EPA 230-1-74-043
September, 1974
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
NONFERTILIZER PHOSPHATE MANUFACTURING INDUSTRY
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
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EPA 230/1-74-043
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
FOR THE
NONFERTILIZER PHOSPHATE MANUFACTURING INDUSTRY
Milton L. David
C. Clyde Jones
J. M. Malk
September, 1974
U.S. ^r-vJfon^T'onts! Protfjc'l'cn /
r::-' Y. :>•-•:-:,y
£... , ." . -' . ..:" H '" •' ~ . f.
Chi:.. ...-, iliinois 60604
;ncy
Prepared for
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
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This report has been reviewed by the Office of Planning
and Evaluation, EPA, and approved for publication.
Approval does not signify that the contents necessarily
reflect the views and policies of the Environmental
Protection Agency, nor does mention of trade names or
commercial products constitute endorsement or recom-
mendation for use.
MS. EryU
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PREFACE
The attached document is a contractor's study prepared for the Office
of Planning and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent limitation
guidelines and standards of performance to be established under sections
304(b) and 306 of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development Document")
supporting the issuance of proposed regulations under sections 304(b) and
306. The Development Document surveys existing and potential waste
treatment control methods and technology within particular industrial
source categories and supports proposal of certain effluent limitation
guidelines and standards of performance based upon an analysis of the
feasibility of these guidelines and standards in accordance with the re-
quirements of sections 304(b) and 306 of the Act. Presented in the
Development Document are the investment and operating costs associated
with various alternative control and treatment technologies. The attached
document supplements this analysis by estimating the broader economic
effects which might result from the required application of various control
methods and technologies. This study investigates the effect of alternative
approaches in terms of product price increases, effects upon employment
and the continued viability of affected plants, effects upon foreign trade
and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Planning and Evaluation of EPA. This report was submitted in fulfill-
ment of Contract No. 68-01-1533, Task Order No, 14 by Development
Planning and Research Associates, Inc. Work was completed as of
September, 1974.
This report is being released and circulated at .approximately the same
time as publication in the Federal Register of a notice of proposed rule
making under sections 304(b) and 306 of the Act for the subject point source
category. The study is not an official EPA publication. It will be con-
sidered along with the information contained in the Development Document
and any comments received by EPA on either document before or during
proposed rule making proceedings necessary to establish final regulations.
Prior to final promulgation of regulations, the accompanying study shall
have standing in any EPA proceeding or court proceeding only to the extent
that it represents the views of the contractor who studied the subject in-
dustry. It cannot be cited, referenced, or represented in any respect in
any such proceeding as a statement of EPA's views regarding the subject
industry.
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CONTENTS
Page
EXECUTIVE SUMMARY 1
I. INDUSTRY SEGMENTS 1-1
A. Types of Firms by Segment 1-1
1. Size and Number of Firms by
Product 1-1
2. Level of Integration and
Diversification 1-4
B. Types of Plants by Segment 1-4
1. Size 1-4
2. Location 1-5
3. Age 1-7
4. Technology and Efficiency 1-7
C. Number of Plants and Employment I-10
D. Relationship of Segments to Total Industry 1-12
1. Defluorinated phosphates 1-12
2. Sodium tripolyphosphate 1-13
II. FINANCIAL PROFILE II-l
A. Plants by Segment II-l
1. Industry Profitability II-l
2. Capital Structure II-5
3. Cost of Capital II-5
4. Pro Forma Income Statements -
Model Plants II-7
5. Invested Capital - Model Plants 11-10
6. Cost Structure - Model Plants 11-11
B. Distribution of Data 11-13
C. Ability to Finance New Investment 11-13
III. PRICING III-1
A. Price Determination III-1
1. Defluorinated Phosphates III-1
2. Defluorinated Phosphate Rock III-9
3. Defluorinated Wet Process
Phosphoric Acid III-12
4. Sodium tripolyphosphate 111-15
B. Expected Price Changes 111-18
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CONTENTS (continued)
Page
IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY IV-1
A. Fundamental Methodology IV-1
1. Returns IV-5
2. Investment IV-6
3. Cost of Capital - After Tax IV-7
4. Construction of the Cash Flow IV-7
B. Price Effects IV-9
C. Shutdown Analysis IV-1C
D. Production Effects IV-1]
E. Employment Effects IV-11
F. Community Effects IV-12
G. Other Effects IV-12
V. EFFLUENT CONTROL COSTS V-l
A. Proposed Control Standards and Technologies V-l
1. Defluorinated phosphate rock (DFP) V-3
2. Defluorinated wet phosphoric ai.cid V-4
3. Sodium tripolyphosphate V-5
B. Present Effluent Control Status V-5
1. DFP V-5
2. Defluorinated wet phosphoric acid V-5
3. STPP V-7
C. Effluent Control Costs V-7
1. Cost data V-7
2. Investment costs V-7
3. Annual operating costs V-8
4. Comparison of pollution control
costs to base costs V-16
VI. IMPACT ANALYSIS VI-1
A. Price Effects VI-1
B. Financial Effects VI-5
1. Profitability VI-5
2. Availability of capital VI-9
C. Production Effects VI-11
1. Potential closures VI-11
2. New Source Performance Standards VI-15
3. Production Curtailment VI-17
D. Employment Effects VI-17
E. Community Effects VI-17
F. Balance of Payments Effects VI-18
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CONTENTS (continued)
VII. LIMITS OF THE ANALYSIS VII-1
A. General Accuracy VII-1
B. Possible Range of Error VII-1
C. Critical Assumptions VII-2
D. Remaining Questions VII-3
APPENDIX
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EXECUTIVE SUMMARY
INTRODUCTION
This report analyzes the economic impacts of proposed water pollution
controls on non-fertilizer phosphate manufacturing. It is one of a series
of studies prepared under the supervision and review of the Office of
Planning and Evaluation, U. S. Environmental Protection Agency, as
required by the Federal Water Pollution Control Act Amendments of 1972.
Under the provisions of Sections 304 and 306 of the Federal Water Pollu-
tion Control Act, EPA has proposed effluent guidelines which apply to
the manufacture of defluorinated phosphate rock, defluorinated wet process
phosphoric acid and sodium tripolyphosphate derived from wet acid. The
purpose of this study is to evaluate the potential economic impacts of those
guidelines prior to their implementation.
The report describes and analyzes the industry structure for the manu-
facturing of the three products by examining:
1. their number and types of firms and plants,
2. their age, location, and technological state
3. their financial data apropo of model plant con-
figuration, and
4. their pricing policies and supply and demand relationships.
Then, pollution control costs are superimposed on the model plant finan-
cial profiles to determine microeconomic effects, such as price increases
expected and potential closures. Macro impacts on the industry are then
analyzed for effects on employment, communities, balance of payments
and related matters.
The data for the study was provided by industry sources which supplied
descriptive material about firms and plants. Published governmental
and private reports provided additional information for both micro and
macro analysis.
I. INDUSTRY SEGMENTS
Two four-digit Standard Industrial Classification code numbers are in-
cluded in this report:
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SIC 2819 Industrial inorganic chemicals
SIC 2874 Phosphatic fertilizers
SIC 2819 includes sodium phosphates and potassium phosphates. This
report considers only sodium tripolyphosphate derived from wet process
phosphoric acid. Industrial phosphate products derived from furnace
acid are covered in a separate EPA report.
SIC 2874 encompasses the broad category of phosphatic fertilizers, many
of which have been reported in other EPA studies. Certain non-fertilizer
phosphate chemicals produced from phosphatic rock acidulation, speci-
fically, defluorinated phosphatic rock and defluorinated wet process
phosphoric acid (principally superphosphoric acid), are considered
in this report.
This report is organized around three segments:
(1) Defluorinated phosphate rock
(2) Defluorinated wet process phosphoric acid
(3) Sodium tripolyphosphate derived from wet acid
Defluorinated phosphate rock (DFP)
Four firms produce DFP at four plant locations: two in Florida, one in
Texas and one in Montana. Three of the companies are large, diversified
and highly integrated; the fourth is a small phosphatic mining company.
Ranging in size from 25,000 to 310,000 tons of annual capacity, the four
plants have a combined estimated annual capacity of 510,000 tons of DFP
(18.5% P equivalent). Two plants were built between I960 and 1965 and
two between 1966 and 1970.
DFP is produced by subjecting a combination of sand, about 32% of P2C>5
wet acid and soda ash or caustic soda and phosphate rock to high temperatures
(nearly 3,000° F). The kilns used require a fairly large investment.
Approximately 103 persons are employed a the four plants.
Defluorinated wet phosphoric acid
Ten firms produce defluorinated wet phosphoric acid at eleven plant
locations. These are all integrated chemical or petrochemical com-
panies, and all but one are large, diversified enterprises.
The eleven plants having a combined estimated annual capacity of 913,000
tons of P2C>5, range in size from 13, 000 tons to 180,000 tons of annual
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capacity. Florida and Louisiana have three plants, Idaho has two and
North Carolina, Texas and Utah have one each. Two of the plants were
built between I960 and 1965, five between 1966 and 1970 and three since
1970. The age of one is undetermined.
Three different processes can be used to produce defluorinated wet phos-
phoric acid. Nine of the eleven plants employ either a vacuum evaporation
process (seven plants) or a submerged combustion process (two plants).
The other two are believed to be using a steam sparging process to de-
fluorinate wet acid without concentrating it into a superphosphoric acid.
Little is known about this process, which will be referred to in this report
as "auxiliary process." The defluorinated acid plants require less invest-
ment in plant and equipment than do the DFP plants.
An estimated 133 persons are employed in the superphosphoric acid plants
and 25 in the auxiliary process acid plants for an estimated total employ-
ment in this segment of 158.
Sodium tripolyphojsphate (STPP)
Only one firm produces STPP from wet process phosphoric acid in the
United States. A large, integrated chemical corporation, with a 140,000
tons, per year (STPP) plant is located in Illinois and was built in I960.
It competes with 14 other STPP plants which use furnace acid. It is very
large in comparison to other STPP plants. Using a complex chemical
process in which wet acid is reacted with caustic soda, it employs an
estimated 21 persons.
II. FINANCIAL PROFILE
Non-fertilizer phosphate manufacturing must be viewed in the context of
the fertilizer industry, an industry which generally has a history of wide
cyclical fluctuations in prices and profitability. After a stable period of
reasonable earnings in the early 1960's, the industry overexpanded and
suffered declining prices and earnings from 1966 through 1969. By 1973,
industry sources were reporting pretax and preinterest margins of 9.7
percent on sales, which probably equates to about 4 percent on sales and
7 percent on net worth, a comparatively low return on net worth.
The published data for a five-year period for fertilizer companies indi-
cates an "average" corporate profile of about 27 percent long-term debt
to total invested capital, earnings on common stock of just under 6 percent
and a dividend yield of about 3.6 percent. A weighted average cost of
capital, based on these findings, ranges from 5.5 to 7.4 percent.
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In the absence of specific plant data, DPRA constructed pro forma income
and expanse statements for model or representative plants in each segment.
These model plants budgets, which do not purport to reflect precisely the
financial conditions of existing plants, show that most of the operations
are reasonably profitable.
Defluorinated phosphate rock model plants range from a break even (or
slight losss) position in the smallest (75 TPD) unit to estimated after-tax
returns on invested capital of 5.3 to 8.5 percent for the larger unit
(225 TPD). Estimated cash flows are substantial for the larger plants.
Defluorinated wet phosphoric acid (SPA) production is unprofitable in the
smallest (75 TPD) model plant, while the two larger units (150 and 450 TPD)
yield after-tax returns on invested capital of 7 and 19 percent. The small
plant has a negative cash flow; the others have reasonably strong cash flows.
The two model plants for defluorinated acid (auxiliary process) have
after-tax returns on invested capital of 6 and 11 percent with modest
cash flows.
STPP--The STPP model plant shows an after-tax return on invested capital
of 9 percent with a modest cash flow.
With the foregoing profit picture, the large diversified firms should have
no difficulty raising the necessary capital to finance new investment in
pollution control facilities. At the same time, on an individual plant basis,
lack of profitability for the smallest DFP and acid plants would make new
investment unlikely.
III. PRICING
Marketing determinants for all three phosphate segments in this study are
complicated by the fact that demand for the products is derived from the
demand for other end-products. DFP is used as a livestock feed supplement;
thus, the demand for livestock products ultimately determines DFP demand.
Some 40 percent of all defluorinated wet process phosphoric acid output
goes into dicalcium phosphates for feed supplements. The remaining 60
percent is used in fluid fertilizers which depend on the demand for agri-
cultural products. STPP demand is derived primarily from the market
for soaps and detergents. Obviously then, the prices for non-fertilizer
phosphate products are determined in large part by the pricing patterns
of other products.
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The demand for livestock products is expected to grow at one or two per-
cent per annum, with feed phosphates growing at a faster rate of 6 to 8
percent as nutritional requirements and livstock production techniques
continue to change. Liquid fertilizer demand is also growing more rapidly
than general agricultural demand and indicates a possible growth in demand
for SPA of 10 to 15 percent.
Prices for DFP and defluorinated acid can be expected to rise under these
pressures. DFP prices averaged $72. 25 per ton at Florida plants in 1973
(pre-decontrol). SPA has little price character of its own, being tied
directly to wet ortho acid prices and to dical and fluid fertilizer prices.
Quoted prices ranged from $153 to $199 per ton (P2O5) in 1973.
STPP has been declining in usage since 1970, due largely to a concern
over the use of phosphates in soaps and detergents. Even so, price has
risen slightly to an estimated $153 per ton (f.o.b. plant) in 1973 as
output fell. Future price behavior is most uncertain.
IV. IMPACT METHODOLOGY
The fundamental methodology used in the impact analysis is the same as
that normally used in capital budgeting studies of new investments. The
model plant budgets provide the basic data for the analysis.
The model plants though not precisely representative of any single plant
operation, reflect the financial and physical characteristics of the industry.
Adjustments to model plant budgets to reflect pollution control investment
and annual operating costs permit pre-and post-pollution control economic
analysis for impacts on prices, profitability and production.
Probable plant closures, a key part of the analysis, are determined
through a net present-value analysis, by which expected future cash pro-
ceeds are discounted at the firm's estimated cost of capital rate. A net
present-value of less than zero implies that the owner would be better off
to liquidate his plant and reinvest the salvage proceeds at the cost of capital
rate.
Price increases required to return the plant to pre-pollution control levels
of profitability are then calculated to estimate expected price effects. An
evaluation of ability to pass on required price increases follows.
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Finally, a qualitative analysis of economic determinants indicates the
broad macroeconomic effects on agricultural production, employment,
communities and balance of payments.
A detailed description of the methodology appears in the Final Report.
V. POLLUTION CONTROL COSTS
Investment costs and annual operating expenses for the pollution controls
necessary under proposed guidelines were furnished by the Effluent Guide-
lines Division of EPA. The development of these costs and full descriptions
of the technologies appear in the Draft Development Document, separately
published by EPA.
Proposed guidelines
Best practical technology (BPT) proposed effluent limitations guidelines,
effective July 1, 1977, call for no discharge of process waste water for
DFP and defluorinated acid segments, except under certain conditions. Con-
tainment and cooling ponds must be designed to hold the precipation from the 10-
year, 24-hour rainfall event as established by the U.S. Weather Service for the
plant location. When rainfall in excess of the 10-year, 24-hour storm
occurs, the excess may be discharged. The plant may also discharge
processed waste water during any calendar month in which the volume of
water exceeds the difference between that month's rainfall and the mean
evaporation for that month as established by the U. S. Weather Service
for the preceding 10-year period. Any process water discharged under
both exceptions must be treated to reduce suspended solids, phosphates
and fluorides to acceptable levels, as specified by the Effluent Guidelines
Division of EPA.
The STPP segment, which cannot use containment ponds, must continuously
treat the end-process waste water to reduce contaminants to acceptable
levels.
The recommended EPA technology for pollution control at DFP and de-
fluorinated acid plants consists of containment and cooling ponds large
enough to hold contaminated process water which is recirculated, and
contaminated (pond) water treatment facilities for double-liming and
settling any waste water to be discharged under the exceptions permitted.
In some locations, a diversion ditch will be required to keep runoff water
away from the pond dikes. STPP plants need only the contaminated (pond)
water treatment facilities.
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Best available technology (BAT) guidelines, effective in 1983, are the
same as BPT, except that containment ponds must be large enough to
hold the runoff from the 25-year, 24-hour rainfall event for the plant
location. The exceptions for discharge are similar to BPT. EPA
has recommended increasing BPT dike heights by an amount sufficient
to hold the larger volumes of water. For STPP, there are no additional
BAT requirements.
New source performance standards for plants built after January 1, 1974,
are identical to BAT for DFP and defluorinated acid.
In place technology
EPA estimates that all of the DFP plants currently meet the guidelines,
though one plant may require a diversion ditch. Eight of the 11 defluorinated
acid plants either treat discharged water or do not discharge at all; one of
the three remaining plants does not appear to have any land available for
building a pond. The STPP plant in this study does not have treatment
facilities in place.
Effluent control costs
EPA furnished cost parameters for investment and annual operating costs
for pollution controls. The major investment is for pond construction,
estimated at $15, 977 (1973 dollars) per acre of pond. The pond
estimated at .26 acres per daily ton of product for DFP and .26 acres
per daily ton of ~P2®5 for defluorinated acid. Diversion ditches are esti-
mated at $3.00 per linear foot of ditch.
Contaminated (pond) water treatment facilities are estimated at $399,000
(1973 dollars) for double-liming 1,000 gallons per minute. Plants below
450 tons per day capacity can use a 500-gallons per minute facility, at
a cost of $263,000.
Annual operating costs for containment and cooling ponds have been
estimated by EPA as consisting only of interest on borrowed funds and
20-year straight-line depreciation. EPA made no allowance for maintenance
of ponds and dikes; there may be some very small annual costs for main-
tenance which have not been included in the cost summary. DPRA has
assumed that the entire investment would be borrowed at 10 percent interest.
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Costs for treating waste water include $Z. 50 for lime and $.05 for
electricity per 1,000 gallons treated. Interest at 10 percent and 10-
year straight-line depreciation, plus 4 percent of investment for oper-
ation and maintenance complete the annual costs for contaminated
(pond) water treatment.
Table 1 presents incremental investment and annual operating costs for
model plants which are representative of those in each segment which
do not now have the technology in place. It is important to note that
emergency treatment (caused by rainfall in excess of the 10-year or
25-year storm) can be expected no more often than once in 10 or 25
years. Thus, BPT normal operating costs represent more accurately
expected incremental costs.
It should be further noted that phosphate plants are normally built with
containment and cooling ponds and that not all of the pond costs can be
reasonably attributed to pollution controls. Table 2 shows annual pollu-
tion control costs as a percent of 1973 model plant total operating costs.
VI. IMPACT ANALYSIS
The expected impacts of pollution controls will occur in the defluorinated
acid and STPP segments. The major capital expenditures required by the
three defluorinated acid plants which do not have treatment in place may
force their closure by 1977 (one of these three and one other plant with
in place controls might close under 1973 baseline conditions). The STPP
plant may also be forced to close. No impact is foreseen on DFP plants
because they currently meet treatment standards.
None of the segments can expect to pass-on pollution control costs directly
because of the large amount of technology in place. This includes the STPP
plant that competes with furnace acid type STPP plants which will not incur
pollution control costs.
Price effects due to pollution control should be minimal. Cost increases
cannot be passed on in the form of higher prices, but potential baseline
and pollution control induced closures could reduce output and cause an
approximate 4 percent price increase for DFP and defluorinated acid.
This supply-induced price increase of 4 percent must be viewed in the
context of an even higher demand-induced increase. Demand can be ex-
pected to grow 8 to 12 percent per year in defluorinated acid, producing
significant upward pressure on prices. At some indeterminant point,
higher prices will attract new defluorinated acid capacity--probably large
SPA plants; inevitably, this new capacity will cause future price reductions.
8
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Table 1. Investment and annual operating costs for pollution control
facilities for selected model plants
Defluorinated acid
(Vacuum process)
75 TPD
(Auxiliary process)
100 TPD
-£ 300 TPD
STPP
BPT
Pond &
Ditch
348
461
1, 366
Investment
CPWT- Total
263 611
263 724
263 1,629
399 399
BPT Annual
Operating
Normal
O & M Int. Deprec.
44 30
80 36
224 88
842 20
43
49
108
40
Costs BAT
Emergency^/ In-
Total O & M vest.
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Table 2. Annual pollution control operating costs compared to
baseline (1973) total operating costs for selected model plants
Plant Base-
Configuration line
$000
Defluorinated acid
(vacuum process)
75 TPD 3, 109
(auxiliary process)
100 TPD 3, 926
300 TPD 10,285
STPP 20, 164
BPT(N)- BAT BPT(N) + BAT-'
$000 % Base $000 % Base $000 % Base
117 3.8 3 neg. 120 3.9
165 4.2 4 neg. 169 4.3
420 4.1 12 neg. 432 4.2
902 4. 5 0 0 902 4. 5
_!_/ Only normal treatment costs have been compared since emergency treatment
can be expected to occur only once in 10 or 25 years.
10
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It is likely that this new capacity will assure the likely closure of those
existing defluorinated acid plants which do not now have pollution control
technology in place.
STPP prices may increase 1.5 to 2.0 percent to reflect increased raw
materials costs due to pollution controls, but the wet acid STPP cannot
expect to recover its direct pollution control costs.
Production effects due to pollution control are expected in the defluorinated
acid and STPP segments. Three acid plants and the STPP plant may be
forced to close. One of the small 75 TPD acid plants has a negative cash-
flow under baseline (1973) conditions. A second one reportedly has no land
available for pond construction; in any event, pollution control investment
and operating costs produce a negative cash flow for the model plant in
this sub-category, even with a 4 percent price increase. The third plant
is believed to be having trouble (from under utilization of capacity) with
baseline conditions and could-be negatively impacted by pollution controls.
Not enough data are available to judge this plant adequately, but it may have
to close. These three plants account for about 16 percent of defluorinated
acid capacity; one additional plant, representing about 2 percent of capacity,
might close under baseline conditions. Total supply should not be signifi-
cantly affected, however, because the segment operated at an estimated 80
percent of capacity in 1973.
Closure of the STPP plant would result in a loss of about 120,000 tons
of production or about 12 to 13 percent of 1973 output. Present under-
utilized furnace acid plants could absorb the loss.
Employment effects resulting from closures would be minimal. An esti-
mated 39 jobs in defluorinated acid plants and 2 1 in the STPP plant may be
lost, an infinitisimal number of the 40, 000 to 45, 000 pe rsons employed in
the fertilizer industry.
Community effects are negligible. The potentially impacted plants are in
large trade areas where the loss of one plant and 20 or 50 jobs •would not
appear critical. Some displaced workers would be absorbed into other
phosphate plants.
Balance of payments would also be impacted only slightly. Imports of
dicalcium phosphates (30,000 tons in 1973) might increase slightly, and
their dollar value is minor. STPP exports might decline slightly, but
again, dollar values would be insignificant.
In general, the proposed effluent guidelines should have no significant
impact on future industry growth. Newer DFP and acid plants were
built with control technology. Future plants are likely to be large
11
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structures discharging minimum effluents. The proposed standards
should have little effect on decisions to invest in new plants. No new
STPP plants, using wet process acid, are expected; currently»
VII. LIMITS OF THE ANALYSIS
The data used in the preparation of this report have been carefully
evaluated for reliability and are believed to be generally accurate.
There are, however, variances in local conditions, technologies and
management techniques which will cause specific plant operations to
vary from the model plant.
There will be a range of possible error of _+ 10 percent in the number,
location, capacity and age of plants and +_ 15 percent in prices. Investment
values may vary by jf 20 percent, while plant operating costs are subject
to + 10 percent. It should also be noted that the pond size recommended
by EPA has been questioned by industry sources and that pond costs may,
therefore, be overstated.
The range of errors would not, however, affect significantly the basic
conclusions in the report. At the same time, several critical assumptions
which appear throughout the report were used as a basis for the analysis
and any change in those assumptions could change the results of the analysis
Especially important are assumptions about prices, capacity utilization,
raw materials costs, operating expenses and the future movement of costs
and prices.
There are also some unanswered questions concerning the future of the
phosphatic fertilizer industry which can affect the segments under study
in this report. Will phosphate capacity expand in the 1970's? Will the
energy shortage prevent full utilization of phosphate capacity? Will en-
vironmental concerns over the use of STPP in soaps and detergents in-
tensify or lessen? These and other questions must remain unanswered
at this time.
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I. INDUSTRY SEGMENTS
This report on nonfertilizer phosphate manufacturing includes segments
from Standard Industrial Classification Numbers 2819 (Industrial Inorganic
Chemicals) and 2874 (Phosphatic Fertilizers). Specific segments within
these classifications are as follows:
' SIC 2819 - Industrial Inorganic Chemicals. Limited to phosphate
compounds derived from elemental phosphorus
--sodium phosphates and pyrophosphates
--potassium phosphates and pyrophosphates
SIC 2874 - Phosphatic Fertilizers
Limited to non-fertilizer phosphate chemicals
produced from phosphate rock acidulation
--defluorinated phosphate rock
--defluorinated phosphoric acid
--defluorinated mono and diammonium phosphates
The study's analysis will be organized about three primary segments:
(1) Defluorinated phosphate rock
(2) Defluorinated wet phosphoric acid (principally superphospnoric
acid)
(3) Sodium tripolyphosphate derived from wet acid
Potassium phosphate and defluorinated mono- and diammonium phosphates
have been excluded from this study. Potassium phosphate from wet-acid
is not known to exist. Defluorinated mono- and diammonium phosphates
are derived from superphosphoric acid; therefore, it is the SPA which is
defluorinated. Sodium phosphates derived from furnace phosphoric acid
have been studied in a separate EPA report on industrial phosphates. _L'
A. Types of Firms by Segment
1. Size and Number of Firms by Product
Defluorinated, Phosphate Rock
Four firms operate four establishments for producing defluorinated phos-
phate rock:
— Economic Analysis of Proposed Effluent Guidelines: The Industrial
Phosphate Industry, EPA-230/1-73-021, August 1975~
1-1
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Defluorinated Phosphate Rock (18. 5% P Equivalent)
Company Capacity
(1,000 T)
Borden, Inc.
Borden Chemical
Smith-Douglass Div. Plant City, Fla. 310
Occidental Pet. Corp.
Occidental Chem. Co. Div. White Springs, Fla. 100
Olin Corporation Pasadena, Texas 75
Rocky Mountain Phosphate
Corporation Garrison, Montana 25 _'
_' This plant may have one additional idle 25, 000 ton kiln.
Defluorinated Wet Phosphoric Acid
There are ten firms known to be producing defluorinated wet phosphoric
acid in eleven plant locations. Eight of the ten companies are defluorin-
ating wet acid in the manufacture of superphosphoric acid. Two others,
Freeport Sulphur and Beker, produce a defluorinated wet acid through
an auxiliary process. There may be three or four other superphosphoric
acid plants operated by other firms that cannot be positively identified
at this time. The list which follows represents the best available infor-
mation:
1-2
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Wet Process -- Superphosphoric Acid Producers
Company
Allied Chem.
Farmland Ind.
I.M. C.~
North Idaho Phos.
Occidental Chem.
Simplot, J. R.
Stauffer Chem.
Stauffer Chem.
Texas Gulf
Location
Geismar, La.
Pierce, Fla.
Bonnie, Fla.
Kellogg, Idaho
White Springs,
Fla.
Pocatello, Idaho
Pasadena, Texas
Garfield, Utah
Lee Creek, N. C.
Year
Built
1967
1971
1965
1964
1966
1971
(repl.)
1966
1967
1971
Defluorinated Phosphoric Acid
Freeport Sulphur
Beker Chem.
Uncle Sam, La.
Taft, La.
1969
Capacity
(Tons P2°5^
145,000
130,000
165, 000
13,000
50, 000
35,000
25,000
40, 000
180, 000
783, 000
Producers
100, 000
Unknown 30,000
130, 000
Process
Submerged Combustion
Vacuum Evap.
Falling Film
Falling Film
Submerged Combustion
Vacuum Evap.
Vacuum Evap.
Vacuum Evap.
Falling Film
Auxiliary
Auxiliary
— Operated as a part of a C F Industries phosphate complex.
1-3
-------
Sodium Tripolyphosphates
Only one known United States firm produces sodium phosphate from
wet phosphoric acid. The Olin Corporation has a plant at Joliet,
Illinois, producing sodium tripolyphosphate (STPP) at an estimated
annual capacity of 140, 000 tons.
2. Level of Integration and Diversification
The firms in all three segments are typically large diversified chemi-
cal companies, with both backward and forward integration. Some
producers are specialty chemical companies, but generally, product
sales of these three segments constitute a small portion of company
revenues. The level of diversification varies from a highly diversified
firm such as Borden to a specialized firm such as Rocky Mountain
Phosphate Corporation.
B. Types of Plants by Segment
The analysis of plants •which follows is by size, location, age, technology,
efficiency and level of integration. Plant data are from EPA and industry
sources.
1. Size
Defluorinated Phosphate Rock
The four plants in this segment were listed by size under Section I-A.
Three sizes are apparent:
Tons Per Year No. Plants
25,000 1
75,000 - 100,000 2
310,000 1
The large plant accounts for 61 percent of total capacity in this segment.
1-4
-------
Defluorinated Wet Phosphoric Acid
The size distribution of the eleven plants in this segment is as follows:
Tons Per Year No. Plants Total Capacity
(Tons PzOs)
Up to 25,000 2 38,000
26,000 - 50,000 4 155,000
51,000 - 150,000 3 375,000
151,000 and over __2 345,000
11 913,000
The two largest plants have 38 percent of the capacity and the five
largest have 79 percent. As noted earlier, there maybe three or four
additional operating plants.
Sodium Phosphate
The Olin Corporation has a large sodium phosphate plant at Joliet,
Illinois, producing an estimated annual capacity of 140, 000 tons. Al-
though all other STPP producers use furnace acid, it is useful to com-
pare the Olin plant to the 14 other STPP plants. The most common
sizes are 50, 000, 75, 000 and 100, 000 tons per year of STPP, with
the median at 75, 000. The largest of the 14 is 125, 000 tons per year.
Thus, by this standard, the Olin plant is almost double the size of the
typical plant and is by far the biggest of all STPP plants.
2. Location
Table 1-1 shows the location of plants for each segment by state.
Defluroinated Rock
Florida with two of the industry's four plants has 80 percent of the de-
flourinated rock capacity.
Defluorinated Acid
Florida and Louisiana each have three SPA plants, with 41 and 30 percent
respectively of total SPA capacity. The largest SPA plant is in North
Carolina, with a large unit in Louisiana.
1-5
-------
Table 1-1. Location of plants by number, capacity and product.
U.S.
Total N. C. Fla.
La. Texas 111.
Mont. Idaho Utah
STPP
Def. Rock
Def. Acids
SPA
Aux.
1-140
4-510
(No. plants - 000 tons capacity)
2-410
1-140
1-75 1-25
9-783 1-180 3-345 1-145 1-25
2-130 2-130
2-48 1-40
-------
Utah and Texas each have small units.
STPP
Illinois has the only STPP plant using wet acid.
3. Age
Table 1-2 presents the ages of the various plants by segment and by
size range.
Defluorinated Rock
Two, the smallest and the largest, of the four plants were built in I960.
The other two were built in 1969 and 1970.
Defluorinated Wet Phosphoric Acid
Only two of the plants were built before 1966 -- the smallest (13,000 TPY)
and one of the largest (165,000 TPY). Four were built between 1966 and
1970 and three in 1971-72. These last three account for 38 percent of the
capacity.
STPP
The Olin plant was built in I960.
4. Technology and Efficiency
Manufactured defluorinated phosphate products--dical and defluorinated
acids--have emerged largely from the recognition of the technical require-
ments for phosphorous in livestock nutrition and the unavailability of this
product in feedstuffs, organic sources (bone meal) and low fluorine
phosphate rock. Parallel to the feed requirement has been the growing
liquid fertilizer industry which requires high analysis and clean phos-
phoric acid.
1-7
-------
Table 1-2. Age of plants by product and size range.
000 Tons per Year Capacity
0-25 26-50 51-100 101-150
No. Cap. No. Cap. No. Cap. No. Cap.
STPP
I960 1 140
Defl. Rock
1960-65 1 25
1966-70 2 175
Total 1 25 2 175
1
°° Defl. Wet Acid (SPA)
1960-65 1 13
1966-70 1 25 2 90 1 145
1971- 1 35 1 130
Total 2 38 3 125 2 275
Defl. Wet Acid (Aux. )
1969 1 100
Unknown 1 30
Total
151- Total
No. Cap. No.
1
1 310 2
2
1 310 4
1 165 2
4
1 180 3
2 345 9
1
1
Cap.
140
335
175
510
178
260
345
783
100
30
130
-------
To meet these feed and fertilizer needs, the superphosphoric acid (SPA)
industry emerged during the 1960's. Superphosphoric acid in general
terms is concentrated phosphoric acid generally in excess of 70 percent
P O , relatively free of impurities, and composed of some polyphosphate
molecules. Additionally, the concentration to superacid also defluorinates
the 54% wet process orthophosphoric acids. The only other known sources
of defluorinated wet acid are the two plants which defluorinate wet process
orthoacid through steam sparging rather than concentration to SPA.
Defluorinated Phosphate Rock
Rock defluorination results from heating raw phosphate rock to temper-
atures of nearly 3000 F. without fusion (melting and blending). The pri-
mary processes involve heating phosphate rock, silica (sand), about 32%
P_O wet acid, and soda ask or caustic soda. Within this general pro-
cedure several variations exist among the four companies producing de-
fluorinated rock. Three of the companies report their own process
patents (although there is pending litigation concerning patent infringe-
ments).
Defluorinated Wet Acid
The defluorination of wet acid is accomplished through concentration of
54% orthoacid and steam sparging, although only two units (130, 000 TPY
capacity) of the eleven producers and 913, 000 TPY capacity use this
latter process.
Concentration - The concentration of wet phosphoric acid results from
the evaporating (concentrating) 30-32% P?O from the basic to 52-54%
acid--the commercial acid concentration—and then concentrating 54%
acid to SPA as separate process. It is this latter process to which this
study is directed. Two primary commercial processes are used--
vacuum evaporation and submerged combination.
Vacuum evaporation has, in turn, two variations--Swenson and falling
film. All features use evaporation under vacuum using single effect
long tube evaporators operating at high velocities. The advantages of
the vacuum process are that fume scrubbing is relatively easy and the
recovery of fluorine is complete. This process does require a cheap
steam source; thus, its use is generally restricted to integrated phos-
phate complexes. Maintenance and cleaning requirements are also sig-
nificant in vacuum evaporation. Superacid from this procedure is gener-
ally less than 70-72% P?O and slightly higher in fluorine content.
1-9
-------
In submersed combustion, the orthoacid is evaporated by forcing
hot combustion gases (about 1300 F. ) directly through the acid.
Fluorine and P->O_ are vaporized, making scrubbing necessary to con-
trol air pollution and to minimize phosphate losses. Submerged com-
bustion produces a higher P?O concentration and a lower fluorine con-
tent acid. The costs of submerged production may be slightly lower,
although the number of plants using vacuum evaporation outnumbers
submerged combustion plants by seven to two.
Steam Sparging - The two defluorinated acid plants not producing SPA
apparently steam sparge a mixture of orthophosphate acid and silica
gel in an open tank. Little else is known about this process, although
the plants are part of large phosphate complexes in Louisiana.
Sodium Tripolyphosphate
Only one plant does not manufacture sodium tripolyphosphate (STPP)
from furnace acid. This study includes the one plant using wet process
orthophosphoric acid. The chemistry of these polyphosphates in general
is highly complex. The general process requires the reacting of phos-
phoric acid with caustic soda involving definite temperature controls
with heating for a substantial time between 300 and 500 C. and slow
cooling. Following the initial reaction is a mix tank, the materiail is
dried, calcined (dehydrated), and then stabilized in a chilling or temper-
ing unit.
C. Number of Plants and Employment
There are no precise data on employment in the segments under study.
Because published census reports are not sufficiently refined to permit
identification of these small segments, employment, based on manpower
requirements and operating variables used in the model plant configur-
ations, has been estimated. The labor inuts were obtained through
industry sources and provide a reasonab] basis for estimating employ-
ment by segment. The estimates, rough at best, are presented in
Table 1-3.
1-10
-------
Table 1-3. Estimated number of employees by segment
Segment and tons per day
Defluorinated rock phosphate
75
225
900
Subtotal
Superphosphoric acid
75
150
450
Subtotal
Defluorinated acid
100
300
Sodium tripolyphosphate
450
Total
Number of
plants
1
2
1
4
2
3
4
9
1
1
2
1
Production
workers
9
30
37
76
16
24
32
72
4
11
15
14
177
Other
6
14
7
27
12
21
28
61
3
7
10
7
105
Total
15
44
44
103
28
45
60
133
7
18
25
21
282
1-11
-------
D. Relationship of Segments to Total Industry
The relationships of the segments under study to the total industry in
which they operate can be shown by comparing the number of ptants ,
production and employment to industry totals.
Defluorinated phosphate rock and defluorinated wet process phosphoric
acid plants supply raw materials to two basic industry groups: Sunimal
feeds and fertilizers. However, the two segments are an integral part
of the phosphate fertilizer industry. It is, thus, necessary to show their
relationship to the fertilizer industry rather than the feed industry.
1. Defluorinated phosphates
Number of plants
This study compares the number of plants producing defluorinated phos-
phate products, including superphosphoric acid, to the total fertilizer
industry. This is the most logical comparison, since no separate
published data are available for the phosphatic fertilizer subclassifi-
cation.
There are an estimated 768 fertilizer plants (excluding nitric and sulfuric
acid plants and dry blenders and liquid mixers). Plants in each segment
of this study are shown below as a percentage of that total. As noted
earlier, there may be three or four additional SPA plants.
Product No. Plants % Total
Defluorinated phosphate rock 4 <1
Defluorinated •wet process phosphoric
acid (incl. SPA) JL_1 1.4
Total 15 2.0
1-12
-------
Production
The 15 plants produced an estimated 863,000 tons of P2<~>5 ^n ^973 of
the total U. S. production of 6. 4 million tons of P2O for farm use.
The percent of total P,O production for each segment is as follows:
Li O
000 tons
P2O5 % total
DFP* 197
Defluorinated acid 666
Total 863
-I 465,000 tons DFP, 18.5% P.
Employment
DPRA developed an earlier estimate _L' of 40,000 - 45,000 employees in
the fertilizer industry. The estimated employees as a percent of 40,000
is shown below
No. Employees % Total
DFP 103 0.3-
Deiluorinated acid 147 0.4-
Total 250 0.6 +
2. Sodium tripolyphosphate
Number of plants
The one plant using wet acid to produce STPP can be compared to other
STPP producers or to the total number of establishments in SIC 2319
(Inorganic Chemicals, not elsewhere classified). This broad comparison
has little significance beca- se of the wide diversity of products.
The Olin plant is one of 15 STPP producers and one of 718 establishments
in SIC 2819. -1
— David, M. L. , et al. , Economic Analysis of Proposed Effluent Guidelines
for Fertilizer Industry, EPA-230/1-73-0 10, Nov. 1973.
IK S. Industrial Outlook 1974 with Projections
Commerce, Washington, D. C. , 1973, p. 98.
- U. S. Industrial Outlook 1974 with Projections to 1980, U. S. Dept. of
1-13
-------
Production
The Olin plant produces an estimated annual capacity of 140, 000 tons of
STPP, 12 percent of the estimated 1, 175, 000 tons of STPP.
Employment
The exact number of employees in the Olin plant is not known. SIC 2819
has an estimated 73,000 employees and Olin, with an estimated 80 plants
has been reported to have 29,000 employees. A/ Using the model plant
estimate, an STPP plant of 140,000 tons capacity would have approximately
21 employees, an insignificant number.
_!.' Economic Analysis of Proposed Effluent Guidelines, The Industrial
Phosphate Industry, Environmental Protection A gency, Office of Planning
and Evaluation, Washington, D. C. , August, 1973, p. 10.
1-14
-------
II. FINANCIAL PROFILE
Financial data relating to individual operating plants are not available.
There are published financial data for the large, publicly held companies,
but since these are generally widely diversified corporations, the data
do not reflect accurately the phosphate divisions of the firms.
Given this limitation, model plant budgets provide the most reasonable
insight into the financial aspects of the various operations. Model plant
configurations, matched to the size and product combinations of typical
operating plants, have been established in each of the segments and are
presented in Table II-1.
The nonfertilizer phosphate industry under study is primarily composed
of firms that are predominately fertilizer manufacturers. Consequently,
the fertilizer industry financial data is representative of segments of
the phosphate industry and will be used insofar as these data are available.
A. Plants by Segment
Before looking at the financial profiles as represented by model plant
data, some observations about the phosphate industry and the three seg-
ments in this study are in order.
For perspective, it is helpful to look at Table II-Z. This table shows
sales and operating ratios for producers of basic fertilizer products,
as reported by the Fertilizer Institute, and include only the fertilizer
segment of the 36 to 40 companies which participate in the annual sur-
vey. They cover most of the industry's production and sales. Signi-
ficantly, these same companies are fully integrated and are involved in
defluorinated phosphate rock and wet acid derivatives to varying degrees.
The ratios for cost of goods sold, sales, general and administrative ex-
penses and profit before interest and taxes provide excellent check points
for model plant construction. The Fertilizer Institute report also fur-
nishes indirectly industry ratios for capital structure, long-term interest,
and return on sales, net worth and invested capital.
1. Industry Profitability
The fertilizer (phosphate) industry is experiencing a major upswing in
prices and profitability. After a stable period of reasonable earnings
during the early 1960's, the industry suffered declining prices and earnings
II-1
-------
Table II-1. Model plant configurations by segment
Segment
Defluroinated rock phosphate —
Superphosphoric acid (wet
process)
Defluroinated ortho phosphoric
acid
Sodium tripolyphosphate
Capacity
(TPD)
75
75
225-1
225-11
75
150
450
100
450
Annual
operating days
167
300
300
300
264
264
262
260
300
Annual
production
(tons)
12, 500
22,500
67,500
67,500
19,800
39,600
118, 000
26,000
135,000
— I and II denote locational differences for the 225 TPD size.
II-2
-------
Table II-2. Averages of certain financial ratios for selected fertilizer companies, I960 - 1973
1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 I960
Net sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 78.1 79.8 81.3 83.3 89.6 85.9 79.3 77.8 76.6 76.1 75.6 76.2 75.8 76.4
Gross margin 21.9 20.2 18.7 16.7 10.4 14.1 20.7 22.2 23.4 23.9 24.4 23.8 24.2 23.6
S.G. &A. expense
(total) 12.7 15.1 15.7 13.9 18.9 17.4 15.8 13.7 13.0 13.1 12.7 12.7 12.2 11.7
Pretax and pre- 9.7 5.9 3.9 (2.2) (8.5) (3.3) 4.9 8.5 10.4 10.8 11.7 11. 1 12.0 11.9
interest margin ' ' ' ' " - ' =*= - == =====
Source: The Fertilizer Institute, "Finaricial Survey," and "Fertilizer Financial Facts," December 31, 1971 and
June 30, 1972.
-------
from 1966 through 1969. — (See Table II-2). Certain basic producers
actually incurred negative pre-tax margins on sales in 1968, 1969 and
1970. The uptrend began in 1970 after six years of declining margins.
The pretax and pre-interest margin in 1973 rose to 9.7 percen"; after
declining to negative 8.5 percent in 1969. There is still a substantial
gap between 9.7 percent and the 12.0 percent margin of 1961.
Comparing the industry's 1972 profitability to other manufacturing
industries as published by Fortune magazine, 2J the industry does not
fare well. In the Fortune industry medians report, the range in return
on stockholders' equity was from 5. 9 percent in the textile industry to
16.0 percent in foods and cosmetics. The 36 basic producers reported
by the Fertilizer Institute had a pre-tax and pre-interest return on net
worth of 10.9 percent. After estimating interest and taxes, the return
on equity drops to 4.3 percent--lower than any other industry -.n the Fortune
Survey. Chemicals, as an industry earned 9.0 percent. Return on
sales (net profit after taxes as a percent of sales) reflects only a slightly
better performance for the industry. The Fortune range was from 2.2
percent for the food industry to 12.8 percent for mining. The pre-tax
and pre-interest margin for the fertilizer companies was 5.85 percent;
the estimated after-tax profit was 2.3 percent. Chemicals earned 4.4
percent on sales in the Fortune survey.
_' The data on the fertilizer industry in this section is from "Fertilizer
Financial Facts" and "Financial Survey, " furnished by the Fertilizer
Institute. Data on basic integrated producers (Group II) reflect reports
from 40 companies in 1973 and 36 companies in 1972, with a variable
number reporting on different items. Profits are reported only before
taxes and interest. Liabilities are not reported. However, the ratio of
profits before taxes and interest to sales, to invested capital and to net
worth are given, along with dollar figures for total assets, net sales,
net operating income before taxes and interest. From these ratios and
dollar values, it is possible to calcul, te long-term debt. The after-
tax profit has been calculated by assuming 6 percent interest on long-
term debt and a 48 percent federal income tax on after interest profit.
This results in an after-tax profit of 2. 3 percent on sales arid 4. 3 per-
cent on net worth for 1972 and 4. 1 percent on sales and 7.2 percent on
net worth for 1973.
— "Industry Medians, " Fortune, May, 1973, p. 244.
-------
These comparisons reveal that in 1972, even though the industry's
earnings improved over the previous five years, the earnings picture
was extremely low in comparison to other manufacturing industries.
At the same time, the trend is sharply upward for fertilizers, and 1973
price and production increases given certain evidence of improved
profit margins.
2. Capital Structure
Similar data problems were encountered for capital structure ratios.
The basic chemical industries group has a fixed debt to net worth ratio of
about .4 against a total liabilities to net worth ratio of . 8 in 1970 and
1971. _' The 36 basic producers group reported by the Fertilizer Insti-
tute in 1972, the only data available, indicated a fixed debt to net worth
ratio of about .4, but against an indicated total liabilities to net worth
ratio of 1.1, suggesting that current liabilities are somewhat higher in
the fertilizer industry than in basic chemicals.
3. Cost of Capital
An estimated cost of financing new investment has been derived from an
analysis of the financial reports of the publicly held companies. This
method has an obvious shortcoming: the companies for the most part
are widely diversified corporations whose earnings and capital structure
reflect multi-product operations. In spite of this weakness, there are
no better available data for estimating cost of capital.
The methods used to estimate the cost of capital involved a computation
of debt and equity ratios to total invested capital and the calculation of
five-year averages for dividend yield and earnings on common stock.
The estimated averages were as follows:
Common equity/Invested capital .731
Long-term debt/Invested capital .269
Dividend yield, 5-year average .0357
Earnings on common stock, 5-year average .0596
In estimating the cost of capital, other assumptions were made: (1)
long-term interest rates average 7.5 percent, (2) the corporate tax
rate is 48 percent and (3) the growth rate in dividends will be at least
equal to the annual inflation rate, which is estimated at 5 percent.
— Almanac of Business and Industrial Financial Ratios, 1971 Edition,
Prentice-Hall.
II-5
-------
The cost of equities was derived by two methods -- the dividend yield
method and the earnings-stock price (E/P ratio) method. Both are
simplifications of the more complex DCF methodology. The dividend
method is:
where
k = cost of capital
D = dividend yield
P = stock price
g = growth
The E/P method is simply
k = E/P
where
E = earnings
P - stock price
The E/P method is a further simplification of the dividend method.
latter assumes future earnings as a level, perpetual stream.
The
The after tax cost of debt capital was estimated from reported (annual
financial reports and financial statistics) company outlays for interest
expenses and multiplied by .52 -- assuming a 48 percent tax rate.
These values were weighted by the respective equity to total asset and
total liabilities _' to total asset ratios.
The average cost of capital for the fertilizer (phosphate) industry was
estimated using the equity and debt data reported earlier as follows:
— It is recognized that liabilities contain non-interest bearing liabilities,
but its weight is believed to be an adequate proxy for the weight of
debt.
II-6
-------
Wtd.
Dividend Yield plus Growth Weight Cost Growth Cost
Equity .731 .0357 .05 .063
Debt (7.5% x 52%) .269 .0390 -- .011
Av. Cost of Capital .074
Earnings/Price
Equity .731 .0596
Debt (7.5% x 52%) .269 .0390
Av. Cost of Capital
Thus, the estimated range of the cost of capital is 5. 5 to 7.4 percent.
4. Pro Forma Income Statements - Model Plants
Table II-3 contains pro forma income statements and financial returns for
selected model plants in each of the segments. This table includes the
model plant configuration which most nearly resembles the "average" or
"typical" operating plant based on the piant data in Section I-B. Other model
plant pro forma statements appear in the Appendix. The assumptions on
which the various direct and indirect expenses have been calculated also
are included on these separate pro forma statements.
The reader must be cautioned again that the model plant estimates are
based upon best available information concerning industry practices and
procedures. While the estimates are reliable guides, they can by no
means be taken literally for any given operating plant.
In an overview of the pro forma income and financial data shown in
Table II-3, it should be noted that with the exception of defluorinated
rock, these non-fertilizer phosphate segments have very low invested
capital relative to sales. This situation is typical in the basic fertilizer
industry; however, it should be remembered that with the exception of
defluorinated phosphate rock, these industry segments are involved in
the further processing of wet process phosphoric acid. This situation
is further amplified in examining the portion which raw materials repre-
sent of sales. Defluorinated phosphate rock raw materials represents
approximately 43 percent of sales. However for superphosphoric acid
and defluorinated wet acid, raw materials represent 84 percent of sales,
and sodium tripolyphosphate raw materials represent 77 percent of sales.
II-7
-------
Table II-3. Pro forma income statements and financial returns for selected model plants by industry segments
(1973 dollars) ' y &
Defluorinated
phosphate rock
225 TPD
Invested capital
Sales
Direct expenses
Raw materials
Labor and supervision
Other
Subtotal
K Indirect expenses
Total operating expenses
Depreciation
Interest (long-term)
TOTAL COSTS
Net income before tax
Net income after tax
Cash flow
Net income before tax as
percent of invested capital
Net income after tax as
percent of invested capital
($1,000)
4,820
4,995
2, 122
218
318
2,658
1,423
4,081
345
87
4,513
482
257
602
10
5
% sales
--
100
43
4
6
53
29
82
7
2
90
10
5
12
--
--
Supe rphosphoric
acid
450 TPD
($1,000)
2,825
18,054
15, 192
114
386
15,692
1, 146
16,838
170
19
17,027
1,027
541
711
36
19
% sales
--
100
84
1
2
87
6
93
1
neg.
94
6
3
4
--
--
Defluorinated
wet acid
300 TPD
($1,000)
1,350
10,557
8,884
156
518
9,558
679
10,237
42
6
10,285
272
148
490
20
11
% sales
--
100
84
1
5
90
c
97
neg.
neg.
97
3
1
2
--
--
Sodium
t r i po lypho s phate
300 TPD)
($1,000)
2,886
20,655
15,887
284
1,801
17,972
2,012
19,984
165
15
20, 164
491
262
427
17
9
% sales
--
100
77
1
9
87
10
97
1
neg.
98
2
1
2
--
--
Note: Percentages may not add due to rounding.
-------
Annual Profits After Taxes
Defluorinated Phosphate Rock - The 225 ton per day plant producing 67, 500
tons of product shows a net income after tax of $257, 000 on sales of nearly
five million dollars and invested capital of approximately $4,800,000.
This model is probably representative of two of the four DFP plants in
the United States. There is a very small unit of 75 tons per day which
would appear to be in a break-even or slight loss position. The fourth
plant is a very large unit, approximately 940 tons per day capacity.
Given the scale of economies present in this industry, it would appear
that the large unit would be quite profitable.
Superphosphoric Acid - The bulk of the SPA production is represented by
the 450 ton per day plant shown in Table II-3. At the apparent current
differential between ortho acid prices and SPA prices on equivalents
^205), the large SPA plant would appear to be yielding after taxes a
19 percent rate of return on invested capital and 3 percent on sales.
The industry has a number of smaller plants, represented more nearly
by the 75 ton and a 150 ton per day units. Based on the model plant
estimates contained in the Appendix, there may be two to four small
plants that are very marginal. Middle sized plants, composed of plants
of 35 to 50 thousand tons, would appear to be profitable, although at much
reduced level relative to the large plants shown in Table II-3.
Defluorinated Wet Acid - Table II-3 presents a cost estimate and rate
of return estimate for a 300 ton per day deimorinated wet acid unit.
Little information is available about this o. e unit; thus, the data shown
in Table II-3 is merely indicative. Based on the same P2O5 equivalent
price as used for SPA, this unit would demonstrate profitability, after
taxes, between the medium and large size SPA units. Although the
after-tax rate of return is 11 percent, it should be noted that this
represents only $148,000 after taxes.
If this product can not be sold on the same basis as SPA, this unit could
be quite marginal.
Sodium tripolyphosphate - Sodium tripolyphos ihate plants using furnace
acid are reported to be quite marginal due to the high cost of acid and
the depressed prices of the detergent market. With the apparent lower
acid cost from wet acid, it appears that this unit would be generating
a profit of $262,000 or 9 percent on invested capital.
It should be noted that the input price of phosphoric acid was taken at a
predecontrolled market level. Since the sodium tripolyphosphate plant
using wet acid produces wet acid on site, it may be that the internal trans-
fer price is low enough to raise profitability.
II-9
-------
Annual Cash Flow
Annual cash flow in relation to sales in this segment can be considered
to be quite low, ranging from $711,000 for a large superphosphoric acid
plant to $190,000 per year for the defluorinated wet acid unit.
Although these plants are relatively new, most dating since I960, the
life expectancy of phosphate plants is relatively short. As a consequence
these plants, excepting DFP units, tend to be largely depreciated and
are expected to have a low book value of assets. Further, the plant
investment in the acid derivative segments is quite low; thus, there
are few depreciable assets.
5. Invested Capital - Model Plants
Investment has been estimated for each of the model plant configurations,
including replacement value, salvage and book value. The assumed con-
struction dates for each of the models were as follows:
Defluorinated rock phosphate
Superphosphoric acid
Defluorinated acid (wet process)
Sodium tripolyphosphate
Capacity
(TPD)
75
225
75
150
450
300
450
Year built
I960
1969
1967
1968
1969
1969
1960
These ages are typical of those found in these segments. Salvage value
of the sunk investment is low because much of the equipment (plant)
component is composed of labor and-engineering. Salvage values were
estimated on the following basis:
11-10
-------
Percent
of
total
Salvage as a
percent of
original cost
Weighted
salvage as
a percent of
original cost
Defluorinated phosphate rock
Land 100
Plant
Process equipment and
buildings 25
Labor -construction 33
Field expense 12
Engineering and fees 30
Total "TOO"
100
25
0
0
0
100
6.25
0
0
0
6.25
Other segments
Buildings and land
Process equipment
Labor construction
Field expense
Engineering and fees
Total
I/
6
25
31
12
26
100
21
25
0
0
0
1.26
6.25
0
0
_0
8.0
(rounded)
Net working capital,—' assumed at 10 percent of sales, has a 100 percent
salvage value. Table II-4 presents salvage values, along with 1973 esti-
mated replacement costs and estimated book values.
6. Cost Structure - Model Plants
The pro forma tables in the Appendix present the fixed and variable cost
structures for each of the segments. Table II-3 shows these for
selected model plants. These costs have been calculated as a percent
of sales. Raw materials represent a higher percentage of sales for
acid derived production (77-84 percent) than they do in other segments. Raw
materials costs for DFP are the lowest of any of the segments (43 percent).
Direct costs range from 87 to 90 percent for the acid derived product and
only 53 percent for the DFP segment.
Again, the reader is referred to the parameters set forth in the Appendix
tables to see how these various costs were developed.
— Current assets minus current liabilities.
11-11
-------
Table II-4. Estimated replacement, book and salvage values,
for model plants by segment
Model plant and tons /day
Defluorinated rock phosphate
75
225-1
225-11
Superphosphoric acid
75
150.
450
Defluorinated ortho phosphoric acid
300
Sodium tripolyphosphate
450
Replacement
3 , 440
7,350
6,880 I/
1,005
1,685
3,855
1,555
6,786
Book
$1 000 -
515
4,820
4,430 -'
515
1,035
2,825
1,350
2,886
Sa Iva ge
440
1,490
1,020 -'
355
690
1,970
1,095
2,446
— Reflects locational difference and site value.
11-12
-------
B. Distribution of Data
Table II-5 is a summary of the after-tax profits, return on invested
capital, return on sales, and cash flows for all of the model plant con-
figurations .
As shown in Table II-5, the smaller units, in the multiple plant situ-
ations, appear to be marginal, for they exhibit negative returns and
cash fJows. Although the larger SPA plants are profitable in the models,
the rate of return on invested capital is misleading because invested
capital is quite low. Thus the absolute levels of after tax income and
cash flows are relatively low. Attention is drawn once again to the fact
that cash flows do not greatly exceed after-tax profits.
The STPP plant in this study is one of a kind. However, there are 14 STPP
plants utilizing furnace acid as a P2O5 source. These units, due to high
^2^5 costs, are reported to be showing losses. —
C. Ability to Finance New Investment
The ability of a firm to finance new investment for pollution abatement
is a function of several critical financial and economic factors. In
general terms, new capital must come from one or more of the following
sources: (1) funds borrowed from outside sources; (2) new equity capital
through the sale of new common or preferred stock; (3) internally gener-
ated funds -- retained earnings and the stream of funds attributed to de-
preciation of fixed assets.
For each of the three major sources of new investment, the most critical
set of factors is the financial condition of the individual firm. For debt
financing, the firm's credit rating, earnings record over a period of
years, stability of earnings, existing debt-equity ratio and the lenders'
confidence in management will be major considerations. New equity funds
through the sale of securities will depend upon the firm's future earnings
as anticipated by investors, which in turn will reflect past earnings records.
The firm's record, compared to others in its own industry and to firms in
other similar industries, will be a major determinant of the ease with which
new equity capital can be acquired. In the comparisons, the investor will
probably look at the trend of earnings for the past five or so years.
~~ Economic Analysis of Proposed Effluent Guidelines - the Industrial
Phosphate Industry, EPA, EPA-230/1-73-02 1. Aug. 1973.
11-13
-------
Table II-5. Ranges of after tax profits, financial returns and cash
flows of model plants by segment
Model and tons per day
Defluorinated rock phosphate
75 - 50% utilization
75 - 90% utilization
225 - I
225 - II
Superphosphoric acid
75
150
450
$1,000
-217
/_ _ 1 o />
257
375
<80>
70
541
After tax prox
% of investt <\
capital
^ 0
^0
5
8
^L 0
7
19
ts
n of sales
<- 0
< 0
5
8
< 0
1
3
Cash
flows
$1, 'J
^ 67 7
134
602
720
^267
156
711
Defluorinated orthophosphoric
acid
300
Sodium tripolyphosphate
148
262
11
9
1
1
190
427
11-14
-------
Internally generated funds depend upon the margin of profitability and
the cash flow from operations. Also, in publicly held corporations,
stockholders must be willing to forego dividends in order to make
earnings available for reinvestment.
The condition of the firm's industry and the general economy are also
major limiting factors in attracting new capital. The industry will be
compared to other manufacturing industries in terms of net profits on
sales and on net worth, supply-demand relationships, trends in produc-
tion and consumption, the state of technology, impact of government
regulation, foreign trade and other significant variables. Declining or
depressed industries are not good prospects for attracting new capital.
At the same time, the overall condition of the domestic and international
economy can influence capital markets. A firm is more likely to attract
new capital during a boom period than during a recession. On the other
hand, the cost of new capital will usually be higher during an expansionary
period. Furthermore, the money markets play a determining role in new
financing; for instance, 1973 has been viewed as an especially difficult
year for new equity issues.
These general guidelines can be applied to the phosphate industry by
looking at general economic data, industry performance and available
corporate records.
The general economic outlook for the next few years has been clouded
over by the uncertainties surrounding economic policies and the critical
shortages of many basic resources, especially energy. The lack of
certainty in policies has also been intensified by political instabilities.
Such intangibles make accurate forecasting impossible.
In any event, the rate of economic growth slowed in the fourth quarter
of 1973 and the first quarter of 1974. Recovery to the historic annual
rate of 3. 5 percent will probably not occur prior to the last half of 1974.
Even then,continued concern with energy problems and inflation will
exert heavy influence on growth rates. Unemployment will undoubtedly
rise in 1974 and will require a period of adjustment to new growth rates
and patterns. Inflation, which soared in late 1973 to annual rates of 8
and 9 percent, cannot be expected to drop below 5 or 6 percent in the
immediate future.
These conditions will strongly affect capital availability and costs. In
the search for new energy sources and new production technologies,
both public and private institutions will continue to exert a heavy demand
on capital funds and will more than offset the decline in private invest-
ment demand resulting from economic slowdown. This will keep upward
pressure on money rates. In addition, inflation will push interest rates
11-15
-------
higher as lenders demand a larger inflation premium. For the next few
years, capital funds are likely to be available; however, their rates will
approach the historic high levels of 19^9-70 when long-term, high grade
corporate bonds yielded 9 to 10 percent. The cost of financing new invest-
ment will be high compared to that of the 1950's and early 1960's.
Section II-A contains a discussion of the profitability, capital structure
and cost of capital for the industry and for the segments under consider-
ation.
On balance, it would appear that the phosphate industry as a whole should
not experience serious problems in financing new investment although the
industry appears to have a cyclical earnings pattern. The picture is con-
fused further by the dominance of large diversified firms. These firms
should not be hampered by a lack of credit or a shortage of capital. At
the same time, on an individual plant basis, lack of profitability for the
smallest sized acid plants would make new investment unlikely, even if
the parent firm possessed adequate resources.
11-16
-------
III. PRICING
A. Price Determination
Markets for the three phosphate manufacturing segments under study
are complex and distinct. Further, these segments manufacture inter-
mediate agricultural and industrial products; thus the demand for these
products is a derived one, that is, it is a function of the products in
which these goods are used. The following pricing discussion will in-
clude a discussion of the demand for these goods. The overall pricing
discussion is organized by product -- defluorinated phosphates and
sodium tripolyphosphate under each will be a discussion of demand,
supply, and prices.
It should be noted at the outset that published use and production data
for these industries are at best sketchy: these segments are new, they
are of minor importance in the total phosphate industry, and they are
used only as intermediate products.
The first section discusses three products: defluorinated rock phosphate,
superphosphoric acid from wet process acid and defluorinated wet process
acid. For simplicity, the latter two will be treated together. A discussion
of sodium tripolyphosphate follows that
I. Defluorinated Phosphates
The demand for defluorinated rock phosphate (DFP) is derived from
the demand for feed phosphates, and the demand for defluorinated acids
is derived primarily from that for feed phosphates and liquid fertilizers.
Some small quantities of the defluorinated acids go into industrial uses.
Livestock Feed Requirements
Livestock feed involves literally hundreds of different feedstuffs ranging
from the traditional pasture and corn to modern antibiotics, hormones and
phosphates. Much of the feed is prepared directly on the farm using farm
grown materials, although the prepared animal feeds industry produce a
substantial quantity - probably in the order of 75,000.000 tons per annum.
Because of this diversity, a comprehensive data series on feed consumption
is not available. The USDA estimate concentrate and roughage consumption
does offer a rough indicator of overall consumption, but it excludes mineral
and vitamin premixes and other critical, but minor feedstuffs.
III-l
-------
Table III-l presents estimates of concentrate consumption from 1966
through 1973. As shown, beef cattle and swine are the largest con-
sumers of concentrates. The relative importance of concentrates and
roughages by species is as follows:
Feedstuffs composition (10 year average)
Species Concentrates Roughages
(p^tj (pet)
Dairy 32.6 67.4
Cattle on feed 69.2 30. 8
Other beef cattle 8.1 91.9
Sheep and goats 9.1 90.9
Chickens 96.4 3.6
Broilers 100.0 0.0
Turkeys 95.5 4.5
Historically, concentrate consumption is growing at a 2 percent annual
rate. Consumption by beef cattle is growing significantly, while that by
other species is growing at much slower rates. These patterns, in general,
follow expectations based upon the demand for livestock products.
The demand for meat products is anticipated to continue growing between
one and two percent per annum. Egg consumption is projected to grow
at about one percent; dairy products are expected to grow only slightly,
due to declining per capita consumption. The meat products increase
will vary by species with pork increasing at just over one percent and
poultry products growing over two percent. These projected consumption
growth rates are summarized below:
Percent annual growth - 1980
Meats
Beef
Pork
Lamb and mutton
Chicken
Turkey
Dairy products
— Includes a 1 percent per annum population effect
Source: Derived from George, P. S. and G. D. King,
Consumer Demand for Food Commodities in the
United States with Projections to 1980, Calif. Agric.
Exper. Stat. , Giannini Foundation Monograph No. 26,
March, 1971.
Per capita consumption
.7
.3
.7
1.2
1.2
. 1
- .65
Total
1.7
1.3
1.7
2.2
2.2
1. 1
.35
-------
Table III-l. Consumption of concentrates by kind of livestock, 1966-1973
Year beginning October 1
Specie
Dairy
Beef cattle
Swine
Hens , pullets &
chickens raised
Broilers
Turkeys
Other
Total
I/ Allen, Geo. C.
1966 I/
28.9
36.0
53.3
23. 1
14.0
6.0
11.5
172.8
and Earl
1967 -1
29.4
37.7
53.7
23.0
13.7
5. 1
11.6
174.2
F. Hodges,
1968 I/
29. 1
42.5
54.8
23. 1
13.7
5.3
15.9
184.4
National and
1969
25.6
49.6
56.3
24. 1
13.7
5.6
19.5
194.4
LI 1970 -1
. -,,. r—
26.6
48.2
57.6
23.7
13.9
5.2
17.6
192.8
State Livestock Feed
1971 -1
25.6
51.5
56.8
22.6
14.2
6. 1
18.0
194.8
Relationships ,
1972
26.8
54.8
55.2
22.8
13.9
6.2
18.3
198.0
1972
2/ 1973 £/
27.0
55.0
53.0
23.0
14.5
6.6
18.3
197.4
Supplement to
1980 -1
27.2
61.6
61.0
24.9
16.9
7.5
20.3
219.4
Bui. No. 446,
ERS, USDA, June 1972, Washington, D. C.
?J Estimated by DPRA.
I/ Projected by DPRA.
-------
Though the rate of growth at the retail level should translate back
directly to the producer level, if one assumes a steady state system,
.t should be noted that these growth rates may not track directly back
to the producer level. As nutritional and sjenetic research provides
ways of achieving improved feed conversions., (i.e., more production
per unit of feed), and as higher product conversions are realized, par-
ticularly in the area of meat, less feed wiL be required per unit of
final output. These changes will likely be ^ow in coming; thus the
market growth rates should be reasonable indicators.
Based upon these indicators we have projected concentrate consumption
for 1980 as shown in Table III-l. Dairy consumption is expected to grow
only slightly. Poultry feed consumption is expected to grow moderately.
Most growth is assignable to beef and swine concentrate consumption.
?eed Phosphate Requirements
Prior to World War II, phosphorous deficiencies in livestock we re not
widely recognized and phosphorous largely came from organic sources,
i.e. , grains and forages, packing house by-products (tankage and bone
meal), and fish meal. Declines in phosphate content of crops due to soil
mineral depletion and new research findings, gave rise to the inorganic
feed phosphate market.
Early inorganic phosphates were largely phosphate rock and colloidal
phosphate (soft rock phosphate) from mine washings. In the 1930's
it was discovered that the high fluorine content of these materials caused
fiuorosis (an accumulative poisoning process, in livestock. Solutions to
the fluorine problem started with defluorination of superphosphcites (in
the early 1940' s) followed closely by the defluorination of rock phos-
Dhate. (This process reduces the fluorine content to .2 percent compared
to the 4 percent fluorine content of rock.)
In the 1950's, feed grade dicalcium phosphate was introduced. This
product, dical, is a combination of mono, di and tricalcium phosphates and is
generally produced from deflorinated ortho phosphoric acid and limestone.
Comprehensive consumption data on feed phosp. ates is sketchy ..
The best published estimate of feed phosphate consumption, in our opinion,
is shown in Table III-2. In 1951 domestic consumption was about 340,000
tons of 18% P material equivalent. By I960 consumption had risen to
650,000 tons and by 1970 doubled once again to 1,300,000 tons. The bulk
of this growth has been dicalcium phosphate and defluorinated p'nosphate
rock, which in 1970 represented 75 percent of the total. A number of
other phosphate sources are used as shown in Table III-2. With the
exception of phosphoric acid and ammonium polyphosphate and rnono-
and di-ammonium phosphate, these products are expected to decline in
nbsolute consumption levels largely because of comparative cost disadvantages,
III-4
-------
Table III-2. Estimated available tonnage of phosphorus feed supplements
in the U.S. for the calendar years 1951, I960, 1970
Product
Dicalcium Phosphate
Defluorinated Phosphate
Sodium Tripolyphosphate
Phosphoric Acid and
Ammonium Polyphosphate
Mono- and Di-Ammonium
Phosphate
Steamed Bone Meal
Imported Rock Phosphate
Soft Rock Phosphate
Other Phosphate
Total
1951
56,333
80, 167
--
--
--
86,667
80,889
28, 889
6, 500
339,445
I960
,
252,778
216,667
--
--
--
46,944
86,667
43,333
3,611
650,000
1970
625,000
350,000
35,000
105,000
15,000
20,000
100,000
40,000
10,000
1,300,000
Note: Tonnage figures are in terms of 2, 000 pounds of material containing
18% P.
Source: Henry Highton, "U. S. Market is Growing for Feed Phosphorus
Supplements," World Feeds and Protein News, March/April, 1971.
Ill-5
-------
Phosphorus requirements vary by livestock species and reflect both
the ration composition and physiological requirements. Generally,
roughages have a low phosphorus content and it decreases even further
with maturity. Grains, grain products and high protein ingredients have
a much higher phosphorus content and, for instance in cattle rations,
little supplementation is required. The requirements for phosphorus in
poultry and swine are well established, while in the ruminants these
requirements are not precisely known.
The actual use of phosphates in rations varies by species. In the case
of poultry Where more nutritional knowledge is available, the use of feed
phosphates generally approach known technical requirements. Baring
technological breakthroughs, the use of feed phosphates in poultry should
generally follow the demand for poultry products. In the ruminants, less
is known about the availability of and the animals' requirements for phos-
phorous, as its availability is apparently a function of vitamin I) levels,
pH and the calcium ratio. In the case of dairy cattle, phosphorous levels
probably approach known requirement levels. However, in beef cattle,
it is generally believed that actual phosphate levels are somewhat below
the technical requirements stated by researchers.
Without consumption data and related detailed use data, an exacting study
would be required to make market projections. Such a study is beyond
the scope of this report; thus, it is necessary to resort to some general
indicators of growth.
Nutritionists report that a prepared concentrate ration should generally
contain an 18 percent P equivalent .content by specie as follows:
Specie 18% equivalent
Dairy 1.0,
Beef 1.0
Swine 1 . 3
Hens, pullets 1.75
Broilers 1.0
Turkeys 1.5
Othe r 1.0
Application of these relationships indicate a market potential in 1970
of 2. 3 million tons of 18 percent P equivalent compared to an actual
market of 1.3 million tons. By 1980, the market potential would be
in the order of 2.6 million tons. Thus the future market for feed phos
phate will be a function of the feed consumption growth and movement
toward the technical potential.
Ill-6
-------
Defluorinated Phosphate Rock - Traditionally defluorinated phosphate rock
has been used primarily in poultry feeds (generally in the Southeastern
poultry industry), although there are no technical reasons why DFP could
not be used in livestock rations. Fragmentary estimates of consumption
indicate that DFP has improved its share of the market from about 27
percent in 1970 to 29 percent in 1973. Meanwhile, current phosphate
shortages — have perhaps contributed to strengthening DFP's position
in the market; indeed, it seems probable that DFP could improve its
market position to 33 percent by 1980. This would be equivalent to about
800,000 tons or a growth rate of 8.5 percent.
The annual feed phosphate market in 1980 may be roughly estimated.
Poultry feeds contain virtually all of the P requirement. Dairy and
swine, although not yet at the total P requirement, will probably reach
the technical requirement by 1980. Rapid changes in feed phosphate use
are occurring in beef feeding, but it seems unlikely that they will reach
their technical potential by 1980. These assumptions and that concerning
the expected growth of the livestock industry indicate an annual feed phos-
phate market by 1980 of 2.4 million tons, an annual growth rate of about
6 percent.
With the exception of liquid phosphates (phosphoric acid and ammonium
phosphates) and sodium tripolyphosphates, the bulk of the growth in feed
phosphates will probably be composed of defluorinated phosphate rock
and dicalcium phosphate. By 1980 these two products should compose
about 80 to 85 percent of the feed phosphate market.
Dicalcium Phosphate - Estimated consumption of dicalcium phosphate is
reported as shown in Table 11-3. — Until 1973, when shortages of raw
materials occurred, dical consumption had grown steadily since I960.
Current reports indicate that a severe shortage of feed phosphates arose
in 1973, leaving feed producers short by as much as 40 percent of the
required amounts. The sharp drop in production reported in 1973 sub-
stantiated these reports. Apparently dical producers have not been able
to obtain sufficient quantities of defluorinated acid to meet market demands.
The supply problem undoubtedly reflected the general scarcities in the
United States which were accentuated by the more profitable export prices
after August 15, 1971 of phosphates under price controls and commitments
to fertilizer manufacturers in acid. New wet-acid sources coming on
stream in 1974-75 should alleviate the problem somewhat.
1973 is a difficult year, for the large reduction in the Peruvian anchovy
catch created the need for substituting inorganic phosphates for phos-
phates previously obtained from this source. Also recent shortfalls
in dicalcium phosphate have strengthened DFP use.
— Some industry contacts have suggested that dical consumption is under re-
ported due to increasing quantities of 21 percent P dicalcium phosphate
III-7
-------
Table III-3. Estimated production and consumption of calcium
phosphate, dibasic, 18. 5% P, feed grade, 1960-1973
Calendar
year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
Production
235
250
251
240
242
263
290
392
416
496
594
662
692
620-
Import.-
'000
6
11
10
5
7
3
22
6
21
15
33
23
To!'
Exports
. \
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Estimated
consumption
241
261
261
245
249
266
312
398
437
511
627
685
719
650-'
— Estimated by DPRA.
Source: Current Industrial Reports, Inorganic Chemicals,
Series M28A, Bureau of the Census, U. S. Dept. of
Commerce, Washington, D. C. and FT 135 and FT 246
Imports. . . . , Bureau of the Census, U. S. Dept. of
Commerce, Washington, D. C.
Ill-8
-------
In the longer run, we expect that dical market share will be maintained
at the 50 percent level. This would mean an annual market of about 1.2
million tons by 1980, and a 6 to 6.5 percent growth rate.
Liquid Fertilizer Demand
Approximately 56 percent of wet process superphosphoric acid goes into
liquid fertilizer mixtures. Liquids have been rising as a percent of total
mixtures, as revealed in Table III- 4 . This table also shows how grade
10-34-0, which is the largest single grade of ammonium phosphate liquid
fertilizer, has increased in relationship to all liquid mixtures. Although
the 10-34-0 consumption data reportedly is for direct application of this
grade, it is not known how much of this quantity may really be used in
fluid mixtures nor how much additional 10-34-0 is consumed in other
mixtures. According to U.S.D.A. reports, relatively little P?^ is
consumed in direct application materials (about 6 percent of total P?O[r
in fluid fertilizers).
Future long-term demand for liquid phosphate fertilizers will undoubtedly
continue to expand in spite of a recent leveling off. Data for the 1972-1973
fertilizer year are not available, but indications are that growth of liquid
mixtures in calendar year 1973 had been curtailed by shortages of super
and ortho wet acids, occasioned in part by export pressures. As new
ortho wet acid capacity comes on stream in 1974-75, as anticipated,
it is reasonable to expect liquid fertilizer consumption to resume the
growth pattern of the past ten years. Growth will be affected by many
factors, especially the availability of wet acids and the relative price
and supply of solid ammonium phosphates. Assuming that the historic
relationships remain the same, the liquid mixture market should grow
at an annual rate of 10 to 15 percent through 1980. The annual growth
rate from 1968 through 1972 was 14 percent. Grade 10-34-0 grew at a
27 percent annual rate in those same years,
2. Defluorinated Phosphate Rock
Demand for DFP was discussed earlier in this chapter. It will be sum-
marized here.
Ill-9
-------
Table III- 4. Selected data for liquid fertilizer consumption, 1963 - 1972
Fertilizer Liquid
year
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
mixtures
( mil. tons)
0.8
0.9
1.0
1.4
1.8
2.0
2.2
2.5
2.9
3.4
Total
mixtures
(mil. tons)
16.7
17.5
17.8
18.7
20.0
19.8
19.5
19.2
19.6
19.4
Liquid as 10-34-0
% total
4.8
5. 1
5.6
7.5
9.0
10. 1
11.3
13.0
14.8
17.5
— Western states only. Other prices are average U.S
Source:
Commercial Fertilizers , Sj->Cr7, SRS,
Prices, Pr 1, SRS,
Mahan, "The Supply
USDA, Washington
USDA,
, D. C.
grade
(000 tons
n. a
n. a.
45
52
92
138
189
234
300
361
. retail price paid
Washington, D. C
various numbers;
10-34-0
as % liquids
)
n. a.
n. a .
4.5
3.7
5. 1
6.9
8.6
9.4
10.3
10.6
by farmers .
. , various numbers,
Edwin A. Harre and
Price
10-34-0
( $/ton
n. a.
n.a.
n. a.
n. a.
n.a.
99.00
88.40
88.30
91.00
91.40
Agricultural
John N.
)
I/
I/
I/
Outlook in Blending Materials, " TVA Fertilizer Bulk Blending Conference,
August 1-2, 1973, No. Y-62, Tennessee Valley Authority, Muscle Shoals, Ala., Aug. 1973.
-------
Demand
Consumption data on DFP are sketchy at best. One source — reported its
use in selected years as follows:
1951 80,167
I960 216,667
1970 350,000
Generally, the demand for DFP is derived from that for poultry and
eggs, since about 95 percent of domestic use of DFP is in pou'try
feeds. Laying hens utilize the largest amount, followed by broilers
and turkeys. The remaining amounts go into beef cattle and swine feeds.
(Poultry feed requirements were discussed under "Livestock Feed Demand.
Generally, the use of phosphates in poultry feeds has reached a technical
saturation level; consequently, future demand will reflect increases in
poultry production and not changes in nutritional requirements. 'it
complex demand-interrelationships of poultry products with meat and
dairy products make demand forecasting precarious. However, based
on these projections, DFP consumption should rise at a 6 percent rate.
Supply
The four producers of DFP have a capacity of 510,000 annual tons of
product. Estimated production in 1972 was at just over 90 percent of
capacity at 465,000 tons. Since approximately 15,000 tons went into
export trade, apparent consumption was about 450,000 tons. Time series
data on DFP production are not available. With minor variations for
foreign trade and annual inventories, it is reasonable to assume that
annual production roughly matches annual consumption.
Prices
Prices for DFP are affected somewhat by related prices of dicalcium
phosphate, since the two products are rather interchangeable for live-
stock feeding. It would appear that DFP prices would be relatively
inelastic in view of the minor position which DFP contributes to feed
costs. Recent price history can be seen in the following quoted wholesale
prices which do not reflect discounts or required variations:
— Henry Hi ghton, U. S. Market is growing for feed phosphorus supplements,
World Feeds and Protein News, March/April 1971, p. 8.
Ill- 11
-------
Deflorinated rock price $/ton - 18% P, feed grade, bags,
carload', Plant City, Florida
1960 66.25 - 63.50
1965 62.25
1966 65.^5
1967 65.25
1968 65.25
1969 65.25
1970 6. ,25 - 65. 25 I'
1971 72.25 I/
1972 72.25 I/
1973 72.25 I/
!/ Coronet, Fla. Note: Bulk prices are $5.00 per ton less
Source: Chemical Pricing Patterns, Schnell Publishing Co. , N.Y..N.Y.,
and Chemical Marketing Reporter, various issues.
3. Defluorinated Wet Process Phosphoric Acid
The defluorination of wet process phosphoric acid occurs primarily in
superphosphoric acid plants. (One plant does not concentrate wet ortho
phosphoric acid in its defluorination process. Little is known about the
actual level of operation of this one plant or about the end use of its de-
fluorinated acid. It seems reasonable to Assume that its primary market
is dicalcium phosphate for livestock feed.) The following discus sion about
supply and prices includes both superphosphoric acid (SPA) and defluori-
nated wet process acid, although, for simplicity, reference will be to
SPA.
Unfortunately, reliable time series data for SPA are not presently avail-
able; consequently the estimate of demand and supply positions for 1973
is based on information from government and industry sources.
Demand
The demand for SPA is derived primarily fr _m the markets for liquid
mixed fertilizers and feed grade calcium phosphates (dical). These have
been described earlier. Some SPA is used in solid fertilizers, liquid
feed supplements and firefighting chemicals.
The 1973 estimated dical market of 620,000 tons of product (18.5% P)
required 263,000 tons of P^O^, °^ which approximately 220,000 tons
came from wet process SPA plants. The rest came from limited amounts
of furnace acid and defluorinated wet process acid.
TTT-12
-------
Fluid fertilizers used an estimated 574, 000 tons of P2O5, of which 376, 000
tons came from wet acid SPA plants. The remainder came from furnace
acid and ortho acid.
Combining the fluid fertilizer and dical demand projections, it is estimated
that the demand for wet process superphosphoric acid will expand at a
substantial rate -- from 8 to 1 1 percent.
Other uses (including liquid livestock feed phosphates and fire fighting
liquids) accounted for about 70,000 tons of
These estimates were derived from the following:
1973
Tons P2O5
Capacity 626,000
783,000 tons @ 80% operating rate
Demand
Dical (620,000 tons, 18. 5% P)
IMC 350,000 148,000
Others 270,000 115,000
263,000
Fluid Fertilizers 574,000
Other SPA uses 70.000
Total P2O5 Required 907, 000
Less Wet Acid Source 626, OOP
Other P205 Sources -' 281,000
— Furnace superphosphoric acid, merchant ortho acid and de-
fluorinated wet ortho acid.
Ill-13
-------
Supply
The estimates which follow are for superphosphoric acid derived from
wet process ortho acid. (Furnace acids are included in the discussion
only as they are a part of the supply of ^2^5 ^or licluid fertilizers and
dical producers.) Based on industry sources and published government
statistics, DPRA has estimated that SPA producers operated at 80 per-
cent of capacity in 1973. The plant list reported earlier, with an annual
capacity of 783,000 tons, would indicate an output of approximately 626,000
tons of PZ^S" There may be an additional three or four plants producing
some SPA in the United States, but it is not possible to confirm this at
this time. There is also one plant which produces an indetermi riant amount
of defluorinated wet process ortho acid. The operating level of SPA plants
is limited principally by the availability of ortho phosphoric acid, which
was in short supply in 1973. With dical and liquid fertilizer producers
under supplied with SPA, operating levels would probably incresi.se sharply
with new sources of wet ortho acid.
Prices
Historic price data for superphosphoric acid are not precise. Quoted
prices for 75 percent acid, f.o.b. , plant, are listed below for the 1955-73
period. These are prices per 100 pounds of acid. They do net reflect
discounts nor do they represent transfer prices used for intercompany
transactions.
Superphosphoric acid quoted prices, 1955 - 1973
(75% P2O5' tanks, f.o.b. plant)
$/100 Ibs $/ton P2O5
$143
149
149
167
185
185
199
Company, New York, N. Y. , 1971 and Chemical
Marketing Reporter, Schnell Publishing Company,
various issues.
Ill-14
1955
I960
1965
1970
1971
1972
1973
Chemical
$5.35
5.60
5.60
6.25
6.95
6.95
7.45
Pricing Patterns
-------
SPA prices are directly tied to wet ortho acid prices as well as to fluid
fertilizer and dieal prices. As an intermediate product, SPA has very
little price character on its own account. On the one hand, wet ortho
acid price to SPA producers is in part a function of alternative uses of
wet ortho acid. Recent export pressures, with price premiums, have
created domestic shortages; after price decontrol in October, 1973, acid
prices rose sharply. On the end-use side, fluid fertilizer prices have
also increased substantially. For example, the average U.S. retail
price of 10-34-0 stood at $91.40 per ton in April, 1972. This rose
to $102.00 in April, 1973and to $108. 00 in September, 1973. Post-
decontrol prices have risen even further. Rising dical prices also reflect
the shortages of SPA, although not to the same extent as the prices of
fluid fertilizers. Pre-decontrol dical prices remained reasonably steady
down to July, 1973. There is evidence that dical prices increased by as
much as 60 percent from July to December, 1973.
Prices for SPA appear to be relatively inelastic, especially in that portion
moving into feed phosphates. With the phosphates supplement constituing
such a minor portion of total feeds (about one percent of weight), increases
can be passed on with little effect on consumption. There may be a some-
what different degree of elasticity for liquid fertilizer prices, since liquids
compete with dry blends and direct application materials. With all ferti-
lizers in short supply, it is difficult to offer valid judgments about price
behavior. It is reasonable to assume, however, that small price increments
resulting from pollution abatement costs would probably have minimal
effects on liquid fertilizer use.
4. Sodium tripolyphosphate
Demand
The demand for STPP is derived primarily from the soap and detergent
market. About 90 percent of output has traditionally gone into this end
use. Small amounts are used in water treatment, oil drilling and live-
stock feeds. About five percent of STPP production has been exported
annually. Table HI-5 presents estimated consumption.
Ill-15
-------
Demand rose rapidly during the 1950's and 1960's. In the late 1960's,
increasing concern over the effects of the phosphorus in detergents on
algae growth in lakes stopped the expansion of demand. Difficulties in
developing an acceptable alternative have left STPP in a dominant though
slightly weakened position. Consumption has slipped somewhat from the
1970 peak of about 1, 130, 000 tons to an estimated 926, 000 tons in 1973.
Future demand is geared to developments in the soap and detergent in-
dustry. If a suitable substitute can be found, environmental consider-
ations may lead to sharply reduced use of STPP in soaps and detergents.
The current status of research and development in the industry atnd of the
public policy regarding restraints on the use of STPP are sufficiently in-
definite to prevent meaningful forecasts at this time.
Supply
Sodium tripolyphosphate is largely processed from furnace acid produced
on site, with the Olin Corporation plant at Joliet, Illinois being the only
one using wet acid. The supply picture for STPP must include other
sodium phosphate products such as monobasic, disbasic, tribasic, meta,
tetrabasic and acid pyro. Of these products, only tetrabasic enters
the same basic end use as tripoly (STPP)--as a building block for soaps
and detergents. Tripoly accounts for over 80 percent of the sodium
phosphate production and for about 95 percent of the sodium phosphates
used in soaps and detergents.
Production of STPP in 1973 —' amounted to 973,600 tons of material
containing 563,000 tons of P^C^. This represented a drop of 7. 3 percent
from 1972. Estimated capacity in 1973 stood at 1, 175,000 tons, a util-
ization rate of approximately 83 percent, compared to 89 percent in 1972.
Table III-5 presents the growth of the STPP supply from I960 through 1973.
The Olin plant is a part of this larger supply picture. The largest producer,
it has about 12 or 13 percent of the total STPP capacity. It should possess
some advantages from its size and its use of wet acid.
Prices
The average of high and low annual prices of STPP carload lots at the
plant with equalized freight charges are presented in Table III-5. There
has been reasonable stability up to 1970, followed by increases in 1971
I/
- Using the fertilizer year, July 1, 1972 - June 30, 1973.
Ill-16
-------
Table III- 5. Estimated production, exports, consumption and prices
of sodium tripolyphosphate, I960 - 1973
I960
1965
1970
1971
1972
1973
Production
000 tons
material
690
923
1, 190
1,040
1,031
974
Exports I/
35
46
60
52
52
48
Con
sumption _'
655
871
1, 130
988
974
926
Price —'
$8.03
7. 18
7.90
8.35
8.35
8.85
$/ton
$278
248
273
289
289
306
— Estimated at 5 percent of production. Imports are negligible.
— Production less exports. Stocks are assumed even throughout the
time period.
— 100 Ib. bags, car load, works, freight equalized.
Sources: Current Industrial Reports, Series M28A, Bureau of the Census,
U. S. Dept. of Commerce, Washington, D. C.
Chemical Pricing Patterns and Chemical Marketing Reporter
III-17
-------
and 1973. The increases reflect in part the price recovery of phos-
phate fertilizers and the sharply rising costs of doing business in the
1970's. The post-decontrolled price has risen even more dramatically,
with a February, 1974, quote of $ 10. 75 per 100 pounds.
It should be noted that these are quoted prices which do not reflect
discounts and transfer prices. Pricing is apparently highly competi-
tive in this segment. The Olin plant, using wet acid instead of furnace
acid, should have some raw material cost advantage over the other
producers who use higher cost furnace acid. Furthermore, the Olin
plant, as the largest STPP producer in the U.S. , should have additional
pricing advantages because of the economies of scale.
B. Expected Price Changes
The earlier discussion of prices included indications that prices for
feed phosphates, superphosphoric acid and sodium tripolyphosphate
have recently risen sharply. Further short-run substantial increases
will probably occur because of the short supply of basic phosphate
materials in relationship to world fertilizer demand. Domestic shortages
have doubled increased fertilizer prices.
The future is clouded. International trade, inflation, environmental
controls, and fuel shortages are a few of the unknown variables which
create confusion about price trends in the phosphate industries.
Among the developments which could ease price pressures is proposed
new wet process phosphoric acid capacity. Since dical and liquid fertilizer
producers are currently experiencing severe shortages of SPA, major
increments to wet acid supply should reverse the upward trend of phos-
phate products prices. New capacity is expected in 1974 and 1975. This
may allow SPA producers to increase output to capacity and could even
encourage new SPA facilities.
As noted earlier, dical and liquid fertilizer supply falls far short of
potential demand. This market pressure should protect SPA producers
from drastic price drops.
Ill-18
-------
IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY
This study's economic impact analysis utilizes the basic industry infor-
mation developed in Chapters I-III and the pollution abatement technology
and costs to be provided by Environmental Protection Agency. The im-
pacts examined include:
Price effects
Financial effects
Production effects
Employment effects
Community effects
Other effects
The required impact analysis is not a simple sequestial analysis; rather
it employs interacting feedback steps. The schematic of the analytical
approach is shown in Figure IV-1. Due to the fundamental causal relation-
ships among the financial and production effects and the other impacts, a
greater emphasis is devoted to plant closure analysis.
Fundamentally, the impact analysis is similar to that usually done for
any capital budgeting study of new investments. The problem is one of
deciding whether a commitment of time or money to a project is worth-
while in terms of the expected benefits. The analysis is complicated by
the fact that benefits and investments will accrue over a period of time
and that, in practice, the analyst can not reflect all of the required
impondurables, which by definition must deal with future projections.
In the face of imperfect and incomplete information and of time con-
straints, the industry segments are described in the form of financial
budgets of model plants. Key non-quantifiable factors were considered
in the interpretation of the quantified data. Actual financial results will
deviate from the model results, and these variances will be considered
in interpreting the findings based on model plants.
A. Fundamental Methodology
The fundamentals for analysis are basic to all impact studies. The core
methodology is described here as a unit with the specific impact analysis
discussed under the appropriate heading following this section.
IV-1
-------
Industry
Industry
Structure
Industry
Financial
Data
EPA Pollution
Control Costs
Segmentation
Base
Closures
N
Plant Closures
Due to Control
Employment
Effects
Community
Effects
Model Plant
Parameters
Budget
Data
Development
I
Model
Financial
Analyses
Price
Increases
I
Shutdown
Analysis
Production
Expected
Effects
Foreign
Trade
Effects
Industry
Pricing
Financial
Profiles
Figure IV-1. Schematic of impact analysis of effluent control guidelines.
IV-2
-------
The core analysis for this inquiry was based upon synthesizing the
physical and financial characteristics of the various industry segments
through representative model plant projections. Estimated financial
profiles and cash flows are presented in Chapter II. The primary factors
involved in assessing the financial and production impact of pollution con-
trol are profitability changes, which are a function of the cost of pollution
control, and the ability to pass along these costs in higher prices. In
reality, closure decisions are seldom made on a set of well-defined and
documented economic rules. They include a wide range of personal
values, external forces such as the ability to obtain financing, or the
relationship between a dependent production unit and its larger cost center
whose total costs must be considered.
Such circumstances include but are not limited to the following factors:
1. Inadequate accounting systems or procedures. This is
especially likely to occur in small, independent plants
which do not have effective cost accounting systems.
2. Insufficient production unts. This is especially true of
plants where the equipment is old and fully depreciated
and the owner has no intention of replacing or modernizing
them. Production continues as long as labor and materials
costs are covered and/or until the equipment fails entirely.
3. Personal values and goals associated with business owner-
ship that override or ameliorate rational economic rules.
This complex of factors may be referred to as the value of
psychic income.
4. Production dependence. This is characteristic of a plant that
is a part of a larger integrated entity and it either uses raw
materials being produced profitably in another of the firm's
operating units wherein an assured market is critical or,
alternatively, it supplies raw materials to another of the
firm's operations wherein the source of supply is critical.
When the profitability of the seco .d operation offsets the
losses in the first plant, the unprofitable operation may
continue indefinitely because the total enterprise is profitable.
5. Temporary unprofitability. This may be found whenever an
owner-operator expects that losses are temporary and that
adverse conditions will change. His ability to absorb short-
term losses depends upon his access to funds through credit
or personal resources not presently utilized.
IV-3
-------
6. Low (approaching zero) opportunity costs for the fixed
assets and for the owner-operator's managerial skills
and/or labor. As long as the operator can meet labor
and materials costs, he will continue to operate. He
may even operate with gross revenues below variable
costs until he has exhausted his working capital and
credit.
7. Plant site appreciation. This factor describes those con-
ditions in which the value of the land on which the plant is
located is appreciating at a rate sufficient to offset short-
term losses.
These factors are generally associated with proprietorships and closely
held enterprises rather than publicly held corporations.
While the above factors are present in and relevant to business decisions,
it is argued that common economic rules are sufficient to provide useful
and reliable insight into potential business responses to required invest-
ment and operating costs in pollution control facilities.
The following discussion presumes investment in pollution control
facilities. However, the rules presented apply to on-going operations.
In the simplest case, a plant will be closed when variable expenses (Vc')
are greater than revenues (R) since by closing the plant, losses can be
avoided.
A more probable situation is where VC < R but revenues are less than
variable costs plus cash overhead expenses (TCc) which are fixed in
the short run. In this situation a plant would likely continue to operate
as contributions are being made toward covering a portion of these
fixed cash overhead expenses. The firm cannot operate indefinitely
under this condition, but the length of this period is uncertain. Basic to
this strategy of continuing operations is the firm's expectation that
revenues will increase to cover cash outlay. Identification of plants
where TCc> R, but Vc < R leads to an estimate of plants that should be
closed over some period of time if revenues do not increase. However,
the timing of such closures is difficult to predict.
IV-4
-------
The next level is where TCc < R. So long as TCc < R, it is likely that
plant operations will continue if the capitalized value of earnings (CV)k
at the firm's (industry) cost of capital is greater than the realizable
value (S) of sunk plant investment. If S 3 CV or CV - S > O, the firm
could realize S in cash and reinvest and be financially better off, assuming
reinvesting at least at the firm's (industry) cost of capital .
Computation of CV involves discounting the future earning flows to
present value through the discounting function:
NPV X A (l+i)"n
ul, n
where
NPV = net present value
A = a future value in n year
i = discount rate at cost of capital
n = number of conversion periods, i. e. ,
1 year, 2 years, etc.
It should be noted that a more common measure of profitability is
return on investment (ROI) where profits are expressed as a percent of
invested capital (book value), net worth or sales. These measures
should not be viewed so much as different estimates of profitability
compared to present value measures but rather these should be seen
as an entirely different profitability concept.
The data requirements for ROI and NPV measures are derived from the
same basic financial information although the final inputs are handled
differently for each.
1. Returns
For purposes of this analysis, returns for the ROI analysis have been
defined as pre-tax and after-tax income and for the NPV analysis as after-
tax cash proceeds. The computation of each is shown below:
Pre-tax income = (R-E-I-D)
After-tax income = (1 - T) x (R - E - I - D)
IV-5
-------
where
T = tax rate
R = revenues
E = expenses other Lhan depreciation and interest
I = interest expense
D = depreciation charges
Interest in the cash proceeds computation is omitted since it is reflected
in the discount rate (the after-tax cost of capital). Depreciation is in-
cluded in the NPV measure only in terms of its tax effect and is then
added back to obtain cash flow.
A tax rate of 22 percent on the first $25, 000 income and 48 percent on
amounts over $25, 000 was used throughout the analysis. Accelerated
depreciation methods, investment credits, carry forward and carry back
provisions were not used due to their complexity and special limitations.
2. Investment
Investment is normally thought of as L utlays for fixed assets and working
capital. However, in evaluating closure of an on-going plant with sunk
investment, the value of that investment is its liquidation or salvage value
(opportunity cost or shadow price). \J For this analysis, sunk investment
was taken as the sum of liquidation value of fixed assets plus net working
capital (current assets less current liabilities) tied up by the plant (see
Chapter II for values). This same amount was taken as a negative
investment in the terminal year.
The rationale for using total shadow priced investment was that the cash
flows do not include interest expenses w th interest charges reflected in
the weighted cost of capital. This procedure requires the use of total
capital (salvage value) regardless of source. An alternative would be to
use as investment, net cash realization (total Jess debt retirement) upon
liquidation of the plant. In the single plant firm,debt retirement would
— This should not be confused with a simple buy- sell situation which
merely involves a transfer of ownership from one firm to another.
In this instance, the opportunity cost (shadow price) of the invest-
ment may take on a different value.
IV- 6
-------
be clearly defined. In the case of the multi-plant firm, the delineation
of the debt by the plant would likely not be clear. Presumably this could
be reflected in proportioning total debt to the individual plant on some plant
parameter (i.e. capacity or sales). Under this latter procedure, interest
and debt retirement costs would be included in the cash flows.
The two procedures will yield similar results if the cost of capital and
the interest charges are estimated on a similar basis. The former pro-
cedure, total salvage value, was used as it gives reasonable answers and
simplifies both the computation and explanation of the cash flows and
salvage values.
Replacement investment for plant maintenance was considered to be
equal to annual depreciation. This corresponds to the operating policies
of some managements and serves as a good proxy for replacement in an
on-going business .
Investment in pollution control facilities are from estimates provided
by EPA. Only incremental values are used in order to reflect in-place
facilities. Only the value of the land for control was taken as a negative
investment in the terminal year.
The above discussion refers primarily to the NPV analysis. Investment
used in estimating ROI was taken as invested capital--book value of
assets plus net working capital.
3. Cost of Capital - After Tax
Return on invested capital is a fundamental notion in U.S. business.
It provides both a measure of the actual performance of a firm as well
as ibs expected performance. In the latter case, it is also called the
cost of capital and this, in turn, is defined as the weighted average of
the cost of each type of capital employed by the firm--in general terms,
equities and interest bearing liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.
Estimated cost of capital for the industries under study are contained
in Chapter II and will not be repeated here.
4. Construction of the Cash Flow
The cash flow used in the analysis of BPT (Best Practical Technology)
and BAT (Best Available Technology) effluent control costs and will be
constructed as follows:
IV-7
-------
1. Sunk investment (salvage market value of fixed assets
plus net working capital) taken in year t , assumed to be
equivalent to 1976,
2. After tax cash proceeds taken for years t, to t
3. Annual replacement investment, equal to annual current
depreciation taken for years t to t .
4. Terminal value equal to sunk investment taken in year tn.
5. Incremental pollution control investment taken in year t
for 1977 standards and year t/ for 1983 standards.
o
6. Incremental pollution expenses taken for years t. to t
for 1977 standards and years t to t for 1983 standards.
if additive to the 1977 standards.
7. Replacement investment taken in year t on incremental
pollution investment in BPT on assumption of life of
facilities as provided by EPA.
8. No terminal value of pollution facilities to be taken in year t
Land value will probably be assumed to be very small and/o
zero, unless the costs provided indicate otherwise.
The length of the cash flow will depend upon the life of the pollution control
technology provided by EPA. It is anticipated that the length of the cash
flow will be equal to the life of control equipment specified for 1983
installation.
Construction of the cash flows for analyzing new source standards costs
is similar to BPT and BAT, except that plant investments, costs and re-
turns are based on current values.
IV-8
-------
B. Price Effects
As shown in Figure IV-1, price and production effects have interrelated
impacts. In fact, the very basis of price analysis is the premise that
prices and supplies (production) are functionally related variables which
are simultaneously resolved (thus the feedback loop shown in Figure IV-1).
The determination of the price impact requires knowledge of demand
growth, price elasticities, supply elasticities, the degree to which
regional markets exist, the degree of dominance exerted by large firms
in the industry, market concentration exhibited by both the industry's
suppliers of inputs and purchasers of outputs, organization and coordin-
ation within the industry, relationship of domestic output with the world
market, existence and nature of complementary goods, cyclical trends
in the industry, current utilization of capacity and, exogenous influences
upon price determination (e.g., governmental regulation).
In view of the complexity and the diversity of the factors involved in
determining the market price, a purely quantitative approach to the
problem of price effects was not feasible for this study. Hence, the
simultaneous considerations suggested above were made. The judgment
factor was heavily employed in determining the supply response to a
price change and alternative price changes to employed.
The segments of the phosphate industry are particularly troublesome in
terms of price analysis due to the fact that their products are intermediate
and often integrated into a larger complex. As a consequence, prices
tend to be academic values, since the internal transfer price may be much
different (usually lower) than reported market prices. Nonetheless, some
insights can be gained by estimating the required price increase to leave
the model plant as well off after pollution control, according to costs
provided by EPA, as before. The required price increase can be readily
computed using the NPV analysis described above for incremental pollution
cash flow and sales.
Application of the above NPV procedure to pollution control costs yielded
the present value of those costs (i.e., investment plus operating cost less
tax savings excluding interest expenses). Given this, the price increase
required to pay for pollution control was calculated as
IV-9
-------
(PVP) (100)
P = -
whe re :
P = required percentage increase in price
PVP = present value of pollution control costs
PVR = present value of gross revenue (sales)
starting in the year pollution control
is imposed
T = tax rate appropriate following imposition
of pollution control
The next step was to evaluate the required price increases against
expectations regarding the ability to raise prices. As pointed out above,
this was a function of a number of factors. In cases where a few large
plants represent the bulk of production, their required price increase
will likely set the upper limit. For the products in this study, other
factors were overriding. These include expected price changes for
basic fertilizer materials due to future supply-demand conditions,
impacts such as pollution control, and the declining consumption of
these products, per se. From this analysis, which was quantitative,
an initial estimate of expected price increases was made.
Following this is the initial shutdown analysis (production curtailment).
The decrease in production is evaluated in the light of its impact on
prices and if warranted by production decreases, the expected price
increase is revised upward.
C. Shutdown Analysis
The basic shudown analysis is based upon the technique described
above under Section A and the expected price increase from the preceding
step. In addition to this analysis, analyses are also made to establish
estimated plant closures without the imposition of pollution control or
so-called "baseline" closures. This analysis involves the same financial
analysis technique, without pollution control, and factoring in other infor-
mation such as trends in the industry itself and in competing products.
IV-10
-------
Based on the results of the NPV analysis of model plants, likely closures
are identified where NPV<, O. Segments or plants in the industry are
equated to the appropriate model (on interpolation) results. Mitigating
items, such as association with a complex, captive raw material sources,
unique market advantages and existing in-place controls and the ability
to finance new non-productive investment are factored in quantitatively
to obtain an estimate of likely closures. If BAT costs differ from BPT
costs, closure estimates are required for each condition. Because this
analysis is inexact, these closure levels will be estimated -- high,
medium, and low probability.
The analysis of new source standards is of the conventional NPV feasi-
bility analysis based upon expected prices. In this case, it is a matter
of whether new plants are built without vs. with effluent controls.
The impact of these closures is evaluated as the next step (see Figure
IV-1). When production impacts are sufficient, the expected prices are
re-evaluated and the shutdown analysis repeated.
D. Production Effects
Potential production effects include changes of capacity utilization rates,
plant closures, and the stagnation of the industry. Plant closures may be
offset in total or in part by increases in capacity utilization on the part
of plants remaining in operation. Expected new production facilities are
estimated. The end result is an estimated production under the conditions
presumed for the above closure analysis.
The estimated production under these expectations feeds-back into the
price analysis to verify or revise expected price changes.
E. Employment Effects
Given the production effects of estimated production curtailments--
potential plant closings and changes in industry growth--a major con-
sideration arises in the implications of these factors upon employment
in the industry. The employment effects stemming from each of these
production impacts in terms of jobs lost are estimated using the model
plant information.
IV-11
-------
F. Community Effects
The direct impacts of job losses upon a community are immediately
apparent. However, in many cases, plant closures and cutbacks have
a far greater impact than just the employment loss. These multiplier
effects are reflected in evaluating payroll losses and income multipliers.
In addition to these direct and indirect impacts on communities, broader
potential impacts are evaluated. In the phosphate industry, losses could
result in increased food costs through curtailed farm production (assuming
a lack of substitutes). Such production curtailments have widespread
implications to the economy and to the feed and fiber industries.
Other Effects
Other impacts such as direct balance of payments effects are also
included in the analysis.
IV-12
-------
V. EFFLUENT CONTROL COSTS
The water pollution control costs used in this analysis were based on
cost data furnished by the Effluents Guidelines Division of the Environ-
mental Protection Agency from a study by Davy Powergas, Inc. —
For the purposes of the impact analysis, three levels of effluent controls
were considered for each segment of the fertilizer industry studied. The
levels were as follows:
BPT - Best practicable control technology currently
available - to be achieved July 1, 1977.
BAT - Best available technology economically feasible --
to be achieved by July 1, 1983.
NSPS - New source performance standards - to be applied
to all new facilities that discharge directly to navi-
gable waters and to be met by approximately January
1, 1974.
A fourth level - new source pretreatment standards - which would be
applied to all facilities that use municipal systems constructed after
promulgation of the proposed guidelines was not considered in
this report. Cost data were not provided for these standards.
It is further noted that for defluorinated phosphate rock (DFP) and de-
fluorinated wet phosphoric acid the new source performance standards
(NSPS) are equal to the BAT standards. No NSPS standards have been
furnished for sodium tripolyphosphate (STPP).
A. Proposed Control Standards and Technologies
The proposed technologies are summarized in Table V-l. The standards
are discussed below.
— U. S. Environmental Protection A gency, Draft Development Document
for Effluent Limitations Guidelines and Standards of Performance -
Other Non-Fertilizer Phosphate Chemicals, prepared by Davy
Powergas, Inc.
V-l
-------
Table V-l. Summary of pollution control technology by segment
Product and process
DFP
Def.Acid
Vacuum evaporation
Submerged combustion
Auxiliary
STPP
BPT
Containment
pond
X
X
X
X
CPWT I/
X
X
X
X
X
BAT
Increase
dike
height
X
X
X
X
NSPS
BPT
plus
BAT
X
X
X
X
I/
Contaminated (pond) water treatment process
V-2
-------
1. Defluorinated phosphate rock (DFP)
Best practical technology - The proposed effluent limitations guideline
for DFP plants require that there be no discharge of process waste water,
except under certain conditions described below. To meet this standard
each plant should have a containment and cooling pond large enough to
hold the process waste water. This waste water is recirculated and would
not normally require discharge.
The exceptions permitted are as follows:
(1) An impoundment that is designed to contain the precipitation
from the 10-year, 24 hour rainfall event established by the
U. S. National Weather Service for the plant location may
discharge water from precipitation in excess of the 10-year ,
Z4-hour rainfall when such an event occurs.
(2) During any calendar month, the impoundment may discharge
a volume of process water equal to the difference between
the volume of precipitation which falls during that month
and the mean evaporation for the month as established
by the U.S. Weather Service for the preceding 10-year
period.
(3) Any water discharged under the exceptions in paragraphs (1) and
(2) above shall not exceed he following requirements:
Parameter Concentration ( ppm)
Suspended solids 25
Phosphorus (P) 35
Fluoride (F) 15
The pH of the discharged wat<- r shall be within a range
of 6. 0 to 9. 0 at all times .
To achieve the reduction of containments consistent with paragraph (3)
above, pond water can be treated with lime to neutralize phosphorus
and fluorides. Solids are then to settle, prior to discharge. Two
separate settling ponds are needed for contaminated water treatment--
one each for calcium fluorides and for calcium phosphates.
V-3
-------
Standards require DFP plants to treat contaminated water when rainfall
exceeds evaporation or when storms cause pond levels to rise above an
acceptable water level. Generally, a 24-inch freeboard for containment
ponds is needed (60-inches of freeboard required in Florida). Thus, the
volume of water normally treated will depend upon the amount of net rain-
fall (excess of precipitation over evaporation). Emergency treatment
would be required only when excessive rainfall occurs in a short time
period. Rainfall considerations are discussed more fully under the
section on abatement costs.
In certain locations, depending on topography and rainfall factors, an
additional need is the construction of diversion ditches around the peri-
meter of the containment ponds to keep run-off water from adjacent
ground away from the pond dike. A recommended ditch is six feet
deep. It would be six feet wide at the top and would taper to three feet
wide at the bottom.
Best available technology - BAT guidelines are the same as for BPT,
except that containment ponds must be designed, constructed and oper-
ated to contain the precipitation from the 25-year, 24-hour rainfall
event as established by the U.S. National Weather Services for that
plant location. On existing ponds, the dike height must be increased
sufficiently to contain the precipitation from the 25-year rainfal] event.
For cost purposes, a six-inch differential for BAT over BPT dike height
was used by EPA.
As with BPT, BAT guidelines permit discharge when rainfall exceeds
evaporation or during a storm in excess of the 25-year 24-hour storm.
Any water to be discharged must be treated by using the contaminated
(pond) water treatment process described above.
New source performance standards (NSPS) - NSPS for DFP plants are
the same as BAT standards.
2. Defluorinated wet phosphoric acid
BPT, BAT and NSPS for defluorinated acid plants are identical to those
for DFP plants; however, the volume of water treated for " normal rainfall
discharge" will be greater than for DFP plants because the concentration
of wet phosphoric acid produces a net gain of water. Water volumes will
be discussed under "Effluent Control Costs."
V-4
-------
3. Sodium tripolyphosphate
Best practical technology - The contaminated water treatment process
described above is proposed for a wet acid STPP plant. The recircu-
lation of process waste water is not feasible in STPP production because
of the more demanding water quality requirements in the manufacturing
process; therefore, the STPP plant discharges continuously and must
use an end-of-process treatment to meet effluent limitations. This
results in the treating of a much larger volume of water in comparison
to that of DFP and acid plants with containment ponds.
Best available technology - Contaminated water treatment is also the
best available technology; thus, BAT is identical to BPT.
B. Present Effluent Control Status
Table V-2 summarizes, by segment, the present status of treatment
technology.
1. DFP
EPA indicates that the four DFP plants probably meet BAT standards. Two
discharge during rainy seasons and treat the water prior to discharge.
The other two plants do not discharge. One DFP plant may require a
diversion ditch.
2. Defluorinated wet phosphoric acid
EPA reports that eight of the eleven defluorinated acid plants have
containment and cooling ponds in place or under construction. Thus,
all but three plants either treat discharged contaminated water or do
not discharge at all. Although information is not available on dike
heights, it is assumed that the eight plants with ponds in place con-
form to BAT standards. Two of the plants will require diversion
ditches.
Of the three remaining plants, one apparently does not have land available
for constructing a containment pond and would need to use a continuous
treatment process. The other two presumably have land available.
V-5
-------
Table V-2. Summary of in-place technology by segment
Segment
DFP
Def.Acid
STPP
Total
no.
plants
4
11
1
In
place
4 —
si>
0
Not
in
place
0
3*'
1
— One plant may need to construct a diversion ditch
_' Two plants may need to construct a diversion ditch
_' One plant does not appear to have available land
V-6
-------
3. STPP
The STPP plant at Joliet reportedly has a simple settling tank and will
need to install the entire Contaminated (Pond) Water Treatment Techno-
logy to meet BPT and BAT standards.
C. Effluent Control Costs
1. Cost data
EPA furnished investment and operating cost data in August, 1971, dollars,
based upon a survey of plants in each industry segment. DPRA has inflated
costs to reflect 1973 dollar values, using the EPA Sewage Plant Treatment
Cost index.
2. Investment costs
Best practical technology
Defluorinated phosphate rock - The BPT investment for pollution control
for defluorinated rock consists of the cost of constructing a containment
pond to hold the waste water plus the cost of contaminated (pond) water
treatment facilities. The size of the pond is a function of the daily pro-
duction capacity. EPA has furnished parameters for estimating pond
size and costs as follows:
Acres per daily ton of product .26
Cost per acre (1971) $13,983
In addition, plants with run-off problems must provide a ditch around the
retention pond to divert run-off. The cost of such a ditch has been esti-
mated by EPA as $3.00 per linear foot. The number of feet is calculated
from the formula
( • u No. of acres x 83 2 n + 200'. (one acre has a
perimeter of 832 feet. The additional 200 'eet permit the ditch to be
built 50 feet from the dike.)
Contaminated (pond) water treatment investment costs cover lime handling
and storage, piping, pumps and two settling ponds. The representative size
used in estimating costs is a 1,000 gallons per minute treatment facility.
Plants below 450 ton per day size can probably use a 500 gallon per minute
treatment facility, with investment costs adjusted to reflect economies
of scale. —
Cost A ./Cap AV 6
Cost B \ Cap BJ
V-7
-------
Table V-3 presents these investraent costs in 1973 dollars for each
of the model plants in this segment.
Defluorinated wet process acid - The BPT investment for pollution control
for defluorinated acid plants is similar to DFP plants. The size parameter
for constructing a containment pond is different, however, because of
differing process water requirements.
EPA has furnished the following:
Acres per daily ton of Po^S • ^
Cost per acre (1971) $13,983
Costs for diversion ditches and contaminated (pond) water treatment
facilities have been calculated for acid plants as for DFP plants. Table
V-3 also shows these costs for the various model plants.
STPP - Investment costs for STPP are shown in Table V-3. These are
for contaminated (pond) water treatment facilities.
Best available technology
For DFP and acid plants, BAT investment, as reported in Table V-4, consists
solely of the costs of raising the dike height for ponds by six inches. In
some instances, the stated cost may not fairly reflect the actual expense
of raising the dike height, but no further cost data are available. Since
BAT and BPT are the same for sodium tripolyphosphate, there are no
additional costs for STPP.
New source performance standards
NSPS investment costs are simply BPT plus BAT in the DFP arid de-
fluorinated acid segments. These are presented in Table V-4. Since
no NSPS are proposed for STPP, no costs are provided.
3. Annual operating costs
No direct operating costs have been assigned to the containment ponds
although there may be minor maintenance expenses; thus, annual charges
are for depreciation and interest. Depreciation has been estimated at 5
percent of original cost, based on a 20-year pond life with no salvage value.
Interest is assumed at 10 percent per annum on average pollution control
investment to approximate the average annual interest costs over the life
of the project. These costs are shown in Table V-5.
V-8
-------
Table V-3. Investment in pollution control facilities for best practical
technology by process and by segment
Plant configuration
(Product and TPD)
DFP
75
225
Def. Acid (vacuum)
75
450
Def. Acid (submerged)
150
450
Def. Acid (aux. )
100
300
STPP
450
Containment and
cooling pond
Pond
$000
312
935
336
2,013
671
2,013
447
1,342
I/
Ditch
12
20
12
29
17
29
14
24
!/
CPWT -
U
263
263
399
263
399
263
263
399
Total
investment
324
1,218
611
2,441
951
2,441
724
1,629
399
L' Contaminated (pond) water treatment process.
2/
— Not applicable because of negative water balance for this location.
— CPWT includes two settling tanks, no containment pond is used.
V-9
-------
Table V-4. Incremental investment in pollution control facilities for
BPT, BAT and NSPS
Plant configuration
(Product and TPD)
DFP
75
225
Def. Acid (vacuum)
75
450
Def. Acid (submerged)
150
450
Def. Acid (aux. )
100
300
STPP
450
PT
324
1,218
611
2,441
951
2,441
724
1,629
399
BAT
$000 -- -
Z3
69
31
184
61
184
41
123
I/
NSPS
(BPT + BAT)
346
1,287
642
2,625
1,012
2,625
765
1,752
I/
I/
— Not applicable
V-10
-------
Table V-5. Annual operating costs for BPT pollution control by segment and process
Containment Pond
Plant configuration
(Product and TPD)
DFP
75
225 I
225 II
Def. Acid (vacuum)
75
450 I
450 II
<; Def. Acid (submerged)
,1 150
450
Def. Acid (aux. )
100
300
STPP
450
Deprec-
iation
16
48
48
17
102
102
34
102
23
68
-
Interest
16
48
48
17
102
102
34
102
23
68
-3. 1
J/
CPWT 1/P
Sub- Operating
total cost —
32
96
96
34
204
204
68
204
46
136
•w
-> /
—
139
79
44
311
372
100
323
80
224
842
Deprec-
iation
—
26
26
26
40
40
26
40
26
40
40
Normal
CPWT
Total Costs
emergency
additional
Sub- operating
Interest total cost Normal
3/
13
13
13
20
20
13
20
13
20
20
—
178
118
83
371
432
139
383
119
284
902
—
157
157
34
201
201
67
201
45
134
—
32
274
214
117
575
636
207
587
165
420
902
Emergency
—
431
371
151
776
837
274
788
210
554
—
I/ Contaminated (pond) water treatment process
£.' Includes electrical energy at $.05/mg and raw materials at $20 50/mg plus 4 percent of investment for operations
and maintenance
— Not applicable.
-------
Operating costs for contaminated (pond) water treatment are also shown
in Table V-5. Energy and raw materials costs for liming are the major
significant factors. Combined, these costs amount to $2.55 per thousand
gallons of water treated. All incremental costs for BPT, BAT and NSPS are
summarized in Table V-6.
As noted earlier, the volume of water requiring contaminated water treat-
ment varies by plant location, size and rainfall factors. To determine
the acceptable water discharge for normal treatment, any net increase in
process water resulting from the manufacturing process is added to the
excess of rainfall over evaporation for the particular plant location.
Only the vacuum evaporation process produces a net process water in-
crease, estimated at 116 tons of water per day for a 200 ton (P^Og) per
day acid plant. The submerged combustion process has an estimated
net use of 14 tons per day for a similar sized plant.
In estimating water volume from rainfall in excess of evaporation, EPA
has specified that the rainfall run-off area may be up to 130 percent of
the pond size; consequently annual rainfall in a location was multiplied
by 1. 3 to obtain the number inches of run-off for one acre of pond area.
Average annual evaporation data had to be adjusted for differences in
surface water area and pond area. Cross-dikes and gypsum piles pre-
sumably occupy 20 percent of the pond area. Annual pond evaporation
was estimated by multiplying annual average evaporation for that location
by .8 to obtain the number of inches of evaporation for one acre of pond
area. Table V-7 presents rainfall-evaporation data for each location,
adjusted for the run-off and evaporation factors.
Volume of excess rainfall water for each plant was then estimated by
multiplying the number of pond acres times the inches of rainfall in
excess of evaporation times 27,000 gallons per acre inch. This volume
must be adjusted for change in process water amounts. Estimated water
volumes are shown in Tablve V-8.
For emergency treatment, the volume of water was calculated on the
assumption that excess rainfall during a storm would not exceed 29
inches—one inch less than the freeboard under BAT standards. This
would overstate the volume somewhat for BPT standards, both in terms
of freeboard and 10-year, 24-hour storm, but the estimate provides an
upper limit for emergency treatment. Emergency treatment volumes
are shown in Table V-8.
V-12
-------
Table V-6. Summary of annual pollution control operating costs for
BPT, BAT and NSPS by segment and process
BPT
BAT
NSPS
Plant configuration
Normal
Normal
plus
emergency
Normal
Normal
plus
emergency
32
274
214
32
431
371
2
7
7
34
281
221
34
438
378
Def. Acid (vacuum)
75
450 I
450 II
117
575
636
151
776
837
3
18
18
120
593
654
154
794
855
Def. Acid (submerged)
150 207
450 587
274
788
6
18
213
605
280
806
Def. Acid (aux.)
100
300
165
420
210
554
4
12
169
432
214
566
STPP
450
902
I/
I/
I/
II
Not applicable
Note: Emergency treatment would be an annual cost only once in 10
or 15 years.
V-13
-------
Table V-7. Rainfall-evaporation data for plant sites
Annual
State rainfall
Louisiana
North Carolina
Florida (A)
Florida (B)
Texas
Idaho
Utah
58
52
52
52
46
12
16
Effective
rainfall
(X 1.3)
75
68
68
68
60
16
21
A nnua 1
evaporation
1
49
41
50
45
53
36
44
Effective Net
evaporation effective
(X. 8) rainfall
39
33
40
36
42
29
35
36
35
28
32
18
-13
-14
Source: Climatic Atlas of the United States, U. S. Department of Commerce,
Environmental Data Service, Washington, D. C. , June, 1968.
Note: Florida (A) and (B) denotes two geographic locations with substantially
different evaporation rates.
V-14
-------
Table V-8. Annual volume of water treated in contaminated (pond) water treatment process
by segment, process, plant size and location
Defluorinated rock
Normal treatment
Process water change
Net effective rainfall
Volume treated
Fia. (B)
225 TPD
none
50,544
50,544
Texas
225 TPD
none
26,852
26,852
Vacuum evaporation
process
Texas
75 TPD
3
9
13
,393
,639
,032
Fla
450
20,
95,
115,
. (A)
TPD
_ _ 4-Vir,
358
256
614
N.C.
450 TPD
iusand gallc
20,358
119,070
139,428
Submerged com-
bustion process
Fla. (B)
150 TPD
1,092
36,288
35, 196
La.
450 TPD
2,063
122,472
120,409
Auxiliary
La.
100 TPD
Unknown
27,213
27,213
process
La.
300 TPD
Unknown
81,648
81,648
Emergency
29" pond rise
61,601 61, 601
13,146 78,876 78,876 26,309 78,876 17,528 52,618
i
I—*
ui
-------
It is important to note that emergency treatment may never be required;
the probability of a storm in excess of the 10-year or 25-year rainfall
event is very low. Therefore, the costs for emergency treatment have
been shown separately and should be viewed accordingly.
Annual costs for continuous discharge treatment for STPP are based not
on rainfall but on the volume of process water required in manufacturing.
EPA estimates 2,400 gallons of water per daily ton of product; thus, the
STPP model plant (daily capacity of 450 tons and operating 300 days per
year) discharges 324 million gallons of water annually.
NSPS annual costs -- For DFP and defluorinated acid plants, NSPS
operating costs are the sum of BPT and BAT costs. These were
shown for these two segments in Table V-6.
4. Comparison of pollution control costs to base costs
Tables V-9 and V-10 relate pollution control investment costs and
operating costs to baseline conditions.
Pollution control investment costs are high as a percent of base plant
book values for all segments. They are especially large for acid plants,
amounting to two to six times book values. When compared to replacement
investment values, investment costs are also high for defluorinated acid
plants; for DFP plants, the costs are from 11 to 20 percent of replacement
values. STPP shows the lowest ratio to replacement costs--8 percent.
Annual operating costs for pollution control as a percentage of base
operating costs are shown in Table V-10. The percentages range from
1.6 to 6. 1, and most frequently around 4 percent for BPT (normal)
costs. Emergency treatment costs amount to an additional 1. 1 to 3. 8
percent of base costs, while BAT costs are negligible for all segments.
In considering pollution control costs, three important points are apparent.
(1) Nearly every defluorinated rock and acid plant is a part of a larger
phosphate complex and uses a common containment pond; thus , the invest-
ment in a pond is probably greatly overstated for the model plants. (2)
The large volumes of process water required by acid plants make con-
tainment ponds economically desirable in most locations without regard
to pollution controls; it is not reasonable, therefore, to attribute the entire
pond costs for pollution controls. (3) Only three plants do not currently
have ponds.
V-16
-------
Table V-9. Comparison of pollution control investment
requirements by segment
Plant configuration
(Product and TPD)
DFP
75
225 I
225 II
Def. acid (vacuum and
submerged)
75
150
450
Def. acid (auxiliary)
100
300
STPP
Base-
$000
315
4,320
3,950
215
430
1,020
118
295
820
/ BPT
$000
324
1,218
1,218
611
951
2,441
724
1,629
399
% Base
103
28
31
284
221
239
614
552
49
BAT
$000
23
69
69
31
61
184
41
123
0
% Base
7
2
2
14
14
18
35
42
NSPS (BPT
$000
346
1,287
1,287
642
1,012
2,625
765
1,752
3/
% Base
110
30
33
298
235
257
649
594
+ BAT)
% Replace 2.
11
19
20
91
94
128
382
350
si/
i/
Fixed assets only, book value
— Fixed assets only, current (1973) replacement value of base plants
— Not applicable
4/
— BPT and BAT as percent of Replacement value of base plant
V-17
-------
Table V-10. Annual pollution control costs compared to base operating costs
(including capital charges) by segment
Plant configuration
(Product and TPD)
DFP
75 I
75 II
225 I
• 225 II
Def. Acid (vacuum)
75
450 I
f 450 II
00
Def. Acid (submerged)
150
450
Def. Acid (auxiliary)
100
300
STPP
Base
$000
1,329
2,018
4,513
4,084
3, 109
17,027
17,027
5,936
17,027
3,926
10,285
20, 164
BPT
$000
32
32
274
214
117
575
636
207
587
165
420
902
Normal
% Base
2.4
1.6
6. 1
5.2
3.8
3.4
3.7
3.5
3.4
4.2
4. 1
4.5
BPT Emergency
$100
I/
— '
157
157
34
201
201
67
201
45
134
IJ
% Base
3. 5
3.8
1. 1
1.2
1.2
1. 1
1.2
1. 1
1.3
IJ
$000
2
2
7
7
3
18
18
6
18
4
12
0
BAT
% Base
neg.
neg.
neg.
neg.
neg.
neg.
neg.
neg.
neg.
neg.
neg.
0
NSPS
$000
34
34
281
221
120
59?
654
213
605
170
433
I/
Normal
% Base
2.6
1.7
6.2
5.4
3.9
3. 5
3.3
3.6
3.6
4.3
4.2
I/
NSPS Emergency
$000
J7
y
438
378
154
794
855
280
806
214
566
I/
% Base
9.7
9.3
5.0
4.7
5.0
4.7
4.7
5. 5
5. 5
IJ
— Not applicable
Note: Emergency treatment would be an annual cost only once in 10 or 25 years.
-------
VI. IMPACT ANALYSIS
The impacts considered in this analysis are the following:
A . Price effects
B. Financial effects
C. Production effects
D. Employment effects
E. Community effects
F. Balance of payments effects
These effects were analyzed for each of the segments under study and
were based on the industry data developed in Part I of this study and on
the pollution control data presented in Chapter V. The methodology for
the analysis was described in Chapter IV of Part I.
A. Price Effects
The pricing of non-fertilizer phosphate materials was discussed in Chapter
III in detail. The discussion indicated that the products of the study's three
segments have a derived demand, that they are intermediate products
used as raw materials in a wide variety of industrial and agricultural
production. Accordingly, their prices ~> re determined, in part, by the
pricing patterns of the end-products. Livestock feed requirements are
the basic determinants of demand for defluorinated phosphate rock. These
same feed requirements also help determine defluorinated phosphoric acid
prices. However, about 60 percent of defluorinated acid (superphosphoric
acid) goes into fluid fertilizers, fertilizer demand is also a major factor in
defluorinated acid pricing. Sodium tripolyphosphate demand is primarily
derived from the soap and detergent market.
The price impacts of pollution controls must be placed in the perspective
of anticipated prices which will prevail in "977 and 1983; however, predicting
future prices for the products under study -as become extremely difficult in
the light of recent price behavior. Prices for phosphate products were
generally depressed from 1968 through 1970 because of the industry's over
capacity. After prices recovered in late 1970 and 1971, the Federal govern-
ment froze prices in August, 1971 and retained controls until October, 1973.
When controls were lifted in late 1973, the phosphate industry experienced
rapidly rising prices under heavy U.S. and world fertilizer demand. 1974
prices are now abnormally high and one can expect an increased supply in
the next few years.
VI-1
-------
Trends in the phosphate industry indicate that prices will continue to
respond to cyclical patterns of supply-demand adjustments. Price-
cost relationships when supply and demand are approaching equilibrium
best reflect normal or average conditions. 'For this reason, pre-decontrol
1973 prices appear representative of 1977-1983 prices. If the higher price
to cost relationships of 1974 should prevail, then pollution control costs take
on even less significance.
The effects of pollution controls on non-fertilizer phosphate prices are
expected to be minor for all three segments even though annual pollution
control costs represent a moderate percentage of baseline costs. These
were compared in Table V-10. Table VI-1 relates abatement costs to
1973 prices for the various model plants, and Table VI-2 presents required
price increases to restore pre-control levels of profitability to "he impacted
model plants .
Long-run increases of this magnitude are not likely because of the large
amount of in-place technology and the competitive market structure for the
various segments. The DFP plants all currently meet the no discharge
standards and their cost structures already reflect abatement costs. One
plant may need an inexpensive $12, 000 diversion ditch.
In the defluorinated phosphoric acid segment, eight of the eleven plants
meet the no-discharge standard and should not incur additional costs.
The eight include the newer and larger plants, indicating that pollution
control costs are incorporated into current costs and prices. Hence, the
three plants which do not now have pollution control facilities can not
expect to pass on additional costs unless there is a general price increase.
Prices will probably rise slightly because of decreased supplies of de-
fluorinated acid. The discussion of "Production Effects" shows that
supply may drop by as much as 7-18 percent due to baseline, and pollution
control closures. Although the price elasticity is unknown, it is as-
sumed to be close to that for fertilizers (estimated at -.6 in the short
run and -1.8 in the long run). Thus, price increases of 12 percent in
the short run and 4 percent in the long run may be expected, given stable
demand.
But this price increase resulting from possible closures must be viewed
alongside the anticipated growth in demand for defluorinated phosphate
products. As noted in Chapter III, demand for dicalcium phosphates for
livestock feed supplements is expected to grow at a 6 to 6. 5 percent annual
rate while liquid fertilizer demand may increase at a 10 to 15 percent annual
rate. This produces a possible demand growth for defluorinated wet phos-
phoric acid of 8 to 12 percent per annum, if the market remains split 40 per-
cent - 60 percent between dicalcium phosphates and liquid fertilizers.
VI-2
-------
Table VI-1. Annual pollution control costs per ton of product by segment related to base price
Plant configuration
(Product and TPD)
DFP
75
75
225 I
225 II
Def. Acid (vacuum)
75
450 I
450 II
Def. Acid (submerged)
150
450
Def. Acid (auxiliary)
100
300
STPP
450
Base Price
89.00
89.00
74.00
71.00
153.00
153.00
153.00
153.00
153.00
153.00
153.00
153.00
BPT (N)
2.56
1.42
4.06
3. 17
5.96
4.87
5.39
5.23
4.97
6.38
6. 10
6.68
Annual
BPT (N+E)
-------
Table VI-2. Required price increase to restore profitability to pre-
pollution control levels
Product
capacity)
DEF Acid
Vacuum
75
Auxiliary
100
300
STPP
450
6.
3.
3.
4.
4.
4.
BPT (N)
5 7.5
7 7.3
7 7.3
6 4.9
1 4.3
i / i /
. i/ , , i/
4 — 4.4 —
BPT/BA
6.5
3.8
3.8
4.7
4.2
~
T (N)
7. 5
7.4
7.4
5.0
4.3
-J
_' These percentages are rounded to the nearest tenth. The increase n-
slightly higher for the 7. 5 percent discount rate than for the 6. 5 percent
rate.
— Not applicable.
VI-4
-------
Thus, increased demand will exert upward pressure on defluorinated
acid prices. Marginal plants would operate profitably under these
conditions. However, at some point, higher prices will attract new
defluorinated acid capacity. Prices will then fall, once again making
the marginal plants likely candidates for closure.
The response of prices to increased demand cannot be estimated with any
degree of certainty because of critical unknown factors. Substitutability of
defluorinated phosphate rock for dical in livestock feed and of other phos-
phate sources for SPA in liquid fertilizers will occur under severe price
pressures; cross-elasticity coefficients are not known. Also, the propor-
tion of wet phosphoric acid going into SPA as opposed to other fertilizer
products cannot be reliably determinated.
Given these uncertainties, it seems reasonable to conclude that defluor-
inated acid prices will rise somewhat more than the 4 percent caused by
supply curtailment but probably not enough over the long run to prevent
.the probable closures discussed below under "Production Effects."
The situation for STPP is somewhat different. The plant included in this
study is but one of 15 STPP plants. It uses wet-process phosphoric acid
while the other 14 plants process furnace acid. They are not expected to
have any direct pollution control investments or annual costs, except for
the increased raw material costs of $1.90 per ton from furnace acid plant
pollution abatement. L' Therefore, the wet acid STPP plant must be price
competitive with other producers who have only minor raw material cost
increases (1.3 percent). This will undoubtedly be offset by cost increases
for wet acid. Under these conditions, it does not appear likely that the
STPP plant can pass through any of its direct pollution control costs.
B. Financial Effects
1. Profitability
The impact of pollution controls on the profitability of model plants is
shown in Table VI-3. Without price increases those plants needing to
install control facilities will feel a substantial impact.
— See Economic Analysis of Proposed Effluent Guidelines, The Industrial
Phosphate Industry, EPA -230/ 1 -73- 02 1. Washington, D. C. , August
1973.
VI-5
-------
Table VI-3. Annual cash flows, return on investment and return on sales before and after pollution controls,
assuming no price increase
Product
(tons per day
capacity)
DFP
75 I
75 II
225 I
225 II
Baseline BPT (N) BPT (E) BPT/BAT
Cash
flow
$000
-677
134
602
720
ROI
%
-50.9
-3. 1
5.3
8.5
Cash Cash Cash
ROS flow ROI ROS flow ROI ROS flow ROI
% $000 % % $000 % % $000 %
-19.5
-.8
5. 1
7.8
(N) BPT/BAT (E)
Cash
ROS flow ROI ROS
% $000 % %
Def. Acid (vacuum)
75
450 I
3 450 II
rN
Submerged
Tso
450
Auxiliary
100
300
STPP
450
-26
711
711
156
711
51
190
427
-15.5
19.2
19.2
6.8
19.2
6.6
11.0
9. 1
-2.6 -101 -24%2 -6.6 -134 -28.3 -7,7 -102 -24.2
3.0
3.0
1.2
3.0
.9 -47 -13.2 -2.9 -92 -18.3 -4.0 -49 -13.3
1.4 9 -6.5 -1.3 -125 -12.7 -2.6 2 -6.8
1.3 -206 -13.3 -2.0
-6.7 -135 -28.1 -7.8
-3.0 -94 -18.3 -4.1
-1.5 -132 -12.7 -2.7
Note: (N) and (E) refer to normal and emergency water treatment . Emergency treatment would occur only once in
10 or 25 years .
-------
The 75 TPD defluorinated acid (vacuum evaporation process) plant has
a decrease in cash flow from -$26,000 to -$101,000 under BPT (normal
conditions), with much greater decreases under emergency conditions.
BAT adds very little to the decrease in cash flow--only $1,000. Returns
on book investment and on sales, already negative under baseline condi-
tions, become even more negative.
The auxiliary process acid plants experience severe financial impacts
under BPT (N). The 100 TPD plant has a decrease in cash flow of $98,000
from $51,000 to -$47,000. ROI and ROS move from positive to negative.
The 300 TPD plant loses $181,000 in cash flow, with ROI moving from a
positive 11.0 percent to a negative 4.2 percent. ROS falls from 1.4 to
-1.2 percent. Emergency treatment facilities add a major impact.
The STPP plant experiences the greatest financial impact. Its cash flow
drops from $427,000 to -$206,000, while ROI and ROS decline sharply
from moderately positive to negative levels.
Financial impacts can also be viewed through net present value (NPV)
analysis. The NPV of a plant before pollution control is compared to
the NPV after controls, assuming no price increase. Table VI-4 presents
these values.
The discount rate used to compute NPV is the estimated cost of capital.
This rate was reported in Chapter IV, Part I, for the industry in a range
of 5.6 to 7.4 percent. This is the historic cost range of capital, based
on an estimated embedded interest cost of 7.5 percent. Since pollution
control facilities will probably be financed with borrowed funds at future
interest rates higher than the historic rates, a rate of 10 percent was used
for the incremental investment. This will raise slightly the embedded
debt cost. Accordingly, the estimated costs of capital for impact analysis
has been increased to 6. 5 to 7. 5 percent. NPV's in Table VI-4 are based
on these rates. The analysis assumes a 20-year life for each project.
The impacts of BPT (normal condition) are severe for each of the four
impacted plants. The 75 TPD vacuum evaporation process acid plant
moves from a -$900,000 NPV to -$2,127,000. The two auxiliary process
acid plants have positive baseline NPV's and large negative BPT values.
BAT increases the negative NPV's slightly. The effect of emergency
treatment on NPV's cannot be calculated, since it cannot be expected to
occur more often than once in 10 or 25 years.
VI-7
-------
Table VI-4. Net present values of model plants before and after pollution
controls, assuming no price increase
Product
(tons per day Baseline BPT (N) BPT/BAT (N)
capacity) 6.5 7.5 6.5 7.5 6.5 7.5
DFP
75 I -1,713 -1,620
75 II 391 317
225 I 3,505 3,090
225 II 5,144 4,655
DEF, Acid
Vacuum
75 -900 -869 -2,127 -? 047 -2,148 -2,067
450 I 5,244 4,650
450 II 5,244 4,650
Submerged
150 626 508
450 5,244 4,650
Auxiliary
100 138 85 -1,385 -1,375 -1,413 -1,402
300 1,015 827 -1,815 -1,910 -1,899 -1,990
STPP
450 1,782 1,398 -5,490 -5,355
Vl-8
-------
2. Availability of capital
There are no precise financial data available to assess the ability of
each of the model plants to finance pollution control investment. Model
plant data shows that the 75 TPD vacuum evaporation acid plant has a
negative baseline cash flow and should not be able to borrow the necessary
funds. The other three impacted plants have substantial baseline cash
flows, but unless they can retain a price increase, their ability to borrow
is highly questionable. The large negative NPV's shown in Table VI-4
support this statement.
Table VI-5 presents another approach for assessing the ability to finance
pollution controls. Baseline net cash proceeds are compared to the annual
net cash required for pollution controls. This methodology requires several
assumptions. The baseline net cash proceeds are the baseline after-tax
income plus one-third of annual baseline depreciation. The remaining
depreciation is reinvested annually to maintain plant productivity. The
annual cash requirements for pollution controls consist of the annual
pollution operating costs plus 10 percent interest on the pollution control
debt (100 percent of investment borrowed) and the repayment of the prin-
cipal over 20 years. From this amount, the tax-savings from pollution
control expense and interest are deducted. The resulting cash requirement
is a minimal amount which includes no return whatsoever for equity in the
existing plant.
If the annual pollution control cash requirement exceeds the baseline cash
flow, the enterprise cannot service the debt and would not be able to borrow
the funds for pollution control.
In each of the four model plant illustrations in Table VI-5, the annual
cash requirements for pollution controls far exceed the baseline net cash
proceeds; thus, financing would be economically unfeasible without price
increases.
Based solely on data in Tables VI-4'and VT-5, the impacted model plants
cannot finance new investment. This com msion could be modified by the
status of the plants in the overall corporate enterprises to which each be-
longs. It is not uncommon for profitable large corporations to continue
to operate economically unprofitable units in integrated plant complexes,
so long as the total enterprises are profitable. Since this factor cannot be
determined, it is not possible to assess with certainty the ability of the
model plants to finance new investment.
VI-9
-------
Table VI- 5. Annual pollution control cash requirements - compared to baseline net cash proceeds -/
Baseline BPT (N) BPT (E) BPT/BAT (N) BPT/BAT (E)
Product net cash Pollution control Pollution control Pollution control Pollution control
(tons /day capacity) proceeds cash requirement cash requirement cash requirement cash requirement
Def. Acid
Vacuum
75 -267 129 162 133 166
100 51 160 205 165 210
300 190 307 441 322 456
STPP
450 427 678 -/ 2J I/
— Baseline net cash proceeds are after-tax income plus one-third of annual depreciation.
2 /
— Annual pollution control cash requirements are annual pollution control operating costs plus debt service
requirements for 20 year, 10 percent loans on pollution control investment, minus tax savings. Contaminated
(pond) water treatment requires reinvestment at the end of 10 years.
— Not applicable
Note: (N) and (E) refer to normal and emergency water treatment. Emergency treatment would be an
annual cost only once in 10 or 25 years.
-------
C. Production Effects
The effects of pollution controls on production are significant. The methodology
described in Chapter IV of Part I to evaluate closures underlies the present
discussion. It must be recognized that existing plants do not fit the model
plants precisely; therefore, the analysis which follows must be qualified
by variances among existing plants. In spite of this limitation, the econ-
omic models provide the best available data for forming judgments about
potential closures.
1. Potential closures
Tables VI-3 and VI-4 presented the fundamental data for analysis closure
potentials. In this section, closures are estimated for baseline conditions,
after BPT controls and, finally, after BAT controls.
Baseline closures - There are two model plants which show baseline nega-
tive cash flows and negative net present values (NPV's). These are the 75
TPD (50 percent utilization) defluorinated rock plant and the 75 TPD de-
fluorinated acid plant. Under 1973 conditions, these model plants are
potential baseline closures.
When the 75 TPD DFP plant moves to 90 percent utilization, it has positive
cash flow and NPV; there does not appear to be a high probability of closure,
even though return on investment is negative. Thus, the one small DFP
operating plant which falls in the 75 TPD category is rated as a medium
probability for baseline closure. Since pollution control technology is
in place, BPT and BAT controls will have no further impact.
The model 75 TPD defluorinated acid plant has both a negative cash flow
and a negative NPV. This indicates a high probability of baseline closure
if there is no price increase. There are two operating plants in this cate-
gory.
It must be noted that any lasting significant change in 1973 price-cost
relationships resulting from the distorted 1974 price structure, could
make these baseline closures unlikely.
BPT closures -- The negative impact of pollution controls will fall only
on those plants without technology in place. Based on EPA estimates,
there are four such plants: one small defluorinated acid (vacuum evapor-
ation process plant), the two auxiliary process acid plants and the one
STPP plant.
VI-11
-------
BPT normal treatment requirements produce large negative NPV's for
the representative model plants in each of the four plant categories.
Without price increases these plants would have to close.
One of the defluorinated acid plants rt oortedly has no available land
for constructing a containment and cooling pond. In order to meet BPT
standards, such a plant would have to treat continuously its process water
before discharge. There is not sufficient information available about the
manufacturing process to determine treatment costs, but it is probable
that continuous treatment would be e nial to or greater than BPT (normal)
contaminated (pond) water treatment. The conclusions of the closure
analysis would not be affected by the substitution of continuous treatment
for normal BPT treatment.
The effects of an expected 4 percent price increase for defluorinated
acid are shown in Table VI-6. The small vacuum process plant would
have a negative NPV of $794,000 to $813,000, and the small auxiliary
process plant would show a negative NPV of $405,000 to $466,000. Thus,
even with a price increase, they are still likely to close. The 300 TPD
auxiliary process plant has its NPV restored to a positive $393,000 to
$675,000 under BPT (normal) and may not close with a 4 percent increase.
It should be noted, however, that this plant may already be operating at
only 69 percent of capacity, indicating that there may be other consider-
ations which could outweigh pollution control factors. This particular
plant must be regarded as a medium possibility for closure.
No price increase is expected for STPP; therefore, the net present value
analysis indicates that the one STPP plant should close. As stated earlier,
a 4. 5 percent price increase could restore this plant to its previous level
of profitability. It is, of course, possible that STPP prices could rise by
that amount through conditions unrelated to pollution abatement. This seems
unlikely in view of the pollution control concerns over detergents manufactured
with STPP. This plant must be classified as a highly probable closure.
Table VI-7 summarizes potential closures.
In summary, one small DFP plant has a m dium probability and two small
defluorinated acid plants have a high probability of closure under baseline
conditions. Under BPT, assuming a 4 percent price increase for de-
fluorinated acid and no price change for STPP, one additional acid plant
(auxiliary process) and the STPP plant have a high probability of closure
and one other acid plant (auxiliary process) has a medium probability of
closure. Thus, BPT pollution controls may result in closure of two acid
plants and one STPP plant.
VI-12
-------
Table VI-6. Net present values of model plants before and after pollution
controls, assuming a 4 percent price increase
Product Baseline BPT (N) BPT/BAT (N)
(tons pe r day —• — —~
capacity) 6.5 7.5 6.5 7.5 6.5 7.5
Def. Acid
Vacuum
75 433 365 -794 -813 -815 -833
Auxiliary
100 1,118 994 -405 -466 -433 -493
300 3,505 3,130 675 393 591 313
VI-13
-------
Table VI-7. Probability of closures under baseline and BPT (normal) conditions, assuming a 4 percent
price increse for defluorinated acid
DFP
Def. Acid
STPP
Total
no. plants
4
11
1
High
0
2
0
Baseline
Medium
1
0
0
Very
low
3
9
1
BPT (N)
High Medium
0 1
li/ 1
1 0
Very
low
3
7
0
I/ Excludes two baseline closure
-------
BAT closures - BAT adds insignificantly to investment and annual costs;
therefore, no closures will be attributable to BAT requirements.
Finally, in assessing production impacts, it must be stated again that
plants which are a part of a larger phosphate complex may be kept in
operation, even though economic analysis may indicate closure. The
financial condition of the total enterprise is the overriding consideration
in management's final decision whether or not to invest in pollution control
facilities.
2. New Source Performance Standards
Table VI-8 contains baseline and NSPS (normal) net present values for
selected model plants. Only larger plants have been analyzed, since the
economies of scale basically preclude the future building of smaller plants.
Replacement investment costs (1973 dollars) were used in this analysis,
with containment and cooling pond costs included in the investment figures.
(It should be noted that BPT pond size at .26 to .28 acres per ton of
daily production, greatly exceeds the size actually needed for process
water retention, cooling and re circulation.) Only contaminated (pond)
water treatment has been added to baseline investment and operating
costs in estimating the NPV's of model plants under new source per-
formance standards.
Under baseline conditions, three of the model plants have negative base-
line NPV's--the 225 TPD defluorinated rock plant, the 150 TPD acid
plant and the STPP plant. Plants of these sizes and types are not likely
to be constructed in the future.
After applying NSPS (normal treatment), one additional model plant incurs
a negative NPV--the 300 TPD auxiliary process acid plant. Its NPV changes
from a positive value of 555,000 (or $367,000) to a negative value of
$1,009,000 (or $1, 159,000). NSPS would probably preclude the future
construction of such a plant.
Emergency treatment involves no additional investment costs and would
be expected to occur once in 25-years (or even less often); therefore,
NSPS (emergency) costs would have no influence on future building
decisions .
In summary, the NSPS can be expected to have an impact on construction
of new auxiliary process plants but with so little known about the manu-
facturing process, even this statement must be qualified. As for other
subsegments, NSPS should not be a significant factor since only larger
plants are likely to be built in the future. As Table VI-8 shows,a 450 TPD
acid plant would be profitable.
VI-15
-------
Table VI-8. Net present value of selected model plants before and after NSPS
cr-
Product
(tons per day
capacity)
DFP
225 II
DEF Acid
Vacuum
450 I
450 II
Submerged
150
450
Auxiliary
300
STPP
450
Baseline
6.5
-716 -1
3,359 2
3,359 2
-369
3,359 2
555
-2,558 -2
NSPS (N)
1,5 6.5 7.5
__ _ __ $000 -- -
,205 -1,817 -2,258
,765 1,052.8 572.9
,765 704 ?50
-487 -1,310 -1,379
,765 985 510
367 -1,009 -1,159
, 942 ij j_ /
I/
— Not applicable
-------
3. Production Curtailment
Production losses from baseline closures could amount to about 4 percent
of defluorinated acid capacity. Another 3 percent of capacity can be ex-
pected to close under BPT (normal), with an additional 11 percent listed
as a medium probability for closure. BPT (emergency) and BAT will
have no significant production impacts. The loss of from 7 to 18 percent
of capacity might not significantly reduce total production, because
the remaining plants have excess capacity. The segment operated at
only 80 percent of capacity in 1973.
STPP production may drop by 120,000 tons per year if the wet acid plant
should close. This is 12 to 13 percent of 1973 production, but underutilized
capacity in the industry could absorb the difference.
D. Employment Effects
The number of employees in each of the three segments were reported
in Chapter I as follows:
DFP 103
Defluorinated acid 158
STPP 21
Total 282
Pollution controls may eliminate 39 jobs in the acid segment and 21 in
the STPP segment. The actual effect would probably be less than this
amount because some workers would be absorbed into other on-site plants.
It is not possible to estimate how many jobs would be lost, but assuming
that half of the potentially affected workers are transferred within the
company, the loss of jobs would amount to an 11 percent of estimated
employment in these three segments.
In the perspective of the entire fertilizer industry, the 30 to 60 jobs represent
tess than 0. 15 percent of total employment
E. Community Effects
Community effects should be of minor significance. The number of
employees in the impacted plants is relatively small. Considering the
size of the communities and the amount of their industrial activity, the
job losses would be minor. Workers would be absorbed by other phosphate
plants.
VI-17
-------
The broader economic impacts on the communities are more difficult to
evaluate. The loss of several millions of dollars of trade could have
repercussions in the business and financial establishments which supply
goods and services to the closed plants. In individual cases severe
hardship would be realized, but the size and diversity of the local com-
munities suggest, however, that the long-run effects of actual closures
would be relatively minor.
F. Balance of Payments Effects
The defluorinated phosphate products included in this study are not of
much significance in foreign trade. The U. S. imports about 30,000
tons of dicalcium phosphates for feed supplements and exports about
50,000 tons of STPP. Any decline in U. S. production of defluorinated
phosphoric acid could encourage increased dicalcium phosphate imports,
but the possible loss of defluorinated acid capacity of some 50,000 to
75,000 tons (P2C>5) would probably not result in appreciable additional
imports of dicalcium phosphate because much of the slack would be taken
up by other U. S. plants. Even if imports doubled, the amount of dollars
involved (1973 prices) would be less than $3, 000, 000.
STPP exports have declined steadily since 1970, as has U. S. production.
Pollution controls would probably not contribute to any further decline.
The dollar amount of STPP exports is relatively insignificant--a n esti-
mated $7,500,000 in 1973.
In summary, pollution controls would have only minor effects on balance
of payments, possibly resulting in an increase in imports of phosphates
of less than $3,000,000.
VI-18
-------
VII. LIMITS OF THE ANALYSIS
A. General Accuracy
The data used in this study were drawn from published government reports,
corporate annual reports and industry sources. Every effort was made to
verify the data. Plant investment costs, operating costs and prices were
reviewed with various companies for validation.
The use of the model plant concept requires a synthesizing of data to develop
representative model plant profiles. Locational factors will produce plant
to plant variances, as will differences in management techniques.
Even with these variances, however, the data yield a generally accurate
depiction of the fertilizer industry, and they provide an accurate basis for
evaluating the impact of increased effluent controls on the industry.
B. Possible Range of Error
Estimated ranges of error for data used in this study are presented below:
Error Range (%)
1. Number and location of facilities +10
2. Capacity and age ~ 10
3. Price information for products and raw
materials +15
4. Sunk investment value T 20
5. Plant operating costs ~+ IQ
6. Plant closures T 10
Pollution control costs were furnished by EPA and are assumed to be
accurate. Containment and cooling pond size in various model plants were
estimated at . 26 acres per daily ton of product for DFP and at . 28 acres
per daily ton of F^^c ^or defluorinated acid plants. There is some indi-
cation from industry sources that the size factor may be high and that pond
costs may be overstated.
VII-1
-------
Of greater importance than the possible overestimation of pond size is the
possible error in estimated process waste to be treated in the various
plants. Water volumes are a function of plant size, tne type of process
used, and in local rainfall-evaporation factors. The contaminated (pond)
water treatment investment and operating costs have been estimated by
DPRA using EPA data on process water requirements and treatment costs
combined with weather service data on rainfall and evaporation. This
could result in a range of error in DPRA's estimated operating costs for
contaminated water treatment of + 25 percent.
C. Critical Assumptions
Several critical assumptions were used in this study. Any cha.nge in any
of these assumptions would change the results of the analysis. These assum-
ptions were discussed throughout the report. Some of the major ones are
presented below.
1. All plants within a product segment and size category
were assumed to have similar manufacturing and salvage
values; however, locational, management and economic
factors would necessitate variations.
2. Where more than one plant falls into a segment size group, all
plants in that group were assumed to operate at equal
capacity utilization rates.
3. Prices and plant net-backs were minor exceptions assumed
to be uniform for all plants in a segment
4. Raw material costs were generally estimated at a uniform
level for plants in each segment.
5. Sales and general and adminis rative expenses were assumed
similar for all plants within a jegment.
6. Each model plant has been designed as a stand alone enter-
prise in terms of investment and operating costs. Most of
the operating plants in these three segments are located in
complexes and may have slightly different costs, especially
for administrative overhead.
7. Two of the defluorinated acid plants do not concentrate wet
phosphoric acid. These are identified as "auxiliary process"
VII-2
-------
plants. Little is known concerning these data about operating costs and
manufacturing process. No technology or cost data were provided by EPA
for tnis process. It was assumed, for purposes of analysis, that the con-
trol standards and technology were the same as for the other defluorinated
acid plants.
D. Remaining Questions
The future of the phosphate industry poses a major question for the segments
in this study. Phosphate capacity is expected to expand in the mid-1970's,
but currently, wet phosphoric acid is in short supply. Some plants have had
difficulty obtaining smficient quantities of acid to meet feed phosphate needs
as high fertilizer demand in the U.S. and abroad has claimed most phosphate
output. There is some question about the phosphate industry's ability to
obtain all of the electrical energy it needs to meet its manufacturing require-
ments. Future defluorinated acid supplies and prices can be seriously
influenced by these developments in phosphates.
There are also apparent changes emerging in livestock and poultry production
which pose unanswered questions about the future of feed phosphates. There
may be significant shifts in feeding practices and technologies which could
cause either greater or lesser demands for defluorinated phosphate feed
supplements. It is too early to know the direction of these shifts.
At the same time, the effects of pollution controls on soaps and detergents
manufacturing leave sodium tripolyphosphate production uncertain.
Since nearly all of the STPP output goes into detergents, the future of this
segment depends heavily on policy decisions regarding the use of phosphates
in cleaning agents.
In addition, there are broad agricultural policy questions such as marketing
restraints and price controls which will influence the future of non-fertilizer
phosphates. Further, domestic inflation leaves many unanswered questions
concerning the availability of capital, cost jf capital, and operating costs.
VII-3
-------
APPENDIX
-------
Appendix Table 1. Pro forma income statement and financial returns for model plants - defluorinated phosphate rock
75 TPD
Production
Sales
Direct expenses
Phosphate rock
Phosphoric acid (54%)
Soda ash
Power
Natural gas
Cooling water
Operating labor
Supervision and fringes
Subtotal
Indirect expenses
Maintenance, refractories
and other supplies
Taxes and insurance
Plant and labor overhead
Selling, general and ad-
ministrative
Subtotal
Total expense
Depreciation
Units
Tons
Tons
Tons
Tons
Tons
Set
MCF
M gal
Unit cost Units /ton
1
I/
1
*' .95
67.50 .20
45.00 .10
.50 1
.80 5
.05 4
3 /
man hours 3. 85 _'
Set
4% of
100.00%
Basis
replacement plant
investment
3% of
100%
replacement investment
of labor and supervision
15% of sales
$ — /ton of annual capacity
50%
utilization
12,500
1, 112
299
169
56
6
50
2
36
36
654
128
97 Al
98 I/
167
490
1, 144
150
90% 225
utilization TPD - I
22,500
.
-------
Appendix Table 1. (continued)
Interest (long term)
Total costs
Net income before tax
Income tax
Net income after tax
Cash flow
Return on invested capital
Before tax
After tax
Return on sales
Before tax
After tax
75 T:
50%
Units Unit cost Units /ton utilization
1.75% of sales 35
1,329
^217>
0
<67>
482
0 225
257
134 602
pet
^ 0 10.0
<0 5.3
<0 9.6
*LO 5. 1
225
TPD - II
87
4,084
708
333
375
720
16.
8.
14.
7.
0
5
8
8
L' Bulk price, $89, 89, 74, 71 respectively
i/ $25. 15, $25. 15, $14. 15, $8. 15 respectively
I/ .75, .75, .42, .42 respectively
I/ 75% of $130,000
I/ 6.00, 6.00, 4.60, 4.60 respectively
-------
Appendix Table 2. Estimated invested capital for model plants - defluorinated phosphate rock
75 TPD
Plant
Land
Plant and equipment
Total
Working capital
Total invested
capital
(1)
(2)
(1)
(2)
Current
40
3,200
3,240
111
200
3,351
3,440
Salvage
40
200
240
111
200
351
440
Book
25
290
315
111
200
426
515
225 TPD-1
Current
600
6,250
6,850
500
7,350
"" ™
Salvage
i nnn __ -
600
390
990
500
1,490
""
Book
500
3,820
4,320
500
4,820
"
225 TPD - II
Current
150
6,250
6,400
480
6,880
^ ~
Salvage
150
390
540
480
1,020
""
Book
130
3,820
3,950
480
4,430
"
Note: Investment does not distinguish among fluidized bed and kiln processes. Fluidized bed requires slightly
higher investment than kiln.
-------
Appendix Table 3. Pro forma income statement and financial returns for model plants - superphosphoric acid
Production
Sales
Direct expenses
Phosphoric acid (54%)
Fuel (natural gas)
Electricity
Process water
Chemicals (caustic soda,
etc.)
Operating labor
Supervision and fringes
Subtotal
Indirect expenses
Maintenance and supplies
Taxes and insurance
Plant and labor overhead
Selling, gene ral and
administrative
Subtotal
Total expenses
Depreciation
Units
Tons P2C>5
Tons Pz°5
Tons P2O5
MCF
KWH
M gal
Set
man hour
Set
7% of re
3% of re
100% of
$7/ton
$i/ / T
Unit cost
3/
153-
125.00
.60
.01
.05
.75
J-/
100%
placement
placement
labor and £
PD capacit
Units /ton
1
1
1.03
1.80
70
15
1
4.50
--
investment
investment
supervision
y
75 TPD
19,800
3,029
2,549
21
14
15
15
57
57
2,728
49
21
114
139
323
3,051
54
150 TPD
39,600
$1 000
6,058
5,098
43
28
30
30
57
57
5,343
76
32
114
277
499
5,842
86
450 TPD
118,000
18,054
15, 192
127
83
88
88
57
57
15,692
144
62
114
826
1, 146
16,838
170
continued--
-------
Appendix Table 3 (continued)
Units Unit cost Units /ton 75 TPD
Interest (long term) 4
Total costs 3 199
Net income before taxes -_80 ^
Income tax
Net income after taxes ^ 80 >
Cash flow ^ 26 >
Return on invested capital
Before tax ^ 0
After tax <; Q
Return on sales
Before tax < Q
After tax ^_Q
150 TPD
8
5,936
122
52
70
156
12
7
2
1
450 TPD
19
17, 027
1, 027
486
541
711
36
19
6
3
— .64, .32 and . 11 respectively
-1 $720, $570 and $380 respectively
— This plant net back price of $153 per ton is based on a $28 differential between ortho acid and SPA. A higher
price for SPA, which may be indicated by list price data, would not result in larger margins for model plants,
since the cost of ortho acid would rise by an equal amount. In fact, use of the $28 differential may result
in some slight overstatement of profits for the model plants.
-------
Appendix Table 4. Estimated invested capital for model plants - superphosphoric acid
Plant
Working Capital
Total invested capital
Current
705
300
1,005
75 TPD
Salvage
55
300
355
150 TPD
Book
215
300
515
Current
1,080
605
1,685
Salvage
- $1,000 -
85
605
690
Book
430
605
1,035
Current
2,050
1,805
3,855
450 TPD
Salvage
165
1,805
1,970
Book
1,020
1,805
2,825
-------
Appendix Table 5. Pro forma income statement and financial returns
for model plant - defluorinated wet process acid —
Production
Sales
Direct expenses
Phosphoric acid (54%)
Silica gel and heat
Operating labor
Labor and supervision
Subtotal
Indirect expenses
Maintenance
Taxes and insurance
Plant and labor overhead
Selling, general and ad-
ministrative
Subtotal
Total expenses
Depreciation
Interest (long term)
Total costs
Net income before tax
Income tax
Net income after tax
Cash flow
Return on invested capital
Before tax
After tax
Return on sales
Before tax
After tax
Units Unit cost 100 TPD
Tons -- 1 26,000-^
$1
Tons $153-' 1 3,978
Tons P2O5 $125 1.03 3,348
Set $ 7.50 1 195
Manhours $4.50 —' 35
Set $100% -- 35
3,613
5% of replacement investment 10
3% of replacement investment °
100% of labor and supervision 70
$8 and $7 per ton respectively 208
294
3,907
$170 and $140 /TPD capacity 17
respectively
2
3,926
52
18
34
51
10
6
; i
^.\
300 TPD
69,000
,000 ---
10,557
8,884
518
78
78
9,558
25
15
156
483
679
10,237
42
6
10,285
272
124
148
190
pet
20
11
3
1
I/ These estimates must be considered as indicative as little is known about
manufacturing costs of this method of defluorination.
2J Actual sales price unknown. Assumed to be equal to P2C>5 from SPA.
3/ 260 and 230 days production respectively
4/ .30 and .25 respectively
-------
Appendix Table 6. Estimated invested capital for model plant -
defluorinated wet process acid (300 TPD)
Plant
Working
Cur
100 TPD
200
capital 400
rent
300 TPD
500
1,055
Salvage
100 TPD 300 TPD
$1 DOO -
16 40
400 1,055
100
118
400
Book
TPD 300 TPD
295
1,055
Total invested
capital 600 1,555 416 1,095 518 1,350
-------
Appendix Table 7. Pro forma income statement and financial returns
for model plant - 450 TPD sodium tripolyphosphate (wet acid)
Units Unit cost Units /ton
Production
Sales
Direct expenses
Phosphoric acid 75%
H3PO4 -
Soda ash
Supplies
Power
Fuel (natural gas)
Operating labor
Supervision and fringes
Subtotal
Indirect expenses
Maintenance
Taxes and insurance
Plant and labor overhead
Selling, general & ad-
ministrative
Subtotal
Total expenses
Depreciation
Interest (long term)
Total costs
Net income before tax
Income tax
Net income after tax
Cash flow
Tons -- 1
Tons $153 I/ 1
Tons 67.50i/ 1.087
Tons 45.50 .735
Ton . 50 1
KWH .01 38.9
MMBTU .80 13.9
Man hours 4.50 .21
Set 100.00%
5% of replacement investment
3% of replacement investment
100% of labor and supervision
$10 per ton
$1. 10/TPY capacity
135,000
--41,000
20,655
11,372
4,515
75
58
1,668
142
142
17,972
236
142
284
1,350
2,012
19,984
165
15
20, 164
491
229
262
427
-------
Appendix Table 7 (continued)
Units Unit cost Units/ton Acid Price
(pet)
Return on invested capital
Before tax 17
After tax g
Return on sales
Before tax 2
After tax 1
— From Economic Analysis of Proposed Effluent Guidelines, The Industrial
Phosphate Industry, EPA-230/ 1-73-02 1, Washington, Aug. 1973~
— Includes $10.00 per ton clarification.
-------
Appendix Table 8. Estimated invested capital for model plant -
450 TPD sodium tripolyphosphate (wet acid)
Plant
Working capital
Total invested capital
Current
4,720
2,066
6,786
Salvage
-------
BIBLIOGRAPHIC DATA
I SHEET
1. Report No.
EPA 230/1-74-043
3. Rec.pient's Accession No.
4. Title and Subtitle
Economic Analysis of Proposed Effluent Guidelines
Nonfertilizer Phosphate Manufacturing Industry
5.
(Date
Report Date
September, 1974
>ate of completion
ion)
6.
7. Author(s)
Milton L. David, C. Clyde Jones, J. M. Malk
8. Performing Organization Kept.
NO. 139
9. Performing Organization Name and Address
Development Planning and Research Associates, Inc.
P. O. Box 727
Manhattan, Kansas 66502
10. Project/Task/Work Unit No.
Task Order No. 14
11. Contract/Grant No.
68-01-1533
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S. W.
Washington. D. C. 20460
13. Type of Report & Period
Covered
Final Report
14.
15. Supplementary Notes
16. Abstracts
This study of nonfertilizer phosphate manufacturing industry study, SIC 2819 and
2874, specifically involved three segments--4 defluorinated phosphate rock (DFP)
plants, 11 defluorinated wet phosphoric acid plants and 1 sodium tripolyphosphate
(STPP) plant. Most of the plants are reasonably profitable. Pricing of these pro-
ducts is complex in that their demand is derived, i.e. feed phosphates, liquid
fertilizers, soaps and detergents. Feed phosphates and liquid fertilizer markets
together are expected to grow at 8 to 12 percent per annum. STPP use is declining.
Because of the amount of in-place pollution control technology, direct pass-on of
control costs is not expected. The 4 DFP plants currently meet control require-
ments and should not be impacted. Three defluorinated acid plants may close due
to pollution control regulations although one of these may close under baseline con-
ditions. The STPP plant may close in face of impending pollution control guidelines
17. Key Words and Document Analysis. 17a. Descriptors
Pollution, water pollution, industrial wastes, fertilizers, phosphates, sodium,
tripolyphosphate, defluorinated rock phosphate, defluorinated phosphoric acid,
feed phosphates, economic, economic analysis, discounted cash flow, demand,
supply, prices, fixed costs, variable costs, community, production capacity,
fixed investment
I7b. Identifiers/Open-Ended Terms
05 Behavioral and Social Sciences, C-Econornics
06 Biological and Medical Sciences, H-Food
17c. COSATI Field/Group
18. Availability Statement
National Technical Information Service
Springfield, Virginia 22151
79. Security Class (This
Report)
UNCLASSIFIED
20. Security Class (This
Page
UNCLASSIFIED
21. No. of Pages
129
22. Price
FORM NT1S-35 (REV. 10-73)
ENDORSED BY ANSI AND UNESCO.
THIS FORM MAY BE REPRODUCED
USCOMM-DC 8265-P74
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16. Abstracts (continued)
Associated production curtailments and employment impacts
(60 jobs) are estimated to be minor.
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