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
ฃ...   ,    ." .  -' .   ..:" 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 3,000ฐ 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 ~P2ฎ5 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
-ฃ 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; currentlyป
                 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.
                                    12

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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 P2ฐ5^
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

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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

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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

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                       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

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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

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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
ฐฐ 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

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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

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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

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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

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           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

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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

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 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

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                    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

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        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

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                  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.

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 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.

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 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

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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

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                                                                  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 ฃ/

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

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           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^, ฐ^ 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

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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

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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

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                 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
ฃ.' 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 Pzฐ5

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 ฃ




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 ฐ
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

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                      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.

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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
	 
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 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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