United States
Environmental Protection
Agenc\
Air
Office Of Air Quality
Planning And Standards
Research Triangle Park. NC 27711
EPA-452/R-01-017
December 2001
FfNAL REPORT
Economic Impact Analysis
of the
Refractory Product
Manufacturing NESHAP
Final Report
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Economic Impact Analysis
of the
Refractory Product
Manufacturing NESHAP
^ Prepared by:
u U.S. Environmental Protection Agency
Office of Air and Radiation
Office of Air Quality Planning and Standards
53 Air Quality Strategies and Standards Division
Innovative Strategies and Economics Group
Research Triangle Park, N.C. 27711;
Document Number: EPA-452/R-01-017
Final Report
December 2001
U.S. Environmental Protection
Region 5, Library (PL-12J)
11 West Jackson Boulevard, 12th Ficwr
Chicago, II 60604-3590
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Disclaimer
This report is issued by the Air Quality Standards & Strategies Division of the Office of Air Quality
Planning and Standards of the U.S. Environmental Protection Agency (EPA). It presents technical data
on the economic impacts of the National Emission Standard for Hazardous Air Pollutants (NESHAP).
which is of interest to a limited number of readers. It should be read in conjunction with other
background information and reports prepared in support of the Refractory Product Manufacturing
NESHAP. Copies of this report and other material supporting the rule are in Docket A-2000-50 at the
U.S. EPA Air and Radiation Docket and Information Center located at 401 M St. S.W. Washington.
D.C. 20460 (room number Ml500). You may also contact the docket office by phone at (202)260-7549,
by fax at (202)260-4400. or by e-mail &\. The EPA may charge a
reasonable fee for copying. Copies are also available through the National Technical Information
Services, 5285 Port Royal Road. Springfield. VA 22161. Federal employees, current contractors and
grantees, and nonprofit organizations may obtain copies from the Library Services Office (MD-35), U.S.
Environmental Protection Agency. Research Triangle Park. NC 27711; phone (919) 541-2777.
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CONTENTS
Section Page
ES Executive Summary ES-1
1 Introduction and Executive Summary 1-1
1.1 Introduction 1-1
1.2 Organization of this Report 1-2
2 Industry Profile 2-1
2.1 The Supply Side 2-1
2.1.1 Production Process, Inputs, and Outputs 2-1
2.1.1.1 Machines Used in the Production Process 2-4
2.1.1.2 Final Commodities 2-8
2.1.1.3 Emissions and Controls in Refractor)
Manufacturing 2-10
2.1.1.4 Inputs to Production of Refractory Products 2-10
2.1.2 Types of Products 2-12
2.1.3 Costs of Production 2-12
2.1.3.1 Cost Data 2-12
2.2 Industry' Organization 2-13
2.2.1 Refractor, Manufacturing Facilities 2-17
2.2.1.1 Refractories Database Facilities 2-17
2.2.1.2 Facility Location 2-17
2.2.2 Capacity Utilization 2-25
2.2.3 Industry Concentration and Market Structure 2-27
2.2.3.1 Measures of Industry Concentration 2-28
2.2.3.2 Market Structure 2-29
2.2.3.3 Small Businesses that Own Refractor)7 Facilities .... 2-29
2.2.4 Current Trends in the Refractor)1 Industry 2-33
2.3 The Demand Side 2-34
2.3.1 Product Characteristics 2-34
in
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2.3.2 Uses and Consumers 2-34
2.3.3 Substitution Possibilities in Consumption 2-35
2.4 Markets 2-35
2.4.1 Market Data 2-37
2.4.1.1 Domestic Production 2-39
2.4.1.2 International Trade 2-39
2.4.2 Market Prices 2-39
2.4.3 Industry Trends 2-39
3 Engineering Cost Analysis 3-1
3.1 Overview of Emissions from Refractory Manufacturing 3-1
3.2 Compliance Cost Estimates 3-4
3.2.1 Emission Control Costs 3-4
3.2.2 Compliance Testing Costs 3-5
3.2.3 Monitoring. Recordkeeping. and Reporting Costs 3-5
3.2.4 Total Annualized Costs 3-6
4 Economic Impact Analysis: Methods and Results 4-1
4.1 Markets Affected by the Proposed NESHAP 4-1
4.2 Conceptual Approach 4-2
4.2.1 Producer Characterization 4-2
4.2.2 Consumer Characterization 4-2
4.2.3 Foreign Trade 4-3
4.2.4 Baseline and With-Regulation Equilibrium 4-5
4.3 Economic Impact Results 4-5
4.3.1 Market-Level Impacts 4-6
4.3.2 Industry-Level Impacts 4-6
4.3.2.1 Facility Closures and Changes in Emploxment .... 4-8
4.3.3 Social Cost 4-8
4.3.4 Full-Cost-Absorption Scenario 4-10
IV
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5 Small Business Impacts 5-1
5.1 Identify Small Entities 5-1
5.2 Economic Analysis 5-2
5.3 Assessment 5-3
References R-l
Appendix A: Overview of Refractories Market Model A-l
Appendix B: Economic Welfare Impacts on Refractory Industry B-l
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LIST OF FIGURES
Number Page
2-la Refractory Manufacturing Process Flow Diagram 2-2
2-lb Specific Production Processes 2-3
2-2 Mixing and Kneading Machines 2-5
2-3 Vacuum Press (Friction, Hydraulic Press) 2-6
2-4 Friction Press (A), and Hydraulic Screw Press (B) 2-6
2-5 Vibrating Press 2-6
2-6 Cross Section of CIP 2-6
2-7 Tunnel Kiln 2-7
2-8 Round Kiln with Downdraft 2-8
2-9 Shuttle Kiln 2-8
2-10 Clay and Nonclay Refractory Manufacturers' Expenditures 2-13
2-11 Location of Refractory Manufacturing Facilities 2-26
2-12 Historical Refractory Production Trends 2-38
4-1 Supply Curve for a Representative Directly Affected Facility 4-3
4-2 Market Equilibrium without and with Regulation 4-4
VI
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LIST OF TABLES
Number Page
2-1 Types and Descriptions of Refractories Produced 2-9
2-2 Types and Characteristics of Raw Materials used in Refractory
Manufacture Type 2-11
2-3 Labor. Material, and New Capital Expenditures for Clay Refractory
Manufacturers (NAICS 327124) ($106) 2-14
2-4 Labor. Material, and New Capital Expenditures for Nonclay Refractor}'
Manufacturers (NAICS 327125) ($106) 2-15
2-5 Costs of Materials Used in Refractory Production and Manufacture 2-16
2-6 Selected Refractory Manufacturers, by Type 2-18
2-7 Number of Refractory Manufacturing Facilities by State 2-25
2-8 Full Production Capacity Utilization Rates for Clay and Nonclay
Refractories: Fourth Quarters 1993 through 1998 2-27
2-9 Market Concentration Measures for SIC 3255 Clay Refractory
Manufacturing and SIC 3297 Nonclay Refractor)' Manufacturing 2-28
2-10 Characteristics of Small Businesses in the Refractor)' Industry 2-31
2-11 Characteristics and Types of Refractories 2-36
2-12 Steel and Nonferrous Production (103 Metric Tons) 2-38
2-13 Production of Refractories: 1977-1998 ($106) 2-40
2-14 Exports and Imports of Refractories: 1993-1999 ($106 1998) 2-41
2-15 Average Price for Refractory Products ($/ton) 2-41
3-1 Summary of Revised Annual Compliance Costs for Refractor)' Products
Manufacturing NESHAP 3-3
4-1 Market-Level Impacts: 1998 4-6
4-2 Industry-Level Impacts: 1998 4-7
4-3 Distributional Impacts Across Facilities: 1998 4-8
4-4 Distribution of Social Costs: 1998 4-10
5-1 Summary Statistics for SBREFA Screening Analysis: 1998 5-2
5-2 Small Business Impacts: 1998 5-3
vn
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LIST OF ACRONYMS
NESHAP - National Emission Standard for Hazardous Air Pollutants
CIP - Cold Isostatic Press
NAICS - North American Industrial Classification System
SBREFA - Small Business Regulatory Enforcement and Fairness Act
OAQPS - Office of Air Quality Planning and Standards
HAPs - Hazardous Air Pollutants
HC1 - Hydrochloric Acid
HF - Hydrogen Fluoride
POM - Polycyclic Organic Matter
CR4 - Four-firm Concentration Ratio
CR8 - Eight-firm Concentration Ratio
HHI - Herfmdahl-Hirschmann index
MACT - Maximum Achievable Control Technology
RCF - Refractory ceramic fibers
RFA - Regulatory Flexibility Act
Vlll
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EXECUTIVE SUMMARY
The U.S. Environmental Protection Agency's (EPA's) Office of Air Quality Planning
and Standards (OAQPS) is developing National Emission Standards for Hazardous Air
Pollutants (NESHAP) under Section 112 of the 1990 Clean Air Act for the refractory
manufacturing industry. This economic impact analysis (ElA) of the proposed NESHAP
for the refractory products manufacturing industry provides information about the estimated
costs and economic impacts of the proposed NESHAP. This section presents a summary of
the costs of complying with the proposed NESHAP and the estimated economic impacts
resulting from these costs.
ES.l Costs of Compliance
Out of 167 facilities producing refractory products, the Agency has identified eight
refractory manufacturing facilities as possible major sources of HAPs. Of these eight, five
are projected to incur emissions control costs to comply with the NESHAP and the other
three are projected to incur only recordkeeping costs. Four facilities are estimated to incur
costs to install emissions control capital equipment. Based on the model. EPA expects the
fifth facility will close its operation because the costs of control will exceed revenue. These
capital costs of control technology range from $383.000 to $1.3 million and total $3.5
million. The total annualized costs of the proposed NESHAP are $1.61 million, including
$497.000 in annualized capital costs; $718.000 in annual operating and maintenance costs for
emissions controls; and $166.100 in monitoring, recordkeeping. and reporting costs. Among
the facilities incurring costs, the total annualized costs range from $101.800 to $649.000 and
average $201.000 per facility.
ES.2 Estimated Economic Impacts of the Proposed Refractories NESHAP
EPA used a simulation model of the market for refractory products to estimate
impacts of the proposed NESHAP. including changes in market prices and quantities for
refractory products; changes in costs, revenues, profits, and output for refractory
manufacturers; and impacts on companies owning refractor}' manufacturing facilities,
including impacts on small businesses.
ES-1
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EPA estimates that the price for refractory products will increase by less than 1
percent, and the quantity of refractory products sold will decrease by less than 0.1 percent.
One refractory manufacturing facility is projected to become unprofitable and shut down
under the proposed rule unless it chooses to become a nonmajor sources by altering its
production processes. Overall, five facilities incurring emissions control compliance costs
are projected to become less profitable and reduce their output, while 157 facilities not
incurring costs or incurring only recordkeeping costs, are projected to become more
profitable and increase their output as a result of the proposed rule. As a result, the net effect
of the rule is to increase the industry's profit. Despite a single facility closure, output and
employment are projected to decline only slightly as a result of the rule, because the facilities
that do not incur compliance costs are projected to respond to the increased prices for
refractory products by increasing their output and employment. EPA estimates the social cost
of the proposed rule (computed as described in Appendix B) to be $1.35 million, including a
loss in consumer surplus of $1.99 million and a gain in producer surplus of $0.64 million.
For its analysis. EPA defined small businesses as those with 750 employees or fe\\er.
EPA estimates that 59 of the 80 companies owning refractor}' manufacturing facilities may be
small businesses. Only one of the facilities incurring compliance costs is owned by a small
business, audits costs are only 0.37 percent of its baseline sales. Thus, the Agency does not
project any significant adverse economic impacts for small businesses as a result of the
proposed rule.
ES-2
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SECTION 1
INTRODUCTION
1.1 Introduction
A refractor)' is a material that retains its shape and chemical identity when subjected
to high temperatures and is used in applications that require extreme resistance to heat.
Specifically, refractories must be able to withstand temperatures above 538°C (1,000°F).
Refractories are mechanically strong and heat resistant to withstand rapid temperature change
and corrosion and erosion by molten metal, glass, slag, and hot gas. Refractories are used in
kilns, furnaces, boilers, incinerators, and other applications.
Section 112 of the Clean Air Act lists 189 hazardous air pollutants (HAPs) and
requires EPA to develop a list of categories of industries that emit HAPs. Section 112 then
states that every major source of HAPs emissions will be required to reduce emission to
levels that are equivalent to the average of the top 12 percent of the best performance. The
Act defines major sources as those facilities that emit or have the potential to emit at least 10
tons per year of any single HAP or at least 25 tons per year of any combination of HAPs.
Refractor)' products manufacturing facilities have been identified as sources of several
HAPs. The specific types and quantities of HAPs emitted from any particular facility are
largely a function of the types of raw materials used and how those materials are processed.
Many processes are used to produce refractory products. These processes can emit phenol.
formaldehyde, methanol, and ethylene glycol. depending on the type of resin used. When
used as binders or additives in the production of nonresin-bonded refractory shapes, ethylene
glycol and methanol also are emitted from shape dryers and kilns. Pitch-bonded refractory
heated pitch storage tanks, shape dryers, and kilns emit polycyclic organic matter (POM).
The heated pitch storage tanks, shape preheaters. defumers, and coking ovens used to produce
pitch-impregnated refractories also emit POM. Nearly all process units that are used to
produce chromium refractor) products emit chromium, and a small percentage of the
chromium emitted from kilns that are used to fire chromium refractories is in the hexavalent
form of chromium (Cr^6). Hydrogen fluoride (HF) and hydrochloric acid (HC1) are emitted
from kilns that are used to fire clay refractor)' products. Exposure to these substances has
been demonstrated to cause adverse health effects such as irritation of lung. skin, and mucous
membranes: effects on the central nervous system; and damage to the liver, kidneys, and
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skeleton. Formaldehyde and POM have also been listed as probable human carcinogens.
EPA estimates that, of 167 refractory manufacturing facilities currently in operation, eight
facilities may be major sources of HAPs. The Agency estimates that five of the eight major
sources of HAPs will incur incremental costs to comply with the proposed NESHAP.
Emissions are treated as a free good but have a cost to society. These externalities
include emission effects on humans and ecosystems. The major sources of HAPs in the
refractory products industry that incur costs to reduce emissions will face economic
consequences. The economic impacts to these five facilities will also affect the prices and
quantities of refractories in the industry's market. This report evaluates the economic
impacts associated with the NESHAP and reports estimated changes in price, production.
profitability of facilities, and impacts to sensitive subsectors of the market, such as small
businesses, foreign trade, and tribal communities.
1.2 Organization of this Report
This EIA report is organized as follows. Section 2 provides a detailed description of
the production process for refractories, with discussion of individual refractor,' products.
inputs, costs of production, demand, industry organization, and market structure for the
refractories industry. Section 3 describes the estimated costs of complying with the proposed
NESHAP. Section 4 discusses the economic impact analysis methodology and presents the
results of the analysis. Section 5 presents the results of analyses to assess the impacts of the
proposed NESHAP on small businesses.
1-2
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SECTION 2
INDUSTRY PROFILE
In this section, we provide a summary profile of the refractory products industry in
the United States, including the technical and economic aspects of the industry that must be
addressed in the economic impact analysis. Section 2.1 provides an overview of the
production processes and the resulting types of refractory products. Section 2.2 summarizes
the organization of the U.S. coke industry, including a description of U.S. manufacturing
plants, the companies that own these plants, and the markets for refractory products. Finally.
Section 2.3 presents historical data on the refractory product industry, including U.S.
production and consumption and foreign trade.
2.1 The Supply Side
Estimating the economic impacts associated with the options to regulate the
refractory manufacturing industry requires characterizing the industry. This section
describes the production process and inputs to and outputs of this process. In addition.
characterizing the supply side of the industry involves describing various types of refractory
products, by-products, and input substitution possibilities. This section describes costs of
production and economies of scale.
2.1.1 Production Process, Inputs, and Outputs
The manufacturing process for refractories depends on the particular combination of
chemical compounds and minerals used to produce a specified level of thermal stability,
corrosion resistance, thermal expansion, and other qualities. Refractory manufacturing
involves four processes: raw material processing, forming, firing, and final processing.
Figure 2-la illustrates the basic refractor}' manufacturing process, and Figure 2-lb depicts
specific production processes for various refractor) products. The production of refractories
begins with processing raw material. Raw material processing involves crushing and
grinding raw materials, classifying by size, calcining, and drying. The processed raw
materials may then be dry-mixed with other minerals and chemical compounds, packaged.
and shipped as product.
2-1
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©
TRANSPORTING
Cl)
A
© PM LM1SSIONS
© (i \Sh()l;S EMISSIONS
STORAGE
CO
WLATHERING
(OPTIONAL >
© ©
CRUSHING/
GRINDING
(SCC V05-005-02)
©
SCREENING'1
CLASSIFYING
©
STORAGE
- ->
MIXING
K)KMING
©
©
DRYING
(SCC 3-C5-005-01. -OS
© ©
* 4
1 l
FIRING
(SCC 3-OV005-07. -09)i
CALCINING'
DRYING
(SC'C 3-05-005-02)
(OPTIONAL)
©
©
DRY-MIXING/
BLENDING
PACKAGING
(OPTIONAL)
©
©
COOLING
MILLING
FINISHING
SHiPNN'.
Figure 2-1 a. Refractory Manufacturing Process Flow Diagram
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GTCl
-t
n Raw Materials
p- |
4? Mixing >
rD
5s
Bulk Graphite Graphite
Graphite Refractories Refractories
t !
Graphite J Graphite |
anufacturng H Refractories I
Vlach ning > Purification
^ .1.1 1
o -.,.,[ Unformed/Monohthics/ Reformed | ! Refractory Ceramic | .-, „. . .
;r Castables i Fiber Blankets
B< ,-, ., ^ Specialties Refractories Fiber ^ _ , ,- ,
e Ramming Mixes , • j ,x ,, j i % /n^i-% Formed Fiber
n „ , (clay and non-clay) I (clay and non-clay) (RCF) ... , .
2. Cements v J v y v y Products
5*
"0 T
® Organic-Bonded
t*>
^ - ^ > f ^ ^
UJ [ Resin-Bonded Pitch-Bonded [ Other Organic:
V , J \ j \
|
Bricks & < Curing Drying >• "c S Drying
1
Tubes V T y
S//de gates .- ._ Bricks & ,-
„ , . •< Firing Firing >• ;,, Firing
Sr/c/ } Dr>in9 ^Snapes
V
. Bricks & .- ^ Bricks &
^ 01. Firing >• _,
Shapes Shapes
Bricks &
Shapes
Shapes I
^ ' -x Process Operatic
Pitch-Impregnated
Refractory Classt
^ Impregnation
!
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Bricks &
Shapes
Products
( Fused-Cast J
i
.... . Bricks &
Meltlng > Shapes
ns
- C )
Bricks & Shapes
Slide gates
Other Shapes
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Following the mixing process, the raw materials are formed into desired shapes.
Liquids are added to the dry raw materials to facilitate adhesion in the pressing/forming
phase. After the refractor)7 is formed, the material is fired. Firing involves heating the
refractory7 material to high temperatures in a periodic batch or continuous tunnel kiln to form
a ceramic bond. This process gives the raw materials their refractory properties. The final
processing stage includes milling, grinding, and sandblasting the finished product. For some
products, final processing may also include impregnation with tar and pitch and product
packaging (EPA. 1994 and The Technical Association of Refractories, Japan. 1998).
2. /. 1.1 Machines Used in the Production Process
Several types of machines are used to produce refractories: mixing/kneading
machines, presses, and kilns.
Mixing/Kneading Machines. Figure 2-2 illustrates different machines used to mix or
knead refractor)' products. There are two types of mixing and kneading machines: fixed
vessel and driven vessel. Mixing homogenizes more than two types of bulk materials, and
kneading machines make a uniform coating layer. Mixing and kneading machines are
equipped with mixing blades or muller wheels. Heating, cooling, or de-airing equipment
may also be applied to the vessel. Mixing and kneading machines are used for
manufacturing shaped and unshaped refractories. Unshaped refractories, however, are not
processed any further (The Technical Association of Refractories. Japan, 1998).
Presses. Refractory pressing machines are broadly categorized into three groups:
impact and static, vibrating, and cold isostatic press. Choosing between the three groups of
presses largely depends on the type of raw materials used.
• Impact and Static Presses: Figure 2-3 illustrates a friction and a hydraulic scre\\
press, two types of impact presses. Figure 2-4 is a diagram of a hydraulic scre\\
press, a type of static press. Impact and static presses are typical!) equipped \\ith
a vacuum deaerator. Impact presses have a higher allowable maximum
compacting force than static presses. However, static presses are finding
increasing application in the production of sophisticated refractories such as
submerged nozzles and shrouds and in the production of industrial ceramics.
Bricks formed with static presses are flat, uniform, and compact (The Technical
Association of Refractories. Japan. 1998).
2-4
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Vibrating Press: Vibrating presses, shown in Figure 2-5. are classified into two
OMNI
PADDLF
NAUTA
PRESSURE and
MiGH-SPECD
> HENSCHEL
f SPFFD
'.- KONER
VGffl EX
12 V TYPF
•i CONCRFTF
' WET PAN
LJ £±>
I
Figure 2-2. Mixing and Kneading Machines
types: air cylinder type and hydraulic cylinder. The vibrator in the air cylinder
type is attached to the table, and the air cylinder compacts the material. The
hydraulic vibrating press is constructed with the hydraulic pulse generator
attached to the pressure block, and the hydraulic cylinder compacts the material.
Vibrating presses are typically used for the compaction of complexly shaped
refractories (The Technical Association of Refractories. Japan. 1998).
Cold Isostatic Press (CIP): A CIP. illustrated in Figure 2-6. is a molding device
that provides homogeneous hydrostatic pressure over the entire surface of a
rubber mold filled with powder. This method, also referred to as a hydrostatic
press or a
2-5
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v.
Metal mold
-De-ainng \ vacuum chamber
V
Flywheel
DiskpUl"
Hydraulic cylinde
Screw snc*r
Meta! rvj d
I A}
(Bi
Figure 2-3. Vacuum Press
(Friction, Hydraulic Press)
Figure 2-4. Friction Press (A), and Hydraulic
Screw Press (B)
Air cylinder
Eccentric rotor
1
J
^
T"^
-
-
* > i
\ •
uowder
"• - ,1
'
-
r-'
irr-
' I
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J Medium ot pressure t
j Rubber mold
! made by rubber
j Under cover L
-
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-
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— '
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FC
—
—
il-J
H
I High pressure ve&sei
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Figure 2-5. Vibrating Press Figure 2-6. Cross Section of CIP
2-6
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rubber press method, is a materials processing technique in which fluid pressure
is applied to a powder part at ambient temperature to compact it into a
predetermined shape. The powder part is consolidated into a dense compacted
shape. Water or oil is usually used as the presser medium. CIPs are based on
either the wet bag method, where the mold is placed in pressurized liquid, or the
dry bag method, in which the mold does not touch the pressurized liquid. High
pressurized molding provides uniform density, which leads to a reduction of
internal stresses; the elimination of cracks, strains, and laminations; the ability to
make complex shapes; and the ability to press more than one shape at the same
time (The Technical Association of Refractories, Japan, 1998).
Kilns. Refractories are fired to develop the materials' refractory properties. The
unfired ("green"') refractories pass through a heat treatment, which results in a thermally
stable refractory and or crystallization. The industry uses three types of kilns:
• Tunnel Kiln: In a tunnel kiln, refractory products consecutively pass through
preheating, firing, and cooling zones (see Figure 2-7). The combustion gas from
the firing zone is typically used to preheat the refractories. Heat can be recovered
from cooling fired refractories and reused as combustion air. Approximately 80
percent of shaped refractories are fired in tunnel kilns (The Technical Association
of Refractories, Japan. 1998).
,~, Double
1_> ceiling
Indirect Flame System
Figure 2-7. Tunnel Kiln
Top Combustion System
Side Combustion System
Round Periodic Kilns: Round periodic kilns are typically used to fire silica
bricks. Figure 2-8 is a diagram of a round periodic kiln. These kilns can be used
to fire large refractor}" products that cannot be fired in a tunnel kiln and can easily
accommodate changes in production (The Technical Association of Refractories.
Japan. 1998).
Shuttle Kilns: As illustrated in Figure 2-9. the design of a shuttle kiln resembles
the firins zone of a tunnel kiln. Shuttle kilns effectively store heat and are used to
2-7
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fire fireclay and specialty bricks (The Technical Association of Refractories.
Japan. 1998).
Exhaust gas vent
Figure 2-8. Round Kiln with Downdraft
System
Figure 2-9. Shuttle Kiln
2.7.7.2 Final Commodities
Refractories are manufactured in two forms—shaped objects and unshaped. and
unshaped refractories come in granulated or plastic compositions. Briefly described here.
shaped and unshaped refractories are the two broad categories of refractories. Section 2.2
contains more information on the types of refractory products.
Shaped Refractories. Preshaped refractories include bricks, shapes, and crucibles.
Shaped refractories are pre-fired to exhibit their ceramic characteristics. Table 2-1 lists each
type of shaped refractory and a description of its use.
Unshaped Refractories. The unshaped products include mortars, gunning mixes.
castables (refractor)7 concrete), ramming mixes, and plastics. Unshaped refractories are often
referred to as "monolithics." The manufacture of unshaped refractories differs slightly from
shaped refractories. Unshaped refractories typically do not go through a firing process until
they reach the final consumer. These unshaped refractories can be installed by spraying.
casting, molding, or ramming. Table 2-1 lists each type of refractory and a description of its
use.
2-8
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Table 2-1. Types and Descriptions of Refractories Produced
Kind
Definition
Shaped Refractories
Bricks
Refractories that have shapes and are used to line furnaces, kilns, glass tanks.
incinerators, etc.
Insulating firebrick
Low thermal conductivity firebrick.
Unshaped Refractories
(Monolithic)
Mortar
Castables
Plastics
Materials for bonding bricks in a lining. The three types of mortar—heat-setting.
air-setting, and hydraulic-setting—have different setting mechanisms.
Refractories for which raw materials and hydraulic-setting cement are mixed. They
are formed by casting and used to line furnaces, kilns, etc.
Refractories in which raw materials and plastic materials are mixed with water.
Plastic refractories are rouahlv formed, sometimes with chemical additives.
Gunning mixes
Rammine mixes
Refractories that are sprayed on the surface by a gun.
Granular refractories that are strengthened by gunning formulation of a ceramic
bond after heating. Ramming mixes have less plasticity and are installed by an air
rammer.
Slinger mixes
Patching materials/
coatina materials
Refractories installed by a slinger machine.
Refractories with properties similar to refractor) mortar. However, patching
materials have controlled grain size for easy patching or coating.
Lightweight castables Refractories in which porous lightweight materials and hydraulic cement are mixed.
They are mixed with water and formed by casting Lightweight castables are used
to line furnaces, kilns, etc
Fibrous Materials
Ceramic fiber Man-made fibous refractors materials. There are several different types of ceramic
fiber, including blanket, felt, module, vacuum form. rope, loose fiber, etc.
Source: The Technical Association of Refractories. Japan. 1998. Refractories Handbook. Tokyo: The
Technical Association of Refractories. Japan.
2-9
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2.1.1.3 Emissions and Controls in Refractory Manufacturing
Refractory products manufacturing facilities are sources of several HAPs. At most
refractor)' product manufacturing facilities, the primary sources of HAP emissions are the
thermal process units, such as dryers, curing ovens, and kilns. The specific types and
quantities of HAPs emitted from any particular facility are largely a function of the types of
raw materials used and how those materials are processed. Among others, thermal process
units used to produce resin-bonded, pitch-bonded, and pitch-impregnated bricks and shapes
may be sources of HAP emissions. Resin-bonded refractory curing ovens and kilns can emit
phenol, formaldehyde, methanol, and ethylene glycol, depending on the type of resin used.
When used as binders or additives in the production of nonresin-bonded refractory shapes.
ethylene glycol and methanol also are emitted from shape dryers and kilns. Pitch-bonded
refractory heated pitch storage tanks, shape dryers, and kilns emit POM. The heated pitch
storage tanks, shape preheaters, defumers, and coking ovens used to produce pitch-
impregnated refractories also emit POM. Nearly all process units that are used to produce
chromium refractor)' products emit chromium, and a small percentage of the chromium
emitted from kilns that are used to fire chromium refractories is in the hexavalent form of
chromium (Cr*6). HF and HC1 are emitted from kilns that are used to fire cla) refractory
products.
2.1.1.4 Inputs to Production of Refractory Products
The inputs in the production process for refractories include general inputs, such as
labor, capital, and raw materials such as clay and nonclay materials. Two specific raw
material inputs are discussed below.
Clays. Clay is composed mainly of fine particles of hydrous aluminum silicates and
other minerals and is plastic when moist but hard when fired. In 1998. approximate!} 3.09
million tons (Mt) of clays were used in the manufacture of refractories. Table 2-2 lists
different clays used in refractory products and their characteristics. Firecla} is the
predominant clay used in firebrick; bentonite. in foundry sand: common clay, in refractor)
mortar and cement; and kaolin, in calcine, grog, high alumina brick, kiln furniture, and plug.
tap. and wad (Virta. 1998).
2-10
-------
Table 2-2. Types and Characteristics of Raw Materials used in Refractory
Manufacture Type
Type
Characteristics
Clay Refractories
Fireclay
Consists of kaolinite (Al,O,2SiO;2H:O) and minor amount of other clay
materials. Fireclay refractories can be low, medium, high, or super-duty based
on their resistance to high temperature or refractoriness. Fireclay refractories are
used to produce bricks, insulating refractories, and two types of ladle brick.
High-alumina Composed of bauxite or other raw materials that contain 50 to 87.5 percent
alumina. High-alumina refractories are generally multipurpose, offering
resistance to chipping and higher volume stability. High-alumina refractories are
used to produce brick and insulating refractories.
Nonclay Refractories
Basic Produced from a composition of dead-burned magnesite. dolomite, chrome ore.
and small amounts of other minerals. Basic refractories can be further
subdivided into magnesia, dolomite, chrome, and combination bricks. Basic
refractories are typically used to line kilns used to make bricks.
Extra-hish alumina
Mullite
Silica
Silicon carbide
Zircon
Made predominately from bauxite or alumina (A12O,). extra-high alumina
refractories contain from 87.5 to 100 percent alumina and offer good volume
stability. The\ are typically poured into special shapes using a fused casting
process.
Made from kyanite. sillimanite. andalusite. bauxite, or mixtures of alumina
silicate materials; mullite refractories are about 70% alumina. They maintain a
lo\\ level of impurities and high resistance to loading in high temperatur.es.
Silica refractories are characterized by a high coefficient of thermal expansion
between room temperature and 500°C (930CF). Silica brick is available in three
arades: super-duty (low alumina and alkali), regular, and coke oven quality.
Silica compositions can be used for hot patching, shrouds, and bricks.
Produced by the reaction of sand and coke in an electric furnace, silicon carbide
refractories are used to make special shapes, such as kiln furniture, to support
ceramicware as it is fired in kilns. It has high thermal conductivity, good load
bearing characteristics at high temperatures, and good resistance to changes in
temperatures.
Containing siconium silicate (ZrO,SiO:). zircon refractories maintain good
volume stability for extended periods or exposure to high temperatures. Zircon
refractories are wideK used for alass tank construction.
2-11
-------
Nonclays. Nonclay refractories are composed for alumina, mullite. chromite.
magnesite, silica, silicon carbide, zircon, and other nonclays. Table 2-2 lists various
minerals used in the production of nonclay refractories, the type of refractory produced, and
characteristics of the refractory.
2.7.2 Types of Products
Table 2-1 listed the different forms of refractories and describes them briefly.
Refractories are generally categorized as either clay or nonclay products. To further classify
the products, refractories are labeled as acidic or basic. Refractories are typically produced
as shaped refractories, unshaped refractories, and fibrous materials. Shaped refractories
include bricks, shapes, and crucibles. Bricks and shapes are formed by mixing raw materials
with water and/or other binders and pressing or molding the mixture into a desired shape.'
Crucibles are ceramic containers used for melting metal. Unshaped refractories, also called
monolithics, are unformed products that are dried to form a unified structure after
application. These refractories can be used as mortars, plastics, ramming mixes, castables.
and gunning mixes. Monolithic refractories are applied by either pouring, pumping.
troweling, or gunning (spraying).
2.1.3 Costs of Production
In the production process, the costs incurred by refractory manufacturers include
labor, materials, and capital. This section provides data on these costs and discusses
economies of scale.
2.1.3.1 Cost Data
Between 1994 and 1998, on average clay refractory manufacturers spent more than
70 percent of expenditures on input materials and nonclay refractory producers spent almost
64 percent. Figure 2-10 illustrates the percentage breakdown of refractor}' manufacturing
expenditures by refractory type. Tables 2-3 and 2-4 also provide expenditure.^ in dollars for
wages, materials, and new capital from 1977 to 1998 in both current and 1997 dollars. Costi
of materials include all raw materials, containers, scrap, and supplies used in production.
repair, or maintenance during the year, as well as the cost of all electricity and fuel
consumed. Costs are included for materials whether they are purchased from outside the
Refractor}.' bricks and shapes can be formed by a variety of methods, including hand molding, air ramming.
pressing, extruding, or casting.
2-12
-------
New Capital
3%
Materials
70%
Average Percentage
(1994-1998)
Wages
27%
New Capital
6%
Materials
64%
Wages
30%
(a) Clay Refractory
Manufacturers' Expenditures
(b) Nonclay Refractory
Manufacturers' Expenditures
Figure 2-10. Clay and Nonclay Refractory Manufacturers' Expenditures
company or transferred from within the company. New capital expenditures include
permanent additions and alterations to facilities and machinery and equipment used for
expanding plant capacity or replacing existing machinery.
These tables show that the cost of materials is by far the greatest cost to refractor)'
producers. Refractory producers spend as much as two and a half times more on materials
than they do on labor. For 1998. the Annual Survey of Manufactures reported that the clay
refractory industry spent $31.6 million and the nonclay refractor)' industry spent $52.7
million on energy, almost 6 and 8 percent, respectively, of the total materials cost for that
year. Energy costs for manufacturers of refractory bricks and shapes are generally greater
than energy costs for manufacturers of monolithic refractories because of the energy-
intensive nature of operations that require using forming equipment, curing ovens, shape and
cooking ovens, pitch and brick pre-heaters. dryers, and kilns. Table 2-5 contains a more
detailed breakdown of the costs of materials used in producing and manufacturing refractory
materials.
2.2 Industry Organization
This section examines the organization of the U.S. refractory industry, including
plant location and production characteristics, commercial and captive producers, firm
characteristics.
2-13
-------
Table 2-3. Labor, Material, and New Capital Expenditures for Clay Refractorv
Manufacturers (NAICS 327124)" (S106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Wages
Current
146.8
171.8
191.5
183.6
1996
1552
147.1
1766
166.8
1604
150.2
160.0
176.7
168.8
1660
1838
1639
1790
199.0
196.4
2100
201 8
1997$
224.30
254.08
273.16
253.02
266.09
20468
191 19
226.17
211.69
20268
18805
19346
207.39
19628
191.22
19657
180.42
191 44
20537
200.88
210.42
201 80
Materials
Current
296.8
364.6
384.7
363 1
4106
339.0
3585
4382
397.5
4126
3875
401 7
451.3
4753
4648
4528
3770
4940
5103
5107
5660
5365
1997
453.48
539.21
54874
500.39
54737
447.07
46594
561 20
504.47
521 36
485 15
485.70
529.69
552 68
53540
484.27
4 1 5 00
528 33
526 63
52234
567 13
53650
New
Current
200
23 1
29.4
31 5
36 1
21 2
120
220
22 1
158
11 7
140
11 9
152
185
24.6
72
165
166
186
30 1
256
Capital
1997
3056
34 16
41.94
4341
48 12
2796
15.60
28 18
28 05
1 9 96
1465
1693
1397
1767
21.31
2631
793
17 65
17 13
1902
30 16
2560
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics 2001
.
Sources US Department of Commerce. Bureau of the Census. 1994b. 1992 Census of Manufacturer
Series—Cement and Structural Cla\ Products Washington. DC Government Printing Office
US Department of Commerce. Bureau of the Census 1995 1993 Annual Sui-\-e\ oj \laniitiicnnt/e.<>
M96(AS)-1 Washington. DC Government Printing Office
U S Department of Commerce. Bureau of the Census I999b 1997 Census of Manufacturer Indian \
Series- Manufacturing Ckn Refractory Manufacturing Washington. DC. Government Printing Office-
US Department of Commerce. Bureau of the Census 2000 1998 Annual Sitrve\ of Manuluawer
M98(AS)-1 Washington. DC Government Printing Office
2-14
-------
Table 2-4. Labor, Material, and New Capital Expenditures for Nonclay Refractory
Manufacturers (NAICS 327125)" ($106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Wages
Current
1343
162.7
172.5
177.4
196.5
1484
1295
1475
1520
1627
2025
209.6
2326
2399
241.3
2492
2793
247.6
2749
2786
2884
307.1
1997
205.20
24062
246.05
24447
261 95
19571
168.31
18890
192.90
205.59
253 53
25343
27300
27896
27795
26652
307 45
26481
283.70
28495
28898
307 10
Materials
Current
3364
4349
4346
4823
4847
3433
3128
347 1
3692
372 1
4435
4707
480.4
499.0
5006
541 4
5788
5625
588 3
5740
621 3
6509
1997
513.99
643 17
619.91
66466
646 15
452 74
406.55
444.53
468.55
470.19
555 26
569.12
563.85
58024
57664
579 03
637.14
601 59
607 13
587 09
622 54
650.90
New
Current
37.1
43.1
24.4
472
697
485
208
247
32.5
13 7
163
180
363
303
265
449
625
41 1
35.9
42.7
888
968
Capital
1997
5669
63.74
34.80
65.05
92.92
63.96
27.03
31 63
41.25
17.31
2041
21 76
42.61
35.23
30.53
4802
6880
4396
37.05
4367
8898
96.80
/ 993 Annual Si/rve\ of Manufactures
199-1 Annual Sun'e\ of Manufacture?
a Prices \\ere deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001
Sources US Department of Commerce. Bureau of the Census 1994a 1992 Census ofManufactures, Industry
Series—Abrasive. Asbestos and Miscellaneous Mineral Products Washington. DC Go\ eminent Printing
Office
US Department of Commerce. Bureau of the Census 1995
M93(AS)-1 \\ashington. DC Government Printing Office
US Department of Commerce. Bureau of the Census 1996a
M94(AS)-1 Washington. DC: Government Printing Office
U S Department of Commerce. Bureau of the Census 1997. 1995 Annual Survey of Manufactures
M95(AS)-1 Washington. DC. Go\eminent Printing Office
US Department of Commerce. Bureau of the Census 1998. 1996 Annual Survey of Manufactures
M96(AS)-1 Washington. DC Go\ernment Printing Office
U S Department of Commerce. Bureau of the Census 1999e 199' Census o/~ Manufactures. Industry
Series -Manufacturing \onclay Refractory Manufacturing Washington. DC Government Printing Office.
U S Department of Commerce. Bureau of the Census 2000. 1998 Annual Simev of Manufactures
M98(AS)-1. Washington. DC Government Printing Office
2-15
-------
Table 2-5. Costs of Materials Used in Refractory Production and Manufacture*1
Material
Clay NA1CS 327124
Materials, ingredients, containers.
and supplies
Clay, ceramic, and refractor)1
minerals
Dead-burned magnesia or
magnesite
Refractories, clay or nonclav
Other stone, clay, glass, and
concrete products
Industrial chemicals
All other materials and
components, parts, containers,
and supplies
Nonclay NAICS 327125
Materials, ingredients, containers.
and supplies
Clay, ceramic, and refractory
minerals
Dead-burned magnesia or
magnesite
Refractories, clay or none lay
Other stone, clay, glass, and
concrete products
Industrial chemicals
All other materials and
components, parts, containers.
and supplies
1997
Delivered Cost Percentage of
(S106) Material Costs
35.2
284
6.9
90.8
4.4
6.5
65.1
50.4
224.2
38.7
NA
NA
21.4
73.9
6.22
50.18
1.22
16.04
0.78
1.15
11.50
8.11
36.09
6.23
NA
NA
3.44
11.89
Delivered
(S106
26
209
8.
79.
5.
2.
76.
65.
156.
59.
65.
NA
21.
75.
1992
Cost Percentage of
) Material Costs
7 6.55
51.26
4 2.05
6 1952
2 1.28
2 053
8 1883
4 11.12
2 26 58
1 10.05
6 11.16
NA
1 3.58
3 1282
NA = Not available.
a Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics 200 I
Source: U.S. Department of Commerce. Bureau of the Census. 1999b. 199? Census of \lu>nini<.tiii\'\.
Series—Manufacturing Clay Refractory Manufacturing. Washington. DC: Government Printin
Office.
2-16
-------
market structure, and degree of integration. Understanding the industry's organization helps
determine how it will be affected by complying with the refractor}' production NESHAP.
2.2.1 Refractory Man ufacturing Facilities
A facility is a site of land with a plant and equipment that combine inputs (mineral
products, organic and inorganic liquids, fuel and labor) to produce an output (refractory
products). Companies that own these facilities are legal business entities that conduct
transactions and make decisions that affect the facility. The terms "facility."
"establishment." and "plant" are synonymous in this analysis and refer to the physical
location where products are manufactured. Likewise, the terms "company" and "firm" are
used interchangeably to refer to the legal business entity that owns one or more facilities.
This section presents information on the companies that own refractory plants.
2.2.1.1 Refractories Database Facilities
Table 2-6 presents a list of 118 of the 167 refractory manufacturers obtained from a
publicly available financial database, including the location of the facility, its estimated sales
volume in millions of dollars, and its employment. This list includes many of the facilities
potentially affected by the refractory products NESHAP, but does not correspond precisely
with the set of facilities EPA believes may be affected, because data on those facilities were
provided to EPA in confidential questionnaire responses. EPA's data indicate that the United
States has 167 refractor)' manufacturing facilities.
2.2.1.2 Facility Location
Census data indicate that refractory materials are produced in 37 states. Table 2-7
lists the number of refractor)' facilities in the 50 states and Puerto Rico, based on the Census
of Manufactures. The leading refractory-producing states are Pennsylvania and Ohio, which
also contain a large number of steel mills. Figure 2-11 illustrates the distribution of the
refractory-producing facilities in the United States, together with the location of plants in the
industries that are the major consumers of refractory products. States with a large number of
refractor)' plants typically also have substantial numbers of iron and steel, cement, and/or
nonferrous metal plants, indicating that refractory plant location may depend at least in part
on customer location. This is likely to be particularly true for unfired shaped refractories.
because (they have not undergone firing) and are somewhat fragile and thus difficult to
transport successfully.
2-17
-------
Table 2-6. Selected Refractory Manufacturers, by Type
NJ
Company
Clay
Able Supply Co
Alse\ Refractories Co
B&B Refractories. Inc.
Bay Slate Crucible Co
Bloom [Engineering Co . Inc
UN/ Materials. Inc
Carpenter TEPCi Certech, Inc
Carpenter 1 echnologv Corp
C'eradyne. Inc.
Ceriech. Inc
C'l B Industries. Inc.
Christy Refractones Co
LLC
Clay City Pipe
Coopcrheal-MOS. Inc
1 ,R Advanced Ceramics. Inc
1 .rmliart Glass
Manufacturing. Inc
T'cls Refractones. Inc
Lerro Corp
1 icepoii Area 1 ntci prises
IlK
1 Kvpoit Buck ( ,i
Location
Houston. IX
Alsey. IL
Santa I'e Springs. CA
1 auton. MA
Pittsburgh. PA
Littleton. CO
WilkesBarre. PA
Reading. PA
C'osla Mesa. C'A
Wood Ridge. Nl
Chicago. II,
St Louis. MO
Uhnchsville. Oil
Houston. TX
1 East Palestine. Oil
Ouensville. N.I
Ldisou. Nl
Cleveland. Oil
I recpoit. PA
( icighion. PA
Sales($I06)
NA
10 to 20
2.5
to 5
5 to 10
38
25
14
1.000
26
62
23
14
14
120
NA
NA
1 to 2 5
331
10
NA
Employment
NA
20 to 49
10 to 19
20 to 49
187
150
150
5.324
300
758
176
80
200
1.200
NA
NA
NA
6.693
150
NA
Company Sales
Type Owning Company ($10'') Employment
NA NA NA NA
Private
Private
Private
Subsidiary Sterling Industries PLC. NA NA
[•England
Private
Subsidiary Carpenter 'Technology Corp 1.000 5.324
Public
Private
Subsidiary Carpenter Technology Corp 1.000 5.324
Private
I'm ate
Private
Private
NA NA NA NA
NA NA NA NA
Private
Public
Private
NA NA NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Clay (continued)
Cilobal Industrial
1 technologies. Inc
(ireen AP Refractories. Inc
1 larbison- Walker
Refractories Co
I leater Specialists. Inc
1 lolland Manufacturing
Corp
I lo\vmel Corp.
Industrial Ceramic Products.
Inc
Industrial Product
International
Inland I'.nterprisc. Inc
Insul C'o . Inc
International Chimney Corp
I.ousmlle Firebrick Works
Martin Marietta Magnesia
Specialties. Inc
Maryland Refractories C'o
Mono Ceramics. Inc
Morganite Crucible. Inc
Ml Savage I'irebiick C'o
National Refractories &
Minerals Corp
Ncu C'astle Refractories
Location
Dallas. IX
Mexico. MO
Pittsburgh. PA
fulsa. OK
Dollon. II,
Whitehall. Ml
Columbus. Oil
Fnglewood. C'O
Avon. Oil
I'.ast Palestine. Oil
Wilhamsville. NY
(irahm. KY
Raleigh. NC
hondale. Oil
Benton Harbor. Ml
North Haven. CI
1 roslburg. MD
l.nermore. C'A
Massillon. Oil
Sales ($10'')
142
25
263
17
2 5
to 5
1.300
NA
1 to 2 5
14
15
18
NA
1 to 2 5
11
15
NA
115
14
Employment
4.262
300
1 .6 1 5
160
20 to 49
10.350
NA
5 to 9
100
77
140
NA
NA
45
75
NA
600
122
Company
Type
Public
Subsidiary
Subsidiary
Private
NA
Subsidiary
NA
Private
Private
Private
Private
NA
Subsidiary
Private
Subsidiary
Subsidiary
NA
Subsidiary
Subsidiary
Owning Company
RIII AC;
RIII AC;
NA
Cordanl 1 ethnologies. Inc
NA
NA
Martin Marietta Materials.
Inc.
Monocon International
Refractories. Kngland
Morgan Crucible C'o. PI.C.
I'ngland
NA
National Refractory Holding
C'o . Inc.
Dixon Ticonderoga
Sales
($10")
1.580
1.580
NA
2.513
NA
NA
1 .057
NA
1.394
NA
NA
115
Employment
14.500
14.500
NA
17.200
NA
NA
570
NA
16.885
NA
810
1.354
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Clay (continued)
North America Refractories
Co
P-G Industries. Inc
Plibrico Co
Porvair Corp.
Premier Refractories. Inc
Premier Refractories
International. Inc.
Prvotech. Inc
Refco. Inc
Refractories Sales and
'^ Service Co . Inc
to
o
Reno Refractories. Inc
Resco Products. Inc
Rill Refractories America
Riverside Clay C'o . Inc
Riverside Refractories. Inc
Rutland Products
Servsteel. Inc
SGL Carbon Corp
Slienaniio Refraclones. Inc
MCI liivj liiilustrics ol
1 Vlav\aic. Inc
1 he Nock ,md Sou < o
Location
Cleveland. Oil
Pueblo. C'O
Oak Hill. OH
llendeisonville. NC
King of Prussia. PA
King of Prussia. PA
Spokane. WA
Boylston. MA
Bessemer. Al.
Morris. Al,
Norristovvn. PA
Pillsbmgh. PA
Pell City. Al.
PellC'ity. Al,
Jacksonville. Fl,
Morgan. PA
C'harlolte. NC'
Neu ( astle. PA
Pilisburgh PA
Oak Hill. Oil
Sales ($106)
331
12
10 to 20
18
64
90
45
34
NA
16
50
NA
15
14
NA
255
5 to 1 0
57
2 5
to 5
Employment
1.500
160
20 to 40
200
778
900
650
88
NA
85
500
NA
100
100
NA
1.891
20 to 49
312
1 0 to 1 9
Company
Type Owning Company
Subsidiary Didier-Werke AG. Germany
Private
Private
Private
Private
Subsidiary Alpine Group. Inc
Private-
Subsidiary Industrial Distribution Group.
Inc
NA NA
Pn vale-
Private
NA Rill Refractories AG
Subsidiary Riverside Clay Co., Inc
NA NA
Subsidiary SGI, Akticngesellschaft.
Germany
Private
Subsidiary Sterling Industries PI.C.
r.ngland
Private
Sales
(SIO6) Employment
448 5 NA
1.370 6.600
273 1.200
NA NA
1.580 14.500
1 5 1 00
NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Clay (continued)
I he WhiUicre-Grccr 1 ire Proofing
Co
1 hennal Ceramics. Inc
1 horley Relraclones. Inc
I ransit Mix C'oncrele C'o . Inc
1 YK America. Inc
Unrfrax C'orp
Universal Refractories. Inc
1 Hah Refractories C'o
W'ahl Refractories. Inc
/ero Refraclones. Inc
Nonclay
Advanced Ceramics C'orp
Advanced C'eramics International,
Inc
Allied Mineral Products. Inc
Alpine Group. Inc
Aluminum C'ompans of America
(ALCOA)
AMPAC
BSC' Holding. Inc
Baker I lolding Co . Inc
Baker II-, C'o
Bartles Crucible & Refraclones.
Inc
Location
Alliance. Oil
Augusta. GA
Southgate. C'A
Colorado Springs.
C'O
Clairlon. PA
Niagara Tails. NY
Wampum. PA
I.elu. Ill'
Tremont. OI 1
las lor Ml
Clcs eland. Oil
C'les eland. Oil
Columbus. OI 1
Ness York. NY
Pittsburgh. PA
Amsterdam. NY
Shassnee Mission.
KS
York. PA
York. PA
1 railon. N.I
Sales ($10'')
5 to 1 0
138
5 to 10
25
37
85
24
NA
17
0 5
25 to 50
21
56
1.370
1 5.300
13
23
190
190
NA
Employment
NA
1.200
20 to 49
210
122
285
130
NA
68
1 to 4
NA
175
240
6.600
103.500
100
15
1.300
1.050
NA
Company
Type Owning Company
Private
Subsidiary Morgan Crucible Co PLC.
Lngland
Private
Subsidiary Continental Materials C'orp.,
Delaware
Subsidiary I YK C'orp.. lapan
Subsidiary Kirkland Capital Partners
LP
Private
NA NA
Subsidiary 1 hermalex C'orp
Private
Private
Private
Private
Public
Public
Private
Pnvale
Public
Subsidiary Baker 1 lolding C'o . Inc
NA NA
Sales
($10'') Employment
1.394 16.885
NA NA
133.5 NA
90 808
NA NA
10 148
190 1.300
NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
to
Company
Nonclay (continued)
Bethlehem Advanced
Materials C'orp
Blash Precision Ceramics.
Inc ( 1 exas United)
BN7. Materials. Inc.
C'C'PI. Inc.
C'ereom. Inc
C'erteeh. Inc
C'l'B Industries. Inc
Chicago Firebrick C'o . Inc
C'oors Porcelain C'o.. Inc.
l)i\on Ticonderoga C'o . Inc
Kl S Schaefer C'orp
T'oseeo. Inc.
dlobal Industrial
1 ccbnologies. Inc
1 larbison-Walker
Refractories C'o
I n sul C'o.. Inc
IW 1 licks. Inc
Magneco. Inc
Martin Marietta Magnesia
Specialties. Inc
Mmco Acqtuslion Corp
Mmco. Inc
\lmei.iK 1 celinolouies. Inc
Mmlcq Iniein.ilionai. Inc
Location
Knoxville, TN
Houston. '1 \
/ehenople. PA
Blanchcsler. Oil
Vista. CA
Slreelsboro. Oil
C'hicago. II,
C'hicago. II,
Lake Man. Fl,
Macedonia. Ol 1
Cleveland. Oil
Dallas. \X
Pittsburgh. PA
Fast Palestine. Oil
McrrcllMlle. IN
Addison. II,
Raleigh. NC
Mid\\a\. IN
Vlklu,i\. IN
Neu Yoik. N^
Neu Yoik NY
Sales($IO'')
14
63
1 to 2.5
25 to 50
1 1
62
23
18
304
85
13
71
142
263
15
5 to 10
19
21
15
609
205
Employment
110
515
5 to 9
NA
76
758
176
58
2.900
1.562
195
500
4.262
1 .6 1 5
77
20 to 49
150
170
135
2.260
1.800
Company
Type
Subsidiary
Private-
private
private
Private-
Subsidiary
Private
Private
Subsidiary
Public
Subsidiary
Subsidiary
Public
Subsidiary
Private
NA
Subsidiary
Subsidiary
Private
Subsidiary
Public
Subsidiary
Owning Company
The Bethlehem C'orp
Carpenter Technology Corp
AC'X Technologies. Inc.
Alumilech. Inc
I'oseco 1 loldmg BV.
Netherlands
RIII AC;
NA
Magneco/Metrel. Inc
Martin Marietta Materials.
Inc.
Mmco Acquisition C'orp
Minerals 1 echnologies. Inc
Sales
($10'')
14
1.000
988
21
1.580
NA
34
1.057
21
609
Employment
117
5.324
5.600
210
14.500
NA
570
170
2.260
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Nonclay (continued)
Mitsubishi Cement Corp
Mixed Mineral Products.
Ine
Monofrax. Inc.
Morgamte Crucible. Inc.
National Refractories &
Minerals C'orp
Ne\\ Castle Refractories
i Newport Sand & Gravel Co .
to
oj Ine
North American Refractories
Co
Norton Co . Ine
Osram Sylvama. Ine
Osram SyUania Products.
Ine
Pell Industries
Prefromix 1 eehnologies
1,11)
Premier Refractories
International. Inc.
Premier Services. Ine
Pxrolek Ine
Rex Roto C'orp
Location
Ontario. C'A
Columbus. OI 1
1 alconer. NY
North Haven. Cl
I.ivermore. C'A
Massillon. Oil
Newport. Nil
Cleveland. Oil
Worcester. MA
Danvers. MA
Danvers. MA
drove Cit\. PA
Warren. Oil
King of Prussia. PA
Beltsvillc. Oil
Spokane. WA
l'o\\lervillc. Ml
Sales ($I06)
74
NA
50lo 100
15
115
14
13
331
1.500
5.200
1.800
5 to 1 0
10
90
NA
50 to 100
14
Employment
619
NA
250 to 499
75
600
122
100
1.500
9.000
13.000
I.I 00
20 to 49
75
900
NA
' NA
80
Company
Type
Subsidiary
NA
Private
Subsidiary
Subsidiary
Subsidiary
Private
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Private
Private
Subsidiary
NA
Private
Private
Owning Company
Mitsubishi Materials Corp .
lapan
NA
Morgan Crucible Co PLC.
1 .ngland
National Refractory I loldmg
C'o.. Ine
Dixon I'iconderoga
Didier-Werke ACi. Germany
Samt-Gobain. France
Sicilians Corp
Sicilians Corp
Alpine Group. Ine
NA
Sales
($106) Employment
9.354 6.556
NA NA
1.394 16.885
115 1.354
NA NA
23.113 165.000
1.370 6.600
NA NA
(continued)
-------
Table 2-6. Selected Refractory Manufacturers, by Type (continued)
Company
Monday (continued)
Sainl-Gobam Advanced
Materials Corp
Selee Corp
Silicon Carbide Products.
Inc
Spar. Inc
1 hermatcN Corp
( I'hermalite)
fYK America. Inc
UCAR Carbon C'o
Universal Refractories. Inc
Varsal Instruments. Inc
Vesuvius Crucible Co
to
_ti Vesuvius USA Corp
Wulfrath Refractories. Inc
Xircar Products. Inc.
Xircoa. Inc.
Location
l,ouis\ ille. KY
1 lendersonville. NC
Llmira. NY
Jacksonville. H,
l-'remonl. OH
Clairton. PA
Danbury. C 1
Wampum. PA
Warmmster. PA
Champaign. II,
Champaign. II,
1 arentum. PA
Honda. NY
Solon. OH
Sales ($10'')
533
5
1 lo 2.5
NA
10
37
105
24
15
400
400
22
12
20
Employment
3.300
190
5 to 9
NA
148
122
1.506
130
224
2.500
1 .600
115
85
140
Company
Type
Subsidiary
Subsidiary
Private
NA
Private
Subsidiary
Subsidiary
Private
Private
Subsidiary
Subsidiary
Private
Private
Subsidiary
Sales
Owning Company ($10'')
Norton Co . Inc
Porvair PLC. Lngland
NA NA
TYK Corp . Japan 1335
UCAR International. Inc 947
Cookson Group PLC. 3.01 1
Lngland
Cookson Group PLC. 3.01 I
Lngland
Didier-Werke AG. Germany 448 5
Employment
NA
NA
4.952
17.101
17,101
4.717
NA '--- Nol available
Source: Dun & Bradslreet 2000 /M H Million Hollar Dm-clon: Scries 2000 Bethlehem. PA Dun & Bradstreet. Inc.
Note I he data used to anah/e company impacts of the proposed NKSIIAP are similar but not identical to these data fhe actual data used include confidential
sur\ey responses and thus cannot he made public
-------
Table 2-7. Number of Refractory Manufacturing Facilities by State
State
Alabama
California
Georgia
Illinois
Indiana
Kentucky
Maryland
Michigan
Missouri
New York
New Jersey
North Carolina
Ohio
Pennsylvania
Texas
West Virginia
Totals
Number of
Clay (NAICS 327124)
8
10
5
7
4
9
27
30
7
107
Refractory Plants
Nonclay (NAICS 327125)
6
4
7
7
6
7
3
->
j
7
2
24
22
3
101
Source: U.S. Department of Commerce. Bureau of the Census. 1999a. 799" Census of Manufactures
Washington. DC: Government Printing Office.
2.2.2 Capacity Utilization
Capacity utilization indicates how well the current facilities meet demand, which can
be measured by the capacity utilization rate. A capacity utilization rate is the ratio of actual
production volumes to full-capacity production volumes. For example, if an industry is
producing as much output as possible without adding new floor space for equipment, the
capacity utilization rate would be 100 percent. On the other hand, if under the same
constraints the industry were only producing 75 percent of its maximum possible output, the
capacity utilization rate would be 75 percent. On an industry basis, capacity utilization is
highly variable from year to year depending on economic conditions. It is also variable on a
company-by-company basis depending not only on economic conditions, but also on the
company's strategic position, within its particular industry. While some plants may have idle
production lines or empty floor space, others need additional space or capacity.
2-25
-------
2 2
Puerto Rico
Number of
Refractory Facilities
Number of
Cement Plants
" •*
^ o
Number of
Steel Mills
Number of
Nonferrous Plants
Figure 2-11. Location of Refractory Manufacturing Facilities
Table 2-8 lists the capacity utilization rates for clay and nonclay refractor*
manufacturers for 1993 though 1998. Reduction in the demand for refractory replacements
parts led to lower capacity utilization rates throughout this time period. Nonclay refractories.
which include specialty refractory products, have seen increased demand, allowing that part
of the industry to maintain an approximately 70 percent capacity utilization rate.
2-26
-------
Table 2-8. Full Production Capacity Utilization Rates for Clay and Nonclay
Refractories: Fourth Quarters 1993 through 1998
Clay (NAICS 327125) Nonclay (NAICS 327125)
19937571
1994 80 75
1995 63 81
1996 61 82
1997 49 78
1998 54 72
Source: U.S. Department of Commerce. Bureau of the Census. 1999d. 1998 Surcey of Plant Capacity.
Washington. DC: Government Printing Office.
2.2.3 Industry Concentration and Market Structure
Market structure, which characterizes the level and type of competition among
refractory producers, determines the behavior of producers and consumers in the industry.
including their power to influence market price. If an industry is perfectly competitive, then
the individual producers have little market power; they are not able to influence the price of
the outputs they sell or the inputs they purchase. Perfectly competitive industries have large
numbers of firms, the products sold are undifferentiated. and the entry and exit of firms are
unrestricted.
Conversely, imperfectly competitive industries or markets are characterized by a
smaller number of firms, differentiated products, and restricted entry or exit. Product
differentiation can occur both from differences in product attributes and quality and from
brand name recognition of products. Entry and exit of firms are restricted in industries when
government regulates entry (e.g.. through licenses or permits), when one firm owns the entire
stock of critical input, or when a single firm is able to supply the entire market.
When compared across industries, firms in industries with fewer firms, more product
differentiation, and restricted entry are more likely to have the power to influence the price
they receive for a product by reducing output below perfectly competitive levels. At the
extreme, a single monopolistic firm ma}1 supply the entire market and hence set the price of
2-27
-------
the output. On the input market side, firms may be able to influence the price they pay for an
input if few firms, both from within and outside the industry, use that input.
2.2.3.1 Measures of Industry Concentration
To assess the competitiveness of an industry, economists often estimate four-firm
concentration ratios (CR4). eight-firm concentration ratios (CR8). and Herfindahl-
Hirschmann indexes (HHI) for the subject market or industry. The CR4s and CR8s measure
the percentage of sales accounted for by the top four and eight firms in the industry. The
HHIs are the sums of the squared market shares of firms in the industry. Table 2-9 provides
concentration ratios for the refractory industry.
Table 2-9. Market Concentration Measures for SIC 3255 Clay Refractory
Manufacturing and SIC 3297 Nonclay Refractory Manufacturing
Value
Measure
Herfmdahl-Hirschmann Index (HHI)
Four-firm concentration ratio (CR4)
Eight-firm concentration ratio (CR8)
Number of companies
Number of facilities
Value of shipments
Clay
578
40
62
95
145
886.8
Nonclay
527
36
58
102
142
1.203.8
Source: U.S. Department of Commerce, Bureau of the Census. 1996b. Concentration Ratios in
Manufacturing. MC92-S-2. Washington. DC: Government Printing Office. Available at
'. census.gov/rncd/mancen/download/mc92cr.sum>.
Unfortunately, there is no objective criterion for determining market structure based
on the values of these concentration ratios. However, there are criteria for determining
market structure based on the HHIs for use in merger analyses, which are pro\ ided in the
1992 Department of Justice's Horizontal Merger Guidelines (U.S. Department of Justice and
the Federal Trade Commission. 1992). According to these criteria, industries with HHIs
below 1,000 are considered unconcentrated (i.e.. more competitive), those with HHIs
between 1.000 and 1.800 are considered moderately concentrated (i.e.. moderate!)
competitive). Firms in less-concentrated industries are more likely to be price takers, \\hile
firms in more-concentrated industries are more likely to be able to influence market prices.
These measures of market concentration can be computed using four-digit SIC codes based
on U.S. Bureau of the Census data (U.S. Department of Commerce. 1993). Based on the
2-28
-------
HHI criteria, the refractory industry is not concentrated, and. therefore, competitive
instructive. These indices are measures of concentration of the industry at the national level.
There is no reason to believe, however, that the markets for refractories may be regional
rather than national.
2.2.3.2 Market Structure
The refractories industry is characterized by having the majority of its products used
as inputs for the steel industry. The relatively small numbers of steel companies that are
prominent users of refractory products may result in the buyers maintaining some measure of
control over the input price (monopsony or oligopsony).
A monopsony occurs when a firm is the sole purchaser of an input. The monopsonist
has the market power in the input market and can reduce the price paid without losing all
input. An oligopsony is characterized by the presence of a few large buyers (even though
there may also be many small buyers of insignificant size). In oligopsony, large firms are
aware of their competitors for purchasing inputs and determine their purchasing price and
quantity based on their expectations of their competitors' behavior. Although there may be
some degree of market power exerted by steel companies on the demand side of the
refractories market, our analysis treats the markets for refractory products as competitive. A
sensitivity analysis is presented in Appendix B using a full-cost absorption approach, to
assess the impacts if in fact steel companies have oligopsony power and refractory product
manufacturers are unable to change price in response to higher costs.
2.2.3.3 Small Businesses that Chrn Refractory Facilities
To determine the possible impacts on small businesses, both clay and nonclay
refractory manufacturers are categorized as small or large using the Small Business
Administration (SBA) general size definitions (SBA, 1998). For clay refractor}'
manufacturers, a small company has 500 or fewer employees. For nonclay refractory
manufacturers, small is defined as having 750 or fewer employees.
Table 2-10 lists the employment and sales data for small companies that are owners
of refractory-producing facilities. Again as in Table 2-6. these data are based on information
available from publicly available sources. EPA's database provides information on company
size, and its analysis of small business impacts is based on the best data currently available
about the size of companies owning refractor}' products manufacturing facilities, including
both questionnaire responses and publicly available information. To avoid revealing
confidential questionnaire data, however, we present only the publicly available data in this
2-29
-------
section. Data on employment and sales for many of these companies are difficult to acquire
from public sources, because they are privately held. These data suggest that a total of 59
small businesses own 76 facilities that produce refractory products. These are shown in
Table 2-10.
2-30
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry
Company
Able Supply Co.
Alsey Refractories Co.
B&B Refractories Inc.
Bay State Crucible Co.
Ceradyne Inc.
Christy Refractories Co. LLC
Clay City Pipe3
ER Advanced Ceramics Inc.
Ermhart Glass Manufacturing
Inc.
Pels Refractories Inc.
Freeport Area Enterprises Inc.3
Freeport Brick Co.
Heater Specialists. Inc.3
Holland Manufacturing Corp.
Industrial Ceramic Products Inc.
Industrial Product International
Inland Enterprise Inc.
International Chimney Corp.3
Lousiville Firebrick Works
Maryland Refractories Co.
Mt. Savage Firebrick Co.
P-G Industries Inc.
Plibrico Co.
Porvair PLC
Refractories Sales and Service
Co. Inc.
Reno Refractories Inc
Resco Refractories. Inc
Riverside Cla\ Co. Inc.
Rutland Products
Location
Houston. TX
Alsey, IL
Santa Fe Springs, CA
Taunton. MA
Costa Mesa, CA
St. Louis, MO
Uhrichsville, OH
East Palestine, OH
Owensville. NJ
Edison, NJ
Freeport. PA
Creighton. PA
Tulsa, OK
Dolton. IL
Columbus. OH
Englewood, CO
Avon. OH
Williamsville, NY
Grahm. KY
Irondale. OH
Frostburg. MD
Pueblo. CO
Oak Hill. OH
United Kingdom
Bessemer. AL
Morris. AL
Norristo\\n. PA
PellCity. AL
Jacksonville. FL
Sales
($106)
NA
10 to 20
2.5 to 5
5 to 10
26
14
14
NA
NA
1 to 2.5
10
NA
17
25 to 5
NA
1 to 2. 5
14
18
NA
1 to 2. 5
NA
12
10 to 20
88.2
NA
16
50
15
NA
Employment
NA
20 to 49
lOto 19
20 to 49
300
80
200
NA
NA
NA
150
NA
160
20 to 49
NA
5 to 9
100
140
NA
NA
NA
160
20 to 49
658
NA
85
500
100
NA
Organization
Type
NA
Private
NA
NA
Private
Private
Private
NA
NA
Private
Private
NA
Private
Private
NA
Private
Private
Private
NA
Private
NA
Private
NA
Public
NA
Private
Private
NA
NA
(continued)
2-31
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry (continued)
Company
Serv steel Inc.
Shenango Refractories. Inc.
Nock and Son Co., The
Whitacre-Greer Fire Proofing
Co., The
Thorley Refractories Inc.
Utah Refractories Co.
Zero Refractories, Inc.
BNZ Materials Inc.
CFB Industries Inc.2
Insul Co. Inc.
Pyrotek Inc.a
Thermatex Corp. (Thermalite)
Universal Refractories Inc.
Advanced Ceramics"
International Inc.
Allied Mineral Products Inc.
Alumitech Inc.3
AMPACa
B S C Holding Inc."
Bartley Crucible &
Refractories, Inc.
Slash Precision Ceramics, Inc.
(Texas United)
CCPI Inc.
Cercom Inc.3
Chicago Firebrick Co. Inc.3
JW Hicks Inc.
Magneco'Metrel Inc.
Minco Acquistion Corp.3
Location
Morgan, PA
New Castle, PA
Oak Hill, OH
Alliance, OH
Southgate, CA
Lehi, UT
Taylor MI
Littleton, CO
Chicago, IL
East Palestine. OH
Spokane, WA
Fremont. OH
Wampum, PA
Cleveland. OH
Columbus, OH
Canada
Amsterdam. NY
Shawnee Mission.
K.S
Trenton. NJ
Houston. TX
Blanchester. OH
Vista. CA
Chicago. IL
Merrellville. IN
Addison. IL
Midway. TN
Sales
($106)
5 to 10
2.5 to 5
5 to 10
5 to 10
NA
0.5 to 1
25
23
15
50 to 100
10
24
21
56
77
13
23
NA
63
25 to 50
11
18
5 to 10
34
21
Employment
20 to 49
10 to 19
NA
20 to 49
NA
1 to 4
150
176
77
NA
148
130
175
240
447
100
15
NA
515
NA
76
58
20 to 49
150
170
Organization
Type
Private
Private
Private
Private
NA
Private
Private
Private
Private
Private
Private
Private
Private
Private
Public
Private
Private
NA
Private
Private
Private
Private
Private
Private
Private
(continued)
-------
Table 2-10. Characteristics of Small Businesses in the Refractory Industry (continued)
Company
Mixed Mineral Products Inc.3
Monofrax Inc."
Newport Sand & Gravel Co.
Inc."
Pell Industries
Prefromix Technologies LTD"
Premier Services. Inc.
Rex Roto Corp.
Silicon Carbide Products Inc.
Spar. Inc.
Bethlehem Corporation. Thea
Varsal Instruments Inc.3
Wulfrath Refractories Inc.
Zircar Products Inc.
3 These companies were listed b>
However, they were not linked
small business analysis.
Location
Columbus. OH
Falconer. NY
Newport. NH
Grove City. PA
Warren, OH
Bettsville. OH
Fowlerville. MI
Elmira. NY
Sales
(S106)
NA
50 to 100
13
5 to 10
10
NA
14
1 to 2. 5
Jacksonville, FL NA
Easton. PA
Warminster, PA
Tarentum, PA
Florida. NY
' Ward's Business
to a facility in the
14
15
22
12
Employment
NA
250 to 499
100
20 to 49
75
NA
80
5 to 9
NA
117
224
115
85
Directory under the N AICS codes 327 1 24
database. These companies are ignored in
Organization
Type
NA
Private
Private
Private
Private
NA
Private
NA
NA
Private
Private
Private
Private
and 32712.
the remaining
In its analysis of small business impacts. EPA has chosen to use a small business size
criterion of 750 employees regardless of the primary NAICS code of the company. EPA
made this decision because some companies in the industry produce bot h clay and nonclay
refractories, making it difficult to assign such companies to a single NAICS code. Using the
higher 750 employee small business criterion for all affected companies may overstate the
number of small businesses affected by the proposed rule. EPA has obtained company
employment and sales data from potentially regulated facilities, some of which is
confidential. Based on this information and a small business size criterion of 750 employees.
EPA has identified 60 small businesses that are potentially affected by the proposed
NESHAP. out of a total of 81 companies owning refractory manufacturing facilities.
2.2.4 Current Trends in the Refractory Industry
To remain competitive, refractory manufacturers have continued to improve raw
materials and manufacturing and testing processes. The trend toward increased lining life in
most applications has reduced the costs of repair and replacement to refractor}7 consumers.
Improvements in the production process of steel, glass, and petrochemicals in combination
with improvements in refractory products and linings have culminated to reduce the amount
-------
of refractory consumption. Recently, the basic oxygen steelmaking furnace linings ha\e
exceeded 20,000 heats. The glass industry has experienced increased time between repairs in
glass furnaces from every 4 years to 13 years, with little or no preventative maintenance
(Sheppard, 2000; Ceramic Industry, 2000). From 1998 to 1999. the refractory industry
reported a 6 percent decline in production and a 12 percent decline in turnover (DHAN.
1999).
Because of improved quality of refractory products and the availability of cheaper
refractory imports, the steel industry' has decreased consumption of refractories from 25 to 30
kg per ton of steel to 10 kg in Japan and the United States (Semler. 2000). This is the result
of increased life span of refractory products. Other consumers of refractor}' products.
including the petroleum industry and concrete industry, are following the steel industry's
pattern of reducing consumption of refractories.
2.3 The Demand Side
Estimating the economic impacts of the regulation on the refractory manufacturing
industry requires characterizing various aspects of the demand for refractory products. This
section describes the product characteristics desired by end users: the uses for refractories.
including use in the glass, metal, and electronics industries; and possible substitutes for
refractories.
2.3.1 Product Cli aracteristics
Because the quality and characteristics of refractories van' considerably, consumers
often employ chemical and physical tests to ensure that the refractories purchased meet their
requirements. The American Society for Testing and Materials (ASTM) provides
specifications and tests for various kinds and uses of refractor}' products. Depending on the
intended end use. consumers may test refractories for thermal conductivity, resistance to
abrasion and corrosion, permeability, oxidation resistance, pvrometric cone equivalence, and
other characteristics (ASM International. 1987).
Most refractory products are sold as preformed shapes. However. the> are also
available in special purpose clays; bonding mortars: and monolithic, plastic refractories:
ramming mixes; and gunning mixes. A variety of processed refractory grains and po\\ders
are also produced (DHAN. 1999). From the physical form, refractory products can be
further classified into oxide bricks, nonoxide bricks, and composites. Table 2-11 lists t\pes
of oxide, nonoxide. and composite refractories: their characteristics: and their applications.
2. J.2 Uses and Consumers
2-34
-------
Principle end-use markets for refractory products include the iron and steel, cement.
and nonferrous metal industries. The steel industry consumes the largest percentage of
refractories, estimated between 50 and 80 percent of the refractory production (Semler.
2000).2 Table 2-12 presents metric ton production of raw steel and nonferrous metals for the
period 1994 to 1999. Refractory products are used in the steel industry to line coke ovens.
blast furnaces, blast furnace stoves, basic oxygen vessels, electric furnaces, open-hearth
furnaces, and other heat-related manufacturing equipment (ASM International, 1987). As
described above, refractory products are used by steel, cement and nonferrous metals
producers. Refractory products manufacturing facilities are typically located close to their
consumers (see map in Figure 2-11).
2.3.3 Substitution Possibilities in Consumption
Although there is no direct substitute for refractories, industries that use refractory-
products have reduced the amount of the product consumed. Since the 1980s, the steel
industry has closed inefficient facilities and modernized remaining plants. The industry-
developed and implemented technologies, such as the basic oxygen furnace (BOF). that
significantly reduced the amount of refractories used per ton of steel (USITC. 1994; DHAN.
1999). Also, the refractory industry has made significant strides in developing more durable
refractories. These two factors have reduced the overall consumption of refractory materials.
2.4 Markets for Refractory Products
This section provides data on domestic production, domestic consumption, imports.
exports of refractories, and gross margin growth in prices. It also discusses trends and
projections for the refractory industry.
"The U.S International Trade Commission (USITC) estimated consumption of the steel industrx at o\er 50
percent, and DHAN estimated it at 75 percent
2-35
-------
Table 2-11. Characteristics and Types of Refractories
Refractory Type
General Characteristics
Application
Oxide Bricks
Silica High strength at high temperatures, residual
expansion, low specific gravin. high expansion
coefficient at low temperatures. lo\\ expansion
coefficient at high temperatures
Fused silica Lo\\ thermal expansion coefficient, high thermal
shock resistance. lo\\ thermal conducts it>. low
specific gra\it\. low specific heat
Chamotte Lou thermal expansion coefficient, low thermal
(firecla>) conductivity, low specific gra\ ity. low specific heat.
low strength at high temperatures, less slag penetration
Alumina High refractoriness, high mechanical strength, high
slag resistance, high specific gravitx. relati\el> high
thermal conductivity
High alumina High refractoriness, high mechanical strength, high
slag resistance, high specific gravity, relatively high
thermal conductivit\
Roseki Low thermal expansion coefficient, high thermal
shock resistance, low thermal conductivity, low
specific gravit}. low specific heat
Zircon High thermal shock resistance, high slag resistance.
high specific gravity
Zirconia High melting point, low wettabihty against molten
metal, low thermal conductivity, high corrosion
resistance, high specific gravity
Alumina zircoma High slag resistance, high corrosion resistance against
silica molten glass
Lime High slag resistance, low hydration resistance
Magnesia High refractoriness, relatively low strength at high
temperature, high basic slag resistance, low thermal
shock resistance, low durability at high humidity
Magnesia- High refractoriness, high refractoriness under load.
chrome high basic slag resistance. relati\cly good thermal
shock resistance (low MgO bricks), high strength at
high temperature (direct bonded and fusion cast)
Glass tank crown, copper refining
furnace, electric arc furnace roof
Coke oven, hot stove, soaking pit. glass
tank crown
Ladle, runner. slee\e. coke oxen.
annealing furnace. blast furnace hot
stove, reheating furnace, soaking pit
Hot sto\e. stopper head. slee\e. soaking
pit cover, reheating furnace, glass tank.
high-temperature kiln
Slide gate, aluminum melting furnace.
skid rail, ladle, incinerator, reheating
furnace hearth, skid rail, ladle.
incinerator
Ladle, runner. slee\e. coke oxen.
annealing furnace, blast furnace hot
sto\e. reheating furnace, soaking pit
Ladle, nozzle, stopper head. slee\e
Nozzle for continuous casting, glass
tank, high-temperature furnace, crucible
Glass tank, incinerator, ladle, no//le for
continuous casting
Special refining surface
Hot-metal mixer, secondary refining
\essel. rotary kiln checkei chamber of
glass tank, electric arc furnace
Hot-metal mixer, electric arc I'uinucx.
secondary refining vessel nontenous
refining furnace, roi.ii> cement kiln lime
and dolomite kiln, copper Inmate ladle
checker chamber fur da-*-, tank slag INK
of electric arc furnace Jeuassci I'm
copper, nonferrous .smellei
(continued)
2-36
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Table 2-11. Characteristics and Types of Refractories (continued)
Refractory Type
General Characteristics
Application
Oxide Bricks (continued)
Chrome High refractoriness. low strength at high temperature.
lo\\ thermal resistance
Dolomite High refractoriness, high refractoriness under load.
high basic slag resistance. lo\\ durability in high
huniidit\. high thermal expansion coefficient
Spinel High thermal shock resistance, high strength at high
temperatures, high slag resistance
Buffer brick between acid and basic
brick
Basic oxygen furnace, electric arc
furnace, secondar. refining \essel. rotary
cement kiln
Rotar\ cement kiln, ladle
Nonoxide Bricks
Carbon
Silicon carbide
Silicon carbide-
graphite
Silicon nitride
High refractoriness, high slag resistance. lo\\ oxidation
resistance
High refractoriness, high strength at high temperature.
high thermal conductivity. high thermal shock
resistance, reduced oxidation resistance at high
temperature, high slag resistance
High refractoriness, high strength at high temperature.
high thermal conductivity high thermal shock
resistance
High strength, high thermal shock resistance.
relati\el\ high oxidation resistance
Blast furnace hearth, electric arc furnace
Kiln furniture, incinerator, blast furnace
Incinerator
Kiln furniture, blast furnace
Composite
Silicon carbide
Containing
High corrosion resistance against low iron oxide, high
strength at high temperatures, high thermal shock
resistance
Magnesia-carbon High slag resistance, high thermal shock resistance
Alumina-carbon High refractoriness, high thermal shock resistance.
high corrosion resistance
Ladle, blast furnace, electric arc. torpedo
ladle, iron ladle
Basic o\\gen furnace, electric arc
furnace, ladle
Submersed entr\ nozzle, slide eate
Source The Technical Association of Refractories. Japan 1998 Refractories Handbook Tok\o The Technical
Association of Refractories. Japan.
2.4.1 Market Data
This section provides data on volumes of refractory products produced and consumed
in the United States, the quantities imported and exported, and prices. Figure 2-12 illustrates
historic trends in refractory production.
2-37
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Table 2-12. Steel and Nonferrous Production (103 Metric Tons)
Year
Raw Steel Production
Nonferrous
1994
1995
1996
1997
1998
1999
91.300
95,200
94,700
98,500
98,700
95,300
11.216
13.606
11,608
14.501
14.811
15.215
Source: U.S. Department of Commerce, and International Trade Administration. 1999. U S. InJuvtn & Trade
Outlook 2000. New York: The McGraw-Hill Companies and U.S. Department of Commerce
/ / / /
/ / £ / / /
/ / / /
.Clay B Nnnnlay A Total
Figure 2-12. Historical Refractory Production Trends
Note. All financial figures are adjusted for inflation using the producer price index available from the U.S. Bureau
of Labor.
2-38
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2.4.1.1 Domestic Production
During the last two decades, the refractory industry has been affected by declining
demand per production of steel for traditional refractory products, such as bricks and shapes,
and customer requirements for higher-quality special refractories. Accounting for nearly 40
percent of all shipments, bricks and shapes are the principal forms of refractory products
produced in the United States (USITC. 1993). Table 2-13 illustrates the values of
domestically produced clay and nonclay refractories from 1977 to 1998 in both current and
1998 dollars.
2.4.1.2 International Trade
As indicated in Table 2-14. international trade is not a major component of the U.S.
market for refractory products. In 1999, refractory exports accounted for a little over 16
percent of shipped refractor}' products. Nations with significant iron, steel, cement, and
nonferrous metal industries, including the United States. Europe, and Japan, are the major
world markets for refractory products. From 1988 to 1992. Canada was the leading importer
of U.S. refractor^' products, with over 38 percent of all exports, followed by Mexico.
Emerging foreign markets for the United States include India, China, and other countries in
Central and South America. Japan and Canada are the top suppliers of imports to the United
States (USITC. 1994).
2.4.2 Market Prices
Table 2-15 lists average prices for refractory products for 1989. 1993, and 1998.
Monolithic refractor}' prices have decreased 2 percent and bricks and shapes have increased
4.8 percent since 1993. Most refractory products are typically used in kilns and ovens and
are engineered for a particular use. Price is typically based on the consumer's requirements.
2.4.3 Industry Trends
In the last decade, the refractor}' industry has experienced significant restructuring.
Two large conglomerates. RHI and Vesuvius, dominated refractories markets (Sheppard.
2000). In 1999. Alpine Group sold its Premier Refractories unit to Cookson Group of the
U.K.. and Global Industrial Technologies (parent of Harbison-Walker Refractories) was
acquired by RHI AG (formerly Radex Heraklith Industriebeteiligungs) of Austria. Other
leading refractory producers are Allied Mineral Products. Baker Refractories. Minerals
Technologies (via MINTEQ). Morgan Crucible. National Refractories Holding Co.. Resco
Products, and Compagnie de Saint-Gobain.
2-39
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Table 2-13. Production of Refractories: 1977-1998 ($106)
Year
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Clay
Current
607.2
717.3
776.9
761.6
864.2
670.3
745.5
868.6
803.0
843.5
788.2
836.7
906.3
922.9
850.4
886.8
758.0
938.8
958.2
977.3
1.101.6
1.082.8
1998
848.9
956.4
983.5
922.4
976.0
738.4
813.8
920.1
849.2
931.4
851.2
851.0
892.5
927.0
872.6
930.6
784.6
9295
8962
953.6
1.072.9
1.082.8
Nonclay
Current
680.2
864.2 1
934.9 1
975.9 1
1020.9 1
691.0
588.9
701.4
755.3
768.5
954.5
1,078.1
1.113.3
1.077.6
1.009.2
1.203.5
.282.2
,232.2
.370.4
,459.4
,631.2
,535.8
1998
950.9
.152.3
,183.5
,182.0
,153.0
761.2
642.9
743.0
798.7
848.6
,030.8
,096.5
,130.3
,082.4
,035.5
,263.0
,327.1
.220.0
,281 7
,424.0
.588.7
.535.8
Total
Current
1,287.4
,581.5
,711.8
,737.5
,885.1
,361.3
.334.4
,570.0
,558.3
,612.0
,742.7
.914.8
2.019.6
2,000.5
1,859.6
2.090.3
2.040.2
2,171.0
2,328.6
2,436.7
2,732.8
2.618.6
1998
1.7998
2,108.7
2.167.0
2.1044
2,129.0
1.499.5
1.4567
1.663 1
1.647.9
1,780.0
1.882.1
1.947.5
2.022.8
2.009.5
1.908.1
2.193.6
2.111.7
2.149.5
2.178.0
2.377.6
2.661.6
2.6186
Sources: U.S. Department of Commerce, Bureau of the Census. 1994b. 7992 Census of Manufactures. Industry
Series—Cement and Structural Clay Products. Washington. DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census. 1995. 7993 Annual Sur\-ey of Manujactures.
M93(AS)-1. Washington. DC: Government Printing Office.
U.S. Department of Commerce, Bureau of the Census 1996a. 1994 Annual Survey of \fanufucnirc
-------
Table 2-14. Exports and Imports of Refractories: 1993-1999 ($1061998)
Year
1993
1994
1995
1996
1997
1998
1999
Exports
Clay
72.8
62.1
76.8
71.7
81.8
59.6
53.2
Nonclay
251.9
262.9
298.0
314.7
290.1
278.9
287.4
Total
324.7
325.5
374.8
386.4
372.0
338.6
340.6
Imports
Clay
28.8
26.4
33.2
27.0
27.8
30.9
104.0
Nonclay
177.7
183.7
198.6
211.1
248.3
225.1
218.7
Total
206.5
210.1
231.8
238.2
275.9
256.0
323.2
Apparent
Consumption
Clay Nonclay
740.3 1
843.3
873.8 1
856.9 1
863.5 1
942.0 1
934.5
,065.2
992.8
.045.6
.077.4
.197.5
.113.3
989.0
Total
1.805.5
1.836.1
1.919.3
1.934.3
2.061.0
2.055.3
1,923.6
Source: U.S. Department of Commerce, Bureau of the Census. 1993-1999. Current Industrial Reports
Refractories MA 32C. Available at .
Table 2-15. Average Price for Refractory Products" (S/ton)
Form
Monolithics
Bricks and shapes
Other*1
1989
Current 1998
451 526
709 826
394 459
1993
Current 1998
491 544
782 866
442 490
1998
Current
533
910
497
* Prices were deflated using the producer price index (PPI) from the Bureau of Labor Statistics. 2001.
.
b Other refractor\j forms consist of ceramic fibers and refractor)' raw materials that are supplied in lump or
ground form used to manufacture refractories "in-house."
Source: Freedonia Group September 1999. "Refractories in the United States to 2003 " Profound WorldSearch
A recent study projects that shipments of U.S. refractory products will increase 2.5
percent annually to $2.9 billion in 2003 (Ceramic Industry. 2000). In 1997, refractory
products shipments increased 10.7 percent. The refractory industry typically parallels the
steel industry, which is expected to maintain steady growth in the next few years
(Bagsarian, 2001).
2-41
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In recent years, consumption of domestically produced refractory products has
declined somewhat, as a result of several compounding trends. First, the quality of refractory
products has increased, resulting in longer life and fewer replacements. Thus, the tons of
refractory products consumed per ton of steel produced has declined somewhat. In addition.
imports of refractory products have increased approximately 57 percent from 1993 to 1999,
so a smaller share of the refractory products consumed domestically are produced
domestically.
2-42
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SECTION 3
ENGINEERING COST ANALYSIS
Control measures implemented to comply with the MACT standard will result in
higher production costs for affected refractory facilities. The engineering analysis computed
estimates of these compliance costs (annual, capital, operating, testing, monitoring, reporting
and record keeping) for each affected facility under baseline economic conditions. These
estimates serve as key inputs to the economic model.' The following section presents a brief
overview of emissions from refractory products manufacturing and the estimated costs
refractory products manufacturers are projected to incur to comply with the rule. More
detailed information is provided in EPA's Background Information Document (BID) (EPA.
2001a).
3.1 Overview of Emissions from Refractory Manufacturing
Refractory products manufacturing facilities are sources of several HAPs. The
specific types and quantities of HAPs emitted from any particular facility are largely a
function of the types of raw materials used and how those materials are processed. Resin-
bonded refracton- curing ovens and kilns can emit phenol, formaldehyde, methanol. and
ethylene glycol. depending on the type of resin used. When used as binders or additives in
the production of nonresin-bonded refractor)' shapes, ethylene glycol and methanol also are
emitted from shape dryers and kilns. Pitch-bonded refractory heated pitch storage tanks.
shape dryers, and kilns emit POM. The heated pitch storage tanks, shape preheaters.
defumers. and coking ovens used to produce pitch-impregnated refractories also emit POM.
Nearly all process units that are used to produce chromium refractory products emit
chromium, and a small percentage of the chromium emitted from kilns that are used to fire
chromium refractories is in the hexavalent form of chromium (Cr"6). HF and HC1 are
emitted from kilns that are used to fire clay refractory products.
Section 112 of the Clean Air Act lists 189 HAPs and defines major sources as those
facilities that emit or have the potential to emit at least 10 tons per year of any single HAP or
at least 25 tons per year of any combination of HAPs. Area sources are those with potential
'In the market model, the engineering cost inputs are expressed per unit of refractor) product (S'ton) and used to
shift the refractor) supply functions in the market model to predict the response in price and production
levels. Details can be found in Section 4 and Appendix A.
-------
uncontrolled emissions of less than 10 tons per year of any HAPs and less than 25 tons per
year of combined HAPs. Synthetic area sources are area sources that would be major
sources if existing controls at those facilities were not in place. In other words, synthetic
area sources are those sources whose uncontrolled HAP emissions exceed the major source
thresholds of 10 tons per year of a single HAP or 25 tons per year of combined HAPs.
Synthetic area sources are of particular significance because those facilities are included in
the MACT floor analysis for existing sources, whereas "true" area sources are not included
in the floor determinations and are not subject to the requirements of the rule.
Based on the HAP emission estimates within the refractory products manufacturing
industry, six facilities emit at least 10 tons per year of a single HAP and two other facilities
emit more than 8.5 tons/yr of a single HAP. In view of the uncertainties in emission
estimation techniques, these two facilities also could be major sources. The Agency
estimates that, of the 167 refractory products manufacturing facilities current!) in operation
in this source category'. 152 are area sources. 8 are major sources, and 7 are synthetic area
sources.
The Agency estimates that of the eight major sources three emit major amounts of HF
emissions and HC1 emissions resulting from clay calcining and/or clay refractory
manufacturing and are not expected to be subject to the rule (because only new clay kilns.
and not existing kilns, wmild be subject to substantive requirements of the rule for reducing
HF and HC1). New kilns used to fire chromium refractories would similarly be subject only
to new source MACT and would not be required to control existing sources for reducing
chromium emissions from kilns.
Therefore, five of the eight existing major sources would have costs associated with
compliance with the standard for organic HAPs. Costs for these facilities are shown in
Table 3-1. Two of the five major sources that are subject to the rule would only incur costs
of compliance associated with record keeping, reporting, and monitoring requirements.
because these two plants are very well controlled now. EPA estimates that, in addition to the
eight major sources, two facilities are major sources for POM emissions resulting from co-
located graphite manufacturing operations. However, for the refractor}" product^ NHSHAP.
both of these plants are considered area sources because HAP emissions from the refractor)
products manufacturing operations at the
3-2
-------
Table 3-1. Summary of Revised Annual Compliance Costs for Refractory Products Manufacturing NESHAP
Control C'osts
Initial
Capital Cost
Plant II) (S)
R00> $0
ROI2 $1.368.200
R027 $944.100
R06S $383.400
RIM $0
R 1 1 2 $0
R128 $0
^J RI78 $794.100
lot:il $3.489X00
AnniiHl-
i/.ed
Capital
Cost
(SA r)
$0
$194 800
$134.400
$54.600
$0
$0
$0
$1 13.100
$496.900
Annual
Overhead
(ost
(SA r)
$0
$48.300
$8.500
$12.400
$0
$0
$0
$ 1 9.900
$89 100
Annual
Taxes, Ins.,
Admin. Cost
(SAr)
$0
$54,700
$37.800
$15.300
$0
$0
$0
$31.800
$ 1 39.600
Annual
Maintenance
Material Cost
(SA r)
$0
$3 1 .900
$5.600
$8.200
$0
$0
$0
$13.100
$58.800
Annual
Kin'rgy
Cost
(SAT)
$0
$218.700
$71.700
$176.800
$0
$0
$48.000
$54.600
$569.800
Annual
Labor
C'ost
(SAr)
$0
$48.600
$8.600
$12.500
$0
$0
$0
$20,000
$89,700
Total
Aniuiali/cd
C'ontrol
C'osts
(SAr)
$0
$597.000
$266.600
$279.900
$0
$0
$48.000
$252,500
$1.444.000
Annual
Testing
C'ost
(S/yr)
$0
$35.700
$10.000
$2.000
$0
$0
$32.300
$12.300
$92.300
Anniial-
i/cd
Monitor-
ing C'ost
(S/yr)
$0
$8.000
$4,800
$1,600
$0
$0
$12.800
$4.800
$32.000
i/cd
Record-
keeping
C'ost
(S/yr)
$900
$8.000
$8.000
$8.000
$900
$900
$8.000
$8.000
$41.800
Total
Annuali/cd
C'ost
(SAr)
$900
$648.700
$289.400
$291.500
$900
$900
$101.100
$277.600
$1 610.100
-------
two plants are negligible, and neither plant operates sources or equipment that would be
subject to the refractory products NESHAP.
3.2 Compliance Cost Estimates
Sources of emissions at refractory manufacturing facilities that are covered by the
NESHAP for refractory manufacturing are
• new kilns that fire chromium refractories and clay refractories and
• heated processes that emit organic HAPs at new and existing sources, including
- curing ovens, drying ovens (shape dryers), and kilns used at refractory
product manufacturing facilities that are major sources emitting organic HAPs
from the affected sources, and
- brick preheaters. pitch working tanks, defumers. and coking ovens used at
pitch-impregnated refractor)' manufacturing facilities.
As noted above. HAPs that EPA has identified as being emitted from refractor}'
manufacturing facilities include chromium, HF. HC1. phenol, POM. ethylene glycol.
methanol. and formaldehyde.
The costs associated with improved emissions control are estimated based on what
each plant may have to do to control organic HAP emissions. Controlled sources include
thermal process units (i.e. dryers, curing ovens, kilns, coking ovens, defumers. and heated
pitch storage tanks) that emit one or more organic HAPs. As shown in Table 3-1. the
Agency estimates the nationwide costs of the rule are $1.61 million, or approximately $31.90
per ton of refractory product manufactured at facilities incurring compliance costs. EPA
estimates that initial capital costs will total $3.5 million. These capital costs, annualized over
a period of 20 years at a 7 percent rate of interest, result in annualized capital costs of
approximately $497.000. The total annualized costs include these annualized capital costs.
$947.000 of annual overhead, administrative, and operating and maintenance costs for
emissions controls, and $166.000 of monitoring, recordkeeping. and reporting costs. Among
the five facilities incurring costs, the total annualized costs range from $101.000 to $649.000
and average $201.000.
3.2.1 Emission Control Costs
Emission control costs include the costs of purchasing and installing emission control
capital equipment, and operating and maintenance costs including the costs of labor.
materials, and energy to operate the controls, and any associated costs such as administrate e
5-4
-------
costs, insurance, or taxes associated with the emission controls. Four facilities are projected
to incur capital emissions control costs under the refractories NESHAP. ranging from
$383,400 to $1.37 million. Because the cost of this capital equipment is a large lump-sum
expenditure, companies typically finance the cost over a period of years. Thus, EPA
estimates the annualized capital costs of the rule by annualizing the lump-sum capital costs
over a period of 20 years at a 7 percent discount rate. The annualized capital costs range
from $54.600 to $194.800. Among the annual emissions control costs, the highest costs are
associated with incremental energy required to operate the controls. Energy control costs
range from $48,000 to $218.700 per year and total $569.800. Total annualized emission
control costs for the refractories NESHAP range from $48.000 to $597.000 and total $1.44
million, which is 90 percent of the total annualized costs of the rule. Of this total, $947,000
represent annual operating and maintenance costs of the controls (59 percent of the rule's
total costs), and $496,900 represent the annualized cost of the control equipment (31 percent
of the rule's total annualized costs).
3.2.2 Compliance Testing Costs
All affected sources must be tested for combustion efficiency by simultaneous testing
using Methods 10 for carbon monoxide (CO). 3A for carbon dioxide (CO2). and 25A for total
hydrocarbons (THC). with one exception: plants that operate affected kilns that currently are
uncontrolled and follow long curing or drying cycles would opt for the Method 18 test. Only
one major source plant meets this criteria. Continuous sources, such as tunnel kilns, would
be tested for three 1-hour test runs while periodic sources would be tested over three .separate
process cycles (up to 20 hours per cycle). The compliance test must be repeated even" 5
years. Testing costs were annualized over a 5-year period using a 7 percent discount rate.
Testing costs at the five refractory manufacturing facilities incurring costs range from $2.000
per year to $35.700 per year and total $92.300 or 5.7 percent of the total annualized costs of
the regulation.
3.2.3 Monitoring, Recordkeeping, and Reporting Costs
Monitoring costs include the cost of installing and operating a system to measure and
record control device operating temperatures on a continuous basis. System components
include a thermocouple and a data acquisition system. Annualized costs were computed
assuming a data acquisition system life of 15 years, a thermocouple life of 2 years, and a 7
percent discount rate. Monitoring costs for facilities incurring costs range from $1.600 to
$12.000 and total $32.000 or 2 percent of the rule's total annualized costs. Annual reporting
and recordkeeping costs were estimated using Standard Form 83 and were considered one-
time costs annualized over a 5-year period at a 7 percent discount rate. Recordkeeping and
3-5
-------
reporting costs are estimated to range from $900 to $8.000 for facilities incurring costs.
Overall, the $41,800 recordkeeping and reporting costs represent 2.6 percent of the rule's
total annualized costs.
3.2.4 Total A nnualized Costs
Summing all categories of costs together, the five refractor)' manufacturing facilities
are projected to incur total annualized costs ranging from $101.100 to $648.700. Total
annualized costs for the rule are estimated to be $1,610,100.
5-6
-------
SECTION 4
ECONOMIC IMPACT ANALYSIS: METHODS AND RESULTS
The underlying objective of the El A is to evaluate the effect of the proposed
regulation on the welfare of affected stakeholders and society in general. Although the
engineering cost analysis presented in Section 3 does represent an estimate of the respective
plants' resources required to comply with the regulation under baseline economic conditions,
the analysis does not account for the fact that the regulations may cause the economic
conditions to change. For instance, producers may elect to discontinue production rather than
comply, thereby reducing market supply. Moreover, the control costs may be passed along to
other parties through various economic exchanges (such as price increases). The purpose of
this section is to develop and apply an analytical structure for measuring and tracking these
effects as they are distributed across the stakeholders tied together through economic
linkages.
4.1 Markets Affected by the Proposed NESHAP
Refractory products are in fact fairly specialized, and each batch could be considered
a unique product. For modeling the impacts, however. EPA aggregated the refractory
products produced by manufacturers in the industry into broad markets. We considered two
aggregation schemes: by type of input or material (clay and nonclay) or by form of output.
While the Census of Manufactures divides refractories into clay and nonclay, we have
concluded that the consumers of refractory products are more concerned about their form
than their raw material. Therefore. EPA estimated impacts in three broad refractory product
markets:
• bricks and shapes.
• monolithics (not directly affected by the NESHAP). and
• refractory ceramic fibers or RCF (not affected by the NESHAP).
These are the refractor)' products for which EPA's database provides information. For each
facility in the industry, EPA has estimated quantities of each of these products manufactured
on-site.
4-1
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4.2 Conceptual Approach
The Agency developed a simple national competitive market model to estimate the
economic impacts on society resulting from the proposed regulation. In these markets buyers
and sellers exert no individual influence on market prices for refractory commodities
potentially affected by the rule. Prices in these markets are set by the collective actions of
producers and consumers, who take the market price as a given in making their production
and consumption choices.
4.2.1 Producer Characterization
Many refractory plants produce multiple refractor}' products. Therefore, individual
product-line supply decisions for existing producers were modeled in this analysis. These
decisions were modeled as intermediate-run decisions, assuming that the plant size.
equipment, and technologies are fixed. Given the existence of these fixed production factors.
each product line was characterized by an upward-sloping supply function (see Figure 4-1).
A profit-maximizing firm will select its output level according to this schedule as long as the
market price is sufficiently high to cover average variable costs (i.e.. greater than C0 in
Figure 4-1). Thus, in the short run, a profit-maximizing firm will not pass up an opportunity
to recover even part of its fixed investment in plant and equipment. These individual supply
decisions were aggregated (i.e.. horizontally summed) to develop a market supply curve for
each refractory product. The majority of the industry is not affected directly; however, they
are affected indirectly by the decrease in the quantity of refractory products in the industry
and the resulting increase in price. Similarly, foreign refractory producers will respond to the
higher refractor}7 prices in the U.S. by supplying more to the U.S. market.
4.2.2 Consumer Characterization
Demand for refractory products comes mainly from the iron and steel industry.
cement industry, and nonferrous metals industry, although smaller shares are sold for use in
glass manufacturing and oil refining. The U.S. Internationa] Trade Commission (1994)
estimates that over 50 percent of refractories are used in the iron and steel industn : DM AN
(1999) estimated this share to be 75 percent. There are no direct substitutes for refractor}
products. Nevertheless, over time, consumers of refractory products have reduced the
amount of refractory products consumed. Over the past 20 years, the iron and steel industn
has restructured, closing inefficient facilities and modernizing remaining plants. Ne\\er
steelmaking technologies significantly reduced the amount of refractories used per ton oi"
4-2
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$/lb
Ibs/year
Figure 4-1. Supply Curve for a Representative Directly Affected Facility
steel. Given data limitations, each commodity market will be modeled as having a single
aggregate consumer with a downward-sloping market demand curve (see Figure 4-2).
4.2.3 Foreign Trade
While the proposed NESHAP will directly affect domestic facilities that produce
refractory products, the rule can also have indirect foreign trade implications. The
consequent change in relative prices of domestic versus foreign refractory products has two
impacts on foreign trade. Foreign imports become more attractive to U.S. refractory
consumers and U.S. exports become less attractive to foreign refractor}' consumers. On the
import side, the demand for imported refractories could increase if they become inexpensive
relative to domestic refractories that are affected by the regulation. We will assume that
foreign firms can meet this spillover demand by using excess capacity in their existing plants.
On the export side, foreign demand for refractories produced in the United States may
decrease if they become relatively more expensive because of the regulation. Finally.
domestic facilities could relocate to foreign countries with laxer environmental regulations if
domestic production costs increase. However, given the relatively small size of the expected
4-3
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+ p
= p
Q
Affected Facilities Indirectly Affected
a) Baseline Equilibrium
Market
P'
P
S'
P'
= P
M.
Affected Facilities
Indirectly Affected
Q' Q
Market
b) With-Regulation Equilibrium
Figure 4-2. Market Equilibrium without and with Regulation
compliance costs it is unlikely that the proposed regulations will trigger industrial flight at
least in the short run. This assumption is consistent with empirical studies in the literature
that have found little evidence of environmental regulations affecting industrv location
decisions (Levinson. 1996). RTI will use available data to estimate the magnitude of these
impacts as described below.
4-4
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4.2.4 Baseline and With-Regulation Equilibrium
A graphical representation of the competitive model of price formation, as shown in
Figure 4-2(a). posits that market prices and quantities are determined by the intersection of
the market supply and demand curves. Under the baseline scenario, a market price and
quantity (p,Q) are determined by the downward-sloping market demand curve (D) and the
upward-sloping market supply curve (S) that reflects the sum of the individual supply curves
of domestic plants that produce a given refractory product.
With the regulation, the costs of production increase for affected suppliers. These
additional costs include a variable component consisting of the operating and maintenance
costs and a fixed component that does not vary with output (i.e.. expenditures for
control-related capital equipment to comply with the regulatory alternative). The imposition
of these regulatory control costs is represented as an upward shift in the supply curve for each
directly affected product line. As a result of the upward shift in these individual supply
curves, the market supply curve for refractory products will shift upward as shown in
Figure 4-2(b) to reflect the increased costs of production at affected plants.
In baseline without the proposed standards, the industry produces total output at
quantity. Q. at price, p. with directly affected facilities producing the amount qd and indirectly
affected facilities accounting for Q minus qd. or q,. With the regulation, the market price
increases from p to p'. and market output (as determined from the market demand curve. D)
declines from Q to Q'. This reduction in market output is the net result of reductions at
directly affected facilities and increases at indirectly affected facilities, including both foreign
and domestic refractory product manufacturing plants not incurring costs.
4.3 Economic Impact Results
To develop quantitative estimates of these impacts. EPA developed a computer model
using the conceptual approach described above.' Using this model. EPA characterized
supply and demand of three refractory commodities—bricks and shapes, monolithics. and
refracton- ceramic fiber (RCFs)—for the baseline year. 1998; introduced a policy "shock"
into the model by using control cost-induced shifts in the supply functions of affected
producers; and used a solution algorithm to determine a new with-regulation equilibrium in
each refractory market. We report the market, industry, and societal impacts projected by the
model below.
'Appendix A includes a description of the baseline data set. model equations, and solution algorithm.
4-5
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4.3.1 Market-Level Impacts
The price of refractory products is expected to increase slightly and production and
consumption decline from 1997 baseline levels. As shown in Table 4-1, the regulation is
projected to increase the price of refractory products by less than 0.1 percent, or an $0.82 per
short ton increase over the 1998 price of $910 per ton. Domestic production is projected to
decline by approximately 0.03 percent, or a decrease of 559 short tons from the 1998
production of 2.1 million tons. This is partially offset by an increase in imports of 329 tons.
Table 4-1. Market-Level Impacts: 1998
Bricks and Shapes
Price ($/ton)
Quantity (short tons)
Domestic
Imports
Monolithics
Price ($/ton)
Quantity (short tons) •
RCF
Price ($/ton)
Quantity (short tons)
Baseline
$910.00
2,360,863
2,177,356
183,507
$533.00
959.656
$497.00
34.490
With
Regulation
$910.82
2,360,634
2.176,798
183,836
$533.06
959.645
$497.00
34,490
Change
Absolute
$0.82
-229
-559
329
$0.06
-11
$0.00
0
Relative
0.09%
-0.0 1 %
-0.03%
0. 1 8%
0.01%
0.00%
0.00%
0.00%
4.3.2 Industry-Level Impacts
Industry revenue, costs, and profitability change as prices and production levels adjust
to increased production costs. As shown in Table 4-2. the economic model projects that
profits for refractory producers will increase by $0.5 million, or 0.43 percent. Although most
4-6
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Table 4-2. Industry-Level Impacts: 1998
Total revenue ($106/yr)
Total costs ($106/yr)
Control
Production
Pre-tax earnings ($106/yr)
Facilities (#)
Employees (FTEsa)
Baseline
$2,510.0
$2,396.2
$0
$2.396.2
$113.8
162
13,840
With
Regulation
$2.511.4
$2.397.1
$1.3
$2,395.8
$114.3
161
13.833
Change
Absolute
$1.3
$0.8
$1.3
-$0.4
$0.5
-1
-7
Relative
0.05%
0.03%
NA
-0.02%
0.43%
-0.62%
-0.05%
FTEs = full-time equivalent employees.
would think that profits would decrease as a result of increasing costs of production, the three
effects below describe why profits increase after the rule:
• Net increase in revenue ($1.3 million): Industry-wide refractory product revenue
increases because 157 of 162 refractor}7 manufacturing facilities with production
data experience increased prices with no increase or very small increases in costs;
thus, their production and revenue are projected to increase. Their increased
profits exceed the reduced profits of the five plants incurring significant emissions
control costs.
• Net decrease in production costs ($0.4 million): A net reduction in refractory
production costs occurs as output declines at facilities incurring compliance costs.
• Increase in control costs ($1.3 million): The costs of production increase as a
result of regulatory controls.
Additional distributional impacts of the rule within each producer segment are not
necessarily apparent from the reported decline or increase in their aggregate operating profits.
The regulation creates both gainers and losers within each industry segment based on the
distribution of compliance costs across facilities. As shown in Table 4-3. facilities incurring
emissions control costs (i.e.. five plants, or 3 percent) are projected to become less profitable
with the regulation with a total loss of $1.3 million. However, 157 facilities are projected to
experience either a total profit gain, because they will receive higher refractor)' prices without
additional control costs. Foreign producers will also experience increased revenues due to
4-7
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Table 4-3. Distributional Impacts Across Facilities: 1998
Facilities (#)
Compliance costs
Total ($/yr)
Average ($/short ton)
Change in pre-tax earnings ($106/yr)
Loss'
5
$1,608,300
$23.13
-$1.30
Operating Profit
Gain or No Change
157
$2.700
$0.00
$1.79
Total
162
$1,611,000
$0.51
$0.49
The loss column includes one projected facility closure.
the higher refractory prices and will claim a slightly larger share of the bricks and shapes
market.
4.3.2.1 Facility Closures and Changes in Employment
EPA estimates that one facility is likely to prematurely close as a result of the
regulation. However, this facility has options to reduce the emissions or change the processes
such that they would no longer be classified as a major source and not incur any compliance
costs. The cost to this facility would then be the amount necessary to convert to nonmajor
source status. Because we do not know how this facility will respond, our model imposes the
MACT regulation costs on this facility and predicts a closure because the cost of production
exceeds revenue. This facility is estimated to employ fewer than ten employees at baseline:
other plants incurring costs may reduce employment slightly as their output declines.
However, facilities not incurring compliance costs may increase their employment slightly in
response to higher refractory prices. On balance. EPA does not expect industn emplo\ ment
to change significantly.
4.3.3 Social Cost
The social impact of a regulatory action is traditionally measured b\ the change in
economic welfare that it generates. The social costs of the proposed rule will be distributed
across producers of refractory products and their customers. Consumers of refractor}
products experience welfare impacts due to changes in market prices and consumption levels
associated with the rule. Producers experience welfare impacts resulting from changes in
profits corresponding with the changes in production levels and market prices. Ho\\e\er. it is
4-8
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important to emphasize that this measure does not include benefits that occur outside the
market, that is, the value of reduced levels of air pollution with the regulation.
The national compliance cost estimates are often used as an approximation of the
social cost of the rule. The engineering analysis estimated annual costs of $1.66 million. In
cases where the engineering costs of compliance are used to estimate social cost, the burden
of the regulation is measured as falling solely on the affected facilities, which experience a
profit loss exactly equal to these cost estimates. Thus, the entire loss is a change in producer
surplus with no change (by assumption) in consumer surplus, because no change in market
price is estimated. This is typically referred to as a "full-cost absorption" scenario in which
all factors of production are assumed to be fixed and firms are unable to adjust their output
levels when faced with additional costs.
In contrast, the economic analysis conducted by the Agency accounts for behavioral
responses by producers and consumers to the regulation, as affected producers shift costs to
other economic agents. This approach results in a social cost estimate that may differ from
the engineering compliance cost estimate and also provides insights on how the regulator)'
burden is distributed across stakeholders. The computation of social costs is discussed in
detail in Appendix B. As shown in Table 4-4. the economic model estimates the total social
cost of the rule to be $1.35 million. Although society reallocates resources as a result of the
increased cost of refractory production, only a relatively small change in social welfare
occurs. Users of refractory products (i.e., consumers such as the steel industry) experience a
decline in welfare of $1.99 million, because of increased prices and decreased consumption.
Industry-wide, refractor}' producers experience a net gain of $0.64 million. This net gain
includes welfare changes experienced by facilities incurring compliance costs (which
experience increased costs and decreased output and profit, along with an increase in price)
and welfare changes experienced by facilities—both foreign and domestic—that do not incur
compliance costs (which receive higher prices for their commodities and respond by
producing more). It also reflects the projected premature closure of one refractory
manufacturing facility. Overall, however, the impacts on both refractor) manufacturers and
their customers are projected to be relatively small.
4-9
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Table 4-4. Distribution of Social Costs: 1998
Value (S106/yr)
Consumer surplus -$1.99
Bricks and shapes -$1.93
Monolithics -$0.06
RCF $0.00
Producer surplus $0.64
Domestic $0.49
Foreign $0.15
Total social cost -$1.35
4.3.4 Full-Cost-Absorption Scenario
EPA's analysis of impacts on refractory manufacturers assumed that refractory
manufacturers, responding to costs of compliance, would attempt to shift some of the cost to
their customers by raising the price of their products. Refractory consumers \\ould reduce the
quantity, demanded of refractory products, thus resulting in shifts in market prices and
quantities, and leading to changes in output, revenues, costs, and profits at both directly
affected and indirectly affected refractory producers.
Because of evidence of oligopsony power and lower foreign prices about \\hich EPA
has heard from industry, refractory producers may be unable to increase their prices in
response to the increased costs associated with compliance. To assess the impacts on the
industry if this is true. EPA has analyzed the impacts of the NESHAP using a full-cost-
absorption scenario.
The full-cost-absorption scenario is a simplified analysis that uses the following
assumptions: costs are imposed on facilities and are added to baseline production costs at
directly affected facilities. Neither prices nor quantities are permitted to adjust in response to
the higher costs. Thus, the only impact of the higher costs is to reduce the profits of directh
4-10
-------
affected facilities. Facilities whose costs exceed their baseline profits become unprofitable
and are projected to close.
When EPA implemented the full-cost-absorption scenario, a single facility (the same
one projected to close in the market analysis) is projected to become unprofitable and close.
Other facilities are projected to continue producing the same quantity of refractory products
as they do under baseline conditions. Facilities incurring compliance costs are projected to
experience profit reductions equal to the compliance costs they incur. Facilities not incurring
compliance costs are unaffected.
Thus, the full-cost-absorption scenario projects results similar to the market analysis.
EPA believes that the market analysis, which allows market price and quantity to adjust in
response to the costs of complying with the NESHAP. is a more realistic assessment of actual
impacts, including a more accurate estimate of the distributional impacts of the regulation.
4-1
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SECTION 5
SMALL BUSINESS IMPACTS
Environmental regulations like this rule potentially affect all businesses, large and
small, but small businesses may have special problems complying with such regulations. The
Regulatory Flexibility Act (RFA) of 1980 as amended in 1996 by the Small Business
Regulatory Enforcement Fairness Act (SBREFA) generally requires an agency to prepare a
regulator)' flexibility analysis of a rule unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small businesses, small governmental
jurisdictions, and small organizations. This section examines the proposed rule's impact on
these entities.
5.1 Identify Small Entities
For purposes of assessing the impacts of the proposed rule on small entities, a small
entity is defined as: (1) a small business according to Small Business Administration (SBA)
size standards for NAICS code 327124 (Clay Refractories) of 500 or fewer employees or
NAICS code 327125 (Monday refractories) of 750 or fewer employees:1 (2) a small
governmental jurisdiction that is a government of a city, county, town, school district, or
special district with a population of less than 50.000; and (3) a small organization that is any
not-for-profit enterprise that is independently owned and operated and is not dominant in its
field.
The Agency collected data on facility and company employment from the industry :
additional data w^ere collected from publicly available sources such as financial databases.
Based on this employment data. EPA determined that 58 small entities within this source
category would be subject to this proposed rule. Of the 80 companies owning refractor)
manufacturing facilities in the EPA database, only 17 have company-level employ ment data
'For purposes of this analysis, small businesses were defined as having 750 or fewer emplcnees Some of the
companies in the refractory industry produce both clay and noncla> refractories, which doe>> not alkm us to
assign companies unambiguously to a single NAICS code. For this reason, we selected the higher NAICS
criterion. 750 employees, as the small business criterion for all companies. Note that thK conser\ati\e
criterion may overstate the total number of small companies
5-1
-------
showing that they have more than 750 employees. These are classified as large companies
for purposes of this analysis. The remaining 58 companies are classified as small entities.
5.2 Economic Analysis
The Agency conducted a screening analysis to assess the impacts of the proposed rule
on small businesses and to compare the impacts on small businesses with impacts on large
businesses. These results are shown in Table 5-1. Only one of the estimated 58 small
businesses in the refractory manufacturing industry is projected to incur costs to comply with
the regulation. By contrast, the seven large companies projected to incur compliance costs
experience costs averaging $188.400 per company. Even for the large businesses incurring
costs, however, none experience costs exceeding 1 percent of baseline sales.
Table 5-1. Summary Statistics for SBREFA Screening Analysis: 1998
Total number of companies
Total annual compliance costs
(TACC) ($/year)
Average TACC per company (S'year)'1
Companies with sales data
Compliance costs <1% of sales
Compliance costs 1% to 3% of sales
Compliance costs are >3% of sales
Compliance cost-to-sales ratios (CSRs)
Mean
Median
Maximum
Minimum
Small
58
$293.300
NR
Number Share
33 100%
33 100%
0 0%
0 0%
0.012%
0.000%
0.362%
0000%
Large
22
$1.317.700
SI 88.400
Number Share
17 100%
1 7 1 00%
0 0%
0 0%
0.008%
0.000%
0.066%
0.000%
Total
80
$1.611.000
$201.300
Number Share
50 100%
50 100%
0 0%
0 0%
0.010%
0.000%
0.362%
0.000%
aAverage over companies incurring compliance costs.
NR = not reported to avoid revealing confidential data
The Agency analyzed the economic impacts on small businesses under
\vith-regulation conditions expected to result from implementing the proposed rule. This
approach examines small business impacts in light of the expected behavioral responses of
producers and consumers to the regulation. As shown in Table 5-2. overall revenue and
operating profits for facilities owned by small businesses are projected to increase under the
5-2
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recommended alternative. Only one small business incurs compliance costs. In response to
the projected increase in market price for refractory products, most facilities owned by small
businesses are projected to increase their output somewhat. As a result, they experience
increased production costs but also increased revenues, profits, and employment.
Table 5-2. Small Business Impacts: 1998
Total revenue ($106/yr)
Total costs ($106/yr)
Control
Production
Pre-tax earnings ($106/yr)
Facilities (#)
Employees (FTEsa)
Baseline
$506.6
$489.0
$0.0
$489.0
$17.6
76
3.455
With
Regulation
$507.1
$489.4
$0.3
$489.1
$17.7
76
3.457
Change
Absolute
$0.4
$0.4
$0.3
$0.1
$0.0
0
2
Relative
0.09%
0.08%
NA
0.02%
0.19%
0.00%
0.05%
* FTEs = full-time equivalent employees.
5.3 Assessment
The proposed refractories NESHAP is only expected to result in increased costs for
one small business. Because the price of refractory products is expected to increase, most
small companies are projected to increase their production, revenues, production costs, and
profits. Overall, they are expected to benefit economically from the proposed rule. For the
one small business incurring costs due to the proposed NESHAP. estimated compliance costs
represent only 0.37 percent of baseline sales. Thus the rule is not expected to result in
significant adverse economic impacts to any small business.
5-3
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ASM International. 1987. Engineered Materials Handbook. Volume 4: Ceramics and
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January 26. 2001.
DHAN. 1999. "Industry Report: Refractories Passing through Difficult Times." Available
at .
Dun & Bradstreet. 2000. D&B Million Dollar Directory. Series 2000. Bethlehem, PA:
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Hicks. J.R. 1966. The Theory of Wages. 2nd Ed. New York: St. Martin's Press.
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Levinson. Arik: 1996. "Environmental Regulations and Industry Location: International
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.
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APPENDICES
-------
APPENDIX A
OVERVIEW OF REFRACTORIES MARKET MODEL
To develop estimates of the economic impacts on society resulting from the proposed
regulation, the Agency developed a computational model using a framework that is consistent
with economic analyses performed for other rules. This approach employs standard
microeconomic concepts to model behavioral responses expected to occur with the
regulation. This appendix describes the spreadsheet model in detail and discusses how the
Agency
• characterized the supply and demand of three refractory commodities—bricks and
shapes, monolithics, and refractory ceramic fiber (RCFs);
• introduced a policy "shock" into the model by using control cost-induced shifts in
the supply functions of affected producers; and
• used a solution algorithm to determine a new with-regulation equilibrium in each
refractory market.
A.I Baseline Data Set
Much of the data used in modeling the refractory industry comes from the EPA
Refractory Industry Database, which contains confidential survey responses from potential!}.
affected facilities. Among the critical data included in this database are product-specific
output. Table A-l lists additional plant and company data elements and their sources.
Table A-2 shows prices of refractory products obtained from Freedonia Group. Although
"other" refractor}' forms includes not only RCF but refractories that are shipped in bulk. EPA
used this price for RCF.
A.2 Supply and Demand Elasticities
Unfortunately, empirical estimates of demand or supply elasticities for roofing
products are limited. The option of estimating a system of demand and supph equations
using three-stage least squares (3SLS) was not feasible because of limitations of time-series
data. Although these limitations prevent estimation of these parameters, knowledge about the
A-l
-------
Table A-l. Types and Sources of Refractory and Processing Facility Data
Data Category Data Element Data Source
Plant data
Company data
Market data
Plant name
Plant location
Plant ownership
Types of refractor}.' products
produced
Employment
Quantity produced of each
refractory product
Company name
Company sales
Employment
Prices
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Refractory Industry Database
EPA Estimate
EPA Refractory Industry Database
Ward's Business Directory
Ward's Business Director}
Ward's Business Directory
Freedonia Group
Sources'Freedonia Group. September 1999. "Refractories in the United States to 2003." Profound
WorldSearch .
Information Access Co. 2000. Ward's Business Directory. Belmont. CA
U.S. Environmental Protection Agenc\ (EPA). 200Ib. Refractory Industn, Database
factors influencing the elasticity of derived demand makes it possible to develop informed
assumptions about producer and consumer responses to price changes. Economic theory
states that the elasticity of the derived demand for an input is a function of the following
(Hicks. 1961: Hicks. 1966: and Allen. 1938):
• demand elasticity for the final good it will be used to produce.
• the cost share of the input in total production cost.
• the elasticity of substitution between this input and other inputs in production, and
• the elasticity of supply of other inputs.
Using Hicks" formula.
A-2
-------
Table A-2. Refractory Products Pricing ($/ton)
Form
Monolith ics
Bricks and Shapes
Other3
1989S
451
709
394
1998$
526
826
459
1993S
491
782
442
1998S
544
866
490
1998S
533
910
497
a Other refractory forms consist of ceramic fibers and refractory raw materials that are supplied in lump or
ground form used to manufacture refractories "in-house."
Note: Prices were inflated using the producer price index for stone, clay, glass and concrete products
available through the Bureau of Labor Statistics at .
Source: Freedonia Group September 1999. "Refractories in the United States to 2003." Profound
WorldSearch .
[s(n+e)+Ke(n-s)]
[n+e-K(n-s)]
(AJ
where
T), = elasticity of demand for the refractory product i.
s = elasticity of substitution between refractory product i and all other inputs to steel
production.
n = elasticity of demand for final product (steel products).
e = elasticity of supply of other inputs, and
K = cost share of refractory product i in total production cost.
In the appendix to The Theory of Wages. Hicks (1966) shows that, if;? ' \. the
demand for the input is less elastic the smaller its cost share. If the data were available, this
formula could be used to actually compute the elasticity of demand for each refractor}
product. The final products for which the refractory is an input include iron and steel
products, other nonferrous metal products, and cement. The iron and steel industn.
dominates the demand for refractory products, perhaps constituting as much as 75 percent of
total refractor}' consumption. For this reason. EPA concentrated on the elastieiu of demand
for refractories in steelmaking. For the analysis of the Integrated Iron and Steel NKSHAP.
the Agency estimated the elasticity of demand for iron and steel products to be -0.5C). Values
A-3
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in the literature have been in the same range, both for ferrous (-0.7) and nonferrous (-0.6)
metals (Slade, 1996). Lacking estimates of other elasticities of final demand and of the other
parameters in the formula makes direct computation of the elasticity of demand. r\.
impossible. In spite of this, the formula is useful because it identifies factors that influence
the magnitude of the elasticity of derived demand. Knowledge of the general magnitude of
those factors makes it possible to make an educated assumption about the magnitude of r\.
The elasticity of substitution, s, between refractory products and other inputs is likely
to be very low but nonzero. While there are no substitutes for refractories in the short run.
over time, capital equipment has been substituted for refractories as technology has evolved
requiring less use of refractories per ton of steel. We thus expect that n>s. This implies that
the magnitude of n. is proportional to the magnitude of K. the cost share of refractories in
overall building construction. Based on the benchmark input-output accounts for the United
States, stone and clay products (including refractories) are 1.5 percent of primary iron and
steel manufacturing and 0.02 percent of primary nonferrous metals manufacturing (Law son.
1997).
Given that the cost share of stone and clay products in the total production cost of
ferrous and nonferrous primary metal manufacturing is small, the elasticity of demand for one
of the final products (steel mill products) is relatively low. and ease of substitution between
inputs very limited, the elasticity of demand for refractory products would be inelastic (i.e..
less than 1 in absolute value). In fact, we suspect it may be substantially lower. Assuming
the elasticity of supply of other inputs is 1. and the elasticity of substitution between
refractory and other inputs is 0.1. the elasticity of demand for refractories would be
approximately 0.1 in absolute value.
A.3 Operational Model
The Agency developed an operational model of the refractories industry using
spreadsheet software. This model characterizes market supply and demand, allows the
analyst to introduce a policy "shock" into the model by using control cost-induced shifts in
the supply functions of affected producers, and uses a solution algorithm to determine a new
with-regulation equilibrium for each refractory market. This section describes the computer
model in detail.
A-4
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A. 3.1 Market Supply
Domestic supply for product i can be expressed as
n
S' = E %) (A.2)
where
q s' = product i supply from domestic plant (j) and
n = the number of domestic suppliers producing commodity i.
A. 3.1.1 Product Line Supply
EPA used a simple Cobb Douglas (CD) supply function for each facility product line
expressed as follows:
V(P,
where
q S| = the supply of product i for domestic plant (j).
A, = a parameter that calibrates the supply equation to replicate the estimated 1998
level of production.
P, - the 1998 market price for product i. and
es, = the domestic supply elasticity.
Regulatory Induced Shifts in the Supply Function (c). The upward shift in the supph
function (c,) is calculated by taking the total annual compliance cost estimate and di\ iding it
by baseline output. Computing the supply shift in this manner treats the compliance costs as
the conceptual equivalent of a unit tax on output.
(A.3;
A-5
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Plant Closure Analysis. One of the most sensitive issues to consider in the EIA is the
possibility that the regulation may induce a producer to shut down operations rather than
comply with the regulation. The data (i.e.. direct observations of plant-level costs and
profits) necessary to make definitive projections of these impacts are unavailable from the
survey data. Therefore. EPA developed a crude method of identifying plant closure decisions
using firm-specific or broad industry measures of profitability as described below.
The plant closure criterion used for this analysis is defined as follows:
TI} = TRj - TCj < 0 (A.4)
where total revenue (TR,) is the sum of the product revenue from plant j's product lines, and
total cost (TC,) is the sum of the plant's total variable production costs, total avoidable fixed
production costs, and total control costs. The conceptually correct view would assume the
plant also has some positive liquidation value or opportunity value in an alternative use that
is not captured in the TC elements used to compute 7Tr However, no data are available to
estimate these opportunity costs. Therefore, the Agency has assumed they are exactly offset
by the costs of closing a plant (i.e.. equal to zero).
Given the estimated 1998 values of revenue and variable production costs implied by
the calibrated product line supply functions, the Agency developed an estimate of the total
avoidable fixed costs so that the profit ratio for each plant exactly matches either the parent
compam "s profit margin or an industry profit ratio reported by the U.S. Internal Revenue
Service (Contos and Legal. 2000).
A.3.2 Market Demand
Domestic demand is expressed as follows:
q°'= B.-P/' (A.5)
where
Q D, = domestic demand for product i.
B, -a parameter that calibrates the demand equation to replicate the 1998 level of
domestic demand.
A-6
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P, = the 1998 market price for product i. and
~D, = the domestic demand elasticity for product i.
A.3.3 With-Regulation Market Equilibrium Determination
Producer responses and market adjustments can be conceptualized as an interactive
feedback process. Plants facing increased production costs due to compliance are willing to
supply smaller quantities at the baseline price. This reduction in market supply leads to an
increase in the market price that all producers and consumers face, which leads to further
responses by producers and consumers and thus new market prices, and so on. The ne\\
with-regulation equilibrium is the result of a series of iterations in which price is adjusted and
producers and consumers respond, until a set of stable market prices arises where total market
supply equals market demand (i.e., Qs = QD) in each market. Market price adjustment takes
place based on a price revision rule that adjusts price upward (downward) by a given
percentage in response to excess demand (excess supply).
The algorithm for determining with-regulation equilibria can be summarized by five
recursive steps:
1. Impose the control costs on all affected plants, thereby affecting their supply
decisions.
2. Recalculate the market supply in each product market.
3. Determine the new prices via the price revision rule for each product market.
4. Recalculate the supply functions with the new price, resulting in a new market
supply of each product. Compute market demand at the new prices.
5. Go to Step 3. resulting in a new price. Repeat until equilibrium conditions are
satisfied (i.e.. the ratio of supply to demand is arbitrarily close to one)
A-7
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APPENDIX B
ECONOMIC WELFARE IMPACTS ON REFRACTORY INDUSTRY
The economic welfare implications of the market price and output changes with the
regulation can be examined using two different strategies, each giving a somewhat different
insight but the same implications: changes in the net benefits of consumers and producers
based on the price changes and changes in the total benefits and costs of these products based
on the quantity changes. This analysis focuses on the first measure—the changes in the net
benefits of consumers and producers. Figure B-l depicts the change in economic welfare by
first measuring the change in consumer surplus and then the change in producer surplus. In
essence, the demand and supply curves previously used as predictive devices are now being
used as a valuation tool.
This method of estimating the change in economic welfare with the regulation divides
society into consumers and producers. In a market environment, consumers and producers of
the good or service derive welfare from a market transaction. The difference between the
maximum price consumers are willing to pay for a good and the price they actually pay is
referred to as "consumer surplus." Consumer surplus is measured as the area under the
demand curve and above the price of the product. Similarly, the difference between the
minimum price producers are willing to accept for a good and the price they actually receive
is referred to as "producer surplus" or profits. Producer surplus is measured as the area above
the supply curve and below the price of the product. These areas can be thought of as
consumers" net benefits of consumption and producers" net benefits of production.
respective!}.
In Figure B-l. baseline equilibrium occurs at the intersection of the demand curve. D.
and supply curve. S. Price is P, with quantity Q,. The increased cost of production with the
regulation will cause the market supply curve to shift upward to S'. The new equilibrium
price of the product is P:. With a higher price for the product, there is less consumer welfare.
all else being unchanged as real incomes are reduced. In Figure B-l (a), area A represents the
dollar value of the annual net loss in consumers" benefits with the increased price. The
B-l
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$/Q
Q2 Q, Q/t
(a) Change in Consumer Surplus with Regulation
$/Q
Q
Q/t
(b) Change in Producer Surplus with Regulation
$/Q
PI
Q2 Q,
Q/t
(c) Net Change in Economic Welfare with Regulation
Figure B-l. Economic Welfare Changes with Regulation: Consumer and Producer
Surplus
B-2
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rectangular portion represents the loss in consumer surplus on the quantity still consumed.
Q.,. while the triangular area represents the foregone surplus resulting from the reduced
quantity consumed, Q-Q2-
In addition to the changes in consumer welfare, producer welfare also changes with
the regulation. With the increase in market price, producers receive higher revenues on the
quantity still purchased. Q^ In Figure B-l(b), area B represents the increase in revenues due
to this increase in price. The difference in the area under the supply curve up to the original
market price, area C. measures the loss in producer surplus, which includes the loss
associated with the quantity no longer produced. The net change in producer welfare is
represented by area B-C.
The change in economic welfare attributable to the compliance costs of the regulation
is the sum of consumer and producer surplus changes, that is. - (A) + (B-C). Figure B-l(c)
shows the net (negative) change in economic welfare associated with the regulation as area
D. However, this analysis does not include the benefits that occur outside the market (i.e..
the value of the reduced levels of air pollution with the regulation). Including this benefit
may reduce the net cost of the regulation or even make it positive.
B-3
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TECHNICAL REPORT DATA
(Please read Instructions on reverse before completing)
1. REPORT NO.
EPA-452/R-01-017
3 RECIPIENT'S ACCESSION NO
4. TITLE AND SUBTITLE
Economic Impact Analysis of the Refractory Product
Manufacturing NESHAP
5 REPORT DATE
December 2001
6 PERFORMING ORGANIZATION CODE
7 AUTHOR(S)
Lisa Conner, Innovative Strategies and Economics Group
8 PERFORMING ORGANIZATION REPORT NO
9 PERFORMING ORGANIZATION NAME AND ADDRESS
U.S. Environmental Protection Agency
Office of Air Quality Planning and Standards
Air Quality Strategies and Standards Division
Research Triangle Park, NC 27711
10 PROGRAM ELEMENT NO
11 CONTRACT/GRANT NO
12 SPONSORING AGENCY NAME AND ADDRESS
John Sietz, Director
Office of Air Quality Planning and Standards
Office of Air and Radiation
U.S. Environmental Protection Agency
Research Triangle Park, NC 2771 1
13 TYPE OF REPORT AND PERIOD COVERED
14 SPONSORING AGENCY CODE
EPA/200/04
15 SUPPLEMENTARY NOTES
16 ABSTRACT
This report presents a technical analysis of the economic impacts associated with the proposed NESHAP
for Refractory Product Manufacturing. The analysis evaluates adjustments in the refractory products
market (through price and production changes), social cost, and the resulting affects on employment.
international trade, and small businesses.
17
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b IDENTIFIERS/OPEN ENDED TERMS
COSVH Fidil Gloun
Economic Impact Analysis (EIA)
Regulatory Flexibility Analysis (RFA)
Air Pollution control
economic analysis
small business analysis
18 DISTRIBUTION STATEMENT
Release Unlimited
19 SECURITY CLASS (Report)
Unclassified
\"O OF P \GES
20 SECURITY CLASS (Page)
Unclassified
PRIH-;
EPA Form 2220-1 (Rev. 4-77) PREVIOUS EDITION IS OBSOLETE
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