EPA-230/l-76-041a
NOVEMBER 137B
shou?dh T/ This n
should be retained in the EPA
Region 5 Library Collection
ECONOMIC ANALYSIS OF
PRETREATMENT STANDARDS:
THE SECONDARY COPPER AND ALUMINUM
SUBCATEGORIES OF THE NONFERROUS METALS
MANUFACTURING POINT SOURCE CATEGORY
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Water Planning and Standards
Economic Analysis Staff
Washington, D.C. 20460
uszz
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This report has been reviewed by the Office of Water
Planning and Standards, EPA, and approved for publication.
Approval does not signify that the contents necessarily reflect
the views and policies of the Environmental Protection
Agency, nor does mention of trade names or commercial
products constitute endorsement or recommendation for use.
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EPA 230/l-76-041a
November 1976
ECONOMIC ANALYSIS OF
PRETREATMENT STANDARDS FOR THE
SECONDARY COPPER AND ALUMINUM SUBCATEGORIES OF THE
NONFERROUS METALS MANUFACTURING POINT SOURCE. CATEGORY
Prepared for
Office of Water Planning and Standards
Economic Analysis Staff
U.S. Environmental Protection Agency
Washington, D.C. 20460
U.S. Environmental Protection Agency
Region V. Library
230 South Dearborn Street
Chicago, Illinois 60604
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PREFACE
The attached document is a contractor's study prepared for the Office
of Water Planning and Standards 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 Pretreatment Standards to be established
under section 307(b) of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study, "EPA Development Document,"
supporting the issuance of interim final regulations under section 307(b).
The Development Document surveys existing and potential waste treatment
control methods and technology within particular industrial source categories
and supports interim final promulgation of Pretreatment Standards based upon
an analysis of the feasibility of these standards in accordance with the
requirements of section 307(b) of the Act. Presented in the Development Doc-
ument are the investment and operating costs associated with various altern-
ative 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 Water Planning and Standards of EPA. This report was submitted in ful-
fillment of Contract 68-01-1541 by Arthur D. Little, Inc. Work was com-
pleted as of November 1976.
This report is being released and circulated at approximately the same
time as publication in the Federal Register of a notice of interim final rule
making under Section 307(b) of the Act for the subject point source category.
The study is not an official EPA publication. It will be considered along
with the information contained in the Development Document and any comments
received by EPA on either document before or during interim final rule making
proceedings necessary to establish final regulations. Prior to final pro-
mulgation of regulations, the accompanying study shall have standing in any
EPA proceeding or court proceeding only to the extent that it represents the
views of the contractor who studied the subject industry. It cannot be cited,
referenced, or represented in any respect in any such proceeding as a state-
ment of EPA's views regarding the subject industry.
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TABLE OF CONTENTS
Page
List of Tables v
List of Figures viii
I. EXECUTIVE SUMMARY 1
A. PURPOSE AND SCOPE 1
B. INDUSTRY OVERVIEW 1
C. PRETREATMENT STANDARDS 2
D. IMPACT ANALYSIS 5
E. LIMITS OF THE ANALYSIS 8
II. METHODOLOGY 9
A. MICROECONOMIC FOUNDATIONS 9
B. DIRECT IMPACT 14
1. Point Impacts 14
2. Industry Projections 16
C. SECONDARY IMPACT 17
III. SECONDARY ALUMINUM SMELTING AND REFINING 18
A. INTRODUCTION 18
B. TECHNOLOGY 18
1. Presmelting 18
2. Smelting 19
3. Pouring and Cooling of Product Line 22
4. New Technology 23
C. INDUSTRY SEGMENTATION 24
1. Types of Firms 24
2. Types of Plants 26
3. Characteristics of POTW Dischargers 28
4. Proportion of the Industry Represented by POTW
Dischargers 28
D. FINANCIAL STRUCTURE OF THE SECONDARY ALUMINUM INDUSTRY 30
1. Profits 31
2. Annual Cash Flow 33
3. Market Value of Assets 33
4. Cost Structure 33
5. Constraints on Financing Additional Capital 34
ii
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TABLE OF CONTENTS continued
Page
III. SECONDARY ALUMINUM SMELTING AND REFINING continued
E. PRICING IN THE SECONDARY ALUMINUM INDUSTRY 35
1. The Scrap Market 35
2. The Secondary Aluminum Market 45
F. PRETREATMENT STANDARDS AND THE COSTS OF COMPLIANCE 53
1. Recommended Preliminary Pretreatment Standards 53
2. Costs of Compliance 53
G. BASELINE ANALYSIS AND PROJECTIONS 57
1. Process Economics Model Structure 57
2. Financial Results 57
3. Industry Projections 61
H. ECONOMIC IMPACT ANALYSIS 64
1. Price Effects 65
2. Financial Effects 65
3. Production and Employment Effects 70
4. Resultant Effects on the Community 74
5. Effects on Balance of Payments 74
6. Sensitivity Analysis 74
7. Limits of the Analysis 76
IV. SECONDARY COPPER SMELTING AND REFINING 77
A. INTRODUCTION 77
B. TECHNOLOGY 77
1. Raw Materials 77
2. Sorting Scrap 79
3. Scrap Preparation 79
4. Melting and Alloying Intermediate Copper Scrap 84
5. Refining High-Grade Copper Scrap 88
C. INDUSTRY SEGMENTATION 89
1. Types of Firms 90
2. Types of Plants 92
3. Characteristics of POTW Dischargers 94
iii
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TABLE OF CONTENTS continued
IV. SECONDARY COPPER SMELTING AND REFINING continued
D. FINANCIAL PROFILES 96
1. Profits 99
2. Annual Cash Flow 99
3. Market Value of Assets 99
4. Cost Structure 100
5. Constraints on Financing Additional Capital 101
E. PRICE DETERMINATION 101
1. Scrap Market 101
2. Brass and Bronze Ingot Market 107
3. Market for Unalloyed Copper Ingot 110
F. PRETREATMENT STANDARDS AND THE COSTS OF COMPLIANCE 113
1. Recommended Preliminary Pretreatment Standards 113
2. Compliance Costs 116
G. BASELINE ANALYSIS AND PROJECTIONS 116
1. Process Economics Model Structure 116
2. Financial Results 116
3. Industry Projections 120
H. ECONOMIC IMPACT ANALYSIS 126
1. Price Effects 126
2. Financial Effects \27
3. Capital Availability 132
4. Production and Employment Effects 135
5. Resultant Effects on the Community 137
6. Balance-of-Payment Effects 137
7. Sensitivity Analysis 137
8. Limits of the Analysis 141
iv
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LIST OF TABLES
Table
No. Page
1-1 Preliminary Pretreatment Control Levels for
Secondary Aluminum Industry 3
1-2 Preliminary Pretreatment Control Levels for
Secondary Copper Industry 4
1-3 Summary of Impacts on Secondary Aluminum Industry
from Pretreatment and Zero-Discharge Standards 6
1-4 Summary of Impacts on the Brass and Bronze Segment
of the Secondary Copper Industry 7
III-l Percent of Value of Shipments of Ingots and Billets
Accounted for by the Largest Companies 25
III-2 Plants, Employees, and Production and Percents
of Industry Total Represented by each Segment 29
III-3 Financial Ratios for the Secondary Aluminum Industry 32
III-4 Volumes of Aluminum Scrap Consumption, 1975 36
III-5 Aluminum Scrap Consumption Levels, 1960-1975 38
III-6 U.S. Scrap Exports by Region, 1975 40
III-7 U.S. Scrap Imports by Region, 1975 41
III-8 International Scrap Trade, 1960-1975 42
III-9 Clipping and Cast Scrap Prices, 1960-1975 43
111-10 Aluminum Scrap Wholesale Buying Prices, Carload Lots,
Delivered to Buyers' Works, March 1971 and July 1973 44
I11-11 Secondary Aluminum Production in 1975 48
111-12 Secondary Aluminum Production Levels, 1960-1975 49
111-13 Secondary Production as a Percentage of Primary
Production, 1960-1975 50
111-14 Secondary and Primary Prices, 1960-1975 52
111-15 Preliminary Pretreatment Control Levels 54
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LIST OF TABLES continued
Table
No. Page
111-16 Costs of Compliance with Pretreatment Standards for
Secondary Aluminum Smelters Discharging to a POTW 55
111-17 Costs of Achieving Zero Discharge for Secondary
Aluminum Smelters Discharging to a POTW 56
111-18 Plant Characteristics 58
111-19 Baseline Costs of Production by Major Category 59
111-20 Baseline Profits and Cash Flow 60
111-21 Pretreatment Compliance Cost in Relation to
Product Price 66
111-22 Zero-Discharge Compliance Cost in Relation to
Product Price 67
111-23 Pretreatment Compliance Impacts on Profit and Cash Flow 68
111-24 Zero-Discharge Compliance Impacts on Profit and Cash
Flow 69
111-25 Capital Investment Associated with Pretreatment
Standards in Relation to Precompliance Cash Flow 71
111-26 Capital Investment Associated with Zero-Discharge
Standards in Relation to Precompliance Cash Flow 72
111-27 Sensitivity of Impact Parameters to Pollution Abatement
and Production Costs: Secondary Aluminum 75
IV-1 Types of Copper-Bearing Scrap 78
IV-2 Percent of Value of Shipments of Copper and Copper-Base
Alloys Accounted for by the Largest Companies in the
Secondary Copper Smelting and Refining Industry 91
IV-3 Plants, Employees, and Production and Percents of
Industry Totals Represented by Each Segment 95
IV-4 Measures of Financial Performance of Secondary Copper
Smelting and Refining Industry Based on Bureau of Census
Data 98
IV-5 Breakdown by Type of Copper Scrap Consumption in 1974 103
vi
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LIST OF TABLES continued
Table
No.
IV-6 Scrap Consumption Levels, 1965-1975 104
IV-7 Copper Scrap Prices 106
IV-8 Breakdown by Type of Brass and Bronze Ingot Production
in 1974 108
IV-9 Brass and Bronze Ingot Production Levels 109
IV-10 Brass Ingot Prices 111
IV-11 Refined Copper Produced from Scrap 112
IV-12 Preliminary Pretreatment Control Level 115
IV-13 Costs of Compliance with Pretreatment Standards
for the Secondary Copper Industry 117
IV-14 Costs for Recycle (Zero Discharge) for the Secondary
Copper Industry 118
IV-15 Plant Characteristics of Secondary Copper POTW
Dischargers 119
IV-16 Baseline Costs of Production by Major Category for
Secondary Copper POTW Dischargers 121
IV-17 Baseline Profits and Cash Flow for Secondary Copper
POTW Dischargers 122
IV-18 Pretreatment Compliance Cost in Relation to Product
Price for Secondary Copper POTW Dischargers 128
IV-19 Zero-Discharge Compliance Cost in Relation to Product
Price for Secondary Copper POTW Dischargers 129
IV-20 Pretreatment Compliance Impacts on Profit and Cash
Flow for Secondary Copper POTW Dischargers 130
IV-21 Zero-Discharge Compliance Impacts on Profit and Cash
Flow for Secondary Copper POTW Dischargers 131
IV-22 Capital Investment Associated with Pretreatment Standards
in Relation to Precompliance Cash Flow for Secondary
Copper POTW Dischargers 133
vii
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LIST OF TABLES continued
Table
No. Page
IV-23 Capital Investment Associated with Zero-Discharge
Standards in Relation to Precompliance Cash Flow
for Secondary Copper POTW Dischargers 134
IV-24 Sensitivity of Impact Parameters to Pollution
Abatement and Production Costs Secondary Copper: Brass
and Bronze (Segment 1) 139
IV-25 Sensitivity of Impact Parameter to Pollution Abatement
and Production Costs Secondary Copper: Unalloyed Copper
(Segment 2) 140
LIST OF FIGURES
Figure
No.
II-l Competitive Fringe Supply 11
II-2 Total Demand and Net Demand 11
II-3 Net Demand and the Pricing Behavior of the Price
Setting Oligopoly 13
IV-1 Flow of Copper Scrap in United States 80
IV-2 Trends in Copper Prices, 1965-1975 114
viii
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I. EXECUTIVE SUMMARY
A. PURPOSE AND SCOPE
The purpose of this study was to provide the Environmental Protection
Agency with an assessment of the economic impact on the U.S. secondary
aluminum and secondary copper smelting and refining industries of the
costs of compliance with pretreatment requirements stipulated under the
Federal Water Pollution Control Amendments of 1972,
For this study, the secondary aluminum industry is defined as that
portion of SIC 3341 (Secondary Nonferrous Metals) which recovers, proc-
esses, and remelts various grades of aluminum-bearing scrap to produce
aluminum or an aluminum alloy as a product. This does not include the
casting or alloying of remelted ingots, or pigs, nor those operations of
the primary aluminum industry, in which certain categories of scrap are
recycled.
Also, for this study, the secondary copper industry is defined as
that portion of SIC 3341 that consists primarily of establishments en-
gaged in recovering copper metal and copper alloys from new and used
scrap and residues from various melting operations. It includes estab-
lishments involved in the melting and refining of copper alloys from
brass and/or bronze scrap to produce alloyed copper, as well as those
melting copper-bearing scrap to recover principally pure copper (unalloyed
copper). By this definition, the industry does not include the collec-
tion, preliminary grading and preparation of scrap, the production of
brass and bronze ingots from essentially virgin metals, nor the recycling
of copper-base materials by the fabrication industry.
B. INDUSTRY OVERVIEW
1. Secondary Aluminum Industry
In the secondary aluminum industry, there are approximately 100
producers. We have obtained information on 69 of the largest producers,
representing more than 94 percent of the total production and 90 percent
of the total employment. Plants in this industry vary all the way from
very small operations located on sites as small as one acre and employing
as few as six people to fairly complex ones with on the order of 400
employees at a given site, occupying up to 50 acres. Plant production
ranges from 250 to 4500 tons per month.
The general product of the industry is specification aluminum alloy
in ingot or sow form; it is mainly used for die casting and, to a lesser
extent, for permanent mold and sand casting. Some plants deliver hot
metal, and some smelters produce semi-specification material which is
used in steel mills as deoxidizers. This material comes in the shape
of small ingots, notched bar, and shot, and is also produced in certain
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other shapes. A small segment of the industry consumes billet-grade
aluminum scrap used in the manufacture of extrusion billets. There are
18 POTW dischargers in the industry, and they represent 18 percent of
its total plants.
2. Secondary Copper Smelting and Refining Industry
In the secondary copper smelting and refining industry in the United
States, there are approximately 70 producers of either brass and bronze
ingots or secondary refined copper. The plants in this industry fall
into two fairly distinct categories: (a) producers of brass and bronze
ingots and (b) producers of unalloyed copper. There are 63 plants in
the brass and bronze ingot category. Of these, we were able to obtain in-
formation on 37 plants. The general plant size is small, with production
ranging from 500-1500 tons per month and employment ranging from 10-500
people. These plants generally produce ingots or shots to specification.
Several of these plants are diversified, being involved as well in other
secondary metal processing operations, such as secondary aluminum, lead,
and zinc. There are 15 POTW dischargers in this industry, representing
24 percent of the total number of plants and 30 percent of the total
production.
There are seven producers of unalloyed copper. The plant sizes range
from 1500-18,000 tons per month with employees ranging from 100-1800
people. These plants generally utilize sophisticated technology and
equipment and are integrated towards producing finished products, such
as tubes and rods. Some plants also produce precious metals as recovered
by-products.
C. PRETREATMENT STANDARDS
1. Secondary Aluminum
The interim final pretreatment control levels for the secondary alum-
inum industry would affect the following pollutants: oil and grease for
metal cooling wastewater; aluminum for scrubwater from demagging opera-
tion, and aluminum and ammonia for residue milling wastewater. These
control levels are summarized in Table 1-1.
2. Secondary Copper
The interim final pretreatment control levels for any wastewater dis-
charged to Publicly Owned Treatment Works (POTW's) for the secondary
copper industry are summarized in Table 1-2. The pollutant parameters
controlled would include: copper, zinc (dissolved), lead, cadmium,
mercury, and oil and grease.
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TABLE 1-1
PRELIMINARY PRETREATMENT CONTROL LEVELS
FOR SECONDARY ALUMINUM INDUSTRY
(mg/1)
Pretreatment Levels
Waste Stream
Metal Cooling
Fume Scrubbing
Residue Milling
Effluent
Characteristic
Oil and Grease
Aluminum
Aluminum
Ammonia
Maximum
for
any 1 day
100.0
100.0
100.0
100.0
Average of daily
values for 30 consecutive
days shall not exceed
100.0
50.0
50.0
50.0
Source: Pretreatment Supplement - Development Document for Secondary
Aluminum, EPA, August 1976.
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TABLE 1-2
PRELIMINARY PRETREATMENT CONTROL LEVELS
FOR SECONDARY COPPER INDUSTRY
(mg/1)
Effluent
Characteristic
Copper
Zinc (dissolved)
Lead
Cadmium
Mercury
Oil and Grease
Pretreatment Levels
Maximum for
any 1 day^
0.50
2.0
1.0
1.0
0.18
100
Average of daily values
for 30 consecutive days
shall not exceed
0.25
1.0
0.5
0.5
0.09
100
Source; Pretreatment Supplement - Development Document for Secondary
Copper, EPA, August 1976.
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D. IMPACT ANALYSIS
1. Secondary Aluminun
Table 1-3 summarizes the impact of pretreatment or zero-discharge
standards on the secondary aluminum industry. The POTW dischargers
represent 18 percent of the plants in the industry.
For compliance with pretreatment standards, the capital requirements
of the POTW dischargers would be $877,600. This represents 16.4 percent
of the average annual investment, or 2.0 percent of the capital in place.
The capital requirements for zero discharge would be $1,606,900, repre-
senting 30.0 percent of the average annual investment, or 3.7 percent of
the capital in place.
The total incremental increase in annualized operating costs for
pretreatment would amount to $352,590; operating and maintenance would
account for 57 percent of these costs. The incremental costs represent
less than one percent of sales. The incremental cost for zero discharge
would be $437,574, 37 percent of which would be for operating and main-
tenance costs. This increase in costs would represent less than one per-
cent of sales.
No price increases as a result of compliance with pretreatment or
zero-discharge standards are likely. No plant closures are anticipated
and impacts on employment, the community, and industry growth and trade
are likely to be minimal.
2. Secondary Copper
Table 1-4 summarizes the impact of pretreatment or zero-discharge
standards on the brass and bronze segment and unalloyed copper segment
of the secondary copper industry.
In the brass and bronze segment, representing 24 percent of the
plants in the segment, the capital requirements to meet pretreatment
standards would be $508,700, or 33 percent of the average annual invest-
ment, and 3.6 percent of the capital in place. For zero discharge, the
capital requirement would be $704,800, or 46 percent of the average an-
nual investment. This would represent 4.9 percent of the capital in
place. The annualized operating cost for pretreatment would be $227,770,
61 percent of which represents operating and maintenance costs. The
annualized costs for zero discharge would be $293,290, 58 percent of
which represents the operating and maintenance costs. In the case of
both pretreatment and zero discharge, the these costs represent less than
one percent of sales. No price increases are expected as a result of
compliance with pretreatment or zero-discharge standards.
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TABLE 1-3
SUMMARY OF IMPACTS ON SECONDARY ALUMINUM INDUSTRY FROM
PRETREATMENT AND ZERO-DISCHARGE STANDARDS
INDUSTRY
SIC CODE
No. of Plants In Segment
Percent of Total Plants in Industry
No. of Plants Discharging to Municipal System
Percent of Total Plants in Segment
COST OF POLLUTION ABATEMENT
Capital Costs For Segment
Total Capital Cost
Total Capital Expenditures as Percent
of Average Annual Investment
Total Capital Expenditures as Percent
of Total Capital in Place
Annualized Costs For Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase Including
Capital Charges as Percent of Sales
Secondary Aluminum
Part of SIC 3341
100
100
18
18
Zero
Pretreatment Discharge
$877,600 $1,606,900
16.4 30.0
2.0 3.7
$352,590 $ 437,574
200,984 159,982
0.14 0.18
EXPECTED PRICE INCREASE
Expected Increase Due to Pollution Control Price Increase Unlikely
PLANT CLOSURES
Total Closures Anticipated of % Reduction of
Segment Capacity Due to Closures None
EMPLOYMENT
Total Number of Employees Affected
Percent of Total Employees in Segment
None
COMMUNITY EFFECTS
None
IMPACT OF INDUSTRY GROWTH
BALANCE-OF-TRADE EFFECTS
Minimal
Minimal
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TABLE 1-4
SUMMARY OF IMPACTS ON
THE BRASS AND BRONZE
SEGMENT OF THE SECONDARY COPPER INDUSTRY
INDUSTRY
SIC CODE
No. of Plants in Segment
Percent of Total Plants in Industry
No. of Plants Discharging to Municipal
System
Percent of Total Plants in Segment
COST OF POLLUTION ABATEMENT
Capital Costs for Segment
Total Capital Cost
Total Capital Expenditures as Percent
of Average Annual Investment
Total Capital Expenditures as Percent
of Total Capital in Place
Annualized Costs for Segment
Total Incremental Increase Including
Capital Charges
Total Incremental Increase Excluding
Capital Charges
Total Incremental Increase Including
Capital Charges as Percent of Sales
EXPECTED PRICE INCREASE
Expected Increase Due to Pollution
Control
PLANT CLOSURES
Total Closures Anticipated of %
Reduction of Segment Capacity Due
to Closures
EMPLOYMENT
Total Number of Employees Affected
Percent of Total Employees in Segment
COMMUNITY EFFECTS
IMPACT OF INDUSTRY GROWTH
Brass & Bronze Unalloyed
Part of 3341 Part of 3341
63 7
100 100
15 1
24 14
Pre- Zero Pre- Zero
treatment Discharge treatment Discharge
$508,700 $704,800
32.8 45.5
3.6 4.9
$227,770 $293,290
$139,892 $171,535
0.26 0.34
Price Increase
Possibility of Closure
for 2 Plants (Plant 12
and 13) <1.0%
20-30
<1.0%
Minimal
Minimal
$547,500 $641,900
29.1 34.1
3.8 4.5
$278,320 $318,790
$126,714 $41,198
0.27 0.31
Unlikely
No Closures
None
Miminal
Minimal
BALANCE-OF-TRADE EFFECTS
Minimal
Minimal
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There is the potential for closure of two plants, representing less
than 1.0 percent of production, and 20-30 persons, representing less
than one percent of the industry employment, could also be affected. As
these plants are located in urban areas, no significant community impacts
are expected. The impact on industry growth and trade is likely to be
minimal as well.
There is one POTW discharger in the unalloyed copper segment, repre-
senting 14 percent of plants. The capital requirements for meeting pre-
treatment standards in this industry would be $547,500, or 29 percent
of the average annual investment. This would amount to 3.8 percent of
the total capital in place. For zero discharge, the capital requirements
would be $641,900, or 34 percent of the average annual investment, or
4.5 percent of the total capital in place. The annualized operating
costs would be $278,320, 46 percent of which would be for operating and
maintenance. For zero discharge, the annualized operating cost would
be $318,790, 13 percent of which would be operating and maintenance
costs.
As a result of compliance with pretreatment or zero-discharge
standards, no price increase is expected, nor is it likely that pollution
abatement costs will result in any plant closures. Nor are any effects
on employment, the community, industry growth, or balance of payments
expected.
E. LIMITS OF THE ANALYSIS
The main limitation of this analysis is due to the modelling ap-
proach used to quantify impacts. Such an approach was necessitated by
the paucity of specific financial data on each plant. Modelling will
not predict the financial characteristics exactly for a particular plant;
however, it can allow for basic differences between plants and provide
reasonable estimates of financial characteristics against which the
impact of compliance can be assessed.
It should be emphasized that in our analysis we only evaluated im-
pacts due to the proposed pretreatment standards.
The costs of compliance with pretreatment and zero-discharge stan-
dards were provided by the Environmental Protection Agency and are sub-
ject to all limitations of their cost analysis.
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II. METHODOLOGY
In this study, the direct and secondary economic impact of pretreat-
ment (and zero discharge) standards on the aluminum and copper industries
are quantified. Direct impact is defined as the effect on the financial
conditions of the POTW discharging plants, and secondary impact is defined
as the effects on consumers, employment, communities, trade, and the like.
A. MICROECONOMIC FOUNDATIONS
The industries being analyzed are similar in their structure. They
consist of oligopolistic price-setting sectors (i.e., primary producers)
which are characterized by vertical integration, well-defined price leader-
ship roles and high barriers to entry. In addition, each industry contains
a competitive fringe of scrap producers and secondary refiners. The struc-
ture of these competitive fringes differs somewhat for each industry; how-
ever, on the whole, the competitive fringes can be assumed to be "workably
competitive"1 subsectors of the particular industries to which they belong.
The industry products (for the primary and competitive fringe) are assumed
to be homogeneous.2
The analysis of such competitive fringes is theoretically straightfor-
ward. Deterministic price and output solutions for a competitive industry
or competitive sub-sector of an industry occur at the intersection of sup-
ply and demand curves, where supply curves represent the horizontal summa-
tion of the marginal cost curves of the member firms. Economic rents may
accrue in light of differential cost conditions across members. However,
no member of a competitive sector can affect price; they are all price-
takers. Short-run production decisions on the part of a given firm are
made by comparing the market price with production costs.
some discussion of this concept, see J.M. Clark, "Toward a Concept of
Workable Competition," The American Economic Review. June 30, 1940, pp.
241-256; J.M. Clark, Competition as a Dynamic Process (Washington DC: The
Brookings Institute, 1961); C.E. Ferguson, A_JMicroeconomic Theory of Work-
able Competition (Durham: Duke University Press, 1964); or F.M. Scherer,
Industrial Market Structure and Economic Performance (Chicago: Rand
McNally, 1971), pp. 33-38.
2This assumption is not as extreme as it sounds. It holds for most uses of
the relevant metals. For exariple, scrap copper is substitutable for primary
refined copper in most uses except wire. Attempts to disaggregate copper
use by some homogeneous demand categories has not been particularly success-
ful. For a discussion see Arthur D. Little, Inc., Econometric Simulation
and Impact Analysis Model of the U.S. Copper Industry, Technical Appendix
to Economic Impact of Environmental Regulations on the U.S. Copper Industry,
and Charles River Associates, Economic Analysis of the Copper Industry
(March, 1970).
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Such a supply curve1 is pictured in Figure II-l. The curve relates
the level of production of the competitive sub-sector to market price (=MC).
However, the supply curve in Figure II-l must be integrated into a model
synthesizing the behavior and structure of the price-taking competitive
fringe with the price-setting behavior of the oligopolistic primary pro-
ducers. This is accomplished through modelling techniques schematized in
Figure II-2. Using the copper industry as an example, let dT be the total
demand curve for refined copper in the United States. At any given price P ,
the competitive secondary industry will be in equilibrium and will supply a
certain amount Qso (Figure II-l) since the members are price takers. That
will leave dp as the net demand curve facing the oligopolistic primary pro-
ducers. The supply behavior of the competitive fringe will therefore affect
the behavior of the price-setting oligopolistic producers because whatever
price is chosen by them will initiate some supply response by the secondary
market. Since 3Qs/8P>0, the primary producers cannot raise prices indefi-
nitely. However, competition from the secondary industry does not constrain
the price-setting behavior of the primary producers to a particular price,
since the price elasticity of secondary supply is limited. Stigler^ derives
an estimate of the relationship of elasticities of the two demand curves
(Figure II-2) and the supply elasticity in the secondary industry (Figure
II-l):
where
n = elasticity of demand in the primary sector,
nT = market elasticity for total demand
Q = output of the secondary sector
s
Q = output of the primary sector
n = price elasticity of supply in the secondary sector
S
lThis discussion is abbreviated. If the reader is unfamiliar with the con-
cepts, he (she) is suggested to peruse J. Henderson and R. Quandt, Micro-
economic Theory (McGraw Hill; New York, 1958); or E. Mansfield, Micro-
economics , Theory and Application (W.W. Norton; New York, 1970).
2George Stigler, The Theory of Price (New York: The Macmillan Company,
1966), p. 342. This derivation assumes perfect homogeneity between the
primary and competitive secondary sectors. If such perfect homogeneity
does not exist, (and it does not), then the analysis is made only slightly
more complicated. See ADL, op. cit.
10
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P=MC
FIGURE 11-1 COMPETITIVE FRINGE SUPPLY
Secondary Supply q
FIGURE II-2 TOTAL DEMAND AND NET DEMAND
-------
Figure II-2 Indicates that the price setting behavior of the oligopo-
listic producers is influenced by competitive supply. If such competitive
supply were infinitely elastic, the oligopolistic producers would have no
pricing discretion (ns = °° and np = -°°) • However, competitive fringe sup-
ply is not perfectly elastic and the primary producers do possess some
pricing discretion. This is indicated in Figure II-3, where the net demand
is reproduced (with some change of scale) from Figure II-2, and the cost
curves and marginal revenue curves for the primary producers are added.
Two pricing solutions are indicated in Figure II-3:
(1) (P-, Q ) the collusive monopolistic solution (MR = MC); and,
(2) (P2, Q2) the "full cost pricing" solution (P = ATC).
Clearly, many other pricing solutions are possible;2 however, the
point here is not the development of static or dynamic oligopolistic pricing
models. The purpose is to indicate the market structure for the industries
being analyzed and the requirements forced upon the analysis by that market
structure and the phenomena being analyzed.
The secondary industries that are covered in this study are subsets
of industries and have primary counterparts that produce close substitutes
and compete with them in scrap markets. The secondary sector cannot affect
price, they are all price takers. Furthermore, not all the plants in the
secondary industry are affected by these standards and in all cases the
increased costs represent less than 1.6 percent of product price. It is
therefore expected that the pretreatment standards will have a small effect
on the supply curve in Figure II-l. As a result, the net demand curve (dp)
in Figure II-2, will, in essence, remain unaltered. Consequently, the
pricing and production solutions in Figure II-3 will be unaltered (that is,
any changes will be in the margin of production error). If the competitive
fringe cost curves and supply curves are essentially undisturbed by pre-
treatment standards, the lack of effects is intuitively expected.
The impact analysis is therefore predicated on the assumption that the
firms in the secondary aluminum and copper industries will absorb the incre-
mental cost of compliance with environmental standards, as production levels
or price do not change as a result of compliance.
^or simplicity, horizontal marginal cost curves are assumed in Figure Ic.
Such an assumption seems realistic for copper but less realistic for alum-
inum. The use of the marginal cost curve (MC), the average total cost
curve (ATC), and the marginal revenue curve is assumed familiar to the
reader. If not, the reader should consult, J. Henderson and R. Quandt,
op. cit., or Edwin Mansfield, op. cit.
2For a more detailed discussion of these pricing solutions in general, see
Henderson and Quandt, op. cit., and Mansfield, op. cit. For a discussion
with respect to the copper industry, see ADL, op. cit.
12
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PzQ
FIGURE 11-3 NET DEMAND AND THE PRICING BEHAVIOR
OF THE PRICE SETTING OLIGOPOLY
13
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B. DIRECT IMPACT
Direct impact is predicated on the assumption that the firms in the
industry will absorb the increase in costs and will not change their
production levels as a consequence of complying with environmental stan-
dards. Consequently, their cost increases will directly affect the
financial conditions of these impacted plants. These financial changes
are quantified in this block. The following parameters are examined on
a plant-by-plant basis: change in pretax profit and cash flow; avail-
ability of investment funds; and probability of closure. These impacts
are evaluated at a specific point in time—namely, the year 1975. To
the extent that 1975 is an atypical year, any findings will be biased.
Therefore, industry projections have been made to evaluate how future
conditions will differ from those prevailing in 1975.
1. Point Impacts
a. Models
To quantify direct impacts, ADL has developed process models for
secondary aluminum, brass and bronze and secondary copper. These models
are systems of deterministic process equations. The coefficients of the
model equations express the relationships between physical inputs (e.g.,
labor and materials) and output (ingot tonnage).
The independent variable of the equations (the production inputs) is
in a physical denomination, and, as a consequence, the initial model
solutions will also be expressed in physical terms. To obtain costs,
the vector of the physical input solutions for the plant is monetized by
multiplying it by a vector of corresponding unit input prices.
The equations of the model utilize either an exponential or linear
functional form. The exponential equation can be written:
Y = aXb (1)
where
Y = input,
X = output,
a = scale parameter, and
b = growth parameter.
14
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The value of "a" depends on the relative denomination (or scale)
of the variables X and Y. The value of "b" depends on the nature of
the relationship between X and Y. If b is less than 1, this means we
have economies of scale in the use of the input. For example, if b is
0.8, this implies that a 1 percent increase in output (X) will need only
0.8 of 1 percent increase in the input (Y). Similarly, if b is greater
than 1, we have diseconomies of scale, i.e, a given percentage increase
in the output (X) will necessitate a more than proportional change in
the input (Y).
The ADL model incorporates economies of scale in labor costs and
diseconomies of scale in capital-related costs. Such a formulation is
consistent with both industry characteristics and economic theory.
Many of the ADL equations use the linear form with a suppressed
intercept. This equation can be written:
Y = bX (2)
where
Y = input,
X = output, and
b = input-output coefficient.
The excessive rigidity implied by Equation (2) is acceptable in
materials cost equations. In a material-output function, the relation-
ships are physically constrained and the formulation of Equation (2) is
optimal. The linear formulation is also appropriate in utility-output
relationships.
b. Changes in Profit and Cash Flow
The process models are used to generate baseline costs, pretax
profit, and cash flow for each POTW discharging plant. Utilizing the
plant specific pretreatment (and zero discharge) costs supplied by the
EPA, one can compute the actual and percentage deviations of each plant's
profit and cash flows from the baseline scenario.
c. Capital Availability
To evaluate the availability of capital, the ratio of pretreatment-
related investment to annual cash flow is computed for the plants. To
the extent that the ratio is low the required capital can be financed
from cash flow.
15
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If the ratio is high, an qualitative analysis of external financing sources
is necessary.
d. Plant Closure
Based on the process model, plants are screened into three categories:
(1) plants that are not covering their variable costs; plants in
this category will shut down since by doing so they can avoid
variable costs;
(2) plants that are covering their variable costs, but only a
portion of their fixed costs; such plants will close down
in the long run, but the timing is difficult to predict; and
(3) plants that are making a profit; whether this profit is suf-
ficient to induce them to remain operating can be answered by
the use of discounted cash flow analysis. A plant will remain
operating if the summation of future discounted cash flows
and discounted terminal salvage value exceeds the current
salvage value.
Mathematically, the condition that dictates whether a plant will
remain operating is given by the following equation.
CSV < CF + CF + CF + CF + TSV (3)
(1+1) (1+1)2 U+iTt O+i)11
where
CSV = current salvage value of business,
CF = cash flows,
TSV = terminal salvage value, and
i = cost of capital.
2. Industry Projections
The purpose of industry-trend analysis is to evaluate how represen-
tative 1975 is and how future conditions will differ. The three key
variables that determine the operational profitability of the plants in
the industry are: product price, production levels, and scrap price.
The first two variables determine industry revenue and the third variable
is a major determinant of cost. Trend equations have been fitted to each
one of these variables. These trend equations serve two distinct, though
interrelated, functions: (a) the equations can evalue how "normal" 1975
was in respect to the key variables; and (b) the equations can generate
16
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the future changes in these variables.
A variety of functional forms were experimented within the selection
of the appropriate trend equation for each variable. The functions tried
included linear, log-linear, linear-log, log-log, quadratic, and cubic.
Mathematically these functional forms are:
Y - a + bT ... (linear) (4)
In Y = a + bT ... (log-linear) (5)
Y = In a + b In T ... (linear-log) (6)
In Y = In a + b In T ... (log-log) (7)
Y = a + b±T + b2T2 . . . (quadratic) (8)
Y = a + biT + b2T2 + b3T3 . . . (cubic) (9)
a. Evaluating Normality of 1975^
Utilizing the selected trend equations, we generated a predicted
value for 1975 for each of the key variables. If the predicted trend
value deviates from the actual value, this deviation can be attributed
to the effect of cyclical or irregular forces. Therefore, a comparison
of the actual and predicted values can give the direction and magnitude
of cyclical and irregular forces in 1975.
b. Changes in Key Variables
The trend equations were used to generate predictions for the variables.
If product prices are predicted to rise at a more rapid rate than scrap
prices, this would mean increasing profit margins. Growing production
levels would imply growing absolute returns. Therefore, these projections
can capture how financial conditions are going to change in the industry
margins. Growing production levels would imply growing absolute returns.
Therefore, these projections can capture how ^financial conditons are
going to change in the industry.
C. SECONDARY IMPACT
Utilizing the results from the direct impact block, one can determine
the effect on secondary areas, such as employment, communities, trade,
and the like. The techniques utilized are essentially ad hoc in nature
and depend on the effect being studied. Employment changes, for example,
are estimated by multiplying decreases in industry production by a labor-
output ratio.
17
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III. SECONDARY ALUMINUM SMELTING AND REFINING
A. INTRODUCTION
In Chapter III, we assess the impact of proposed pretreatment standards
on the U.S. secondary aluminum smelting and refining subcategory of the non-
ferrous metals processing category. These standards apply to existing
sources that are introducing pollutants into Publicly Owned Treatment Works
(POTW's).
B. TECHNOLOGY
Secondary aluminum smelters convert aluminum scrap into intermediate
products, such as ingot, billets, and bars. The production cycle is comprised
of the following steps: presmelting, smelting, and pouring and cooling the
product line.
1. Presmelting
The preliminary treatment in preparing scrap for smelting depends on
the type of scrap feed to the smelter. There are four types: borings and
turnings, solids, residues, and old scrap.
a. Borings and Turnings
Scrap consisting of borings and turnings is often contaminated with
cutting oils. Thus, it is first shredded in ring crushers and then dried
in horizontal rotary drums. Free iron and other undesirable metallic
elements are removed with magnetic separators during the drying stage.
b. New Clippings (Solids)
One form of solid scrap consists of new clippings. It is largely un-
contaminated and requires little presmelter treatment. To prepare it for
smelting, it only has to be sorted—either manually or mechanically—to
remove obvious non-aluminum material.
c. Residues
Residue scrap is the most difficult to process, since it may contain
as little as 10 percent aluminum. To recover the metallic aluminum, two
processes may be used; one is wet, the other dry. In the dry method the
residue is first crushed, then screened to remove the fines, and finally
passed over a magnetic separator to remove iron. In the wet method, the
residue is fed into a long drum, where it is washed in water. The water
washes the fluxing salts and chemicals from the residue. The washed resi-
due is then screened, dried, and passed through a magnetic separator,
before being smelted.
13
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Two points about residue processing should be noted: (1) because of
special equipment needed, the processing of residues is limited to larger
smelters; and (2) both the dry and wet dross processing cause pollution.
High volumes of dust are created in the dry method, while the wet process
can cause water pollution.
d. Old Castings and Sheet (Old Scrap)
Old castings and sheet scrap, a form of old scrap, is first sent to
a huge crusher where it is reduced to small, fairly uniform dimensions.
As it passes through the crusher, vibrating screens and magnetic separators
remove pulverized non-metallics and free iron, respectively.
2. Smelting
In smelting scrap, the smelter is faced with a fundamental chemical
constraint. In displacement reaction, only those elements that are higher
than aluminum in the electromotive series can be removed from the molten
mixture. In producing the secondary aluminum alloy then, the smelter has
to practice dilution chemistry. This consists of adding primary ingots
(or high-purity scrap) to the molten mixture to bring the composition up
to the desired specification.
The smelting of aluminum takes place in a reverberatory furnace, or
in the case of smaller companies, in a rotary furnace. The reverberatory
furnace ranges in capacity from 30,000 to 180,000 Ib, and can be charged
using either side doors or a trough-like feeder, called a "forewell."
The smelting operation obviously consists of seven steps: (1) charging
the scrap into the furnace, (2) adding the fluxing agents, (3) adding alloying
agents, (4) mixing, (5) demagging, (6) skimming, and (7) degassing. All
smelters may not necessarily incorporate all seven steps in their smelting
operation, nor follow the order presented above. Each of these steps is
described below.
a. Charging
Molten "heel" can be used to shorten the furnace cycle by about four
hours. Heel is a molten metal of known composition which occupies the bot-
tom of the furnace. It usually consists of metal left over from a previous
cycle. If heel is not maintained in the furnace from heat to heat, it must
be charged into the furnace (generally through the side doors). Once
charged, the heel must be completely melted, sampled, and skimmed before
other material can be charged. Subsequent scrap is charged through the fore-
well. After each charge, the slag is skimmed off and the metal sampled to
determine its composition.
b. Fluxing
Because molten aluminum oxidizes rapidly, it must be covered with a
molten flux to retard the oxidation. The flux most commonly used is a
19
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mixture of 47.5 percent NaCl, 47.5 percent KC1, and 5 percent fluoride-
bearing salt. Once the oxides are trapped in the flux they are removed by
skimming.
c. Alloying
Alloying agents are normally added to the aluminum melt after the scrap
composition has been determined to bring the melt up to specification.
Alloying agents include: copper, silicon, magnesium, and zinc. The addi-
tion of alloys provides minor amounts of fumes and dust that are removed
from the working area by hoods positioned over the forewell.
d. Mixing
The mixing operation is performed almost continuously in the rever-
beratory furnace. Its purpose is to ensure uniform composition and to agi-
tate the solvent fluxes into the melt. It is generally accomplished by
injecting nitrogen gas or by use of mechanical puddlers. The mixing opera-
tion employs no water and produces no solid waste. Air pollution results
only when a mixture of nitrogen and chlorine is used.
e. Demagging*
The major alloys supplied to the castings industry (Alloys 380 and
319), according to industry specifications, must have a magnesium content
of less than 0.1%. This is due to the deleterious effects on ductility and
volumetric growth which take place when magnesium silicide precipitates
during room temperature aging. However, about 85% of the raw materials
used in the secondary smelters come from mill products that are high in
magnesium content. Although the secondary smelter tries to schedule a
charge to the melting furnace that will keep the magnesium content low,
he still ends up with a furnace bath containing 0.5-0.8 percent magnesium.
Demagging is a halogenation process by which the magnesium content of a
bath is reduced to specification. Magnesium removal is possible because
of the tendency of halogens to react with magnesium in preference to alum-
inum. Demagging is generally achieved by the use of chlorine, aluminum
chloride, or aluminum flouride. The demagging process causes air pollution-
noxious halogen and halogen-compound emissions and particulate matter—
which if controlled by wet scrubbing techniques can be a significant source
of wastewater.
Chlorination is used very frequently in demagging operations because
it can be used more efficiently and is relatively low cost. Chlorine gas
is fed through tubes to the bottom of the melt. As it bubbles through the
melt, it reacts with magnesium, and, in later stages, with aluminum to form
chlorides which float to the surface where they combine with fluxing agents
and are skimmed off. The aluminum chloride is a volatile compound and re-
sults in considerable fuming. This fuming makes ventilation and air pollu-
tion equipment necessary. If these fumes are controlled by wet scrubbing,
then water pollution may result.
*Based on "Demagging in the Secondary Aluminum Industry," M.C. Mayalich,
Journal of Metals, June 1975, pp. 6-10.
20
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Chlorination demagging involves the reaction between chlorine or alum-
inum chloride gas at operating temperatures (1400-1500°F) and molten alumi-
num magnesium alloy; i.e., a gas-liquid reaction. The air pollution that re-
sults is related to the inefficiency of the demagging process. Consequently, the
air polluting emissions can be reduced by increasing the demagging efficiency.
The two basic approaches are by: (1) prolonging physical contact of reac-
tants to ensure total reduction of aluminum or chloride before it reaches
the surface of the bath; and (2) if some unreacted aluminum chloride reaches
the surface of the bath, holding it there until the reduction is completed.
Essential to either of these approaches is the requirement that molten
aluminum alloy from the entire reverberatory furnace must be circulated
through the reaction area since the entire furnace load has to be demagged.
Based on the first approach, Alcoa has developed a reaction container
which has several chambers through which molten aluminum flows. Chlorine
is introduced through a rotating "contacter" that disperses the gas in tiny
bubbles. Demagging efficiencies of 100% have been reported. A salable
byproduct of the process is anhydrous magnesium chloride salt which is
collected on the surface of the melt in the reaction container.
An alternative, this approach is the metallics process developed by
the Carborundum Company. In this process, chlorine gas is injected at a
strategic point in the submerged stream of molten alloy generated by a pump.
The specially designed discharge spout provides for intimate contact of the
reactants. The flow rates of molten aluminum alloy and chlorine are so
adjusted that only magnesium chloride is formed.
The method utilizing the second approach is the Derham process. In
this process, a thick layer of flux is introduced into the chlorination
chamber. The flux traps the aluminum chloride fumes and makes them avail-
able for further reaction at the aluminum-flux interface. Better than 97%
efficiency has been reported at 0.1% magnesium levels. Magnesium chloride
produced by demagging can be reused. The circulation of the molten metal
from the main furnace hearth to the Derham unit is accomplished by pumping
with an air-driven siphon. By maintaining a relatively thick cover of molten
salt on the bath, the emissions of aluminum chloride to the atmosphere are
greatly reduced. Consequently, the potential for effluent from emission
scrubber water is greatly reduced.
•
Aluminum fluoride is an alternative demagging agent. When this com-
pound is used in the process, air contaminants in the form of gaseous
fluorides or fluoride dusts result. However, the fluorides can be controlled
by either dry or wet methods. When controlled by a dry method, a problem
involving solid wastes is created. When a wet method is used, problems in-
volving both water pollution and solid-waste pollution are created. In the
dry emission control process, coated baghouses (Teller modification) are
used. The system differs from normal baghouse in that the bags are precoated
with a solid to absorb effluent gases as well as particulates. Upon satu-
ration, the coating is removed by vibration along with the coated dust.
21
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It should be noted that, if the smelter is producing notched bar and
shots (which are used as deoxidants by the steel industry), the magnesium
content is not critical and the demagging step is not needed.
f. Skimming
After the contaminated semi-solid fluxing agent, known as slag (or
dross), is skimmed from the surface of the melt, the slag is placed in a
water-cooled "dross cooler" or pans to cool. Once cooled, the slag is
either stored until shipped to a residue processor, reprocessed by the
company, or dumped. If stored in the open, it is a source of ground and
runoff water contamination because of the soluble salts it contains. Fur-
thermore, during slag cooling, air pollution can occur if the slag is not
conditioned properly.
g. Degassing
Molten aluminum will readily absorb hydrogen gas or other moisture or
water vapor from the atmosphere. Gases dissolved in the metal will separate
out during solidification, and the customer demands that the metal be gas-
free. The metal is degassified by bubbling dry nitrogen, chlorine, or a
mixture of the two gases through the molten metal bath. Chlorine gas is
the most effective. Unless smelters are equipped with adequate air pollu-
tion control systems, they are hampered by the severe fuming caused by the
chlorine gas. Because of this fuming and other hazards involved, smelters
must have adequate ventilation and air pollution control equipment. Smelters
without this equipment commonly use nitrogen or some other inert gas.
h. Tapping
Twenty-four to 42 hours after the furnace cycle is started, the metal
is ready for pouring. Before being poured into the mold, the metal is cooled
to approximately 1350°F. Even though furnaces are operated on a continuous
basis, each heat is a batch operation and is only a part of a continuing
series.
3. Pouring and Cooling of Product Line
The secondary smelter casts the molten aluminum into various shapes.
In the case of "hot metal," however, the molten metal is transported in the
liquid form to the foundries.
a. Ingots
Molten aluminum is poured into the ingot mold. Once solidified in the
mold, the metal is generally cooled by a water spray that contacts both the
molds and the hot metal as they move along a conveyor above a cooling pit.
Non-contact cooling is also used in some plants. In non-contact cooling,
water is pumped through passages in the mold, but does not actually touch
the metal. Air cooling which generates no wastewater is also used in some
cases. The water used for cooling may be sent to a cooling tower and then
22
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recirculated. Alternatively, in some cases the water is used only once and
then discharged. Recirculated water builds up sludge in the cooling pit
and the cooling tower, and this sludge must be removed at regular intervals.
This process involves discharging the water.
b. Billets
The metal is first cast into 100-lb billet logs. Water lines inside
the molds cool the billets, which are water quenched on leaving the molds.
Once removed, each billet log is cut into shorter sections. Finally, bil-
lets are given a homogenizing treatment before being shipped.
c. Notched Bar
Notched bars are normally cast in 5-lb molds. Notched bar molds, like
ingot molds, are cooled either by water spray, internal water lines, or air.
d. Shot
Shot is produced by pouring molten metal onto a vibrating feeder. Per-
forated openings in its bottom allow the molten metal to drop into a water
bath below. The droplets solidify in the water, and are then dried, sized,
and packed for shipment. The water is either sent to a cooling tower and
recirculated or discharged immediately. The recirculated water, of course,
causes sludge buildup.
e. Hot Metal
In some cases, hot metal is poured from the furnace into preheated
crucibles. The crucibles are sealed and transferred by truck to the cus-
tomers. Presently, crucibles with capacities of 15,000 and 38,000 Ib are
being used.
4. New Technology
Ho fundamental technological breakthroughs have occurred in this indus-
try, but minor improvements have continually been introduced. The most
important of these new developments are listed below:
(1) Improved mechanical methods for processing raw materials
have been introduced;
(2) Furnace capacity has increased significantly; 20 years
ago a 30,000-lb furnace would have been among the largest
in the industry, but today 180,000-lb furnaces are common.
(3) Salvaging of residues is now common practice; 25 years
ago most residues were discarded as wastes;
(4) The shipment of molten metal, pioneered by the primary
industry in 1950, has been adopted by larger secondary
smelters;
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(5) Modern laboratory equipment, which has improved the level
of quality control in the industry, is now commonly used;
(6) The oxygen fuel burner, which can shorten the furnace
cycle by 25 percent, has been introduced to the industry;
and
(7) Computers are being used by secondary smelters to process
data.
C. INDUSTRY SEGMENTATION
The secondary aluminum industry can be broken into two segments:
(1) producers of alloy ingot and hot metal; and
(2) billet plate and sheet producers.
According to the EPA Development Document, POTW dischargers belong to seg-
ment 1.
1. Types of Firms
a. Concentration
Most firms in the secondary aluminum industry have one plant operation
and are either family-owned or owned by small corporations. The minority
of firms, which represents a large portion of the production, however,
are either large corporations, or subsidiaries of large corporations,
and are generally multiplant operations; for example, the U.S. Reduction
Company; Apex Smelting Company, a division of American Metal Climax, Inc.;
and the A & M Division, Vulcan Materials Company.
Table III-l presents concentration ratios for the secondary aluminum
industry based on the 1963, 1967, and 1972 Census surveys oC manufacturing
industries conducted by the U.S. Bureau of Census. Concentration ratios
give the value of shipments made by the largest companies. The higher the
ratios the greater the oligopolistic market power in an industry.
Table III-l shows that, in 1972, the 4 largest companies producing
aluminum ingot (SIC 33417) accounted for 50 percent of the value of shipments
for the industry category; the 8 largest companies accounted for 69 percent;
the 20 largest companies accounted for 89 percent; and the 50 largest com-
panies accounted for over 98 percent of the value of shipments for the indus-
try category.
Of the companies producing billets (SIC 33418), the table shows that
in 1972 the 4 largest companies accounted for 80 percent and the 20 largest
accounted for 100 percent of the value of shipments for the industry category.
24
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TABLE III-l
PERCENT OF VALUE
OF SHIPMENTS OF INGOTS AND BILLETS
ACCOUNTED FOR BY THE LARGEST COMPANIES
Product
Ingot
Billet
Year
1963
1967
1972
1963
1967
1972
Total
Dollars
(millions)
238.9
302.9
341.0
13.9
39.3
28.7
4
Largest
Companies^
44
44
50
85
72
80
8
Largest
Companies
62
64
69
99
97
—
20
Largest
Companies
85
88
89
100
100
100
50
Largest
Companies
99
99+
98+
—
—
—
Source: U.S. Bureau of the Census.
25
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b. Integration
The integration level of these firms is low with the exception of bil-
let manufacturers who produce siding, doors, windows, and other marketable
products. Most smelters buy aluminum scrap, smelt and refine it to hot metal
and billets. The consumers of these semi-finished products are the foun-
dries and extruders. Another secondary product is de-oxidi2;ing materials
(notched bar and shot) which is used in steel mills.
A small segment of the industry consumes billet grade siluminum scrap
for the manufacture of extrusion billets. Some, if not most, of the billet
manufacturers also make semi-finished and finished products (such as extru-
sions) and building construction items (such as doors, windows, storm doors,
and the like).
c. Diversification
With the exceptions of those firms which are owned by conglomerates,
the level of diversification of most of the companies involved in secondary
aluminum smelting is low. There are a few singular exceptions where the
facility not only produces secondary aluminum, but handles brass, precious
metals, and other completely unrelated materials (such as building products),
and also carries out steel-warehousing and other miscellaneous activities.
2. Types of Plants
a. Production Levels
Plants in the industry vary all the way from very small operations
located on sites as small as one acre and employing as few as six people
to fairly complex ones employing up to 400 employees at a facility occupy-
ing up to 50 acres. At the same time, production of aluminum alloy can
range from 3000 up to 55,000 short tons per year from a single plant. 'The
production at each plant may vary significantly. Unlike primary aluminum
plants, secondary plants do not operate around the clock seven days a week.
However, they can step up production by operating extra shifts. There is
not necessarily a relationship between either employment and site area or
plant production and site area; for instance, several large producers in
metropolitan areas have small plant sites due to the high cost of land.
b. Location
Most of the plants currently producing secondary aluminum metal are
located near heavily industrialized areas which give them proximity to a
supply of scrap as well as to their customers. These plants are chiefly
located in the Midwest, in or near the Chicago and Cleveland metropolitan
areas, and in the West, in the Los Angeles area. Approximately 45% of the
U.S. secondary aluminum production is done within a 100-mile radius of down-
town Chicago. Within a similar radius of Cleveland, another 20% of the
26
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production can be found. The remaining 35% are located on the East coast
near the New York City-Philadelphia area, and on the West coast in
California.
c. Technological Level
Plants in this industry vary in age with some of the facilities being
40 to 50 years old, and additions have been made over the years; in some
cases, changes in technology are currently being implemented. Due to the
unsophisticated nature of this industry, there is little need for extensive
reliance on the buildings themselves to do anything more than shield from
the weather. Thus, any safe structure can be used.
Most facilities generally operate at relatively low technological
levels. Techniques for smelting have not changed basically in the last 40
years, although the furnaces today are much larger in size and are equipped
with greater heat input capability. Thus they are able to generate more
output per man-hour. Techniques for preparation of scrap are reasonably
general. For instance, the preparation of turnings by crushing and drying
is carried out at most plants. Dross processing is carried out by and large
by companies who specialize in processing. Most of the competitors either
sell their skimmings to the dross producers or dump them.
The general efficiency of these plants is low in terms of technology
and energy utilization (fuel, electricity, manpower) as compared to other
manufacturing industries. Heat recoveries from the furnaces are low, and
many operations which could be automated are still accomplished by manual
labor. By and large, the reason that new companies can enter the business
as readily as they can because the general level of operations are reasonably
labor-intensive and are not capital-intensive. This further tends to indi-
cate the lack of high-level technology in the operation of this industry.
About the only exception that might be noted lies in the dry processing
of drosses. This operation is now so sophisticated that enormous tonnages
of material, if they are available, can be processed at relatively low
costs, thus making drosses an attractive material.
Further, the level of mechanical auxiliaries and automated equipment
is relatively low in this industry. As an example, very few plants have
automated pouring and stacking equipment for handling their alloy ingots,
and only a few have mechanical puddling devices available to assist in
puddling scrap into the furnaces.
d. Integration
As with firms in general, the plants in the secondary aluminum industry
are not integrated to any great extent with the same exceptions as those
which applied to the firms.
27
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3. Characteristics of POTW Dischargers*
a. Production
Production levels of the POTW dischargers range from 6,000 to 39,000
short tons per year. Compared to the rest of the industry, these plants
are either medium or large. Of the 18 smelters discharging to POTW, 6
produce 500-999 short tons per month; the other 12 produce 1000-4,999 short
tons per month. Thirteen of the 18 POTW discharging plants produce alloy
ingot, 1 produces shot bar shapes and 4 produce both alloy ingot and molten
alloy.
b. Location
No significant pattern differences in location exist between the two
types of dischargers. The geographical distribution of POTW's is quite
consistent with a focus around the Great Lakes, particularly near Cleveland
and Chicago. The state by state distribution is as follows: Illinois (4),
Ohio (3), California (2), New York (2), and Wisconsin, Pennsylvania,
Indiana, Kansas, Washington, and Oklahoma (1).
c. Technology
With regard to technology, the POTW dischargers are representative of
the industry.
4. Proportion of the Industry Represented by POTW Dischargers
The following characterization of secondary aluminum smelters discharg-
ing to POTW's is based on the EPA Development Document on Pretreatment
Standards of July 1976.
Eighteen out of 71 plants discharge to a POTW. Of the remainder, 18
discharge directly to surface or subsurface waters; 34 claim no discharge
status and the discharge status of 1 plant was not reported. The 18 POTW-
discharging plants are operated by 13 companies. Three of the 13 companies
are multiplant operations, one of which is primarily engaged in secondary
smelting.
The total annual production of the 18 POTW dischargers is estimated
at around 352,200 short tons based on the available data. In 1975, the
total U.S. production of secondary aluminum by independent smelters, as
reported by the U.S. Bureau of Mines, was 511,755 short tons. The POTW
dischargers therefore account for approximately 69 percent of the industry.
production in that year. Table III-2 presents a breakdown of number of plants,
employees and production represented by (1) ingot producers using dross, (2)
ingot producers not using dross, and (3) billet, plate, and sheet manufacturers,
*Based on Supplemental for Pretreatment to the Development Document for the
Secondary Aluminum Segment of the Nonferrous Metals Manufacturing Point
Source Category, EPA, August 1976.
28
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Segment
1
2
3
TOTALS
TABLE III-2
PLANTS, EMPLOYEES, AND PRODUCTION AND PERCENTS
OF INDUSTRY TOTAL REPRESENTED BY EACH SEGMENT
Plants
Number
16
43
10
69
Percent1
of
Indus t ry
16
43
10
69
Employees
Number
1340
3270
470
5080
Percent1
of
Industry
25
57
8
90
Production
Millions of
Ib /Month
42.8
86.3
25.7
154.8
Percent
of
Industry
26
52
16
94
Percentages may not add due to independent rounding.
Segment 1 - ingot producers using dross.
Segment 2 - ingot producers not using dross.
Segment 3 - billet plate and sheet manufacturers.
Source: ADL estimates.
29
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D. FINANCIAL STRUCTURE OF THE SECONDARY ALUMINUM INDUSTRY
Published information on the financial structure of the secondary
aluminum industry is scarce. At the industry level, financial information
is available only from the Census of Manufactures published by the U.S.
Department of Commerce, Bureau of the Census. The Census covering the
industry in 1972 is the latest available. The next Census will be taken in
1978 and will cover manufacturing activity in 1977. Another publication
by the U.S. Bureau of Census, Annual Survey of Manufactures, an update of
census information, is available on a yearly basis. The surveys however,
contain financial information only up to the four-digit SIC code level.
Secondary aluminum is at the five-digit SIC code level of disaggregation
and so the surveys are not useful for our purposes.
At the firm level, an even more severe lack of data exists. Most
plants in the industry are owned by private firms whose financial informa-
tion is privy. The annual reports of those plants that do belong to public
companies are not helpful in that data are not plant-specific.
The Census of Manufactures is conducted on an establishment (or plant)
basis; that is, a company operating establishments at more than one location
is required to submit a report for each location. Each establishment is
classified according to a Standard Industrial Classification (SIC) code.
However, some establishments produce only the primary products of the indus-
try in which they are classified, but this is rare. Most plants also pro-
duce other products. The data on value added, value of shipments, etc.,
will reflect all activities at the plant and not merely the primary activity.
Specifically, the Census provides the following financial information:
• Value of shipments (VS), which represents the net selling
values, f.o.b. plant, after discounts and allowances, but
excluding freight charges and excise taxes.
• Cost of materials which includes:
the total delivered cost of all raw materials, semi-
finished goods, parts, components, containers, scrap
and supplies consumed or put into production;
- the amount paid for electric energy purchased;
the amount paid for all fuels consumed for heat, power,
or the generation of electricity;
the cost of work done by others on materials or parts
furnished by the reporting establishment (contract work).
• Capital expenditures, which include the cost of plant and
equipment for replacement purposes, as well as for addi-
tions to productive capacity. Costs associated with plants
under construction, but not in operation during the year,
are also included.
30
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• Payrolls, which include the gross earnings paid to all
employees on the payroll of reported establishments. It
follows the definition of payrolls used for calculating
the federal withholding tax, and includes all forms of
compensation such as salaries, wages, commissions, dis-
missal pay, all bonuses, vacation and sick leave pay, and
compensation in kind. It should be noted that this defi-
nition does not include employer's Social Security con-
tributions or other non-payroll labor costs such as
employees' pension plans.
• Value added by manufacture, which figure is derived by
subtracting the total cost of materials from the value
of shipments and adjusting the resulting amount by the
net change in finished products and work-in-process
inventories.
The Census report was utilized to derive the following information
(presented in Table III-3):
• Value Added (VA)/Value of Shipments (VS). This is equiva-
lent to value added per dollar of revenue.
• (VA - Payroll)/Value of Shipments (VS). If local taxes,
insurance, and interest charges are subtracted from this
column, we obtain an estimate of pretax cash flow per
dollar of revenue.
• Capital Expenditures (CI)/Value of Shipments (VS). This is
an estimate of the average rate of capital investment per
dollar of revenue.
• Variable Costs (CV)/VS. CV is equal to payroll plus cost of
materials. The ratio is an estimate of variable costs per
dollar of revenue.
Comparison of the 1967 and 1972 Census data reveals that the value of
shipments increased 6 percent from $409 to $434 million; cost of materials
increased 7 percent from $327 to $351 million; payroll costs increased 10
percent from $37.5 to $41.3 million; pretax cash flow decreased 10 percent
from $43.0 to $39.0 million; value added per dollar of revenue decreased
from 20 to 19 cents and pretax cash flow per dollar of revenue went down
from 11 to 9 cents; and finally capital investment per dollar of revenue
remained at 2 cents and variable costs per dollar of revenue went from 89
to 90 cents.
1. Profits
Traditionally, net profit on sales for secondary aluminum smelters
range from 1 to 2.5 percent. While some smelters list profits as low as
31
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TABLE III-3
FINANCIAL RATIOS FOR THE SECONDARY ALUMINUM INDUSTRY1
Year Payroll2 Materials2 VA2 VS 2
1972 41.3 351.0 80.3 434.0
1967 37.5 327.0 81.1 409.0
VA3
VA - Payroll CI 2 VS
39.0 7.6 .19
43.6 9.4 .20
VA - Payroll3
VS
.090
.11
CI3
VS
.02
.02
CV
VS
.90
.89
Notes: VA = Value Added by Manufacturer
VS = Value of Shipments
CI = Capital Expenditure
CV = Variable Out-of-Pocket Costs
See text for interpretation of the ratios derived.
Includes numbers for both ingot and billet producers since the data do not
reveal any significant differences between these categories.
2Million dollars.
3Ratio of $/$.
Source: U.S. Bureau of the Census.
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1 to 1.5 percent, most smelters consider a 2 percent profit on sales as
standard. In the past three to four years, there are definite indications
that profits have been significantly higher, in the range of 3 to 10 per-
cent on sales.
2. Annual Cash Flow
The relationship of cash flow to net profit to cash flow varies accord-
ing to the age of the establishment. Depreciation has been about 1 to 2
percent of sales so there can be a marked difference between pretax profit
and cash flow in lean years.
3. Market Value of Assets
The market salvage value of the assets of any of these plants is con-
siderably lower than net book value, unless the plant can be maintained as
an operating unit. In general, the industry's businesses have been fairly
negligent in the maintenance and upkeep of their facilities. Much of their
equipment is single-purpose equipment, incapable of being utilized for any
other purpose. On this basis, we estimate that these plants would have value
somewhat less than local land costs, since the land values would have to be
depressed by the cost of clearing up the sites. On the other hand, if these
plants could be turned over to another operator who is able to operate it,
the value could be substantially higher.
In one recent case, a large conglomerate shut down a smelting plant
and was able to recover approximately 25% of its book value when it sold
the plant to another smelter. In another case which took place three years
ago, another conglomerate shut down a plant it was unable to sell as a
"going" operation, but was able to salvage only between 2 and 3 cents on
the book value dollar.
4. Cost Structure
Cost structures vary in the industry, depending on the type of scrap
being utilized and the volume of operation. As an example, a plant uti-
lizing a high percentage of dross metallics will have considerably higher
operating costs, especially higher energy requirements. However, the cost
of the drosses will be sufficiently low to offset these higher operation
costs, allowing the plant to return a better-than-average profit much of
the time.
a. Variable Costs
The chief component of variable costs consists of those materials con-
sumed by the smelter; these include aluminum scrap, alloys, fluxes, and
maintenance materials. In recent years, scrap costs have been about 60
percent of revenue. The other material costs have accounted for about 10
33
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percent of revenue. On the average, labor costs account for 11 percent of
revenue. For the larger plants, the figure is slightly below this average.
The only other significant variable cost is that for utilities, including
fuel, electricity, and water, which account for about 2 percent of revenue.
b. Fixed Costs and Profits
(1) Fixed Costs - The fixed-cost-and-profits category includes depre-
ciation, interest, expenses, selling and administrative, and property taxes
and insurance. Some of these costs, it should be noted, are not entirely
fixed, but do depend on production levels. Fixed costs, on the average,
account for about 5 percent of revenue.
(2) Profits - Gross profit margins in recent years, on the average,
represent about 12 percent of revenue, while net profits represent about
7 percent of revenue and cash flow about 83 percent of revenue.
5. Constraints on Financing Additional Capital
The secondary smelters have relatively low fixed capital needs. Their
working capital needs, however, are high. Net working capital averages
about 25 percent of revenue. The working capital needs restrict the amount
available for expansionary fixed investment.
a. Working Capital
Secondary smelters have high working capital needs. They usually pay
up to 75 percent of the purchase price of scrap in cash at the time of
confirmation of shipment and the balance in 30 days. Consequently, the
cash prepayment for each railroad car of scrap is approximately $5,000,
and it may be days or even weeks before the scrap arrives at the smelter.
In the meantime, smelter products are always sold on credit with payment
required in 30, 60, or 90 days. Thus, a secondary smelter generally buys
for cash and sells on loan credit. This financial arrangement generates
a tremendous need for liquid capital and has been a powerful motivation in
convincing the small, family-owned smelter operators to either merge or
go public.
The inventory of aluminum scrap that each smelter strives to maintain
is determined by scrap availability, storage capacity, and operating cash
on hand. Since aluminum is a light metal and the scrap material is bulky,
large volumes of storage space are required. While some smelters operate
with as much as a month of scrap in inventory, others operate with as little
as a 2-day supply. A normal scrap inventory, however, represents about a
2-week supply of scrap. Smelters operating with a small inventory can
influence local prices when in danger of running out of scrap. When scrap
does not arrive at the smelter on schedule, the operator must buy quickly
from a local supplier by offering a premium price. This practice can—and
often does—raise general scrap prices within the area.
34
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b. Fixed Capital
The general constraints on financing relate to the dollars needed for
a particular project. The larger companies with a number of claims on their
capital dollars from many divisions have been reluctant in the past several
years to lay out large sums of money for plant improvements, pollution con-
trols, and the like. On the other hand, many of the small companies with
close ownership have been able to find the capital to make at least minimal
improvements, though most capital expenditures are paid for via retained
income without the use of long-term financing.
The small companies tend to do things on a less formalistic basis, per-
forming a lot of "horseback" engineering, and they are adept at acquiring
information and technology without great expense. Often these companies
have been able to "home-make" quite capable machinery which would have cost
several times its acquired cost if it had been purchased from normal commer-
cial sources, or if it had been engineered to their specific requirements.
E. PRICING IN THE SECONDARY ALUMINUM INDUSTRY
The secondary aluminum industry buys scrap and converts it to ingots,
hot metal, billets, and the like. Consequently, in considering prices, both
the scrap market and the markets for secondary aluminum smelter products
have to be examined.
1. The Scrap Market
Scrap is never deliberately created. It is the unavoidable byproduct
of fabricating operations or a product of obsolescence. Scrap resulting
from fabricating operations is called "new scrap," while scrap resulting
from obsolescence is called "old scrap."
The major participants in the scrap market are the scrap collector,
the scrap dealer, and the scrap consumers. The scrap collector gathers the
various metals until he has a truckload to deliver to the dealer. The
scrap dealer first identifies and segregates the scrap by alloy. The seg-
regated scrap is next pressed or bundled into convenient packages and trans-
ported to the industrial consumers. The industrial consumers of aluminum
scrap—in order of importance—are the secondary producers, the primary
producers, and the non-integrated fabricators. The scrap consumption pat-
terns, the international trade in scrap, the supply and demand for scrap,
and the scrap price behavior are all described below.
a. Scrap Consumption Patterns
As stated earlier, scrap is classified into two categories: new scrap
and old scrap. New scrap can be further disaggregated into borings and
turnings, solids, and residues. Table III-4 shows the volumes of the various
types of scrap consumed in 1975.
35
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TABLE III-4
VOLUMES OF ALUMINUM SCRAP CONSUMPTION, 1975
Secondaries Others1
Short Tons Percentage Short Tons Percentage
New Scrap
Borings & Turnings
Solids
Residues
Other New Scrap
Old Scrap
TOTAL
121,000
244,206
90,661
22,996
169,640
648,503
18.7
37.6
13.9
03.6
26.2
100.0
2
241,293
89,579
22,642
140,464
493,978
2
48.9
18.1
04.6
28.4
100.0
Includes primary producers and non-integrated fabricators.
Withheld to avoid disclosing confidential information, was ignored
in calculation of percentages.
Source: U.S. Bureau of Mines.
36
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Borings and turnings result from machining castings, rods, bars, and
forgings. Most of this scrap is generated by the aircraft and automobile
industries. In 1975, borings and turnings accounted for 18.7 percent of
the secondary smelters' scrap feed.
The solids, which include clippings and forgings, are purchased by the
smelters in either a segregated (by alloy) or mixed form. The aircraft
industry, the fabricators, and the manufacturing sector generate most of
this scrap form. In 1975, solids accounted for 37.6 percent of the scrap
feed of the secondary smelters.
Residues are waste material generated by the smelting of aluminum at
the primary or secondary plants. The residues may be dross, skimmings, or
slag. The use of residues has come of age in the last 25 years. Prior to
that time, most of the residues were discarded as waste. In 1975, residues
accounted for 13.9 percent of the secondary smelters' scrap feed.
Aluminum, in contrast with steel or other non-ferrous metals, is a
relatively new product. Its recent advent has resulted in a comparatively
low level of old aluminum stock. Old scrap supply, however, will become
increasingly important with growth in stocks of aluminum goods and the con-
tinuing application of new technology for scrap recovery. In 1975, old
scrap accounted for 26.2 percent of the secondary smelters' feed.
Can scrap is becoming an important source in the old aluminum scrap
supply. Because of the current public interest in recycling, the high value
of aluminum, and the visibility of aluminum cans in litter, some of the
aluminum producers and users have initiated recycling of the all-aluminum
cans by collecting them from the consumer. The collected cans are sometimes
shredded at these centers or by a local scrap dealer. Most of the aluminum
recovered from these cans is converted by the primary producers, mainly back
into can sheet stock. Some of the can scrap also goes to secondary smelters,
who demag it in making secondary alloy. The main problem in processing
aluminum can scrap is the high melt losses associated with its recycling.
Table III-5 presents aluminum scrap consumption by both the secondaries
and the other scrap consumers from 1960-1975. The amount of aluminum scrap
consumed in the U.S. has risen sharply since 1960, but it has stabilized
over the 1970's. However, its rate of growth has been greater than the
growth rate of the overall economy.
b. International Scrap in Trade
International trade in scrap is a volatile component of the aluminum
scrap market. Scrap trade operates as a clearinghouse for excess demand
or supply conditions. When excess supply depresses domestic scrap prices,
scrap dealers, particularly those on the West Coast, turn to exports as a
viable alternative. On the other hand, when demand crunch conditions are
manifested in the domestic market, imports ease the upward pressure on scrap
prices.
37
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TABLE II1-5
ALUMINUM SCRAP CONSUMPTION LEVELS, 1960-1975
(Short Tons)
Year Secondaries Others*
1960 353,889 87,590
1961 331,705 166,411
1962 442,168 152,705
1963 493,168 154,321
1964 538,992 173,259
1965 579,844 236,776
1966 638,757 257,577
1967 617,145 265,650
1968 699,289 315,781
1969 742,118 366,979
1970 650,327 322,206
1971 639,909 364,869
1972 706,484 445,949
1973 736,819 525,620
1974 630,223 573,838
1975 648,503 493,978
*Includes primary producers and non-integrated fabricators,
Source: U.S. Bureau of Mines.
38
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Traditionally, scrap exports have been greater than imports. During
the 1960-1975 period, U.S. scrap exports exceeded imports in every year
except 1971. The major export markets for U.S. aluminum scrap are Japan,
West Germany, and Taiwan. The chief source of U.S. scrap imports is Canada.
Tables III-6, III-7, and III-8 present statistics on aluminum scrap
trade. Tables III-6 and III-7 deal with regional flows, while Table III-8
presents aggregate historical trade statistics. In general, net exports
have been decreasing from a level of 75,000 tons in 1965 to a 10,000-ton
annual level in recent years.
c. Supply and Demand
The demand for scrap is a derived demand. Scrap is not demanded for
itself, but for its use as a raw material that will become part of a durable
manufacture. Consequently, one could say that scrap demand is a function
of the durable manufacturing activity level in the economy. The supply of
scrap is inelastic and the only increase in supply caused by an increase
in price is due to depletion of inventories and small additions to used
scrap collection.
The total supply of new scrap is a direct function of aluminum produc-
tion levels. The market supply of new scrap depends on total supply, the
amount reused within the generating plant, and the amount of scrap "buy-back"
as toll conversion agreements. The scrap "buy-back" and toll conversion
agreements are discussed below.
Primary producers enter into agreements to ensure that the scrap gen-
erated by the fabricators is resold to (or toll-converted by) them. In
times of shortage, the primaries allegedly pressurize the fabricators into
entering into such agreements. The fabricators who buy ingots from the
primaries are obliged to go along with the primaries' wishes. The capitu-
lation of the fabricators is a result of the oligopolistic power of the
primaries. In demand-crunch situations the primary producers ration out
their production, and the fabricators who seek continuity of ingot supply
do not want to antagonize them.
The potential supply of old scrap is a direct function of the stock of
aluminum goods and their age. The actual supply of old scrap is a function
of the price of scrap, technological considerations, and transportation
costs. The higher the price of scrap, the more feasible is the recovery
of aluminum from highly contaminated or low-aluminum content scrap. Simi-
larly, technological breakthroughs or lowered transportation costs would
also permit the use of old scrap that is now discarded as useless.
jL_ Aluminum Scrap Prince Behavior
Table III-9 presents prices for scrap clipping and cast scrap for the
1960-1975 period. Both types of scrap are common raw materials for secon-
dary aluminum smelters and their prices naturally move together. Scrap
prices are highly volatile, but insofar as they exhibit a trend, it is
39
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TABLE III-6
U.S. SCRAP EXPORTS BY REGION, 1975
Short Tons Percentage
Japan 22,558 34.3
West Germany 15,436 23.5
Canada 8,413 12.8
Taiwan 3,343 05.1
Other 15,961 24.3
TOTAL 65,711 100.0
Source: U.S. Bureau of Mines.
40
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TABLE III-7
U.S. SCRAP IMPORTS BY REGION, 1975
Short Tons Percentage
Canada 32,239 58.8
West Germany 6,673 12.2
United Kingdom 2,565 04.7
Other 13,329 24.3
TOTAL 54,806 100.0
Source: U.S. Bureau of Mines.
41
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TABLE III-8
Year Exports Imports Net Exports
1960 79,513 5,042 74,471
1961 82,005 6,002 76,003
1962 65,534 6,496 59,038
1963 71,040 9,306 61,734
1964 68,615 8,152 60,463
1965 38,547 27,026 11,521
1966 48,666 42,982 5,684
1967 54,532 38,609 15,923
1968 49,427 45,751 3,676
1969 86,256 38,155 48,101
1970 57,159 41,122 16,037
1971 30,676 65,876 -35,200
1972 66,040 52,301 13,739
1973 115,120 46,806 68,314
1974 80,159 74,743 5,416
1975 65,711 54,807 10,904
Source: U.S. Bureau of Mines
42
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TABLE III-9
CLIPPING AND CAST SCRAP PRICES. 1960-1975
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
Clippings
(C/lb)
13.5500
11.9200
11.0500
11.5600
12.2900
14.6800
12.7600
10.4900
10.0800
13.0400
10.9400
8.34000
7.52000
11.1600
16.1800
10.3500
Castings
(C/lb)
10.2500
9.40000
8.70000
8.33000
10.1300
12.1500
10.3000
8.40000
8.41000
11.4800
9.79000
7.00000
5.52000
8.5800
12.7800
8.0100
Source: American Metal Market
43
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TABLE III-10
ALUMINUM SCRAP WHOLESALE BUYING PRICES, CARLOAD LOTS,
DELIVERED TO BUYERS' WORKS, MARCH 1971 AND JULY 1973
Types of Scrap
Aluminum clips 3003 ( 3S)
6061 (62S)
1100 ( 2S)
5052 (52S)
Aluminum clips 2014 (14S) j
2017 (17S) >
2024 (24S) )
Aluminum clips 7075 (75S)
Aluminum clips, mixed
Old aluminum sheet
Aluminum cast*
Aluminum borings, turnings,
clean dry basis, less than
1% zinc and less than 1% iron
Price, c/lb
1971
1973
16.75-17.25
15.50-16.00
12.25-12.75
14.50-15.00
13.00-13.50
13.00-13.50
13.25-13.75
17.00-18.50
16.50-17.00
15.00-15.50
15.00-16.00
13.50-15.00
13.50-15.00
13.00-14.50
*Including clean crankcases and pistons.
Source: American Metal Market, March 10, 1971 and July 16, 1973.
44
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downward. It should be noted that these are prices paid by the scrap
dealer and not the smelter.
Table 111-10 lists the smelters' wholesale buying prices in 1973 as
compared to 1971. There has been substantial increase in scrap prices
during the two-year period. Aluminum scrap prices vary, depending on loca-
tion and type of scrap. Clippings usually carry a premium as they are de-
sirable as raw material for billets. Preparation costs for the scrap dealer
are around 2-3c/lb, and the dealer usually offers 60 percent of that offered
by the secondary dealer.
The scrap market is a competitive market and the price is determined
by the forces of supply and demand.
2. The Secondary Aluminum Market
The secondary aluminum smelters use the scrap they buy to produce var-
ious alloys. The markets of secondary aluminum products, their types, and
their price determinants are all described below.
a. Markets for Secondary Aluminum
The major markets for secondary products are castings and extrudings.
The characteristics of each of these markets is briefly described.
(1) Castings. Market-casting is the only fabricating process that
requires the aluminum to be in a liquid state. In the casting process,
liquid aluminum is poured or forced into a mold, which is the shape the metal
will take. The metal is allowed to solidify and is then heat treated and
aged. The product of these operations is called a "casting."
There are almost 3,000 producers of aluminum castings in the United
States. They can be classified on the basis of either ownership or process.
There are two ownership structures among foundries—captive shops and custom
jobbers. Captive shops produce castings for their own consumption; for
example, GM owns foundries that produce castings for use in automobiles.
Custom jobbers are independent operations that produce castings for commer-
cial sale.
On the basis of technological process, specialization foundries are
classified as sand casting, permanent mold casting, and die casting. Die
casting is the most rapidly growing of the three segments.
Of the markets for castings, the transportation industry is the largest.
In the transportation sector, the automobile industry is the most important.
Other sizable castings markets are machinery, defense, and home appliances.
There is a unique relationship between secondary smelters and the cast-
ing industry. The secondaries rely upon the casting industry to consume
90 percent of their output. At the same time, however, the casting industry
-------
depends on smelters for the major portion of its supplies. Secondary
smelters supply 70-80 percent of the aluminum used by the casting industry;
primaries account for the remainder. Of the casting segments, die casting
is the important consumer of secondary aluminum.
(2) Extrudings. In the extrusion process, billets are converted into
tubing, rod, and bar. The billet is heated and placed in an extrusion pro-
cess. In the press, the heated billet is forced through a die under great
pressure. The aluminum comes out in approximately the same shape as the
die opening. Heat treating, stretching, contour rolling, and aging follow
the extrusion steps. The building and construction category represent
approximately 65 percent of the extrusion market. Transportation and the
electrical market also buy significant volumes of extruded products. The
extruding industry, which consists of 175 plants, represents a much smaller
market for secondary aluminum than does the castings industry.
(3) Other Markets. The only other significant market for secondary
production is the steel industry. The steel industry purchases deoxidizers
from the secondaries. The characteristics of the steel industry are well
documented and will not be presented in this report.
b. Types of Secondary Aluminum Products and Production
In contrast to the primary aluminum product industry, the secondary
aluminum product industry has extremely limited product lines. These prod-
ucts can be classified by shape or alloy.
(1) Shape. In terms of shape, secondary aluminum products can be
classified as ingot and sows, hot metals, notched bars and shot, and billets,
Ingots are the most important of the shapes produced. Secondaries sell
15-lb and 30-lb ingots to the casting industry with the 30-lb size being
the more popular. An ingot has several notches which permit the caster to
divide each ingot into smaller segments. Sows which usually weigh 1000 Ib.
are also a product form designed for the casting industry.
To cast aluminum it has to be in a liquid state. For this reason,
casters find it economically advantageous to buy aluminum in molten form
(hot metal) rather than buying ingots and having to remelt them. Smelters
have supplied foundries with hot metal since 1964.
Billets are product forms designed for the extruding industry. Cylin-
drical in form, their outside diameter may vary from 3 to 33 inches. Stand-
ard lengths for billets run 24 to 72 inches.
Notched and shot bars are used as de-oxidizers by the steel industry.
Notched bar is typically produced in 5-lb shapes, while shots are produced
as small pellets.
(2) Alloy. In terms of alloy composition, secondary aluminum products
can be categorized as aluminum-copper, aluminum-copper-silicon, aluminum-
46
-------
silicon and other alloys. Table III-ll contains volume and percentage
figures on the production (1975) of secondary aluminum smelters disaggre-
gated by major alloy group.
Aluminum-copper alloys include the No. 12 alloy. The No. 12 alloy was
the most popular product in pre-World War II times, but has since become
much less important. In 1975, No. 12 alloy accounted for 2.6 percent of
total secondary smelter production. Other aluminum-copper alloys accounted
for 1 percent of total secondary smelter production in 1975.
Aluminum-copper-silicon alloys include No. 380 alloy which is, by far,
the most important secondary smelter product. In 1975, No. 380 alloy
accounted for 54 percent of total smelter output. Other aluminum-copper-
silicon alloys made up 7 percent of smelter production in 1975.
Aluminum-silicon alloys include No. 360. Aluminum-silicon alloys have
high fluidity and excellent corrosion resistance. In 1975, No. 360 alloy
accounted for 9.3 percent of total smelter production. In the same year,
other aluminum-silicon alloys made up 5 percent of smelter production.
The residual category "other" includes pure (97.0%) aluminum and steel
deoxidizers, as well as other alloys. In 1975, pure aluminum was 1 percent
of total smelter output, while steel deoxidizers accounted for 3 percent
of smelter production.
The total amount of secondary aluminum produced in the United States
has risen sharply since 1960. The rate of growth has outstripped the over-
all growth rate in the economy. While growth is rapid, the industry also
exhibits highly cyclical patterns. Table 111-12 presents secondary alum-
inum production levels for the 1960-1975 period, and Table 111-13 shows
the secondary aluminum production as a percentage of primary production
for the 1960-1975 period.
c. Secondary Aluminum Prices
Despite the fact that there are many firms in the secondary aluminum
industry, it is dominated by a few large firms. The pricing behavior of
the primary producers is discussed first as it influences the price the
secondaries charge for their products.
(1) Primaries' Price Structure. Discussion of primaries' prices must
be made in terms of list, transaction, and effective prices. List prices
are the prices quoted by the aluminum product producers. Transactions
prices are the prices per unit which appear on the buyers invoice, i.e.,
the price actually paid. The effective price is an artificial construct
that makes allowance for free service, credit conditions, price on scrap
buy-back, and all other conditions of sale. It is possible that the trans-
action prices of two producers may be the same, while their effective prices
could differ. From the buyer's point of view, effective price is the one
that is most meaningful.
-------
TABLE III-ll
SECONDARY ALUMINUM PRODUCTION IN 1975
No. 12 alloy and variations
Other aluminum-copper alloys
No. 380 and variations
Other aluminum-copper-silicon
No. 360
Aluminum-silicon alloys
Pure (97%) aluminum
Deoxidizers
Other products
TOTAL
Short Tons*
13,332
4,730
275,030
36,401
47,418
27,897
4,673
17,098
85,196
Percentage
2.6
0.9
53.8
7.1
9.3
5.5
0.9
3.3
16.6
511,775
100.0
*Gross weight includes alloying elements,
Source: U.S. Bureau of Mines
48
-------
TABLE 111-12
SECONDARY
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
ALUMINUM PRODUCTION
Short Tons*
281,964
294,976
383,645
437,337
472,291
500,264
536,731
571,578
635,192
633,997
588,820
606,457
680,064
762,096
679,462
511,775
*Weight includes alloying elements.
Source; U.S. Bureau of Mines.
Percentage
100.000
104.615
136.062
155.104
167.500
177.421
190.354
202.713
225.274
224.850
208.828
215.083
241.188
270.281
240.975
181.504
49
-------
TABLE 111-13
SECONDARY PRODUCTION AS A PERCENTAGE
OF PRIMARY PRODUCTION,
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1960-1975
Percentage
14.00
15.49
18.11
18.91
18.50
18.16
18.08
17.48
19.51
16.71
14.81
15.45
16.50
16.83
13.86
13.19
Source; Aluminum Association and U.S.
Bureau of Mines.
50
-------
List prices of the primary ingot are 'target prices.' Target pricing
is a method by which firms estimate the direct and indirect costs of pro-
ducing a product (based on a normal capacity utilization rate) and add an
allowance for profit margin which will generate a target rate of return on
investment. List prices are stable and do not respond to market conditions,
A list price series is published by the American Metal Market in Metal
Statistics.
A transactions price, the price at which the sale actually occurs, is
usually lower than the list price, but in times of demand-crunch (for
example, September 1973 to November 1974), the transaction price can be
greater than list price. Since February 1972, Metals Week has been report-
ing a transactions price.
No series on effective prices is published. An approximation of move-
ments in effective prices can be obtained by looking at the scrap buy-back
agreements the primaries have with the non-integrated fabricators (to whom
they sell ingot). During periods of demand-crunch, the primaries pay lower
than market prices for the scrap they buy back (or alternatively raise toll
conversion charges). By accepting lower than market price for their scrap,
the fabricators are, in a sense, raising the effective prices for the ingot
they buy from the primaries.
To summarize, list prices are a function of costs and are relatively
inflexible, while transaction and effective prices are more responsive to
demand conditions.
(2) Relationship of Secondary and Primary Prices. Primary producers
do compete in secondary markets. This competition ensures that effective
primary and secondary prices for a given alloy are close (list prices, how-
ever, can and do differ). Given that the primary producers dominate the
industry, the secondary industry is necessarily a price follower of the pri-
mary industry.
(3) Secondaries' Price Structure. In the secondary industry, list
prices are greater than the transaction prices. In contrast to the primary
industry, however, secondary list prices are somewhat sensitive to market
conditions. As a consequence, list prices in the secondary industry do
provide a reasonable approximation of transaction prices. American Metal
Market publishes list prices for secondary producers in Metal Statistics.
Published figures for secondary transactions or effective prices are not
available.
Table 111-14 presents the price series for No. 380 alloy (the most
popular secondary product), and for primary 99.5 percent virgin ingot. Com-
parison of these price series cannot be made directly for the following
reasons:
1. The products are different
2. Both the prices are list series and not transactions (or effec-
tive) series.
51
-------
TABLE 111-14
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
SECONDARY AND PRIMARY PRICES,
(C/lb)
Secondary1
24.67
22.56
21.20
21.10
22.05
24.21
24.74
24.75
25.02
26.82
27.72
27.92
27.72
30.58
50.18
43.87
1960-1975
Primary
27.23
25.46
23.88
22.62
23.72
24.50
24.50
24.98
25.57
27.18
28.72
29.00
26.45
25.33
34.06
39.79
No. 380 secondary ingot prices,
2Primary (99.5%) ingot prices.
Source: American Metal Market.
52
-------
It is seen that secondary list prices are lower than primary list
prices. In periods of shortage of primary aluminum, secondary list prices
exceed primary list prices. However, primary transaction and effective
prices, during such periods, are greater primary list price.
F. PRETREATMENT STANDARDS AND THE COSTS OF COMPLIANCE
1. Recommended Preliminary Pretreatment Standards
The Environmental Protection Agency (EPA) is promulgating interim final
pretreatment standards for the secondary aluminum industry pursuant to
Sections 307(b) of the Federal Water Pollution Control Act, as amended
(33 U.S.C. 1317(b), 86 Stat. 816 et seq.; P.L. 92-500). These standards
apply to existing sources introducing pollutants into publicly owned treat-
ment works (POTW).
The principal sources of wastewater in the secondary aluminum industry
are: ingot and shot cooling, wet scrubbing of fumes from demagging, and
the wet million of residues, such as dross and slag.
The pretreatment control levels are presented in Table 111-15. Oil
and grease are the pollutants limited for metal cooling, aluminum for
fume scrubbing wastewater, and aluminum and ammonia for residue million
wastewater.
2. Costs of Compliance
Compliance costs for meeting pretreatment standards and achieving zero
discharge were provided by the EPA. These costs were provided on a plant-
by-plant basis as incremental capital and operating costs based on model
treatment plants with two plant sizes: large - 33,600 tons per year;
small - 15,265 tons per year. Tables 111-16 and 111-17 present incremental
capital and operating costs for pretreatment and zero discharge. We have
not reviewed the costs, as the backup information was unavailable.
One of the POTW dischargers (Plant 17) shows a relatively high level
compliance cost for pretreatment as the treatment plant includes ammonia
air stripping to take care of ammonia levels in the discharge from this
plant. The ammonia air stripper was estimated as requiring capital invest-
ment of $250,000.
For a number of plants (Plants 1, 5, 12, 15, 16, and 17) zero discharge
was achieved by switching to a dry process such as the Derham process. The
incremental costs do not allow for cost advantages that might result from
lower material consumption and increased productivity claimed for the pro-
cess. We understand that, for the remainder of the plants, zero discharge
is achieved by total recycle of the water used at the plant.
53
-------
TABLE 111-15
PRELIMINARY PRETREATMENT CONTROL LEVELS
(metric units, mg/1)
Pretreatment Levels
Waste Stream
Metal Cooling
Fume Scrubbing
Residue Milling
Effluent
Characteristic
Oil and Grease
Aluminum
Aluminum
Ammonia
Maximum Average of daily
for values for 30 consecutive
any 1 day days shall not exceed
100.0
100.0
100.0
100.0
100
50
50
50
.0
.0
.0
.0
Source: Pretreatment Supplement - Development Document for Secondary
Aluminum, EPA, August 1976.
54
-------
TABLE III-16
Plant
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
COSTS OF COMPLIANCE WITH PRETREATMENT STANDARDS
FOR SECONDARY ALUMINUM SMELTERS DISCHARGING TO A POTW
(last quarter 1975)
Capital
Investment
($)
87,900
8,300
8,300
8,300
5,700
5,700
5,700
87,900
9,100
5,700
87,900
5,700
100,800
92,500
349,800
8,300
Annualized
Operating Costs
($)
22,430
3,370
3,370
3,370
2,560
2,560
2,560
22,430
1,760
2,560
22,430
2,560
37,530
34,160
185,570
3,370
Source: EPA
55
-------
TABLE 111-17
Plant
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
COSTS OF ACHIEVING ZERO DISCHARGE
SECONDARY ALUMINUM SMELTERS DISCHARGING
(last quarter 1975)
Capital
Investment
($)
173,700
48,200
48,200
48,200
143,800
29,400
29,400
29,400
84,200
29,400
173,700
29,400
29,400
252,900
204,700
204,700
48,200
FOR
TO A POTW
Annualized
Operating Costs
($)
52,200
13,140
13,140
13,140
43,160
9,040
9,040
9,040
23,140
9,040
52,200
9,040
9,040
88,740
75 , 600
75,600
13,140
Source: EPA
56
-------
Plants for which no costs were provided by the EPA had the necessary
pollution abatement equipment in place.
G. BASELINE ANALYSIS AND PROJECTIONS
In this section, we establish a financial profile for POTW dischargers
in the secondary aluminum industry prior to the imposition of pretreatment
or zero-discharge standards. We quantified the financial characteristics
on a plant-by-plant basis using a deterministic process to simulate con-
ditions as of the last quarter of 1975. We contacted the Aluminum Recycling
Association in Washington to verify the baseline financial characteristic
generated by our model. The model results were in reasonable agreement.
We then made aggregate industry projections to evaluate how much these con-
ditions are likely to change in the future, using a time-series trend
analysis.
1. Process Economics Model Structure
ADL has developed a process economics model for the secondary aluminum
industry. Given basic characteristics, such as production, corporate
structure, product type, scrap type, and demagging practice, the model gen-
erates the following financial information: (a) cost by category; (b) rev-
enues; (c) pretax profits; (d) posttax profits; and (e) cash flows.
2. Financial Results
Using data on plant characteristics supplied by the EPA and ADL model
we simulated financial conditions in 1975 for 18 POTW dischargers. Table
111-18 presents the characteristics of these plants. Plant 7 differs from
the other plants in that it produces shot; the other 17 plants produce
ingots or ingots and hot metal.
Table 111-19 presents, in cents per pound of product (alloy No. 380
ingot or shot), the cost structure for the 18 POTW dischargers. Plants 14,
15, and 17 are dross producers and have the lowest scrap costs—20.49
-------
TABLE III-18
PLANT CHARACTERISTICS
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Notes :
Annual
Output in Corporate
Short Tons Structure
9,000
21,000
30,000
21,000
6,000
6,000
12,600
9,000
12,000
24,000
6,000
12,000
15,000
9,600
42,000
60,000
34,200
22,800
Corporate Structure
Product Type Code
Scrap Type Code
Demagging Practice
0
1
1
1
0
0
0
0
0
0
0
0
0
1
1
1
1
1
Code .
Code .
Product
Type
0
0
0
0
0
0
2
0
0
0
0
0
0
0
1
1
1
1
. 0 = single
1 = part of
. 0 = ingot
1 = ingot a
2 = shot
. 0 = no dros
1 = dross
. 0 = CL2 or
1 = ALF3 or
2 = no dema
Scrap
Type
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
1
plant
a multiplant
nd molten
s or minimal
Derham
K3ALF6
gging
Demagging
Practice
0
1
1
0
0
0
2
0
1
0
1
0
0
0
0
0
0
0
enterprise
dross
Source; U.S. Environmental Protection Agency.
58
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TABLE 111-19
Ul
BASELINE COSTS OF PRODUCTION BY MAJOR CATEGORY
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Source:
Scrap
22.58
22.58
22.58
22.58
22.58
22.58
24.51
22.58
22.58
22.58
22.58
22.58
22.58
20.49
20.49
22.58
22.58
20.49
Arthur
Other
Materials
4.18
4.42
4.49
4.60
4.02
4.02
0.58
4.31
4.59
4.12
4.42
4.27
4.05
4.29
4.15
4.10
4.25
4.20
D. Little,
Labor
4.05
2.90
3.31
3.94
3.31
3.31
4.47
4.41
4.97
3.15
4.41
4.97
3.00
4.90
3.94
3.31
4.84
3.37
Utilities
1.10
1.10
1.10
1.10
1.10
1.10
1.16
1.10
1.10
1.10
1.10
1.10
1.10
1.27
1.60
1.43
1.43
1.60
(C/lb)
Selling and
Administrative
0.84
1.26
1.26
1.26
0.84
0.84
0.75
0.84
0.84
0.84
0.84
0.84
0.84
1.26
1.26
1.26
1.26
1.26
Interest
Expense
0.28
0.27
0.29
0.31
0.24
0.24
0.26
0.31
0.31
0.26
0.27
0.30
0.25
0.30
0.27
0.26
0.29
0.28
Taxes
(non- income)
and
Insurance
0.17
0.15
0.19
0.26
0.07
0.07
0.17
0.25
0.25
0.13
0.15
0.22
0.09
0.23
0.15
0.12
0.21
0.18
Depreciation
0.46
0.41
0.53
0.70
0.20
0.20
0.47
0.68
0.69
0.36
0.41
0.61
0.24
0.64
0.41
0.33
0.57
0.49
Total
Cost
33.66
33.08
33.75
34.74
32.37
32.37
32.27
34.49
35.34
32.53
34.18
34.89
32.15
33.38
32.28
33.39
35.44
31.89
Inc., estimates.
-------
TABLE 111-20
BASELINE PROFITS AND CASH FLOW
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Revenue
38.20
38.20
38.20
38.20
38.20
38.20
34.20
38.20
38.20
38.20
38.20
38.20
38.20
38.20
38.20
38.20
38.20
38.20
(C/lb)
Cost
33.66
33.08
33.75
34.74
32.37
32.37
32.27
34.49
35.34
32.53
34.18
34.89
32.15
33.38
32.28
33.39
35.44
31.89
Gross
Profit
4.54
5.12
4.45
3.46
5.83
5.83
1.93
3.71
2.86
5.67
4.02
3.31
6.05
4.82
5.92
4.81
2.76
6.31
Net
Profit
2.73
3.07
2.67
2.07
3.50
3.50
1.16
2.23
1.72
3.40
2.41
1.98
3.63
2.89
3.55
2.89
1.66
3.79
Cash
Flow
3.19
3.48
3.20
2.77
3.70
3.70
1.62
2.91
2.41
3.76
2.82
2.60
3.87
3.53
3.96
3.21
2.23
4.28
Source: Arthur D. Little, Inc., estimates.
60
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3. Industry Projections
The three major determinants of the industry's financial conditions
are the price at which it can sell its product, the quantity of the product
it can sell, and the price it pays for scrap. The first two variables
determine industry revenue and the third variable is a major determinant
of cost.
In projecting the future values of these variables, difficulties arise
with respect to the data on the price variables. To project a variable,
historical time-series data on which to base such predictions must be avail-
able. The time-series data available on secondary product prices consist
of list prices. These prices generally exceed transaction prices (used in
the process model). However, for the secondary ingot, transaction and list
prices move together. Therefore, the projected rate of increase in the
transactions price should be roughly the same as the projected rate of in-
crease for the list prices.
A different problem occurs in connection with scrap prices. The price
series on scrap is based on dealers' prices. To approximate smelters'
buying prices (used in the process model), the value added by the dealer
must be included. Dealers' buying prices and smelters' buying prices do not
always move together. For example, dealers' relative margins increase in
times of crunch, and their effect will not appear in the price series.
Consequently, there is a possible source of bias in using dealers' prices
as the basis for predictions.
To summarize, it should be noted that the prices projected for the
product and scrap are not the same as those used in the process model.
Nevertheless, since the prices projected are good proxies for those used
in the model, the projections are valid.
a. Product Price Projections
The secondaries produce a variety of alloys. Of these alloys, No.' 380
is the most important and therefore we chose to project its price. An exam-
ination of actual secondary prices showed prices declining slightly in the
early years and then rising almost continuously. Given this pattern, we
felt that making price a quadratic function of time would be the most
appropriate form. Such a form would provide for one inflection in the
curve.
We confirmed this hypothesis by statistical experimentation. Using
annual data for the 1960-1975 period, we tried a variety of functional form-
ulations and the quadratic proved the most acceptable on the basis of stand-
ard statistical criteria. The estimated quadratic trend equation is shown
below with the t values placed in the parentheses below the coefficient:
PRICE PD = 26.62 - 1.96 TIME + 0.19 TIME 2 (3)
(8.04) (-2.19) (3.73)
R2 = .80
61
-------
where
PRICE PD = list price of No. 380 alloy
TIME = trend variable 1 in 1960, 2 in 1961, 3 in 1962, etc.,
TIME 2 = squared values of the trend variable.
2
The overall fit of the equation is excellent. The R indicates that
80 percent of the variation in product prices can be explained by the
equation. Both the trend variables are significant as demonstrated by their
t values.
Utilizing equation (3) we generated price predictions for the 1976-1978
period. The predicted price for No. 380 alloy is presented below (c/lb) .
Year Price
1976 48.5
1977 53.2
1978 58.3
b. Scrap Price Projections
Data on dealers' buying prices for scrap clippings and cast scrap are
available. Both types of scrap are major components of secondaries' con-
sumption, and movements in these prices mirror each other. We decided to
project the price for scrap clippings.
Historical scrap prices revealed little variation, except for a sharp
rise in 1974. Given the miniscule variation in the data, it is not sur-
prising that, statistically, the scrap trend equation was poor. Because
of their relationship to product prices, scrap prices can also be best
described as a quadratic function of time. The equation is shown below:
PRICES P = 13.57 - 0.45 *TIME + 0.02 *TIME 2 (4)
(7.09) (-0.87) (0.68)
R2 - 0.09
where
PRICES P = dealers' buying price for scrap clippings, and
TIME = trend variable.
The overall fit of the equation and the contribution of the individual
variables are poor as indicated by the R^. Only 9 percent of the variation
in prices can be explained by the equation. However, scrap price variations
have been very small and so errors in prediction are not a matter for
serious concern Utilizing Eq. (4), we projected dealers' buying prices
(C/lb) for aluminum clippings:
62
-------
Year Price
1976 11.70
1977 11.95
J978 12.24
c. Quantity Projections
We used a number of different trend formulations to determine the best
trend equation for projecting the annual production by secondary smelters.
Of these formulations, the linear (shown below) was the best:
QUANTITY = 329,411 + 24,309.3 *TIME (5)
(8.23) (5.88)
R2 - .71
where
QUANTITY = annual production in short tons by secondary smelters,
TIME = trend variable.
The fit of the equation is good. The equation can explain 71 percent
of the variation in annual smelter production. The t value for the trend
variable indicates that it is highly significant.
Using equation (5), we predicted quantities (annual short tons) for
the 1976-1978 period:
Year Quantity
1976 742,669
1977 766,978
1978 791,288
d. Analysis of Result
The time-series analysis we conducted provides two types of information:
(1) it can indicate whether the base year 1975 was typical; and (2) it
can provide growth rates in the key variables.
A comparison of the historical predicted and actual data will indicate
whether or not 1975 was a typical year. Deviations of the actual value
from the trend value result from the effect of cyclical or irregular forces.
Therefore, if the 1975 predicted (or trend) value is considerably different
from the actual 1975 value, this indicates that 1975 was an unusual year.
63
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The predicted list price of No. 380 alloy was 44.2c/lb Ln 1975. The
actual list price in 1975 was 43.9
-------
1. Price Effects
a. Probable Price Increases
While traditionally competitive, the secondary aluminum industry has
exhibited a moderate increase in the concentration of market power. In
its report on aluminum prices (September 1976), the Council on Wage and
Price Stability stated that the secondary aluminum industry is workably com-
petitive. It also indicated that the secondaries are involved in close
competition with the primaries, particularly in such markets as deoxidizing
material and hot metals, and even in the alloy market, especially the low-
copper alloys. Effective secondary and primary prices parallel one another,
with the secondaries in the role of price takers.
The secondary aluminum industry, in essence, is a subset of the alum-
inum industry. Furthermore, not all the plants in the secondary are affected
by pretreatment or zero-discharge standards. It is therefore unlikely that
prices will increase as a result of compliance.
We note that compliance costs for both pretreatment and zero-discharge
are small—less than 0.3(?/lb.
Tables 111-21 and 111-22 show the compliance costs (on a C/lb basis)
as a percentage of product price for pretreatment and zero discharge. The
compliance costs as a percentage of product price, in all cases, is lower
than 1 percent.
b. Secondary Effects
As there is little or no price increase as a result of compliance, the
secondary effects are minimal.
2. Financial Effects
As explained earlier, it is unlikely that the impacted plants will
pass along the increased costs through price. Therefore, they will have to
absorb these costs. We examined the effect of the cost absorption on
profits and cash flow, and then considered the sources of funds available
to finance the compliance-related investment. Both are discussed below.
a. Profit and Cash Flow Effects
The effects of either pretreatment or zero discharge on cash flow are
extremely small. Table 111-23 shows the effect of pretreatment on pretax
profit and cash flow. Plant No. 17 would suffer the largest impact with
profits decreasing 9.8 percent and cash flow 7.3 percent. No other plant
would show a decrease in profits or cash flow of more than 4 percent.
Table III-2 shows the effect of zero-discharge compliance on profits
and cash flow. In general, the effects here are much more deleterious than
65
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TABLE III-21
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
PRETREATMENT
RELATION
Compliance Cost
(C/lb)
0.12
0.01
0.01
0.01
0.0
0.02
0.01
0.01
0.09
0.0
0.02
0.09
0.01
0.0
0.04
0.03
0.27
0.01
COMPLIANCE COST IN
TO PRODUCT PRICE
Product Price
(C/lb)
38.00
38.00
38.00
38.00
38.00
38.00
34.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
Compliance Cost
as a Percentage
of Product Price
0.33
0.02
0.01
0.02
0.0
0.06
0.03
0.04
0.25
0.01
0.06
0.25
0.02
0.0
0.12
0.07
0.71
0.02
Sources: U.S. Environmental Protection Agency and Arthur D. Little,
Inc., estimates.
66
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TABLE 111-22
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
ZERO-DISCHARGE
COMPLIANCE COST
IN RELATION TO PRODUCT PRICE
Compliance Cost
(C/lb)
0.29
0.03
0.02
0.03
0.36
0.08
0.04
0.05
0.10
0.0
0.08
0.22
0.03
0.05
0.11
0.06
0.11
0.03
Product Price
(C/lb)
38.00
38.00
38.00
38.00
38.00
38.00
34.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
38.00
Compliance Cost
as a Percentage
of Product Price
0.76
0.08
0.06
0.08
0.95
0.20
0.11
0.13
0.25
0.0
0.2
0.57
0.08
0.12
0.28
0.17
0.29
0.08
Sources: U.S. Environmental Protection Agency and Arthur D. Little,
Inc., estimates.
67
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TABLE 111-23
PRETREATMENT COMPLIANCE IMPACTS ON
(C/lb)
Pretax Profits
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Baseline
4.54
5.12
4.45
3.46
5.83
5.83
1.93
3.71
2.86
5.67
4.02
3.31
6.05
4.82
5.92
4.81
2.76
6.31
Impact
4.42
5.11
4.44
3.45
5,83
5.81
1.92
3.70
2.77
5.66
4.00
3.21
6.04
4.82
5.88
4.78
2.49
6.31
Percent
Change
2.74
0.16
0.13
0.23
0.0
0.37
0.53
0.38
3.26
0.06
0.53
2.83
0.14
0.0
0.75
0.59
9.83
0.12
PROFIT AND CASH FLOW
Cash Flow
Baseline
3.19
3.48
3.20
2.77
3.70
3.70
1.62
2.91
2.41
3.76
2.82
2.60
3.87
3.53
3.96
3.21
2.23
4.28
Impact
3.11
3.47
3.19
2.77
3.70
3.69
1.62
2.90
2.36
3.76
2.81
2.54
3.87
3.53
3.93
3.20
2.07
4.28
Percent
Change
2.34
0.14
0.11
0.17
0.0
0.35
0.38
0.29
2.32
0.06
0.45
2.16
0.13
0.0
0.68
0.53
7.30
0.10
Source: Arthur D. Little, Inc., estimates.
60
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TABLE 111-24
ZERO-DISCHARGE COMPLIANCE IMPACTS
ON PROFIT AND CASH FLOW
Pretax Profits
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Baseline
4.54
5.12
4.45
3.46
5.83
5.83
1.93
3.71
2.86
5.67
4.02
3.31
6.05
4.82
5.92
4.81
2.76
6.31
Impact
4.25
5.08
4.42
3.43
5.47
5.75
1.89
3.66
2.77
5.67
3.95
3.09
6.02
4.77
5.82
4.75
3.65
6.28
Percent
Change
6.38
0.61
0.49
0.91
6.17
1.29
1.86
1.35
3.37
0.0
1.87
6.58
0.50
0.98
1.78
1.31
4.00
0.46
Cash Flow
Baseline
3.19
3.48
3.20
2.77
3.70
3.70
1.62
2.91
2.41
3.76
2.82
2.60
3.87
3.53
3.96
3.21
2.23
4.28
Impact
3.02
3.46
3.19
2.76
3.48
3.66
1.60
2.88
2.36
3.76
2.78
2.47
3.86
3.50
3.90
3.18
2.16
4.26
Percent
Change
5.46
0.54
0.41
0.68
5.83
1.22
1.32
1.04
2.40
0.0
1.60
5.03
0.47
0.80
1.60
1.18
2.97
0.40
Source; Arthur D. Little, Inc., estimates.
69
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was the case for pretreatment. However, the impacts are still relatively
minor. Plant 12 would suffer the largest percentage decrease in profits—
6.6 percent, and Plant 5 would suffer the largest percentage decrease in
cash flow—5.8 percent.
b. Capital Availability
Funds to finance pretreatment investment can come either from internal
sources (cash flow) or external sources (debt). Table 111-25 shows capital
investment associated with pretreatment as a percentage of a one-year cash
flow. In only four cases would the percentage exceed 4 percent. For these
four plants, the percentages range from 14.1 percent (plant No. 12) to 23.0
percent (plant No. 17).
Table 111-26 provides the same measures for zero-discharge related capi-
tal investment. The impact here would be relatively more severe. The
highest figure for capital investment as a percentage of annual cash flow
is 32.4 percent (plant No. 5). Nevertheless, in both the pretreatment and
zero-discharge cases, there would be no capital availability problem accord-
ing to this criterion.
An alternative way of evaluating the capital availability issue and
of examining the possible magnitude of any displacement of productive invest-
ment would be to examine the ratio of pretreatment- or zero-discharge-related
investment to normal productive investment. Assuming that productive invest-
ment is 2 percent of the value of shipments (a figure taken from the 1972
Census of Manufactures, published by the U.S. Department of Commerce, Bureau
of the Census) would imply an annual productive investment of $5.22 million
by the impacted plants. Aggregate pretreatment-related investment is $0.88
million, which represents 17 percent of the productive investment figure.
If the firms were to make this investment in addition to normal productive
investment, the ratio of investment to the value of shipments would rise
from 2 to 2.3 percent in the year of the investment.
Zero-discharge-related investment totals $1.61 million, which amounts
to 31 percent of the annual productive investment made by the impacted plants,
If the firms were to make this investment in addition to productive invest-
ment, the ratio of investment to the value of shipments would increase from
2 to 2.6 percent.
3. Production and Employment Effects
In this section, we have examined the effect of proposed standards on
production curtailment, plant closures, employment, and industry growth.
a. Production Curtailment
The costs of compliance with pretreatment and zero-discharge standards
are minimal. Furthermore, plants in the industry have excess capacity and
production curtailment would increase average cost of production. Conse-
quently, we anticipate no production curtailments.
70
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TABLE III-25
CAPITAL INVESTMENT ASSOCIATED WITH PRETREATMENT
STANDARDS IN RELATION TO PRECOMPLIANCE CASH FLOW
Plant
Capital Investment
to Meet Pretreatment
Standards
($)
Cash Flow
Capital Investment
Associated with
Pretreatment as a
Percent of Annual
Cash Flow
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
87,900
8,300
8,300
8,300
0
5,700
5,700
5,700
87,900
9,100
5,700
87,900
5,700
0
100,800
92,500
349,800
8,300
574,039
1,460,497
1,919,010
1,165,157
444,058
444,058
409,400
523,709
579,125
1,804,019
338,571
623,234
1,162,447
677,295
3,327,762
3,856,397
1,524,856
1,952,515
15.31
0.57
0.43
0.71
0.0
1.28
1.39
1.09
15.18
0.50
1.68
14.10
0.49
0.0
3.03
2.40
22.94
0.43
Sources: U.S. Environmental Protection Agency and Arthur D. Little,
Inc., estimates.
71
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TABLE II1-26
Plant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
CAPITAL INVESTMENT ASSOCIATED WITH ZERO-DISCHARGE
STANDARDS IN RELATION
Capital Investment
to Meet Pretreatment
Standards
($)
173,700
48,200
48,200
48,200
143,800
29,400
29,400
29,400
84,200
0
29,400
173,700
29,400
29,400
252,900
204,700
204,700
48,200
TO PRECOMPLIANCE
Cash Flow
574,034
1,460,497
1,919,010
1,165,157
444,058
444,058
409,400
523,709
579,125
1,804,019
338,571
623,234
1,162,447
677,295,
3,327,762
3,856,397
1,524,856
1,952,515
CASH FLOW
Capital Investment
Associated with
Pretreatment as a
Percent of Annual
Cash Flow
30.26
3.30
2.51
4.14
32.38
6.62
7.18
5.61
14.54
0.0
8.68
27.87
2.53
4.34
7.60
5.31
13.42
2.47
Sources: U.S. Environmental Protection Agency and Arthur D. Little,
Inc., estimates.
72
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b. Plant Closings
In evaluating shutdowns, plants should be placed in specific categories
as follows:
1. those plants which would not cover their variable costs;
these plants will shut down since by doing so losses will
be avoided;
2. those plants which would cover variable but not fixed costs;
they would shut down in the long run, but the timing is
difficult to predict; and
3. those plants which would continue to enjoy a profit; these
plants may still shut down, but the possibility of these
plants shutting down can be evaluated by discounted cash
flow analysis.
As demonstrated in Tables 111-23 and 111-24, all the impacted plants
in this study fall into the third category, i.e., even after they met the
standards, they would still continue to make a profit. The issue then is
whether profits have been reduced to a point low enough to force them to
eventually shut down.
When a plant making a profit shuts down, it sacrifices both current
and future cash flow, but obtains in return the assets tied up in the
business. Therefore, a plant will continue to operate only if the dis-
counted stream of future cash flow and the terminal salvage value exceed the
funds that can be released by a shutdown.
The funds released by a shutdown include owner-financed working capi-
tal and current salvage value. Current salvage values are relatively low
for the plants in the industry. Land values after clearing provide the
chief source of their salvage value. Given generally unattractive loca-
tions, these salvage values are not particularly high. Given these factors
and bearing in mind that the post-impact annual cash flows for the impacted
plants, as seen in Tables 111-24 and 111-25 exceeds $300,000, it is clear
that shutdown possibilities as a result of compliance are remote.
c. Employment Effects
The analysis does not indicate production curtailments or plant clo-
sures. Consequently, we anticipate no employment effects.
d. Industry Growth
Industry growth could theoretically be reduced as a result of compli-
ance. Reductions in growth could result from the following impact effects:
73
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1. Decreased profits (due to pretreatment-related costs) could
reduce the incentive for productive investment; and
2. Increased demands on investment funds (due to pretreatment-
related investments) could reduce the amount left.
The secondary aluminum industry baseline growth is likely to be quite
rapid. The effect of pretreatment or zero-discharge compliance on this
growth will be minimal because productive investment is unlikely to decrease.
A decrease in productive investment is improbable because:
1. Pretreatment or zero discharge has little effect on profits;
therefore incentive for productive investment is not
affected; and
2. Pretreatment or zero-discharge investment is a relatively
small percentage of cash flow and so does not significantly
decrease the funds available for productive investment.
4. Resultant Effects on the Community
The pretreatment compliance will not cause shutdowns. Furthermore,
compliance will have little or no effect on industry production and growth.
Given the minimal economic impact of the standards, we concluded that
there would be no community effects.
5. Effects on Balance of Payments
There will be no pronounced effects from pretreatment or zero-discharge
standards on the domestic industry. Therefore, there is little likelihood
that trade and capital accounts on the balance of payments will be affected.
6. Sensitivity Analysis
In this section, we have examined the effect of variations in certain
parameters such as pollution-abatement costs and the smelting costs.
Pollution-abatement costs, as provided by the EPA, are applicable to
green field sites. We estimate the capital costs could run 50-75% higher
and operating costs 10-25% higher than those predicted by the EPA because
the treatment plant equipment will have to be retrofitted in many cases in
crowded plants. Hence, the effect of an increase of 75% in capital costs
and a 25% increase in operating costs on impact parameters was considered
(Case 1 of Table 111-27).
The costs of production of aluminum alloy ingot are ADL estimates
based on models. We have checked our costs with a few plants, and we
feel that costs of processing the scrap into ingots (exclusive of scrap
74
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TABLE 111-27
SENSITIVITY OF IMPACT PARAMETERS TO POLLUTION
ABATEMENT AND PRODUCTION COSTS: SECONDARY ALUMINUM
Base Case
Case 1
Case 2
Case 3
PRETREATMENT
Price Effects
Profitability
(a) Pretax Profits
(b) Cash Flow
Capital Requirements
& Availability
(a) Pollution Abatement
Inves tment/Annual
Cash Flow
(b) Total Pollution-
Abatement Investment
Price increase unlikely
0-9.8
0-7.3
0-12.3
0-9.1
0-14.3
0-9.2
0-7.5
0-6.1
0-22.9
0-40.1
0-28.9
0-18.2
877,600 1,535,800 877,600 877,600
ZERO DISCHARGE
Price Effects
Profitability
(a) Pretax Profits
(b) Cash Flow
Capital Requirements
& Availability
(a) Pollution Abatement
Inves tment/Annual
Cash Flow
(b) Total Pollution-
Abatement Investment
Price increase unlikely
0-6.6
0-5.8
0-8.0
0-7.3
0-8.7
0-6.4
0-5.5
0-4.9
0-32.4
0-56.7
0-35.5
0-29.5
1,606,900 2,812,075 1,606,900 1,606,900
Note: Case 1 - Pollution Abatement Costs - Capital costs increased 75%;
operating costs increased 25%.
Case 2 - Production costs (exclusive of scrap) increased 10%.
Case 3 - Production costs (exclusive of scrap) decreased 10%.
75
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costs) are within +10%, for the last quarter of 1975. The effect on impact
parameters of a +_10% variation in the costs of processing is covered in
cases 2 and 3.
Table 111-27 summarizes the effect on impact parameters for variations
in pollution abatement and production costs for secondary aluminum.
The maximum reduction in profits as a result of compliance with pretreat-
ment standards for the variation cases range from 7.5-14.3 percent and re-
duction in cash flow varies from 6.1 to 9.2 percent. Pollution-abatement
investment as a percentage of annual cash flow ranges from 18.2 to 40.1
percent. The total capital requirements for POTW dischargers in the secon-
dary aluminum industry ranges from $877,600 to $1,535,800.
For zero discharge, the maximum reductions in pretax profits for the
various cases range from 5.5 to 8.7 percent and reductions in cash flow run
between 4.9 and 7.3 percent. Pollution abatement as a percentage of annual
cash flow ranges from 29.5 to 56.7 percent. The total capital requirements
to meet zero discharge range from $1,606,900 to $2,812,075.
7. Limits of the Analysis
The main limitation of this analysis can be attributed to the modelling
approach used to quantify impacts. Such an approach was necessitated by the
paucity of specific financial data from individual plants. Modelling will
not predict the financial characteristics exactly for a particular plant;
however, it will allow for basic differences between plants and provide
reasonable estimates of financial characteristics against which the impact
of compliance can be assessed.
It should be emphasized that the analysis has evaluated impacts due to
the proposed pretreatment standards alone.
The costs of compliance with pretreatment and zero-discharge standards
were provided by the EPA and are subject to all the limitations of their
cost analysis.
76
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IV. SECONDARY COPPER SMELTING AND REFINING
A. INTRODUCTION
In Chapter IV, we assess the economic impact of proposed pretreatment
standards on the secondary copper smelting and refining subcategory of the
Nonferrous Metals Processing Point Source Category—SIC 3341. These stand-
ards are applicable to plants discharging process wastewaters to Publicly
Owned Treatment Works (POTW's).
B. TECHNOLOGY
The secondary copper industry is comprised of numerous enterprises
which collectively employ many of the recovery and refining processes used
in primary plants, as well as many other processes that are unique to the
industry. Effective methods are used for identifying and segregating all
types of scraps according to widely accepted standard classifications.
Segregated scrap and waste materials may require some preliminary processing
to remove both valuable and deleterious associated constituents.
Smelting, melting, alloying, pyrorefining and, to some extent, electro-
refining are common methods used to produce secondary copper, but specific
processing techniques usually depend on the physical and chemical nature
of the raw materials being used.
1. Raw Materials
The basic raw material of the secondary copper industry is copper and
copper-base alloy scrap. About two-thirds of the amount of secondary cop-
per recovered is in the form of either brass or bronze, while one-third is
in the form of copper alone.
Both the secondary copper industry and the American Society for Test-
ing and Materials have made a continuing effort over the past 35 years or
so to reduce the number of varieties of copper-base alloys. At one time,
there were more than 500 different commercial copper-base alloys made in
the United States and the problem of sorting and grading mixed scrap with
no uniform standards acquired major importance in the industry. Of the
many hundreds of copper-base alloys that become available for reuse through
scrap recovery channels, 54 primary types of copper-bearing scrap are now
included in the standards published by the National Association of Recycling
Industries (NARI, previously NASMI). These are listed in Table IV-1.
Copper sold to manufacturers is returned to the producers either as
new scrap or old scrap. New scrap is returned directly from the manufac-
turers or via collectors and scrap brokers. Old scrap is returned from
consumers of copper in used products. Purchased scrap may move from one
location to another within the same company, or from one company to another.
77
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TABLE IV-1
TYPES OF COPPER-BEARING SCRAP
oo
1. No. 1 Copper Wire
2. No. 2 Copper Wire
3. No. 1 Heavy Copper
4. Mixed Heavy Copper
5. Light Copper
6. Composition or Red Brass
7. Red Brass Composition Turnings
8. Genuine Babbitt-Litied Brass Bushings
9. High-Grade, Low Lead Bronze Solids
10. Bronze Papermill Wire Cloth
11. High-Lead Bronze Solids and Borings
12. Machinery or Hard Red Brass Solids
13. Unlined Standard Red Car Boxes (Clean Journals)
14. Lined Standard Red Car Boxes (Lined Journals)
15. Cocks and Faucets
16. Mixed Brass Screens
17. Yellow Brass Scrap
18. Yellow Brass Castings
19. Old Rolled Brass
20. New Brass Clippings
21. Brass Shell Cases without Primers
22. Brass Shell Cases with Primers
23, Small Brass Arms and Rifle Shells, Clean Fired.
24. Small Brass Anns and Rifle Shells, Clean Muffled
(Popped)
25. Yellow Brass Primer
26. Brass Pipe
27. Yellow Brass Rod Turnings
28. Yellow Brass Rod Ends
29. Yellow Brass Turnings
30. Mixed Unsweated Auto Radiators
31. Admiralty Brass Condenser Tubes
32. Aluminum Brass Condenser Tubes
33. Muntz Metal Tubes
34. Plated Rolled Brass
35. Manganese Bronze Solids
36. New Cupro-Nickel Clippings and Solids
37. Old Cupro-Nickel Solids
38. Soldered Cupro-Nickel Solids
39. Cupro-Nickel Turnings and Borings
40. Miscellaneous Nickel Copper and Nickel-
Copper-Iron Scrap
41. New Monel Clippings and Solids
42. Monel Rods and Forgings
43. Old Monel Sheet and Solids
44. Soldered Monel Sheet and Solids
45. Soldered Monel Wire, Screen and Cloth
46. New Monel Wire, Screen and Cloth
47. Monel Castings
48. Monel Turnings and Borings
49. Mixed Nickel SiIvpr Clippings
50. New Nickel Silver Clippings and Solids
51. New Segregated Nickel Silver Clippings
52. Old Nickel Silver
53. Nickel Silver Castings
54. Nickel Silver Turnings
-------
It is evident that copper flows back to the producers along several
cyclic paths. Some involve only producers, some manufacturers and producers,
and some producers, manufacturers, and consumers. The cyclic period may
range from a few days to several decades. Copper consumed in dissipative
uses, such as paint bases and chemicals, is permanently consumed and is
never returned for processing.
The flow of copper scrap is shown in Figure IV-1 which indicates the
channels through which much of the reclaim copper returns to industry from
scrap dealers and fabricators. Heavily populated industrial areas are
the principal source of copper scrap, and most of the plants that treat
secondary materials are located nearby.
2. Sorting Scrap
Sorting scrap according to the classification listed in Table IV-1
is one of the most important steps in raw material preparation and the
ultimate recovery of secondary copper. Proper sorting of scrap requires
quick and accurate methods of identification. Segregation practice varies
with the amount and variety of materials involved. Small scrapyards usually
segregate scrap to a few basic types, but larger yards find it practicable
to segregate their scrap completely, according to all of the common grade
specifications. Several methods have been developed for determining the
approximate compositions of the thousands of items that pass through the
scrapyards. The complexity of the tests ranges from simple recognition
of known compositions to chemical analyses. Tradesmen usually acquire a
great skill in applying simple tests to identify the common types of scrap.
However, the simplest method of segregating scrap is by recognition of its
source or previous use. For example, it is easy to classify copper wire,
radiator fins, brass fittings, etc., by simple recognition. More nonde-
script items can often be identified by manufacturers trademark or parts
numbers.
3. Scrap Preparation
Before the scrap metal is blended in a furnace to produce the desired
ingots, the raw material must be sampled. In addition, removal of some of
the non-metallic contaminants or, in some instances, preprocessing the raw
material to yield more efficient and economical utilization of the scrap
may be desirable. These processes may be either mechanical, pyrometallurg-
ical or hydrometallurgical.
a. Mechanical Preparation
Many types of scrap are prepared for smelting or melting by mechani-
cal methods. Insulation and lead sheathing are removed from electrical
conductors by special stripping machines, or occasionally by hand-stripping.
Wire, thin-plate, and wire-screen scraps are usually compressed into bri-
quettes, bales, or bundles for convenient handling in subsequent processing
79
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operations. Loose materials are usually preferred for chemical recovery
processes. Large, solid items are reduced in size by pneumatic cutters,
electric shearing machines, or manual sledging. Brittle springy turnings,
or borings, and long chips are crushed in hammer mills or ball mills to
reduce bulk for easier handling in subsequent operations. Slags, drosses,
skimmings, foundry ashes, spills, and sweepings are ground to liberate
prills or other metallics from the gangue so that they can be recovered by
gravity concentration or other physical means. Small-size materials, such
as drillings, clippings, and crushed turnings, are often run over a magnetic
separator to remove tramp iron.
b. Pyrometallurgical Preparation
(1) Sweating. Many types of scrap must be given a preliminary fur-
nace treatment before actual melting and refining operations begin. Oil
and other organic impurities and moisture are removed by heating in muffle
furnaces or kilns. Scrap, such as journal bearings, lead-sheathed cable,
and radiators, can be sweated to remove babbitt, lead, and solder as val-
uable byproducts which would otherwise contaminate a melt. However, if a
melt is made requiring a substantial amount of the sweated constituents,
the scrap may be added directly to the melt without sweating.
The simplest furnace for sweating is the conventional sloping-hearth,
gas-fired furnace. Batches of charge materials are put into the furnace
at the highest point on the hearth. Low-melting constituents liquefy and
flow to the low end of the hearth and out of the furnace into a collecting
pot. Sweated scrap is raked over the hearth until it is free of all low-
melting metals and removed from the furnace so that new charge can be
added. The process can be a continuous or batch operation. The sweated
babbit, lead, or solder may be made into white-metal alloys, used for lead
and tin addition to copper-base alloys, or sold as produced to the refiner.
Heavy lead-covered cable, railroad journal bearings, and similar bulky
scraps are most frequently sweated in stationary sloping-hearth-type fur-
naces .
Occasionally sweating is done in a pot by dumping the scrap into a
pot of alloy which absorbs the low-melting constituents. The sweated scrap
is raked from the pot when sweating is completed.
Small-size scrap can be sweated efficiently in a rotary kiln. Scrap
is charged continuously at the elevated end of the kiln. The burner is
placed at the discharge end so that combustion gases flow counter-current
to the scrap. The tumbling action is effective in removing liquefied
constituents which flow out of the furnace and collect in a holding pot.
Solid scrap discharges through a screen section fastened directly to the
discharge end. Heavy scrap is not sweated by this method because of exces-
sive wear to the furnace.
Some types of soldered items are more difficult to sweat completely
because much of the solder remains in folds and seams, even when melted.
Several types of furnaces have been developed to solve this problem. One
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is a reverberatory furnace with a shaking grate of steel rails about the
size of the furnace floor. The grate is pivoted at one end and the other
end is pushed up and down in a fast reciprocating motion by a motor drive
connected to the grate through a crank and arm linkage. The reciprocating
action moves the scrap over the grate in a series of short, rapid jerks,
which also shake the liquid solders from the scrap. The molten solder
falls to the floor of the furnace, where it flows to a low corner and into
a collecting sump.
Some melters prefer a tunnel furnace in which the scrap is placed in
trays or racks and carried through a heated tunnel by an endless conveyor.
Some of the solder melts and falls from the scrap while inside the furnace
tunnel. The remaining liquid solder is freed when the scrap spills from
the conveyor onto a tilted screen. Solder and the metal flowing from the
tunnel floor collect in a sump.
(2) Blast Furnace or Cupola. The blast furnace is used extensively
in secondary smelters for smelting low-grade copper and brass scraps,
refinery slags, drosses, and skimmings to produce black copper (80-90% Cu).
When used primarily for melting scrap, with little or no reduction of
oxidized materials, it is called a cupola. Operations and equipment are
similar to those used for smelting copper ores and concentrates. Differences
arise mainly because most of the metals in scrap and wastes are already in
metallic form.
The conventional secondary copper blast furnace is a top-charged,
bottom-tapped shaft furnace heated by coke burning in a blast of air intro-
duced through tuyeres placed symmetrically around the bottom of the shaft.
The upper section of the shaft is cylindrical, but the lower section (the
bosh) is an inverted, truncated cone tapering to two-thirds the diameter
of the upper shaft. A crucible is located directly below the bosh to col-
lect molten metal and slag produced in the smelting zone above. Refractories
for the in-wall, or well, are usually fireclay brick from top to bottom.
A layer of chilled slag takes the place of refractories in the water-
jacketed steel bosh. The crucible is lined with magnesite or chrome brick.
The charge is normally made up from copper-bearing scrap, a slag,
sinter, limestone flux, millscale, and coke. The scrap may contain irony-
brass and copper, fine insulated wire, motor armatures, foundry sweepings,
slags, drosses, and many other similar low-grade materials. The minimum
profitable copper content for the charge is about 30 percent. Fine mate-
rials are usually sintered to produce a strong sinter cake or densified by
other means, such as briquetting. Coke is used as a fuel and reducing
agent. Limestone and millscale are added as fluxes to produce an iron
silicate slag. Sulfur in the coke or other charge materials combines with
copper. The introduction of sulfur is avoided as much as possible in the
secondary blast furnace by using low-sulfur coke.
Charge materials are heated as they descend through rising hot gases,
becoming semiplastic and then liquid when they reach the region in the fur-
nace called the smelting zone. Metallic constituents, such as brass and
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copper, may actually melt above the normal smelting zone. Limestone and
iron oxide fuse in the smelting zone and form a molten slag which mixes
with the metals in the turbulence of the gases. Molten materials drip
through the coke bed and into the crucible below. The coke remains vir-
tually unchanged until it reaches the tuyere zone, where it burns to car-
bon monoxide and carbon dioxide. Part of the carbon dioxide is reduced
to carbon monoxide by the white-hot coke near the tuyeres.
The gases rising through the shaft are composed of CO, CC>2, and N2-
The relative amount of C02 increases at higher elevation in the shaft;
the coke and air ratio is adjusted to provide a reducing atmosphere. Oxides
of the base metals either dissolve in the slag or fume off; many are reduced
and dissolved in the copper. The black-copper product of the blast furnace
may contain zinc, lead, tin, bismuth, antimony, iron, silver, nickel, or
other metals contained in the scrap. Many of these are fumed off and
recovered as baghouse dust.
Both slag and metal are usually tapped through a launder into a rever-
beratory where they are held in a quiescent state to allow more complete
separation of metal and slag. Some operators tap metal intermittently and
slag continuously.
Some difficulties are experienced with the operation of secondary
blast furnaces of conventional design. These difficulties are eliminated
by inverting the bosh section of the furnace so that it flares out at its
bottom rather than the top. The inverted-bosh design has been adopted by
a number of secondary smelters.
(3) Converter. Converters are pear-shaped or cylindrical vessels used
for converting copper matte, an impure mixture of iron and copper sulfides,
into blister copper. They are made with steel shells lined with calcined
magnesite, either in monolithic or brick form. Tuyeres are provided for
blowing air into the molten charge when the converter is tilted to the
"blow" position.
The converting step transforms the black copper (80-90% Cu) produced
in the blast furnace to blister copper. In contrast to the converting
operation in a primary copper smelter where two blowing stages are needed,
only the second stage, or "blister" blow, is required in secondary copper
converting.
c. Hydrometallurgical Preparation
Concentrating is the process by which metallics in materials are
recovered through differences in density. Although the total loss of metal
is greater than in the blast furnace, this method is well adapted to fines
that might be blown out of the furnace. It involves grinding, screening,
and gravity separation in a water medium.
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4. Melting and Alloying Intermediate Copper Scrap
About two-thirds of the secondary copper production in the United
States is used in ingot plants and foundries to make brass and bronze alloys
by simple melting and refining methods. The amount of refining is usually
small if the scrap is well sorted so that impurities or excess alloy con-
stituents can be diluted to composition specifications with high-grade scrap
or virgin metals. These conditions are not easily maintained, however,
because of certain impurities, such as aluminum and silicon, which have
exceedingly low permissible limits in the product. In the red brass series,
for example, maximum acceptable limits for aluminum and silicon are 0.005
and 0.003 percent, respectively. Both aluminum and silicon are difficult
to remove by refining. Dilution to specifications is not practicable because
of the relatively large proportions of high-grade scrap or virgin metals
needed to dilute to these low limits. Impurities such as iron, sulfur,
cadmium, bismuth, zinc, phosphorus, and manganese are not so difficult to
remove by common refining techniques.
Melting, refining, and alloying procedures are essentially the same
regardless of the type of furnace used. Operations are usually controlled
by personnel who have acquired considerable skill through years of experi-
ence. Although indicating and controlling pyrometers are used extensively,
a furnace operator may control the furnace temperature primarily by ob-
serving the color and consistency of the slag and metal when stirred with
a rod. The degree of refining is indicated by the set of samples taken
during various phases of the operation. This technique is common in cop-
per refineries where it is used to indicate the various stages of oxygen
and sulfur removal. Progress is also determined quite accurately by other
physical changes, such as the appearance of fractured surfaces (hardness,
color, grain size, and texture). Experienced operators can estimate alloy
compositions very closely and detect the presence of a number of impurities
by these methods.
a. Fluxing
Fluxing is an essential part of both melting and refining. The basic
functions of fluxes are essentially the same, whether used in reverberatory,
rotary, or crucible furnaces.
Two general types of fluxes used for melting and refining scrap cop-
per are: (1) non-metallic fluxes, and (2) fluxing alloys.
Non-metallic fluxes may be solid, liquid, gaseous, or mixtures. Some
are used for the sole purpose of protecting the surface of a melt from the
prevailing atmosphere. Others refine by mechanical or chemical actions.
Fluxing alloys comprise one or more active agents, such as phosphorous
or lithium in a base such as copper. This type is used either to refine
the melt by deoxidation, add a definite amount of an alloy constituent, or
both.
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b. Reverberatory Furnace
Melting, alloying, and refining can be done in any one of several fur-
naces usually selected for a given application on the basis of quality and
quantity of scrap and waste materials to be processed. The reverberatory
furnace is a box-like, refractory-lined enclosure designed to heat the
charge by both conduction and radiation. The furnace is usually made with
magnesite brick walls, fused tnagnesite bottoms, and suspended magnesite
brick roofs. Capacities of stationary reverberatories used in secondary
smelters range from a few thousand pounds to 100 tons or more. The side-
or end-charged, arched-roof tapping furnace is used most extensively.
Charge materials used in making brass or bronze ingot should contain a
minimum of 40% copper to prevent excess slag accumulation, which reacts with
the refractories and shortens the life of the furnace lining. Charges com-
prise batches or lots of scrap selected to produce a melt of the desired
composition with a minimum of flux and as little dilution of metal constit-
uents as possible. Scrap is charged at regular ^njervals until the furnace
is filled to capacity. Melting is more efficicut if light scrap is densi-
fied by balling or briquetting. Oxidation and volatilization losses from
copper-base alloys are usually kept to a minimum by rapid melting in a
slightly oxidizing atmosphere with a fairly fluid slag cover.
Reverberatory slags usually contain metal values that can be recovered
in the blast furnace. Slags produced by small secondary plants are fre-
quently sold to primary smelters on the basis of copper content only. Some
plants grind the slag and recover metallic constituents in milling opera-
tions before the slag is sold.
c. Rotary Furnace
The rotary furnace is designed to provide efficient melting and refin-
ing and convenient pouring of fairly large melts. The capacity of the
rotary furnace ranges from several tons to 50 or more tons of non-ferrous
metals. Many melters believe that it has a particular advantage over
stationary furnaces for melting loose or bailed light scrap, because the
rotary mixing action promotes better heat transfer to the melt and causes
a more rapid coalescence of melted globules.
The rotary furnace is a cylindrical steel shell with insulating mate-
rial placed inside next to the shell. Magnesite or chrome-magnesite brick
is used for lining. Frequently a monolithic lining of either refractory is
used. Brick linings are usually backed with a cushion of grain magnesite.
Linings may last 100 or more heats, and the capacity of the furnace
may increase many thousands of pounds, because the lining erodes from slag
and by abrasion; heat losses also increase proportionately. The cylinder
is mounted with its axis in a horizontal position and is supported by piers
and trunnions at each end. It is fired by oil or gas burners inserted
through either or both trunnions. The flame is directed lightly on the sur-
face of the flux cover. One or more charging ports, large enough for
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admitting fairly bulky scrap, are located on the side of the cylinder, and
a pouring spout is attached to the furnace at a level slightly higher than
the slag level when the furnace is fully charged. Charging, alloying,
fluxing, and sampling techniques are essentially the same as for the rever-
beratory furnace.
d. Crucible Furnace
A fairly large tonnage of secondary copper is produced in crucible
furnaces. These may be heated by gas, oil, coke, or electricity. The once
popular, coke-fired pit furnace is seldom used today, however.
Crucible furnaces are used in the secondary-copper industry for melting
clean, well-segregated scrap—mostly in foundries. Very little fire-
refining is performed in crucibles. Non-metallic fluxes are used for a pro-
tective covering, but alloy fluxes may be added as a refining agent and as
a means of introducing some constituents into the melt.
Scrap is usually melted in crucibles by the puddling method; that is,
melting enough scrap to make a liquid puddle, then forcing freshly added
scrap below the surface of the melt until it becomes part of the molten
body.
Crucible furnaces may be either stationary or tilting; the latter are
more convenient and much preferred. The gas- or oil-fired tilting furnace
comprises a refractory-line, cylindrical steel furnace shell with a cru-
cible mounted inside. It has two pivot shafts extending horizontally from
opposite sides of the cylinder near the top so that the pouring distance,
when tilting the furnace, will be as short as possible. The crucible is
mounted in the center of the furnace shell and is small enough to provide
an annular combustion space between the crucible wall and the refractory
lining. Gas or oil burners, with flexible fuel supply lines, are mounted
in a position to direct the flame tangentially into the combustion space.
This prevents excessive flame erosion of the crucible or furnace lining.
Electric crucible furnaces (including high- and low-frequency induction
and resistance types) may be either tilting or stationary, but the tilting
type is used now almost exclusively. Electrical resistance furnaces are
very seldom used for melting and refining scrap outside of the laboratory.
Induction furnaces are particularly well-suited for melting relatively
small batches rapidly. Some of the larger low-frequency types are now being
made with capacities equal to the larger rotary furnaces. The crucible for
a high-frequency induction furnace is placed symmetrically ia the center of
a hollow helical, water-cooled copper induction coil. The crucible is
thermally and electrically insulated from the coil, but the metal charge
in the crucible is heated by electrical-eddy currents which are induced into
the metal by a high-frequency magnetic field generated in the induction
coil. The eddy currents are of such a magnitude that the charge metal
actually melts because of its electrical resistance to the heavy current.
Low-frequency or line-frequency induction furnaces generate heat by
the same basic principles, but in a slightly different way. Heat is
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generated in the melt by very high currents induced into the charge metal
by the primary winding of a transformer that is coupled magnetically to the
melt through an insulated, water-cooled iron core. The furnace crucible is
fashioned in such a way that the melt forms in a channel or heating duct
which, when filled with molten metal, comprises a short-circuited secondary
turn of the transformer. The induced voltage causes very high currents to
circulate in the metal. The metal is heated because of its resistance to
the flow of electrical currents. Primary and secondary magnetic fields
react with each other to produce mechanical forces which may cause consider-
able turbulence in the melt. The turbulence has the desirable effect of
causing rapid mixing and heat transfer to all portions of the melt. Some
furnaces are equipped with electromagnetic pumps which can tap metal from
the crucible by the same forces which cause the stirring.
e. Furnace Applications
The stationary reverberatory is the most practicable furnace for making
very large tonnages of standard alloys from scrap. The rotary furnace is
more flexible than the reverberatory, but the capacity is limited to mod-
erate tonnages. Tilting and stationary crucible furnaces, either gas or
electric, are used to advantage for making small melts of special alloys.
Electric induction furnaces are increasing in popularity at ingot plants
and foundries where special high-grade alloys are made. Advantages of elec-
tric furnaces include higher melting speed and precise temperature control.
These help to defray the relatively higher cost of electrical equipment.
Open-flame stationary or rotary reverberatory furnaces give greater
fuel efficiency than furnaces using indirect heating, but oxidation and
volatilization losses may be higher if the melt is not protected by a slag
or flux cover.
f. Mold Line Equipment
Melting furnaces are always associated with other equipment designed
to receive the melt. Melts are usually tapped from reverberatories and
rotaries into feeder ladles which transport the metal to a mold line for
making conventional ingots. The mold line is a series of ingot molds
placed on a rack which may be stationary or movable. If stationary, the
molds are filled with metal poured from a portable ladle.
An automatic mold line is an endless mold-conveying system in line
with, or on the periphery of, a large circular rack known as a casting
wheel. The casting wheel may carry either ingot molds for alloy melts or
anode molds, provided that the furnace operation is a step in the produc-
tion of electrolytic copper.
Melting and refining furnaces are operated frequently in conjunction
with a plant or mill to produce items such as rods, tubes, sheet, and
similar products. When they are, the furnaces are tapped into special
billet molds to make shapes for subsequent milling operations.
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Automatic mold lines convey each mold to a position where it is filled
from a header or feeder ladle. Some ingot makers use special auxiliary mold-
conditioning devices in which the molds are sprayed with a mold wash and
then dried thoroughly before the ingot is cast. Automatic devices are
often used to sprinkle ground charcoal in the molds to provide a special
smooth top on the ingots. In the Kaufman Controlled Process, metal is melted
and ingots are cast in an atmosphere of nitrogen to eliminate the need for
charcoal topping. Cast ingots are usually cooled by water spray or other
means and dumped from molds and racked for shipping.
5. Refining High-Grade Copper Scrap
a. Fire Refining
Copper products smelted from low-grade scrap, slags, drosses, and
sludges are eventually brought together with other impure copper products
for fire refining. Although some degree of refining is done in smelting
and melting furnaces, the final pure copper is made by fire refining.
The refining furnace is either a stationary reverberatory or cylindri-
cal tilting type with a capacity of 20 to 300 tons. The most satisfactory
refractory materials are magnesite brick walls, fused magnesite bottoms,
and suspended magnesite roofs for the stationary furnace; magnesite brick
is used throughout for rotary furnaces. Super-duty firebrick is used
extensively in furnace areas that are not in contact with molten metal.
Full fire refining is often required to produce billets, slabs, cakes and
bars for manufacturing plates, sheets, rods, and so forth. Copper ingots
are produced for making copper-base alloys.
Fire refining is only partly completed when the metal is to be cast
as anodes for further electrolytic refining; that is, when the copper con-
tains other valuable metals which can be recovered from the cell sludge.
The first step in the refining operation is to melt pigs of black
copper, blister copper, and high-grade scrap rapidly in an oxidizing atmos-
phere, until the melt begins to "work." "Working" is a bubbling action
accompanying impurity oxidation.
The melt is skimmed after working has ceased, and a sample is obtained
for observing the "set," which is a characteristic shape and appearance of
the solidified sample, indicating relative amounts of some constituents
within very narrow limits. It may be necessary to saturate the melt with
Cu20 to reduce the amount of other impurities by oxidation. Ordinarily
the melt will contain considerable Cu20 after working stops. The C^O is
reduced by skimming the melt; covering the surface with a reducing agent,
such as anthracite, charcoal, or coke; and then "poling" the metal.
"Poling" is used to reduce the Cu20 to copper. The ends of green wooden
poles are inserted below the surface of the melt, where they decompose and
expel gases and carbon and produce much turbulence in the melt. The gases
act as a flux to purge some impurities from the melt, and the carbon re-
duces Cu2
-------
fracture surface of a sample. The surface exhibits a texture of coarse
brownish-red crystals, if the metal still contains large amounts of C^O.
As reduction continues, the fracture surface changes to a fine crystalline
texture, then to a fibrous appearance, and finally, when poling is finished,
it acquires a satiny orange-red sheen. The copper is then "tough pitch"
and is ready for casting ingots, slabs, wire bars, and billets.
b. Electrolytic Refining
Some silver and gold may still remain in the copper after fire refin-
ing. These metals and others cannot be refined by oxidizing and poling,
and, if present in substantial amounts, require electrolytic refining.
The impure copper is cast in the shape of anodes which will contain about
99 percent copper and small amounts of silver, gold, lead, selenium, tel-
lurium, and other metals. During electrolytic refining, the copper from
the anodes is deposited on copper cathodes, and impurities are either
dissolved in the electrolyte or deposited as a sludge.
The electrolytic purification is carried out in a spacious tankhouse
containing a great many rectangular cells through which the electrolyte,
composed of sulfuric acid and copper sulfate, is circulated and in which
the anodes are hung. Thin, copper starting sheets, produced in a separate
circuit by electrodeposition on stainless-steel blanks, alternate with the
anodes and cathodes dissolves the impure anodes and deposits purer copper
anodes and become the cathodes. Passage of the electric current between
the anodes and cathodes dissolves the impure anodes and deposits purer
copper on the cathodes. The latter are usually removed after 14 days when
they are about 0.375 inch thick. Anodes remain in the tanks twice as long.
Impurities, such as silver and other precious metals, remain in the slimes
which settle to the tank bottom and are recovered when the tanks are drained
and cleaned. Copper and other impurities tend to build up in the electro-
lyte and are controlled by purification in special circuits.
Refined cathodes are withdrawn from the cells, washed, melted, alloyed,
or otherwise treated in a holding furnace and cast as wirebars, cakes, bil-
lets, or other special shapes. "Tough pitch" conditions are controlled by
oxidation, poling and atmospheric control within the furnace to produce an
oxygen content of 0.025% to 0.030%. Other types of deoxidation are also
practiced. Considerable No. 1 scrap (99% copper) can be melted and refined
in the cathode refining furnace.
C. INDUSTRY SEGMENTATION
There are approximately 70 producers of either brass and bronze ingots
or secondary refined copper in the United States. Most of these producers
are small, individually owned plants, and thus it is difficult to obtain
accurate information concerning their operations. As a result, in this
section of the analysis we have concentrated on 45 of the larger plants,
which represent in excess of 95% of the production and 90% of the employ-
ment in the industry.
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It seems best to segment the industry into groups of plants which may
have similar processing problems. The most effective way of accomplishing
this is to classify each plant on the basis of the major raw material input
and the final product produced, since these two factors combined determine
the process or processes used.
Based on the above considerations and for the purpose of industry
characterization, we have classified the U.S. secondary copper and brass
and bronze smelters and refineries into two segments in terms of type of
product:
1. producers of brass and bronze ingot, billet, or con-cast
ingot, and
2. producers of unalloyed copper.
With this segmentation method, the type of raw material input has to
be specified, since the type of material produced normally determines this.
For example, the raw material input to segment 1 is brass and bronze scrap
and that to segment 2 is copper scrap.
Another benefit is gained from this particular segmentation scheme,
that is, most of the plants in segment 1 are small, individually owned
operations while the plants in segment 2 are usually much larger and are
usually integrated forward into producing finished products for market.
1. Types of Firms
a. Concentration Ratios
Most of the firms are small, individually owned operations having only
one plant, and only a few of the firms are publicly held. A minority of
the firms, yet a number still representing a large fraction of the produc-
tion, are either subsidiary operations of large mining companies or are
subsidiaries of conglomerates. Most firms in both the alloyed copper ingot
segment and the unalloyed copper segment have only one plant with only a
few exceptions.
Table IV-2 presents concentration ratios for the secondary copper
industry based on the 1963, 1967, and 1972 surveys of manufacturing indus-
tries taken by the U.S. Bureau of Census. Concentration ratios represent
the value of shipments accounted for by the largest companies. High ratios
indicate oligopolistic market power in an industry.
For the 1963-1972 period, the 4 largest firms accounted for about 40
percent of the value of shipments, the 8 largest companies accounted for
69 percent; the 20 largest for about 85 percent, and the 50 largest for
almost all of the value of shipments.
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TABLE IV-2
PERCENT OF VALUE OF SHIPMENTS OF COPPER
AND COPPER-BASE ALLOYS ACCOUNTED FOR BY THE LARGEST
COMPANIES IN THE SECONDARY COPPER SMELTING AND REFINING INDUSTRY
Percent Accounted for by;
Value of Shipments 4 Largest 8 Largest 20 Largest 50 Largest
Year (Million Dollars) Companies Companies Companies Companies
1963 247.2 42 62 85 99
1967 364.8 40 60 84 99+
1972 510.9 39 62 88 100
Source: U.S. Bureau of the Census, 1972.
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b. Integration
In the normal sense of production, the secondary brass and bronze ingot-
making segment of the industry is non-integrated. None of the smaller
smelters is integrated to the point of producing a finished or semi-finished
product, but basically each continues producing alloy ingots. On the other
hand, many of the firms in segment 2 are completely integrated, using cop-
per scrap as a raw material and turning out a salable finished product,
such as electrical wire, valve fittings, and copper tubing.
c. Diversification
In almost all cases, the firms having plants in segment 1 have estab-
lished in a moderate level of diversification. In many cases these plants
are also processors of secondary aluminum and frequently secondary lead-
and zinc-based materials. Oftentimes they are combined with scrap steel
yard operations.
The producers of unalloyed copper (segment 2) are generally not so
diversified. It must be noted, however, that many of these firms produce
a number of precious metals as a byproduct or coproduct. These precious
metals are derived from sources such as printed circuit boards and electri-
cal contacts.
d. Products
The brass and bronze producers (segment 1), by and large, manufacture
a wide variety of specification alloys. These alloys generally fit a series
of specifications which have been outlined by both ASTM and by the Brass
and Bronze Ingot Institute (BBII). The general product of segment 1 is in
the form of 30-pound brass or bronze ingots. Some of these smelters also
produce a series of materials in the form of shot which are sold to facto-
ries for the inoculation of gray iron. The shot may be pure copper or
copper nickel alloys of various types.
The major product of segment 2 is unalloyed copper. This can be in
the form of blister copper, fire-refined copper, cathode copper, wire bar,
continuous cast, or as a finished product, depending on both the production
scheme and the needs of the customer. Also, several precious metals are
usually recovered as a result of the electrorefining to produce cathode
copper.
2. Types of Plants
a. Production Levels
Plants in segment 1 vary in size from small operations producing as
few as 50 tons of brass and bronze alloy per month with as few as 10
employees to large operations producing more than 1000 tons per month and
employing more than 500 people. These plants are located near heavily
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industrialized areas which give them proximity to both a supply of scrap
and a host of customers. The plants vary in age with some facilities being
40 to 50 years old with additions having been made over the years and in
some cases currently underway. Plants in segment 2 are, in general, much
larger than those in segment 1, producing 1500 to 18,000 tons of copper
per month and employing 100 to 1800 workers.
b. Location
Plants in segment 1 are located mostly in the northeastern states, the
Pacific Coast states, and the east north central states. A few plants are
located in the southern and west central states. As with plants in segment
1, segment 2 plants are also located in heavily industrialized areas and
are of about the same age. Most of the plants in segment 2 are located in
the northeastern states with one in the South and two in Illinois.
c. Technological Level
Most plants in segment 1 generally function at relatively low techno-
logical levels as compared to other manufacturing industries. Techniques
for smelting basically have not changed for 50 years, although furnaces
today are much larger and are equipped with much greater heat input capa-
bility. Thus they are able to generate more output per man-hour. Tech-
niques for preparation of scrap by means of crushers and hand-sorting are
reasonably general. In some plants, turnings are prepared by crushing and
drying. Slag processing to separate the metallic from the glassy components
is carried out by a number of smelters who remelt their slag in cupolas,
blast furnaces, or shaft furnaces.
The general efficiencies of the plants in segment 1 are low in terms
of technology and energy utilization (fuel, electricity, and manpower).
Heat recoveries from the furnaces are low, and many operations which could
be automated are still accomplished by manual labor. By and large the rea-
son that new companies can enter the brass and bronze business segment so
readily is that the general level of operations is reasonably labor-intensive
and not capital-intensive. This further tends to indicate the lack of high-
level technology in the operation of this segment of the secondary copper
smelting and refining industry.
The levels of technology of plants in segment 2 are generally higher
than those of plants in segment 1. The plants in segment 2 are larger on
the average, and thus employ larger and more advanced types of equipment.
As opposed to plants in segment 1, the general efficiencies of the
plants in segment 2 are higher due to many of the operations being highly
automated. The utilization of labor, power, and fuel are considerably
better than in plants in segment 1.
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d. Integration
In general, as with the firms, the plants in segments 1 and 2 are not
integrated to any great extent, with the same exceptions as those which
applied to the firms.
3. Characteristics of POTW Dischargers*
a. Production
Production levels of Publicly Owned Treatment Works (POTW) dischargers
range from 300 to 15,600 tons per year. The production levels of POTW dis-
chargers reflect the entire range of production levels for the industry.
Of the 16 POTW dischargers, 12 produce brass and bronze ingots; 2 produce
brass and bronze ingot and phosphor copper; 1 produces copper shot, and 1
plant produces unalloyed copper cathodes and billets. Thus, of the 16
POTW's, 15 belong to segment 1 and 1 plant to segment 2. Of the brass and
bronze segment, 2 plants produce less than 100 tons a month, 9 plants be-
tween 100-500 tons a month; 3 plants 500-1000 tons a month and 1 plant pro-
duces 1000-5000 tons a month. The plant in the unalloyed copper segment
produces 3500 tons of cathodes a month and 4000 tons of billets a month.
b. Location
No significant differences in location exist between POTW dischargers
and non-POTW dischargers in the industry. The distribution of POTW dis-
chargers by state is as follows: Illinois (5), New York (2), Massachusetts
(2), Ohio, New Jersey, Texas, Michigan, Utah, Indiana, and Kansas (1 each).
c. Technology
With respect to technology, POTW dischargers are representative of
the industry.
4. Percent of Industry Represented by Each Segment
Table IV-3 presents a breakdown of production and numbers of plants
and employees represented by each segment, as well as the percentages of
total industry represented by each. The table indicates the relative sizes
of the plants in both segments. Segment 1 data is based on a sample of 37
large plants out of about 63 plants in the brass and bronze ingot segment.
This data indicates that segment 1 represents 53 percent of the plants in
the industry, 46 percent of the employees and 32 percent of the production.
Segment 2 contains only 10% of the plants in the industry, but accounts for
about 65% of the production and 44% of the employment. It should be noted
that the plants being considered in segment 2 represent 100% of the U.S.
secondary copper smelting and refining plants producing unalloyed copper.
*Based on Supplemental for Pretreatment to the Development Document for
the Secondary Copper Segment of the Nonferrous Metals Manufacturing Point
Source Category, EPA, August 1976.
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TABLE IV-3
PLANTS, EMPLOYEES, AND PRODUCTION AND PERCENTS
OF INDUSTRY TOTALS REPRESENTED BY EACH SEGMENT
Plants
Employees
Production
Segment*
1
2
Totals
Number
37
J_
44
Percent of
Industry
53
10
63
Percent of
Number Industry
4,100
4,000
8,100
46
.44
90
Short Percent of
Tons/Month Industry
21,000
43,000
64,000
32
_65
97
*Segments: 1 - Producers of brass and bronze ingot, billet or con-cast,
2 - Producers of unalloyed copper.
Source: Arthur D. Little, Inc., estimates.
95
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The POTW dischargers in segment 1 comprise 15 plants, or 41 percent of
the plants in the segment on which we have information. They account for a
production of 6300 tons per month or 30 percent of the segment production and
employ approximately 900 people, i.e., 22 percent of the segment's employment.
The POTW dischargers in segment 2 account for 14 percent of the plants
in the segment, 17 percent of the production, and approximately 17 percent
of the employment.
D. FINANCIAL PROFILES
As most of the firms are either privately held or subsidiary operations
of larger corporations, specific financial information on the annual profits,
cash flow, or cost structures of each plant is not available. However, we
have utilized the most recent data on the secondary copper smelting and
refining industry (as developed in the 1972 Census of Manufactures) to
assess the financial profiles of the industry. The Census data provide the
following financial information on the industry:
• Value of shipments (VS) represents the net selling values,
f.o.b. plant, after discounts and allowances and excluding
freight charges and excise taxes.
• Cost of materials includes:
a. the total delivered cost of all raw materials,
semifinished goods, parts, components, containers,
scrap and supplies consumed or put into production;
b. the amount paid for electric energy purchased;
c. the amount paid for all fuels consumed for heat, power,
or the generation of electricity;
d. the cost of work done by others on materials or parts
furnished by the reporting establishment (contract
work); and
e. the cost of products bought and resold in the same
condition.
• Capital expenditures include the cost of plant and equipment
for replacement purposes, as well as for additions to pro-
ductive capacity. Costs associated with plants under con-
struction, but not in operation during the year, are also
included. Capital expenditures do not include plant and
equipment furnished to the manufacturer without charge by
governmental or private organizations. The value of rented
facilities is also excluded.
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• The payroll total includes the gross earnings paid in
calendar year 1967 to all employees on the payroll of
reported establishments. It is based on the definition
of payrolls used for calculating the federal withholding
tax, and includes all forms of compensation, such as salaries,
wages, commissions, dismissal pay, bonuses, vacation, and
sick leave pay, and compensation in kind. It does not in-
clude employers' Social Security contributions or other non-
payroll labor costs such as employees' pension plans, group
insurance premiums, and workmen's compensation.
• The "value added by manufacture" figure is derived by sub-
tracting the total cost of materials (including materials,
supplies, fuel, electric energy, cost of resales and contract
work done by others) from the value of shipments, including
resales, and other receipts and adjusting the resulting
amount by the net change in finished products and work-in-
process inventories between the beginning and end of the year.
These data can be utilized to derive the following information shown
in Table IV-4.
• Value added (VA)/Value of Shipments (VS). This is equivalent
to value added per dollar of sales. Since the value of ship-
ments is a measure of tonnage produced by each segment, this
is also proportional to value added per ton.
• VA - Payroll (including supplementary expenses)/(VS). If
local taxes, insurance, and interest charges are subtracted
from this column, we obtain an estimate of pretax profit.
• Capital Expenditures (CI)/VS. This is proportional to the
average rate of capital investment per ton of production.
• Variable Out-of-Pocket Costs (CV)/VS. CV is equal to cost of
materials plus payroll (including supplemental expenses such
as welfare and Social Security contributions). When divided
by value of shipments, this gives an estimate of the out-of-
pocket variable costs per dollar of sales.
Interpretation of Ratios:
VA/VS - A low ratio indicates that the difference between the
value of the raw material used and that of the product
produced is small.
CI/VS - A low ratio shows that there is not much capital invest-
ment, or perhaps it consists of used equipment installed
by in-house labor costs, and that most capital expendi-
tures are paid for via retained income without the use
of long-term financing. It may also indicate a tendency
to write off as current expenses what are really capital
items.
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TABLE IV-4
MEASURES OF FINANCIAL PERFORMANCE OF SECONDARY COPPER
SMELTING AND REFINING INDUSTRY BASED ON BUREAU OF CENSUS DATA
Year
1967
1972
VA2
Payroll1 Materials1 VA1 VS1 CI1 VS
30.3 410.9 52.7 464.3 3.5 0.11
49.4 539.2 87.5 692.6 12.2 0.13
VA - Payroll
VS
0.05
0.06
2 CI 2 CV 2
VS VS
0.01 0.95
0.02 0.85
^ NOTE: VA - Value Added by Manufacturer
00 VS - Value of Shipments
CI - Capital Expenditure
CV - Variable Out-of-Pocket Costs
See text for interpretation of the ratios derived.
Million Dollars
2Ratio of $/$
Source: 1967 and 1972 Census of Manufactures,
-------
CV/VS - A high ratio means low fixed charges, i.e., low book
value of assets; depreciation is low; small long-
term debt.
1. Profits
Table IV-4 shows that (VA-payroll)/VS is 0.05 or, in other words, value
added minus payroll is about 5% of value of shipments or sales. As men-
tioned earlier, if local taxes, insurance, and interest charges are sub-
tracted from this value, one can obtain an estimate of the pretax profit.
2. Annual Cash Flow
Again annual cash flow is very difficult to determine since company
figures are not made public. Transactions in the secondary smelting
industry are complicated and can change dramatically from month-to-month
and even day-to-day.
Secondary smelters usually pay up to 75% of the purchase price of
scrap in cash at the time of confirmation of shipment and the balance in
30 days. However, it may be days or even weeks before the scrap arrives
at the smelter. In the meantime, smelter products are always sold on
credit with payment required in 30, 60, or 90 days. Thus, a secondary
smelter generally buys for cash and sells on loan credit. This financial
arrangement generates a tremendous need for liquid capital and has been a
powerful motivation in convincing the small family-owned smelter operators
to either merge or go public.
The inventory of scrap that each smelter strives to maintain is deter-
mined by scrap availability, storage capacity, and operating cash on hand.
Since the scrap material is bulky, large volumes of storage space are re-
quired. While some smelters operate with as much as a month of scrap in
inventory, others operate with as little as a two-day supply. A normal
scrap inventory, however, is about a two-week supply. Smelters operating
with a small inventory can influence local prices when in danger of running
out of scrap. When scrap does not arrive at the smelter on schedule, the
operator must buy quickly from a local supplier by offering a premium
price. This practice can—and often does—raise general scrap prices within
the area.
3. Market Value of Assets
The market value of the assets of the large plants producing unalloyed
copper (segment 2) can be reasonably high since most of these plants are
quite well maintained and the technologies utilized in the plants are rea-
sonably good. On the other hand, the assets of the secondary brass and
bronze ingot makers (segment 1) are quite low unless the plant can be main-
tained as an operating unit. In general, the smaller plants in this segment
99
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and many of the larger ones as well have been fairly negligent in the main-
tenance and upkeep of their facilities. Much of the equipment is single-
purpose equipment. On this basis, we believe that the larger plants can
be sold at a substantial portion of book value, while many of the smaller
plants would be hard-pressed to get very much more than the value of the
land and buildings. In fact, if the plant were not to continue production,
this value would be somewhat less than the local land costs since the land
values would have to be depressed by the cost of clearing up the sites. On
the other hand, if the plant can be turned over to another operator who
can operate it, the value can be substantially higher.
4. Cost Structure
Cost structures vary dramatically in the industry depending on the type
of scrap being utilized and the volume of operation, the diversity of the
operation, and the type of overhead load. As an example, a plant utilizing
a high percentage of slag metallics and breakage will have considerably
higher operating costs, excluding raw material costs. However, in general,
the costs of raw materials will be low enough to offset these higher oper-
ating costs and return a better-than-average profit much of the time.
Typically the brass and bronze segment of the industry, in 1975, required
10-13C per pound for processing brass and bronze scrap into ingot (on a
finished weight basis). The distribution of costs between fixed costs
(such as rent, taxes, commercial and sales expenses) and variable costs
(such as labor, fuel, fluxes, refractories, and maintenance) is split, so
that the essentially fixed costs represent about 40 percent of the total
cost or 10 to 13c per pound. In certain operations where relatively expen-
sive scrap is used (which minimizes in-plant production costs) total con-
version costs can be as low as 7c, the fixed-cost expenses of which would
represent about 40 percent. In plants that utilize high percentages of
low metallics, the variable costs may go as high as 14 or 15
-------
5. Constraints on Financing Additional Capital
The general constraints on financing relate to the dollars needed for
a particular project. In the past several years, the larger companies with
a number of claims on their capital dollars from many divisions have been
reluctant to spend large sums of money for plant improvements, pollution
controls, and the like. On the other hand, many of the small companies
which are privately owned have been able to find the capital to make at
least minimal improvements, though most capital expenditures are paid for
via retained income without the use of long-term financing.
The small companies tend to do things on a less formal basis, to do
a lot of "horseback" engineering, and are adept at acquiring information
and technology without great expense. These people have oftentimes been
able to "home-make" quite capable machinery which would have cost several
times its acquired cost if it had been purchased from normal commercial
sources, or if it had been engineered to their specific requirements.
In general, the larger companies and subsidiaries of conglomerates or
mining companies are able to acquire the necessary funds if the profit-
ability of the overall operation appears to warrant it in the view of the
management of the company. These funds can oftentimes be raised internally,
but it must be recognized that many times the call for more profitable
divisions minimizes the capital investments that can be put into these
secondary operations. For example, some of these secondary metals opera-
tions are owned by larger companies which also have primary metals opera-
tions. In this case, the secondary metals operation very seldom gets many
opportunities to call on the capital dollars of the corporation. Basically,
this is because the profit from their primary metals operation is generally
better than that from their secondary metals operation. Therefore, when
faced with a capital investment in their secondary metals operation, they
can either close it down and absorb the fixed costs with the profit from
their primary metals operation or, if the required capital investment is
reasonable, they can choose to make the necessary modifications to keep
the secondary metals operation running.
E. PRICE DETERMINATION
1. Scrap Market
The price of scrap is a fundamental determinant of the financial con-
ditions of the secondary unalloyed copper and brass and bronze ingot makers
accounting, as it does, for about 65 percent of the product price. The
price of copper and copper-base scrap is determined by the interaction of
demand and supply. The market is competitive with many participants on
both the demand and supply sides. International trade in scrap, which
affects supply conditions, also has an influence on scrap price levels.
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a. Scrap Demand
Copper and copper-base scrap can be classified into the following
categories: No. 1 wire and heavy copper; and No. 2 wire and mixed heavy
and light copper; brasses; bronzes; auto radiators; and low-grade scrap
and residues.
No. 1 wire and heavy copper scrap consists of high-grade scrap with a
copper content greater than 99 percent. Such scrap does not have to be
refined; it has to be melted. Because of its high quality it: is demanded
chiefly by brass and bronze ingot-makers and brass mills. This scrap cate-
gory represents an important component of scrap consumed by smelters,
accounting for 17 percent of smelter scrap consumption in 1974. Of the
No. 1 copper scrap consumed by smelters, 45 percent was new scrap and 55
percent old.
No. 2 wire and mixed light and heavy scrap has a 96 percent copper con-
tent. This type has to be refined before it can be used to make shapes.
The producers of unalloyed copper are major users of this type of scrap;
other major users (chiefly new scrap) are brass mills. In 1974, this cate-
gory of scrap accounted for 28 percent of scrap consumed by smelters, 61
percent of which was new.
The brasses represent a generic category that includes red brass scrap,
yellow brass scrap, low brass scrap, and others. Brass scraps are con-
sumed mainly by brass and bronze ingot-makers and brass mills. In 1974,
this category of scrap accounted for 14 percent scrap consumed by smelters,
19 percent of which was new scrap.
Bronze scrap is also consumed chiefly by brass and bronze ingot-makers
and brass mills. In 1974 bronze scrap accounted for 3 percent of scrap
consumed by smelters. Eighteen percent of the bronze scrap consumed was
new.
Radiator scrap is consumed chiefly by brass and bronze ingot-makers.
A considerably smaller amount is consumed by foundries. In 1974 radiators
accounted for 6 percent of scrap consumed by smelters. All radiator scrap
is old.
Low-grade scrap and residues are consumed almost entirely by producers
of unalloyed copper. In 1974, this category of scrap accounted for 18 per-
cent of the total scrap consumed. Thirty-eight percent of this scrap cate-
gory was new and 62 percent was old.
Table IV-5 shows scrap consumption patterns in 1974, with data broken
down by scrap type and scrap consumer. Table IV-6 presents the amount of
scrap consumed by smelters as well as the total amount of scrap consumed.
The quantities of copper and copper base scrap consumed have stagnated
over the last 10 years. In 1965, 1,026,897 tons of scrap were consumed by
producers of unalloyed copper and brass and bronze ingots, and in 1974,
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TABLE IV-5
BREAKDOWN BY TYPE OF COPPER
SCRAP CONSUMPTION IN 1974
(short tons)
Type of Scrap Smelters* Total
No. 1 - Wire and Heavy Copper 169,534 411,343
No. 2 - Wire and Mixed Copper 274,832 345,083
Brass Scrap 131,020 557,006
Bronze Scrap 26,695 33,650
Radiators 60,426 69,215
Others** 4,203 40,140
Low-Grade Scrap and Residues 320,449 321,092
Total 987,159 1,777,529
*This category includes producers of an alloyed copper and brass and
bronze ingot.
**Nickel silver and cupro-nickel.
*
Source: U.S. Bureau of Mines.
103
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TABLE IV-6
SCRAP CONSUMPTION LEVELS, 1965-1975
(short tons)
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975**
Smelters*
1,020,897
1,119,072
902,620
963,590
1,102,844
1,075,052
939,557
962,811
1,005,953
987,159
672,724
Total
1,735,131
1,867,940
1,541,484
1,661,574
1,891,305
1,749,656
1,659,649
1,781,274
1,863,129
1,777,529
1,255,541
Percentage
59
60
59
58
61
62
57
54
54
56
54
*This category includes producers of unalloyed copper and brass and
bronze ingot.
**Preliminary.
Source: U.S. Bureau of Mines.
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987,159 tons were consumed. Preliminary figures for 1975 indicate that
scrap consumption by smelters was 672,724 tons. The percentage of total
scrap consumed by smelters has remained stable.
b. Scrap Supply
The supply of new domestic scrap is a function of the level of the
fabricating operations in which this scrap is generated. The potential
supply of old domestic scrap is a function of the stock of copper goods
and their age. The actual supply is largely a function of scrap price.
The higher the price of scrap, the more feasible the gathering of poorly
accessible scrap.
The availability of scrap is affected in part by international trade.
Exports decrease and imports increase the supply available.
Exports of unalloyed copper scrap exceed imports. In 1974, 41,342
tons of scrap were exported versus 31,109 tons imported. The major export
markets are Korea, Japan, Canada, and the industrialized nations of Western
Europe. The major import sources are Canada and Mexico.
Exports of copper alloy scrap also exceed imports of scrap. In 1974,
118,198 tons were exported versus 15,890 tons imported. The major export
markets are the same as those for unalloyed scrap. The major source of
imports is Canada.
c. Scrap Prices
The price of copper and copper-base scrap is determined by the inter-
action of supply and demand. The prices of various scrap types move in
the same direction. Published data on scrap prices, at best, are indica-
tive and do not pinpoint the level at which transactions actually occur.
For unalloyed copper a published price series on refinery buying
prices for category 2 copper scrap is published by the American Metal
Market. These are purportedly the prices the smelters pay the scrap
dealers for delivered scrap. However, they usually understate actual trans-
action prices. This price series for the 1965-1974 period is reproduced
in Table IV-7.
A published series on prices paid for brass and bronze scraps by the
scrap dealer is also available. To approximate prices charged by the
smelters, the dealers' processing costs, profits, and freight expenses must
be included. Table IV-7 also contains a dealer price series for category
1 red brass, the scrap category most heavily consumed by brass and bronze
ingot-producers.
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TABLE IV-7
COPPER SCRAP PRICES
Year
Refinery Prices
No. 2 Copper Scrap
(C/lb)
Dealer Prices
No. 1 Red Brass Scrap
(C/lb)
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
38.91
50.09
37.28
38.73
49.13
49.19
38.43
31.38
60.20
67.75
41.12
27.87
33.06
29.95
27.25
37.04
36.27
29.92
29.54
40.87
113.76
32.47
Source: American Metal Market.
106
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2. Brass and Bronze Ingot Market
a. Demand
The major market for the brass and bronze ingot-makers is represented
by the foundries which cast the ingots into various shapes. Foundry prod-
ucts have numerous applications among the most important of which are
plumbing supplies, industrial pumps, bearings, and high-voltage switching
gear.
The brass and bronze ingot-makers produce a wide range of alloys. The
most popular are red brass, tin bronze, and yellow brass.
1. Red Brass - This is the most important product and includes
the popular alloy 85-5-5-5 (85 percent copper,
5 percent zinc, 5 percent tin, and 5 percent lead).
The red brasses accounted for 49 percent of brass
and bronze ingot production in 1974.
2. Tin Bronze - This category ranks next in importance. It includes
tin bronze and high lead tin bronze. In 1974, it
accounted for 29 percent of total brass and bronze
ingot production. Due to the tin content, it is
higher priced than red brass.
3. Yellow Brass - This alloy is typically made up of 60 percent
copper, 38 percent zinc, 1 percent tin, and 1 percent
lead. In 1974, it accounted for 6 percent of total
ingot production. Due to the high zinc content, it
is a relatively low-value product, priced beneath
the red brass.
4. Other Products - This category, which includes manganese bronze,
aluminum bronze, silicon bronze and conductor bronze,
accounted for 16 percent of the total brass and
bronze production in 1974.
Table IV-8 contains the production levels for the major brass and bronze
ingot categories in 1974.
The market for brass and bronze ingot has exhibited a sharp decline
since the mid-1960's. Table IV-9 presents production levels for brass and
bronze ingots in the United States for the 1965-1975 period. The table
shows that production declined from a high of 347,127 tons in 1966 to
261,553 tons in 1974. The preliminary production figures for brass and
bronze ingot in 1975 show a significant drop in production to 186,420 tons.
b. Supply
The supply of ingots is competitive. The brass and bronze ingot-makers
are numerous and small. The amount they supply is tied to the price they
pay for scrap and the price their ingots can command.
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TABLE IV-8
BREAKDOWN BY TYPE OF BRASS AND BRONZE
INGOT PRODUCTION IN 1974
Category Short Tons
Red Brass 126,836
Tin Bronze 73,977
Yellow Brass 15,460
Other 40,132
TOTAL 256,405
Source: American Metal Market.
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TABLE IV-9
BRASS AND BRONZE INGOT PRODUCTION LEVELS
(1965-1975)
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
19 74
1975*
Production
(Short Tons)
328,952
347,127
309,900
316,073
321,336
258,732
262,588
268,067
284,482
261,553
186,420
*Preliminary.
Source: U.S. Bureau of Mines,
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c. Prices
Published price series for major brass and bronze ingots are available,
These series reveal close correlation between ingot and scrap prices. The
published prices are list prices. Transactions usually take place at about
a 5 percent discount from the list price.
Table IV-10 contains price series for No. 115, the popular red brass
ingot, and No. 405, the popular yellow brass ingot. These are list prices.
Transaction prices are usually discounted from list prices.
3. Market for Unalloyed Copper Ingot
a. Demand
The immediate market for unalloyed copper is constituted by the semi-
fabricating industries. The major semifabricating markets are the wire
and brass mills. In 1974 wire mills consumed 67 percent of total refined
copper, and the brass mills consumed 31 percent.
Demand by semifabricators is, in turn, linked to demand by the end-use
industries. The end-use industries include electrical and electronic
products, building construction, transportation, consumer, and general
products, industrial machinery and equipment, and ordnances and accessories.
The fact that these sectors are highly cyclical is reflected by fluctuations
in refined copper consumption.
b. Supply
There are two supply sources for unalloyed copper products—primary
and secondary. Primary unalloyed copper is produced from blister, while
secondary copper is produced from scrap. The large copper producers mainly
use blister, although they may smelt and refine scrap in their operations.
This group, referred to as the primary producers, includes Anaconda, ASARCO,
Kennecott, Phelps Dodge, Magma, White Pine, and Inspiration. There is a
second group of producers who predominantly use scrap. They are referred
to as the secondary producers and include Amax, Cerro, Southwire, Reading,
and Chemetco.
Table IV-11 presents the amount of refined copper produced from scrap
in comparison with the total refined copper production for the 1965-1974
period. Refined copper from scrap accounted for 20-30 percent of the total
refined copper production.
c. Prices
During the post-World War II period selling of refined copper, most
of the sales and purchases of refined copper have been made directly or
indirectly on the basis of one of two price regimes: the domestic producers'
price and the London Metal Exchange (LME) price.
110
-------
TABLE IV-10
Year
1966
1967
1968
1969
1970
1971
1972
1973
1974
BRASS INGOT PRICES
(C/lb)
No. 115
50.34
44.79
44.26
51.92
56.35
52.94
51.90
66.02
84.49
No. 405
40.29
35.24
35.62
44.88
46.51
44.08
42.19
56.28
72.64
Source: American Metal Market.
Ill
-------
TABLE IV-11
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
REFINED COPPER PRODUCED
(1965-1974)
Produced
from Scrap
(Short Tons)
445,209
490,743
406,614
416,579
499,122
511,609
400,662
423,243
465,123
496,908
FROM SCRAP
Total
1,882,172
1,869,027
1,282,758
1,607,499
1,985,202
2,003,681
1,787,005
2,026,846
1,997,032
1,741,481
Percent
24
26
32
26
25
26
22
21
23
29
Source: American Metal Market.
112
-------
The domestic producers' price is a set of nearly uniform price quota-
tions used for sales in the United States by the major U.S. primary pro-
ducers and, for a good portion of the post-war period, by Noranda, one of
the Canadian producers. The LME price, spot and forward quotations pre-
vailing on the London Metal Exchange, is used as the basis of sales outside
North America.
During the post-war period, 76 percent of the average annual consump-
tion of refined copper in the United States has been sold by U.S. primary
producers at the domestic producers' price. About 11 percent of the average
annual consumption of refined copper consisted of imports from foreign pro-
ducers. The copper handled by LME and U.S. metal merchants is mostly sold at
the LME price or a price closely reflecting that price. The principal
secondary or custom refiners, on the average, accounted for about 13 per-
cent of the average annual consumption of refined copper. They sold this
supply at their own established prices which generally reflected the pre-
vailing scrap prices.
Figure IV-2 presents trends in copper prices for the period 1965-75.
The primary producers have maintained a price that was generally below the
international LME price. In 1975, however, the Free World price dropped
below the primary producer price. While the primary producers' price was
below the LME price, the secondary group charged prices higher than the
producers', but still lower than the LME. In recent times, with the LME
below the producer price, the larger secondaries have been able to maintain
prices above the LME, but below that of the primaries.
F. PRETREATMENT STANDARDS AND THE COSTS OF COMPLIANCE
1. Recommended Preliminary Pretreatment Standards
The EPA is promulgating interim final pretreatment standards for the
secondary copper industry pursuant to Section 307(b) of the Federal Water
Pollution Control Act, as amended (33 U.S.C. 1317(b), 86 Stat. 816 et seq;
P.L. 92-500). These standards apply to existing sources introducing pol-
lutants into Publicly Owned Treatment Works (POTW).
The principal sources of wastewater in the secondary copper industry
are: metal cooling, slag quenching and granulation, furnace exhaust scrub-
bing, and electrolytic refining. Slag million and classification can generate
an effluent; such as operation was not found at plants discharging to POTW's.
The pretreatment control levels are presented in Table IV-12. The
pollutant parameters to be limited include copper, zinc, lead, cadmium,
mercury, and oil and grease.
113
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(D
rt
O
O
W
Tl
O
W
cn
OS
Oi
8 8 ft
Si S
8 8
W O
rt d
CU PO *
rt W ?
0) M
rt <
H- I
O ro |
CO *
3 oi 8 S
CENTS PER POUND
8 8 8 8
-------
TABLE IV-12
Effluent
Characteristic
Copper
Zinc (dissolved)
Lead
Cadmium
Mercury
Oil and Grease
PRELIMINARY PRETREATMENT CONTROL LEVEL
(Metric units,
Maximum for
any 1 day
0.50
2.0
1.0
1.0
0.18
100
mg/1)
Pretreatment Levels
Average of daily values
for 30 consecutive days
shall not exceed
0.25
1.0
0.5
0.5
0.09
100
Source: Pretreatment Supplement - Development Document for Secondary
Copper, EPA, August 1976.
115
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2. Compliance Costs
The compliance costs associated with pretreatment standards and the
recycling costs for POTW dischargers were provided by the EPA and are sum-
marized in Tables IV-13 and IV-14. The cost of replenishment water is not
included in these costs. These costs were provided on a plant-by-plant
basis as incremental capital and operating costs derived from model treat-
ment plants. We have not reviewed these costs as the relevant back up
information was not available.
In general, pretreatment costs are lower than recycle costs. The dif-
ferences between the two costs are more significant when pretreatment costs
are low. In such a case, it means going from a simple pretreatment scheme
(such as settling, using gravity flow) to more elaborate recycle systems
involving pumps for recycle, additional piping, and the like. According
to the EPA, plants 6 and 7, earlier listed as POTW dischargers, were later
found not to discharge to a POTW and are therefore not considered further
in the analysis.
G. BASELINE ANALYSIS AND PROJECTIONS
In this section, we establish a financial profile for POTW dischargers
in the secondary copper industry prior to compliance with pretreatment or
zero-discharge standards. A deterministic process economics model is used
to simulate the financial condition of POTW dischargers on a plant-by-plant
basis. We verified the financial data generated by the model Ling with some
plants in the segment and found reasonable agreement for the plants that
responded. We also tried to obtain industrywide cost structure information
from the Brass and Bronze Institute, but could not get information as of
the writing of this report. Aggregate industry projections are made to
evaluate how much these conditions are likely to change in the future using
a time series trend analysis.
1. Process Economics Model Structure
ADL has developed a process economics model for the secondary copper
industry. Given basic characteristics, such as production, product type,
and scrap type, the model generates the following financial information:
(a) production costs by category; (b) pretax profits; (c) posttax profits;
and (d) cash flow.
2. Financial Results
Using data on plant characteristics supplied by the EPA and the ADL
model, we simulated financial conditions in 1975 for 16 out of 17 POTW dis-
chargers. No data on production were available on the 17th plant.
Table IV-15 presents the characteristics of these plants. Plant 5 is a
producer (segment 1) of unalloyed copper, making cathodes and billets. The
remaining plants belong to segment 2. Plant 3 is a copper shot producer.
116
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TABLE IV-13
COSTS OF COMPLIANCE WITH PRETREATMENT
STANDARDS
FOR THE SECONDARY COPPER INDUSTRY
(last quarter 1975 $)
Pretreatment Costs
Plant Code
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
19
Capital
13,200
13,200
2,200
8,000
547,500
13,200
13,200
13,200
147,600
74,400
8,000
152,100
8,000
8,000
13,200
21,200
4,600
Annual Operating
5,360
5,360
640
3,170
278,320
5,360
10,310
10,310
76,090
32,890
3,170
43,300
6,470
3,170
10,310
11,830
880
Source: EPA
117
-------
TABLE IV-14
Plant Code
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
19
COSTS FOR RECYCLE (ZERO DISCHARGE)
FOR THE SECONDARY COPPER INDUSTRY
(last quarter 1975 $)
Pretreatment
Costs
Capital Annual Operating
24,200
24,200
10,200
14,000
641,900
24,200
24,200
24,200
199,900
80,300
14,000
176,400
13,300
14,000
24,200
37,500
4,600
8,040
8,04f
2,110
4,650
318,790
8,040
15,400
15,400
89,740
34,260
4,650
59,250
7,810
4,650
15,400
15,850
880
Source: EPA
118
-------
TABLE IV-15
Plant
No.
1
2
3
4
8
9
10
11
12
13
14
15
16
17
18
PLANT CHARACTERISTICS OF SECONDARY
COPPER
Product
Type
10
10
12
10
21,22
10
10
10
11
10
10
11,12
10
10
10
10
POTW DISCHARGERS
Scrap
Type
3
3
1
3
1,2
3
3
3
3
3
3
3
3
3
3
3
Monthly Output
in Short Tons
400
500
35
200
3500 cathodes
4000 billets
300
725
400
1300
170
25
270
250
270
700
750
Product Type Code: 10 = brass and bronze ingot and phosphor copper
11 = brass and bronze ingot
12 = copper shot
20 = unalloyed copper, cathodes
21 = unalloyed copper, billets
Scrap Type Code: 1 = No. 1 copper scrap
2 = No. 2 copper scrap
3 = Brass and bronze scrap mix
Source: U.S. Environmental Protection Agency
119
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Plant 11, besides producing brass and bronze ingot, also produces phosphor
copper, and Plant 14, besides producing brass and bronze ingots, also pro-
duces phosphor copper and shots.
Table IV-16 presents production costs in cents per pound of product
for the POTW dischargers. The variation in scrap costs is due to the type
of scrap consumed. Plant 3 consumes No. 1 copper scrap and has the highest
scrap costs (48c/lb). The bronze and brass scrap producers consume a brass
and bronze scrap mix comprised of red brass scrap, yellow brass, auto radi-
ators, and the like. We have assumed Alloy 115 (85:5:5:5, i.e., 85% Cu,
5% Sn, 5% Pb, 5% Zn) to be the representative alloy produced by the brass
and bronze ingot makers. The scrap mix costs are the lowest (37.4c/lb).
Plant 5, which refines No. 2 scrap to produce electrolytic copper, has
intermediate scrap costs—43.2c/lb. The principal components of other
materials costs are those for alloying, fluxes, and maintenance materials.
These costs are highest for the brass and bronze producers, mainly because
of tin addition—approximately 4c/lb. Labor costs vary from 3.4-7c/lb.
Total costs range from 52.18-55.8c/lb for the brass and bronze ingot pro-
ducers and around 55c/lb for unalloyed copper and copper shots.
Table IV-17 presents baseline profits and cash for the secondary copper
POTW dischargers. The analysis is based on No. 115 alloy (85:5:5:5 group),
being the representative product for the bronze and brass ingot-makers.
For plants making products other than brass and bronze ingots, such as
phosphor copper and shots, we have assumed that their products would be minor
in volume, and consequently we treated them as brass and bronze ingot-
producers. For the revenue stream, from the list price of 64c/lb, we have
subtracted 7c/lb to cover discounts and freight. For unalloyed copper prod-
ucts, the revenue was taken to be 58c/lb which is the LME price. The pro-
ducer price, 64c/lb, was much higher.
3. Industry Projections
In the impact analysis we performed in this study, we evaluated finan-
cial plant conditions during 1975. To the extent that 1975 is an atypical
year, our conclusions are biased. We used trend analysis to gauge how
normal 1975 was and the extent to which future conditions will differ from
those prevailing in 1975. We then fitted all trend equations to annual
data for the 1960-1975 period.
The three major determinants of an industry's financial condition are
the price at which it can sell its product, the quantity of the product it
can sell, and the price it has to pay for scrap. The first two variables
determine industry revenue and the third variable is a major determinant
of cost.
We have projected these three determinants for brass and bronze, and
unalloyed copper below.
a. Brass and Bronze
The production projection equation is a cubic function of time. The
estimated equation is shown below. The time (t) values are placed in
parentheses beneath the coefficients.
120
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TABLE IV-16
BASELINE COSTS OF PRODUCTION BY MAJOR
CATEGORY FOR SECONDARY COPPER POTW DISCHARGERS
Plant
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
Scrap
37.42
37.42
48.00
37.42
43.20
37.42
37.42
37.42
37.42
37.42
37.42
37.42
37.42
37.42
37.42
37.42
Other
Materials
4.50
4.50
0.20
4.48
1.00
4.83
4.85
4.53
4.44
5.23
5.00
4.43
4.46
4.43
4.48
4.67
Labor
5.33
5.64
3.40
7.00
4.00
6.83
7.00
5.49
7.00
7.00
7.00
5.79
5.48
6.37
7.00
5.09
Utilities
1.16
1.16
1.00
1.16
2.50
1.16
1.16
1.16
1.16
1.16
1.16
1.16
1.16
1.16
1.16
1.16
(C/lb)
Selling and
Administrative
1.50
1.50
1.00
1.50
1.20
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
Interest
Expense
1.42
1.42
1.00
1.42
1.50
1.42
1.42
1.42
1.42
1.42
1.42
1.42
1.42
1.42
1.42
1.42
Taxes
(non income)
and Insurance
0.22
0.22
0.10
0.22
0.50
0.37
0.38
0.24
0.20
0.55
0.45
0.19
0.21
0.19
0.21
0.30
Depreciation
0.62
0.62
0.30
0.60
1.00
1.04
1.06
0.66
0.55
1.53
1.25
6.53
0.57
0.53
0.60
0.83
Total
Cost
52.18
52.49
55.00
53.80
54.90
54.58
54.80
52.42
53.70
55.81
55.20
52.44
52.23
53.02
53.79
52.39
-------
TABLE IV-17
BASELINE PROFITS AND CASH FLOW
FOR SECONDARY COPPER POTW DISCHARGERS
Plant
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
Revenue
57.00
57.00
58.00
57.00
58.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
Cost
52.18
52.49
55.00
53.80
54.90
54.58
54.80
52.42
53.70
55.81
55.20
52.44
52.23
53.02
53.79
52.39
Gross
Profit
4.82
4.51
3.00
3.20
3.10
2.42
2.20
4.58
3.30
1.19
1.80
4.56
4.77
3.98
3.21
4.61
Net
Profit
2.89
2.70
1.80
1.92
1.86
1.45
1.32
2.75
1.98
0.71
1.08
2.73
2.86
2.39
1.93
2.76
Cash
Flow
3.51
3.33
2.10
2.52
2.86
2.49
2.38
3.40
2.53
2.24
2.33
3.27
3.44
2.92
2.52
3.60
Source: Arthur D. Little, Inc., estimates.
122
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BBPD = 217688 + 34854.8 TIME - 3614.0 TIME 2 + 98.35 TIME 3
(9.11) (9.95) (-2.28) (1.60)
R2 = 0.68
where
BBPD = annual brass and bronze ingot production in short tons,
TIME = trend variable which is 1 in 1960, 2 in 1961, etc.,
TIME 2 = squared values of the trend variable, and
TIME 3 = cubed values of the trend variable.
The equation explains 68 percent of the variation in production. The
variables are significant at the 80 percent level according to the two-tailed
t test.
The predicted value for 1975 from this equation was 252,980 short tons.
The actual value was 249,134 short tons. The trend value is close to the
actual value, indicating that cyclical or irregular forces were minimal
in that year.
Utilizing the production equation, we generated predictions for the
1976-1978 period. The predicted values are 248,966 tons in 1976; 247,718
tons in 1977; and 249,863 short tons in 1978.
We next fitted a linear trend equation to data on No. 115 alloy. This
is the most important of the brass and bronze ingots. The equation is
shown below:
BBPP =23.00 + 2.95 TIME
(7.03) (8.72)
R2 = 0.84
where
BBPP = price of No. 115 alloy (C/lb), and
TIME = trend variable.
The estimated equation explains 84 percent of the variation in the
price; the trend variable is significant at the 99 percent level.
In 1975, the predicted price of No. 115 alloy was 70.2c/lb; the actual
price was 65.9c/lb. Therefore, cyclical or irregular forces exerted a
downward pressure on prices in that year.
We generated predictions from the price equation for the 1976-1978
period. The predicted prices for No. 115 alloy are 73.1c/lb in 1976,
76.1
-------
We also fitted a quadratic trend equation to the dealers' price for
red brass scrap. This is one of the important scrap varieties consumed by
brass and bronze ingot-makers. The estimated equation is shown below:
BBSP =14.24 + 2.56 TIME - 0.07 TIME 2
(4.01) (2.67) (-1.28)
R2 = 0.75
where
BBSP = dealer's price for red brass scrap (c/lb),
TIME = trend variable, and
TIME 2 = squared values of trend variable.
The estimated equation explains 75 percent of the variation in scrap
prices. The trend variable is significant at the 95 percent level. The
squared trend variable is significant at the 70 percent level.
The predicted value for 1975 was 37.2c/lb, and the actual value was
32.5c/lb. This implies that cyclical or irregular effects had a depressive
effect in that year.
Using the scrap equation, we generated predicted values for the 1976-
1978 period. The predicted values for red brass scrap price are 37.5c/lb
in 1976; 37.6c/lb in 1977; and 37.6c/lb in 1978.
The trend analysis indicated that 1975 was a slightly depressed year
for brass and bronze ingot-makers. Production and prices were below the
trend (or normal) values. Trend projections indicate that production and
prices (product and scrap) will grow at slow rates over the 1976-1978 period.
Actual growth, however, will probably exceed trend values, given the probable
positive contributions of cyclical forces. In summary, future industry
conditions are likely to be somewhat better than those prevailing in 1975.
b. Unalloyed Copper
The production trend equation for secondary copper production was:
CUPD = 390737 + 10727.2 TIME
(8.94) (2.99)
R2 = 0.39
where
CUPD = production of copper from scrap in short tons, and
TIME = trend variable.
The equation can explain 39 percent of the variation in secondary cop-
per production. The trend variable is significant at the 99 percent level.
124
-------
The predicted value for 1975 was 481,580 short tons and the actual
value was 342,580 tons. The actual value is considerably below the trend
value. This indicates that the cyclical or irregular forces had a pro-
nounced depressive effect in 1975.
We made projections from the production equation for the 1976-1978
period. The projected values are 492,096 tons in 1976; 502,823 short tons
in 1977; and 513,550 short tons in 1978.
There is no published series for secondary copper prices. That portion
of the secondary copper produced by the primary producers sells at the U.S.
producer price. The secondary copper produced by the secondaries sells at
prices between the U.S. producer price and the international LME price. We
fitted a linear trend equation to the U.S. producer price series. The
estimated equation is:
CUPP =21.40 + 2.76 TIME
(7.11) (8.87)
R2 = 0.85
where
CUPP = U.S. producer price for electrolytic copper (c/lb), and
TIME = trend variable.
The equation can explain 85 percent of the variation in the price
series. The trend variable is significant at the 99 percent level. The
predicted value for 1975 was 65.6 cents and the actual value was 64.5£/lb.
The closeness of the trend and actual values indicates that 1975 was a
normal year for copper prices.
We generated projections for the 1976-1978 period. The predicted
values are 68.3 cents in 1976; 71.1 cents in 1977; and 73.9c/lb in 1978.
We then fitted a linear trend equation to the refinery buying prices
for No. 2 copper scrap—the most important variety consumed in the produc-
tion of secondary unalloyed. A dummy variable was used to take into account
the effect of abnormally high prices. The dummy variable has the effect of
shifting up the equation intercept in those two years. The estimated equa-
tion is shown below:
CUSP = 25.91 + 1.32 TIME + 18.86 DUMMY
(6.40) (2.87) (2.93)
R2 = 0.72
where
CUSP = refinery buying prices for No. 2 copper scrap, and
TIME = trend variable.
125
-------
The equation can explain 72 percent of the variation in scrap prices.
The trend and dummy variables are significant at the 95 percent level.
The predicted value for 1975 was 47.1c/lb and the actual value was
41.1<:/lb. Cyclical and irregular forces therefore had a depressive effect
that year.
We used the scrap price equation to generate predicted values for the
1976-1978 period. The predicted values are 48.4<:/lb in 1976; 49.8£/lb in
1977; and 51.1c/lb in 1978.
Trend analysis indicated that 1975 was, in some ways, an unusual year
for secondary copper producers as production was depressed. It is not pos-
sible to make any strong statements about prices as the reported series
are only proxies. Over the next few years, production should rise sharply
from the 1975 levels for the industry. Profit margins, however, may be
squeezed, given that the LME has fallen beneath the producer's price.
H. ECONOMIC IMPACT ANALYSIS
In this section we have quantified the economic impact of compliance
with pretreatment or zero-discharge standards on the secondary copper indus-
try. The immediate impact of implementing these standards will be on the
POTW discharging plants. Once we quantified the plant and industry effects,
we then estimated recursively the resultant effects on communities, employ-
ment , trade, and the like.
1. Price Effects
a. Probable Price Increases
Copper and copper-base scrap are largely sold at spot prices in both
the domestic and world markets. Scrap prices are determined in the "free"
or "outside" market which, in general, is described as a complex conglomera-
tion of secondary refiners, importers, commodity exchanges, and merchants.
Prices for U.S.-refined copper are quoted by producers (U.S. producers'
price), while the world market price for refined copper is quoted on the
London Metal Exchange (LME).
Under normal conditions, each type of scrap sells at a fairly constant
discount from the free market price and the U.S. producers' price for re-
fined copper. The amount of the discount depends on the amount of copper
content and the cost of turning the scrap to a usable secondary product.
Custom refiners producing unalloyed copper from scrap (segment 2) are an
important element in the pricing of copper scrap because they pruchase sub-
stantial quantities of obsolete and prompt industrial scrap. Much of
this scrap is also used by brass and bronze ingot-makers and other scrap
consumers, such as brass mills.
126
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In. the case of brass and bronze ingot-producers, only about 24 per-
cent of the plants, representing about 30 percent of the production, are
affected by these standards. To a large extent, the market for the product
is competitive. For the producers of unalloyed copper, the product cathodes
and shapes compete with all refined copper. Only one out of seven plants is
a POTW discharger, representing about 17 percent of the secondary production,
Therefore, the probability of passing on the increased costs of pollution
abatement by secondary copper POTW dischargers through increased product
price is low.
Tables IV-18 and IV-19 show compliance costs (on a C/lb basis) as a
percentage of product price. For the brass and bronze producers, com-
pliance costs as a percentage of product price for pretreatment and zero
discharge are in all cases, less than 1.6%. Plants 12, 13, and 14 show
compliance costs in the range of 1.0-1.6 percent. For unalloyed copper
(plant 5), compliance costs are 0.6 percent of product price for pretreat-
ment and 0.7 percent of product price for zero discharge.
b. Secondary Effects
Since price increases due to compliance are unlikely, there will be
no secondary effects.
2. Financial Effects
It is unlikely that the impacted plants will be able to pass along
the increased costs by increasing prices. Therefore, they will have to
absorb the compliance costs. In this section, we have examined the effect
of such cost absorption on profits and cash flow, and also considered
the capital requirements and sources of funds available to finance the
compliance cost-related investment.
Profits and Cash Flow Effects
Table IV-20 shows the effect of compliance with pretreatment standards
on pretax profits and cash flow. For the brass and bronze segment, Plant
12 exhibits the largest decrease in pretax profits (68%) and cash flow
(22%). Pretax profits are reduced from 1.2c/lb to 0.4c/lb. Plant 13
shows a decrease in pretax profits of 30 percent and a decrease in cash
flow of 14 percent. Plant 14 has its pretax profits reduced 15 percent
and its cash flow reduced 12 percent. The remaining plants show a less
than 10 percent decrease in pretax profits and cash flow. For the un-
alloyed copper segment (Plant 7), the decrease in pretax profits is
11 percent and the decrease in cash flow 7 percent.
Table IV-21 shows the effects of achieving zero discharge on pretax
profits and cash flow. In the brass and bronze segment, Plant 12 shows a
71 percent reduction in pretax profits and a 22 percent reduction in cash
127
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TABLE IV-18
PRETREATMENT COMPLIANCE COST IN RELATION
TO PRODUCT PRICE FOR SECONDARY COPPER POTW DISCHARGERS
Plant
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
Compliance Cost
(C/lb)
0.06
0.04
0.08
0.07
0.33
0.07
0.06
0.11
0.24
0.81
0.53
0.67
0.11
0.05
0.06
0.07
Product Price
(C/lb)
57.00
57.00
58.00
57.00
58.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
Compliance Cost
as a Percentage
of Product Price
(%)
0.10
0.08
0.13
0.12
0.57
0.13
0.10
0.19
0.43
1.41
0.93
1.17
0.19
0.09
0.11
0.12
Sources: U.S. Environmental Protection Agency and Arthur D. Little, Inc.,
estimates.
128
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TABLE IV-19
ZERO-DISCHARGE COMPLIANCE COST IN RELATION
TO PRODUCT PRICE FOR SECONDARY COPPER POTW DISCHARGERS
Plant
Compliance Cost
(C/lb)
Product Price
(C/lb)
Compliance Cost
as a Percentage
of Product Price
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
0.08
0.07
0.25
0.10
0.38
0.11
0.09
0.16
0.29
0.84
0.77
0.91
0.13
0.07
0.09
0.09
57.00
57.00
58.00
57.00
58.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
57.00
0.15
0.12
0.43
0.17
0.65
0.20
0.16
0.28
0.50
1.47
1.36
1.60
0.23
0.13
0.16
0.15
Sources; U.S. Environmental Protection Agency and Arthur D. Little, Inc.,
estimates.
129
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TABLE IV-20
Plant
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
PRETREATMENT COMPLIANCE IMPACTS ON PROFIT AND
CASH FLOW FOR SECONDARY COPPER POTW DISCHARGERS
Pretax Profits
Baseline
4.82
4.51
3.00
3.20
3.10
2.42
2.20
4.58
3.30
1.19
1.80
4.56
4.77
3.98
3.21
4.61
Post
Compliance
4.76
4.46
2.92
3.14
2.77
2.34
2.14
4.48
3.06
0.38
1.27
3.89
4.67
3.93
3.15
4.54
Percent
Change
1.16
0.99
2.54
2.06
10.69
3.08
2.69
2.34
7.39
67.91
29.42
14.68
2.26
1.23
1.91
1.43
Baseline
3.51
3.33
2.10
2.52
2.80
2.49
2.38
3.40
2.53
2.24
2.33
3.27
3.44
2.92
2.52
3.60
Cash Flow
Post
Compliance
3.48
3.30
2.05
2.48
2.66
2.45
2.35
3.34
2.39
1.76
2.01
2.86
3.37
2.89
2.48
3.56
Percent
Change
0.95
0.81
2.18
1.57
6.95
1.79
1.49
1.89
5.77
21.55
13.62
12.28
1.88
1.01
1.46
1.10
Source: Arthur D. Little, Inc., estimates.
130
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TABLE IV-21
ZERO-DISCHARGE COMPLIANCE IMPACTS
Plant
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
AND
CASH FLOW FOR
SECONDARY
(C/lb)
ON PROFIT
COPPER POTW DISCHARGERS
Pretax Profits
Baseline
4.82
4.51
3.00
3.20
3.10
2.42
2.20
4.58
3.30
1.19
1.80
4.56
4.77
3.98
3.21
4.61
Post
Compliance
4.73
4.44
2.75
3.11
2.72
2.30
2.11
4.42
3.01
0.35
1.02
3.64
4.64
3.90
3.12
4.52
Percent
Change
1.74
1.49
8.37
3.03
12.24
4.62
4.02
3.50
8.71
70.73
43.15
20.07
2.73
1.80
2.86
1.91
Baseline
3.51
3.33
2.10
2.52
2.86
2.49
2.38
3.40
2.53
2.24
2.33
3.27
3.44
2.92
2.52
3.60
Cash Flow
Post
Compliance
3.46
3.29
1.95
2.46
2.63
2.42
2.33
3.31
2.36
1.74
1.86
2.72
3.36
2.87
2.47
3.54
Percent
Change
1.43
1.21
7.18
2.23
7.96
2.69
2.23
2.82
6.81
22.45
19.98
16.80
2.27
1.48
2.18
1.47
Source: Arthur D. Little, Inc., estimates.
131
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flow. Plant 13 shows a reduction in pretax profits of 43 percent and a
reduction in cash flow of 20 percent. Plant 14 shows a reduction in pre-
tax profits of 20 percent and reduction in cash flow of 17 percent. The
remaining plants show a less than 10 percent decrease in pretax profits and
cash flow. In the unalloyed copper segment, Plant 5 shows a decrease of
12 percent in pretax profits and an 8 percent decrease in cash flow.
3. Capital Availability
The funds to finance pollution-abatement investment come either from
internal sources (cash flow) or external sources (debt). Except for the
plants that are subsidiaries of large corporations, most of the firms
look to cash flow as their principal source of funds. In this analysis,
we compare pollution-abatement investment to annual cash flows.
Table IV-22 shows the capital investment for pretreatment as a per-
centage of annual cash flows. For the brass and bronze segment, the
capital requirements of Plant 12 for pretreatment amount to 81 percent of
annual casi. flow. The capital requirements of Plant 3 amount to 72 per-
cent of annual cash flow and 57 per cent of annual cash flow for Plant 14.
For the unalloyed copper segment, the capital requirements of Plant 5 for
pretreatment are 23 percent of its annual cash flow.
Capital requirements for zero discharge as a percentage of annual
cash flow are presented in Table IV-23. In the brass and bronze segment,
these percentages are 100 percent for Plant 13, 88 percent for Plant 12,
and 83 percent for Plant 14. The shot producers' (Plant 3) capital require-
ments amount to 58 percent of annual cash flow. Plant 11 shows capital
requirements amounting to 25 percent of annual cash flow. Plant 5,
unalloyed copper, requires capital for pretreatment amounting to 27 percent
of annual cash flow.
The possible magnitude of the displacement of productive investment
can be assessed by examining the ratio of pretreatment or zero discharge-
related investment to normal productive investment. If one assumed that
productive investment were 1.8 percent of the value of shipments (1972
Census of Manufactures, Bureau of Census, U.S. Department of Commerce), it
would imply that annual productive investment for the POTW dischargers
in the brass and bronze segment would be $1.55 million. Aggregate pre-
treatment-related investment would be $508,700, which would represent about
33 percent of the productive investment figure.
If the firms involved were to make this investment in addition to
normal productive investment, the ratio of investment to the value of
shipments would increase from 1.8 to 2.4 percent. For the unalloyed
copper segment, we estimate the normal productive investment would be
$1.88 million. The pretreatment related-investment would be $547,500;
i.e., 29 percent of the annual productive investment by the impacted
plants. If the firms were to make this investment in addition to pro-
ductive investment, the ratio of investment to value of shipments would
increase from 1.8 to 2.3 percent in the year of investment.
132
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Plant
TABLE IV-22
CAPITAL INVESTMENT ASSOCIATED WITH PRETREATMENT
STANDARDS IN RELATION TO PRECOMPLIANCE CASH FLOW
FOR SECONDARY COPPER POTW DISCHARGERS
Capital Investment
to Meet Pretreatment
Standards
($)
Cash Flow
Capital Investment
Associated with
Pretreatment as a
Percent of Annual
Cash Flow
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
Sources :
13,200.00
13,200.00
2,200.00
8,000.00
547,500.00
13,200.00
13,200.00
13,200.00
147,600.00
74,400.00
8,000.00
152,100.00
8,000.00
8,000.00
13,200.00
21,200.00
U.S. Environmental
337,400.00
399,429.06
17,640.13
120,973.00
2,402,425.00
179,370.19
414,618.38
327,221.06
790,582.06
91,560.81
13,965.43
211,635.19
206,362.06
189,084.75
423,591.19
647,442.50
Protection Agency, and
3.91
3.30
12.47
6.61
22.79
7.36
3.18
4.03
18.67
81.26
57.28
71.87
3.88
4.23
3.12
3.27
Arthur D. Little, :
estimates.
133
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TABLE IV-23
CAPITAL INVESTMENT ASSOCIATED WITH ZERO-DISCHARGE
STANDARDS IN RELATION TO PRECOMPLIANCE CASH FLOW
FOR SECONDARY COPPER POTW DISCHARGERS
Plant
Capital Investment
to Meet Pretreatment
Standards
($)
Cash Flow
Capital Investment
Associated with
Pretreatment as a
Percent of Annual
Cash Flow
1
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
24,200.00
24,200.00
10,200.00
14,000.00
641,900.00
24,200.00
24,200.00
24,200.00
199,900.00
80,300.00
14,000.00
176,400.00
13,300.00
14,000.00
24,200.00
37,500.00
337,400.00
399,429.06
17,640.13
120,973.00
2,402,425.00
179,370.19
414,618.38
327,221.06
790,582.06
91,560.81
13,965.43
211,635.19
206,362.06
189,084.75
423,591.19
647,442.50
7.17
6.06
57.82
11.57
26.72
13.49
5.84
7.40
25.29
87.70
100.25
83.35
6.44
7.40
5.71
5.79
Sources: U.S. Environmental Protection Agency, and Arthur D. Little, Inc.,
estimates.
134
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Similarly zero-discharge investment for the brass and bronze segment
would be $704,800; i.e., 45.5 percent of the annual productive investment
by the impacted plants. This represents an increase in the ratio of invest-
ment to value of shipments from 1.8 to 2.6 percent in the year of invest-
ment. For unalloyed copper, the zero-discharge-related investment would
be $641,900; i.e., 34 percent of the annual productive investment by the
impacted plants. The ratio of investment to value of shipments would
increase from 1.8 to 2.4 percent in the year of investment.
4. Production and Employment Effects
In this subsection we have examined the effect of the proposed stan-
dards on production curtailment, plant closures, employment, and industry
growth.
a. Production Curtailment
In the secondary copper industry, especially brass and bronze, there
is an excess of capacity. We estimate that the industry is currently
operating a. about 60-65 percent of its capacity. Production curtailments
would increase marginal and average costs. Consequently, such curtailments
would not be likely.
b. Plant Closures
In evaluating shutdowns, we first categorized the industry's plants.
First, there are plants that do not cover their variable costs. Then
plants will shut down since by so doing, they will be able to avoid losses.
Second, there are those plants which cover their variable costs, but not
fixed costs. These too will shut down in the long run, but the timing
•is difficult to predict. Finally, there are those plants which will con-
itnue to enjoy a profit, but these plants may still shut down. The pos-
sibility of shutdown can be determined on the basis of a discounted cash
flow analysis.
All plants in both the brass and bronze and unalloyed copper segment
fall into the third category; i.e., even after compliance with the stan-
dards, they will still make a profit. The issue then is whether their
profits will be reduced to the point where they decide they must close
down after all.
When a plant making a profit shuts down, it sacrifices current and
future cash flow but, in return, obtains the assets tied up in the business.
Hence, a plant will continue to operate only if the value of the discounted
stream of future cash flow and terminal salvage value exceeds the funds
that can be released by a shutdown.
The funds released by a shutdown fall into two categories; owner-
financed working capital and current salvage value. Current salvage
values are relatively low in the industry. Land values after clearing
135
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provide .the chief source of salvage value. Given generally unattractive
locations, these land values are not particularly high.
The. brass and bronze as. well as the unalloyed copper segments can
still make a profit and a positive cash flow, even after compliance. As
seen earlier in Tables IV-20 and IV-21, Plant 12 shows a pretax profit of
1.19c/lb and cash flow of 2.24c/lb. As a result of compliance with pre-
treatment standards, pretax profits are reduced to 0.38c/lb and cash flow
to 1.75c/lb. The pretax profits after compliance with zero-discharge
standards would be 0.35c/lb and the cash flow 1.74c/lb. Plant 13 would
have a pretax profit of 1.8<:/lb and cash flow of 2.33 c/lb prior to com-
pliance. By meeting pretreatment standards, the pretax profit would be
reduced to 1.27<:/lb and cash flow to 2.01c/lb. Compliance with zero-
discharge standards could cause pretax profits to be reduced to 1.02c/lb
and cash flow to 1.86c/lb. All other plants show past compliance profits
of at least 2.0c/lb.
Tables IV-22 and IV-23 show that the ratios of capital investment
for pretre^.:;ment or zero-discharge to annual cash flow would be in the
range of 8f| to 90 percent. For Plant 13, these percentages are 60 percent
for pretreatment and 100 percent for zero-discharge. For Plant 14, capital
requirements would be in the range of 70 to 80 percent. For Plant 5,
pollution abatement capital to annual cash flow would be in the range of
20-25 percent. For the copper shot producer (Plant 3), zero-discharge
capital requirements would be about 60 percent of annual cash flow.
From the above discussion, we can see that Plant 12 producing 170
tons per month of brass and bronze ingots would be impacted heavily in
terms of adverse effects of profits and capital requirements, and thus
would be a potential candidate for closure. Plant 13, which has a very
small production of only 25 tons per month, would also be heavily impacted
and could possibly close as well. It is to be noted that this plant,
besides brass and bronze ingots, is also involved in precious metals.
Plant 14 has significant pollution-abatement capital requirements (due to
emissions from phosphor copper production); i.e., 70 to 80 percent of one
year's cash flow. We do not believe that this plant is likely to close.
Plant 3 makes 35 tons of copper shot a month, and its capital requirements
for zero-discharge would be significant. However, this plant produces
other products such as secondary aluminum ingot, precious metals, bismuth,
and lead tin alloys. Here again, we believe closure as a result of pre-
treatment standards is unlikely.
For the unalloyed copper producer (Plant 5), pretax profits would
decrease 11-12 percent and cash flow decrease 7-8 percent as a result of
compliance with pretreatment and zero-discharge standards. Capital require-
ments would be 23 percent of annual cash flow for pretreatment and 27 per-
cent of annual cash flow for zero-discharge standards. Closure is not
anticipated. It is also to be noted that the POTW to which this plant dis-
charges its wastewater is likely to build a secondary treatment facility.
If that is done, it is likely that Plant 5 will not have to meet pretreatment
standards.
136
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c. Employment Effects
Our analysis indicates that two plants in the brass and bronze segment
would face potential closure. This translates to an employment loss of
20-30 people, around 1 percent of the industry's employment level.
d. Industry Growth
Theoretically, as a result of compliance, industry growth could be
curtailed. Reductions in growth could result from the following impact
effects:
1. Decreased profits (due to pretreatment-related costs) could
reduce the incentive for productive investment; and
2. Increased demands on investment funds (due to pretreatment-
related investments) could reduce the amount left.
The secondary copper industry baseline growth has been fairly stagnant
in the past, although we anticipate that secondary copper production will
pick up above 1975 levels. However, growth rates are likely to be low.
There is a potential for the closure of two plants, accounting for 200 tons/
month, or less than 1 per cent of the industry production. As the industry
has sufficient slack (operating at 60-65 percent of capacity), pretreatment
(or zero-discharge standards) are unlikely, to any great extent, to
contribute to any curbing of growth in the industry.
5. Resultant Effects on the Community
The two plants where there is a potential for closure are located on
urban sites, and 20-30 persons are involved. The community impacts are
not likely to be significant.
6. Balance-of-Payment Effects
The overall effect of pretreatment or zero discharge on the domestic
industry is small. Therefore, there is little likelihood that the impacts
would trickle over to affect trade and capital accounts of the balance of
payments posture.
7. Sensitivity Analysis
In this section, we have analyzed the effect of variations in certain
parameters such as pollution-abatement costs and the costs of smelting.
The pollution-abatement costs, as anticipated by the EPA, are applicable
to greenfield sites. We estimate that the capital costs can be 50-75 per-
cent higher, and operating costs 10-25 percent higher than those anticipated
by the EPA, because the treatment plant equipment will have to be retrofitted
137
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in many cases in crowded plants. Hence, we considered the effect of an
increase of 75 percent in capital costs and a 25 percent increase in
operating costs on impact parameters (Case 1).
The costs of production of brass and bronze ingot and unalloyed copper
are ADL estimates, based on models. We have checked our costs with a few
plants and we feel that the costs of processing scrap into ingots or cath-
odes (exclusive of scrap costs) are within + 10 percent, for the last quarter
of 1975. The effect on impact parameters of a + 10 percent variation in
the costs of processing is covered in Cases 2 and 3.
Tables IV-24 and IV-25 summarize the effect on impact parameters caused
by variations in pollution-abatement and production costs for brass and
bronze and unalloyed copper, respectively.
For segment 1, brass and bronze ingot-makers' compliance with pre-
treatment standards would result in maximum reductions in pretax profits
of 32-620 percent and cash flow from 15.9 to 57.9 percent. Pollution-
abatement investment as a percentage of annual cash flow, on the high
end, would range from 60 to 130 percent. The capital requirements for
this segment for compliance with pretreatment standards, would range from
$508,700 to $890,225.
Increasing production costs (exclusive of scrap) by 10 percent (Case 2)
would cause Plant 12 to show a loss of 0.12c/lb precompliance. The com-
pliance costs would be 0.81<:/lb, which would further increase the loss of
0.93c/lb (620 percent change in profits). Plant 13 shows a profit (Case 2)
of 0.52c/lb. Compliance costs of 0.53c/lb would result in the plant
(100 percent change in profits) breaking even. It is to be noted that the
impact on cash flow of these plants would be less severe, and that post-
compliance cash flow of these plants would be positive. This means that,
although immediate closure might not result, the potential would exist
that these plants might close.
Compliance with zero-discharge standards would result in maximum
reductions in profit of 33.5 to 150 percent and cash flows of 16.6 to
60 percent. Pollution-abatement investment as a percentage of cash flow
would range from 74.4 to 175.4 percent. The capital requirements for
achieving zero-discharge would range from $704,800 to $1,233,400.
For the unalloyed copper segment, the decrease in pretax profit due
to compliance with pretreatment standards would range from 7.9 to 16.3
percent, and cash flow decreases would range from 5.7 to 9.0 percent.
Pollution-abatement capital requirements as a percentage of annual cash
flow would vary between 18.6 to 39.9 percent. The capital requirements
for compliance with pretreatment standards would range from $547,500 to
$958,125.
Compliance with zero-discharge standards would result in a decrease
in pretax profits of 9.1-18.7 percent, and cash flow decreases would
range from 6.5-10.3 percent. Pollution-abatement capital requirement as
138
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TABLE IV-2A
SENSITIVITY OF IMPACT PARAMETERS TO POLLUTION
ABATEMENT AND PRODUCTION COSTS
SECONDARY COPPER: BRASS AND BRONZE (SEGMENT 1)
(Percent)
Base Case
Case 1
Case 2
Case 3
PRETREATMENT
Price Effects
Profitability
(a) Pretax Profits
(b) Cash Flow
Capital Requirements
& Availability
(a) Pollution Abatement
Investment/Annual
Cash Flow
(b) Total Pollution-
Abatement Investment
Price increase unlikely
1.0-67.9
0.8-21.6
1.2-84.9
1.0-26.9
1.3-62
1.0-57.9
0.8-32.2
0.7-15.9
3.1-81.3
508,700
5.5-142.2 4.1-13.0
890,225 508,700
2.4-60.2
508,700
ZERO DISCHARGE
Price Effects
Profitability
(a) Pretax Profits
(b) Cash Flow
Capital Requirements
& Availability
(a) Pollution Abatement
Investment/Annual
Cash Flow
(b) Total Pollution
Abatement Investment
Price increase unlikely
1.5-70.7
1.2-22.5
1.9-88.4
1.5-28.1
1.9-64.6
1.5-60
1.2-33.5
1.0-16.6
5.7-100.3 10.0-175.4 7.0-149.5 5.1-74.4
704,800 1,233,400
704,800
704,800
Note: Case 1 - Pollution Abatement Costs - Capital costs increased 75%;
operating cost increased 25%.
Case 2 - Production costs (exclusive of scrap) increased 10%.
Case 3 - Production costs (exclusive of scrap) decreased 10%.
139
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TABLE IV-25
SENSITIVITY OF IMPACT PARAMETER TO
POLLUTION ABATEMENT AND PRODUCTION COSTS
SECONDARY COPPER: UNALLOYED COPPER (SEGMENT 2)
(Percent)
Base Case Case 1
Case 2 Case 3
PRETREATMENT
Price Effects
Profitability
(a) Pretax Profits - %
change in pretax
(b) Cash Flow - % change
in cash flow
Capital Requirements^
& Availability
(a) Pollution-Abatement
Investment/Annual
Cash Flow (%)
(b) Total Pollution-
Abatement Investment
($)
Price increase unlikely
10.7
7.0
13.4
8.7
16 ..3
9..0
7.9
5.7
22.8
547,500
39.9
29.4
18.6
958,125 547,500 547,500
ZERO DISCHARGE
Price Effects
Profitability
(a) Pretax Profits
(b) Cash Flow
Capital Requirements
& Availability
(a) Pollution-Abatement
Investment/Annual
Cash Flow
(b) Total Pollution-
Abatement Investment
($)
Price increase unlikely
12.2
8.0
15.3
10.0
18.7
10.3
9.1
6.5
26.7
46.8
34.5
21.8
641,900 1,123,325 641,900 641,900
Note: Case 1 - Pollution Abatement Costs - Capital costs increased 75%;
operating cost increased 25%.
Case 2 - Production costs (exclusive of scrap) increased 10%.
Case 3 - Production costs (exclusive of scrap) decreased 10%.
140
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a percentage of annual cash flow would range from 21.8 to 46.8 percent.
The total capital requirements for achieving 7ero discharge would vary
between $641,900 and $1,123,325.
8. Limits of the Analysis
The main limitation of this analysis would be due to the use of a
modeling approach to quantify the impacts. Such an approach was necessi-
tated by the paucity of specific financial data on each plant modeling
will not predict the financial characteristics exactly for a particular
plant; however, it can allow for basic differences between plants and
provide reasonable estimates of financial characteristics against which
the impact of compliance can be assessed.
It should be emphasized that in our analysis we evaluated only those
impacts due to the proposed pretreatment standards.
The costs of compliance with pretreatment and zero-discharge standards
were provided by the EPA and are subject to all limitation of their cost
analysis.
*U.S. GOVERNMENT PRINTING OFFICE: 1977- 241-03725
141
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