Defense highway system is
completed and as Trust Fund monies are diverted to other forms of transit. Although
maintenance expenditures will allow modest growth at 2% per year from 1974 to 1980, it is
likely that up to 500 marginal asphalt paving plants will be forced to close over this period
as the industry continues its trend toward greater concentration.
Plants in this segment of the industry may range in capacity from 50 to 500 short tons
per hour. The average sized existing plant has a capacity of approximately 150 tons per
hour, while the average new plant is closer to 300 tons per hour. Asphalt plants operate
intermittently, producing only for specific demand.
The substantial costs (13tf/ ton/mile) of shipping asphalt from the plant to the job site
mitigate against interregional or international shipments of the product. There is some
regional differentiation in regard to the length of the production year. (Plants in the South
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are able to operate year round, while northern plants are forced to close in the winter
months.) U.S. production averages 35-40% of rated capacity.
Of the 4,750 plants in the asphalt concrete segment, 25%, or 1,200, are estimated to be
"mobile" plants, which serve temporary market areas, and are moved to other sites upon the
completion of specific projects. While the remainder, or "fixed" plants may be dismantled
and moved, it is a costly process; so such moves are undertaken only when the market area
that the plant was set up to serve has deteriorated significantly.
The pattern of ownership of plants in this industry ranges from one-plant, privately-
owned operations, to firms which own in excess of 100 plants throughout the country, and
operate as subsidiaries of major corporations, often in the oil industry. Over the past decade
these larger firms have increased their market share, often by acquiring the assets of smaller
companies. Despite this trend, however, the industry is characterized by a low level of
concentration.
The median profitability of asphalt concrete plants is 4% on sales, and 10% on owners'
equity, slightly below the national average of 10.6% for all manufacturing concerns. Plants
in the industry range from marginally profitable installations, to some which have returns on
owners' equity approaching 25%. Recently margins have been adversely affected by the
rapid increases in the cost of asphalt cement, which comprises a major proportion of the
cost of asphalt concrete. Asphalt concrete is sold largely on a bid basis for specific projects.
Because the larger of these projects may run longer than a year, increases in cost of
production over the period of the contract may not be recovered.
Competition within the industry and between the industry and Portland cement
concrete may be severe but is generally mitigated by economic factors. Over the years,
asphalt concrete has maintained a first-cost advantage vis-a-vis Portland cement concrete,
although average annual costs of maintenance and resurfacing are higher. Within the
industry the high costs of shipping the product tend to limit encroachments of market area
by competing plants.
Effluent Limitations, Technologies and Costs
For the asphalt concrete sector BPT and BAT requirements are considered to be
equivalent; both are due to be achieved by 1977. Each calls for the installation of an earthen
settling basin for effluents resulting from wet process particulate control process equip-
ment, and for the recycling of the water which has been settled. The costs for the
installation of this technology range from $4,600 for a small plant (1,000-ton-per-day
capacity) to $6,400 for a large plant (2,500-ton-per-day capacity). Annual costs, including
operating expenses, energy, and amortization of capital, range from 11.3^ per ton for the
small plants to 8.1(^ per ton for the larger plants. This compares to an average 1973 selling
price for the product of $8.00 per ton.
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Economic Impact
The proposed effluent Guidelines will not have a significant economic impact on the
industry. Of the 4,750 asphalt concrete plants, approximately 1,200 are equipped with dry
process particulate control equipment and are therefore not subject to the Guidelines; of the
remaining plants, about 3,100 are already in compliance. The approximately 500 plants that
must meet the Guidelines (10.5%) are located primarily in rural areas, without significant
inter-, or intra-industry competition. The effects of high transportation costs historically
have enabled asphalt concrete plants to increase prices without prejudice to their market
position. Most will, therefore, pass on the incremental costs of pollution control, represent-
ing a maximum price increase of 1%.
Baseline closures are anticipated in about 500 cases before 1980 and it is possible that
a very small proportion (estimated at 10-15) of these 500 plants affected will choose to
close by 1977 as a direct result of the Guidelines. It is estimated that 50 employees will be
affected by their closure. Because these plants will be located in urban areas where
alternative employment opportunities exist, community effects will be negligible. Because
the industry operates currently at 35-40% of capacity, these closures will have no measur-
able effect on production levels. As a result of high transportation costs, international trade
in asphalt concrete does not exist, and therefore, there will be no balance of payments
effects.
2. Asphalt Emulsions
Industry Characterization
The level of production of asphalt emulsions for paving purposes has remained steady
over the last decade. While some emulsions are used for roofing and for industrial uses,
paving is by far the predominant use.
Although production in 1974 is expected to drop 15-20% from the levels achieved in
1973, the outlook for this segment is favorable through 1980. A 4%/yr rate of growth from
1974 to 1980 is anticipated, primarily because of the attractiveness of emulsions as a
substitute for asphalt cutbacks, which are expected to be phased out for reasons of energy
conservation, and the growing need for emulsions as a road base stabilizing ingredient.
Emulsion plants are distributed nationally, but a large proportion are located in the
Midwest, where the quality of the naturally occurring aggregates for road base often requires
the use of emulsions as a stabilizing agent, and where the markets for the industrial uses of
the product are most concentrated.
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Emulsion plants are believed to be slightly more profitable than concrete plants,
although little published data exists to support this conclusion. They are a complementary,
rather than a competing product to asphalt concrete, and, as a result, 15-20% of the
companies in the asphalt concrete business also distribute or produce emulsions.
Effluent Limitations, Technologies and Costs
BPT requirements for the emulsions sector consist of dikes to control the runoff of
process wastes which have settled around the plant site, and the removal of oil and grease
through a separator. BAT calls for the construction of a sedimentation basin to supplement
this system. The costs for the installation of such a system for an average sized plant (6,000
short tons per day) is $73,290 for BPT and $80,790 for BAT. The annual operating costs
are 1.1^ per ton for BPT and 1.2$ per ton for BAT. This compares to an average 1973 selling
price of $63.45 per ton.
Economic Impact
Given the proportion these incremental costs bear to the average selling price of asphalt
emulsions it is concluded that the costs can easily be passed on by the industry. No major
difficulty is expected in raising the capital for these processes. The economic impact will,
therefore, be negligible.
ASPHALT FELTS AND COATINGS (SIC 2952}
Industry Characterization
SIC 2952 includes a variety of products, all employing asphalt as one ingredient, used
to waterproof the exterior of a building structure: asphalt saturated felts, roofing asphalts
and pitches, strip shingles, and many others. The saturated felt products can be classified as
either prepared roofings or built-up roofings. Both types are basically similar, each being
made of a structural felt or fabric framework, a soft asphalt saturant for the felt, and a
relatively hard coating on the surface of the felt.
Shipments of asphalt felts and coatings have shown steady and almost uninterrupted
growth over the past decade, increasing from $459.5 million in 1963 to $877.1 million in
1972, an annual rate of better than 7%. The principal products shipped each year are asphalt
and tar roofings and sidings, which represent 75% of all group shipments. These products are
used throughout the United States in relation to the volume of new building construction
and of existing stock. Imports and exports have been and remain at a very low level.
Roofing plants are located close to or in heavily populated areas and thus manu-
facturers' warehouses remote from the plants are seldom used for distribution. Manu-
facturers tend to specialize in prepared or in built-up roofing and brand identification is
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prevalent in the former. Roofing has a relatively low value per unit weight; thus freight can
make shipment uneconomic in competition with other plant locations.
It is estimated that 30% of all roofing products in this industry sector is used for
non-residential building construction, with the remainder used for residential roofing.
Reroofing of residential structures is an extremely important segment of the market, ranging
from approximately 50% of all residential roofing in a good year for new residential
construction, to 75% in an off-year. Reroofing also represents about 65% of all roofing sales
to the non-residential building sector. The overall growth of the roofing industry will be
close to 4%/year on a weighted basis to 1980. As the industry is now operating at or close to
the maximum effective capacity, new plants or expansions of existing ones are a necessity.
The industry is comprised of approximately 233 manufacturing establishments, about
108 of which produce dry and saturated roofing felts whereas the remainder concentrate on
asphalts, coatings and cements. Roofing plants in this industry range in size from 25,000 to
200,000 short tons per year, with the average at about 80,000 tons per year.
Manufacturing plants in this industry also vary significantly by net asset value. The
oldest operating facility (built 80 years ago) has a net asset value considerably less than $1
million; newer facilities have assets as high as $6 million and the average book value for all
108 plants is about $2.2 million. A typical plant, with a daily capacity of 500 tons and net
assets of about $2.5 million, will produce an average of 120,000 tons of roofing products
each year. Such a plant will average a return of 5% or better on sales and 15-20% on net
assets invested.
Of the 226 establishments operating in 1967, 153 were multi-unit companies and 192
were public corporations. The industry has traditionally been characterized as one of
family-owned companies with regional concentrations, but a considerable number of acqui-
sitions and mergers over the past decade has consolidated U.S. production. Despite these
changes in industry structure, the concentration ratios have varied little over the past
decade. Currently, the four largest companies share approximately 38% of industry
shipments and the eight largest, 65%.
Manufacturers publish regional dealer price lists; basic list prices have been revised
frequently over the past year as manufacturers have attempted to maintain margins in the
face of considerable price increases for basic raw materials, especially asphalt. As a result,
average prices could increase as much as 15% during 1974.
Effluent Limitations, Technologies and Costs
The Development Document has proposed effluent limitations for a typical plant using
150,000 gallons of process water per day and producing 500 short tons of product per day.
Investment and operating, maintenance and energy costs have been estimated for this level
of production and also for smaller and larger facilities producing 200 short tons and 700
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short tons per day, respectively. The majority of asphalt roofing plants are already removing
part of the suspended solids from their waste water before discharging it; the proposed best
practicable control technology currently available (BPT) requires that all plants employ
primary settling for this purpose. The proposed best available technology economically
achievable (BAT) further requires that coagulants be used to settle out more suspended
solids. While it is assumed that either an earthen stilling basin or a steel or concrete settling
tank will be used to achieve BPT, the settling tank is the more likely solution for BAT
requirements to allow for continuous sludge removal.
Investment costs for BPT will range from $3,500 to $30,000 depending on the size of
plant and treatment technology used. For BAT they will range from $37,000 to $67,500.
Incremental costs per short ton will range from 24 to 10
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The market for asphalt-based flooring products derives from a very limited demand for
an extremely low cost product that has a relatively short life expectancy. This demand is
expected to become non-existent within about three years as consumer preference for vinyl
and vinyl asbestos flooring increases. Lower costs resulting from economies of scale and
technical innovations for competing products will help to eliminate demand for asphalt-
based floorings. Furthermore, the price of refined asphalt feedstock has increased consider-
ably recently and the feedstock is in short supply, thus increasing the relative cost of asphalt
flooring. Consequently, asphalt's single market advantage, low cost, is rapidly disappearing
and with it the only justification for continued significant production of the product. Thus
baseline closures are anticipated so the industry will probably not be in existence by 1977.
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METHODOLOGY
The methodology used to determine the economic impact of effluent treatment
guidelines1 on operating plants in each sector included a comparison of the estimated
capital and total yearly costs of controls with the estimated profitability and average
product prices for typically sized plants in each sector. Short tons is the unit of weight
employed throughout this analysis because this reflects the economic measure used by the
industries under consideration.
For the purposes of this analysis, the annuity method of calculating total yearly costs
has been used. Operating, maintenance, energy and capital costs were amortized at a 15%
discount rate over 10 years. While this approach differs from that used in the Development
Document it more accurately reflects typical corporate policies and, at the same time,
results in similar total yearly costs to those in the Development Document.
Potential price effects were measured by assessing the average price increases that
would be required to absorb fully the incremental annual operating costs for pollution
controls, assuming that the same level of profits by operating units were maintained. In the
case of asphalt roofing and asphalt concrete plants, three sizes of operating units were
assumed for each sector in order to assess the potential economies of scale that might result.
Price increases might range from full pass-through.of incremental costs to full absorption,
depending on the specific technology already in effect, the market and competitive environ-
ment and the current levels of profitability for individual facilities. Judgment was used in
estimating the number of facilities that would be able to pass costs on fully, or have to
absorb them partially or completely.
Depending on the degree to which costs pass-through can be achieved, further eco-
nomic effects can result on operating units in each sector. The primary economic effect
could be a reduction in, or elimination of operating profitability if prices could not be
increased. The analysis examines this effect for the full spectrum of price increases and also
assesses the availability of capital required to implement the control technologies. Finally, in
the cases where cost absorption results in a severely reduced level of operating profitability,
the possibility of plant shutdowns, resulting production, employment, community and
balance of trade effects is examined judgmentally to obtain an appreciation of the full
economic impact that could result from implementing the effluent guidelines.
1. As deta iled in Development Document for Proposed Effluent Limitations Guidelines and New Source
Performance Standards for Paving & Roofing Materials (Tars and Asphalt). The report was prepared by
the National Field Investigations Center - Cincinnati, U.S. Environmental Protection Agency August
1974.
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PART I: ASPHALT PAVING MIXTURES AND BLOCKS
(SIC 2951)
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PART I: ASPHALT PAVING MIXTURES AND BLOCKS
(SIC 2951)
A. INDUSTRY STRUCTURE
1. Products and Demand
a. Products
The asphalt paving industry in the United States has developed from the need to
construct and maintain durable roadways for the use of automotive traffic. Dependent in its
early life on the limited supply of naturally occurring asphalt deposits, the industry grew
dramatically with the discovery of petroleum derivative asphalt. In recent years, growth has
continued at a steady rate, reflecting the continued federal and state sponsorship of major
highway construction.
The asphalt paving industry is included both in Standard Industrial Classification (SIC)
2951, Paving Mixtures and Blocks, and in SIC 1611, Highway Construction. Those plants
included in the former classification derive the major portion of their revenues from the sale
of paving mixtures to third parties. Those in the latter classification derive the major portion
of their revenues from the application of their asphalt products by their own construction
crews. Our analysis of this SIC relates only to the mobile and stationary asphalt plants
operated by highway contractors. SIC 2951 also includes such products as asphalt paving
blocks, creosoted wood paving blocks, composition paving blocks, mastic floor com-
positions, and coal tar paving materials. These products are relatively insignificant in sales
and declining in use. Effluent guidelines were not defined for these miscellaneous categories,
so this analysis will not consider them in any further detail.
The two main products within the asphalt paving industry are asphalt emulsions and
asphalt concrete. Emulsions are a combination of asphalt cement and water whose natural
immiscibility has been mitigated by an emulsifying agent. Their primary use in paving is in
the repair and maintenance of existing roadways. Asphalt emulsions are also used in very
small amounts in the roofing sector. Asphalt concrete* is a heated and compacted mixture of
asphalt cement and well-graded aggregates. Its primary uses are the construction of roads
and highways, airport runways, driveways, and parking lots. It has a variety of other uses
including tennis courts, swimming pools, playgrounds, feedlots, and industrial floors. Cut-
backs, asphalt cement liquefied by the addition of higher distillates, are also used for paving
but they are produced primarily at petroleum refineries, and not by asphalt paving
producers, although they may be marketed and distributed by the latter. Since these
industries are not involved in the manufacturing processes, these products have been
eliminated from consideration in this analysis.
"often referred to as "hot-mix" asphalt
11
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b. Manufacturing Processes
The manufacturing processes are discussed in detail in the Development Document.
Approximately 8% of the plants that produce asphalt concrete utilize continuous mixing
processes rather than the batch process described in the document. There are no significant
process differences among emulsion plants.
c. Production and Shipments
Production figures for the asphalt paving industry may be most closely derived from
data compiled by the Department of the Interior, Bureau of Mines, on shipments of
petroleum asphalt to the asphalt paving industry. Shipments have increased from 16.9
million short tons in 1963 to 24.1 million short tons in 1972. This increase has been steady,
with a slight drop shown only in one year (1967). Shipments in 1972 were at an all time
peak. Table 1-1 lists these shipments in total from 1963, and by product from 1968.
Shipments of cement, used for the production of asphalt concrete, have increased at a more
substantial rate, while shipments of emulsions and cutbacks have remained relatively
constant over the last six years. Table 1-2 lists the regional breakdown of these shipments for
1971 and 1972.
TABLE 1-1
SHIPMENTS OF PETROLEUM ASPHALT FOR PAVING BY PRODUCT
(Millions of Short Tons)
Year Asphalt Cement Emulsions Cutbacks Total*
1963 N/A N/A N/A 16.9
1964 N/A N/A N/A 17.4
1965 N/A N/A N/A 18.3
1966 N/A N/A N/A 19.6
1967 12.7 N/A N/A 18.9
1968 14.2 2.2 4.3 20.7
1969 15.2 2.1 4.1 21.3
1970 17.2 2.3 4.1 23.6
1971 17.6 2.3 3.9 23.8
1972 18.1 2.2 3.9 24.1
*Totals may not add due to rounding.
N/A - Not Available
Source: Mineral Industry Surveys, U.S. Dept. of the Interior, Bureau
of Mines 1963-1972.
12
-------
TABLE 1-2
SALES OF PETROLEUM-ASPHALT PAVING PRODUCTS FOR CONSUMPTION IN THE
UNITED STATES BY P.A.D. DISTRICTS AND STATES
District and State
District 1:
Maryland & District of Columbia ....
New York
Virginia . , .
West Virginia
District I, total
District II:
Nebraska
District II, total
District III:
Texas
District III, total
District IV:
Idaho
U tab
Wyoming
District IV, total
District V:
Alaska
California
Hawa i i
District V, total
Asphalt cements
1972
222,878
27,763
62 U, 760
1*89,81*8
95,91*5
31*1*. 363
21*5,826
75,620
51*9,997
69!* ,121
501,682
71*3,879
129,896
229,527
12,166
338,112
72,826
5,399,209
687,356
590,571
1*27,607
239,511*
39!*, 931*
578,923
586,31*3
1*22,150
121,1*27
98,996
710,273
1*86,710
133,937
1*61,273
1*59,830
6,399,841*
290,570
192,212
178,172
1*71,718
129,1*26
1,285,221
2,51*7,319
331,735
123,501
181*. 728
235,076
121*. 1*1*7
999,1*87
1*2,675
1*99,1*1*7
1,268,671*
1*8,732
110,623
366,160
379,137
2J15j'*'*8
18,061,307
19711
18U.676
51,065
61*1*, 207
1*22,765
86,535
321*, 829
307,61*2
58,31*6
1*72,1*51
699,369
1*75,581*
701,868
181*, 872
220,163
37,280
329,068
72, 271*
5,272,991*
830,389
722,1*35
1*39,121*
21*9,606
1*28,1*68
1*87,81*1
1*71*. 062
1*02 , 799
155,275
85,31*8
71*6,011
537,127
128,813
1*06,988
1*89,1*20
6,583,706
283,361
170, 8oq
155,595
1*08,1*75
100,11*9
1,325,1*1*7
2, 1*1*3, 836
356,322
83,277
160,862
169,150
125,605
895,216
1*1,205
1*06,596
1,266,826
1*2,251
73,838
292,073
293,625
2,1*16,1*11*
17,612,166
Cutback Asphalts
1972
16,598
1,758
58,892
70,ll*7
31,121
5U, 785
21,008
31,1*21*
76,909
133,621
50,576
205,823
87
17,831
615
77,551
J31j30l*
880,050
295,651
132,913
72,986
128,253
51,512
59,507
178,681
393,020
21,527
1*6,623
322,025
181*, 81*1
1*5,297
23,518
105,807
2,062,161
51*, 367
71,739
12,901
8,1*19
33,765
208,712
389,903
17,881
1*2,302
55,093
3U, 01*6
23,958
173,280
7,081*
68,860
131,290
3,327
23,561*
1*0,653
79,922
351*, 700
3,860,09!*
19711
17,1*03
2,871
6U.721
59,51*8
30,760
56,1*35
22,1*60
30,71*8
77,339
128,805
51,386
207,700
568
18,856
6,868
87,502
28,356
892,326
339,31*1*
155,601
86,280
160,206
50,396
1*9,155
159,792
1*53,866
22,876
59,1*01
220,230
203,993
1*2,596
30,369
111*, 571
2,11*8,676
31,006
67,123
17,173
7,863
33,117
221,031*
377,316
27,1*79
1*1,081*
61,391*
29,779
30,333
190,07!*
l*,008
55,1*33
133,598
2,7l*2
20,637
1*6,532
62,301
325,251
3,933,61*3
Emulsified Asphalts
1972
U.232
2,125
31,869
52,930
8,293
78,327
3,186
5,230
37,11*1*
160,766
97,192
56,292
303
73,108
1,075
81*, 199
52,591*
71*8,865
1*7,772
175,779
29,099
3!*, 908
75,538
26,103
19,199
9,815
7,063
13,971
175,"*36
ll*,088
3,209
111*, 538
«,062
779, 5BO
79,100
33,325
38,227
31,617
10,532
90,981
283,782
3,1*38
12,879
7,773
18,000
3,122
1*5,212
1*, 1*1*9
81* ,516
122,130
318
"*,871
77,1*83
27,583
321,350
2,178,789
19711
2,335
3,019
27,977
1*9,579
16,737
75,312
1,751*
9,191*
1*3,938
171,081
97,290
69,298
361*
65,162
536
86,921*
Vt.558
765,058
60,795
228,1*27
22,057
32,315
63,510
20,871
20,702
8,376
7,51*8
1*0,609
178,073
22 , 169
1,1*51
11*3,513
1*9,226
899,61*2
63,032
1*2,610
31,760
27,718
12,199
89,272
271,591
3,9i+i*
9,621
3,659
16,022
5,152
1*3 , 390
5,063
68,161
126,998
51*5
l*,9Ul
6U, 188
25,522
225j.li 18
2,275,107
Total
1972
21*3,708
31,6U6
715,521
612,925
135,359
1*77,1*75
270,020
112,271*
66U, 050
988 , 508
61*9,1*50
1,005,99!*
no, 286
3EO.U66
13,856
1*99,862
156,721*
7,028,121*
1,030,779
899,263
529,692
1*02,675
52 1,981*
661*, 533
78"+, 223
821*, 985
150,017
159,590
1,207,73!*
685,639
182,1*1*3
599,329
598,699
9,21*1,585
1,21*, 037
297,276
229,300
511,751*
173,723
1,581*, 911*
3,221,001*
353,051*
178,682
21*7,591*
287,122
151,527
1,217,979
51*, 208
652,823
1,522,091*
52,377
139,058
1*81*, 296
1*86,61*2
3,391,1*98
2U,100,190
19711
20U, 1*11*
56,955
736,905
531,892
131*, 032
1*56,576
331,856
98,233
593,728
399,255
62 1*, 260
973,366
135,801,
301*. 181
1.1*, 681*
503,1.91.
11*5,183
6,930,373
1,230,523
1,106,1*63
51*7,1*61
1*1*2,127
51,2,37!*
557,367
651*, 556
865,01,1
185,699
135,353
1,11.1*, 311*
763,259
172,360
580,370
653,217
9,632,021
382 , 39-3
280,51*2
20U.523
1*1*1*, 056
11*5,1*65
1,635,753
3,092,71*3
387,71.5
133, 9»2
230,915
211*, 951
161,095
1,123,688
50,276
530,190
1,527,1*22
1*5,538
99,1.16
1*02,793
'Sl.UltS
i 3,037,033
23,320,916
Source: Mineral Industry Surveys, U.S. Dept. of the Interior, Bureau of Mines.
13
-------
The total production of asphalt concrete may be estimated by multiplying the
shipments of asphalt cement by 18. (Asphalt cement constitutes approximately 1/18 of the
weight of asphalt concrete.) Table 1-3 lists this derived production from 1967. Emulsions
and cutbacks used for paving purposes are not further processed within the asphalt concrete
segment and the figures in Table 1-1 accurately reflect their total production.
TABLE 1-3
SHIPMENTS OF ASPHALT CONCRETE
(Millions of Short Tons)
Year Production
1967
1968
1969
1970
1971
1972
228.6
255.6
273.6
309.6
316.8
325.8
Source: Contractor Estimates, based on
18 tons of asphalt concrete pro-
duced per ton of asphalt cement
used for this purpose.
The value of shipments has risen at a somewhat greater rate than the volume of
production, from $1,350 million in 1968 to $2,038 million in 1972. Table 1-4 lists the value
of shipments for plants in SIC 2951 from 1963, and an estimated value of total industry
shipments from 1968. Table 1-5 lists the value of shipments by product for SIC 2951 in
1972, 1967 and 1963. The unit price of asphalt concrete rose from $5.38 per ton in 1968 to
$6.27 per ton in 1972 (17%). This increase was not as large as that registered by the general
construction cost index which, as reported by Engineering News Record, rose by 26% over
the same period. This is due, probably, to the relatively low labor content of the asphalt
concrete manufacturing process.
Asphalt paving materials must be shipped in heated form directly to the job site. With
trucking costs currently at 13^ per mile, the effective shipping radius is very small, varying
from 10 to 30 miles. As a result, no imports or exports are listed by the Department of
Commerce for the industry. One may therefore assume that domestic consumption and
shipments are equivalent.
d. Markets and Future Growth
The primary competition for asphalt paving materials is Portland cement concrete; in
some rural areas there also may be competition from gravel and other natural road base
materials. Table 1-6 shows the relative use of asphaltic and concrete paving for new public
14
-------
TABLE 1-4
ASPHALT PAVING MATERIALS - VALUE OF SHIPMENTS
(Millions of Dollars)
Year SIC 2951 + Other* = Total Asphalt Concrete
1963 402.9 N/A N/A
1964 402.1 N/A N/A
1965 423.6 N/A N/A
1966 465.7 N/A N/A
1967 529.6 N/A N/A
1968 568.1 781.9 1,350.0
1969 609.8 N/A N/A
1970 671.5 1118.5 1,790.0
1971 747.5 1189.5 1,937.0
1972 840.9 1197.1 2,038.0
*Expecially from SIC 1611
Sources: Preliminary Census of Manufactures, U.S. Bureau of
the Census, 1972, Hot Mix Asphalt, Plant & Production
Facts, National Asphalt Paving Association, 1970, 1971
1972.
highway construction in selected years from 1964 to 1972; Figure I-1 displays the data
graphically. These figures indicate that while both markets have shown healthy growth over
the last decade, asphalt has increased its market share at the expense of concrete. This
growth may have been due to a number of factors, including: (1) market growth in
geographical areas where frequent changes in temperature above and below 32° resulting in
freeze-thaw damage, require the use of asphalt, and (2) the lower first-installed cost per mile
of asphalt, which can be especially attractive in periods of inflationary pressures.
Approximately 15% of all producers of asphalt concrete also produce Portland cement
concrete paving. In fact, the largest producer of asphalt, Warren Brothers Co., is also one of
the two largest producers of Portland cement concrete used for highway construction.
Future demand for asphalt paving depends to a degree on the levels of new highway
construction and, in turn, upon the levels of state and federal support for these programs.
Two factors tend to forecast a longer-term decline in federal highway spending. First, the
42,500-mile National System of Interstate and Defense Highways is nearing completion. As
of March 31, 1973, approximately 81% of this system had been completed, while another
16% was in either the construction or the planning stages. Second, the recent energy crisis
can be expected to increase demands that portions of the Federal Highway Trust Fund be
diverted to other transportation modes as specified in the Federal Aid Highways Act of
1973, primarily rapid transit systems. In fact, the City of Boston has recently applied for a
diversion of $600 million of such funds for intercity rail improvements.
15
-------
TABLE 1-5
VALUE OF SHIPMENTS OF ASPHALT PAVING MIXTURES AND EMULSIONS (SIC 2951)
Total Shipments
Including Interplant Transfers
1972
Product
Paving Mixtures & Blocks (Total)
Paving Mixtures & Blocks:
Liquid Asphalt & Tar Paving
Materials:
Emulsified Asphalt, In-
cluding Liquid Additives
Other Liquid Asphalt &
Tar Paving Materials, In-
cluding Cutbacks
Asphalt & Tar Paving Mixtures &
Blocks, Including Bituminous or
Asphaltic Concrete, and Asphaltic
Paving Cements
Other Paving Mixtures & Blocks,
Except Brick, Concrete, or Stone
Paving Mixtures & Blocks, other
'Millions of Dollars.
**Millions of Barrels
Source: U.S. Census of Manufactures 1967.
1972
Quantity** Value*
N/A 840.9
11.4 68.2
8.1 49.1
N/A 590.2
N/A 11.2
N/A 122.2
1967
Quantity** Value*
N/A 529.6
16.3 71.2
5.7 22.9
N/A 365.8
N/A 9.4
N/A 60.3
1963
Quantity** Value*
N/A 402.8
12.9 48.6
7.7 33.5
N/A 294.2
N/A 8.8
N/A 17.7
-------
TABLE 1-6
ESTIMATED COST OF CONSTRUCTION MATERIALS AND SUPPLIES USED FOR
INTERSTATE AND FEDERALLY-AIDED PRIMARY HIGHWAYS, AND ALL PUBLIC HIGHWAYS*
FOR SELECTED YEARS
(Millions of Dollars)
1964
1967
19VO
1972
Material
Premixed Bituminous
Paving Materials**
Cement
Ready -Mixed
Concrete
Federally-
Aided
Highways
131.6
199.7
213.3
All
Public
Highways
188.2
285.5
304.9
Federally-
Aided
Highways
205.2
246.3
251.4
All
Public
Highways
301.2
361.5
369.0
Federally-
Aided
Highways
268.3
237.1
305.7
All
Public
Highways
395.4
349.4
450.6
Federally-
Aided
Highways
249.3
194.6
273.6
All
Public
Highways
402.9
314.4
442.2
*Does not include maintenance and repair of highways nor construction of private roads, airport runways, etc.
**Asphalt Concrete
Source: U.S. Department of Commerce, Construction Review, August 1973
-------
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Future demand many also be affected by the future price and supply of asphalt and
competing materials. The price of asphalt paving materials has risen dramatically in the last
few months, reflecting the skyrocketing price of asphalt cement, a petroleum derivative
product. Availability has also been a problem, because refineries have concentrated their
production on gasoline and fuel oil at the expense of liquid asphalt. However, the shortages
of liquid asphalt have occurred during the winter when the majority of asphalt plants in the
country are routinely shut down. Thus, the long-term effect of the energy crisis on both
asphalt supply and demand is as yet uncertain.
A recent trend, which may mitigate the potential negative effects mentioned above, is
the increasing use of full-depth asphalt pavements and deep-lift asphalt construction tech-
niques. These procedures call for the substitution of asphalt for other base course materials,
and have the effect of increasing the use of asphalt per mile of road constructed. It is also
important to understand that in the asphalt paving industry, repaying and maintenance of
existing roads has traditionally accounted for nearly 50% of the market. These markets
constitute a steady outlet for the production of the industry, and are little affected by most
of the factors mentioned above. Table 1-7 shows the relative importance of the various
markets for asphaltic concrete and the relationship between repaving and new construction
for 1972.
Predictions as to future production are difficult because of the present uncertainty as
to the availability and supply of asphalt cement. Also, the stabilizing of gasoline consump-
tion and therefore, tax monies used for highway construction, because of unavailability and
voluntary restraint, will inhibit future growth in demand for state and federal highway
construction. As a result of these two factors, the industry is predicting a 16% decline in
production of asphalt concrete in 1974 from the estimated record high level of production
of 358 million tons in 1973. Because of the factors mentioned above, the production level
achieved in 1973 is unlikely to be equalled through 1980. However, with the constant
demand for resurfacing and maintenance and the continued strength in the private and
commercial markets, the National Asphalt Paving Association (NAPA) projects that total
demand will grow from the 300 million ton level of 1974 at a rate of 2% per year through
1980.
The demand for asphalt emulsions for paving purposes is currently very strong. The
product is used increasingly as a stabilizing agent for the base courses of new highway
construction. By applying a coat of asphalt emulsion to the base aggregates prior to laying
the asphalt concrete above, road contractors are able to reduce the required depth of the
base material. The emulsion also provides an effective water barrier between the road
material and the base. These properties have increased the demand for emulsions in areas
where the available supply of adequate base materials has been declining.
19
-------
TABLE 1-7
DISTRIBUTION OF 1972 PRODUCTION
Percent
Type of Market:
Interstate Highways 16
State Highways (Excluding Interstate) 30
Municipal and County Roads 21
Airports 3
Private and Commercial 28
Other 2
100
End Use:
Surface and Binder 67
Hot Mix Base 28
Patching 4
Other 1
100
Type of Construction:
New Construction 55
Resurfacing and Maintenance 45
100
Source: Hot Mix Asphalt, Plant & Production Facts,
1972, National Asphalt Paving Association.
The recent energy crisis has also increased the demand for asphalt emulsions for paving.
Emulsions are the primary alternative product for asphalt cutbacks. When cutbacks are
applied to road surfaces, the higher distillates which have been used to liquefy the asphalt
cement evaporate, leaving the cement as a binder. This method has been recognized recently
by the industry and the government as a needless waste of the higher distillates. Conse-
quently, cutbacks are being phased out rapidly, and emulsions can be expected to pick up
the majority of their market share.
The asphalt concrete industry also is studying closely the feasibility of substituting
emulsions for asphalt cement in their production process. The reasons for this are self-
evident; the lesser amount of asphalt cement per volume in the emulsions would enable the
asphalt concrete producers to reduce the effect of the price and availability problems they
have been having with their raw materials.
Despite these demand factors, the industry has estimated a 15-20% decline in the
production of emulsions in 1974 from the estimated 1973 level of 14 million barrels (2.6
million short tons). This decline is due, as with the hot-mix industry, to the lower
20
-------
availability of raw materials (asphalt cement), and especially the expected decline in demand
in 1974 for all paving products. However, shipments of emulsions are expected to grow over
the next six years faster than asphalt concrete, at about 4% per year, because of the
favorable demand factors mentioned above.
e. Marketing and Distribution
The maximum effective shipping radius for asphalt paving materials is approximately
30 miles. Much shorter distances are preferred to maximize the efficiency of the trucking
fleet used to transport the mix from the plant to the job site. The potential market area for
each stationary plant, therefore, is readily defined. Certain asphalt plants, called "mobile"
or "nomad" plants, are designed with the capability of moving from market area to market
area as conditions demand. This flexibility enables producers to supply remote temporary
market areas, such as sites of new federal interstate highways, without having to depreciate
their equipment over an artificially short time. Although it is rare, so-called "fixed" plants
may also be moved if the equipment is in good shape, and the market area which they have
been set up to serve has reduced in potential.
Asphalt paving materials generally are sold on a bid basis for specific projects. If the
producer is also the contractor, he may have the flexibility to adjust his asphalt price in the
bid in conjunction with the placing labor involved to reflect his bidding strategy. Contrac-
tors who are not producers must solicit bids from the producers in the area much as they do
from other commodity suppliers. The advantage to the producer/contractor inherent in this
situation explains the significant level of vertical integration within the paving industry as
demonstrated in Table 1-8. There is a trend, however, for producer/contractors to regard their
plants as profit centers. This tends to mitigate the advantages mentioned above.
2. Manufacturing and Ownership Profile
a. Plant Characteristics
There are approximately 4,800 asphalt paving plants in the United States. Fifty of
these produce asphalt emulsions. The remainder produce asphalt concrete. Of the 4,750
plants producing asphalt concrete, 872 are classified in SIC 2951. Virtually all plants in
SIC 2951 are fixed. Plants in SIC 1611 may be fixed or mobile. Of the 4,750 asphalt
concrete plants, an estimated 25%, or 1,200, are mobile plants.
The primary segmentation in the asphalt paving industry is between those plants which
produce asphaltic concrete and those which produce asphalt emulsions. The differences
between these two types of plants are discussed in depth in the Development Document.
Very little information is available on asphalt emulsion plants. The Bureau of Census
data listed in Table 1-5, and the Bureau of Mines data in Table I-l are the extent of the data
published on this segment by the government.
21
-------
TABLE 1-8
INTEGRATION OF COMPANY OPERATIONS
Number of Companies
1972 1971
Produces Hot Mix Asphalt 382 336
Places (Lays) Hot Mix Asphalt Produced
by Another Company 346 310
Owns Gravel Pit or Quarry 182 176
Produces Portland Cement Concrete 57 56
Company is a Contractor For:
Road Construction 316 302
Other Types of Construction 187 180
Distributes Asphalt Emulsion 64 52
Distributes Liquid Asphalt 71 55
Source: Hot Mix Asphalt, Plant & Production Facts, 1972, National
Asphalt Paving Association.
Table 1-5 showed the relative importance of emulsions within the industry. Emulsion
plants are generally larger than asphalt concrete plants. In 1967, the average volume of
emulsion plants was approximately $ 1.4 million per year. While these plants are dispersed
nationally, they are heavily concentrated in the Midwest, where the quality of natural
aggregates imposes a greater need for emulsions as road base sealers, and the markets for
their miscellaneous uses (primarily industrial) are greatest. Table 1-9 lists the relative im-
portance of the end uses for the product.
TABLE 1-9
END USES OF EMULSIFIED ASPHALTS
(Millions of Short Tons)
Year Paving Roofing Other Total
1968
1969
1970
1971
1972
2.184
2.057
2.341
2.275
2.179
0.007
0.026
0.014
0.017
0.014
0.078
0.075
0.286
0.331
0.343
2.269
2.158
2.641
2.623
2.536
Source: Mineral Industry Surveys, U.S. Dept. of the
Interior, Bureau of Mines 1968-1972.
22
-------
Table I-10 lists plant characteristics for 1,081 of the 4,750 plants from a survey by the
National Asphalt Paving Association for 1971 and 1972. This table indicates that most
plants use batch mixers, as opposed to continuous mixers. The great majority of all plants
use mixers with a capacity of 4,000-7,999 pounds. Of these plants 119, or 11%, have mixers
of less than 4,000 pounds capacity, or under 960 tons per day, presuming 480 batches per
day. There is an increasing use of automated plants. Mobile plants, as discussed above,
constitute approximately 25% of all plants. There is no differentiation, in product, process,
or treatment technology between mobile and fixed plants.
TABLE 1-10
NUMBER OF ASPHALT CONCRETE PLANTS BY SIZE OF MIXER
Number
of Plants
Mixer Size 1972 1971
Under 4,000 Ibs. 119 133
Stationary 4,000 to 7,999 Ibs. 543 434
Plants 8,000 to 9,999 Ibs. 81 74
10,000 Ibs. or more 63 33
Continuous Mixer 17 22
Under 4,000 Ibs. 25 40
Portable 4,000 to 7,999 Ibs. 110 101
Plants 8,000 to 9,999 Ibs. 27 33
10,000 Ibs. or more 33 34
Continuous Mixer 63 62
Number of Automated Plants 608 441
Number of Employees Per Plant 3.2 3.9
Source: Hot Mix Asphalt, Plant and Production Facts,
1972, National Asphalt Paving Association.
Asphalt concrete plants operate intermittently, rarely reaching their rated capacity for
more than a short time. While the average capacity of the plants in this segment is estimated
to be 1,600 short tons per day, the average production is closer to 600 short tons per day,
although the ratio between capacity and production may vary significantly over time and
between plants, depending on market conditions.
Because the asphalt paving industry is national in scope, and the product such that
plants must be located very close to the markets, geographical segmentation of asphalt
concrete plants is negligible. Table 1-11 lists the location by state of the 4,002 asphalt paving
plants identified by the National Asphalt Paving Association. Regional differences are
determined solely by the levels of road and highway construction activity in each region.
Rural regions tend to have a higher proportion of mobile plants than urban regions. There
are price differences between regions, because of variations in the availability and cost of
23
-------
TABLE 1-11
EXISTING ASPHALT CONCRETE PLANTS IN THE UNITED STATES BY
REGION (JANUARY 1974)
Region I
Region II
Region III
172
Region V
Ind. 130
Mich. 147
Ohio 287
564
665
Region VI
Ky. 128
Tenn. 105
W. Va. 44
277
Region VII
Ark.
La.
Miss.
38
66
91
195
Region IV
Conn.
Maine
Mass.
N. Hamp.
R.I.
Vt.
50
28
50
20
12
12
D.C.
Del.
Md.
N.J.
N.Y.
Pa.
4
8
66
117
212
258
N.C.
S.C.
Va.
116
58
106
280
Ala.
Fla.
Ga.
P.R.
82
115
83
13
293
Region VI11
Iowa
Mo.
202
68
153_
423
Region IX
Region X
Region XI
Region XII
N. Mex.
Ok la.
Texas
31
57
96
1RA
lo4*
Minn.
N. Dak.
S. Dak.
Wise.
114
19
31
135
ir\r\
Colo.
Kansas
Nebr.
Wyo.
38
61
37
24
ten
Ariz.
Calif.
Hawaii
Nev.
Utah
12
228
10
8
18
276
Region XIII
Alaska
Idaho
Mont.
Oreg.
Wash.
30
27
31
55
71
214
Source: Unpublished data, National Asphalt Paving Association.
24
-------
asphalt cement; however, they are not important because the short required shipping radius
makes interregional trade in the industry impossible. Table I-12 lists certain regional
characteristics for the plants located in SIC 2951.
Of the 872 establishments included in SIC 2951 for 1967, only 64, or 7%, had more
than 50 employees. The great majority of these larger establishments are believed to be
asphalt emulsion facilities. Table I-13 describes the industry according to the number of
employees per establishment. This table indicates an average of approximately 10 produc-
tion workers per establishment. For the asphalt concrete paving industry (excluding
emulsions), the National Asphalt Paving Association has estimated an average of 3.2
production workers per plant in 1972, a figure which has been steadily declining with the
increased use of automated asphalt concrete plants.
These plants may be segmented for the purposes of this report by plant size and by the
type of technology used to control particulate emissions. Those using dry processes are, of
course, in compliance with the proposed EPA guidelines on effluent control. According to
industry estimates, approximately 25% of existing plants are equipped with dry process
control equipment, or "baghouses."
b. Firm Characteristics
There are approximately 1,350 firms in the asphalt paving industry. These firms range
from small one-plant operations to large multi-plant firms serving many regional markets.
The two largest companies, Warren Brothers and Industrial Asphalt, are wholly-owned
subsidiaries of major oil corporations Warren, of Ashland Oil and Refining, and Industrial,
of Gulf Oil. Each operates in excess of 100 plants. Companies in the 50-plant range include
Interstate Amiesite, Peter Kiewit and Sons, and General Crushed Stone. None of these
companies, however, has nationwide coverage.
In general, the industry is characterized by a low relative degree of concentration.
Concentration ratios of plants in SIC 2951 are shown in Table 1-14. These ratios are among
the lowest of all industries included in the Census of Manufactures. Ratios for the entire
industry closely follow those for SIC 2951.
The National Asphalt Paving Association has compiled statistics within the paving
industry about firm characteristics by size. These statistics, summarized on Table 1-15,
suggest that the larger firms (those having in excess of 200,000 tons of annual production)
are growing at the expense of the smaller firms. Some of this growth has clearly been by the
merger route, as the larger multiregional companies have been purchasing smaller companies
to increase their market share within certain regions, but has also resulted from production
and managerial efficiencies and a more sophisticated market approach.
25
-------
TABLE 1-12
GENERAL STATISTICS BY GEOGRAPHIC AREA (1967)
(SIC 2951)
Establishments
Geographic Area
United States
Northeast
North Central
South
West
to
ON
Total
872
284
220
241
127
With 20
Employees
or More
155
44
42
43
26
Total
Number of
Employees*
12.2
3.7
3.4
3.5
1.6
Total
Number of
Production
Workers*
8.5
2.6
2.3
2.8
0.9
Value Added
By
Manufacture**
234.7
79.5
59.2
59.7
36.3
Value of
Shipments**
584.6
198.9
149.0
152.4
84.2
Capital
Expenditures,
New**
23.8
9.9
6.2
4.3
3.4
"Thousands
**Millions of Dollars
Source: 1967 Census of Manufactures; U.S. Department of Commerce, Bureau of the Census.
-------
TABLE 1-13
SIC 2951 GENERAL STATISTICS, BY EMPLOYMENT SIZE OF ESTABLISHMENT (1967)
to
Establishments (Total)
Establishments With
An Average Of:
1 to 4 Employees
5 to 9 Employees
10 to 19 Employees
20 to 99 Employees
100 to 499 Employees
^Thousands.
"Millions of Dollars.
Number of
Establishments
872
Total
Number of
Employees*
12.2
Total
Number of
Production
Workers*
8.5
Value Added
By
Manufacture**
234.7
Value of
Shipments**
584.6
Capital
Expenditures,
New**
23.8
306
255
156
142
13
0.7
1.7
2.1
5.5
2.2
0.6
1.2
1.5
3.7
1.5
22.7
42.4
48.7
94.1
26.8
63.6
130.9
123.6
207.3
59.3
1.7
5.5
4.9
10.1
1.7
Source: 7567 Census of Manufactures; U.S. Department of Commerce, Bureau of the Census.
-------
TABLE 1-14
CONCENTRATION RATIOS: PERCENT OF TOTAL BUSINESS
(SIC 2951)
Year 4 Largest Firms 8 Largest Firms 20 Largest Firms 50 Largest Firms
1963 15 21 35 51
1966 15 23 N/A N/A
1967 14 22 35 51
1970 16 24 N/A N/A
Source: Bureau of the Census 1971 Survey of Manufactures,
Table 1-15 also shows that the larger firms:
are more active in state and interstate highway work while doing less private
and commercial business;
tend to derive a smaller portion of their revenues from resurfacing and
maintenance work;
realize lower prices for their material, emphasizing their efficiencies and level
of vertical integration; and
are able, therefore, to increase their market share through competitive
pricing.
There are essentially three patterns of ownership and management in the industry. At
the highest level of sophistication are the major companies who operate as wholly-owned
subsidiaries of major corporations. Employees of these firms have no direct equity interest
in their corporation, although they may have a minor equity interest in their parent
company. Their plants are managed on a highly professional basis, under the strict financial
control of both the subsidiary and the parent corporation.
At the second level are the publicly held corporations whose primary' business is in the
industry. These firms are few in the asphalt paving industry, and their stock may be closely
held by the founders or their families. They are distinguished from the smaller closely-held
concerns in their scope of operation, which is multi-plant, and subject to professional
management and control. Plant managers for these firms will be unlikely to have a major
equity interest in the corporation.
The third level is the small owner-managed firms. The majority of these firms may be
incorporated, but the stock of the corporation will be closely held. They will operate one
28
-------
TABLE 1-15
HOT-MIX ASPHALT PRODUCTION OF REPORTING COMPANIES GROUPED BY VOLUME OF PRODUCTION
to
Hot Mix Asphalt
Production
Value and
Change
Distribution
of 1972
Production
Number of
Companies
and Plants
Reported Total Production (million tons)
Reported Total Value (million dollars)
Average Value Per Ton FOB Plant
Change in Production 1971 - 1972
Interstate Highways
State Highways
Municipal and County Roads
Airports
Private and Commercial
Other
Markets
End
Uses
Type of
Construction
Surface and Binder
Hot mix base
Patching
Other
New Construction
Resurfacing and Maintenance
Number of Reporting Companies
Number of Stationary Plants Covered
Number of Portable Plants Covered
Group 1
Under
100,000
tons
9
$58
$6.76
-7%
1%
28%
29%
2%
38%
2%
75%
17%
5%
3%
51%
49%
155
154
57
Group II
100,000-
199,999
tons
13
$91
$6.89
0
6%
29%
26%
3%
33%
3%
68%
26%
5%
1%
51%
49%
95
133
44
Group III
200,000-
499,999
tons
30
$183
$6.13
+9%
18%
32%
19%
3%
27%
1%
70%
27%
2%
1%
55%
45%
97
241
78
Group IV
500,000
and
Over
38
$229
$5.99
+5%
20%
30%
20%
3%
25%
2%
62%
33%
4%
1%
57%
43%
41
295
79
Total*
90
$562
$6.27
+5%
16%
30%
21%
3%
28%
2%
67%
28%
4%
1%
55%
45%
388
823
258
"Totals may not add due to rounding.
Source: Hot Mix Asphalt, Plant and Production Facts, 1972, National Asphalt Paving Association.
-------
plant or a small number of plants, in a very limited geographical region. Plant management,
which will often be the same as the firm management, will generally have a significant
equity interest in the operations. Table 1-16 lists selected statistics on plant ownership for
SIC 2951.
The pattern of ownership may have a direct bearing on the response of the firm to the
economic impact of pollution control. In general, closely held firms will be less likely to be
able to raise capital externally if such is required to install pollution control equipment.
Also, the potential of closure to them would have a much greater personal significance than
to the professional managers of a corporate subsidiary.
Companies also differ as to degree of integration in the entire paving process. Although
some companies (SIC 2951) are primarily producers of asphalt paving materials, the great
majority of the 4,800 companies in the industry also engage in contract work. Nearly half of
the companies have integrated backwards into controlling sources of gravel and other
aggregates. A growing proportion of the companies in the asphalt paving business also
distribute asphalt emulsions and other liquid asphalt products. Table 1-8 has detailed certain
statistics on integration compiled by the National Asphalt Paving Association for the 388
companies covered in its annual survey.
c. Industry Segmentation
Segmentation within the asphalt concrete and emulsion industries, except for plant
size, is insignificant for the purposes of this economic impact analysis. In the asphalt
concrete industry, there is some geographic segmentation as to production period; plants in
the northern regions are generally shut down during the winter months, because it is not
feasible to lay hot-mix asphalt in cold temperatures. Plants in the South and Southwest
normally operate year-round. As inter-regional shipment is unlikely, this segmentation has
no effect on the industry as a whole.
3. Financial Profile
Because of the large number of privately held firms and the significant degree of
vertical integration within the asphalt paving industry, little data has been published on the
financial characteristics of asphaltic concrete and emulsion plants. The figures presented
here are a combination of total industry data derived from the Bureau of the Census for
SIC 2951 and data obtained from industry sources.
Tables 1-17 and 1-18 give selected financial statistics and operating ratios for SIC 2951
from 1963 to 1972. They show a healthy growing industry characterized by the following
trends:
A steady increase in dollar volume of shipments.
Commensurate growth in capital expenditures.
30
-------
TABLE I-16
SIC 2951 SELECTED STATISTICS FOR OPERATING MANUFACTURING ESTABLISHMENTS, BY
TYPE OF OPERATION AND LEGAL FORM OF ORGANIZATION FOR MAJOR INDUSTRY GROUPS
AND INDUSTRIES (1967)
Item
Total SIC 2951
Type of Operation:
Total Multiunit Companies
Total Single Unit Companies
Legal Form of Organization:
Corporate
Total Noncorporate
Number of
Establishments
872
461
286
689
58
Total
Number of
Employees*
12.2
6.6
5.2
11.3
0.5
Total
Number of
Production
Workers*
8.5
4.5
3.7
7.8
0.4
Value Added
By
Manufacture**
234.7
140.4
88.1
219.9
8.5
Value of
Shipments**
584.6
366.7
202.5
549.5
19.7
Capital
Expenditures,
New**
23.8
14.3
8.8
22.5
0.6
0.3
Establishments Covered by
Administrative Records*** 125 0.3
* Thousand
** Millions of Dollars.
*** No Data on type of operation or legal form of ownership.
Source: 7972 Census of Manufactures, U.S. Department of Commerce, Bureau of the Census.
6.2
15.3
0.7
-------
TABLE 1-17
SELECTED STATISTICS SIC 2951 (1963-1971)
Production
Year
1963
1964
1965
1966
1967
1968
1969
oo 1970
1971
1972
All
Employees
Number* Payroll**
9.7
9.9
10.1
10.4
12.2
11.6
11.6
12.9
12.4
13.4
62.1
64.2
67.5
70.5
90.0
89.4
97.0
117.2
126.2
142.6
Workers
Number* Wages**
6.7
6.8
7.4
7.7
8.5
8.2
7.9
8.8
7.9
9.7
40.0
41.3
44.7
46.9
58.4
58.3
64.1
72.3
75.7
97.6
Value
Added**
165.6
160.7
183.6
185.9
234.7
243.8
260.9
320.4
345.2
388.1
Cost of
Materials**
261.8
283.8
279.6
293.6
350.1
370.5
380.2
417.8
464.6
502.3
Value of
Shipments**
427.5
442.7
461.9
479.2
584.6
610.9
641.5
738.4
803.6
883.0
Capital
Expenditures**
15.1
13.5
19.9
20.1
23.8
23.0
27.9
30.4
35.3
54.0
End-of Year
Inventories**
12.1
13.4
14.7
14.5
19.7
22.9
22.7
27.4
30.4
37.4
* Thousands.
"Millions of Dollars.
Source: 7972 Preliminary Census and 1971 Survey of Manufactures, U.S. Department of Commerce, Bureau of the Census.
-------
OJ
TABLE 1-18
SELECTED OPERATING RATIOS SIC 2951 (1963-1971)
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Ratio of
Value
Added to
Shipments
0.387
0.363
0.397
0.388
0.401
0.399
0.407
0.434
0.430
0.440
Ratio of
Inventories
to Shipments
0.028
0.030
0.032
0.030
0.034
0.037
0.035
0.037
0.038
0.042
Ratio of
Payroll
to
Value
Added
0.375
0.400
0.368
0.379
0.383
0.367
0.375
0.366
0.366
0.367
Wage Per
Production
Worker
Manhour
<$)
2.649
2.735
2.811
3.148
3.244
3.470
3.601
3.866
4.588
4.692
Value
Added Per
Production
Worker
Manhour
($)
10.97
10.64
11.55
12.48
13.04
14.51
14.66
17.13
20.92
18.66
Index of
Employment
(1967=100)
79.51
81.15
82.79
85.25
100.00
95.08
95.08
105.74
101.64
109.84
Value Added
(1967=100)
70.56
68.47
78.23
79.21
100.00
103.88
111.16
136.51
147.08
165.36
1 ndex of
Shipments
(1967=100)
73.13
75.73
79.01
81.97
100.00
104.50
109.73
126.31
137.46
151.04
Source: 7372 Preliminary Census of Manufactures, and 1971 Survey of Manufactures, U.S. Department of Commerce, Bureau of the Census
-------
Increasing wages and productivity.
Value added growing faster than sales volume.
Figure 1-2 graphically displays selected features of the operating profile. The statistics on the
larger industry (including SIC 1611) listed in Table 1-4 indicate that these positive trends are
also typical of that sector.
Table 1-19 demonstrates the steady improvement in gross profit margins which the
industry has experienced over the decade. There is evidence, however, that these margins
have slipped in the last year, for reasons which are discussed in detail in the following
section.
TABLE 1-19
FINANCIAL PROFILE -2951
1971* Percent 1967* Percent 1963* Percent
Sales 803.6 100.0 584.6 100.0 427.5 100.0
Cost of Goods Sold:
Materials 464.6 57.8 350.1 59.9 261.8 61.2
Labor 75.7 9.4 58.4 10.0 40.0 9.4
Total Cost of
Production 540.3 67.2 408.5 69.9 301.8 70.6
Operating Profit 263.3 32.8 176.1 30.1 125.7 29.4
*Millions of Dollars.
Source: Annual Survey of Manufactures, 1971, U.S. Bureau of Census.
From the above data and data gleaned from interviews with industry sources, a typical
operating statement for an asphalt concrete plant has been prepared and is shown in
Table 1-20. Profit levels in the industry, both as a percentage of sales and as a percentage of
owner's equity or net assets are somewhat below the national averages of 4.3% and 10.6%,
respectively, for all manufacturing companies.
Published data on emulsion plants, unfortunately, are not available. However, industry
estimates suggest a financial profile in line with that presented in Table 1-21.
4. Prices and Price Setting
An important factor in determining the ability of an industry to mitigate the effect of
incremental costs for pollution control is its flexibility in raising prices to cover these
incremental costs. This section analyzes historical trends in prices of asphalt paving products
and examines the pricing practices in the industry to provide a basis for assessing the
economic impact on the industry of the proposed effluent limitation Guidelines.
34
-------
"5
D
c
o
1,000
900 -
800 -
700 -
600 -
500 -
400 -
300 -
200 ~
100 -
Years
Source: 1972 Preliminary Census and 1971 Survey of Manufactures,
U.S. Department of Commerce, Bureau of the Census.
FIGURE 1-2 SELECTED STATISTICS SIC 2951 (1963-1971)
-------
TABLE 1-20
AVERAGE OPERATING STATEMENT FOR ASPHALT CONCRETE PLANTS (1972)
Percent of Sales
Net Sales, After Discounts, etc. 100.0
Direct Manufacturing Costs
Aggregates 31.0
Asphalt Cement 24.0
Other 3.0
Labor & Operating Expenses 9.0 67.0
Indirect Manufacturing Costs 13.0
Gross Profit 20.0
Selling, General & Administrative Expenses 13.0
Profit Before Tax 7.0
Net Profit After Tax 4.0
Return On Net Assets 8.0
Return On Owners Equity 10.0
Note: These historical relationships have been altered to a degree
in recent months, because producers have had difficulty in
passing on the increased cost of their raw materials. However,
as this situation stabilizes, profit levels should return to the
range indicated above.
Source: Contractor estimates.
As with most materials, the prices of asphalt concrete and emulsions are determined by
cost of production and the prices of substitute products. The production factor which
historically has had the greatest effect on asphalt paving materials is the cost of asphalt
cement. The primary competing material which has served to control increases in the prices
of asphalt concrete and emulsions in Portland cement concrete.
Table 1-22 shows the historical relationship between the price of asphalt concrete and
Portland cement concrete installed on federal-aid highway programs. The third column in
the table demonstrates that the relationship between the price of these two materials has
remained remarkably constant over the 18-year price history covered. These prices, it is
important to note, include shipping costs from the plant to the job site, and the labor and
machinery required to install the material at the job site.
36
-------
TABLE 1-21
AVERAGE OPERATING STATEMENT FOR ASPHALT EMULSION PLANTS (1972)
Percent of Sales
Net Sales, after discounts, etc. 1000
Direct Manufacturing Costs
Asphalt Cement 39.0
Other Materials 14.0
Direct Labor 12.0 65.0
Indirect Manufacturing Costs 13.0
Gross Profit 22.0
G, S&A 13.0
Profit before Tax 9.0
Net Profit After Tax 5.0
Return of Net Assets 12.0
Return on Equity 15.0
Source: Contractor Estimates.
TABLE 1-22
AVERAGE BID PRICE TRENDS ON FEDERAL AID HIGHWAY CONTRACTS
(Dollars per Short Ton)
Year
1955
1960
1965
1967
1970
1971
1972
1973
Asphalt
Concrete
6.07
6.37
6.50
6.47
8.04
8.54
9.22
9.99
Portland Cement
Concrete
3.96
4.33
4.34
4.43
5.42
6.06
6.25
6.87
Ratio of
Portland Cement Concrete
to Asphalt Concrete
0.65
0.68
0.67
0.68
0.67
0.71
0.68
0.69
Source: Engineering News Record, Various issues.
37
-------
On a per-mile-of-highway-installed basis, asphalt concrete generally has a lower first
cost than Portland cement concrete. A study done in 1961 by the Stanford Research
Institute, indicated that the cost of a heavy-duty asphalt surface averaged $60,000 per mile
of construction, while a similar Portland cement concrete surface averaged $80,000 per
mile. While Portland cement concrete is generally cheaper on a per ton basis, as shown in
Table 1-22, a greater depth is required for Portland cement concrete (4"-6" vs. 3" for
asphalt concrete). As the specific gravities of the materials are roughly equivalent, the
material cost advantage is largely offset. Portland cement concrete thus requires from 33%
to 100% more product per mile than asphalt concrete. This difference was offset to a degree
by the longer life of a concrete surface, 26 years versus 18 years for asphalt.
Since the price relationship of the raw materials has remained constant over the past 18
years, as demonstrated in Table 1-22, and the other factors of installed cost are either
common to both systems (road base), or have risen in cost concomitantly (rebar), one can
assume that this first-cost relationship has remained at least constant over the last decade.
The decision to purchase asphalt or concrete, therefore, depends on the discount rate used
to evaluate the longer-term savings of concrete in terms of lesser frequency of resurfacing. In
recent years, as interest rates have risen, the competitiveness of asphalt can be said to have
increased. This may explain, to a large degree, the increase in market share of asphalt on
federal-aid highway programs mentioned previously.
Table 1-23 compares the price of asphalt concrete, FOB plant, and installed for
1970-1972. This table suggests that recent price increases have been caused more by
increases in the cost of installation than in the cost of the asphalt concrete FOB plant.
The two primary cost of production factors which have a significant bearing on the
price of asphalt concrete are aggregates and asphalt cement. Table 1-20 gave an indication of
the relative importance of these two materials in the cost structure of asphalt concrete.
Table 1-24 gives an indication of materials usage within SIC 2951. For emulsions, asphalt
cement is the primary cost factor.
While the importance of aggregates and asphalt cement historically have been of equal
importance in the cost of asphalt concrete, asphalt cement has been the major factor in the
price increases of the past few years. One reason for this, as shown in Table 1-8, is that a
good proportion of companies in the asphalt concrete business control their own quarries,
and therefore, the price of aggregates can be controlled concomitantly. Despite the presence
of major oil companies in the industry, the price of asphalt cement to the paving companies
is largely out of the control of the asphalt producers.
Table 1-25 lists the relationship between the price of asphalt cement and the price of
asphalt concrete for the past three years. It illustrates that in recent years other elements of
cost (primarily labor) have played a larger role in the price increases, as reported in Table
1-22. Recently, this trend has been reversed. Current prices for asphalt cement have reached
as high as $81 per short ton. Such an increase of $50 in the price of asphalt cement from
38
-------
TABLE 1-23
ASPHALT CONCRETE PRICES
(Dollars per Short Ton)
Year Material, FOB Plant Installed
1970
1971
1972
5.79
6.08
6.27
8.04
8.54
9.22
Material Proportion of Cost
72%
71%
68%
Sources: National Asphalt Paving Association and Engineering News Record,
various issues.
TABLE 1-24
MATERIALS CONSUMED BY THE ASPHALT PAVING INDUSTRY (1967)
Material
Total Materials, Containers,
and Supplies
Asphalt:
Less than 200 Penetration
200 and Over Penetration
Sand and Gravel
All Other Materials, and
Components, Parts,
Containers, and Supplies
Consumed
Materials, Containers and
Supplies, other
'Millions of Dollars.
Unit of Measure
1,000 Short Tons
Million bbls.
1,000 Short Tons
Quantity
N/A
4,761.4
N/A
35,354.6
N/A
N/A
Delivered Cost*
301.9
104.5
11.0
59.9
61.9
64.6
Source: 7367 Census of Manufactures, U.S. Department of Commerce, Bureau of the
Census.
39
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$31 in 1972 (Table 1-25) can be expected to increase the cost of asphalt concrete by $50/18
or $2.78 per short ton. Fortunately for the industry, the price of Portland cement concrete
has also been severely affected by the energy crisis, not through raw material costs, but
through production costs, because the cement industry is highly energy intensive; a modern
facility incurs 35% of its manufacturing cost on fuel and power. (The cement industry, of
course, has also been burdened with considerable emission control costs that have sharply
increased total costs or made plants obsolescent.)
TABLE 1-25
RELATIVE AVERAGE PRICES (Asphalt Concrete)
(Dollars Per Short Ton)
A
Asphalt
Cement
18
Year
1968
1970
1971
1972
Asphalt
Concrete
5.38
5.79
6.08
6.27
Asphalt
Cement
23.10*
29.08
30.48
31.02
Asphalt
Cement
18
1.28
1.62
1.69
1.72
A
Asphalt
Concrete
0.41
0.29
0.19
0.34
0.07
0.03
'1969
Sources: National Asphalt Paving Association and Engineering News
Record, various issues.
An indication of the rapidity of recent price increases in asphalt cement can be
obtained from Engineering News Record. On December 6, 1973, the average price reported
for asphalt cement of 85/100 penetration was $32.78. A more recent average price, is about
$60 in July 1974 although prices may vary from $45-80, depending on contract commit-
ment and location. The emulsions sector, whose primary raw material is asphalt cement, has
seen more dramatic price rises than the asphalt concrete sector. However, its primary
competing material, cutbacks, are similarly dependent upon asphalt cement as a raw
material, so its relative market position has not been severely affected. Table 1-26 shows the
average prices of emulsions and cutbacks for selected dates from January 1972 to the
present.
As mentioned previously, asphalt paving products are sold primarily on a bid basis for
specific projects. Because of the relatively stable price history of asphalt products until the
past few years, contractors and producers were willing to submit firm bids for projects such
as state and federal highway contracts which might commence a year or 18 months
40
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Date Asphalt Emulsions
January 1972
July 1973
December 1973
March 1974
August 1974
0.157
0.173
0.195
0.247
0.332
TABLE 1-26
RELATIVE AVERAGE PRICES (Emulsions)
(Dollars per Gallon)
Asphalt Cutbacks
0.143
0.148
0.167
0.236
0.322
Source: Engineering News Record, various issues.
subsequent to the establishing of the bid price. This practice has recently caused severe
difficulties for the industry; companies are forced in many cases to supply their product at a
price determined on the basis of an asphalt cement price of $30 per short ton, although
their current costs for the asphalt cement may be $50-70 per ton.
There is a growing movement in the industry to introduce escalation clauses in their
long-term contracts which will protect them against future price increases in the costs of its
raw materials. Opposition to this idea is expected from the governmental agencies which
would be forced to pay the increased costs under such a contract.
Complexities in the current pricing guidelines for the oil industry have also disturbed
the traditional pricing practices of the industry. Because of the supply problems in the oil
industry, suppliers of asphalt cement in several locations are refusing to take new customers.
Under current pricing guidelines the cost of asphalt cement at the refinery may vary as
much as $20 per ton between suppliers. The paving plants which have been supplied
traditionally by the refineries whose prices are currently high are unable to buy the product
from the lower-cost refineries. Consequently, they are at a severe pricing disadvantage
vis-a-vis the producer who may continue to purchase his asphalt cement from these
lower-cost refineries.
B. PROPOSED EFFLUENT LIMITATIONS, TECHNOLOGIES AND COSTS
The proposed effluent limitations for the asphalt paving industry are detailed in
Tables 1-27 and 1-28 and have been described by the Guidelines contractor as follows:
"Asphalt Emulsion Plants.
"Best Practicable Control Technology Currently Avaiable.
41
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TABLE 1-27
EFFLUENT LIMITATIONS FOR ASPHALT EMULSION PLANTS
(6000 tons per day)
Best Practicable Control
Technology Currently
Available
Best Available Technology
Economically Achievable
Standards of Performance
for New Sources
Suspended Solids*
30-Day Maximum
Average Daily
lbs/1000 lbs/1000
gal gal
0.125
0.125
0.188
0.188
Oils and Grease*
Maximum
Daily
lbs/1000
gal
not regulated not regulated 0.125
0.083
0.083
0.167
0.125
0.125
Note: pH within the Range of 6.0-9.0
*Data based on containment of runoff from an average plant site of 10 acres with an average
rainfall of 3 inches per day, or 0.800 MGD. The limits are also based on weight of pollutant
per volume of runoff water.
Source: Development Document.
TABLE 1-28
EFFLUENT LIMITATIONS FOR ASPHALT CONCRETE PLANTS
(Capacity 1600 short tons/day; Production 600 tons/day for 188 days)
Suspended Solids
Best Practicable Control
Technology Currently Available
Best Available Technology
Economically Achievable
Standards of Performance
for New Sources
Note: recycle is equivalent to no discharge.
Source: Development Document.
30-Day Average
Ib/ton
Recycle
Maximum Daily
Ib/ton
Recycle
Recycle
Recycle
42
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"All runoff from the plant production area should be collected and treated. Installa-
tion and operating costs that would be incurred at a typical size plant, one having a 6,000
short ton per day capacity, are presented in Table 11.* The production area is assumed to
cover 10 acres. The production area is defined As that area in which the oxidized asphalt and
asphalt emulsions are produced and from which they are shipped. It was also assumed that
the most rain that would fall during a 24-hour period is three inches. It was further assumed
that a peripheral collection system is necessary and that a gravity separator is needed to
treat the runoff.
"Best Available Technology Economically Achievable.
"BATEA for the asphalt emulsion plant consists of a sedimentation basin where
additional removal of oils and suspended solids can be achieved. The incremental costs of
achieving BATEA are shown in the second column of Table 11."
Pretreatment standards for new emulsion plants would be similar in technology and
cost to BPT standards for oil and grease; those for existing sources, if they were to be
proposed, would be considerably less stringent.
"Asphalt Concrete Plants
"Best Practicable Control Technology Currently Achievable (BPCTCA).
"BPCTCA (identical to BATEA) calls for settling the wastewaters in an earthen stilling
basin, removal and disposal of the settled solids and subsequent recycling of the water.
Typical costs are presented in Table 12."
The proposed Guidelines will apply only to those existing plants that have elected to use
wet processes in the control of particulate emissions, or those new plants which choose to
do so. As mentioned earlier, approximately 25% of the existing plants use a dry process for
particulate control, and therefore will not be affected by the proposed effluent Guidelines.
It is projected that virtually all new plants will use the dry, or "baghouse," process for
particulate control. The primary concern in this impact analysis, therefore, will be the
approximately 3,600 plants which are equipped with wet process control equipment.
Tables 11 and 12 (as revised) are contained in the Development Document and are reproduced here in
Tables I-29 and I-30.
43
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TABLE 1-29
TREATMENT COSTS FOR ASPHALT EMULSION PLANTS
(6,000 short tons x 250 days/year)
Technology Level
Type of Cost BPT BAT* NSPS
Total Investment $73,290 $80,790 $72,000
Total Operating Maintenance and Energy 1,440 2,165 1,440
Total Annual** 16,098 18,323 15,840
Cost Per Short Ton 0.011 0.012 0.011
* Cumulative costs incurred after BPT has been achieved.
Includes operation and maintenance, energy, and capital cost amortized at
15% discount rate over 10 years (factor of 0.2). 15% was chosen as a cur-
rent cost of capital for the industry, although it may vary significantly by
plant depending on ownership pattern. The effect of any change in the
rate is insignificant for this analysis.
Source: Development Document.
TABLE 1-30
TREATMENT COSTS FOR ASPHALT CONCRETE PLANTS
(BPT, BAT and NSPS)
Type of Cost Plant Size*
Small Average Large
(1000 short tons/day) (1600 short tons/day) (2500 short tons/day)
Investment $4,600 $ 5,550 $ 6,400
Total Operating, Main-
tenance and Energy 7,075 9,365 12,925
Annual Cost 7,995 10,475 14,205
Cost per Short Ton** 0.113 0.093 0.081
* Annual production assumed at 188 days/year, 3 hours/day.
**Includes operation and maintenance, energy, and capital cost amortized at 15% discount rate
over 10 years (factor of 0.2). 15% was chosen as a current cost of capital for the industry,
although it may vary significantly by plant depending on ownership pattern. The effect of
any change in the rate is insignificant for this analysis.
Source: Development Document.
44
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C. ECONOMIC IMPACT ANALYSIS
1. Price Effects
a. Emulsions
Presuming that the incremental costs of meeting proposed effluent limitation Guide-
lines are passed through directly to the customers of this sector of the industry, with a
markup on the increment sufficient for the sector to retain its historic level of profitability,
the effect of BPT Guidelines will be to increase the selling price of asphalt emulsions by
0.03% for the average sized plant. This increase is based on a current selling price of $63.45
per short ton (based on 250 gallons/ton) and an incremental annual cost of approximately
2i per ton. This percentage will not vary significantly by size of plant. It is felt that such a
minimal pass-through of costs will be easily accomplished in this sector, and that, therefore,
the economic impact will be negligible.
b. Asphalt Concrete
Presuming the same pass-through of costs and retention of current returns on net
assets, the effect of BPT Guidelines will be to increase the selling price of asphalt concrete
by 1.2% for the average sized plant. For the smaller plants (1,000-short-ton-per-day capacity
or less) the increase will be slightly higher, or 1.5%. These percentages are based on an
average selling price of $8.00 per short ton, and incremental costs of 9.3^ per ton for the
average sized plant and 11.3^ per ton for the smaller plants (Table 1-30).
Such price increases could have two types of economic impact on the asphalt concrete
sector. For the sector as a whole, any price increases could place its product at a relative
disadvantage with competing paving materials (primarily concrete). Within the sector, the
higher relative costs to the smaller plants could make their products less competitive with
those of larger plants which serve the same market area.
The first type of impact, a possible shift in market share between asphalt concrete and
Portland cement concrete, should be minimal for a number of reasons. First, the wearing
course material of a road or highway is only one component of the total installed cost of the
surfacing. A 1% increase in the cost of asphalt concrete would increase the installed cost of
asphalt concrete paving by approximately 0.4% because the base course cost and labor
content of the finished surface would not be affected. Thus, the maximum shift in the
installed cost of an asphalt concrete surface under the proposed Guidelines for a 1,000-ton-
per-day plant (11% of the industry as demonstrated in Table 1-10) would be 0.6%. Second,
as discussed previously, the effect of current high interest rates is to mitigate the longer term
benefits of PCC. Furthermore, the surfacing material for a highway is chosen primarily on
the basis of product preference and materials availability rather than price.
45
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Hence, it is felt that such an increase in relative price will not cause any shift in the
market shares of asphalt concrete and Portland cement concrete. Moreover, Portland
cement concrete plants also have air and water pollution problems, the incremental cost of
control tending to mitigate any effect of the proposed Guidelines on the asphalt concrete
industry. Air emission control costs alone have added an estimated 4% to the average selling
price of cement. Finally, the cement industry, perhaps one of the most adversely affected
by the price and wage controls, has increased selling prices by an average of 23% since the
controls were lifted in November, 1973, to August, 1974, in an attempt to improve their
profits.
The second type of impact, a shift in prices within the industry vis-a-vis the larger and
smaller plants, will have some significance. While, because of the effect of transportation
costs, smaller plants located in remote market areas are not likely to be impacted, plants
located in metropolitan areas which may be served by a number of establishments will be. In
areas where contractors have a number of sources of supply, price competition within the
sector may be severe. The effect of the proposed Guidelines will be to make certain plants
(those not using baghouses and especially the smaller plants not so equipped) less competi-
tive. However, again because of the effect of transportation costs, which limit potential
market encroachments, this shift in relative prices will be mitigated. A small number of
marginal plants (10-15) may be forced to close as a result of the proposed Guidelines, but
the more prevalent effect will be to reduce slightly the effective market radius of those
plants most affected. In those market areas where a number of competitors exist, therefore,
there could conceivably be some shift in market share from those smaller plants which must
meet the Guidelines, to the larger plants.
The potential magnitude of this effect can be estimated as follows. Of the 4,750 plants
in this sector, approximately 25% are equipped with dry process particulate control
procedures, and therefore, will not be economically affected by the Guidelines. Of the
remaining 3,600 plants, the NAPA estimates that all are equipped with wet control
processes. Of these, 85%, or 3,100 plants, already settle and recycle their process water and
are, therefore, in compliance with the Guidelines. Of the remaining 500 plants that will be
affected by the Guidelines, the NAPA estimates the great majority are in non-urban areas;
most plants in metropolitan areas find it necessary (and in some cases economic) to recycle
their process water to meet local standards of effluent control and to reduce the cost of
process water to them. There is no available data on the size distribution of the 500 plants
which do not currently meet the proposed standards.
Plants in non-metropolitan areas can be expected to be far less impacted by the
Guidelines because of the relative lack of intra-industry competition in their market areas.
The minority of plants in metropolitan areas that do not recycle their process Water may be
affected, but this effect is not expected to be major. As discussed previously, the maximum
effect on prices of the Guidelines is expected to be slightly over 1% of average selling prices,
or 11.3^ per short ton. With shipping costs averaging 13^ per ton per mile, the reduction in
46
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effective market radius in the worst case would be less than one mile. The theoretical effect
on these smaller plants may be estimated as follows. If the incremental costs were passed on,
the effective theoretical reduction in market radius of a small plant with an initial market
radius of 10 miles would be 16.7%, presuming market conditions of perfect equilibrium and
constant geographic density.
In the extreme case, where this might have an effect, a small plant could absorb the
1.4% cost, and operate at a reduced level of profitability, for those specific projects, without
endangering the firm's existence. Under the theoretical small plant described above, with an
effective market radius of 10 miles and operating under a state of perfect equilibrium, this
1.4% absorbtion of costs would occur only at the limit of its effective market radius. In the
inner 83.3% of its market, where the effect of transportation costs are such that it may pass
on the incremental costs without loss of market share, there would be no economic impact.
In the outer 16.7% the amount of costs needed to be absorbed would range from 100% at
the perimenter of the marketing radius to 0% at the point where transportation costs and
incremental price are equivalent. A simplifying assumption would be that over this range the
plant, on average, would have to absorb 50% of the incremental cost. The overall effect on
profitability would therefore be slightly more than .1% of sales (a reduction of 1.4% x 50%
for 16.7% of the market area).
Under this theoretical analysis, it would be reasonable to assume that there would be
no measurable economic impact on the asphalt concrete industry as a result of the proposed
guidelines. However, there are likely to be exceptions to this theoretical model. Small
metropolitan plants which must meet the guidelines, and whose effective market areas may
include important segments at the perimeter of the radius, will probably be subject to
intense competition from one or more other plants. In such cases, the effective market share
lost if costs are passed on, or the effective loss of profits if costs are absorbed may be
substantial. In some cases, historical links between suppliers and customers may override
purely economic factors. While lack of precise data on each of the 4,750 plants makes it
impossible to determine what number of plants might fall in this category, it is highly
unlikely that there would be more than 10-15.
A possible determinant as to which plants may close would be the ownership pattern
of the plant. Owner-operated plants, with less access to capital, might close for this reason,
although the psychological involvement of the owners will resist such closure. Plants
attached to large diversified corporations, while having greater access to capital, will also be
more inclined to view the closure situation in purely economic terms.
The secondary price effects of the incremental cost of the proposed Guidelines will not
be significant. Just as asphalt concrete and emulsions are only a portion of the installed
costs of a paving surface, so the paving surface is only a portion of the total cost of a
highway, road, runway, parking lot, etc. The percentage increase in the total cost of any
such project occasioned by the increased costs of the proposed Guidelines will in all cases be
far less than 1%.
47
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2. Financial Effects
If, as has been concluded in the previous section, the incremental costs are passed on as
price increases while current returns on net assets are maintained, there will, by definition,
be no effect on profitability of the plants in the industry. If, such cost pass-through is not
possible, however, or it cannot be done in full, the theoretical impact of cost absorption on
profits should be evaluated.
The asphalt paving industry operates at a relatively low level of profitability. Although
the average plant is estimated to earn 4% after tax on net sales and 8% on net assets, the
levels of profitability for individual plants may range from 10 to 15% for the most
profitable, to breakeven or loss situations for some establishments. For a small plant with
average profitability, the theoretical 0.12% increase in costs calculated above would reduce
the level of after-tax profitability by a minimal amount (2.3%) to a level (3.9% on sales) the
effect of which is not measurable. Those plants operating at marginal levels, and that might
suffer an effect greater than that of the theoretical plant, such as increase in costs without
corresponding price increases, might be forced to close prematurely.
Industry projections are that the next decade will see a shakeout of the marginal
plants, which have been able to survive only because of the continually expanding nature of
the paving business. As the interstate highway system nears completion, and the total
volume of the industry stabilizes below recent high levels, it has been projected that as many
as 500 plants will cease operation, for reasons totally unrelated to the costs of water
pollution control. The effect, therefore, of the proposed Guidelines may be to cause 10-15
plants to close by 1977. Plants which are now marginal and foresee closure in the near
future for market or other reasons may close prematurely, rather than invest the effort and
capital for effluent treatment and control. In summary, while the industry as a whole should
have little difficulty in passing on the costs of pollution control, a small number of plants
may choose the route of closure, within the next two years, prior to the establishment of
the Guidelines.
A second concern in this area is the ability of the industry to raise capital for general
purposes over the long term, and, in the short term, for purposes directly related to the
installation of effluent control processes. For the asphalt concrete segment, the incremental
cost of meeting the guidelines is so minor (see Table 1-30) that most firms will be able to
fund the improvements from internally generated cash. As mentioned above, however, some
marginal firms in the industry, foreseeing a decline in their business, may choose to cease
operations at certain locations rather than expend even the $7,000 required for effluent
control. As it is assumed that virtually all firms will be able to recover the incremental costs
of meeting the guidelines, there should be little impairment of the industry's ability to raise
capital for general purposes.
48
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In the emulsions sector, the initial capital required to meet the proposed guidelines is
proportionately higher. However, given the bright outlook for this segment, discussed
earlier, and the ability of the sector to increase its prices to cover the amortization of the
initial capital and annual operating costs, it is felt that the effluent control procedures
required by the guidelines will be financed without difficulty.
3. Production Effects
Because the costs of implementing the proposed guidelines are not expected to
occasion any significant shift in the market share of asphalt paving products, there will be
no resulting effect on industry production. As mentioned previously, however, the costs in
the asphalt concrete sector may accelerate the trend towards slightly greater concentration
in a highly unconcentrated industry. Finally, because the industry currently operates at a
low level of capacity utilization (35-40%), no effective loss of supply will occur. No
production effects will occur in the emulsion sector.
4. Employment Effects
The direct effects on total employment in the asphalt paving industry from implement-
ing the Guidelines will be minor, with a maximum of 50 employees affected (based on 15
plants, 3.2 employees/plant). Because the closures will be exclusively in metropolitan areas,
no community impact is anticipated, and affected employees should easily be reabsorbed
into the labor force. In general, however, employment in the industry can be expected to
decline over the next decade, primarily because of the increasing use of automated plants,
and little or no market growth.
5. Community Effects
No community effects are anticipated since very few employees will be affected and
they can readily be absorbed into the work force.
6. Balance of Trade Effects
The international trade in asphalt paving products is precluded by transportation costs
and technical feasibility. Consequently, there will be no effect on the U.S. balance of trade
from the proposed guidelines.
49
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PART II: ASPHALT FELTS AND COATINGS
(SIC 2952)
-------
PART II: ASPHALT FELTS AND COATINGS
(SIC 2952)
A. INDUSTRY STRUCTURE
1. Products and Demand
a. Products
SIC 2952 includes a variety of products, all employing asphalt as one ingredient, used
to waterproof the exterior of a building structure: asphalt saturated felts, roofing asphalts
and pitches, strip shingles, coatings, pitches, cements, and many others. Tar products are
now almost non-existent.
The saturated felt products are used as a water barrier and can be classified as either
prepared roofings or built-up roofings. Both types are basically similar, each being made of a
structural felt or fabric framework, a soft asphalt saturant for the felt, and a relatively hard
coating on the surface of the felt. The felt is normally an organic fiber, although the use of
glass fibers is increasing. Dry felt manufacture takes place at a location that can eco-
nomically serve a number of strategically located roofing plants, or that is located close to
or at an asphalt roofing plant itself. In the latter case, the plant's capacity is often related to
that of the roofing plant.
Prepared roofings are prefabricated in roll, strip, or individual shingle form and
represent a complete system, including a colored mineral aggregate surface, that can
normally be applied by nailing directly to the building's roof without the need for
additional materials or procedures. Built-up roofing consists of the saturated felt only, laid
in overlapping layers on the roof (with or without an emulsion coat between layers) and
then covered with mineral aggregates. Prepared roofings are invariably on pitched roofs
while built-up roofings are used on flat surfaces.
Although the proposed effluent limitations Guidelines apply only to the roofing felts
and impregnated roofing felts (and hence the economic impact analysis will concentrate on
this segment), this SIC category also includes a wide variety of other asphalt felt and coating
products that are made by the same manufacturers, often in the same facilities. These
products principally include:
Roofing asphalts and pitches, coatings, and cements; used in conjunction
with built-up roofing as an adhesive between layers or as an adherent surface
for the mineral aggregates.
Smooth or mineral-surfaced roll roofing and cap sheets; employed at pro-
trusions, junctions, edges and other non-standard locations on the roof.
51
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Asphalt building sidings; either in roll, shingle or board form.
b. Manufacturing Processes
The manufacturing processes for the roofing felts and impregnated roofing felts have
been fully described in the Development Document. While it is not necessary to duplicate
the description contained in that document, some general comparisons of the differences in
process economics will be useful.
Four principal differences can be identified:
1. The dry felt used to manufacture asphalt roofing is sometimes produced in a
mill located close to or at the same location as the roofing plant. These felt
mills may serve a specific roofing plant exclusively, serve a number of
regional roofing plants owned by the same company, or produce felt on a
merchant basis for general sale. When the felt mill is located next to the
roofing plant (this occurs in about 40% of the cases) the production
processes and physical location of the equipment are entirely separate but
the two operations may expel their process water into the same effluent
stream.
2. After the felt sheet has been saturated, coated, and the mineral surface
applied, it will pass through a looper whose function it is to cool the sheet to
a point where it can be cut and packed without damage to the material. The
hot sheet is cooled either by splashing water or by spraying a fine water jet
on it. The amount of water used in this cooling procedure can thus vary
from .03 to 10.1 gallons per square foot of sheet surface.
3. Depending on whether shingles or roll roofing are being made, the cooled
material is fed from the finish looper either to the shingle cutting machine or
to the roll roofing winder for further processing before packaging.
4. Some roofing plants, especially the more recently equipped ones, Will them-
selves oxidize the residues from the crude petroleum distillates to manu-
facture the asphalt used in the roofing production process.
c. Production and Shipments
Shipments of asphalt felts and coatings in SIC 2952 have shown steady and almost
uninterrupted growth over the past decade, increasing from $459.5 million in 1963 to
$877.1 million in 1972, an annual rate of better than 7% (Table II-l). Of the totals, a small
amount of annual sales represented products that could not reasonably be classified as
asphalt felts and coatings. For example, secondary sales of $104.8 million in 1967 were
52
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included in the aggregate sales for SIC 2952 ($597.8 million) and resulted from the
distribution of asbestos and from other miscellaneous income. On the other hand, other SIC
categories, principally the paint industry, also manufactured and sold $26.6 million of
roofing felts and coatings in 1967.
TABLE 11-1
TOTAL SHIPMENTS OF ASPHALT FELTS & COATINGS: 1963-1972
(Millions of Dollars)
Felts and Secondary SIC 2952
Coatings Sales* Total
1963 459.5 68.1 527.6
1964 495.9 77.5 573.4
1965 511.1 73.9 585.0
1966 506.1 83.3 589.4
1967 519.4 78.4 597.8
1968 543.7 89.7 633.4
1969 589.9 64.8 654.7
1970 626.4 64.8 691.2
1971 825.9 53.9 879.8
1972 877.1 127.4 1004.5
*For example, asbestos products.
Source: Bureau of Census, Annual Surveys and 1972
Preliminary Census of Manufactures.
The principal products shipped each year are asphalt and tar roofings and sidings.
These products represent roughly 75% of all group shipments each year and totalled $668.0
million in 1972 (Table II-2). The second most important category - roofing asphalts and
pitches, coatings and cements- totalled $153 million in that year, with the remaining
products representing only $52 million. The value of shipments of asphalt roofings (not
including sidings) is available only for Census years but totalled $312.1 million in
1967 - 60% of SIC 2952 felts and coatings - and $582.6 million in 1972 (66%).
In quantitative terms, roofings and sidings are shown either in short tons or in squares
(100 square feet). Because the average weight per square foot can vary from year to year
and between products, the most equitable basis of comparison is weight. Asphalt roofing
tonnage shipments totalled 89.7% of all asphalt and tar roofing and siding products shipped
in 1972 (Table II-3), with saturated felts a further 9.6% and asphalt siding and insulated
siding less than 1%. Sales of asphalt roofing have grown at 6.2% per year on a tonnage basis
from 1963 to 1972. Shipments by geographic area in 1972 were as follows:
53
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TABLE 11-2
SHIPMENTS OF ASPHALT FELTS AND COATINGS
BY PRODUCT TYPE, 1967-1972
(Millions of Dollars)
1967 1968 1969 1970 1971 1972
Asphalt and tar saturated felts
and boards for nonbuilding use 27.5 34.2
Roofing asphalts and pitches,
coatings, and cements 101.4 121.9
Asphalt and tar roofing and
siding products 375.2 385.8
Asphalt felts and coatings,
n.s.k. 15.3
Total 519.4 543.7
*Standard error of estimate greater than 20%
Source: Bureau of Census, Annual Surveys and Census
TABLE 11-3
39.1
142.4
406.8
1.6
589.9
17.2* 19.8 32
133.0 153.7 152,
464.6 638.5 668,
11.6* 13.9 23,
626.4 825.9 877.
.9
.7
.0
.3
,1
of Manufactures.
SHIPMENTS OF ASPHALT AND TAR ROOFING AND SIDING PRODUCTS, 1972
(Thousands)
United States, Total
Asphalt roofing, total
Smooth-surfaced roll roofing and cap
sheet
Mineral-surfaced roll roofing and cap
sheet
Strip shingles
Self-sealing
Standard or regular, total
Individual shingles
Asphalt sidings
Insulated sidings, all types and finishes
Saturated felts, total
Asphalt
Tar
No. of
Squares
99,094
97,696
22,274
13,193
59,295
52,117
7,178
2,935
136
367
895
859
36
Short tons
9,357
8,390
585
579
6,918
6,055
863
308
7
66
895
859
36
Source: U.S. Department of Commerce, Current Industrial Reports
MA-29A(72)-1
54
-------
Northeast 18.9%
North Central 30.2
South 37.9
West 13.0
Imports and exports have been at a very low level. Exports have ranged from $3.12
million to $5.76 million in the period 1970-1972; imports, from $0.63 million to $4.77
million. In each case, the proportion is less than 0.6% of domestic shipments. The nature of
the product and the low value-to-weight ratio make it uneconomic to ship roofing products
over long distances and most trade has been with Canada.
d. Markets and Future Growth
Apart from about 2.5% of industry sales going to nonbuilding, principally automotive,
applications, and a further 5% being used for building sheathings and sidings, the bulk of
industry shipments find an end market in roofing applications. It is estimated that 30% of
all roofing products in this industry sector is used for non-residential building construction,
with the remainder for residential roofing. Re-roofing of residential structures is an ex-
tremely important segment of the market and has represented a load-leveling base for
industry sales in years when new housing starts have been relatively low. Residential
re-roofing thus ranges from approximately 55% of all residential roofing, in a good year for
new residential construction, to 75% in an off year. While the variations are not quite so
dramatic in non-residential roofing, re-roofing also represents about 65% of all roofing sales
to the non-residential segment.
Companies manufacturing asphalt roofings find intra-industry competition more severe
than that with other materials. In residential construction, the only other significant roofing
material is that of wood shingles and shakes, possibly representing 10% of all residential
roofing sales and now enjoying a modest comeback as an architectural style with mansard
designs. Competition for asphalt roofings in non-residential construction includes a very
small amount (less than 5%) of hypalon and other rubber/plastic compounds, as well as a far
larger proportion of metal roofs in farm and rural areas.
Real growth of residential roofing products in the period 1972-1980 will be affected
only moderately by the small increase in new housing starts anticipated over the same
period. Re-roofing of existing structures will allow the industry to maintain an annual rate
of growth of at least 3.5% over the remainder of the decade. Shipments of roofing products
to the non-residential building sector will enjoy a faster rate of growth, approximately 4.5%
per year, which in part is a reflection of the better opportunities anticipated in new
non-residential construction. Thus, overall growth of this industry sector should be close to
4% on a weighted basis to 1980. As the industry is now operating at or close to the
maximum effective capacity, new plants or expansions of existing ones are a necessity.
55
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e. Marketing and Distribution
Roofing materials are promoted through manufacturers' salesmen who serve whole-
salers in principal cities throughout the United States. Little or no marketing effort is
expended on direct sales to the architect, roofing contractor or homebuilder although all
three will rate special attention on major projects and will be reached through advertising
campaigns, mailings, trade shows and specialist publications. Manufacturers tend to special-
ize in prepared or in built-up roofing, and brand identification is prevalent in the former.
Purchasers of built-up roofing are relatively more price conscious than those of prepared
shingles as the product is a true commodity and competition between contractors for new
or replacement work is strong.
Roofing plants are located close to or in heavily populated areas of the country and
thus manufacturers' warehouses remote from the plant are seldom used for distribution.
Wholesalers and a few of the very large retail dealers will handle an inventory but most
roofing contractors will purchase on a project-by-project basis and not invest in stock.
Manufacturing plants will serve a radius of 200-300 miles by truck in populated areas but
distances can be greater than that in less populated regions. Roofing has a relatively low
value per unit weight and thus freight can make the shipment uneconomic in competition
with other plant locations. Published dealer price lists include an allowance for freight cost
but freight equalization takes place when delivered price is quoted.
2. Manufacturing and Ownership Profile
a. Plant Characteristics
The industry is comprised of approximately 233 manufacturing establishments
throughout the United States, about 108 of which produce dry and saturated roofing felts
whereas the remainder concentrate on asphalts, coatings and cements. Detailed data on
these facilities, showing typical characteristics of employment, value added, cost of
materials, capital expenditures, etc., are shown in Table II-4 for 1963 to 1972. Figure II-1
graphically displays selected data from the operating profile. Some highlights of these data
include:
Production workers represent about 72% of total employment.
The average number of employees per establishment was 67 in 1972; the
ratio would be about 50% higher if only felt saturating plants were included.
The value added per man-hour of production worker has been steadily
increasing and totalled $16.64 in 1972, 72% higher than in 1967.
The number of man-hours worked remained fairly constant at about 23.5
million to 1971 but increased to 26.4 million in 1972.
56
-------
TABLE 11-4
SIC 2952 - INDUSTRY OPERATING PROFILE
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
All Employees Production Workers
Year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Ratio
of Value
Added to
Shipments
.360
.361
.374
.384
.370
.381
.381
.370
.427
.437
Number
(000)
14.6
14.6
14.7
14.7
14.4
14.0
13.8
14.2
14.4
15.6
Ratio of
Inventories
to
Shipments
.082
.077
.073
.082
.071
.073
.073
.072
.062
.065
Payroll Number Man-Hours Wages
($Mil.) (000) ($Mil.) ($Mil.)
82.5 10.9
87.1 10.9
89.2 11.0
91.3 10.7
96.3 10.4
102.8 10.1
109.5 9.9
114.8 10.2
127.8 10.4
147.6 11.2
Ratio of
Payroll
to
Value Added
.434
.420
.407
.403
.436
.426
.439
.442
.340
.336
23.0
23.8
23.5
23.0
22.9
22.9
23.3
23.0
23.7
26.4
Value of
Shipments
Per Prod.
Worker
($000)
48.4
52.6
53.2
55.1
57.5
62.7
66.1
67.8
84.6
89.7
57.3
61.3
65.3
65.8
66.2
70.8
75.5
78.3
87.3
102.6
Man-Hours
Per
Production
Worker
(000)
2.110
2.183
2.136
2.150
2.202
2.267
2.354
2.255
2.279
2.357
Value
Added
($Mil.)
190.0
207.2
219.0
226.3
221.1
241.5
249.2
259.9
376.1
439.4
Wage Per
Production
Worker
Man-Hour
($)
2.491
2.576
2.779
2.861
2.891
3.092
3.240
3.404
3.694
3.886
Cost of Value of Capital End-of-Year
Materials Shipments Expenditures Inventories
($Mil.) ($Mil.) ($Mil.) (SMil.)
339.0
364.7
364.3
366.1
373.8
394.3
404.7
431.5
508.0
571.0
527
573
.6 7.0
.4 8.7
585.0 10.9
589
597
633
654
691
.4 9.6
.8 8.8
.4 13.1
.7 8.8
.2 11.8
879.8 15.8
1004
.5 20.4
43.0
44.3
42.6
48.5
42.4
46.2
47.6
50.1
54.8
64.8
Value Added
Per
Prod. Worker
Man-Hour
($)
8.26
8.71
9.32
9.84
9.66
10.55
10.70
11.30
15.87
16.64
Index
of
Employment
(1967=100)
101.39
101.39
102.08
102.08
100.00
97.22
95.83
98.61
100.00
108.33
Index
of
Value Added
(1967=100)
85.93
93.71
99.05
102.35
100.00
109.23
112.71
117.65
170.10
198.73
Index
of
Shipments
(1967=100)
88.26
95.92
97.86
98.59
100.00
105.96
109.52
115.62
147.17
168.03
Source: Bureau of Census, 1971 Survey and 1972 Preliminary Census of Manufactures.
-------
Millions of Dollars
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-------
The ratio of inventory to shipments has been decreasing.
Capital expenditures totalled $20.4 million in 1972 (up from $15.8 million
in 1971), equivalent to $1 of added investment for $50 of shipments.
Tables II-5 and II-6 show the general industry statistics on a four-regional basis for
1967 and 1972. The North Central region, with 39% of total industry shipments, was the
most significant in 1967, but a larger proportion of facilities (33%) is located in the South
than in any other region, and that region represented the largest proportion (35%) of
industry shipments by 1972. Establishments were distributed as follows in 1967 by average
number of employees:
9 employees or less - 55
10-19 employees 33
20-49 employees 46
50-99 employees - 44
100-249 employees - 42
250 employees and over 6
In 1967, materials and supplies consumed by the asphalt, felts and coatings industry
totalled $317.3 million, increasing to $495.4 million in 1972 (Tables II-7 and II-8).
Roofing plants in this industry range in size from 25,000 to 200,000 tons/year, with
the average at about 80,000 tons/year.
b. Firm Characteristics
Of the 226 establishments operating in 1967* 153 were multi-unit companies and 192
were public corporations (Table II-9). The industry has traditionally been characterized as
one of family-owned companies with regional concentrations but a considerable number of
acquisitions and mergers have taken place over the past decade. For example, Bird & Son
acquired the West Coast facilities of Fiberboard Inc. in 1968; Jim Walter Corporation now
owns and operates the five roofing plants and associated dry felt facilities of the Phillip
Carey Manufacturing Company, as well as the nine roofing plants and six dry felt plants that
were once part of the Barrett Company and itself is now a part of the Celotex Corporation;
Certain-teed Products Corporation operates nine roofing plants, including that of the B.F.
Nelson Company; and the GAF Corporation owns and operates the previous Ruberoid
facilities. The number of operating companies has decreased from 126 in 1963, to 115 in
1967 and about 100 today.
1972 Census data on these characteristics are, as yet, unavailable.
59
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TABLE 11-5
GENERAL STATISTICS, BY GEOGRAPHIC AREAS: 1967
Establishments
ON
0
United States
Region
Northeast
North Central
South
West
Total
226
44
65
75
42
With 20
employ-
ees
or more
138
27
42
49
20
All Employees
Number*
14.4
2.6
5.6
4.7
1.5
Pay-
roll**
96.3
18.7
39.9
27.6
10.1
'Thousands
**Millions of dollars
+Millions
Production Workers
Number* Manhours+
10.4 22.9
2.0 4.4
4.4 9.7
3.0 6.6
1.0 2.2
Value
added by
manufac-
Wages** ture**
66.2
13.4
29.2
16.8
6.9
221.1
41.7
89.1
69.3
21.0
Cost of
mate-
rials*^
373.8
79.1
139.8
110.6
44.2
Value of
Ship-
ments*^
597.8
120.6
230.8
179.9
66.5
Capital
expendi-
tures,
New**
8.8
1.9
3.2
2.0
1.7
Source: Bureau of Census, 1967 Census of Manufactures
-------
TABLE 11-6
GENERAL STATISTICS, BY GEOGRAPHIC AREAS: 1972
Establishments
United States
Region
Northeast
North Central
South
West
Total
233
41
67
80
45
With 20
employ-
ees
or more
139
20
44
54
21
All Employees
Number*
15.6
2.6
5.6
5.6
1.8
Pay-
roll**
147.6
26.6
54.2
48.2
18.6
Production Workers
Number* Manhours+ Wages**
11.2 26.4 102.6
1.7 4.8 19.4
4.3 9.7 40.1
3.9 9.0 30.3
1.3 2.9 12.8
Value
added by
manufac-
ture**
439.4
76.5
149.5
154.1
59.3
Cost of
mate-
rials*^
571.0
110.0
193.4
194.1
73.5
Value of
Ship-
ments*^
1004.5
185.6
339.8
347.2
131.9
Capital
expendi-
tures,
New**
20.4
3.9
9.0
5.4
2.1
* Thousands
**Millions of dollars
+Millions
Source: Bureau of Census, 1972 Preliminary Census of Manufactures.
-------
TAB LEI I-7
MATERIALS CONSUMED IN THE MANUFACTURE OF ASPHALT FELTS AND
COATINGS, 1967
Material
Asphalt
Less than 200 penetration
200 and over penetration
Unsaturated roofing felts, other
construction paper and insulating board
Roofing granules
Sand and Gravel
All other
Total
Unit
1000 short tons
million barrels
1000 short tons
1000 short tons
1000 short tons
-
Quantity
3213.6
9.1
1535.3
1895.9
578.4
-
_
Delivered
Value*
64.5
27.6
81.9
47.9
3.1
92.3
317.3
*Millions of dollars
Source: Bureau of Census, 1967 Census of Manufactures.
TABLE 11-8
MATERIALS CONSUMED IN THE MANUFACTURE OF ASPHALT FELTS AND
COATINGS, 1972
Delivered
Material Unit Quantity Value*
Asphalt
Less than 200 penetration 1000 short tons 4281.0 122.8
200 and over penetration million barrels 12.8 41.1
Unsaturated roofing felts, other
construction paper and insulating board 1000 short tons 1524.3 124.6
Roofing granules 1000 short tons 2730.8 77.0
Sand and Gravel 1000 short tons 771.4 6.7
All other - - 123.2
Total - - 495.4
'Millions of Dollars
Source: Bureau of Census, 1972 Preliminary Census of Manufactures.
62
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TABLE 11-9
SELECTED STATISTICS FOR OPERATING MANUFACTURING ESTABLISHMENTS, BY TYPE OF
OPERATION AND LEGAL FORM OF ORGANIZATION FOR MAJOR INDUSTRY GROUPS AND
INDUSTRIES: 1967
O\
Asphalt felts &
coatings
Total
Multiunit
companies
Total
Single unit
companies
Total
Corporate
Noncorporate
Total
Establishments All Err
With 20
employ-
ees Num-
Total or more her*
226 138 14.4
153 114 12.4
45 24 1.9
192 136 14.2
6 2 .1
iployees Production Workers
Pay- Num- Man-
roll** her* hours* Wages**
96.3 10.4 22.0 66.2
84.4 9.2 20.3 59.6
11.4 1.2 2.6 6.3
95.2 10.3 22.7 65.5
.6 .1 .1 .4
Value
added by
manu- Cost of Value of
fac- mate- Ship-
ture** rials** ments**
221.1 373.8 597.8
192.5 336.3 532.0
27.5 35.6 62.9
218.6 370.3 591.9
1.4 1.7 3.0
Capital
expendi-
tures.
New**
8.8
7.8
(D)
(D)
(D)
* Thousands
**Millions of Dollars
+Millions
(D) Not Disclosed
Source: Bureau of Census, 1967 Census of Manufactures.
-------
Despite these changes in industry structure, the concentration ratios have varied little
over the past decade. Currently, the four largest companies share approximately 38% of
industry shipments and the eight largest, 65%. About the same ratios existed in 1963 and
1967, with about 86% of shipments coming from the 20 largest companies and 97% from
the 50 largest. Currently, the company with the largest total number of facilities in the
industry, and also one of the larger in terms of market share, is an independent,
privately-owned corporation, the Lloyd A. Fry Roofing Company of Summit, Illinois. In
addition, a large number of privately owned and operated companies are still significant
factors in the industry in both the felts and coatings segments.
c. Industry Segmentation
Plants manufacturing roofing felts and impregnated roofing felts utilize process water;
those producing roofing asphalts, pitches and cements do not. According to the Develop-
ment Document, the amount of water used does not depend on the size or age of the plant
but on the type of process employed to cool the saturated asphalt roofing felts. A
splash-type cooling process uses 250,000 gallons of water per day for an average production
of 500 short tons, as compared to 100,000 gallons per day for a fine spray or mist-type
cooling system.
Treatment of the types of waste water generated at all these plants will apparently be
independent of age and geographic location but economies of scale are a factor when
considering waste water quantities. Thus, smaller plants will face greater relative investment
and operating costs for treatment technology; the Development Document has taken this
fact into account in defining three different levels of operation (200, 500 and 700 tons/day)
in estimating these costs.
Further differences in the investment and operating cost structure occur in the roofing
industry depending on the existence, or not, of oxidation towers and on the product mix at
a particular location. In the former case, the current value of assets could be higher; in the
latter, unit operating costs and selling prices are higher for prepared roofing than for roll
roofing.
3. Financial Profile
Manufacturing plants in this industry vary considerably by size but even more signifi-
cantly by net asset value. The oldest operating facility was built about 80 years ago and is
currently operated with equipment at least 30 years old. Its net asset value is thus
considerably less than $1 million; newer facilities have assets of up to $6 million. The
average book value for all 108 plants is about $2.2 million. The construction of a new
150,000-ton/year plant in 1974 would cost less than $3 million for a basic facility and as
much as $3.5-4 million for a plant without oxidation equipment, and $6 million for one
that included oxidation equipment, pollution control and rail facilities.
64
-------
The income statement for a typical plant would be similar to that shown in
Table 11-10. A typical plant, with a daily capacity of 500 tons and net assets of about $2.5
million, will produce an average of 120,000 tons of roofing products each year. The average
net price in 1973, after discounts and freight, was $80 per ton; the average for 1974 is
expected to be at least $90. In terms of both net profit after tax and returns on net assets, a
roofing plant is a relatively profitable operation. A smaller plant concentrating in the
production of roll roofing could achieve net returns on sales as high as 10% as significant
operating efficiencies and a minimum of product spoilage is achieved. However, it should be
pointed out that on a discounted cash flow basis the return on investment for a new mill
will be considerably lower than the 15-20% for an existing facility and could be 10-12% at
today's cost of capital.
TABLE 11-10
INCOME STATEMENT - TYPICAL PLANT, 1973*
% $MM
Net Sales 100 9.6
Cost of Goods Sold 75 7.2
Operating Profit 25 2.4
General, Sales and Admin. Expenses 15 1.4
Net Profit Before Tax 10 1.0
Net Profit After Tax 5 0.5
Return on Net Assets 15-20 -
*Net Assets $2.5-3.0 million.
Source: Contractor Estimates.
Consequently, risk capital for a new mill is a serious problem for roofing companies.
Moderate capital requirements to improve existing facilities by modernization or by adding
environmental control equipment is highly likely but the expansion of existing facilities is a
much more complex question that involves the availability of dry felt, land utilization in
what normally is a constricted site, regional competition, etc. If the industry continues to
grow as anticipated, new facilities will be needed in the near future for the rapidly growing
regions of the United States, such as the South and Southwest. However, there is a definite
reluctance at this time to commit the required investments and the current shortages of roof-
ing materials may continue until the anticipated return on investment for a new facility is
attractive enough.
The time that this will occur is difficult to assess because so many factors prices,
demand, manufacturing costs and capital costs are extremely volatile in 1974. Price
controls have, in fact, created an artificial situation in the industry. At a time of strong
65
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demand, prices were not permitted to respond freely to market pressures and returns on
investment were less than might have otherwise been the case. As capacity utilization rates
now reach a maximum, the prospect of the current short-term shortages' becoming
extended is a distinct possibility because the industry has not enjoyed sufficiently high
returns on new investment to attract new capacity. However, prices have increased rapidly
since the beginning of 1974 and, as long as costs exhibit a slower rate of increase and
demand remains high, those companies with a favorable debt-equity ratio are likely to add
capacity.
4. Prices and Price Setting
Wholesale prices for prepared asphalt roofings, the only product for which such indices
are available, are shown in Table 11-11. Actual prices have increased by a total of 40% from
1963 to 1972, and by 12% relative to the All Commodities Price Index (all this real increase
occurring in 1971-72). It is notable that, despite the small proportion total consumption of
prepared asphalt roofing represented by new residential roofing, the years of low housing
starts 1964, 1967 and 1970) depressed the price index, suggesting that the new housing
increment is a significant marginal contributor to profit.
TABLE 11-11
WHOLESALE PRICE INDEX FOR PREPARED ASPHALT ROOFING
(1967=100)
Actual Relative*
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
94.9
93.7
98.0
102.6
100.0
104.0
105.8
101.8
126.5
133.4
138.3
100.4
98.9
101.4
102.8
100.0
101.5
99.3
92.2
111.1
112.0
_
* Relative to the All-Commodities
Price Index.
Source: U.S. Department of Commerce,
Construction Review, April 1974
Historically, the price for built-up roofing (used principally on non-residential con-
struction) probably has been more stable than that for prepared asphalt roofing; although
the products are genetically similar, built-up roofing does not have the variations of color,
style, brand, etc., that is apparent with residential roofing materials.
66
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Manufacturers publish dealer price lists on a three-region basis West, Mountain and
east of the Rockies. These price lists may contain 10 to 30 different items and will be
quoted on a per-square or per-roll basis. Truckload or carload lots are usually shipped at full
list prices to dealer categories, such as cash-and-carry, building materials yards, and some
contractors who carry stock, but there is room for negotiation. Wholesalers are eligible for
discounts of 5% plus 5% for the West and Mountain regions and 7% plus 7% for east of the
Rockies. Individual manufacturers set their own prices but with the severe intra-regional
competition, price lists are frequently similar and quotations can be equalized.
Over the past year, manufacturers have been faced with considerable price increases for
basic raw materials and have had to revise price lists frequently. For example, recent
increases in the price of asphalt, from $25 per ton in October 1973 to the current price of
nearly $80, have resulted in as many as three revised price bulletins in the same period and
all in compliance with Phase IV Wage and Price Control regulations.
B. PROPOSED EFFLUENT LIMITATIONS, TECHNOLOGIES AND COSTS
The Development Document has proposed effluent limitations for a typical plant using
150,000 gallons of process water per day and producing 500 short tons of product per day
(Table II-12).
TABLE 11-12
EFFLUENT LIMITATIONS FOR ASPHALT ROOFING PLANTS
(500 Tons/Day)
Suspended Solids*
Best Practicable Control
Technology Currently Available
(1977)
Best Available Technology
Economically Achievable (1983)
Standards of Performance
for New Sources
30-day Average Maximum Daily
(lb/1000 Ib) (lb/1000 Ib)
.038
.019
.019
.056
.028
.028
Note: pH within the range of 6.0 to 9.0
* Limits are based on weight of pollutant per weight of product produced.
Source: Development Document.
67
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The majority of asphalt roofing plants are already removing part of the suspended
solids from their waste water before discharging it, or are discharging into municipal systems.
It is estimated that about 60% of facilities use municipal systems, 5% require BAT only, and
a further 35% require both BPT and BAT. According to the Development Document, per-
formance standards for new sources (PSNS) are the same as the pollution reduction achieved
by applying BAT technology and the costs are identical. The Guidelines contractor has thus
estimated the investment and annual operating costs for BPT and BAT conditions:
At the majority of plants, large suspended materials are settled in a pre-
treatment type pond or detention sump before the effluent is discharged.
BPT requires that all plants employ primary settling. The costs of BPT have
been developed for situations in which either an earthern stilling basin is
installed or a steel or concrete settling tank is used. It is assumed that both
are cleaned monthly by manual methods. It is also assumed that sprays or
mists are installed to reduce the volume of waste water.
BAT requires that coagulants be used to settle out more suspended solids.
Because larger quantities are settled out, the costs of applying BAT allow for
expenses incurred in having the resulting sludge removed continuously and
mechanically. It is assumed, therefore, that the earthen stilling basin which is
acceptable under BPT is replaced by a settling tank.
The treatment costs associated with both systems for the average, small and large
plants are shown in Tables 11-13, -14, and -15.
C. ECONOMIC IMPACT ANALYSIS
1. Price Effects
Assuming an average base selling price of $80 per short ton of shipments, the
incremental price increase that would be required to maintain curent returns on net assets
and, at the same time, pass on the costs of meeting BPT Guidelines would be equivalent to
the following:
Earthen Stilling Basin Tank
(%) (%)
Small Plant (200 Tons/day) .06 .23
Average Plant (500 Tons/day) .04 .11
Large Plant (700 Tons/day) .04 .10
68
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TABLE 11-13
TREATMENT COSTS - ASPHALT ROOFING PLANTS
(Small Plant - 200 tons/day x 250 days/year)
Type of Cost BPT BAT* NSPS
(1977) (1983)
(Earthen Stilling Basin Solution)
Total Investment $ 3,500 $40,500 $N.A.
Total Operating, Maintenance & Energy 1,075 7,750 N.A.
Total Yearly** 1,775 15,850 N.A.
Cost/Short Ton 0.04 0.32 N.A.
(Tank Solution)
Total Investment 20,000 37,000 37,000
Total Operating, Maintenance & Energy 1,100 5,250 5,250
Total Yearly** 5,100 12,650 12,650
Cost/Short Ton 0.10 0.25 0.25
'Cumulative costs incurred after BPT has been achieved.
**lncludes operation and maintenance, energy, and capital cost amortized at 15% discount
rate over 10 years (factor of 0.2). 15% was chosen as a current cost of capital for the in-
dustry, although it may vary significantly by plant depending on ownership pattern. The
effect of any change in the rate is insignificant for this analysis.
N.A. Not applicable
Source: Development Document and Guidelines Contractor
The equivalent selling price increases to meet BAT and NSPS treatment requirements
would be:
Earthen Stilling Basin Tank
Small Plant (200 Tons/day) .58 .49
Average Plant (5 00 Tons/day) .33 .30
Large Plant (700 Tons/day) .30 .26
These price increases, due solely to the effects of achieving effluent limitations by
1983, must be evaluated against price increases for asphalt roofing materials that averaged
4% in 1973 and up to 10% in the first five months of 1974. While a plant can obviously
choose to absorb some or all of the incremental costs, it is concluded that full costs will be
passed through and that the resulting price increases will be achieved by an industry that has
69
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TABLE 11-14
TREATMENT COSTS - ASPHALT ROOFING PLANTS
(Typical Plant 500 tons/day x 250 days/year)
Type of Cost BPT BAT* NSPS
(1977) (1983)
(Earthen Stilling Basin Solution)
Total Investment $. 5,125 $55,125 $ N.A.
Total Operating, Maintenance & Energy 1,700 12,075 N.A.
Total Annual** 2,725 23,100 N.A.
Cost/Short Ton 0.02 0.18 N.A.
(Tank Solution)
Total Investment 24,000 53,500 53,500
Total Operating, Maintenance & Energy 1,910 9,690 9,690
Total Annual** 6,710 20,390 20,390
Cost/Short Ton 0.05 0.16 0.16
*Cumulative costs incurred after BPT has been achieved.
**lncludes operation and maintenance, energy, and capital cost amortized at 15% discount
rate over 10 years (factor of 0.2). 15% was chosen as a current cost of capital for the in-
dustry, although it may vary significantly by plant depending on ownership pattern. The
effect of any change in the rate is insignificant for this analysis.
N.A. Not applicable
Source: Development Document.
enjoyed favorable returns on current net assets and a steady increase in market growth over
the past few years. In addition, the short-term capacity shortage situation and concomitant
price increases will reinforce the industry's ability to pass on BPT costs. Even allowing for
the normal economies of scale in treatment costs that work to the advantage of larger
plants, the price impact on the smaller facilities will still be relatively insignificant and
passed on, along with other cost increases.
2. Financial Effects
Although it is a very unlikely possibility, one can assume that prices are not increased
and that the incremental costs of effluent pollution control, rather than being passed
through, are absorbed. The resulting effect on profitability would be a maximum reduction
in net profit after tax of $23,100 (average plant; earthen stilling basin solution; BAT) on an
average profit of $500,000 for the typical plant. In other words, the maximum reduction in
the return on current net assets would be about 0.8% on a base of 15-20%.
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TABLE 11-15
TREATMENT COSTS - ASPHALT ROOFING PLANTS
(Large Plant - 700 tons/day x 250 days/year)
Type of Cost BPT BAT* NSPS
(1977) (1983)
(Earthen Stilling Basin Solution)
Total Investment $ 7,500 $67,500 $ N.A.
Total Operating, Maintenance & Energy 2,125 16,625 N.A.
Total Yearly** 3,625 30,125 N.A.
Cost/Short Ton 0.02 0.17 N.A.
(Tank Solution)
Total Investment 30,000 62,000 62,000
Total Operating, Maintenance & Energy 2,750 12,100 12,100
Total Yearly** 8,750 24,500 24,500
Cost/Short Ton 0.05 0.14 0.14
'Cumulative costs incurred after BPT has been achieved.
**Includes operation and maintenance, energy, and capital cost amortized at
15% discount rate over 10 years (factor of 0.2). 15% was chosen as a cur-
rent cost of capital for the industry, although it may vary significantly by
plant depending on ownership pattern. The effect of any change in the rate
is insignificant for this analysis.
N.A. Not applicable
Source: Development Document and Guidelines Contractor
Capital availability to meet the effluent control requirements should also present no
problem. The total cumulative investment required by the average-sized roofing plant by
1983 is $55,000, equivalent to about 2.5% of the net asset value for the average plant, and
that for the largest sized plant, $67,500. By way of comparison, annual capital expenditures
by the industry over the past five years averaged $14.5 million ($135,000/plant) and
totalled $20.4 million in 1972. For the 108 plants in the United States that produce dry and
saturated roofing felts, the total capital investment required by 1983 aggregates to
approximately $3.5 million, in comparison to the initial capital investment of $6 million
required to construct a 600-ton-per-day plant equipped with oxidation, pollution control
and rail facilities.
It is concluded that the capital requirements to implement the effluent control
regulations are entirely reasonable and well within the capabilities of the industry and its
individual companies to provide. No economic impact is anticipated as a result.
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3. Production Effects
The current level of production and the future rate of growth of the asphalt roofing
industry probably will not be affected by the implementation of the proposed effluent
control Guidelines. No plants will be forced to close or to reduce their current level of
operation.
4. Employment Effects
No employment effects will result from the proposed effluent limitations Guidelines.
5. Community Effects
No community effects are anticipated from the proposed effluent limitations Guide-
lines.
6. Balance of Trade Effects
The current relationships between export and import of asphalt roofing materials will
not be altered as a result of implementing the proposed effluent limitations guidelines.
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PART III: ASPHALT-FELT BASE FLOOR COVERINGS
(SIC 3996)
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PART III: ASPHALT-FELT BASE FLOOR COVERINGS
(SIC 3996)
A. INDUSTRY STRUCTURE
1. Products and Demand
a. Products
The generic description of SIC 3996 products is "Linoleum, Asphalted Felt-Base, and
Other Hard Surface Floor Coverings, Not Elsewhere Classified." Included within the full
classification are the following products:
Carpets, asphalted-felt-base (linoleum).
Floor coverings, asphalted-felt-base (linoleum).
Hard surface floor coverings, expect rubber and cork.
Linoleum
Tile, floor: supported plastic
This floor covering product mix may be divided into three major categories: tile, inlaid
sheet, and non-permanent sheet. While the first two were traditionally installed with an
adhesive, a study of the market indicates that almost all asphalt-based floor products are
considered by consumers to be "temporary flooring" and are not affixed by a mastic or
adhesive. This attitude may be associated with the relative short product life expectancy and
low product price.
Tile is usually supplied in squares of specific sizes (usually in 9" x 9" to 12" by 12");however
rectangular and diamond patterns are available in the market in small amounts. Linoleum
and rolled goods are available in 6', 9', and 12' widths. Some linoleum and rolled products
are manufactured with a border on two sides, while others have no border.
This analysis is concerned solely with plants engaged in the production of linoleum and
asphalt printed felt floor coverings, since effluent limitations guidelines are being written
solely for those segments of SIC 3996.
Linoleum may be characterized by a relatively thick wearing surface, extending to a
backing of burlap, cotton fabric, or felt. Although there are many chemical compound
matrixes, only printed asphalt felt material has been analyzed.
Asphalt printed felts are not considered true linoleums by manufacturers, but are sold
under the generic name of linoleum. Substitute inlaid sheet products which have almost
completely replaced the asphalt felt-based "linoleum" are solid vinyl (PVC polyvinyl
chloride sheet) and cushioned-back solid vinyl (not permanently affixed by adhesive).
73
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b. Manufacturing Processes
The manufacturing processes have been described in the Development Document and
no further treatment will be given here.
c. Production and Shipments
Shipments of all products in SIC 3996 (Table III-1) have increased moderately in
recent years at about 2%/year in current dollars, 1958-1971, and with an additional 32%
increase to 1972. Research suggests that there has been a dramatic decrease in the
production of the asphalt-based floor products under consideration and a commensurate
increase in shipments of other products, such as supported plastic tile, included within the
sector.
TABLE 111-1
VALUE OF SHIPMENTS OF HARD SURFACE FLOOR COVERINGS
(millions of dollars)
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
181.6
206.5
183.8
179.7
191.3
204.1
217.6
227.8
230.3
221.7
230.3
235.1
232.6
258.8
341.5
Source: U.S. Bureau of Census; Annual Surveys and Censuses of Manufactures.
According to Poor's Register, 13 manufacturing companies are listed under SIC 3996
with the Census Bureau identifying 18 establishments operating in 1972. However, inquiries
revealed that most smaller companies have discontinued manufacturing asphalt-based floor-
ing or have been acquired by larger multi-line flooring manufacturers. Research indicates
that only one manufacturing facility (that of Armstrong Cork) manufactures asphalt-based
linoleum flooring and this plant is gradually being phased out of production and converted
to vinyl flooring production. A similar reduction in production is apparent for asphalt
printed felts, with only two companies (Carthage Mills, Cincinnati, Ohio and Mannington
Mills, Salem, New Jersey) still in production. Shipments of asphalt-felt-base and linoleum
floor coverings declined from $30.8 million in 1967, to $15.1 million in 1972.
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d. Markets and Future Growth
The market for asphalt-based flooring products derives from a very limited demand for
an extremely low-cost product having short life expectancy. This mass market may be
characterized as the "bottom of the line" segment and represents a very minor (2-3%)
portion of the total flooring market. Apparent historic demand has come from economically
deprived areas (rural, especially in the Southeast) and from inexpensive second home
dwellings, etc. This demand is expected to become non-existent within about three years as
consumer acceptance of vinyl and vinyl asbestos flooring increases. Lower costs resulting
from economies of scale and technical innovations for competing products will help to
eliminate demand for asphalt-based flooring. Furthermore, the price of refined asphalt
feedstock has increased considerably recently and the feedstock is in short supply, thus
increasing the relative cost of asphalt flooring. Consequently, asphalt's single market
advantage, low cost, is rapidly disappearing and with it the only justification for continued
significant production of the product.
e. Marketing and Distribution
The product is not marketed aggressively and no significant advertising or promotion is
discernible, except as a store attraction.
Distribution patterns, where demand exists, are dictated by analogous product flow.
Batch-run quantities produced by local asphalt specialities manufacturers are warehoused
and shipped (usually locally) when demand requires. The product is marketed mainly
through retail outlets as a "bottom-of-line" commodity. Since consumers identify the
product as a "temporary" flooring product, it is being replaced gradually by low-cost
carpeting.
2. Manufacturing Profile
a. Firm Characteristics
Inquiries revealed that very few companies still manufacture linoleum or asphalt
felt-based floorings. It appears that only one company Armstrong Cork is still produc-
ing linoleum, and it will cease this production in the very near future. Only two manu-
facturers still produce felt based products, after New London Mills ceased production in
July 1973.
b. Plant Characteristics
No published plant data is available on the specific products under consideration but
Table III-2 summarizes information on the total SIC sector. These data indicate a drop in
total employment from 8000 workers in 1958 to 5200 in 1971 equivalent to a decrease
of 3.3%/year with a slight increase in 1972. Capital expenditures per dollar of shipments
have been relatively low and were only 4.1^ in 1972.
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TABLE 1112
SIC 3996 - INDUSTRY OPERATING PROFILE
All Employees
Year
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Number
(000)
8.0
8.0
7.1
6.6
6.4
6.2
6.3
6.2
6.3
6.0
5.8
5.5
5.4
5.2
5.8
Payroll
41.9
44.8
39.7
38.2
39.4
39.0
42.3
42.3
44.8
43.5
43.9
45.6
46.5
48.6
59.4
Production Workers
Number
(000)
6.7
6.8
5.8
5.3
5.3
5,0
5.1
5.0
5.1
4.9
4.6
4.4
4.2
4.1
4.5
Man-Hours
14.0
14.3
11.8
10.8
11.0
10.1
10.7
10.4
10.8
10.1
9.4
9.1
9.0
8.6
9.7
Wages
34.1
36.3
31.1
29.4
30.6
29.5
32.3
32.4
34.4
33.2
33.1
34.4
35.0
36.2
44.7
Value
Added
93.1
110.9
96.1
96.9
110.7
115.8
132.5
139.2
135.2
133.4
140.2
132.7
139.5
159.1
211.5
Cost of
Materials
(SMil.)
87.1
97.5
83.9
79.5
82.8
80.7
86.4
89.2
100.8
90.4
90.6
101.7
97.9
100.5
134.9
Value of
Shipments
(SMil.)
181.6
206.5
183.8
179.7
191.3
204.1
217.7
227.8
230.3
221.7
230.3
235.1
232.6
258.8
341.5
Capital
Expenditures
(SMil.)
5.4
9.5
7.8
5.7
5.0
4.4
6.8
10.0
9.3
20.6
7.7
10.5
14.5
20.7
14.0
Source: Bureau of Census, 1971 Survey and 1972 Preliminary Census of Manufactures.
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3. Prices and Price Setting
FOB prices for felt-based floor coverings range from 5i to \0i per square foot; that for
linoleum averages about 304. Assuming a felt-based density of 130 Ib/cubic foot, the job
selling price averages about $110/short ton. Price setting recognizes the "bottom-of-the-
line" image of the products and the relatively poor performance compared to more recent
innovations. The products are sometimes used as promotional specials, or traffic builders by
discount stores, advertised prices being extremely low and apparently attractive.
B. PROPOSED EFFLUENT LIMITATIONS, TECHNOLOGIES AND COSTS
The Development Document has proposed effluent limitations for a typical linoleum
and asphalt-printed felt plant with a daily capacity of 30 short tons and a waste water flow
of 6,000 gallons per day (Table III-3).
TABLE 111-3
EFFLUENT LIMITATIONS FOR LINOLEUM AND
ASPHALT PRINTED FELT PLANTS
(30 short tons/day)
Suspended Solids*
Best Practicable Control
Technology Currently Available
Best Available Technology
Economically Achievable
Standards of Performance for
New Sources
30-day Average
(lb/1000 Ib)
0.025
0.013
0.013
Maximum Daily
(lb/1000 Ib)
0.038
0.019
0.019
Note: pH within the range 6.0 to 9.0
*Limits are based on weight of pollutant per weight of product produced.
Source: Development Document.
BPT requires that suspended solids be settled out of the waste water prior to discharge.
The cost estimates (Table III-4) assume that a settling tank is installed and that the sludge is
manually removed from it at recurring intervals. BAT requires that coagulants be used to
increase the amount of suspended materials removed. The costs, also shown in Table III-4,
reflect the additional investment and operating expenses that would be incurred. NSPS
requirements and their associated costs are identical to BAT technology.
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TABLE II1-4
TREATMENT COSTS - LINOLEUM AND ASPHALT FELT PLANTS
(Typical Plant - 30 tons/day x 250 days/year)
TYPE OF COST BPT BAT* NSPS
(1977) (1983)
Total Investment $3600 $6100 $6100
Total Operating Maintenance and Energy 725 2595 2570
Total Annual 1445 3815 3790
Cost/Short Ton 0.19 0.51 0.51
* Cumulative costs incurred after BPT has been achieved.
** Includes operation and maintenance, energy, and capital cost amortized at 15% discount rate
over 10 years (factor of 0.2). Fifteen percent was chosen as a current cost of capital for the
industry, although it may vary significantly by plant depending on ownership pattern. The
effect of any change in the rate is insignificant for this analysis.
Source: Development Document.
C. ECONOMIC IMPACT ANALYSIS
It is anticipated that base line closures in this sector, independent of the potential
economic impact of effluent control Guidelines, will cause this industry to cease production
within about two years, and certainly prior to 1977.
Consequently, the examination of the potential economic impact is not meaningful
except as a theoretical analysis. The incremental costs of achieving BPT effluent limitations
are equivalent to 0.17% of selling prices; the costs for achieving BAT are approximately
0.47%. In the remote possibility that some plants are still in operation in 1983, such price
increases are certainly modest enough to be passed through in full with no noticeable effect
on the market for the industry's products.
78
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LIMITS OF THE ANALYSES
This assessment of the potential economic impact of the BPT and BAT effluent
guidelines on the asphalt paving and roofing manufacturing industry has been based on the
assumption that the unit operations and corresponding typical plant capital investment and
annual treatment costs suggested by the Development Document are truly applicable to the
effluents generated by the appropriate industry categories. As such, the economic impact
conclusions rest on the accuracy of these cost data and treatment schemes.
The evaluation of the economic impact of additional water treatment costs, and
particularly the determination of specific plant costs as a proportion of annual sales, is a
function of at least three estimated quantities "annualized" water treatment costs, typical
annual production rates, and representative unit sales values of products. Thus, any gross
errors in any of these quantities affect the accuracy of the impact parameter. To minimize
such errors, careful judgment has been exercised in the estimates and they are believed to be
reasonably reflective of actual data.
It needs to be indicated that while the present analysis has identified plants that may
be potentially vulnerable as a result of the effluent guidelines, the decision to curtail or
discontinue operations at a given plant is governed by a number of interacting factors; while
waste water treatment costs may appear unacceptably high at a threatened plant, the
decision to continue or terminate operations is a function of corporate goals, present and
future market conditions, etc. For example, with 4,800 plants in the asphalt paving
industry, it has been necessary to generalize the potential impact on an industry-wide basis.
The vulnerability of a specific plant will depend on whether it has a baghouse, is located in a
competitive urban location, has good highway access, etc.
Finally, the interpretation of the potential impact of the proposed effluent guidelines
has not taken into account the concurrent and reinforcing effects of other future legislations
and governmental controls which, with the additional water control costs, may create a
"last-straw" effect, on the sectors under consideration, even though the effluent treatment
costs may by themselves be negligible.
79
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I I.CIINICAL RlTORT
DA I A PAGI
- 74 - 055
3. Recipient's Accession No.
4 Title mill Subtitle
Economic Analysis of Proposed Effluent Guidelines
Paving and Roofing Materials Industries.
(Tars & Asphalt)
5. Report Date
August, 1974
6.
7 Aiiiiu.i(s) Richard F. Goodale
Ronald Levy
8. Perfor
organization Rept. No.
9. IVrliirininn Organization Name and Address
Arthur D. Little, Inc.
Acorn Park
Cambridge, Massachusetts 02140
10. Project/Task/WorkUnitNo.
Task Order No. 28
11. Contract/Grant No.
68-01-1541
I 2. Sponsoring Organization Name and Address
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
13. Type of Report & Period Covered
Final
14
Supplementary Notes
16. Abstracts
An analysis of the economic impact of proposed water effluent Guidelines upon various
asphalt and tar using industries was performed based on water treatment cost data
supplied by the EPA. The asphalt using industries included paving, roofing and
flooring. A methodology was developed to systematically judge the broader economi
effects on these materials, resulting from the application of water effluent
control, first by assessing the likelihood that treatment costs would be defrayed
through price increases, and secondly, if price increases were not likely, the
extent to which profits would be impacted and/or the likelihood that plant shutdowns
would occur. Based on this approach and using the treatment costs supplied, it
was concluded that a limited number of plant shutdowns would occur in the asphalt
paving sector if best practicable technology standards were imposed on that indust
ry,
17. Key Words and Document Analysis. 17a. Descriptors
Economic Analysis
Effluent Guidelines
Development Document
Asphalt Concrete
Asphalt Emulsions
Asphalt Paving Industry
Asphalt Roofing Industry
Asphalt Flooring Industry
17b. Identifiers/Open-Ended Terms
17c COSATI Held/Group
IK. Availability Statement
Limited availability through U.S.
Environmental Protection Agency Information
Center; Room W327, Waterside Mall, Wash.D.C.
19. Security Class (This
Report)
UNCl.ASSI! II D
20. Security ( lass ( This
Paw-)
UNTLASSII II'D
21. No. of Paces
90
22 Price
I OKM NTIS-35 (RTV. 3-72)
20460
USCOMM-DC 149S2-P72
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