/. N'
United States
Environmental Protection
Agency
Office of Regulations
and Standards
Washington, DC 20460
EPA-440/2-81-023
May 1982
Water
Economic Impact Analysis
of Pollution Control
Technologies for Segments
of the Inorganic Chemicals
Manufacturing Industry
QUANTITY
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ECONOMIC IMPACT ANALYSIS OF POLLUTION CONTROL
TECHNOLOGIES FOR SEGMENTS OF THE
INORGANIC CHEMICALS MANUFACTURING INDUSTRY
Prepared for:
Office of Water Regulations and Standards
U.S. Environmental Protection Agency
Washington, B.C. 20460
Under Contract No.
68-01-4618
May 1982
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This document is available from the National Technical Information Service,
5282 Port Royal Road, Springfield, Virginia 22161.
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Mention of trade names or commerical products does not constitute
endorsement or recommendation for use.
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ACKNOWLEDGEMENTS
This report is the result of a five-year effort. Many people at Energy
and Environmental Analysis contributed, including:
Art Bell
Peter Calvert
Pat Greene
Jamie Heller
Paul Johnson
Stan Kaplan
Judy Krantzman
Carla Kuhn
Harley Lee
Mike Lerner
Charlie Mann
Linda Marine
Rita Rice
Robert Sansom
Dennis Terez
Peter Thorne
Dan Violette
The EEA Production Staff
Thanks are also due to Emily Hartnell, Debby Maness, Sammy Ng, Rene
Rico, and Bill Webster, the EPA project officers; Jacobs Engineering,
the technical contractor; and Arthur D. Little, Inc., which assisted as
a subcontractor to EEA. Too numerous to list, but of the greatest
importance, are the dozens of people in industry, trade associations,
and government who contributed their time and knowledge to this study.
Stan Kaplan
Linda Marine
Project Managers
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PREFACE
This document is a report of an economic contractor's study prepared for
the Office of Analysis and Evaluation of the Environmental Protection
Agency (EPA). The main purpose of the study is to analyze the economic
impact of effluent control costs required to meet the BPT, BAT, PSES,
NSPS, and PSNS guidelines established for the Inorganic Chemicals Manu-
facturing Point Source Category under the Federal Water Pollution Control
Act. These guidelines were proposed on July 24, 1980 (Federal Register,
Vol. 45, No. 144).
In addition, this study addresses potential impacts of the combined
costs of compliance with effluent guidelines and the Interim Status
Standards of the Resource Conservation and Recovery Act (RCRA-ISS) for
segments of the inorganic chemicals industry which will incur both sets
of compliance costs.
The investment and operating costs associated with effluent control
treatment and RCRA-ISS requirements were developed by a technical con-
tractor. The impact analysis included in this report is based on ef-
fluent control cost estimates as revised through March 1981 and on draft
RCRA-ISS cost estimates developed in accordance with the "Draft Final
Guidance Document for RCRA-ISS Costs" prepared by EPA's Office of Analysis
and Evaluation in December 1980.
This study has been prepared with the supervision and review of the
Office of Analysis and Evaluation of the EPA. This report is submitted
in fulfillment of Contract No. 68-01-4618 by Energy and Environmental
Analysis, Inc., and reflects work completed as of November 1981.
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TABLE OF CONTENTS
Page
A. EXECUTIVE SUMMARY A-l
B. INDUSTRY OVERVIEW B-l
C. METHODOLOGY USED IN ECONOMIC IMPACT ANALYSIS C-l
D. SUBCATEGORY ANALYSIS
1. ALUMINUM FLUORIDE 1-1
1.1 Industry Characterization 1-1
1.1.1 Demand 1-1
1.1.2 Supply 1-6
1.1.3 Competition 1-11
1.1.4 Economic Outlook 1-15
1.1.5 Characterization Summary 1-18
1.2 Impact Analysis 1-19
1.2.1 Pollution Control Technology and Costs 1-19
2. CHLORINE 2-1
2.1 Industry Characterization 2-1
2.1.1 Demand 2-1
2.1.2 Supply 2-4
2.1.3 Competition 2-19
2.1.4 Economic Outlook 2-21
2.1.5 Characterization Summary 2-23
2.2 Impact Analysis 2-23
2.2.1 Pollution Control Technology and Costs 2-25
2.2.2 Model Plant Analysis 2-30
2.2.3 Industry Impacts 2-51
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TABLE OF CONTENTS (Cont'd)
Page
3. CHROME PIGMENTS 3-1
3.1 Industry Characterization 3-1
3.1.1 Demand 3-1
3.1.2 Supply 3-6
3.1.3 Competition 3-21
3.1.4 Economic Outlook 3-22
3.1.5 Characterization Summary 3-24
3.2 Impact Analysis 3-25
3.2.1 Pollution Control Technology and Costs 3-26
3.2.2 Model Plant Analysis 3-31
3.2.3 Industry Impacts 3-39
4. COPPER SULFATE 4-1
4.1 Industry Characterization 4-1
4.1.1 Demand 4-3
4.1.2 Supply 4-6
4.1.3 Competition 4-11
4.1.4 Economic Outlook 4-15
4.1.5 Characterization Summary 4-17
4.2 Impact Analysis 4-18
4.2.1 Pollution Control Technology and Costs 4-18
5. HYDROGEN CYANIDE 5-1
5.1 Industry Characterization 5-1
5.1.1 Demand 5-2
5.1.2 Supply 5-8
5.1.3 Competition 5-15
5.1.4 Economic Outlook 5-22
5.1.5 Characterization Summary 5-26
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TABLE OF CONTENTS (Cont'd)
Page
5.2 Impact Analysis 5-27
5.2.1 Pollution Control Technology and Costs 5-27
5.2.2 Model Plant Analysis 5-31
5.2.3 Industry Impacts 5-35
6. HYDROGEN FLUORIDE 6-1
6.1 Industry Characterization 6-1
6.1.1 Demand 6-1
6.1.2 Supply 6-5
6.1.3 Competition 6-11
6.1.4 Economic Outlook 6-11
6.1.5 Characterization Summary 6-14
6.2 Impact Analysis 6-18
6.2.1 Pollution Control Technology and Costs 6-18
6.2.2 Model Plant Analysis 6-19
6.2.3 Industry Impacts 6-26
7. NICKEL SULFATE 7-1
7.1 Industry Characterization 7-1
7.1.1 Demand 7-1
7.1.2 Supply 7-4
7.1.3 Competition 7-8
7.1.4 Economic Outlook 7-13
7.1.5 Characterization Summary 7-15
7.2 Impact Analysis 7-15
7.2.1 Pollution Control Technology and Costs 7-16
8. SODIUM BISULFITE 8-1
8.1 Industry Characterization 8-1
8.1.1 Demand 8-1
8.1.2 Supply . . • 8-4
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TABLE OF CONTENTS (Cont'd)
Page
8.1.3 Competition 8-7
8.1.4 Economic Outlook 8-11
8.1.5 Characterization Summary 8-14
8.2 Impact Analysis 8-15
8.2.1 Pollution Control Technology and Costs 8-15
8.2.2 Model Plant Analysis 8-16
8.2.3 Industry Impacts 8-25
9. SODIUM BICHROMATE 9-1
9.1 Industry Characterization 9-1
9.1.1 Demand 9-1
9.1.2 Supply 9-6
9.1.3 Competition 9-10
9.1.4 Economic Outlook 9-15
9.1.5 Characterization Summary 9-17
9.2 Impact Analysis 9-17
9.2.1 Pollution Control Technology and Costs 9-17
10. TITANIUM DIOXIDE 10-1
10.1 Industry Characterization 10-1
10.1.1 Demand 10-1
10.1.2 Supply 10-2
10.1.3 Competition 10-10
10.1.4 Economic Outlook 10-20
10.1.5 Characterization Summary 10-22
10.2 Impact Analysis . ; 10-23
10.2.1 Pollution Control Technology and Costs 10-24
10.2.2 Model Plant Analysis 10-30
10.2.3 Industry Impacts 10-40
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TABLE OF CONTENTS (Cont'd)
Page
APPENDIX A: Explanation of the Price Rise Calculations apx-1
APPENDIX B: Derivation of the Financial Analysis Equations. . . apx-7
APPENDIX C: The Manufacturing Cost Estimates: Sources, Uses,
and Limitations apx-11
APPENDIX D: Sensitivity of the Profitability Analysis to
the Financial Data apx-13
APPENDIX E: Regulatory Flexibility Analysis apx-25
APPENDIX F: Social Costs apx-49
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LIST OF TABLES
Page
A-l Summary of Economic Characteristics A-5
A-2a Summary of Impacts - Costs and Closures A-7
A-2b Summary of Price and Profitability Impacts A-9
A-3 Summary of Incremental Impacts of RCRA-ISS Costs .... A-25
B-l Chemical Production B-6
B-2 High Volume Chemicals B-9
B-3 Capital Spending by 20 Major Chemical Firms B-13
1-1 Production of Aluminum Fluoride 1-7
1-2 Producers of Aluminum Fluoride 1-10
1-3 Estimated Cost of Manufacturing Aluminum Fluoride. . . . 1-12
1-4 Pollution Control Costs - Aluminum Fluoride, 1-21
2-1 Production of Chlorine 2-7
2-2 Chlor-Alkali Producing Companies, Plants, and
Capacities 2-9
2-3 Estimated Cost of Manufacturing Chlorine -
Mercury Process 2-13
2-4 Estimated Cost of Manufacturing Chlorine -
Diaphragm Process 2-16
2-5a Pollution Control Costs - Chlorine (Mercury) 2-27
2-6a Manufacturing Costs - Chlorine (Mercury) 2-27
2-7a Subcategory Compliance Costs - Chlorine (Mercury). . . . 2-28
2-5b Pollution Control Costs - Chlorine (Diaphragm) 2-31
2-6b Manufacturing Costs - Chlorine (Diaphragm) 2-31
2-7b Subcategory Compliance Costs - Chlorine (Diaphragm). . . 2-32
2-7c Subcategory Compliance Costs - BAT plus RCRA-ISS
Chlorine (Diaphragm) 2-33
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LIST OF TABLES (Cont'd)
2-7d Subcategory Compliance Costs - Chlorine (Diaphragm). . . 2-34
2-8 Percentage Price Rise - Chlorine (Mercury) 2-37
2-9 Percentage Price Rise - Chlorine (Diaphragm) 2-38
2-10a Profitability Change - Chlorine (Mercury BAT) 2-39
2-10b Profitability Change - Chlorine (Mercury BAT plus
RCRA-ISS) 2-40
2-lla Profitability Change - Chlorine (Diaphragm PSES) .... 2-43
2-llb Profitability Change - Chlorine (Diaphragm BAT) 2-44
2-llc Profitability Change - Chlorine (Diaphragm BAT plus
RCRA-ISS) 2-45
2-12 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chlorine (Mercury) 2-46
2-13 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chlorine (Diaphragm) 2-47
2-14 Impact Summary - Chlorine (Mercury) 2-48
2-15 Impact Summary - Chlorine (Diaphragm) 2-49
3-1 Chrome Pigments Production 3-8
3-2 Producers of Chrome Pigments 3-13
3-3 Constituents of Chrome Pigments 3-16
3-4 Estimated Cost of Manufacturing Chrome Yellow Pigment. . 3-17
3-5 Pollution Control Costs - Chrome Pigments 3-28
3-6 Manufacturing Costs - Chrome Pigments 3-29
3-7 Subcategory Compliance Costs - Chrome Pigments 3-30
3-8 Percentage Price Rise - Chrome Pigments 3-32
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LIST OF TABLES (Cont'd)
Page
3-9a Profitability Change - Chrome Pigments (BAT/PSES). . . . 3-34
3-9b Profitability Change - Chrome Pigments (BAT/PSES plus
RCRA-ISS) 3-35
3-10 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chrome Pigments 3-37
3-11 Impact Summary - Chrome Pigments 3-38
3-12 Chrome Pigments Industry Characterization 3-41
3-13 Projected Chrome Pigments Demand - 1985 3-45
4-1 Production of Copper Sulfate 4-7
4-2 Producers of Copper Sulfate 4-9
4-3 Estimated Cost of Manufacturing Copper Sulfate 4-12
4-4 Pollution Control Costs - Copper Sulfate 4-20
5-1 Production of Methyl Methacrylate 5-4
5-2 Producers of Methyl Methacrylate 5-7
5-3 Current and Projected Demand for HCN by Use 5-9
5-4 Production of Hydrogen Cyanide 5-11
5-5 Hydrogen Cyanide Producers 5-13
5-6 Estimated Cost of Manufacturing Hydrogen
Cyanide - Andrussow Process 5-17
5-7 Future MMA Demand and Capacity 5-23
5-8 Pollution Control Costs - Hydrogen Cyanide 5-29
5-9 Manufacturing Costs - Hydrogen Cyanide 5-29
5-10 Subcategory Compliance Costs - Hydrogen Cyanide 5-30
5-11 Percentage Price Rise - Hydrogen Cyanide 5-33
5-12 Profitability Change - Hydrogen Cyanide 5-34
5-13 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Hydrogen Cyanide 5-37
5-14 Impact Summary - Hydrogen Cyanide 5-33
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LIST OF TABLES (Cont'd)
Page
6-1 Production of Hydrogen Fluoride 6-7
6-2 Producers of Hydrogen Fluoride 6-9
6-3 Estimated Cost of Manufacturing Hydrogen Fluoride. . . .6-15
6-4 Pollution Control Costs - Hydrogen Fluoride 6-21
6-5 Manufacturing Costs - Hydrogen Fluoride 6-21
6-6 Subcategory Compliance Costs - Hydrogen Fluoride .... 6-22
6-7 Percentage Price Rise - Hydrogen Fluoride 6-23
6-8 Profitability Change - Hydrogen Fluoride (BAT) 6-24
6-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Hydrogen Fluoride 6-27
6-10 Impact Summary - Hydrogen Fluoride 6-28
7-1 Production of Nickel Sulfate 7-5
7-2 Producers of Nickel Sulfate 7-9
7-3 Estimated Cost of Manufacturing Nickel Sulfate 7-10
7-4 Pollution Control Costs - Nickel Sulfate 7-17
8-1 Producers of Sodium Bisulfite 8-5
8-2 Estimated Cost of Manufacturing Sodium Bisulfite -
Mother Liquor Process 8-8
8-3 Sodium Bisulfite List Prices 8-12
8-4 Pollution Control Costs - Sodium Bisulfite 8-17
8-5 Manufacturing Costs - Sodium Bisulfite 8-17
3-6 Subcategory Compliance Costs - Sodium Bisulfite 8-18
8-7 Percentage Price Rise - Sodium Bisulfite 8-20
8-8 Profitability Change - Sodium Bisulfite (PSES) 8-22
8-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Sodium Bisulfite 8-23
8-10 Impact Summary - Sodium Bisulfite 8-24
9-1 Production of Sodium Dichromate 9-7
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LIST OF TABLES (Cont'd)
Page
9-2 Producers of Sodium Dichromate 9-9
9-3 Estimated Cost of Manufacturing Sodium Dichromate. . . . 9-11
9-4 Pollution Control Costs - Sodium Dichromate 9-19
10-1 Production of Titanium Dioxide 10-4
10-2 Producers of Titanium Dioxide 10-6
10-3 Estimated Cost of Manufacturing Titanium Dioxide -
Sulfate Process 10-11
10-4 Estimated Cost of Manufacturing Titanium Dioxide -
Chloride Process 10-14
10-5 Titanium Dioxide: U.S. Production, Foreign Trade,
Producers' Stocks and Apparent Consumption, 1973-77,
January - June 1977, and January - June 1978 10-17
10-6a Pollution Control Costs - Titanium Dioxide (Sulfate) . . 10-27
10-6b Effect of Gypsum Credit on Sulfate Process BAT/
PSES Costs 10-28
10-7 Manufacturing Costs - Titanium Dioxide (Sulfate) .... 10-31
10-8 Subcategory Compliance Costs - Titanium
Dioxide (Sulfate) 10-32
10-9 Pollution Control Costs - Titanium Dioxide (Chloride). . 10-33
10-10 Percentage Price Rise - Titanium Dioxide (Sulfate) . . . 10-35
10-lla Profitability Change - Titanium Dioxide (Sulfate)
(BAT/PSES - no gypsum credit) 10-36
10-llb Profitability Change - Titanium Dioxide
(Sulfate) (BAT/PSES - half gypsum credit) 10-37
10-llc Profitability Change - Titanium Dioxide (Sulfate)
(BAT/PSES - full gypsum credit) 10-38
10-12 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Titanium Dioxide (Sulfate) .... 10-41
10-13 Impact Summary - Titanium Dioxide (Sulfate) 10-42
B-l IRR, NPV, and ROI Equations apx-9
D-l Effect of Simplifying Tax Assumption on Cash Flow
Stream apx-19
F-l Social Costs apx-51
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LIST OF FIGURES
Page
B-l Demand Flows in the Chemical Industry B-4
1-1 Aluminum Fluoride: Inputs and End Markets ... 1-3
2-1 Chlorine: Inputs and End Markets 2-3
3-1 Chrome Pigments: Inputs and End Markets 3-2
4-1 Copper Sulfate: Inputs and End Markets 4-2
5-1 Hydrogen Cyanide: Inputs and End Markets 5-3
6-1 Hydrofluoric Acid: Inputs and End Markets 6-3
7-1 Nickel Sulfate: Inputs and End Markets 7-3
8-1 Sodium Bisulfite: Inputs and End Markets 8-3
9-1 Sodium Bichromate: Inputs and End Markets 9-3
10-1 Titanium Dioxide: Inputs and End Markets 10-3
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LIST OF GRAPHS
Page
1-1 Aluminum Fluoride Production and Price 1-8
2-1 Chlorine Production and Price 2-8
3-1 Chrome Yellow and Orange Production and Price 3-10
3-2 Chrome Oxide Green Production and Price 3-11
3-3 Molybdate Chrome Orange Production and Price 3-12
4-1 Copper Sulfate Production and Price 4-8
5-1 Hydrogen Cyanide Production 5-12
6-1 Hydrogen Fluoride Production and Price 6-8
7-1 Nickel Sulfate Production and Price 7-6
8-1 Sodium Bisulfite Price 8-13
9-1 Sodium Bichromate Production and Price 9-8
10-1 Titanium Dioxide Production and Price 10-5
D-l Profitability Decline V. Baseline Profitability -
Large Chrome Pigments Model Plant apx-17
D-2 Profitability Decline V. Baseline Profitability -
Sodium Hydrosulfite Model Plant apx-18
D-3 Profitability Decline V. Capital Cost - Sodium
Hydrosulfite Model Plant apx-23
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A. EXECUTIVE SUMMARY
Introduction
The ultimate goal of the 1977 Clean Water Act (33 U.S. Code 1251) is to
eliminate the discharge of pollutants into the nation's waterways by
1985. The Act states that this goal is the final step in a three step
process. The two interim steps are:
1) The implementation, by July 1977, of the best practicable pol-
lution control technology currently available (BPT) by all
industries discharging into navigable waterways.
2) The implementation, by 1984, of the best available control
technology economically achievable (BAT) for existing indus-
trial direct dischargers.
The Environmental Protection Agency (EPA) was charged with the task of
designing and enforcing regulations in an effort to realize the goals
outlined in the Act.
The EPA is also required to establish new source performance standards
(NSPS) for new industrial direct dischargers and pretreatment standards
for new and existing dischargers to publicly owned treatment works (POTW's),
called pretreatment standards for existing sources (PSES) and pretreatment
standards for new sources (PSNS).
This document is an assessment of the likely economic impact of effluent
limitations on ten chemical subcategories of the Inorganic Chemicals
Industry. The subcategories are:
1. Aluminum Fluoride
2. Chlorine
3. Chrome Pigments
A-l
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4. Copper Sulfate
5. Hydrogen Cyanide
6. Hydrogen Fluoride
7. Nickel Sulfate
8. Sodium Bisulfite
9. Sodium Bichromate
10. Titanium Dioxide
The purpose of this study is to analyze the economic impacts which could
result from the costs of meeting effluent limitations in each of the
above subcategories.
Organization of the Report
The report is divided into ten sections corresponding to the ten subca-
tegories under study. Each section has two parts: Characterization
and Impact Analysis. The characterization presents the recent history
of the subcategory and the major forces (exclusive of effluent guide-
lines) that are shaping the future of the chemicals market. These
include sales, changes in capacity, new processes, supply and demand
characteristics, and the competitive structure of the subcategory.
After the industry baseline is described, the impact analysis employs a
model plant approach to determine how effluent control costs will affect
the subcategory.
Purpose
The purpose of this report is to examine the economic impacts of the
costs of effluent control standards upon direct and indirect dischargers
in ten subcategories of the Inorganic Chemicals Industry. The impacts
studied are those that result from:
• Incremental costs incurred by direct dischargers to meet BAT
limitations;
A-2
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• Costs incurred by indirect dischargers currently not pretreating
wastewater to achieve "pretreatment standards for existing
sources" (PSES);
• Costs incurred by firms entering the industry to achieve
standards set for new sources (NSPS and PSNS).
In addition, some of the subcategories included in this report will
incur costs for compliance with the Resource Conservation and Recovery
Act's Interim Status Standards (RCRA-ISS) promulgated in 1980. Accordingly,
for the affected subcategories, the impacts of the combined effluent
control and RCRA-ISS costs are examined.
Control technologies required to achieve EPA's effluent limitations
were developed by a technical contractor. The technical contractor also
developed RCRA-ISS cost estimates for plants in the affected subcategories.
Note that the RCRA-ISS costs developed for the analysis include baseline
RCRA-ISS costs (i.e., costs that would be incurred even in the absence
of effluent treatment) as well as the RCRA-ISS costs associated with
the solid waste generated by effluent treatment systems. Therefore,
these RCRA-ISS costs overstate the actual costs that will be required
due to effluent regulations.
Methodology
The impacts of pollution control costs on the ten subcategories of the
Inorganic Chemicals Industry are evaluated using a model plant approach.
The methodology consists of 1) calculating a maximum price rise and
profitability decline to define the range of potential impacts and
2) assessing the most probable economic impacts based on the most likely
price increase, profitability decline, capital availability, and other
relevant factors.
A-3
-------
The price rise analysis assumes that pollution control costs can be
fully passed through by increases in the product price and calculates
the required product price rise necessary to recover the pollution
control costs.
The profitability analysis assumes that the industry is unable to pass
through any of the pollution control costs in the form of higher prices
and increased costs are fully absorbed. The decreases in the return on
investment (ROI) and internal rate of return (IRR) are calculated under
this assumption. These profitability measures are based upon estimated
manufacturing costs and the technical contractor's pollution control
costs.* They are not meant to precisely quantify the actual returns
experienced at each plant.
The price elasticity of demand is estimated subjectively based on the
information developed in the characterization section. (Important
economic information for each section is summarized in Table A-l.) The
elasticity estimate (low, medium, high) suggests the probability of an
immediate and complete price increase to recover pollution control
costs.
The capital ratio characterizes the pollution control investment in
comparison to investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. Model plants with a maximum price rise less than
one percent, a maximum profitability decline of less than one percentage
point and less than ten percent of baseline profitability, and relatively
inelastic demand are considered low impact cases that do not require
further detailed analysis. If price and profitability impacts are signi-
ficant, a further investigation is made into potential plant closures,
'rAn economic subcontractor developed the manufacturing costs,
A-4
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unemployment, community impacts, industry expansion effects, and other
secondary impacts.
Economic Impacts
Tables A-2a and A-2b summarize the potential impacts for each chemical
subcategory. Table A-2a summarizes the costs and potential plant
closures associated with PSES limitations (for indirect dischargers)
and BAT limitations (for direct dischargers). Total investment and
annualized costs of pollution control are presented for the affected
plants in each subcategory.
Table A-2b summarizes the price and profitability impacts of effluent
control costs. The table presents the range of price impacts assuming
full price pass-through necessary for the model plants to completely
recover pollution control costs and the profitability impacts assuming
no pass-through as measured by changes in the ROI and IRR in each sub-
category.
In nine of the ten subcategories, impacts were found to be minimal. For
plants in the chrome pigments subcategory price and profitability impacts
are significant and plant production line closures are possible.
The total annualized costs of compliance with PSES limitations required
for the 8 indirect dischargers currently not pretreating wastewater are
estimated to be approximately $7.1 million. Total investment costs
required to meet PSES limitations are estimated to be $8.7 million. The
largest costs and, therefore, the most severe impacts of compliance with
PSES limitations are incurred by plants in the chrome pigments subcategory.
As shown in Table A-2a, two production line closures are possible in the
chrome pigments subcategory.
A-6
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FOOTNOTES TO TABLE A-2a
I/ For this subcategory, BAT is equivalent to BPT. Since BPT is in
place and operating for all direct dischargers, there will be no
incremental costs over BPT required for compliance with BAT
limitations.
2/ Line closures. Impacted plants produce other products and will
likely continue to do so.
3/ Indirect dischargers will not incur any control costs under this
rulemaking.
4/ The control system for this subcategory is oversized. The control
costs and impacts are therefore overstated.
5/ All plants are currently achieving removal levels equivalent to BAT
limitations.
A-8
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FOOTNOTES TO TABLE A-2b
I/ For this subcategory, BAT is equivalent to BPT. Since BPT is in
place and operating for all direct dischargers, there will be no
incremental costs over BPT required for compliance with BAT
limitations.
2/ Line closures. Impacted plants produce other products and will
likely continue to do so.
3/ Indirect dischargers will not incur any control costs under this
rulemaking.
4/ The control system for this subcategory is oversized. The control
costs and impacts are therefore overstated.
5/ All plants are currently achieving removal levels equivalent to BAT
limitations.
A-10
-------
For the 122 direct dischargers, the incremental costs of compliance with
BAT limitations were determined to have no severe impacts in any of the
ten subcategories. Incremental costs will be incurred by 77 plants in
order to comply with BAT limitations. Total annualized costs for these
direct dischargers are estimated at approximately $13.8 million, with
their investment in pollution control equipment estimated at $13.9
million.
The combined incremental costs of compliance with effluent limitations
and RCRA-ISS requirements* are estimated for two subcategories. In the
chrome pigments subcategory plant closures are possible. However, the
incremental costs of RCRA-ISS compliance were not found to result in
additional plant closures; rather, the number of plant closures projected
is the same as that projected as a result of effluent control costs
alone.
In assessing the potential impacts of pollution control costs on each of
the ten subcategories, the following generalizations can be made:
• The costs of achieving first level control costs (BPT or base
level pretreatment) are much higher than the incremental costs
above BPT required to meet BAT limitations. Therefore, for
subcategories where all plants currently have BPT and pre-
treatment systems in place, economic impacts of incremental
effluent control costs are ve'ry small (e.g., hydrogen cyanide).
For subcategories in which plants do not have base level
treatment systems installed, potential economic impacts are
much higher (e.g., chrome pigments).
• Operating costs (the annual cost of labor, chemicals, and
maintenance required to operate the pollution control equip-
ment) will be more burdensome than investment costs in almost
every subcategory. Operating costs will rise over time with
other manufacturing costs, while investment costs are a one
time cash outlay. The ratio of investment costs to operating
*Note that the RCRA-ISS estimates overstate the costs associated with
effluent limitations because they include baseline RCRA costs as well as
the costs associated with solid wastes generated by effluent treatment.
However, since the overstated costs resulted in no significant incremental
impacts, baseline and after-effluent control RCRA costs were not separated
in the analysis.
A-ll
-------
costs ranges from a low of 1.0 (for hydrogen cyanide) to 4.39
(for nickel sulfate) with most subcategories having a ratio of
two to three.
Impacts, as measured by maximum price rise and profitability
decline, were generally more pronounced in the smallest model
plant in each subcategory. This results from most subcate-
gories experiencing economies of scale in both the effluent
removal systems and in manufacturing costs.
Total revenues for the subcategories were $2.5 billion dollars in 1977,
or 0.13 percent of the Gross National Product. The total incremental
annualized costs of meeting BAT and PSES limitations (estimated at $20.9
million in mid-1978 dollars) represent less than one percent of total
industry revenues. Since the costs are a small percentage of revenues,
the impact on inflation would be very slight.
The impact analysis suggests that two plants will close chrome pigments
production lines as a result of pollution control costs, affecting
approximately 60 employees.
There should be minimal balance of payments impacts since most inorganic
chemicals are low value products serving regional markets. The excep-
tions are titanium dioxide, copper sulfate and hydrogen fluoride. Only
titanium dioxide has a large enough world market to warrant an analysis
of potential balance of payments impacts. However, no consequential
impacts are expected to result from effluent regulations.
New source performance standards (NSPS) and pretreatment standards for
new sources (PSNS) are not expected to significantly discourage entry or
result in any differential economic impacts on new plants in the inorga-
nic chemicals industry. The pollution control capital investment requir-
ed to install a given treatment technology is the same for new and
existing producers in the industry. Therefore, at a given level, new
plants will not be operating at a cost disadvantage relative to current
manufacturers.
A-12
-------
Immediately following is a brief summary of the impacts of effluent
control costs on each subcategory. This section concludes with a brief
summary of the incremental impacts of RCRA-ISS costs for the affected
subcategories.
1. Aluminum Fluoride
For this subcategory, no incremental costs will be incurred to comply
with BAT limitations. BAT is equivalent to BPT and BPT is in place and
operating for the five plants (all direct dischargers) in the subcategory.
The following characterization data is presented for informational pur-
poses only.
Over 90 percent of aluminum fluoride is utilized in the production of
primary aluminum. Hence the profitability, growth and production of the
aluminum industry determine the demand for aluminum fluoride. The
aluminum industry is presently restraining capacity expansion in an
effort to increase capacity utilization. This will reduce growth in
aluminum fluoride demand. Decreased demand growth will also result from
EPA fluoride emissions standards which have resulted in increased fluoride
recovery and recycling among aluminum manufacturers.
In the merchant market, the price of aluminum fluoride is likely to
remain low due to vigorous intra-industry competition. This, coupled
with rising manufacturing costs, will keep profit margins low.
2. Chlorine
Because chlorine is a critical input for several processes, many pro-
ducers make it for their own use (captive production is over 60 percent
of total production). Chlorine's end markets are experiencing varying
growth rates. Overall, demand for chlorine is expected to parallel GNP
growth.
A-13
-------
Almost all chlorine is manufactured using one of two processes covered
in this study: diaphragm cell (74% of production) and mercury cell (20%
of production).
Rising costs, due to government regulations other than effluent guide-
lines and increased electricity prices, have combined with soft prices
(the result of industry overcapacity) to strain industry profitability.
However, chlorine's profitability is determined by the profitability of
its end products, since almost two thirds is used captively in the manu-
facture of construction materials. Demand for chlorine in most end
markets is expected to remain strong enough to justify continued chlorine
manufacture.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): for the one indirect discharger in the sub-
category without treatment in place, the required price
increase to recover pretreatment costs is 2.2 percent. For
direct dischargers, the maximum price increase for either
mercury cell or diaphragm cell producers is 2.01 percent.
• Profitability Decline (all pollution control costs absorbed by
the firm): the decline in profitability for both processes
and for direct and indirect dischargers is less than 0.6
percentage points (as measured by ROI) in all cases. For the
two large model plant sizes, this decline reflects less than
a five percent decrease in profitability from the base case.
However, for the smallest model plant size, profitability
decreases 24.42 percent for the mercury cell process and 8.96
percent for the diaphragm cell process (based on ROI).
• Price Elasticity of Demand: assumed inelastic since 1) there
are no direct substitutes for chlorine in many end uses;
2) most chlorine production is used captively; and 3) cost
increases can be passed on through price increases for various
downstream products.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital costs for technology required
for pretreatment by the one indirect discharger represent
A-14
-------
slightly over one percent of fixed investment. Additional
capital costs for BAT effluent limitations are only a fraction
of one percent of fixed investment for all plants.
Chlorine manufacturers using most of their production captively in other
downstream products should have little difficulty recovering pollution
control costs through price increases for final products. The facilitated
price pass-through should prevent any profitability decline of the magni-
tude projected for the small model size mercury cell plant. Merchant
producers may be unable to implement a complete and immediate price rise
of three percent and may suffer a short term decline in profits. However,
this profitability decline will not be of sufficient magnitude or duration
to seriously injure the industry.
3. Chrome Pigments
The chrome pigments subcategory is made up of chrome yellow and orange,
chrome green, chrome oxide green, molybdate chrome orange, and zinc
yellow. The profitability of the producers of lead-containing chrome
pigments is in doubt. Profitability will depend upon the ultimate costs
of meeting the OSHA regulations and the extent to which these costs can
be passed through in the form of higher prices. Demand forecasts range
from zero growth, at best, to a substantial decline in demand.
Two plants in this subcategory are currently meeting effluent limitations.
Three small indirect dischargers (2200 tons or less of annual production)
will be exempt from regulation. The remaining seven plants (two direct
dischargers and five indirect dischargers) will incur additional effluent
control costs to meet BAT/PSES limitations. The economic effects of
these effluent control costs were analyzed in terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): the price rise required to pass through the costs
of PSES/BAT control ranges from 5.5 to 14.0%.
• Profitability Decline (all pollution control costs absorbed by
the firm): absorbing the costs of BAT/PSES removal would
result in a decline in profitability of almost 18 percentage
A-15
-------
points (as measured by ROI) for the smallest plant. The decline
represents a decrease in profitability of over 100 percent from
the base case. The other three models experience declines in IRR
ranging from ten to 12 percentage points or 26 to 57 percent of
baseline profitability.
Price Elasticity of Demand: assumed to be moderately elastic.
While organic substitutes are much more expensive than inorganic
pigments, lower priced imports may constrain domestic price
increases.
Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital costs required of all model
plant sizes to meet effluent regulations represent a serious
cost hurdle: approximately one-third of fixed investment.
Smaller chrome pigment plants are operating close to the breakeven point
and the profitability decline is likely to encourage them to cease oper-
ations. An examination of the two non-exempt plants that fall into this
"small" category suggests that one may close its chrome pigments produc-
tion line. One medium-size plant production line closure may also occur
within the next five years. These projected line closures will affect
60 employees. Note that the closure projections are in reference to
chrome pigments production only. The affected plants produce other pro-
ducts , and it appears likely that only the chrome pigment production
line, which accounts for a small part of plant production, would shut
down.
4. Copper Sulfate
For this subcategory, BAT and PSES are equivalent to BPT. All plants ex-
cept one indirect discharger are currently in compliance with BPT. The
costs the remaining plant will incur are associated with pre-treatment
standards already in effect, not the current rulemaking. Therefore, the
BAT/PSES compliance costs for this industry are zero. The following
economic data is provided for informational purposes only.
A-16
-------
Copper sulfate is a low volume chemical with a variety of applications
in agriculture and industry. Domestic production of copper sulfate has
declined dramatically over the last 25 years, due to a worldwide shift
away from copper sulfate as an agricultural fungicide. The once large
export market for copper sulfate is now nonexistent. However, a recent
upturn in copper sulfate sales has resulted in some industry optimism.
In 1977, imports captured nearly 10 percent of the copper sulfate market.
Low priced imports have forced domestic producers to sell copper sulfate
at less than published list prices in certain markets to remain competi-
tive. Rising copper prices, combined with strong competition from imports
and substitutes, may cause profit margins to decline in the near future.
5. Hydrogen Cyanide
Hydrogen cyanide (HCN) is a highly toxic chemical used as an intermediate
in the production of plastics, herbicides, and fibers. The hydrogen
cyanide industry is characterized by a high degree of captive use: over
90 percent is used by the manufacturers in the production of "downstream"
chemicals.
The major end use of hydrogen cyanide is in the production of methyl
methacrylate (MMA). MMA is polymerized to yield a durable plastic which
is used in a number of markets. A new, less costly, production process
has been developed that does not utilize HCN, and a number of companies
are considering adopting this new technology. The rate of adoption of
this new technology will determine future HCN demand.
Since HCN is almost entirely a captive input for production of other
chemicals, its profitability is determined by the profitability of its
end products. Most of these end products are currently produced profit-
ably. However, use of HCN is expected to decline due to the adoption of
the new MMA technology.
A-17
-------
The economic impacts of pollution control costs were analyzed in terms
of four indicators:
• Price Rise (all pollution control costs can be passed through
to consumers): the increase in price needed to recover the
incremental cost of BAT treatment is less than one percent for
all model plant sizes.
• Profitability Decline (all pollution control costs absorbed by
the firm): should producers be unable to pass on the cost
increases in higher downstream product prices, the decline in
profitability would be roughly one-fourth of one percentage
point of the IRR or less than 1.25 percent of baseline profit-
ability for each model plant size.
• Price Elasticity of Demand: assumed inelastic due to high
captive use and the inelastic demand for downstream products.
• Capital Ratio (pollution c:ntrol capital costs as a percentage
of fixed investment): in all model plant sizes, the capital
required for pollution control is one-half of one percent or
less of fixed investment.
The small increase in HCN cost could be easily passed on in higher
downstream product prices. The demand outlook for all products which
require HCN in their manufacture is sound enough to sustain the small
increase. The potential profitability decline is so slight that it is
not likely to give captive producers of HCN increased incentive to adopt
new manufacturing technologies, not dependent upon HCN.
6. Hydrogen Fluoride
Hydrogen fluoride (HF) has two main end uses: primary aluminum produc-
tion and fluorocarbon production. Demand in these markets is declining.
In the aluminum market, the decline is a result of extensive fluoride
recovery efforts by the aluminum manufacturers. The fluorocarbon end
market also has experienced severe cutbacks due to the EPA and FDA ban
on fluorocarbons in aerosols. In addition, the Environmental Protection
Agency is considering regulation of all fluorocarbon uses, which would
be another setback for the industry.
A-18
-------
The profitability of the hydrogen fluoride industry is dependent upon
the resolution of the uncertain demand factors in aluminum production
and fluorocarbon applications. Most of the reduction in HF demand will
be in captive uses. The merchant market is not expected to suffer, as
long as aluminum manufacturers shut down excess capacity rather than
sell HF on the merchant market.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): passing on the incremental costs of BAT treatment
requires a price increase significantly less than one percent
for all model plant sizes.
• Profitability Decline (all pollution control costs absorbed by
the firm): absorbing the costs of BAT treatment would cause a
decline in IRR of one half of one percentage point or less for
all model plant sizes. For the two larger model plant sizes,
this represents less than 1.3 percent of the baseline profit-
ability. The small model plant size profitability decreases
11.61 percent.
• Price Elasticity of Demand HF demand is assumed to be moderately
price elastic due to imports' constraint on domestic prices.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): the additional capital requirements for
BAT are minimal, representing only 0.6 percent of fixed
investment in all cases.
The price and profitability impacts of compliance with BAT limitations
are small for the two larger model plant sizes. Though profitability of
the small model plant size decreases 11.61 percent, the maximum price
rise required is small (less than one percent). Therefore, no plant
closures or secondary impacts are anticipated for this subcategory.
7. Nickel Sulfate
For this subcategory, BAT and PSES are equivalent to BPT. All plants ex-
cept two indirect dischargers are currently in compliance with BPT. The
A-19
-------
coses the remaining plants will incur are associated with pre-treatment
standards already in effect, not the current rulemaking. Therefore, the
BAT/PSES compliance costs for this industry are zero. The following eco-
nomic data is provided for informational purposes only.
Nickel sulfate is a low volume chemical used primarily in metal plating.
Total production of nickel sulfate has declined from a high of about
21,000 short tons in 1970 to 7,032 tons in 1977. Recycling efforts and
substitution of other materials will cause nickel sulfate production to
continue declining for the next few years. Profitability in the nickel
sulfate industry has been marginal in recent years and is expected to
erode still further due to declining sales, competitive pricing policies
and rising nickel costs. However, manufacturers are expected to continue
producing nickel sulfate to offer customers a complete line of electro-
plating chemicals.
8. Sodium Bisulfite
Sodium bisulfite is used in photographic processing, food processing,
tanning, textile manufacture, and water treatment. The principal markets
for sodium bisulfite should provide steady demand for sodium bisulfite
as they are well developed and secure. The two largest sodium bisulfite
manufacturers account for most of industry sales. Prices have always
been strong and producers have typically not offered discounts on list
prices.
Producers of sodium bisulfite have maintained strong profit margins by
successfully increasing prices as manufacturing costs rose. Based on
the past performance of the industry, future manufacturing cost increases
are likely to be passed through and profit margins are expected to
remain intact.
Only one plant, an indirect discharger, will incur incremental effluent
control costs. For direct dischargers, BAT is equivalent to BPT and BPT
A-20
-------
is in place and operating for all direct discharge plants. The economic
effects of pollution control requirements for the one plant incurring
costs were analyzed in terms of four indicators:
* Price Rise (all pollution control costs passed through to the
consumer): the price increase required to pass on pretreatment
costs is 8.97 percent.
• Profitability Decline (all pollution control costs are absorbed
by the firm): the maximum potential profitability decline
resulting from absorbing pretreatment costs is 5.41 percentage
points or 64 percent of the baseline profitability (as measured
by ROI) for the model representing the affected plant.
• Price Elasticity of Demand: assumed inelastic since there are
no close substitutes for sodium bisulfite in its major end
markets.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): the capital investment required for
pretreatment is 6.9 percent of fixed investment for the
affected plant.
The price rise required for the affected sodium bisulfite plant is high,
almost nine percent. However, given that sodium bisulfite demand is
inelastic and that the affected plant enjoys a regional market advantage
as one of only two sodium bisulfite producers on the West coast, price
pass-through should be possible. Further, unlike all other sodium
bisulfite plants, this plant is currently not incurring effluent control
costs.
Therefore, it must be assumed the the plant has been operating at a cost
advantage and that pretreatment costs will bring its costs in line with
current cost levels experienced by the other plants already operating
effluent control equipment. Thus the impacts of pretreatment costs on
the sodium bisulfite subcategory are minimal.
A-21
-------
9. Sodium Dichromate
All plants are currently in compliance with BPT limitations. For this
subcategory, BAT is equivalent to BPT. Therefore no incremental costs
will be incurred to comply with BAT limitations. The following charac-
terization data is presented for informational purposes only.
Sodium dichromate (or sodium bichromate) is the principal source of
chromium for a variety of applications, including chrome pigments,
tanning agents, and wood preservatives. Sodium dichromate has rela-
tively secure end markets with few substitutes. Industry observers cite
possible OSHA regulations on worker exposure to hexavalent chromium as a
potential threat to growth in dichromate's main market, chromic acid.
If demand cutbacks due to OSHA regulations are not severe, growth should
average two to three percent annually and profit margins should remain
secure.
10. Titanium Dioxide
Titanium dioxide (TiO ) is a white pigment used to whiten or opacify
paints, paper, plastics, and several other products. It is a well
established, mature product having been produced for over 40 years.
Most of its many end markets are also mature, so demand growth is expected
to parallel GNP growth. Three processes are used to manufacture titanium
dioxide: the sulfate process, the chloride process, and the chloride-
ilmenite process. Chloride process plants are currently meeting BAT
limitations. Similarly, all three chloride-ilmenite plants are achieving
removal levels equivalent to BAT limitations and will incur no additional
effluent control costs. Therefore, the impacts of effluent control
costs are addressed only for sulfate process titanium dioxide producers.
Many titanium dioxide manufacturers incurred losses for several months
prior to mid-1978. The competitive pressures of imports and DuPont's
low cost chloride-ilmenite process have restrained prices. Future
A-22
-------
profitability for most producers will depend on strong demand and, in
the long run, utilization of lower cost technologies.
There are four sulfate process plants. One plant has BPT equipment in
place and operating. For this subcategory, BAT is equivalent to BPT.
Therefore, only three plants will incur additional effluent control
costs.
The economic effects of effluent control costs on sulfate plants were
analyzed in terms of four indicators:
• Price Rise (all pollution control costs passed on to the
consumer): The price rise required to pass through PSES/BAT
costs ranges from 2.11 to 10.11 percent.
• Profitability Decline (all pollution control costs absorbed by
the firm): The profitability decline resulting from BAT/PSES
is large. The maximum potential decline in IRR ranges from
0.75 to 4.64 percentage points or 6.86 to 61.62 percent of
baseline profitability.
• Price Elasticity of Demand: assumed highly elastic since
sulfate process price increases are constrained by imports and
lower cost domestic producers.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment) capital required to install BAT/PSES
control represents 0.08 to 3.17 percent of fixed investment.
One of the actual sulfate process plants incurring effluent control costs
corresponds to model size 3. For this plant, closure is very unlikely
because the profitability decline from absorbing all control costs is
minimal. Also, the plant is currently ocean dumping part of its waste
stream at a cost significantly below the cost of physical/chemical
wastewater treatment. This plant may incur additional pretreatment
costs for the portion of its effluent being discharged to a POTW. Given
that the plant will be allowed to continue ocean dumping through at
least 1989, its wastewater treatment costs will be lower than the costs
A-23
-------
of a total land-based treatment facility. In this case, it seems un-
likely that the plant would choose to close.
The remaining two producers correspond to the small model size. The
model plant analysis indicates substantial price and profitability im-
pacts for this size category. However, one of these two small producers
has already made a partial investment in waste treatment facilities which
is not reflected in the analysis; therefore, the price and profitability
impacts for this plant are overstated. Moreover, despite the additional
costs that would be incurred to reach full compliance, the producer has
publicly announced that it plans to continue production and foresees a
long-term market for the anatase grade pigment produced by the sulfate
process (Chemical Marketing Reporter, December 24, 1979). The final
regulation also incorporates specific changes requested by this manufac-
turer. Given these circumstances, it seems unlikely that the plant
would close.
The other plant has recently signed a court agreement to meet limitations
equal to those set forth in this final regulation and has agreed to in-
stall wastewater treatment controls and continue production in compliance
with the regulation. Accordingly, continued operation of the plant ap-
pears likely.
In summary, although the quantitative economic indicators-suggest possible
closure of these two plants, their actual circumstances are such that
closures appear highly unlikely.
Incremental Impacts of RCRA-ISS Costs
Table A-3 summarizes the incremental impacts of RCRA-ISS costs* over the impacts
of effluent control costs in terms of the required price increase, potential
*Note that the RCRA-ISS cost estimates used in this analysis also include base-
line RCRA costs and, therefore, overstate the RCRA costs associated with solid
wastes generated by effluent treatment. However, this analysis indicates no
significant incremental impacts even with the overstated costs.
A-24
-------
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-------
profitability decline, and capital requirements. The incremental impacts
of RCRA-ISS costs are generally minimal.
The incremental impacts of RCRA-ISS costs are most significant for small
chlorine mercury cell plants and chrome pigments plants. In the case of
small chlorine mercury cell plants, the additional RCRA-ISS costs are
not expected to result in plant closures because inelastic demand may
allow complete pass-through of both effluent control and RCRA-ISS costs
in final product prices.
In the case of chrome pigments plants, the same two plants (one small,
one medium-sized) identified as possible production line closures due to
effluent control costs alone would also be projected as closures due to
the combined impacts of effluent control and RCRA-ISS costs. Additional
closures are not anticipated due to the following reasons:
• Three small plants are exempt from BAT/PSES regulation.
Without the effluent guidelines control equipment in place,
they will produce no hazardous wastes attributable to BAT/
PSES.
• The remaining small plant produces only chrome oxide green, a
strong-selling product. In addition, this plant will face
none of the OSHA costs which the producers of lead-containing
pigments will incur.
• Of the two remaining medium-size plants, one is already in
compliance with the regulations and one produces only chrome
oxide green.
• Finally, the price and profitability impacts of the RCRA-ISS
costs on larger plants is insignificant.
A-26
-------
B. INDUSTRY OVERVIEW
This section briefly describes the chemical industry, the inorganic
chemicals segment of the industry, and the economic relationships
between chemicals and the general economy. The focus, which is empha-
sized in this section and applied throughout the report, is on the
interrelated nature of the chemical industry and the rest of the U.S.
economy. Virtually every sector of the economy, from heavy industry to
small scale service operations, uses chemicals in some fashion. Many of
these products which use chemicals are further manufactured to yield
final goods for general consumption. Because of this, there may be any
number of manufacturing steps involved between a chemical's manufacture
and final consumption.
The purpose of this characterization is to determine and evaluate those
factors which affect the economic condition of each of 10 inorganic
chemicals. To do this, two types of economic variables are addressed:
1) the economics of production and those of the immediate end markets
for the chemical, and 2) the final markets and the macroeconomic trends
which affect them. Thus, each chemical is tied to those sectors of the
economy where final consumption takes place. This provides a full
picture of the direct and indirect determinants of demand, supply, and
competition.
For each subcategory, the economic impact of pollution control regulations
is determined. The core of this economic impact analysis is a comparison
of the increase in costs due to control and the ability of the market to
absorb these costs. This is only possible having evaluated all of the
determinants of demand characterizing each subcategory.
B-l
-------
The subcategory characterization for each chemical is presented in five
sections: 1) Demand, 2) Supply, 3) Competition, 4) Economic Outlook, and
5) Characterization Summary.
B.I DEMAND
The demand for all chemicals is reflected in diverse product paths which
eventually lead to consumer products. The chemical industry can be
divided into three groups based, in part, on these routes to the final
market. Standard and Poors has developed a classification dividing the
industry into 1) Chemical Products, 2) Synthetics, and 3) Basic Chemicals.
The first group, chemical products, includes final products such as
paints, detergents, agricultural products, and Pharmaceuticals. Demand
for these chemicals flows directly from the end consumers to the chemi-
cal manufacturers. These products account for approximately 40 percent
of the chemical industry's sales.
A second group of chemicals (accounting for 20 percent of sales), syn-
thetics, is composed of man-made fibers, plastics, and synthetic rubber.
This group is characterized by relatively high growth rates and profit
margins although the fibers segment has experienced several bad years.
These chemicals reach the ultimate consumer indirectly in products such
as carpets, clothes, automobiles, and tires. As such, the demand ex-
perienced by chemical firms for acrylonitrile or nylon, for example,
will depend on the demand at the end markets for acrylic or nylon fibers
used in carpets and clothing.
The third group of chemicals (accounting for 40 percent of sales),
called basic chemicals, includes "building block" chemicals, or inter-
mediates, which are often used within the industry to make other chem-
icals. Most of the 10 chemicals of this study fall into this category.
These chemicals are characterized by mature markets, that is, they have
B-2
-------
low growth rates and relatively stable demand. Chlorine is a good
example of this type of chemical. It is widely produced at relatively
slim profit margins and two-thirds of its production is used captively.
Most producers manufacture chlorine in order to assure reliable supplies
of this important intermediate. Other examples of intermediates and
their uses include:
• Hydrogen cyanide as an input for methyl methacrylate
• Hydrofluoric acid as an input for fluorocarbons and aluminum
fluoride
• Sodium dichromate as an input for chrome pigments and other
chrome containing compounds.
Some of the 10 chemicals of this study are used directly by other in-
dustries. Included among these are:
• Aluminum fluoride which is used in the manufacture of aluminum
• Chrome pigments and titanium dioxide pigments which go into
various paints
• Copper sulfate which is used in agricultural chemicals, in
electroplating, and other industrial uses
• Nickel sulfate which is used in electroplating
• Sodium bisulfite which is used in photographic chemicals, in
effluent treatment, and as a food preservative.
In characterizing the demand for the 10 chemicals of this study, the
immediate markets and all of the downstream markets through final con-
sumption must be accounted for. For example, reduced airfares in 1978
increased demand for air travel. Airlines, in turn, substantially
increased their orders for aircraft. This increased the demand for
aluminum, and thus aluminum fluoride and hydrogen fluoride (see Figure
B-l). Although there were certainly other factors at work in these
markets, the example does give a good indication of the potential com-
plexity of demand for these chemicals.
B-3
-------
FIGURE B-l
CHEMICAL
Hydrogen
Fluoride
IN
DUSTRY
Aluminum
Fluoride
ALU]
MINUM INDUSTRY MANUFACTURE
Aluminum
Aircraft
C
FINAL
ONSUMPTION
Air
Travel
B.I.I Demand Summary
Having evaluated all of the individual elements of demand and the eco-
nomic forces at play, the total demand for each chemical is determined
by synthesizing the individual markets. This is done by taking into account
the portion of total demand represented by each submarket, the strength
of each market, and any relationships which may exist among end markets.
Finally, where applicable, a comparison is made between expected demand
growth and the growth in the gross national product (GNP). In cases
where the end markets for a chemical are very diversified and representa-
tive of the general economy, the chemical's total demand can be expected
to grow with real GNP. Often, however, the end markets will be in
faster growing markets (such as plastics) or slower growing markets
(such as some metal plating operations) and the total demand growth will
differ from that of GNP.
The individual end markets for these chemicals are useful in determining
demand strength. To fully understand demand, however, one must also
investigate the channels through which this demand flows, and the com-
petition encountered in each market. Demand channels are discussed
next, competition in a separate section.
B.I.2 Demand Channels
Channels of demand refers to the relationships between buyer and seller,
including the extent and type of vertical integration, the type of
contract, and the transportation of the product.
B-4
-------
Vertical integration (forwards or backwards) is a measure of the degree
to which one producer makes a series of chemicals in a continuous chain.
Backward integration usually represents an attempt to obtain inputs more
reliably and/or at lower prices. For example, aluminum companies have
integrated backwards into aluminum fluoride and hydrogen fluoride pro-
duction. Forward integration is a way of expanding a product line with
guaranteed input chemicals. In either type of vertical integration, the
result is captive production of a chemical. Captive production will
affect an assessment of demand in several ways. Normally a chemical's
production can be economically isolated so that price and profitability
measures can be applied. With captive consumption, this may only be
possible using confidential company data and a company-specific method
for transfer prices.
The type of contract in use is another factor which further defines
demand flows. There are many different types of purchasing arrangements
ranging from no contract at all (i.e., purchases on the merchant market)
to long-term contracts. From the purchaser's point of view, a long-term
contract may be the next best thing to backward integration, offering
sufficient security in price and availability. The other extreme for
consumers is either short-term contracts or purchases on the spot market.
This kind of arrangement may work best where there are many suppliers
and the spot market is well developed. For example, some chlorine con-
sumers make a portion of their needs, run their plants at high capacity
utilization rates, and make spot purchases as necessary for the remainder
of their needs.
A third factor which affects demand is transportation cost. The impor-
tance of these costs vary depending on the price of the chemical and the
difficulty of shipment (e.g., dry vs liquid and inert vs hazardous).
When a chemical has a relatively low unit value and is difficult to ship
(such as chlorine), transportation costs can be significant enough to
B-5
-------
limit the market of a producer to the immediate region. Hydrogen cyanide
is so poisonous that some firms are afraid to ship it and supply only
captive requirements.
These three factors, which describe the channels through which demand
flows, are considered in each subcategory and used to qualify the demand
estimates where necessary.
B.2 SUPPLY
B.2.1 Production
The index of production for all U.S. manufacturing increased at an
average three percent per year between 1967 and 1977. Chemical industry
production grew at twice that rate, or six percent, for the same period.
However, the inorganic chemicals segment, which includes many slow-growth
chemicals, experienced an average production increase of only two percent
per year.
TABLE B-l
CHEMICAL PRODUCTION
Total Manufacturing
Chemicals and Products
Inorganic Chemical, n.e.c.
Alkalies and Chlorine
Annual Change in Production
1967 - 1977
3%
6
2
2
SOURCE: Chemical and Engineering News, "Facts and Figures," June, 1978.
The production of all chemicals tends to fluctuate with GNP though the
swings in inorganic chemical production are less severe than those of
B-6
-------
organics. The 10 inorganic chemicals of this study are generally low-
volume chemicals with production of less than 0.5 million tons per year.
By comparison, the largest volume of chemical is sulfuric acid, with
production of 34 million tons in 1977. Table B-2 illustrates several
high volume chemicals. Two of the chemicals studied in this report rank
among the 50 highest volume chemicals. Also illustrated are five chemi-
cals which are related to some of the 10 chemicals of this report.
Acrylonitrile is co-produced with hydrogen cyanide. Ethylene dichloride,
vinyl chloride, and propylene oxide are end markets for chlorine.
Several interesting characteristics are indicated by the data:
• The highest volume chemicals show less variability than others.
They fell less in the 1975 recession, recovered less in 1976,
and have lower overall growth rates.
• Most chemicals had big production drops in the 1975 recession
with full recoveries in 1976. With some of the more volatile
chemicals like vinyl chloride, the changes were very large
(more than 20 percent).
• Chlorine and sodium hydroxide are co-produced and have very
close production volumes. Demand for the two products, how-
ever, is not always equal, causing problems for manufacturers
in balancing production for two products simultaneously.
• Growth rates have slowed for most chemicals in comparing the
latest five years with the latest 10 years.
In addition to chlorine and caustic soda, titanium dioxide is also a
rather high-volume chemical with production of 0.68 million tons in
1977. Titanium dioxide producers are faced with the dual problems of
high variability in demand and a very low growth rate.
B.2.2 Producers
The 10 chemicals of this study are typically produced by different sized
chemical companies. In addition, oil companies have been expanding into
the chemical field for several years and some of these chemicals are
B-7
-------
produced predominantly by petroleum firms. Non-chemical companies also
are involved in these chemicals. This usually represents backward
integration on their part. For example, Alcoa aluminum company makes
aluminum fluoride and hydrogen fluoride as inputs for aluminum manufac-
ture. The sales of these chemicals usually represent less than five
percent of corporate sales (typically around one percent).
Captive production is another important characteristic of these chemicals,
Some of the chemicals are produced at large complexes, frequently as one
of the preliminary chemicals in a product line. In this case, the
economic strength of a chemical is very much interrelated with that of
the other products.
B.2.3 Process
The process used to manufacture a chemical is of great importance, both
environmentally and economically. As inputs to a process become more
expensive or as pollution control requirements make a process more
costly, manufacturers have an increasing incentive to find cheaper or
"cleaner" processes. These forces have been acting on producers and
many processes have changed. To lower costs, producers direct their
efforts towards the most expensive elements of production. These in-
clude inputs such as energy, ores, and process chemicals.
The rising cost of energy is one of the greatest concerns of the chemical
industry, which uses about 30 percent of U.S. total industrial energy.
Of this "energy," 41 percent is used directly for feedstocks. The
inorganic chemicals use fewer of these energy sources as feedstocks than
other chemicals but are nonetheless very dependent on energy costs.
Chlorine production, for example, uses tremendous amounts of electricity.
Hydrogen cyanide uses natural gas for a feedstock. Hydrogen fluoride
and titanium dioxide production use a great deal of process heat.
B-8
-------
TABLE B-2
HIGH VOLUME CHEMICALS
1977
Production
Chemical (106 tons)
Sulfuric Acid
(top volume chemical)
Sodium Hydroxide
(co-product with chlorine)
••Chlorine
Ethylene Bichloride
(chlorine end market)
Vinyl Chloride
(chlorine end market)
Propylene oxide
(chlorine end market)
Acrylonitrile
(co-product with HCN)
^Titanium Dioxide
34.3
10.9
10.1
5.2
2.9
.95
0.82
.68
1976
Rank
1
7
8
15
23
41
44
49
Average Annual Change (%)
1976-77
2.7
4
1.9
30.3
2.3
4.0
8.2
-4.8
1972-77
2.0
1.3
1.4
6.1
2.7
4.5
8.1
-0.4
1967-72
1.8
2.6
3.2
10.2
9.1
8.8
9.4
1.4
* Studied in this report.
Source: Chemical and Engineering News, "Facts and Figures," June 1978.
B-9
-------
The cost of ores is a second factor in the determination of processes.
Titanium dioxide, for example, has two processes (chlorine and sulfate)
and two ores (rutile and ilmenite). The rutile ore is purer (resulting
in less process waste), more expensive, and in short supply. Because of
this, efforts have been made to upgrate ores and to make the chloride
process adaptable to lower-quality ores. Copper sulfate can be made
from ore (as a byproduct of copper production) or from scrap. In all of
these cases, the relative prices of the inputs will shape process deci-
sions.
A third factor affecting process is the cost _af process chemicals. Many
chemical prices have recently risen by 15 or more percent per year. The
price of sulfuric acid, a widely used chemical, increased 18 percent per
year between 1972 and 1978.
Process changes in general are directed towards a higher quality product
and/or lower production costs within constraints. These constraints
include pollution control, .capital rationing, and the market strength of
the chemical. Pollution control may make some processes prohibitively
expensive. Capital rationing and market strength are related in that
insufficient demand may force a shutdown decision rather than a shift in
process (even though a process may be more efficient, capital costs
could be prohibitive). Producers will invest first in those areas where
long-run profits look best (i.e., strong demand and reasonable costs).
B.3 COMPETITION
Having determined the end uses for a chemical, the demand within each
end use, the channels through which these demands will be met, and the
suppliers, we then turn to the competition in each market. This in-
cludes an analysis of three areas:
1. competitors selling the same product
2. substitution of other products
3. the market power of the sellers versus the buyers
B-10
-------
The most obvious competition takes place within a subcategory among all
of the producers of the product. The basic objective is to meet the
demands of the buyer (e.g., quality, service, quantity, timing, location)
at the lowest price. This seemingly simple process is complicated in
the chemical industry by several factors:
• Captive production; Some of these chemicals are produced
predominantly for use within a company as with chlorine. This
can make the remaining non-captive production more competitive
as purchasers have more of a buffer and actually compete with
the sellers.
• Foreign competition; Foreign competition can effectively put
a ceiling on the domestic price of a chemical. This is only
true for a few of these 10 chemicals which have high enough
prices to justify international shipping. The effect is
reduced within the U.S. as the distance increases from major
coastal ports.
• Economics of each process; Within many subcategories there
are significant differences in the cost of production due to
types of process, age, and size of the plant, capacity utili-
zation, availability of inputs, and many other factors.
• Distance to markets; The lower value chemicals of this study
are quite limited in their economical shipping distance.
Thus, a producer can compete by being closer to his markets if
shipping costs are significant.
• Product differentiation; Although these chemicals are gener-
ally "commodities," there are differences in the form (e.g.,
liquid versus dry), shipment size, and sometimes the additives
in these chemicals. Titanium dioxide, for example, has two
basic forms, several types of finishes, and can be shipped in
a dry or slurry form.
• Discounting; Some companies post list prices and sell their
chemicals at various discounts. Even within the industry,
competitors may not know each other's real prices.
Competition through substitution by other products can occur at any
point along the path of a chemical between production and final con-
sumption. When chemicals are sold directly to end markets (as with
B-ll
-------
paints, detergents, and fertilizers) there is one possibility for sub-
stitution. Titanium dioxide, which is used directly in paints, faces
potential substitution from paint extenders and surfaces which do not use
paint. When chemicals trace complex paths to final consumption, there
are usually several opportunities for substitutions. For example,
chlorine is used to make polyvinyl chloride which is used in pipes.
Substitutes along this line of products include metal pipes and plastic
pipes not using PVC.
The relative market power of sellers and buyers can have a major impact
on the competitive stature of a chemical market. Generally, there is
some balance of power between sellers and buyers but the extreme cases
are useful for illustrative purposes. One extreme is that of a seller's
market in which the demand for the product is strong and the buyers are
price takers. Typically this type of market will have one or only a few
sellers and many buyers. The other extreme is a buyers market in which
many sellers must compete actively for a limited market.
The chemical industry and its end markets are generally quite competi-
tive with few extremes of sellers or buyers markets. The 10 inorganic
chemicals of this study are similarly competitive. The aluminum fluo-
ride and hydrogen fluoride markets are buyers markets in that the aluminum
companies captively supply most of their needs and purchase the remainder
from chemical firms. Generally, however, the market power of buyers and
sellers in these chemicals is determined by the forces of the marketplace.
B.4 ECONOMIC OUTLOOK
Any characterization of an industry is necessarily based on historical
data. The impact of pollution control regulations, however, may occur
several years hence. Because of this potential incongruity, this cate-
gorization includes an analysis of the major forces shaping the future
of the chemical. This analysis is divided into three parts: 1) revenue;
B-12
-------
2) manufacturing costs; and 3) profit margins. The implications of this
flow is that revenues must increase at least as fast as manufacturing costs
in order to maintain profit margins. Revenues are divided into quantity
and price. The quantity outlook discusses the factors affecting demand
volume and estimates future growth. The price section discusses the likeli-
hood that demand will be adequate to 'allow price increases. The manufac-
turing cost section separates the major cost components and estimates a
likely rate of increase in total manufacturing costs. Finally, the profit
margin section estimates the likely outcome resulting from revenue and cost
increases.
B.5 CHARACTERIZATION SUMMARY
The predominant features in the chemical industry in 1977 and 1978 are
overcapacity and rising costs. The overcapacity results from the 1973-76
period in which capital spending increased 150 percent (see Table B-3).
The spending has slowed but capacity has still been growing.
TABLE B-3
CAPITAL SPENDING BY 20 MAJOR CHEMICAL FIRMS
millions of % Change from Year
1971 2,516 5
1972 2,416 4
1973 3,031 25
1974 4,873 61
1975 5,661 16
1976 6,125 8
1977 6,144* 0.3
* Planned capital spending in current dollars for 20 firms.
SOURCE: Chemical and Engineering News, "Facts and Figures," June 6,
1977.
B-13
-------
In general, markets have not expanded as quickly as capacity. In 1977,
producers added 10 percent to U.S. capacity and will add another eight
percent in 1973. However, capacity utilization is less than 30 percent
now and markets have been expanding at only three percent.
In addition to low capacity utilization, manufacturing costs have risen
precipitously. Raw material costs, which rose a total of 15 percent
during 1976 and 1977, are expected to rise seven percent in 1973. Wage
rates are expected to rise by eight percent and the cost of fuels and
electricity by 12 percent.
The result of the overcapacity and rising costs will be tougher compe-
tition. Because of low revenues, producers will want to raise sales
through price and/or volume increases. Price increases are less likely
to be accepted in times of overcapacity because all producers are in-
terested in capturing greater market share to increase volume. The
conditions in the 10 inorganic chemical subcategories vary, but the
conditions of overcapacity and cost increases are being felt in most
subcategories.
3-14
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C. METHODOLOGY USED IN ECONOMIC IMPACT ANALYSIS
1. INTRODUCTION
The purpose of this study is to determine the immediate economic effects
of effluent control costs on ten chemical subcategories. In addition,
the impacts of combined effluent and hazardous waste control costs
(required for compliance with the Resource Conservation and Recovery
Act's Interim Status Standards, i.e. RCRA-ISS) are determined for the
subcategories of the inorganic chemicals industry that will incur both
sets of compliance costs. The approach emphasizes the microeconomic
impacts on each subcategory. The secondary, economy-wide impacts are
given less consideration.
2. AREAS OF STUDY
The analyses of the economic impact of potential effluent guidelines on
the subcategories address nine general issues. These issues were chosen
by the EPA as indicative of the effects which regulations might have in
a wide variety of situations. In dealing with the chemical industry,
some will be more important than others. The nine areas of study are:
1. Price
2. Profitability
3. Growth
4. Capital
5. Number of plants
6. Production
7. Changes in employment
8. Community effects
9. Other
Although each of these issues is individually important, the interrelation-
ships and the combined effects in all of these areas indicate the total
C-l
-------
impacts of the effluent guidelines. In particular, the price and profit-
ability impacts largely determine the impacts in the other areas.
A number of questions can be asked in each impact area:
1. Price: What portion of the product price will go towards pollution
control? Will producers be able to pass costs on completely or
will margins be reduced?
2. Profitability: What will happen to total revenues, total costs and
profits? What secondary effects will a profitability change have?
3. Growth: Will capacity growth rates change? What will happen to
rates of modernization? Will there be plant closures? Will pre-
treatment regulations stimulate direct discharging? Will present
customers convert to substitutes or reduce demand?
4. Capital raising ability: Will pollution control expenditures
affect a company's capital raising capabilities?
5. Number of plants: Will regulations reduce the number of plants in
a subcategory?
6. Production: Will there be curtailments? Will product lines be
affected? What will be the long run effects?
7. Employment: Will there be employment reductions?
8. Communities: What will be the location of any cutbacks or curtail-
ments? Will dislocated employees be absorbed by the local workforce?
What secondary effects might occur?
9. Other: What other effects might there be? e.g., Balance of Payments,
foreign investment in U.S. companies.
In this report, price and profitability impacts form the core of the
analysis. All other impacts are derived from these two areas.
3. IMPACT METHODOLOGY
3.1 General Approach
The economic impact assessment is based on qualitative and quantitative
analyses of each of the subcategories in the inorganic chemicals industry.
C-2
-------
The qualitative side of the assessment consists of a detailed economic
characterization of each subcategory. The characterization is intended
to develop a detailed picture of industry trends in such areas as sales,
profitability, competition, and product price. This characterization is
used to depict a subcategory's current economic condition and its prospects
for the future. This provides the essential background for estimating
the economic impact of pollution control costs.
The quantitative side of the impact assessment consists of a "model
plant" analysis. An economic or engineering model is a simplified
representation of reality. Since there are too many plants in the
inorganic chemicals industry to study the economic impact of pollution
control costs individually on each one, models were used to represent
the real plants in the industry. For example, the chrome pigments
subcategory consists of 12 real plants which are represented in this
study by four model plants. One model is designed to be typical of the
five small plants in the subcategory, another of the three medium sized
plants, and so on through the large and extra-large plants.
These models in effect act as surrogates in the analysis for the real
plants they represent. The models are used in two respects:
• As engineering models, to estimate the cost of compliance with
effluent regulations and, where applicable, RCRA-ISS requirements
• As financial models used to estimate how compliance with
effluent control costs and, where applicable, RCRA-ISS costs
will affect the product selling price and profitability of the
real plants in the industry.
In the final step of the impact assessment the quantitative and qualitative
analyses are brought together. Essentially, the industry characterization
provides the background needed to evaluate the significance of the price
and profitability changes. An important contribution of the characteri-
zation is in estimating the price elasticity of demand an industry
subcategory faces (i.e., how responsive demand is to changes in
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price). If demand is inelastic (unresponsive), then even relatively
large price increase estimates for a model plant would be considered
relatively unimportant. However, the same level of model plant price
increases combined with elastic demand — that is, demand which would
fall off sharply with an increase in price — would indicate potentially
severe financial problems for the real plants represented by a model.
The following discussion will describe the elements of the methodology
in detail. The discussion is divided into the following sections:
• Costs of Pollution Control
• Model Plant Analysis
• Determination of Industry Impacts
The first section describes the estimates developed by a technical
contractor for effluent control costs and, where applicable, the costs
of compliance with RCRA-ISS regulations. The second section describes
the model plant analysis including 1) calculation of the maximum price
rise and profitability decline that could result from pollution control
costs; 2) a subjective estimate of price elasticity of demand based on
the subcategory characterization; and 3) a screening analysis, based on
these measures, designed to pinpoint model plants which may suffer
particularly high impacts and require futher study. In the final section,
the assessment of probable industry impacts (based on the model plant
analysis and market and industry information developed in the characteri-
zation section) is discussed.
These sections are discussed in more detail below. Much of the detailed
discussion of the financial assumptions and tools has been provided in
appendices in order to present the methodology more clearly and concisely.
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3.2 Costs of Pollution Control
3.2.1 Model Plant Parameters
Since, as noted above, it was impractical to examine every plant in an
industry, the pollution control costs were estimated for "model plants"
which represent the real plants in each subcategory. Some of the key
variables used to specify model plants include process type, production
capacity, flow rates, and pollutant loads. The appropriate number of
model plants for each subcategory depends on the variability in these
characteristics and the number of plants in the subcategory.
The model plants used in the analysis were specified by the technical
contractor (Jacobs Engineering Inc.). Model plants for each of the
subcategories were designed on the basis of annual production levels,
with the number of sizes and production levels selected to correspond to
the actual range of plants in each subcategory. Model plant financial
parameters were developed by EEA and an economic subcontractor.
3.2.2 Effluent Control Costs
For each of the model plants, effluent control cost estimates were
developed by the technical contractor. In this report, the cost estimates
represent the costs required for direct dischargers to comply with best
available technology economically achievable (BAT) limitations and for
indirect dischargers to comply with pretreatment standards for existing
sources (PSES).
3.2.3. Hazardous Waste Control Costs
Ten subcategories of the inorganic chemicals industry are included in
this report. However, these ten subcategories actually cover 13
chemical manufacturing processes. For example, the chlorine subcategory
covers two processes — mercury, and diaphragm cell. Likewise, the
titanium dioxide subcategory includes the chloride, chloride-ilmenite,
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and sulfate processes. Of the 13 processes covered in the 10 sub-
categories, only three processes will incur RCRA-ISS costs:
• Chlorine - Mercury cell
• Chlorine - Diaphragm Cell (Graphite Anode)
• Chrome Pigments
Other EPA analyses have also included titanium dioxide and sodium dichro-
mate as segments which will incur RCRA costs. However, these segments
are excluded in this analysis because trivalent chromium, the dominant
metal contaminant in both subcategories, is not a hazardous waste ac-
cording to the most recent established criteria for toxicity. Hydro-
fluoric acid and aluminum fluoride production will not incur RCRA-
ISS costs because the concentrations of toxic metals in these processes'
solid waste are low due to the large amounts of calcium fluoride and
calcium sulfate generated by the effluent treatment system. For all
other subcategories, the dominant metal contaminants in the solid waste
are not hazardous wastes according to EPA's most recent toxicity criteria.
RCRA-ISS costs were estimated for plants in the affected segments by
Jacobs Engineering Inc. on the basis of EPA's Office of Analysis and
Evaluation "Draft Final Guidance Document For RCRA-ISS Costs." The
costs are based on regulations promulgated through May 1980 for Sections
3001, 3002, 3003, and 3004 of the Resource Conservation and Recovery
Act. Note that the costs developed for this analysis overstate the RCRA-
ISS costs associated with solid wastes generated by effluent treatment
because the estimates also include baseline RCRA costs (i.e., those that
would be incurred even in the absence of effluent limitations).
Either model plant cost estimates or plant-specific cost estimates were
developed for each subcategory. For example, in a subcategory such as
the chlorine mercury cell segment, which has 25 plants incurring costs,
cost estimates were developed for, three model plants to represent the
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entire subcategory. However, in the chlorine-diaphragm cell segment,
only six plants will incur costs, thus permitting the development of
plant-specific costs.
These cost estimates may not match the costs used in other EPA analyses
for two reasons:
• RCRA-ISS regulations have been revised repeatedly. The cost
estimates used in this analysis reflect RCRA-ISS requirements
promulgated through May 1980. Cost estimates in other analyses
may reflect RCRA-ISS regulations promulgated through earlier
or later dates.
• Previous analyses have developed "worst case" cost estimates
reflecting the costs of on-site waste disposal for the affected
plants. Further analysis has shown EPA that some of these
plants will be more likely to dispose of their wastes off-site
at lower costs.
In accordance with the Guidance Document, Jacobs Engineering Inc. estimated
RCRA-ISS costs on the basis of the activities required for compliance
with the regulations. The compliance activities were divided into two
categories -- technical and nontechnical. As a general rule, activities
in the technical category are defined as those which directly affect the
design and operation of a waste disposal facility. Under this nomenclature.
for example, a runoff control system is a technical cost, while sampling
or recordkeeping is not. For RCRA-ISS, the technical activities are:*
• Runoff collection and treatment or disposal for land treatment
and landfills. These systems must be in place within 12
months after promulgation.
• Closure for landfills. It was assumed that wastes would be
disposed in one cell for a one year period, after which the
cell would be closed. Therefore, closure is an annual event.
• The management of wastes at off-site waste disposal facilities.
(In this case, management fees are incurred annually.)
The following summary of applicable RCRA-ISS costs is taken from the
"Draft Final Guidance for RCRA-ISS Costs," Office of Analysis and
Evaluation, EPA, December 1980.
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The activities in the nontechnical category were defined as those which
had an indirect impact on facilities design and operation. Activities
in this category included:
• Administration -- These activities are complementary to record-
keeping and reporting and are often implicitly rather than
explicitly specified in RCRA-ISS. Some activities, such as
maintaining an operating log, are evident; while others, such
as general administration, are not.
• Recordkeeping and Reporting -- These activities are explicitly
required and involve maintaining a manifest system and pre-
paring reports.
• Monitoring and Testing — Activities include installing and
maintaining a system of test wells, sampling and analysis of
groundwater, and maintaining records and reports.
• Training — Employees must be instructed and provided on-the-
job training.
• Contingency Planning — Activities include provision for
security (usually a fence); emergency preparedness and preven-
tion; and Contingency Plan and Emergency Procedures. The most
significant activities include a provision for fencing, the
preparation of a contingency plan, and the provision of safety
equipment.
• Financial Requirements -- All facilities must demonstrate
ability to provide for site closure. Disposal facilities
where wastes remain after closure must demonstrate the ability
to provide long term care. While several mechanisms will be
available through which facilities can meet the financial
requirements, this analysis assumes that plants establish a
trust fund for closure and a trust fund for post-closure moni-
toring and maintenance.
The RCRA-ISS control costs were divided into four categories, of
which three are:
• Annual Operating — These are incurred each year the plant is
in operation.
• Capital -- One-time capital expenses, such as for fences.
• Initial — Other one-time expenses, such as for setting up the
manifest system for tracking wastes. These are treated in the
model as capitalized expenses.
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The fourth category, which is payments into the closure fund, requires
special attention. Each plant must establish a fund to pay for the
costs of closing its disposal facilities and post-closure maintenance.
In this analysis, it is assumed that the trust fund will be built up
over twenty years in accordance with the RCRA-ISS specifications for finan-
cial requirements.* Note that this is a conservative assumption; other
less costly mechanisms (e.g., securing a surety bond or letter of credit)
would also be available.
It is important to note that the closure fund payments made via the trust
fund mechanism are not a tax-deductible expense. This greatly magnifies
their impact on the plant. In fact, the cost impact is almost doubled.**
3.2.4 Estimation of Investment and Annualized Control Costs for the Subcategory
Pollution control investment costs for each subcategory are estimated on
the basis of model plant pollution control investment costs (developed
by the technical contractor) and actual plant sizes. In this analysis,
the investment cost for each actual plant is taken as the pollution
control investment cost for the closest corresponding model plant.
* Federal Register, Volume 46, No. 7, January 12, 1981, Rules and Regulations
page 2821.
**
Consider the following simplified calculation for net income after taxes:
NIAT = (R - C) (1 - t)
where: NIAT = Net Income After Taxes
R = Revenue
C = Cost
t = Tax Rate
In this study, 1-t equals 0.53 (see Appendix A). By multiplying through,
the equation can be rewritten as:
NIAT = 0.53R - 0.53C
But if the cost is not tax-deductible, as in the case of the closure
fund, the equation becomes:
NIAT = 0.53R - C
Thus, the effect of the cost is almost doubled. Note that in cal-
culating annualized RCRA-ISS costs, the annual closure fund payment
is divided by (1-t), or 0.53, in order to reflect this effect.
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Total annualized control costs for each subcategory are estimated on the
basis of model plant control costs, developed by the technical contractor,
and current industry production levels. Model plant annualized control
costs are calculated on a per ton basis and include the following:
• Annual operating costs
• Annualized capital costs obtained by multiplying the pollution
control investment by a capital recovery factor (see Appendix A)
• Where applicable, the non-tax deductible closure fund payment
required for RCRA-ISS compliance.
Plant specific capacity information and the technical contractor's
estimate of capacity utilization were used to determine the tons of
actual production corresponding to each model plant size for each sub-
category. Total estimated control costs for each subcategory were
obtained by multiplying the per-ton control costs for each model size by
the corresponding production in each size category.
3.3 Model Plant Analysis
This section describes the model plant analysis used to predict potential
industry impacts. There are four indicators used to evaluate the impacts
of pollution control costs for each subcategory.
• Price Rise Calculation
• Maximum Potential Profitability Decline
• Price Elasticity of Demand
• Capital Ratio
These indicators are discussed below.
3.3.1 Price Rise Calculation
The price rise analysis assumes that the chemical manufacturer can
immediately pass through all costs of pollution control in higher prices.
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It is assumed that the price can be raised by the full amount necessary
without resulting in any decline in physical sales volume, i.e. that
demand is completely inelastic. To fully recover all pollution control
costs, the price increase must include both the annual operating costs
plus an annualized portion of the initial capital investment. The
annual operating costs are simply divided by the number of tons produced
to obtain cost per ton. The capital costs are annualized using a capital
recovery factor. In this analysis, the recovery factor used is 0.218
(i.e., 21.8 percent of the capital costs must be recovered each year).
This implies that all of the capital costs will be recovered in about
five years. The annualized capital costs are added to the annual
operating costs to obtain total annual pollution control costs. These
total costs are divided by sales to derive a product price increase.
Appendix A describes the capital recovery factor and the price pass-
through analysis.
3.3.2 Profitability Decline
The profitability analysis assumes that no price pass-through is possible,
i.e. demand is infinitely elastic. Therefore, the manufacturer must
absorb all pollution control costs in the form of reduced margins or
increased losses. The first step is to determine the baseline profita-
bility (that is, the profitability of the plant before pollution control
costs are incurred) for each model plant. Then, the after control
profitability is calculated and compared to the baseline profitability.
The magnitude of the profitability decline is used in conjunction with
the other impact indicators to evaluate the potential impacts. Two
measures of profitability are calculated using a discounted cash flow
model: return on investment (ROI) and internal rate of return (IRR).
3.3.2.1 Return on Investment
The return on investment (ROI) is defined as the yearly cash income
divided by the total investment. This measure is similar to the ROI
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figure often quoted by the industry. The difference is that the industry
commonly uses earnings after taxes (net earnings) divided by investment,
whereas this ROI is cash earnings (net earnings plus depreciation)
divided by investment. Since the difference in ROI before and after the
pollution control expenditure is what is to be examined, the cash ROI
serves as well as the traditional ROI.
The ROI change from year to year depends on the cash position of the
firm (which will vary with depreciation schedules and changes in oper-
ating costs). The analysis relied on an examination of the decline in
ROI during the fourth period. This year was chosen for three reasons:
Since the pollution control costs are introduced in the second
period, pollution control operating costs are included in the
cash position that year.
Both initial capital investment in plant and equipment and
pollution control investment costs are still subject to depre-
ciation expense in that period. (Both plant and equipment are
straight line depreciated for 10 years and control equipment
for five years.)
Since the calculations are made in nominal dollars, the assumed
inflation rate of 6% annually has not yet distorted the costs
and revenues upon which the ROI calculation is based.
The reasons cited above would have justified the third, fifth, sixth,
and seventh period as well. However, the cash flows in those periods
were not significantly different from that in the fourth (inflation
accounts for the only differences.)
3.3.2.2 Internal Rate of Return
While the return on investment is easily calculated and used, it does
not capture the effects of the investment life or the cash flow timing.
These factors are taken into account in the discounted cash flow model
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which yields the internal rate of return as the profitability measure.
The internal rate of return is calculated for each model plant as follows:
• The cash flow position is calculated for each of 27 years in
the assumed life of the plant. (Simply stated, cash flow per
period is defined as after tax profits plus depreciation, less
any capital costs incurred during the period.)
• Using the opportunity cost of capital (discount rate) each
future cash flow to the present period is discounted. This
step allows for the fact that $1 earned in the future is worth
less than a dollar earned today.
• The discounted cash flows are added to yield the model plant's
net present value (NPV).
• The discount factor is adjusted to yield a net present value
of 0. This discount factor is the internal rate of return.""
For some of the model plants, the baseline internal rate of return or
the return after control costs was negative. This is the result when
the cash flows are such that there is no discount factor which can raise
the net present value to 0 (e.g., when the cash flows in all periods are
0). Since the IRR is therefore indeterminate, nothing can be deduced
from differences in IRR. In these cases, therefore, changes in the
other profitability measure, return on investment, were used.
3.3.2.3 Sources of Uncertainty in the Profitability Analysis
Profitability is dependent upon price, cost, and capital investment.
The calculation of baseline profitability is made using the best estimate
of these financial parameters presented in the characterization section.
However, these point estimates have a wide variance, especially the
estimate of price. List price and average unit value may differ by as
* Appendix B discusses the assumptions and calculations used to derive
the ROI and IRR. For a more thorough discussion of cash flow analysis,
theory and uses, see Managerial Finance (Weston and Brigham; Dryden
Press: Hinsdale, Illinois).
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much as 30-40 percent from actual selling price. Therefore, if the
calculated profitability is inconsistent with profitability estimates
developed through conversations with industry sources, the point estimate
of price is adjusted (within the range suggested by the price data).
This is an important step in the analysis because baseline profitability
is the critical starting point for examining the profitability decline.
The component variables driving the profitability estimate need only be
within a reasonable range surrounding the best estimate in order to
gauge the profitability decline resulting from pollution control costs.
This profitability analysis is not intended to specify precisely the
actual returns accruing to each subcategory. This would only be possi-
ble using detailed confidential industry data. For this analysis,
manufacturing costs estimated by a subcontractor and EEA were used to
calculate profitability. This is consistent with the intent of the
analysis — that is, to determine the change in profitability that
occurs when pollution control costs are included in the cash flow stream.
3.3.3 Price Elasticity of Demand
Generally, neither of the extreme assumptions of completely inelastic or
elastic demand will be appropriate. A firm will usually be able to pass
through a portion of the increased production costs from pollution
control. An estimate of the potential for cost pass-through is a key
consideration in the impact analysis. Pass-through is dependent upon
the magnitude of the price rise and the price elasticity of demand.
Price elasticity of demand (rigorously defined as the percentage change
in the quantity purchased given a one percent change in product price)
is a function of:
• The number, closeness, and relative cost of available sub-
stitutes
• "Importance" to the purchaser's budget
• The relevant time period (short vs. long run).
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Because there are many problems with historical data, econometric es
of price elasticity of demand were judged to be of limited value. Thus,
the analysis relies on subjective estimates of price elasticity, based
on market information developed in the characterization.
3.3.4 Capital Analysis
The impacts of pollution control can go beyond increased annual costs
and the annualized portion of capital costs. Pollution control facili-
ties themselves can pose a significant one time expense, especially for
smaller manufacturers. To determine the relative size of pollution
control capital costs, they are compared with the fixed investment in
plant and equipment. This comparison is expressed as pollution control
capital expenditures as a percentage of dollar fixed investment in
place. Because the capital intensity of the ten subcategories varies,
this measure will give a useful indication of the relative burden of a
new capital expenditure.
Because capital construction costs have experienced large increases in
the 1970's, the fixed investment will vary widely in plants of various
ages. The difference in age will also affect the accumulated deprecia-
tion. (Depreciation in this analysis is calculated as 10 year straight
line for plants and equipment and as five year straight line for pollu-
tion control facilities.)
The cost of land represents a significant portion of initial costs for
many of the proposed technologies. In an accounting sense, its value is
not depreciable. The land may have equal or greater value in the dis-
tant future but physical depletion of the land, as well as the heavily
discounted present value of any residual sales value may reduce its
value. In any case, the initial expense of the land must be recovered
so it is considered part of the capital constraint.
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3.3.5 Model Plant Closure Analysis
An important part of the economic impact analysis of pollution control
costs on the industry is to identify potentially "high impact" plants
and closure probabilities. The EPA considers the price increase, prof-
itability decline, and price elasticity of demand useful in providing an
initial indication of high shutdown probability.
For each subcategory and for each of the pollution control options, a
table is presented that summarizes the price elasticity of demand,
necessary product price rise, and maximum potential profitability de-
cline. Under the EPA's closure criteria, a model plant is considered a
possible closure candidate if the demand is elastic, the price increase
is greater than one percent, and the resulting profitability decline (in
the case of no pass-through) is greater than one percentage point or
exceeds ten percent of the baseline (before control) profitability.
Price increases of one percent or less are assumed to have little effect
on consumers or producers since a product price may fluctuate by at
least one percent due to granting of discounts to volume purchases and
also due to short-term supply and demand surges and declines. A profit-
ability decline of less than or equal to one percentage point is assumed
to have an insignificant impact on a plant's decision to curtail produc-
tion or shut down as long as the absolute decline does not exceed ten
percent of the plant's baseline profitability. Determining both the
absolute percentage point decline and the percentage decline relative to
baseline profitability facilitates the identification of plants which
may close as a result of the potential profitability declines. In this
way, model plants that are potential closure candidates are screened for
further detailed analysis. The "Industry Impacts" section discusses the
likelihood of actual plant closures as well as secondary impacts on
unemployment, the community, etc.
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3.4 Determination of Industry Impacts
This section describes the determination of industry impacts based on
the model plant results described above. The probable industry price
rise, profitability decline, and resulting impacts are determined for
all manufacturers in each subcategory.
3.4.1 Price and Profitability Impacts
The model plant analysis suggests the maximum plant price rise and
profitability decline. The model plant calculations must be evaluated
in light of market information (developed in the characterization section)
to estimate 1) the extent to which the price is likely to increase, and
2) the actual industry profitability decline that will result. If a
significant price increase is needed to maintain profitability, an
evaluation of the probability of achieving that increase is important.
Pass-through is dependent upon a host of factors including industry
competitiveness, available substitutes and product demand, with the
relationships among these factors made more complex by the action of
market variables over time.
Profitability impacts are examined wherever complete pass-through is not
possible. The portion of pollution control costs not recovered by price
increases must be absorbed by producers in the form of reduced margins
or increased losses. The likelihood of price pass-through and resultant
impact on plant profitability form the basis for projections of other
impacts in each subcategory.
3.4.2 Plant-Specific Impacts
Once the closure criteria are applied to the model plants, the probability
of closure for the corresponding actual plants is examined in detail based
on plant-specific factors and actual market conditions. The detailed
analysis evaluates the extent to which profitability will decline if
017
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immediate and complete price pass-through is not possible. Thus, the
model plant analysis serves to identify potentially high impact plants
(based on EPA's closure criteria); the plant closure projections are
made only after detailed evaluation of actual plant and market conditions.
3.4.3 Other Impacts
The nine impact areas studied in this report are highly interrelated.
As previously indicated, the price and profitability effects are the
keystone of the analysis. Price (and pricing history) is a measure
which summarizes a wide variety of economic variables. It reflects
supply conditions such as manufacturing costs, shipping costs, variation
in the costs of manufacture, and the number of producers. Price re-
flects demand conditions as it measures the value of a chemical as an
input to other processes. It also reflects competitive factors such as
the price and availability of substitutes, foreign competition, capacity
utilization, growth rates, and the number of producers.
Profitability levels in an industry directly affect the number of pro-
ducers in an industry. As profitability declines, plants may be forced
to shut down until industry capacity is more in line with demand. Thus,
the profitability decline analysis can be used to help determine the
number, location, and type of plants in a subcategory that may close due
to the regulation; the course of future growth in the subcategory, and
the role of foreign competition. This, in turn, can provide indications
of secondary impacts on the community, employment, and the balance of
payments.
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D. SUBCATEGORY .ANALYSIS
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1. ALUMINUM FLUORIDE
1.1 CHARACTERIZATION
(NOTE: As discussed below in Section 1.2, this industry subcategory in-
curs no compliance costs. The following characterization data is pre-
sented for informational purposes only.)
Aluminum fluoride is a small but essential input in primary aluminum
production. Together with cryolite it forms a molten electrolyte used
to reduce metallic aluminum from alumina. In the reduction process,
alumina (aluminum oxide) is dissolved in this electrolytic bath, and an
electrical current is passed through it. At the carbon anode, oxygen
from the alumina joins with carbon forming carbon dioxide and freeing
aluminum metal. Aluminum fluoride is also used to a minor extent as a
metallurgical and ceramic flux for welding and glazing, and in secondary
aluminum production for the removal of magnesium from molten scrap.
Over 90 percent of the aluminum fluoride (A1F_) produced is consumed by
one end use: the production of primary aluminum. Given this market
structure, the profitability, growth, and current production technology
in the aluminum industry largely determine demand for A1F . Accordingly,
this characterization analyzes those facets of the aluminum industry
which affect A1F_.
1.1.1 Demand
Since aluminum fluoride's major industrial function is primary aluminum
production, demand for A1F_ is determined by conditions in the aluminum
end market.
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Demand for aluminum has risen in almost all of its end use markets since
the setback suffered by the industry in 1975. In 1978 production was
9.6 billion pounds, and 1979 output is expected to exceed the record
1974 level of 9.8 billion pounds. Figure 1-1 illustrates aluminum
fluoride's position in the aluminum production stream relative to its
raw material inputs and ultimate end markets.
In order to depict the total demand for aluminum (and thus A1F-), the
conditions in the individual end markets are summarized below.
1.1.1.1 End Markets
Transportation -- The transportation industries have led the resurgence
in aluminum demand. In 1976, deliveries of aluminum to the transporta-
tion markets rose 44 percent and accounted for 19.3 percent of industry
shipments. This increase reflects aluminum's increasing penetration of
the automobile market. In an effort to improve gas mileage by lowering
weight, automobile makers have incorporated an average of 114 pounds of
lightweight aluminum in their 1978 models. This trend is expected to
continue with estimates of aluminum usage per vehicle ranging from 150
to 200 pounds by 1980 and from 225 to 425 pounds by 1985.
Airline deregulation and the need to replace aging jet fleets have also
increased aluminum consumption in the transportation sector. With
passenger traffic and profits sharply higher, airlines are ordering new
equipment at a record pace. Aluminum shipments to aircraft manufac-
turers have therefore increased substantially.
Building And Construction -- Building and construction constitute alum-
inum's largest end market, accounting for 23.1 percent of total 1977
shipments. Aluminum has penetrated the markets of both steel and wood
in residential and industrial siding, doors, and windows. Due to their
design these products can offer good insulating properties. Together
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with foil backed fiberglass and foam insulation they should help
strengthen aluminum's position in the building and construction market,
as consumers attempt to conserve energy through improved home construc-
tion and insulation.
Other Markets — Aluminum continues to penetrate the containers and
packaging market, despite recent price increases. Aluminum offers the
advantages of light weight, corrosion resistance, and relative ease of
recycling. Moreover, steel and plastic, aluminum's primary competitors
in this sector, have also posted recent price increases. Containers and
packaging accounted for 20.8 percent of aluminum's shipments in 1977.
Shipments to the electrical market (10 percent of the 1977 total) are
expected to remain strong. These shipments consist primarily of alum-
inum cable and towers. Shipments to the machinery and equipment sector,
as well as to the consumer durables industries, are tied to general
business conditions. Recessionary pressures may cause a short term
decline in capital investment and consumer spending in these areas, but,
in the long run, these markets should grow at approximately the rate of
GNP growth. These two markets accounted for a combined total of 14.8
percent of 1977 aluminum shipments.
1.1.1.2 Demand Summary
In general, predictions for growth of demand in the aluminum industry
range from four to seven percent annually through 1982. However, based
upon known expansion plans in 1978, aluminum capacity will grow less
than two percent annually through 1982. The aluminum industry is con-
sciously restraining major capacity expansions in an attempt to drive up
price and return on equity, and to avoid the excess capacity which
severely damaged the industry1-s price and profit positions during demand
downturns in 1970 and 1975. The difference between the rates of growth
of demand and capacity should raise capacity utilization in the industry
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from the 92.5 percent of the first half of 1978 to approximately 95 per-
cent and imports should increase their market share. Capacity utiliza-
tion, however, is not expected to increase further. Production effi-
ciency decreases beyond a capacity utilization of approximately 95
percent, because increased energy input is required per ton of aluminum.
Increased natural gas and electricity prices will force industry to sac-
rifice output for efficiency. Thus, while aluminum demand will remain
strong, growth in aluminum fluoride demand will be restrained by the
industry's hesitance to expand capacity.
The outlook for A1F., is further clouded by technical developments in the
o
areas of waste recovery and reduction technology. EPA standards on
fluoride emissions have caused the industry to remove fluorides from air
and water streams and from spent pot linings. These fluorides are then
recycled and returned to the production process. Because aluminum
fluoride is consumed only through mechanical and vapor losses, and not
in the reduction reaction, these reclamation efforts can substantially
reduce A1F- requirements. Industry sources estimate that up to 50
percent of consumed fluorides can be recovered through waste reclamation
efforts.
The same sources differ regarding the remaining amount of fluoride
recovery to be accomplished. Some sources indicate that as much as 25
percent of planned recovery equipment is not yet on line in the indus-
try. Others maintain that virtually all economical fluoride recovery is
currently being accomplished, and that further reductions will not occur
without a substantial technological breakthrough. If further fluoride
recovery is accomplished, slackening of aluminum fluoride demand may
occur.
In addition to this possibility, there is a longer term threat to alum-
inum fluoride demand. Alcoa has developed a smelting process using a
1-5
-------
chloride instead of fluoride in reducing alumina. A 15,000 ton/year
pilot facility in Anderson County, Texas has been in operation since
1976, and another 15,000 ton line has been added recently. Alcoa has
plans to further expand this facility. The process is particularly
attractive, as it has demonstrated electricity savings of 30 percent
over the best Hall Cell technology and 44 percent over the industry
average of 16,000 kilowatt hours per ton of aluminum. The process
offers tremendous cost advantages, particularly at a time when the
industry faces soaring electricity costs and difficulty securing the
long-term power contracts essential for capacity expansion. The process
is not yet commercially available due to technical difficulties. How-
ever, when perfected it will be licensed by Alcoa and made available to
the entire industry.
Based upon the age of existing smelting facilities and the current
status of the chloride technology, industry sources expect the Hall-
Heroult process to remain the dominant production technology well into
the 1990's. Until that time aluminum fluoride manufacture should remain
a viable industry.
1.1.2 Supply
1.1.2.1 Production
As Table 1-1 illustrates, aluminum fluoride production has not grown
substantially since 1968, despite a 39 percent increase in the produc-
tion of primary aluminum. (See also Graph 1-1.) This is primarily due
to fluoride recovery by aluminum producers. The large fluctuations in
production during 1974 and 1975 reflect a period of rapid growth followed
by contraction in the aluminum industry. Aluminum fluoride production
should remain stable or decrease slightly over the next few years due to
limited aluminum capacity expansions and continuing fluoride recovery
efforts.
1-6
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GRAPH 1-1
ALUMINUM FLUORIDE PRODUCTION AND PRICE
175.00-
131.25-
VOLUME 87.50-
(000's of tons)
43.75-
0.00-'r-
1968
AVERAGE
UNIT
VALUE
(dollars)
500.00-.
375.00-
250.00-
125.00-
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1972
YEAR
I I
1972
1976
I I
1976
YEAR
SOURCE: Department of
-------
1.1.2.2 Producers
There are three bulk manufacturers of aluminum fluoride operating four
plants. The two leaders, Alcoa and Kaiser, are integrated forward to
aluminum, and account for 76 percent of total industry capacity. The
third bulk producer is Allied Chemical Corporation, which sells its A1F»
on the merchant market. In addition to these producers, the Ozark
Mahoning Corporation produces a highly pure form of A1F_ on a special
order basis for use as an additive in dentifrices. Table 1-2 summarizes
current producers and facilities.
Alcoa and Allied Chemical are completely integrated to the two major
inputs, hydrofluoric acid and alumina hydrate. Kaiser has recently shut
down its hydrofluoric acid facility, but maintains an internal source of
alumina hydrate.
The supply situation for A1F_ changed in late 1978 when the Stauffer
Chemical Corporation closed its Greens Bayou, Texas facility, reducing
domestic supply by approximately 10 percent. The facility, which was
integrated with Stauffer's hydrofluoric acid unit at Greens Bayou was
closed primarily due to the shrinkage of the HF market following EPA's
and FDA's ban on fluorocarbons. Stauffer had previously supplied Union
Carbide with hydrofluoric acid for fluorocarbon production until the
latter closed its plant due to the regulation.
Two of the three leading aluminum producers, Alcoa and Kaiser, are pro-
ducers of aluminum fluoride. The third, Reynolds Aluminum, is essen-
tially integrated to A1F except for the processing step. Reynolds
provides acid grade fluorspar and alumina hydrate to Allied Chemical
Corporation, which has a long-term contract to convert these raw mate-
rials to ALF on a toll basis for use in Reynolds smelting facilities.
All other aluminum manufacturers purchase A1F on the merchant market
from either Alcoa, Kaiser, or Allied.
1-9
-------
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1-10
-------
1.1.2.3 Process
Aluminum fluoride is produced by the reaction of hydrated alumina and
hydrofluoric acid. Hydrated alumina is an intermediate obtained in the
processing of bauxite ore to alumina. Hydrofluoric acid is produced by
the reaction of the mineral fluorspar with sulfuric acid. The manufac-
ture of aluminum is governed by the following reaction:
A12°3'3H2° + 6KF "* 2A1F3 * 6H2 + 3°2
The process generates no by-product waste materials. However, some
process wastes are generated by gas scrubbers, leaks, and spills.
Estimated material requirements and costs for A1F production are found
in Table 1-3.
A1F_ can also be produced using fluosilicic acid as a starting material.
Fluosilicic acid is a by-product of phosphoric acid manufacture. Cur-
rently Alcoa operates one plant in Fort Meade, Florida using this process.
It is anticipated, however, that the fluosilicic acid route will continue
to constitute only a minor part of total aluminum fluoride production.
Phosphoric acid manufacturers have a market for fluosilicic acid in
water treatment, and seem unwilling to integrate aluminum fluoride
production into their existing operations.
1.1.3 Competition
There are currently no commercial substitutes for aluminum fluoride in
aluminum manufacturing. Alcoa's chloride process may offer competition
when it becomes commercially available. However, the determining factor
is expected to be potential electricity savings rather than price compe-
tition with aluminum fluoride because on a per unit of product basis
electricity is a much more costly input than either electrolyte.
1-11
-------
TABLE l-3a
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
25,400 tons/year
17,500 tons/year
(69% capacity utilization)
$9.7 million
VARIABLE COSTS
• Materials
- Fluorspar (97%)
- Sulfuric Acid (98%)
- Alumina trihydrate
• Utilities
- Electricity
- Fuel
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
1.59 tons
1.98 tons
.935 tons
130 kWh
2.04 MMBtu
73.33
39.98
107.75
.03
2.50
116.60
79.20
100.70
3.90
5.10
$305.50
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
19.60
27.60
$ 47.20
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
4.90
55.20
8.30
$ 68.40
$421.10
*See Appendix C
1-12
-------
TABLE l-3b
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
57,300 tons/year
39,500 tons/year
(69% capacity utilization)
$15.8 million
VARIABLE COSTS
• Materials
- Fluorspar (97%)
- Sulfuric Acid (98%)
- Alumina trihydrate
• Utilities
- Electricity
- Fuel
Total Variable Costs
Unit/Ton
$/Unit
1.59 tons
1.98 tons
.935 tons
130 kWh
2.04 MMBtu
73.33
39.98
107.75
.03
2.50
116.60
79.20
100.70
3.90
5.10
$305.50
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
10.90
19.90
$ 30.80
2.70
39.80
6.00
$ 48.50
$384.80
"See Appendix C
1-13
-------
TABLE l-3c
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
73,900 tons/year
51,000 tons/year
(69% capacity utilization)
$18.3 million
VARIABLE COSTS
• Materials
- Fluorspar (97%)
- Sulfuric Acid (98%)
- Alumina trihydrate
* Utilities
- Electricity
- Fuel
Total Variable Costs
Unit/Ton
$/Unit
1.59 tons
1.98 tons
.935 tons
130 kWh
2.04 MMBtu
73.33
39.98
107.75
.03
2.50
116.60
79.20
100.70
3.90
5.10
$305.50
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
10.20
18.00
$ 28.20
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
2.50
36.00
5.40
$ 43.90
$377.60
Appendix C
1-14
-------
Aluminum fluoride is an essential but relatively low volume input in
aluminum manufacturing, and therefore primary aluminum producers seek
reliable supplies. Alcoa and Kaiser have achieved reliable supplies
through backward integration, while other producers have established
long-term contracts and firm supplier-customer relationships. According
to industry sources, contractual arrangements range from one and two
year agreements to long-term toll conversion contracts and changes of
suppliers are rare. Thus, there is very little short-term competition
between domestic producers in the A1F market. Imported A1F, also
offers little competition because in recent years ocean shipping rates
have made it noncompetitive, particularly in a market with excess domestic
capacity.
1.1.4 Economic Outlook
An industry's profitability is the difference between total revenues and
total costs. There are factors that influence these independently so it
is useful to present a revenue outlook and cost outlook separately.
1.1.4.1 Revenue
Total revenue is the product of the quantity sold and the average unit
price. Though these two variables are discussed separately below, it
should be recognized that they are interrelated.
1.1.4.1.1 Quantity
The quantity of aluminum fluoride produced and sold domestically should
remain stable or decrease slightly through 1984, then grow at the rate
of expansion of Hall cell reduction facilities into the 1990's. Wide
scale commercialization of Alcoa's chloride reduction process will
eventually eliminate A1F_ use in aluminum processing, but this should
not occur until the mid-1990's. Important factors which will influence
demand for this commodity are the following:
o Strength of the aluminum market
1-15
-------
o Lack of planned capacity expansion among primary aluminum producers
o Potential for further fluoride recovery by the aluminum industry
o Alcoa's development of energy conserving chloride reduction
technology, which could ultimately eliminate need for A1F. in
aluminum processing.
Thus, while there are some conflicting forces and trends, the aluminum
fluoride industry appears to have matured and little future growth is
expected.
1.1.4.1.2 Price
A great deal of the aluminum fluoride produced by both Alcoa and Kaiser
is used captively. In this captive segment of the market the price of
A1F., has little meaning. The profitability of the entire aluminum
production stream is the relevant criterion for making production deci-
sions, rather than the merchant market price.
Aluminum fluoride is an essential ingredient in primary aluminum pro-
duction although a relatively insignificant input in terms of cost. It
represents less than two percent of the current aluminum ingot price.
With aluminum prices rising and demand strong, necessary price increases
in ALF could be sustained in the merchant market. This assessment is
based on the following factors:
o Demand for A1F is inelastic. Consumption cannot be curtailed
without cutting primary aluminum production. This will not occur as
long as it remains profitable.
o Three firms control the entire industry.
o There is little competition among producers, with the merchant
market characterized by long-term, stable supplier-consumer
relationships.
There seems to be, however, a chance of increasing competition in the
future. There is currently excess capacity in the industry, with 1977
1-16
-------
capacity exceeding consumption by 16 percent, or 27.9 thousand tons.
The situation has improved somewhat with the closure of Stauffer's 16.5
thousand ton per year facility in Texas, but extensive fluoride recovery
could again depress capacity utilization in the industry.
The downward pressure exerted by excess capacity on the prices of A1F
could be intensified by the current market structure. Alcoa and Kaiser,
the two producers who are integrated downstream to aluminum, produce
A1F primarily to meet their own needs. Both, however, have excess
capacity which they attempt to utilize by selling aluminum fluoride on a
merchant basis.
If the excess production is sold at a price above the cost of the vari-
able inputs, then utilizing this productive capacity lowers the unit
cost of the aluminum fluoride they consume captively, as fixed costs are
allocated among a greater number of units produced. Thus, there is an
incentive for the integrated aluminum producers to keep the price low
and capacity utilization high. If this situation develops, Allied must
follow similar pricing policies to remain competitive. Thus, the possi-
bility of increasing profit margins in an industry facing excess capacity
and a demand downturn is substantially lowered. In fact, if demand
declines, margins may shrink as producers compete more vigorously to
maintain high capacity utilization.
1.1.4.2 Manufacturing Costs
Aluminum fluoride production requires two major inputs; hydrofluoric
acid and alumina hydrate. The process for manufacturing HF is rela-
tively energy intensive, and manufacturing costs will climb as energy
prices rise.
Alumina hydrate is an intermediate obtained in the processing of bauxite
to alumina, and thus its cost is a function of current bauxite prices.
About 90 percent of all bauxite used by the domestic aluminum industry
1-17
-------
is imported from member countries of the International Bauxite Associa-
tion (IBA). The IBA has been trying to agree on a common price formula,
but to date has been unable to do so. However, the successful negotia-
tion of a cartel pricing arrangment could raise the price of bauxite
ore, and thus the cost of producing alumina hydrate.
The overall outlook is for the cost of manufacturing A1F to increase at
a moderate rate. The cost of the hydrofluoric acid input should in-
crease fairly rapidly but total cost increases should be moderated
somewhat by lower increases in bauxite costs.
1.1.4.3 Profit Margins
Much of the aluminum fluoride produced is used captively; as such, it
has no "price" and therefore no profit margins.
In the merchant market, the price of aluminum fluoride is likely to
remain low due to vigorous intra-industry competition for market share.
This, coupled with rising manufacturing costs, is likely to keep profit
margins on merchant A1F fairly slim during the next few years.
o
1.1.5 Characterization Summary
Aluminum fluoride manufacture should remain a stable industry into the
1990's. As an essential ingredient in aluminum processing, A1F« will be
produced as long as aluminum manufacture by the Hall process is prof-
itable.
Growth, however, is not expected to be strong. The aluminum industry is
restraining major capacity expansions to increase prices and return on
equity, and thus market growth will be small. In addition, fluoride
recovery technology will continue to reduce A1F consumption per ton of
aluminum produced.
1-18
-------
In the long-term, Alcoa's chloride smelting process could potentially
eliminate demand for AlF^. However, due to the lifetime of current
smelting facilities and the magnitude of the capital investment neces-
sary to install the new process, it is not expected to have a major
impact until the 1990's.
1.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
aluminum fluoride industry to comply with BAT effluent control standards.
A survey by the technical contractor revealed that all five aluminum
fluoride manufacturers are direct dischargers having BPT in place and
operating. For this subcategory, BAT is equivalent to BPT. Since there
will be no incremental costs above BPT required for compliance with BAT
regulations, effluent regulations will have no impacts on the aluminum
fluoride subcategory.
1.2.1 Pollution Control Technology and Costs
As noted above, no new pollution control costs will be incurred by the
aluminum fluoride subcategory. The following detail on pollution control
technology and costs is provided for informational purposes only.
Capital and operating cost estimates developed by the technical contrac-
tor for pollution control equipment designed to meet BPT effluent limita-
tions (already in place and operating) are shown in Table 1-4. The
process reaction for forming aluminum fluoride generates no by-product
waste material. Wastewater flows, however, are generated by air pollu-
tion control scrubbers, leaks, spills and washdown.
The treatment process involves three steps to achieve BPT removal:
Equalization: Wastewater streams are collected in an
equalization tank.
1-19
-------
Lime Precipitation: Lime is added to raise the pH to six or
seven. The wastewater is then transferred to a mixing tank
where the pH is raised to ten. Fluorides are precipitated as
calcium fluoride, and metals as metal hydroxides.
Settling: Solids are settled in a lagoon, and the effluent
overflow is discharged after final pH adjustment.
Pollution control cost estimates have been developed for three model
plant production sizes: 17,500 tons per year (TPY), 39,500 TPY, and
51,000 TPY. These costs are summarized in Table 1-4.
1-20
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1-21
-------
2. CHLORINE
2.1 CHARACTERIZATION
Chlorine is a very large volume chemical with a great number of end uses
in organic chemicals, inorganic chemicals and other industrial applica-
tions. Because it is a critical input for several processes, many
producers make it for their own use; two-thirds of the chlorine is used
captively. Because chlorine is a low value commodity, economical shipping
distances are limited. Therefore, competition occurs on a regional
basis and foreign trade is negligible.
Chlorine is manufactured through the electrolysis of salt using vast
amounts of electricity. Sodium hydroxide is produced as a coproduct in
approximately the same volume. Balancing the demand for these two
products and coping with the rapidly rising cost of electricity are two
of the major concerns of chlorine manufacturers.
2.1.1 Demand
Chlorine and sodium hydroxide (caustic soda) have a very wide variety of
uses, none of which make up a predominant portion of total product
demand. In 1977, end uses for chlorine were as shown in Figure 2-1.
Because of this diversity of uses, demand for these chemicals is not
overly dependent on fluctuations in any one market. In addition, since
over 60 percent of chlorine production is captive, its internal use is
subject to the demand fluctuations of the final products made by each
producer, such as PVC and pulp and paper. Caustic demand, however, is
dissimilar to chlorine in that its merchant sales represent 67 percent
of production and only 33 percent is captive. Thus, many producers who
produce chlorine based upon their needs for downstream chemicals may not
2-1
-------
produce the optimum amount of caustic (and vice versa). This problem is
ameliorated somewhat by the large merchant market for caustic and rela-
tively strong demand. Although this analysis concentrates on chlorine
and its end markets, it should be kept in mind that manufacturers must
continuously balance the demands of the two chemicals. In order to
depict the total demand for chlorine, the conditions in the individual
end markets are summarized below.
2.1.1.1 End Markets
Polyvinyl Chloride
Polyvinyl chloride (PVC) is chlorine's strongest market, accounting for
approximately 17 percent of chlorine consumption. PVC is a plastic used
in building and construction, electrical applications, household appli-
cations, and consumer goods. The market for PVC has grown rapidly (7.2
percent annually, 1971 through 1978) and is expected to continue growing.
Some sources have predicted annual growth rates as high as 8 percent.
The vinyl siding market may contribute significantly to this growth.
Although demand is strong, capacity utilization fell to 75 to 80 percent
when Diamond Shamrock opened a 500,000 ton/year plant in 1978 (the
average plant is half this size). Reduced capacity utilization has
created weak prices. Several other producers are planning expansions
which may contribute to continuing utilization and pricing problems for
several years.
Propylene Oxide
Propylene oxide (PO) is used in the production of polyurethane foam
products and unsaturated polyester fabricated products. These, in turn,
go into automobiles, refrigerators, furniture, and textiles. Propylene
oxide is produced by the chlorohydrin process, using chlorine, water,
2-2
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propylene, and caustic soda or lime. The chlorine is used as an oxi-
dizing agent and is released as a waste product. Several alternate
processes have been proposed for PO production. Oxirane has developed a
direct oxidation process now being used in several plants. Increased
use of any of these new processes could reduce chlorine consumption.
However, the chlorohydrin process may remain competitive with these
other processes if means of increasing efficiency, such as chlorine
recycling, are adopted.
Ethylene Dichloride
Ethylene dichloride (EDC) is an intermediate chemical with end markets
in the production of vinyl chloride (80 percent of EDC's market), chlor-
inated solvent intermediates (10 percent), and other uses (10 percent).
Vinyl chloride is used in the production of polyvinyl chloride. There-
fore, future demand for EDC is tied closely to that of PVC. EDC demand
is expected to grow by four to five percent annually.
In 1978, the question of EDC's carcinogenic potential was raised. Vinyl
chloride producers had similar problems a few years earlier. Although
most EDC is consumed captively, there is a potential for costly EPA or
OSHA regulation.
Ethylene dichloride and vinyl chloride are good examples of chlorine's
end uses. They also point out the potential for increased downstream
costs due to government regulation of carcinogens. The cumulative effects
of regulations have the potential to dampen downstream demand for chlorine
through increased manufacturing costs or outright bans.
2.1.2 Supply
2.1.2.1 Production
Chlorine production reached 10.6 million tons in 1977, placing it eighth
in production volume for all U.S. chemicals. Production volume grew at
2-4
-------
a strong and steady rate throughout the 1950's and 1960's; annual increases
of 10 percent were not uncommon. In the 1970's, two recessions caused
temporary drops in volume. However, the long-term growth trend appears
to have been reduced significantly also. The average annual growth rate
between 1970 and 1977 was 1.1 percent. In the next five years, demand
is expected to keep pace with the GNP. Rapid growth in some end markets,
such as plastics, could cause chlorine demand to outpace GNP by one or
two percentage points. Table 2-1 and Graph 2-1 show production and
average price data for 1968 to 1977.
2.1.2.2 Producers
Chlorine is produced by more than 30 companies; six producers account
for over 70 percent of the total industry capacity. Dow Chemical is the
largest, with 30 percent of the capacity (see Table 2-2).* This industry
concentration statistic can be misleading, however, because some manu-
facturers (not necessarily the largest) specialize in merchant markets,
whereas others (including some large producers) produce primarily for
captive consumption. Olin, PPG, and Diamond Shamrock are the largest
merchant producers.
Most chlorine (over 60 percent) is produced for captive use. In chemical
companies, downstream products include a wide variety of chlorinated
inorganic and organic compounds. Nonchemical companies generally use
chlorine and caustic more directly, e.g., for bleaching pulp and paper;
included in the list of manufacturers are several pulp and paper and
aluminum companies. Backward integration by all of these companies
allows them to control the cost and availability of critical raw mate-
rials. A captive producer can lower costs by running his plants at a
high capacity utilization rate. (In general, there is less captive use
of caustic soda, so a large and predominantly captive producer of chlo-
rine may be a major supplier of caustic.)
*Note that only chlorine plants using mercury or diaphragm cells will be
covered by effluent regulations.
2-5
-------
Productive capacity has grown faster than demand for several years.
Although several plants have shut down since 1975, capacity additions
have exceeded shutdowns. Further expansions have been planned for the
1980's, even though capacity utilization has dropped.
2.1.2.3 Processes
About 94 percent of all U.S. chlorine is produced by the electrolysis of
salt. The coproduct, caustic soda (sodium hydroxide), is produced in
nearly the same volume (ratio of 1:1.13).
Production is governed by the following reaction:
2 NaCl + 2 H20 direct current> Cl,, + 2 NaOH + ^
The two major manufacturing methods use either mercury cells (20 percent
of the capacity) or diaphragm cells (74 percent of the capacity). The
trend away from mercury cells is increasing; there have been no new
mercury cells built in the U.S. since 1970. Manufacturing costs were
estimated for three model plants for each process. Table 2-3 presents
cost estimates for mercury cell plants and Table 2-4 presents cost
estimates for diaphragm cell plants.
The two electrolytic processes have many similar characteristics.
Regardless of the process, the brine solution needs to be purified.
Several manufacturers obtain their brine from nearby salt domes through
steam injection. The brine is purified and then sprayed into the elec-
trolytic cells. A typical chlorine plant has rows of cell lines. Thus,
capacity is somewhat flexible. Older electrolytic plants produced from
65 to 475 metric tons of chlorine per day; newer plants generate 725 to
900 metric tons per day. Some plants and expansions under construction
will yield 1000 or more metric tons per day.
2-6
-------
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2-7
-------
GRAPH 2-1
CHLORINE PRODUCTION AND PRICE
VOLUME
(000,000'sof
tons)
11.00-
8.25-
5.50-
2.75-
0.00
1968
1972 1976
YEAR
AVERAGE
UNIT
VALUE
(dollars)
100.00—
75.00-
50.00
25.00-
0.00-1 —
19^68
1972
1976
YEAR
SOURCE: Department of
-------
TABLE 2-2
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
Companies and Plant
Locations
(Dec. 1980)
AMAX Specialty Metals Corporation
Rowley, UT
BASF Wyandotte Corporation
Geismar, LA
Brunswick Chemical Company
Brunswick, GA
Ihampion International Corporation
Canton, NC
Houston, TX
Convent Chemical Corp. (B.F. Goodrich)
Calvert City, KY
Diamond Shamrock Chemical Company
LaPorte, TX
Delaware City, DE
Mobile, AL
Muscle Shoals, AL
Deer Park, TX
)ow Chemical Company
Freeport, TX
Midland, MI
Pittsburg, CA
Plaquemine, LA
B.I. duPont de Nemours S Co. Inc.
Corpus Christi, TX
Niagara Falls, NY
Bthyl Corporation
Baton Rouge, LA
7MC Corporation
S. Charleston, WVA
'ormosa Plastics Corporation USA
Baton Rouge, LA
Annual Chlorine
Capacity
(Jan. 1979)
(1000 tons)
20
179
30
51
128
1,335
4,133
281
68
292
172
Type Of Year Built
Process (Year Cells Installed)
1977
1
1
1
1
2
1
2
2
2
1,2
1,6
1
1
1
1
4
4
1
1
1959, 1969
1967
1916
1936
1966
1974
1965
1964
1952
1938
1940
1897
1917
1958
1974
1898
1938
1916 (1973)
1937 (1968)
2-9
-------
TABLE 2-2
(Continued)
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
Companies and Plant
Locations
(Dec. 1980)
Fort Howard Paper Company
Green Bay, WI
Muskogee, OK
General Electric
Mt. Vernon, IN
Georgia-Pacific Corporation
Bellingham, WA
P1aquemine, LA
Hercules
Hopewell, VA
Hooker Chemical Corporation
Montague, MI
Niagara Falls, NY
Tacoma, WA
Taft, LA
Hooker-IMC Joint Venture
Niagara Falls, NY
International Minerals and Chemical
Corporation
Ashtabula, OH
Orrington, ME
Kaiser Aluminum and Chemical Corporation
Gramercy, LA
Linden Chlorine Products, Corporation
Acme, NC
Brunswick, GA
Linden, NJ
Moundsville, WVA
Syracuse, NY
Mobay Chemical Corporation
Baytown, TX
Monsanto Company
Sauget, IL
Annual Chlorine
Capacity
(Jan. 1979)
(1000 tons)
124
55
720-825
31
1,137
47
119
205
504
90
44
Type Of
Process
1
7
2
1
1
1
1
1
3
2
2
2
2
2
1,2
Year Built
(Year Cells Installed)
1968
1980
1976
1965
1975
1939
1954
1898 (1974, 1978)
1929
1966 (1975)
1971
1963
1967
1958
1963
1957
1956 (1963, 1969)
1953
1927 (1-1968, 1977)
(2-1953)
1972
1922
2-10
-------
TABLE 2-2
(Continued)
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
Companies and Plant
Locations
(Dec. 1980)
Olin Corporation
Augusta, GA
Charleston, TN
Mclntosh, AL
Niagara Falls, NY
Pennwalt Corporation
Calvert City, KY
Portland, OR
Tacoma, WA
Wyandotte, MI
PPG Industries, Inc.
Barberton, OH
Lake Charles, LA
New Martinsville, WVA
RMI Company
Ashtabula, OH
Shell Chemical Company
Deer Park, TX
Stauffer Chemical Company
Henderson, NV
Lemoyne, AL
St. Gabriel, LA
Titanium Metals Corp. of America
Henderson, NV
Vertac Chemical Company
Vicksburg, MS
Vulcan Materials Company
Denver City, TX
Geismar, LA
Wichita, KS
Port Edwards, WI
Weyerhauser Company \
Longview, WA \
Annual Chlorine
Capacity
(Jan. 1979)
(1000 tons)
948
462
1,523
77
77
348
33
544
Type Of
Process
2
2
1,2
2
2
1
1
1
1
1,2
1,2
4
1
2
2
1
1
1
2
140
Year Built
(Year Cells Installed;
1965
1962
1952 (1-1977, 1978)
1897 (1960)
1953 (1967)
1947 (1967)
1929
1898 (1960)
1936
1947 (1-1977, 1980)
(2-1969)
1943 (2-1958)
1949
1966
1942 (1976)
1965
1970
1943
1962
1947
1976
1952 (1975)
1967
1957 (1975)
2-11
-------
TABLE 2-2
(Continued)
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
KEY
Type of process:
1-Diaphragm cell electrolytic plant producing chlorine, caustic soda and
other products.
2-Mercury cell electrolytic plant producing chlorine, caustic soda and
other products.
3-Mercury cell electrolytic plant producing chlorine and caustic potash
but not caustic soda.
4-Electrolytic plant producing metallic sodium and chlorine.
5-Electrolytic plant producing chlorine ad hydrogen from hydrochloric acid.
6-Electrolytic plant producing magnesium and chloride from molten magnesium
chloride.
SOURCES: Stanford Research Institute, Directory of Chemical Producers, 1979
The Chlorine Institute, North American Chlor-Alkali Industry Plants
and Production Data Book, January 1981
2-12
-------
TABLE 2-3a
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
28,000 tons/year
21,000 tons/year
(75% capacity utilization)
$15.3 million
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
Unit/Ton
1.819 tons
7.42 mgal
2.04 mlb
1.1 mgal
3500 kWh
$/Unit
10.00
.10
3.25
.75
.03
$/Ton
18.20
10.80
.70
6.60
.80
91.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
37.50
29.10
$ 66.60
15.30
72.60
14.50
$102.40
$297.10
130.00
$167.10
*See Appendix C
2-13
-------
TABLE 2-3b
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
140,000 tons/year
105,500 tons/year
(75% capacity utilization)
$47.1 million
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
Unit/Ton
1.819 tons
7.42 mgal
2.04 mlb
1.1 mgal
3500 kWh
$/Unit
10.00
.10
3.25
.75
.03
$/Ton
18.20
10.80
.70
6.60
.80
91.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
27.20
17.90
$ 45.10
11.60
44.80
9.00
$ 65.40
$238.60
130.00
$108.60
See Appendix C
2-14
-------
TABLE 2-3c
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
280,000 tons/year
210,500 tons/year
(75% capacity utilization)
$76.4 million
Unit/Ton
1.819 tons
7.42 mgal
2.04 ralb
1.1 mgal
3500 kWh
$/Unit
10.00
.10
3.25
.75
.03
$/Ton
18.20
10.80
.70
6.60
.80
91.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
23.70
14.50
$ 38.20
10.60
36.40
7.30
$ 54.30
$220.60
130.00
$ 90.60
*See Appendix C
2-15
-------
TABLE 2-4a
ESTIMATED COST OF MANUFACTURING CHLORINE-DIAPHRAGM PROCESS*
Plant Capacity
Annual Production
Fixed Investment
(Mid-1978 Dollars)
28,000 tons/year
21,000 tons/year
(75% capacity utilization)
$13.9 million
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
Unit/Ton
1.76 tons
46.75 mgal
12.4 mlb
5.38 mgal
2,900 kWh
$/Unit
10.00
.10
3.25
.75
.03
$/Ton
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
42.80
26.40
$ 69.20
17.30
66.00
13.20
$ 96.50
$310.40
130.00
$180.40
*See Appendix C
2-16
-------
TABLE 2-4b
ESTIMATED COST OF MANUFACTURING CHLORINE - DIAPHRAGM PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
Cooling Water
Steam
Process Water
- Electricity
Total Variable Costs
140,000 tons/year
105,500 tons/year
(75% capacity utilization)
$42.8 million
Unit/Ton
$/Unit
1.76 tons
46 . 75 mgal
12.4 mlb
5.38 mjal
2,900 kWh
10.00
.10
3.25
.75
.03
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
29.30
16.30
$ 45.60
12.40
40.70
8.10
$ 61.20
$251.50
130.00
$121.50
'See Appendix C
-------
TABLE 2-4c
ESTIMATED COST OF MANUFACTURING CHLORINE - DIAPHRAGM PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
(Mid-1978 Dollars)
280,000 tons/year
210,500 tons/year
(75% capacity utilization)
$69.5 million
Unit/Ton
$/Unit
1.76 tons
46.75 mgal
12.4 mlb
5 38 mgal
2,900 kWh
10.00
.10
3.25
.75
.03
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
27.00
13.20
$ 40.20
11.80
33.10
6.60
$51.50
$236.40
130.00
$106.40
rSee Appendix C
2-18
-------
The location of chlorine plants usually is determined by access to
inexpensive sources of power and salt. Electricity can represent as
much as 60 percent of total manufacturing costs. The plants which use
chlorine usually are located near their critical inputs such as petro-
chemicals and natural gas. This has led to a large number of plants
being located along the Gulf coast and in the Pacific Northwest where
hydroelectric power has, historically, been plentiful. Because of
chlorine's relatively low value, transportation costs also play an
important role. To control these costs, shipping distances are limited.
2.1.3 Competition
Chlorine and caustic soda compete predominantly on the basis of price.
(Chlorine comes in one grade—technical—99.9 percent). Because they
are high tonnage/low value products, transportation charges are impor-
tant and producers have tried to locate near their markets. About half
of the chlorine produced is consumed in Texas and Louisiana. The more
efficient Gulf Coast producers can economically ship their chlorine well
into the central regions of the country.
Although there is some concentration in the chlorine industry (the top
four producers account for more than half of production), pricing of the
remaining noncaptive chlorine (40 percent) is competitive. In 1978, the
f.o.b. list price was $135 per ton, while spot prices went as low as $80
per ton. This spread illustrates the wide variations common in spot
prices. In 1977, under similar conditions, the average price was $97
per ton, indicating considerable discounting. Low capacity utilization,
plant expansions, uneven caustic demand, and rapidly rising costs
complicate chlorine pricing patterns.
Capacity utilization, historically in the mid-90 percent range, dropped
to the 75 to 80 percent range around 1974-75 and is not expected to
recover very much in the foreseeable future. This is due to the large
2-19
-------
capacity additions recently made and in progress. This type of low
capacity utilization leads to "weak prices" (often in the form of discounts
on list prices) as the individual firms become more competitive for
market shares.
Although no one substitute is likely to take over all of chlorine's
diverse uses, several substitutes may make some inroads. For example,
in chlorine's largest single market (polyvinyl chloride—17 percent of
Cl consumption), hydrogen chloride can be substituted for chlorine. In
£.
pulp and paper, there is increasing use of sodium chlorate and oxygen
bleaching methods. The manufacture of aerosols composed of fluorocarbons
was prohibited after October 1978. Even the water treatment market is
experiencing competition from chemicals such as ozone.
Because of chlorine's low value, imports and exports are negligible
(less than one percent). Caustic soda exports however are expected to
equal five percent of 1978 production. Increased domestic demand has
reduced the caustic soda available for export.
While some chlorine uses are declining, others such as urethane, poly-
ester, and PVC are growing. Overall, a growth rate of three to four
percent appears likely.
The cost of producing chlorine and caustic soda has been rising since
1969, with a particularly steep rise between 1973 and 1975 (primarily
due to rapid electricity rate increases). Chlorine prices rose in
response to these cost increases, with a high degree of pass-through
until 1976. In the 1967 to 1975 period, electricity prices increased by
9.1 percent/ year, chlorine prices by 7.9 percent/year, and value of
shipments by 11.2 percent/year, while the consumer price index rose 6.1
percent/year. However, this situation changed after 1975. Prices did
not increase through 1975, 1976, 1977, and much of 1978. Thus the real
1-20
-------
price was falling while energy, salt, and other costs continued to rise.
However, chlorine prices alone do not cover the full cost of chlorine-
caustic soda production. Currently, the caustic soda market is stronger
than the chlorine market and consequently in a better position to support
price increases. Late in 1978, one of the main merchant producers
raised their price by $10/ton. Actual selling prices were around $110
to $125 per ton. Several producers followed suit and the price increase
may be successful (sometimes price increases are remanded). If it is
successful, it will temporarily ease producers' profitability problems.
2.1.4 Economic Outlook
2.1.4.1 Revenue
Chlorine sales forecasts generally call for annual growth rates of 3 to
7 percent with expected values around 3.5 percent. The last decade
(1967-76) saw annual growth rates of 3.1 percent, so recent forecasts
show a small increase in the growth rate. Recent and planned capacity
additions have significantly added to capacity and will continue to do
so. As discussed, chlorine prices have been weak for three years. With
capacity utilization likely to remain at relatively low levels, price
recovery will be slow.
2.1.4.2 Manufacturing Costs
Manufacturing costs for chlorine are increasing due to rapidly increasing
energy prices. A total of 99.5 percent of chlorine is produced by the
electrolytic process, typically using 2,600 to 3,300 kwh per metric ton
3
of chlorine (plus 1.13 metric tons of NaOH and 315 m of H?). Energy
costs currently represent 45 to 60 percent of production costs and may
reach the 75 percent level in the early 1980*s due to the exceptionally
rapid increases in energy prices. Increased energy costs will affect
the chlorine end products as well, since many require petrochemicals as
feedstocks. For example, 55 percent of the chlorine produced is used in
2-21
-------
chlorinating organic compounds. As the relative prices in these products
rise due to rising feedstock costs, users will seek less expensive
substitutes. This will also reduce chlorine demand as these end prod-
ucts become less competitive internationally.
Because chlorine is such a critical input to a great number of other
chemicals, many manufacturers are conducting research on reducing costs
and perhaps the energy intensity of chlorine manufacture. For example,
Diamond Shamrock and DuPont are working jointly on a new "membrane cell"
technology. Diamond Shamrock feels that membrane cells will be more
competitive at low capacity plants, with diaphragm cells remaining more
efficient at high capacity plants. The membrane cell produces a salt-free
concentrated caustic, thus reducing the need for evaporation. Further
development of this new technology may yield significant savings.
Experimentation is continuing on their two-membrane cell installations
in Painesville, Ohio, and Muscle Shoals, Alabama.
Other researchers are studying different types of membranes, different
anodes, and varying cell structures. In addition, chlorine recovery
from hydrogen chloride (HC1) may become increasingly attractive. HC1
often is released in the chlorination of organic chemicals. As chlorine
prices continue to rise, the benefits from chlorine recovery will increase.
2.1.4.3 Profit Margins
Chlorine is predominantly a captively produced chemical. As such, its
economics are intricately tied up with those of the end products such as
PVC, refrigerants, and polyurethane. For most producers, profit margins
on chlorine are of secondary importance to the profitability of the
whole product line. Although prices may be "weak" on some of these end
products, strong long run demand and efficient processes are likely to
contribute significant earnings to the producers.
2-22
-------
2.1.5 Characterization Summary
Chlorine is an important high volume chemical with a variety of end
uses. These include:
• Polyvinyl chloride (17 percent of chlorine consumption) - a
widely used plastic
• Propylene oxide - used in the production of polyurethane foam
products
• Ethylene dichloride - an intermediate used in the manufacture
of polyvinyl chloride.
Chlorine is produced by over 30 firms in the U.S. Of the 10.6 million
tons produced in 1977, almost two-thirds was used captively by the
producers. Because products are energy intensive, manufacturing costs
are likely to rise during the next few years. Since most chlorine
production is used captively, its profitability is determined by the
profitability of its end products. Demand for products using chlorine
in their manufacture is expected to remain strong enough to justify
continued chlorine production.
2.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
chlorine subcategory to comply with PSES and BAT effluent control standards
The technical contractor has designed effluent control technologies
which can be used to achieve these standards. The cost of each tech-
nology is used to make an assessment of the economic impacts that effluent
limitations will have on the subcategory. In addition, the impacts of
combined effluent control and hazardous waste disposal costs are examined
for chlorine plants affected by the Resource Conservation and Recovery
Act's Interim Status Standards (RCRA-ISS).
2-23
-------
There are 25 mercury cell chlorine plants. Two plants are indirect
dischargers, both of which are already in compliance with PSES limita-
tions and will therefore incur no incremental effluent control costs.
The remaining 23 mercury cell plants will incur additional costs above
BPT treatment for compliance with BAT limitations. All mercury cell
plants will incur additional hazardous waste disposal costs in order to
comply with RCRA-ISS requirements. However, not all of these hazardous
waste disposal costs are attributable to effluent limitations.
There are 36 diaphragm cell chlorine plants. One plant is an indirect
discharger not currently pretreating wastewater. Therefore, this plant
will incur BPT treatment costs, which are equivalent to PSES for this
subcategory. The remaining chlorine diaphragm cell plants will incur
only the incremental costs of BAT for compliance with effluent limita-
tions (BPT effluent limitations are already in effect and are being met
by all direct discharge diaphragm cell plants). Only diaphragm cell
plants using graphite anodes will incur additional hazardous waste
disposal costs in order to comply with RCRA-ISS requirements.
Thus, the impact analysis will examine:
1) The impacts of the incremental costs required for direct discharge
mercury cell plants to comply with BAT effluent limitations
2) The impacts of the combined cost of compliance with effluent limita-
tions and RCRA-ISS requirements for all mercury cell plants
3) The impacts of pretreatment costs for the single diaphragm cell
indirect discharger
4) The impacts of the incremental costs required for direct discharge
diaphragm cell plants to comply with BAT effluent limitations
5) The impacts of the combined cost of compliance with effluent limita-
tions and RCRA-ISS requirements for chlorine diaphragm cell plants
using graphite anodes.
2-24
-------
2.2.1 Pollution Control Technology and Costs
Almost all chlorine is manufactured using one of the following pro-
cesses:
o Diaphragm cell - this process accounts for 74 percent of all
chlorine manufacture and is used in 36 plants.
o Mercury cell - there are currently 25 plants which employ this
technology to produce 20 percent of all chlorine. Production
by this process is declining due to environmental problems.
The remaining six percent is produced using a number of other tech-
nologies for which no effluent control costs will be required. Treat-
ment systems for the two major processes will be considered separately.
2.2.1.1 Mercury Cell Plants
In mercury process plants, the raw waste streams must be segregated into
brine mud and mercury bearing process wastes before treatment.
The mercury bearing wastewater results from several sources: cell room
wastes, chlorine condensate, spent sulfuric acid, tail gas scrubber
liquid, caustic filter washdown, and hydrogen condensate. The toxic
pollutants found in these wastewaters include: antimony, arsenic,
cadmium, chromium, copper, lead, mercury, nickel, silver, thallium, and
3
zinc. The model plants assume a unit flow of 2.1 m /kkg of product.
For mercury cell plants, pollution control costs were estimated by the
technical contractor for two levels of effluent treatment. BPT treatment,
now in place under Best Practicable Technology regulations (BPT), requires
three steps:
o Effluent separated into brine mud and mercury-bearing waste
streams
o Brine mud is settled in a lagoon
2-25
-------
o Mercury stream ±s collected and pH adjusted; sodium bisulfite
is added to precipitate mercury; and flow is filtered
BAT treatment requires a dechlorination step. In addition, plants will
have to meet more stringent mercury limitations in order to comply with
BAT.
Pollution control cost estimates were developed for three sizes of
mercury cell plants. Model plant annual production rates are 21,000,
105,500, and 210,500 tons per year. Approximately 60 percent of diaphragm
and mercury cell chlorine production occurs in plants within the pro-
duction range specified by the model plants. Those plants falling
beyond the range are reasonably approximated by the largest or smallest
model plants.
Estimates of the investment and operating costs of BPT and BAT treatment
for mercury cell model plants are found in Table 2-5a. Costs of compliance
with RCRA-ISS requirements are also included in the table. Note that the
RCRA costs account for all hazardous wastes produced by the model plant,
not just the incremental wastes attributable to BAT treatment. The analy-
sis thus overstates the RCRA costs impacts which are directly attributable
to BAT.
Manufacturing costs for mercury process chlorine plants were estimated
to be $177.20, $111.50, and $92.60 per ton of chlorine for the small,
medium, and large model plants respectively. These estimates are based
on the estimates presented in Table 2-3 and include the costs of meeting
BPT effluent limitations. Financial parameters are summarized in Table
2-6a.
Investment and annual control costs for mercury cell chlorine producers
are summarized in Table 2-7a. These costs are based on the model plant
pollution control costs and current industry production levels. Subca-
tegory compliance with BAT limitations would require additional annua-
2-26
-------
C/3
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2-28
-------
lized costs of approximately $1.3 million. The additional cost required
to comply with RCRA-ISS costs increases the subcategory's total annualized
costs to $4.3 million.
2.2.1.2 Diaphragm Cell Plants
In the diaphragm cell process, segregation of waste streams is required
before treatment. The streams are segregated into brine mud, cell wash,
and other metals-bearing process water. The brine mud stream is identical
in content to the brine mud stream resulting from mercury cell production,
and a unit flow of 8.8 m /kkg was assumed.
For the diaphragm process chlorine plant, the technical contractor has
developed technologies designed to meet BPT and BAT levels of removal.
BPT requires three treatment steps:
o Equalization: Brine mud settled in a lagoon
o Alkaline Precipitation: Metal is precipitated
i
o Settling: After filtration, solids are landfilled
BAT adds dual-media filtration and dechlorination to BPT treatment.
Pollution control cost estimates were developed for three sizes of
diaphragm cell plants. Model plant annual production rates are the same
as for mercury cell plants: 21,000, 105,500, and 210,500 tons per year.
Estimates of the investment and operating costs of BPT and BAT treatment
for diaphragm cell model plants are found in Table 2-5b. Compliance
with PSES limitations will require BPT treatment only. Costs of compli-
ance with RCRA-ISS requirements are presented separately since only the
six plants with graphite anodes will incur these additional costs. Note
that as in the case of the mercury-cell plants, the RCRA-ISS costs
account for disposal of all hazardous wastes produced by the model
2-29
-------
plants. The analysis thus overstates the incremental RCRA costs which
are directly attributable to the effluent limitations.
The manufacturing costs used to evaluate the impacts of pollution control
costs on diaphragm plants are summarized in Table 2-6b. Manufacturing
cost estimates are presented with and without the costs of BPT treatment.
Investment and annualized effluent control costs for diaphragm cell
chlorine producers are summarized in Table 2-7b. These costs are based
on the model plant pollution control costs and current industry produc-
tion levels. The table presents the costs required for compliance with
both PSES and BAT limitations. Currently, there is only one indirect
discharge plant and its estimated annual control costs for meeting PSES
limitations are $570,580. Direct dischargers1 compliance with BAT
limitations would require additional annual costs of approximately $4.05
million.
Tables 2-7c presents subcategory compliance costs separately for the six
diaphragm cell plants which will incur RCRA-ISS costs; Table 2-7d presents
subcategory compliance costs for the remaining 30 plants which will not
be affected by RCRA-ISS. Table 2-7c indicates that compliance with both
effluent and RCRA-ISS regulations by graphite anode diaphragm cell
plants will require approximately $0.4 million annually. Adding these
costs to the effluent control costs shown in Table 2-7d yields a total
annual cost of approximately $4.1 million required for diaphragm cell
plants to comply with both effluent control and RCRA-ISS regulations.
2.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
o Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
2-30
-------
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• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution capital costs to
fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
The following sections address the impacts of BAT costs for direct
discharge plants. In addition, a model plant analysis of the impacts of
pretreatment standards on the single diaphragm cell indirect discharger
is presented. Finally, the impacts of the combined costs of compliance
with effluent control and RCRA-ISS requirements are examined for the
affected chlorine plants.
2.2.2.1 Price Rise Analysis
Two chlorine production processes are analyzed, each requiring different
pollution control technologies. For both processes, the price rise
analysis assumes complete pass-through of pollution control costs.
Mercury Cell
The price rise required of mercury cell plants is shown in Table 2-8.
The price increases required to recover the incremental costs of BAT
treatment range from 0.36 percent for the large model size to 1.54 per-
cent for the small model plant. To recover both effluent control and
RCRA-ISS costs, chlorine mercury cell plants would require price in-
creases of 0.95 percent to 4.85 percent, depending on size.
2-35
-------
Diaphragm Cell
The price increase required of diaphragm cell plants is shown in Table
2-9. Depending on size, a 2.2 to 10.4 percent price increase would be
required to fully recover pretreatment (PSES) costs. For direct dis-
chargers, the price increase required to recover BAT costs ranges from
0.47 to 2.01 percent. The required price increase for graphite anode
diaphragm cell plants to recover both effluent control and RCRA-ISS
costs is slightly higher, ranging from 0.53 to 2.24 percent.
2.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through is possible and
calculates the resulting decline in the return on investment (ROI) and
the internal rate of return (IRR) attributable to the costs of pollution
control.
Mercury Cell
For the two larger mercury cell model plants, profitability declines
resulting from effluent control costs are minimal (less than 0.1 percent-
age point or less than one percent of baseline profitability). The
smallest model plant size incurs a significant decline in profitability
of 0.21 percentage points or 24.42 percent of baseline profitability
(based on ROI). (See Table 2-10a).
The additional costs required for RCRA-ISS compliance result in higher
profitability declines, ranging from 0.17 to 0.67 percentage points.
For the two larger model plant sizes, this represents a profitability
decrease of less than 2.5 percent. For the smallest model plant size,
the profitability decline represents 77.91 percent of baseline profit-
ability. Table 2-jlOb summarizes these results.
2-36
-------
TABLE 2-8
PERCENTAGE PRICE RISE
Chemical: Chlorine-Mercury Cell
Price: $110/ton
Model Plant
Production
(tons/year)
feAT
RCRA-ISS
21,000
105,500
210,500
1.54%
0.45
0.36
4.85
1.40
0.95
2-37
-------
TABLE 2-9
PERCENTAGE PRICE RISE
Chemical: Chlorine-Diaphragm Cell
Price: $110/ton
Model Plant
Production
(tons/year)
21,000
105,500
210,500
BPT/PSES
10.4%
3.3
2.2
BAT
2.01%
0.65
0.47
BAT plus
RCRA-ISS*
2.24%
0.72
0.53
*0nly six chlorine-diaphragm cell plants will incur RCRA-ISS costs.
2-38
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Diaphragm Cell
Pretreatment costs for diaphragm cell indirect dischargers would result
in profitability declines ranging from 0.30 to 1.40 percentage points (as
measured by ROI) or approximately 2.6 to over 182 percent of baseline
profitability (see Table 2-lla). The profitability declines resulting
from BAT costs, shown in Table 2-1Ib, range from 0.07 to 0.25 percentage
points (based on ROI) or 1.54 to 8.96 percent of baseline profitability.
The combined effects of both BAT and RCRA-ISS costs on the six graphite
anode plants would result in slightly greater profitability declines of
0.08 to 0.29 percentage points (as measured by ROI) representing 0.72 to
10.39 percent of baseline profitability levels (see Table 2-llc).
2.2.2.3 Price Elasticity of Demand
Chlorine is an essential input for many downstream chemicals and end
products. There are few competitive substitutes for chlorine in these
uses. In addition, over 60 percent of chlorine production is captive.
Thus, cost increases resulting from pollution control regulations will
be partly allocated to downstream products. Therefore, this analysis
*•
assumes demand is relatively inelastic. (See Sections 2.1.1, Demand,
and 2.1.3, Competition, for a complete analysis.)
2.2.2.4 Capital Analysis
The capital investments required for compliance with effluent control
and RCRA-ISS regulations are given in Tables 2-5a, and 2-5b.
Mercury Cell
Table 2-12 summarizes the results of the capital analysis for chlorine
mercury cell plants. For mercury cell plants, the capital costs of
effluent control range from 0.12 to 0.23 percent of fixed investment in
plant and equipment. The additional capital costs of RCRA-ISS regula-
tions increase the capital requirements to 0.21 to 0.67 percent of plant
investment.
2-41
-------
Diaphragm Cell
Table 2-13 summarizes the results of the capital analysis for chlorine-
diaphragm cell plants. The capital costs of PSES regulations represent
1.30 to 2.2 percent of fixed investment in plant and equipment. BAT
capital costs represent 0.24 to 0.47 percent of fixed investment. For
five of the six graphite anode plants, no incremental capital costs will
be required for RCRA-ISS compliance; accordingly, their capital costs
represent 0.24 to 0.47 percent of fixed investment. One graphite anode
plant (corresponding to model size 2) will require additional capital
costs of $10,000. For this plant the combined capital costs of effluent
control and RCRA-ISS regulations represent approximately 0.27 percent of
fixed investment, as shown in Table 2-13.
Since all capital costs represent less than two percent of fixed invest-
ment in place, they should not represent a significant problem to any
chlorine manufacturer.
2.2.2.5 Closure Analysis
Tables 2-14 and 2-15 summarize the price elasticity of demand, price
rise, and profitability decline for chlorine mercury cell and chlorine
diaphragm cell model plants and compare these to EPA's closure criteria
(see methodology description). Since production of chlorine is mostly
captive, the demand for the chemical is relatively price inelastic for
all model plants.
Mercury Cell
Table 2-14 summarizes the model plant closure analysis for chlorine
mercury cell plants. The price increase required to recover BAT ef-
fluent control costs is less than one percent for the medium and large
model plants. The price increase required by the small model plant
exceeds one percent, and though the profitability decline (based on ROI)
is less than one percentage point, the decrease in profitability is
24.42 percent of the baseline level.
2-42
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TABLE 2-12
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Chlorine-Mercury Cell
Model Plant Production (tons/year)
Level of
Removal 21,000 105,500 210,500
BAT 0.23% 0.13% 0.12%
BAT plus RCRA-ISS 0.67 0.27 0.21
2-46
-------
TABLE 2-13
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Chlorine-Diaphragm Cell
Level of
Removal
PSES/BPT
BAT
BAT plus RCRA-ISS
Model
21,000
2.2%
0.47
0.47
Plant Production
105,500
1.5%
0.25
0.25-0.27
(tons /year)
210,500
1.3%
0.24
0.24
2-47
-------
TABLE 2-14
IMPACT SUMMARY
Chemical: Chlorine-Mercury Cell
MAXIMUM
MAXIMUM PROFITABILITY
PRICE ELASTICITY PRICE RISE DECLINE CLOSURES
CLOSURE CRITERIA
DESCRIBED IN Medium or High Greater
METHODOLOGY SECTION Than 1%
Greater Predicted
Than 1 If all
Percentage Criteria Met
Point or
Greater Than
10% of Baseline
Profitability
MODEL PLANT RESULTS
PLANT
REMOVAL PRODUCTION MAXIMUM
LEVEL (ton/year) PRICE ELASTICITY PRICE RISE
21,000 1.54%
BAT 105,500 Low 0.45
210,500 0.36
BAT 21,000 . 4.85%
plus 105,500 Low 1.40
RCRA-ISS 210,500 0.95
MAXIMUM
PROFITABILITY
DECLINE
(% DECLINE) CLOSURES
0.21%* no
(24.42%)*
0.07 no
(0.70)
0 . 06 no
(0.44)
0.67%* no
(77.91%)*
0 . 24 no
(2.42)
0.17 no
(1.23)
*Based on ROI.
SOURCE: EEA estimates.
2-48
-------
TABLE 2-15
IMPACT SUMMARY
Chemical: Chlorine-Diaphragm Cell
CLOSURE CRITERIA
PRICE ELASTICITY
MAXIMUM
MAXIMUM PROFITABILITY
PRICE RISE DECLINE
CLOSURES
DESCRIBED IN Medium or High
METHODOLOGY SECTION
Greater
Than 1%
Greater
Than 1%
Predicted
If all
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
PSES
BAT
BAT
plus
RCRA-ISS**
PLANT
PRODUCTION
(ton/year) PRICE ELASTICITY
21,100
105,500 Low
210,500
21,000
105,000 Low
210,500
21,000
105,500 Low
210,500
MAXIMUM
PRICE RISE
10.4%
3.3
2.2
2.01%
0.65
0.47
2.24%
0.72
0.53
MAXIMUM
PROFITABILITY
DECLINE
(% DECLINE)
1.4*
(181.8%)*
0.77
(9.3)
0.3
(2.61)
0.25%*
(8.96%)*
0.19
(3.02)
0.10
(0.95)
0.29%*
(10.39%)*
0.21
(3.33)
0.11
(1.05)
CLOSURES
no
no
no
no
no
no
no
no
no
* Based on ROI.
**0nly six chlorine diaphragm cell plants will incur RCRA-ISS costs.
SOURCE: EEA estimates.
2-49
-------
The additional costs of RCRA-ISS requirements increase the price rise to
above one percent for the small and medium plants and to only slightly
less than one percent for the large plant. Profitability declines for
the medium and large model plants are less than one-fourth of one per-
centage point (and less than three percent of baseline profitability).
According to EPA's closure criteria, medium and large model plants are
not likely closure candidates even with the imposition of RCRA-ISS costs.
However, for the small model plant the profitability decline resulting
from BAT costs is 24 percent and increases to almost 78 percent with the
addition of RCRA-ISS costs. The relatively inelastic demand should
premit the low projected price increase to be completely passed through
to consumers, thereby mitigating the profitability impacts of pollution
control costs on the small model plant. The implications of these model
plant results for actual mercury cell plants are discussed in more
detail in Section 2.2.3, Industry Impacts.
Diaphragm Cell
Table 2-15 summarizes the model plant closure analysis for chlorine
diaphragm cell plants. For indirect dischargers, the price increase
required to recover PSES costs exceeds one percent for all model sizes.
The profitability decline exceeds one percentage point and/or ten percent
of baseline profitability for the small plant while the profitability
decline is under one percentage point and less then ten percent of base-
line profitability for the large and medium-sized model plants. The
impacts of PSES costs for actual indirect discharge plants are examined
in detail below.
For the direct dischargers, BAT costs would require price increases of
under one percent for the medium and large plants but over one percent
for the small model size. Similarly, for graphite anode plants, which
will incur both RCRA-ISS and BAT costs, the required price increase
2-50
-------
exceeds one percent for the small model but is under one percent for the
medium and large size categories. However, the profitability decline is
substantially lower than one percentage point in all cases. Also, the
decrease in profitability remains close to or under ten percent. There-
fore, according to EPA's closure criteria, none of the model plants is a
likely closure candidate in the case of BAT costs even when RCRA-ISS
costs are added for the graphite anode plants.
2.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on chlorine manufacturers.
The model plant analysis indicates very low baseline profitability for
chlorine producers, with the IRR ranging from a negative value to only
14 percent. Industry sources confirm that current profitability levels
in the chlor-alkali industry are very low. There are two major factors
responsible for this low-profitability situation:
• Demand growth has been less than anticipated in recent years
and has failed to keep up with the capacity expansions made
throughout the 1970's. The result has been excess capacity,
low capacity utilization, and depressed profitability for many
chlorine producers.
• Manufacturing costs have increased rapidly and have further
reduced profit margins in the industry. Energy and capital
costs, in particular, have risen sharply in recent years.
These factors are discussed in greater detail below.
In the early 1970's, demand for the chlorine end product polyvinyl
chloride (PVC) was exceptionally strong, primarily in the housing and
automobile markets. This boom in PVC demand resulted in excess demand
for chlorine which spurred numerous capacity expansions. When the 1975
2-51
-------
recession brought about large downturns in the construction and automobile
industries, the demand for PVC (and chlorine) fell. Several other
factors further depressed chlorine demand growth:
• Government regulation and health-related problems in such
areas as fluorocarbons and chlorinated solvents eliminated or
threatened to eliminate major chlorine end markets.
• Substitute competition in several end markets also contributed
to declining demand for chlorine. For example, in the pulp
and paper industry (representing 12 percent of total chlorine
consumption), other bleaching agents are being used increasingly
in place of chlorine.
• Process changes and increased efficiency in the manufacture of
vinyl chloride monomer (consuming 17 percent of total chlorine
production) decreased chlorine demand in these areas. One
industry spokesman noted that "roughly a year's worth of
growth in chlorine demand was eliminated" as a result of these
developments (Chemical Week, March 14, 1979).
Thus, capacity expansions planned during earlier periods of strong
demand were developed throughout the 1970's but were not matched by
increased demand. Oversupply and excess capacity have resulted, and
capacity utilization rates and profitability levels are currently very
low.
Along with excess capacity and slower demand growth, the chlorine industry
has experienced rapidly rising production costs in recent years. Energy
costs, representing 40 to 60 percent of total manufacturing costs have
increased significantly. Capital costs have also risen considerably.
These cost increases have operated in conjunction with excess capacity
and slower demand growth to obliterate chlorine producers' profit margins.
As indicated by the model plant analysis, current profitability levels
are very low.
The future outlook for the chlorine industry suggests the possibility of
some small improvement. Two factors are particularly important:
2-52
-------
Further capacity expansions have been discouraged by existing
low profitability levels. Therefore, demand may eventually
catch up with industry capacity and result in higher utiliza-
tion rates.
Demand for a few end uses such as FVC and wastewater treatment
remains strong with growth predicted by the industry at over
five percent annually.
However, because production and regulatory cost increases are expected
to continue, it is unlikely that chlorine producers' profitability
levels will improve dramatically in the near future.
2.2.3.1 Price and Profitability Impacts
For direct dischargers, the model plant analysis indicates price increases
required by effluent control costs of less than one percent for all
medium and large chlorine plants. However, smaller plants would need to
raise prices by 1.5 to 2.0 percent to recover effluent control costs.
The costs of RCRA-ISS requirements raise price increases to 0.53 to 4.85
percent. Implementing price increases of from one to five percent in
the merchant market would prove difficult given the current situation,
and chlorine produced for sale would become even less profitable than it
is currently. However, almost two-thirds of chlorine production is used
in the manufacture of more profitable downstream products. End users of
chlorine-containing products would be cushioned from the full impact of
the price increase.
For example, polyvinyl chloride (PVC), a plastic used in the construction
and automobile industries, requires approximately seven-tenths of a ton
of chlorine for each ton of PVC manufactured. A five percent increase
in the price of chlorine ($145 per ton)* would raise the cost of PVC by
*This price does not match the price used in the price and profitability
analysis becaase it reflects current (summer 1981) list prices rather
than mid-1978 levels.
2-53
-------
$5.08 per ton, or 0.25 cents per Ib. Based on the current (summer 1981)
list price of PVC ($0.58/lb), the price increase required to recover the
higher chlorine cost is about 0.44 percent, significantly lower than the
five percent price increase required per ton of chlorine.
Merchant chlorine producers currently face an oversupplied market and
immediate and complete price pass-through is unlikely. However, the
short-term profitability declines are slight (less than one percentage
point) and therefore are not likely to result in serious impacts or
plant closures for direct dischargers. Further, chlorine plants using
the mercury or diaphragm cell process produce sodium hydroxide (caustic
soda) as a co-product. Demand for caustic soda is currently very strong
and it may be possible to at least partially recover effluent control
and RCRA-ISS costs through caustic soda price increases.
The price and profitability impacts of effluent control costs on the one
indirect discharger not pretreating wastewater in the chlorine subcate-
gory are larger than those for direct dischargers. The technical con-
tractor survey indicates that this indirect discharger corresponds to
the largest diaphragm cell model plant. According to the model plant
analysis, the price increase required to fully recover pretreatment
costs is 2.2 percent (see Table 2-9). Again, this increase represents
a very small increase in final product prices, roughly one-fourth of one
percent of current PVC prices. Thus, full price pass-through is likely.
Even if full pass-through is not possible, the plant would experience
only a small decline in profitability, 0.4 percentage points in IRR or
roughly four percent of the baseline profitability level (see Table
2-1la).
Therefore, plant closure is not expected for the indirect discharger in
the subcategory. These observations suggest that chlorine plant closures
are unlikely.
2-54
-------
2.2.3.2 Other Impacts and Conclusion.
The additional costs of effluent control and RCRA-ISS requirements
should not represent a major problem for the chlor-alkali subcategory.
While price increases required to recover combined effluent control and
RCRA-ISS costs exceed one percent for small and medium plants, chlorine
producers should be able to pass through their cost increases in final
product prices. The final product prices would require less than a one
percent increase to fully recover effluent control and RCRA-ISS costs.
If cost pass-through is not immediate and complete, resulting profit-
ability impacts are not expected to result in plant closures, with pro-
fitability declines of less than one percentage point for the affected
plants in the industry. Therefore, no plant closures or other secondary
impacts (employment, supply, etc.) are expected to result from the costs
of effluent control and RCRA-ISS regulations.
2-55
-------
3. CHROME PIGMENTS
3.1 CHARACTERIZATION
Five chrome colors make up the product group known as chrome pigments.
These five products serve a variety of functions. For example, chrome
yellows offer brilliant color and excellent light fastness, character-
istics which make them useful as traffic line paints. Chrome oxide
green is an excellent coloring agent for cement and ceramic products due
to its strong resistance to alkalies, acids, and high temperatures.
Figure 3-1 presents the sources and uses of chrome pigments.
Presently the chrome pigments industry faces serious pollution control
problems at both the end market and production levels. OSHA regulations
call for a reduction in lead and chromium dust levels to 50 micrograms
per cubic meter of air in both end market workshops (i.e., paint manu-
facturing plants) and pigment production facilities. The status of
these standards is uncertain, and this will affect the conclusions of
this analysis. In addition, producers will face strict limits on the
discharge of hexavalent chromium, a known carcinogen, from production
facilities.
3.1.1 Demand
The five pigments forming the chrome pigments product group have widely
differing characteristics and end uses. The particular nature of each
product and its end markets are discussed separately below.
3.1.1.1 Pigment Characteristics and End Markets
Chrome Yellow and Oranee
Chrome yellows and oranges derive their color and physical character-
istics from lead chrornate. The medium vellovz hues are formed fro-i
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3-2
-------
normal lead chromate (PbCrO,); the redder shades and oranges, from basic
lead chromate (PbO-PbCrO ).
Chrome yellows are bright, opaque, and light fast. Their largest appli-
cation is as a coloring agent for traffic line paints. They also are
used in many other paint applications, as well as printing inks, plastics,
paper, and floor coverings. A substantial amount of chrome yellow is
combined with iron blues to form chrome green. The uses of chrome
oranges are very similar to those of chrome yellows. In addition, the
darker shades are used in rust inhibitive paints and primers for ferrous
metals.
Zero growth, or, more likely, a fall in demand, is projected for chrome
yellows and oranges. The primary reason is the increasing severity of
OSHA regulations concerning worker exposure to airborne lead and chromium.
Regulations have been issued requiring end users of chrome pigments
(e.g., paint manufacturers) to limit both airborn lead and chromium to
50 micrograms per cubic meter of air. Current regulations call for
producers of chrome pigments to limit lead dust levels to 200 micrograms
per cubic meter, with the limit falling to 50 micrograms per cubic meter
of air within five years. Producers of chrome pigments currently must
limit chromium dust levels to 50 micrograms per cubic meter of air.
Both producers and consumers of lead chromates anticipate that the cost
of implementing these regulations will force a switch in demand away
from chrome pigments toward organic substitutes. The standards will
increase substantially the cost of producing lead chromates, as well as
the cost of using them.
Chrome Green
Chrome green is a mixture of chrome yellow and iron blue. Shades of
chrome green run from light to very dark. Chrome green is used in
paints, enamels, inks, oil cloth, and paper.
3-3
-------
As a mixture of chrome yellow and iron blue, chrome green is subject to
many of the health problems which currently face chrome yellow. The
costs associated with limiting worker exposure to lead and chromium
dusts could be particularly injurious to this product, as it has a very
competitive substitute in the organic color Thalo-Green.
Chrome Oxide Green
There are two chrome oxide greens - anhydrous and hydrated. The anhydrous
product is resistent to alkali, acid, and high temperatures, and exhibits
excellent light fastness. These attributes make it valuable for use in
alkaline environments such as portland cement, ceramic tile glazes, rubber,
certain printing inks, and concrete and bridge paints. Anhydrous chromic
acid (metallurgical grade) is used in the manufacture of chromium metal
and aluminum-chromium master alloys.
Hydrated chrome oxide green is much more brilliant than the anhydrous
product. It also is much less resistant to alkali. It gives a bril-
liant, bluish-green transparent finish, and is widely used in automobile
paints.
Chrome oxide green does not face a lead exposure problem. However, as
with all chrome pigments, there is some concern over the discharge of
hexavalent chromium, a known carcinogen. Demand for this pigment is
expected to increase at the same rate as the GNP.
Molybdate Chrome Orange
The molybdenum oranges are a physical mixture of lead chromate, lead
molybdate, and lead sulfate. As a group, these pigments are very strong
and brilliant, and have excellent tinting strength. Although they cost
more than chrome oranges, they are cost effective in many applications
due to their exceptional strength. They are used in many paints, enamels,
and Laquers, as well as floor coverings and printing inks. These lead-
containing pigments also face declining demand due to OSHA regulations.
3-4
-------
Zinc Yellow
Zinc yellow is a complex of zinc, potassium, and chromium compounds.
Zinc yellow has limited water solubility which restricts its use as a
pigment. The same quality, however, makes it a useful corrosion inhibi-
tive pigment for prime coating metals. It has particularly strong
applications for prime coating nonferrous metals such as aluminum and
magnesium.
Zinc yellow has some applications in decorative finishing. However, it
is used most frequently with other colors such as hydrated chrome oxide
green, because, used alone, it weathers to a dull greenish finish. Zinc
yellow also is used to make zinc green pigment.
Demand for this pigment should continue to grow with the expansion of
the GNP. Its end markets generally are mature, and it does not face the
serious lead pollution problems experienced by chrome yellow, chrome
green, and molybdate chrome orange.
3.1.1.2 Demand Summary
Predictions for demand growth in the chrome pigments industry range from
zero growth, at best, to a substantial decline in demand. Health issues
concerning exposure to lead and chromium are an important factor in this
prediction.
Chrome yellows and oranges and molybdate chrome oranges comprise approx-
imately 75 perceht of the chrome pigments market. These two products,
as well as chrome green, contain substantial amounts of lead, which is
coming under increasingly strict OSHA regulations on worker exposure.
These regulations could cause a switch to organic colors in many appli-
cations. Lead chromates are expected to remain strong in areas such as
traffic marking paints and water flexographic inks for printing cartons
where their durability and light fastness make them especially suitable.
3-5
-------
However, they are expected to continue losing market share in areas
where consumer contact with lead-containing pigments is high. They have
already lost a great deal of the trade sale paint and publishing ink
markets, where it is feared that children will be exposed to excessive
lead through ingestion of paint chips and printed material. Auto makers
have attempted to replace chrome colors with other pigments, but as yet
have been unable to find suitable substitutes.
Zinc yellow and chrome oxide green contain no lead and are, therefore,
subject to fewer environmental and health constraints. However, they
must still meet the 50 microgram per cubic meter of air chromium dust
standard.- In the long run, these two pigments should grow at approxi-
mately the rate of GNP growth. However, their growth may vary widely
with economic fluctuations.
The outlook for chrome pigments can be summarized as follows:
• The impacts of OSHA regulations are uncertain. However, these
regulations, particularly those concerning lead-containing
dusts, will raise the price of chrome colors and make them
more difficult and expensive to use in manufacturing other
products. This will cause some substitution with organic
colors. The pigments most severely affected will be chrome
yellow and orange, molybdate chrome orange, and chrome green.
• Chrome oxide green and zinc yellow contain no lead, and should
continue moderate growth. However, these pigments constitute
such a small fraction of total chrome pigments production that
their growth will be insufficient to prevent declining industry-
wide demand.
3.1.2 Supply
3.1.2.1 Production
For the period 1969 to 1979, production statistics for chrome pigments
are available for only three of the five pigments being studied. Par-
3-6
-------
tial statistics are available for chrome green and zinc yellow, but have
been withheld during some years to avoid disclosing information concerning
any individual firms.
From 1968 to 1979, production of chrome yellow and orange, which repre-
sents approximately 50 percent of chrome pigments production, rose at an
annual rate of only 0.46 percent. Molybdate chrome orange, which repre-
sents 25 percent of total chrome pigments production, rose at an annual
rate of 2.4 percent. During the years for which data are available (see
Table 3-1), production of chrome green fell at a 1.4 percent annual
rate, while zinc yellow production fell at an annual rate of 3.6 percent.
The slow growth rate of chrome pigments in general is an indication of
the maturity of the industry. Table 3-1 and Graphs 3-1 to 3-3 summa-
rize production levels and prices during the period 1968 to 1979.
3.1.2.2 Producers
There are currently 12 producers of chrome pigments, 10 of which produce
chrome yellow and orange. Molybdate chrome orange is manufactured by
seven firms. Two producers, Minnesota Mining and Manufacturing and
Pfizer, manufacture only chrome oxide green. Chrome green is produced
only by Ciba-Geigy* and zinc yellow is manufactured by two companies,
DuPont and Borden. Statistics on plant capacities were unavailable for
chrome pigment producers. A summary of chrome pigments producers is
provided in Table 3-2.
The two largest producers are Ciba-Geigy and DuPont, followed by Harshaw
Chemical Company. American Cyanamid, previously one of the four largest
producers of chrome pigments, shut down its chrome pigments plant in
late 1978. DuPont is the only producer integrated forward to end pro-
ducts (DuPont is a major paint producer). No firms are integrated
backward to sodium dichromate, which is a major input in chrome pigments
production.
Formerly Hercules Chemical, Inc.
3-7
-------
TABLE 3-1
CHROME PIGMENTS PRODUCTION
GROWTH RATE
COLOR
Chrome Green
Chrome Oxide
Green
Chrome Yellow
and Orange
YEAR
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
ANNUAL
PRODUCTION
(short tons)
2,828
2,619
2,552
2,707
NA
NA
NA
NA
NA
NA
NA
NA
6,232
5,862
6,751
6,584
6,155
7,159
7,676
5,608
6,140
8,796
12,321
11,459
32,789
32,001
32,449
29,027
33,770
37,263
37,942
26,091
35,335
35,207
37,028
34,473
(percent
change
per year)
-7.4
-2.6
6.1
-5.9
15.2
-2.5
-6.5
16.3
7.2
-26.9
9.5
43.3
40.1
-7.0
-2.4
1.4
-10.5
16.3
10.3
1.8
-31.2
35.4
- .4
5.2
-6.9
AVERAGE UNIT
VALUE
(per ton)
950
928
860
965
NA
NA
NA
NA
NA
NA
NA
NA
956
952
954
980
1,011
1,054
1,402
1,759
1,862
1,894
2,332
2,678
704
710
753
780
764
755
1,104
1,259
1,361
1,530
1,665
1,921
PERCENTAGE
CHANGE IN
AVERAGE
UNIT VALUE
-2.3
-7.3
12.2
-0.4
0.2
2.7
3.2
4.3
33.0
25.5
5.9
1.7
23.1
14.8
0.9
6.1
3.6
-2.1
-1.2
46.2
14.0
8.1
12.4
8.8
15.4
3-8
-------
TABLE 3-1
CHROME PIGMENTS PRODUCTION (Continued)
COLOR YEAR
Molybdate 1968
Chrome Orange 1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
Zinc Yellow 1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
ANNUAL
PRODUCTION
(short tons)
11,375
11,373
11,025
11,375
12,410
14,057
14,586
9,559
16,883
13,976
14,403
14,819
7,408
7,291
5,750
5,586
5,657
5,307
5,756
NA
NA
NA
NA
3,916
GROWTH RATE
(percent
change
per year)
-3.1
3.2
9.1
13.3
3.8
-34.5
76.6
-17.2
3.1
2.9
-1.6
-21. 1
-2.9
1.3
-6.2
8.5
AVERAGE UNIT
VALUE
(per ton)
957
963
998
1,043
1,120
1,166
1,504
1,720
1,903
2,134
2,192
2,694
613
655
657
700
766
880
1,178
NA
NA
1,326
NA
1,994
PERCENTAGE
CHANGE IN
AVERAGE
UNIT VALUE
0.6
3.6
4.5
7.3
4.1
29.0
14.4
10.6
12.1
2.7
22.9
6.9
0.3
6.5
9.4
14.9
33.9
NA = Not Available
SOURCE: Department of Commerce
i-q
-------
GRAPH 3-1
CHROME YELLOW AND ORANGE PRODUCTION AND PRICE
3sooo.no -
28500.00 -
VOLUME 19000.00 -
ftons~>
9500.00 -
0.00
1968
2000.00 —i
1800.00 -]
1600.00 -•
1972
1976
I
19SO
YEAR
V, EKAGE
UMT
\ ALUE
i.doilarsj
1200.00 -;
SOO.OO -'
400.00 -'
;.00
SOURCE: Department of Commerce
1S~2
3-10
-------
GR^PH 3-:
CHROME OXIDE GREEN' PRODUCTION AND PRICE
15,500.00 -
11,250.00 -
9000.00 -
I
1980
3000.00 —
2500.00 —
2000.00 -
AVERAGE
UNIT
\ALUE 1500.00 -
idollars)
1000.00 -
500.00
SOURCE DeiDart?ent of Commerce
3-1 i
-------
GRAPH 5-5
MOLYBDATE CHROME ORANGE PRODUCTION AND PRICE
17000.00-
12750.00_
VOLUME 8500.00-
4250.00-
o.oo -<--•
1968
IS 72
YEAR
1976
I
1980
2200.00-
AVERAGE
1650.00-
VALUE
(dollars)
100.00-
550.00-
1965
SOURCE: Deuartaent of Commerce
VEAK
3-12
is o
1980
-------
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PRODUCERS OF CHROME
(Continued
CHROME
CHROME OXIDE
LOCATION GREEN GREEN
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3.1.2.3 Process
The manufacturing processes for chrome pigments have several steps in
common, and the various pigments often are produced either simultaneously
or sequentially in the same facility. Sodium dichromate serves as a
source of chromium for all of the pigments. Several of the pigments
also contain substantial amounts of lead. Table 3-3 shows the primary
constituents of each pigment.
Chrome yellow and orange represent over 50 percent of all chrome pig-
ments manufactured, and serve as an input in producing other pigments.
Chrome yellow has, therefore, been chosen as the typical chrome pigment,
and its manufacturing process will be examined more extensively.
Chrome yellow is a physical mixture of lead chromate, lead sulfate, and,
occasionally, zinc sulfate. The pigment is primarily lead chromate,
which constitutes approximately 93 percent of the product.
The general reaction for producing lead chromate from litharge (lead
oxide), nitric acid, and sodium dichromate, is as follows:
PbO + 2HNO -> Pb(NO ) + HO
2Pb(N03)2 + H20 + Na2Cr2Oy -» 2PbCrC>4 + 2NaNC>3 + 2HN03
Following the reaction, chrome yellow is precipitated, washed, filtered,
and dried. The product can be packaged for commercial use, or mixed
with iron blues to form chrome green.
Between 82.5 and 88.0 percent of chrome pigments manufacturing costs are
due to raw materials. The remainder of the costs are shared almost
equally by utility, labor and maintenance, and overhead. (Table 3-4
provides estimates of raw material requirements and manufacturing costs
for chrome yellow pigment.)
3-15
-------
TABLE 3-3
CONSTITUENTS OF CHROME PIGMENTS
PIGMENT
CHEMICAL CONSTITUENTS
Chrome Yellow
and Orange
Lead Chromate with Impurities of
Lead Sulfate and Zinc Sulfate
Chrome Green
Physical Mixture of Chrome Yellow
(Lead Chromate) and Iron Blue
(Ferric Ferrocyanide)
Chrome Oxide Green
and Guinet's Green
(Hydrated Chromic Oxide)
Anhydrous and Hydrated Chromic
Oxide
Molybdate Chrome
Orange
Mixture of Lead Chromate, Lead
Sulfate, and Lead Molybdate
Zinc Yellow
Complex Material Containing Com-
pounds of Zinc, Potassium, and
Chromium.
SOURCE: U.S. EPA, Development Document, May 1975
-------
TABLE 3-4a
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT--
(Mid-1978 Dollars)
Plant Capacity 2,100 tons/year
Annual Production 1,650 tons/year
(78% capacity utilization)
Fixed Investment $1.4 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Lead Oxide 1429 Ib .596 851.70
- Nitric Acid 80 Ib .110 8.80
- Sodium Hydroxide (50%) 265 Ib .080 21.20
- Sodium Dichromate 980 Ib .300 294.00
- Sulfuric Acid 20 Ib .016 .30
- Calcium Hydroxide 25 Ib .016 .40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 158.00
• Maintenance 33.90
Total Semi-Variable Costs $191.90
FIXED COSTS
• Plant Overhead 59.20
• Depreciation 84.70
• Taxes & Insurance 17.00
Total Fixed Costs $160.90
TOTAL COST OF MANUFACTURE $1,603.20
SOURCE: Contractor and EEA estimates
'"See Appendix C
-------
TABLE 3-4b
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 5,600 tons/year
Annual Production 4,400 tons/year
(78% capacity utilization)
Fixed Investment $2.7 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Lead Oxide 1429 Ib .596 851.70
- Nitric Acid 80 Ib .110 8.80
- Sodium Hydroxide (50%) 265 Ib .080 21.20
- Sodium Bichromate 980 Ib .300 294.00
- Sulfuric Acid 20 Ib .016 .30
- Calcium Hydroxide 25 Ib .016 .40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 125.00
• Maintenance 24.50
Total Semi-Variable Costs $149.50
FIXED COSTS
• Plant Overhead 31.20
« Depreciation 61.20
• Taxes & Insurance 12.20
Total Fixed Costs $104.60
TOTAL COST OF MANUFACTURE $1,504.50
SOURCE: Contractor and EEA estimates
""See Appendix C
-------
TABLE 3-4c
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 8,500 tons/year
Annual Production 6,600 tons/year
(78% capacity utilization)
Fixed Investment $3.6 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Lead Oxide 1429 Ib .596 851.70
- Nitric Acid 80 Ib .110 8.80
- Sodium Hydroxide (50%) 265 Ib .080 21.20
- Sodium Bichromate 980 Ib .300 294.00
- Sulfuric Acid 20 Ib .016 .30
- Calcium Hydroxide 25 Ib .016 .40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
« Labor 97.70
• Maintenance 21.80
Total Semi-Variable Costs $119.50
FIXED COSTS
• Plant Overhead 24.40
• Depreciation 54.40
• Taxes & Insurance 10.90
Total Fixed Costs $ 89.70
TOTAL COST OF MANUFACTURE $1,459.60
SOURCE: Contractor and EEA estimates
"'•"See Appendix C
-------
TABLE 3-4d
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT'1
(Mid-1978 Dollars)
Plant Capacity 25,400 tons/year
Annual Production 19,800 tons/year
(78% capacity utilization)
Fixed Investment $7.3 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Lead Oxide 1429 Ib
Nitric Acid
Sodium Hydroxide (50%)
Sodium Dichromate
Sulfuric Acid
Calcium Hydroxide
80 Ib
265 Ib
980 Ib
20 Ib
25 Ib
.596
.110
.080
.300
.016
.016
851.70
8.80
21.20
294.00
.30
.40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 27.30
• Maintenance 14.70
Total Semi-Variable Costs $ 42.00
FIXED COSTS
• Plant Overhead 6.80
• Depreciation 36.80
• Taxes & Insurance 7.40
Total Fixed Costs S 51.00
TOTAL COST OF MANUFACTURE $1.343.40
SOURCE: Contractor and EEA estimates
"'•"See Appendix
-------
3.1.3 Competition
There are three principal forms of competition in the pigments market:
substitute competition, import competition, and competition among pro-
ducers. The main substitutes for chrome pigments are organic colors.
Organics are substantially more expensive than chrome colors and are
difficult to work into some manufacturing systems. In addition, they
are less desirable and light fast than chrome pigments. However, if the
costs of pollution control and worker safety significantly raise the
price of chrome pigments, organic colors will become more competitive.
Increasing concern over the adverse health effects of chrome pigments at
the manufacturing and consuming level also could lead to a switch away
from chrome pigments. Retail paint customers switched away from chrome
pigments in the early 1970's largely due to the fear that ingestion of
paints by children would lead to severe health problems.
Imports have become less of a factor in the pigments market since 1972.
From 1972 to 1979, the market share held by imports fell from 16 percent
to approximately eight percent. However, imports continue to be significant
as constraints on domestic price increases. Major sources of imports
include West Germany, Canada, Japan, Great Britain, Poland, and Norway.
Producers in these countries have more modern plant facilities and,
therefore, face fewer environmental problems than U.S. chrome pigments
manufacturers. As a result, foreign producers enjoy a cost advantage.
While imports have decreased since 1972 due to increased ocean shipping
rates and the declining value of the dollar, the worker safety and
pollution control costs incurred by domestic chrome pigments producers,
combined with foreign producers existing cost advantage, may make imports
more competitive in the U.S. market over the next five years.
Competition among domestic producers of chrome pigments can be separated
into two segments. The first segment is the merchant market for pigments.
While consumers of chrome pigments are relatively sensitive to price and
3-21
-------
supplier-customer relationships are not always stable, producers have
tended to keep their prices close to one another in this segment of the
market.
The second, and more competitive segment of the chrome pigments industry
is the market for traffic yellow pigments. These pigments are sold by
competitive bid to local and state governments for use in traffic marking
paints. Volumes sold in this market are so large that producers are
willing to discount from list prices, and bidding becomes very compet-
itive. Producers can afford to discount somewhat, as pigments for
traffic paints do not have to be of the same quality as those for other
applications.
3.1.4 Economic Outlook
3.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
3.1.4.1.1 Quantity
The outlook for domestic production of chrome pigments indicates zero
growth at best, or, more likely, a decline in production. There are
several reasons for this outlook:
• The markets for chrome pigments are mature and offer few
possibilities for significant growth. Sales have been
constant for the last several years.
• Regulations concerning worker exposure to lead- and chromium-
containing pigment dust at both the pigment production and
utilization levels threaten to raise the costs of the raw
pigment and its ultimate end products. This will lead to some
loss of market share.
3-22
-------
The health issues associated with chrome pigments may persuade
manufacturers to use substitute products, regardless of the
cost advantages and desirable qualities of the pigments.
Trade sale paint manufacturers and printers already have
switched away from chromes to some degree, and automakers have
expressed some interest in substitute pigments.
3.1.4.1.2 Price
Approximately 85 percent of chrome pigments manufacturing costs are due
to raw materials. Among the principal raw material inputs in chrome
pigments production are lead oxide and sodium dichromate. The price of
lead oxide has been rising fairly rapidly, with the price of dichromate
rising at a more moderate pace. According to an industry source, passing
through raw material cost increases should pose little problem, as
chrome pigments are substantially less expensive than their major sub-
stitute—organic colors (approximately $l/lb vs. $4/lb). In addition,
no domestic producers are integrated vertically to raw materials, and,
thus, no producer should have a substantial cost advantage which would
allow them to restrain prices. Foreign producers also should experience
cost increases similar to those faced by domestic manufacturers.
3.1.4.2 Manufacturing Costs
As mentioned previously, raw materials account for 82.5 to 88.0 percent
of chrome pigments manufacturing costs. The price of lead oxide, a
principal input, has been increasing rapidly. Sodium dichromate, another
major input, has experienced more moderate price increases. Sodium
molybdate, a major input in molybdate chrome orange, also has experi-
enced rapidly increasing .prices. Raw material costs are expected to
continue increasing at a moderate pace.
The remaining 12.0 to 17.5 percent of manufacturing costs are shared
almost equally by utilities, labor and maintenance, and plant overhead.
These costs should grow at a moderate pace, except for energy, which may
grow more rapidly.
3-23
-------
3.1.4.3 Profit Margins
Moderate cost increases are expected in manufacturing chrome pigments,
primarily due to increased raw material costs. It is anticipated that
producers will be able to pass this cost through as price increases,
based on recent history and manufacturers' comments.
Producers fear, however, that they may be unable to pass along the
increased costs of lowering pigment dust levels in the workplace to the
OSHA standard of 50 micrograms per cubic meter of air. If they were
unable to pass along these costs, profit margins could be eroded sig-
nificantly.
3.1.5 Characterization Summary
Five pigments form the chrome pigments product group. The pigments are
used in a variety of applications such as paints, plastics, printing
inks, alkali-resistant paints and dyes, and rust inhibitive primers.
Chrome pigments offer several advantages: they are bright, opaque, cost
effective, and light fast. Some of the pigments offer additional advan-
tages: chrome oxide green is an excellent alkali-resistant pigment;
zinc yellow is a useful rust inhibitor.
The chrome pigments subcategory faces serious problems in meeting OSHA
regulations concerning worker exposure to lead and chromium dusts.
Current regulations call for a reduction of both lead and chromium dust
levels to 50 micrograms per cubic meter of air. These regulations apply
to chrome pigment production facilities as well as facilities using the
pigments to manufacture other products. The status of OSHA regulations
is uncertain. However, both manufacturers and consumers of chrome
pigments indicate that these regulations may force a switch away from
chrome pigments toward organic substitutes. Chrome yellow and orange,
molybdate chrome orange, and chrome green will be affected most severely
as they face lead as well as chromium regulations. Zinc yellow and
chrome oxide green contain no lead.
3-24
-------
Chrome pigments are manufactured by 12 firms in the U.S. Ten firms
produce chrome yellow and orange, and several firms produce one or more
of the remaining four pigments. None of the manufacturers are integrated
vertically to inputs. DuPont is the only producer integrated forward to
end products (DuPont is a major producer of paints).
Historically, chrome pigments producers have been able to pass increased
raw materials costs through to consumers. However, they may be unable
to pass through the increased expenditures required to meet OSHA regula-
tions on airborne pigment dust. This could lower profitability, as well
as force consumers to switch away from chrome eolors to organic substitutes.
3.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
chrome pigments subcategory to comply with BAT and PSES effluent control
standards. The technical contractor has designed and estimated the cost
of effluent control technologies which can be used to achieve these
standards. For this subcategory, BAT and PSES limitations are based on
BPT and, therefore, the effluent control costs for direct and indirect
dischargers are equivalent. The technical contractor's cost estimates
are used to make an assessment of the economic impacts that effluent
control costs will have on the subcategory.
In some of the other subcategories studied in this report, base level
(i.e., BPT) treatment technologies are in place. However, this is not
the case in the chrome pigments subcategory because:
• The eight plants which discharge to municipal treatment systems
have never been subject to regulations.
• Data gathered by the technical contractor and EPA show that only
two plants have control equipment in place.
3-25
-------
This analysis will address the impact of effluent control costs requirad
for compliance with BAT and PSES regulations. The final regulations pro-
vide an exemption for small indirect dischargers (discharging less than
55 million gallons annually).* The basis for the exemption is the severe
economic effects associated with compliance costs for these plants (see
Appendix E).
Since the chrome pigments subcategory will be affected by the Resource
Conservation and Recovery Act (RCRA), the impacts of the combined costs
of compliance with PSES/BAT and RCRA's Interim Status Standards (ISS) are
also examined. These costs are not applicable to the small plants which
are exempt from categorical PSES removal since, without the pre-treatment
equipment in place, they produce no hazardous sludge.
3.2.1 Pollution Control Technology and Costs
Capital and operating pollution control costs estimates have been devel-
oped by the technical contractor for the effluent control technology
required to meet PSES/BAT levels of waste removal.
Sources of wastewater from chrome pigments production include filtrates,
pigment particulate wastes, and effluent from air pollution control.
Major pollutants include suspended solids, soluble and insoluble chromate
salts and other metals, such as lead and zinc. The pollution control
process is summarized below:
• Wastewater is collected in a holding tank where sulfuric acid is
added for pH adjustment.
• Sulfur dioxide is added to the wastewater to reduce hexavalent
chromiumn to non-toxic trivalent chromium.
• Caustic soda is added to the wastewater to raise the pH and preci-
pitate the chromium.
*This level of flow corresponds to a production rate of 2,000 metric tons
(2,200 short tons) of chrome pigment annually.
3-26
-------
• Overflow is filtered and discharged; underflow passes through a
filter press and then to a holding pond; solids are landfilled.
Pollution control costs were estimated for four model plants assumed to
be complex continuous process pigment facilities. Model plant production
rates are 1,650, 4,400, 6,600, and 19,800 tons per year. For the model
plants, an average wastewater unit flow rate of 105 m /kkg was used.
Effluent control costs for the model plants are summarized in Table 3-5.
The table also includes the costs of compliance with RCRA-ISS requirements.
Estimates of chrome yellow manufacturing costs for the four model plants
are $1,603.20, $1,504.50, $1,459.60, and $1,343.40 per ton of product.
These cost estimates are based on estimates developed by an economic
subcontractor (see Table 3-4); pollution control costs are not included
in these estimates. Table 3-6 summarizes the model plant financial
parameters used in the analysis.
The capital and annual costs required for compliance with BAT/PSES and
RCRA-ISS by the chrome pigments subcategory are summarized in Table 3-7.
These costs are based on the model plant pollution control costs and
current industry production levels. Two direct dischargers have BAT
removal technology in place. Three small indirect dischargers incur no
PSES or RCRA costs based on the exemption.
The additional costs required for subcategory compliance with BAT removal
are estimated to be about $0.8 million; subcategory compliance with cate-
gorical PSES removal would require additional annual costs of about $4.9
million. Therefore, the total subcategory cost for effluent limitations
is estimated at $5.7 million. RCRA requirements »rould add another $0.6
million to yield a total annualized subcategory compliance cost of $6.3
million.
Note that the RCRA costs are for disposal of all plant-produced hazar-
dous wastes, not just the incremental waste resulting from the use of
3-27
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RCRA costs which would result from the imposition of BAT/PSES.
3.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
3.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 3-8 summarizes the price rise calculation for the
model plants. The price increase required to fully recover the costs of
BAT/PSES control levels ranges from 5.5 to 14.0 percent. The price
increases required to recover both RCRA-ISS and BAT costs are slightly
higher, ranging from 6.0 to 15.4 percent.
3.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through and examines
the resulting decline in the return on investment (ROI) and the internal
3-31
-------
TABLE 3-8
PERCENTAGE PRICE RISE
Chemical: Chrome Pigments
Price: $1605/ton
Model Plant
Production
(tons/year)
1,650
4,400
6,600
19,800
BAT/PS ES*
14.03%
8.63
7.37
5.54
BAT/PS ES* plus RCRA-ISS
15.36%
9.15
8.04
5.97
* For this subcategory, BAT and PSES costs are equivalent.
-------
rate of return (IRR). The profitability impacts of BAT/PSES removal
costs are large for all four model plants. The ROI declines by approxi-
mately 18 to 19 percentage points for the smallest and largest plants
and by over 11 percentage points for the two intermediate model plants.
These declines represent 36 to over 100 percent of baseline profitability.
Application of BAT/PSES technology reduces the IRR by 9 to 12 percentage
points for the three largest model plants (see Table 3-9a), or by 26 to
57 percent of baseline profitability.
The incremental costs of RCRA-ISS increase the profitability declines
slightly over the profitability impacts of BAT/PSES removal costs. The
ROI declines by 12.3 to 20.9 percentage points or 38 to over 100 percent
of the baseline profitability, depending on model size. The IRR falls by
10.8 to 12.9 percentage points, or 27.51 to 62.6 percent of the baseline
profitability for the three largest si^es. These results are shown in
Table 3-9b.
3.2.2.3 Price Elasticity of Demand
Chrome pigments are intermediate materials used in the manufacture of
various end products such as paints, printing inks, and plastics. The
extent to which chrome pigments producers can increase prices to recover
pollution control costs is primarily determined by the degree that price
pass-through is possible in these end markets. End users of chrome
pigments would be cushioned from the full impact of the price increase.
For example, paints (accounting for over 60 percent of total chrome
pigments consumption) require approximately 0.09 pounds of chrome pigments
for each gallon of paint produced. A 15 percent increase in chrome
pigments prices would raise the cost of paint by 1.1 cents per gallon.
Average unit value data on paint products ranged from five to ten dollars
per gallon. Assuming a price of $7.50 per gallon, paint prices would
need to increase by 0.15 percent to fully recover the higher cost of
chrome pigments. Current demand for paint appears strong enough to
3-33
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support this minimal price increase. Since this price increase represents
only one cent per gallon, demand for chrome pigments is not likely to be
affected significantly. Further, available organic substitutes are four
to ten times the cost of chrome pigments. These observations imply
relatively inelastic demand.
However, domestic chrome pigment producers must compete with lower-
priced imports which will constrain price increases. Further, end users
of chrome pigment-containing products nay switch to products that do not
require the special qualities of chrome pigments. For example, equipment
producers may choose to use paint colors (e.g., gray, blue) that do not
use chrome pigments in their manufacture. Because of these factors,
demand for chrome pigments is assumed moderately elastic. (See Sections
3.1.1, Demand, and 3.1.3, Competition, for a complete analysis.)
3.2.2.4 Capital Analysis
Raising capital to install new pollution control equipment is a potential
problem for industries trying to comply with new regulations. In this
instance the capital requirements of complying with pollution control
regulations will pose a problem. For all model plant sizes the capital
costs of PSES/BAT are approximately 32 to 37 percent of the present
fixed investment of the plant (see Table 3-10). There are no additional
capital requirements to comply with RCRA-ISS requirements because Lt is
assumed that all chrome pigments plants will dispose of their wastes in
an off-site landfill.
3.2.2.5 Closure Analysis
Table 3-11 summarizes the price elasticity of demand, price rise, and
profitability decline for chrome pigments model plants and compares
these to EPA's closure criteria (see methodology description).
The costs of installing and operating BAT/PSES removal level equipment
will impose significant impacts on all four model plants, with the
3-36
-------
TABLE 3-10
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Chrome Pigments
Level of
Removal
BAT/PSES*
BAT/PSES* plus
RCRA-ISS
Model Plant
1,650 4,400
37.03% 33.35%
37.03 33.35
Production
6,
32
32
(tons/year)
600
-35%
.35
19,800
36 . 05%
36.05
* For this subcategory, BAT and PSES costs are equivalent.
*
+ It is assumed that all chrome pigment plants will dispose of their
wastes in an off-site landfill; therefore, there are no incremental
capital costs required for compliance with RCRA-ISS.
3-37
-------
TABLE 3-11
IMPACT SUMMARY
Chemical: Chrome Pigments
PRICE
CLOSURE CRITERIA
MAXIMUM
MAXIMUM PROFITABILITY
ELASTICITY PRICE RISE DECLINE
DESCRIBED IN Medium or High Greater Greater
METHODOLOGY SECTION
Than 1% Than 1 Per-
centage Point
or Greater
Than 10 Per-
cent of Base-
line Profit-
ability
CLOSURES
Predicted
If all
Criteria Met
MODEL PLANT RESULTS
PLANT
REMOVAL PRODUCTION
LEVEL (ton/year)
1,650
4,400
BAT/PSES**
6,600
19,800
1,650
BAT/PSES** 4,400
plus
6,600
RCRA-ISS
19,800
MAXIMUM
PERCENTAGE
POINT
PROFITABILITY
MAXIMUM DECLINE
PRICE ELASTICITY PRICE RISE (% DECLINE)
*
14.03% 17.92%*
(163.50%)*
3.63 11.67
(56.68)
Medium
7.37 9.79
(38.08)
5.54 11.55
(26.03)
15.36 19.79%*
(130.57%)*
9.15 12.39
162.60)
Medium
8.04 10.30
(42.01)
5.97 12.21
(27.51)
CLOSURES
May result
in any of
the size
categories
May result
in any of
the size
categories
•'•' Based on ROI.
**For this suocategory, BAT and PSES costs are equivalent.
SOURCE: EEA estimates.
3-38
-------
impacts being particularly severe for the smallest model plant. The
price rise required to recover pollution control costs is much greater
than one percent for all models, ranging from 5.5 percent for the largest
plant size to 14 percent for the smallest model. Similarly, profitability
impacts are large with declines in the ROI ranging from 11 to 19 percentage
points. These declines represent 26 to significantly over 100 percent
of the baseline profitability. Thus, according to EPA's closure criteria,
plant closures are possible for all model plant sizes. While plant
closures are possible in all size categories, immediate plant shutdowns
are most probable in the smallest size category where the potential
decline in profitability is significantly higher and baseline profitabi-
lity lower than in the other three models. The implications of this
model plant closure analysis for actual plants in the industry are
discussed in detail in the following section.
The incremental costs of complying with RCRA-ISS requirements are relatively
small compared to BAT/PSES removal costs. Therefore, further plant closures
are not expected to result from the additional RCRA-ISS costs.
3.2.3 Industry Impacts
In this section the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on chrome pigments manufacturers.
3.2.3.1 Price and Profitability Impacts
The price rise necessary to fully pass through effluent control costs is
likely to present a significant problem for chrome pigments producers.
In all cases a 5.5 to 14 percent price increase would be necessary. Two
factors will constrain a price increase: the potential market shift to
organic pigments and competition from imports. While organic pigments
are currently much higher in price, some pigment users are now choosing
them to avoid the current and anticipated health and regulatory problems
associated with many lead-containing chrome pigments. A price increase
3-39
-------
in chrome pigments will only accelerate this move to organics. Imports
also report a significant constraint in price increases. Imports are
currently very cost competitive and will become even more so with further
domestic price increases. Thus, profit margins and profitability will
decline. Given current profitability levels in the industry, the prof-
itability decline is likely to cause hardship. The model plant costs
indicate that the smaller plants are operating at close to the break
even point, and even a small profitability decline could encourage them
to cease operations.
The gradual decline in demand that the industry is experiencing (due,
in part, to its problems with OSHA regulation of toxics) would
normally lead to plant closures with the least profitable plants closing
first. The profitability decline which would result from effluent
control regulation will serve to accelerate this rate of closure. The
likelihood of plant closure is discussed in more detail in Section 3.2.3.2,
Projected Plant Closures.
The incremental price rise and profitability impacts of RCRA-ISS costs
are relatively small in comparison to the impacts of effluent control
costs. The price of pigments would have to be raised an additional 0.43
to 1.33 percent. Similarly, the incremental decline in profitability
(one to two percentage points) would be small relative to the profitability
impacts of BAT/PSES costs.
3.2.3.2 Projected Plant Closures
A breakdown of chrome pigments producers according to model plant size
is presented in Table 3-12. The five small plants and three medium
plants account for approximately one-fourth of subcategory production
and employment. The four largest firms dominate industry production and
employment (about 76 percent of the total).
The closure projections can be summarized as follows:
3-40
-------
TABLE 3-12
CHROME PIGMENTS INDUSTRY CHARACTERIZATION
Model Plant
Production
(ton/year)
1,650
4,400
6,600
19,800
Totals for
Number of Actual
Plants Corresponding
To That Model
Subcategory
5
3
2
_2
12
Estimated Total
Production
6,000
11,000
18,000
37,500
72,500
Estimated Total
Employment*
60
no
180
380
730
Based on 10 employees per thousand pounds of production.
SOURCE: Industry Sources and Technical Contractor Survey
3-41
-------
• As mentioned in Section 3.2.3.1, it is unlikely that chrome
pigments plants can achieve a full price pass through due to
declining demand and import competition. Small plants are
currently marginally profitable and any further profitability
decline may cause closures. At most, of the two non-exempt
small plants, one will close its chrome pigments production
line.
• Large plants are more profitable and able to withstand a
short-term profitability decline. Full price pass-through is
more likely in the long run and given the demand outlook for
chrome pigments, these plants will continue to operate at
current production levels.
• Medium plants have profitability levels between those of the
small and large plants. Of the three medium plants, at most
one will close its chrome pigments production line.
These projections are detailed below.
Small Plants
Given the inability of achieving full pass-through of effluent control
and RCRA-1SS costs in the short run, the two non-exempt small plants
will suffer significant profitability declines (approximately 20 percen-
tage points, representing a 131 percent profitability decrease, with
combined effluent and RCRA-ISS costs). Cost and price data and industry
sources indicate that the chrome pigments manufacturers corresponding to
this model size are currently only marginally profitable. Therefore,
the potential decline in profitability resulting from producers' inability
to fully pass through pollution control costs may result in plant or
production line closures. Another significant factor for these small
manufacturers is the potential difficulty in securing the capital neces-
sary for investment in pollution control equipment, representing 37
percent of fixed investment in place. Three of the five producers in
this size category are small privately-owned companies rather than parts
of large chemical conglomerates and, therefore, may have more difficulty
in accessing capital markets.
3-42
-------
However, it is unlikely that both of the non-exempt small plants will
close their chrome pigment production lines. Since one plant is involved
solely in chrome oxide green production, it will not be affected by
OSHA's further limitations on worker exposure to lead and will not face
the high costs of compliance with these regulations. Further, demand
for chrome oxide green is much stronger than for the other chrome pigments
and sustained demand strength will probably allow this small producer to
pass-through part of the control costs to customers. Therefore, it is
less likely to close its chrome pigments product line than other small
chrome pigments plants which must comply with both OSHA and EPA regula-
tions.
In the case of the most heavily affected plant, it is likely to shutdown
its chrome pigments operations. However, this plant is unlikely to
close in its entirety, as chrome pigments represents only 10 percent of
the plant's annual production.
Large Plants
Larger plants in the industry may be willing to experience the short-run
profitability declines and attempt to recover the pollution control
costs over several years through periodic price increases. Although the
model plant analysis indicates large declines in profitability for these
producers, the profitability levels after control are still sufficient
to justify continued operation, at least in the short run. Thus pollu-
tion control costs are not likely to result In immediate plant closures
for larger producers. However, larger manufacturers' actions will be
determined by the long-run demand outlook for chrome pigments. If
future demand appears insufficient to justify sizeable capital invest-
ment and temporary profitability declines, further plant closures can be
expected in the larger size categories.
In order to evaluate the future U.S. market for chrome pigments, 1985
•ie.-nand is projected based on the following assumptions:
3-43
-------
Current industry projections for chrome pigments demand growth
are accurate. The most pessimistic projections are that
demand will decline from 1979 levels for lead-containing
pigments (chrome yellow and orange, molybdate chrome orange,
and chrome green) because of more stringent OSHA standards and
increasing consumer concern over adverse health effects of
lead exposure. Demand for other chrome pigments (zinc yellow
and chrome oxide green) will continue to grow with GNP since
they will not face the serious lead pollution problems experi-
enced by other chrome pigments.
Because foreign producers' response to future U.S. demand
cannot be predicted with certainty, import projections are
based on import level performance in recent years. In the
projected demand scenario, imports are assumed to achieve the
maximum penetration levels observed during the years 1972-1979.
Table 3-13 presents the estimated demand, potential import penetration
and market for domestic producers in 1985 based on the above assumptions.
The projected market for domestic producers in 1985 is approximately
57,000 tons.* This market is sufficient to justify the continued opera-
tion of the four largest domestic producers (corresponding to the two
largest model sizes) whose combined estimated production is currently
55,500 tons per year (see Table 3-12).
The projection of 57,000 tons may underestimate the 1935 domestic market
since import penetration is unlikely to reach the 21 percent level
assumed in this analysis. One International Trade Commission expert**
estimates that a 10 percent increase in domestic chrome pigment prices
would result in imports' market share increasing only a few percentage
* This projection is based in a "worst case" demand growth assumption
for lead-containing chrome pigments, i.e., that demand will actually
fall from 1979 levels. Since some decline in demand is already re-
flected by the L979 production levels, it is also possible that demand
for lead-containing chrome pigments .Jill stabilize at "i979 levels. In
this case, the projected domestic market in 1985 is o6,uOO tons, clearly
sufficient to justify the continue! operation of the four largest plants
in the subcategory.
** Mr. "Larry Johnson, telephone conversation, January 18, 1980.
-------
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points above their current level of eight percent and suggests that 11
or 12 percent represents a reasonable import penetration figure. There-
fore, the actual domestic market is more likely to be approximately
63,500 tons in 1985 (under the negative demand growth assumptions used
above).
An examination of the large chrome pigments plants reveals other signi-
ficant factors that will encourage them to remain in operation. One
large producer is currently meeting BAT limitations and will therefore
not incur new effluent control costs. Another large producer is one of
two present manufacturers of zinc yellow (the other is a small plant
Identified as a probable closure candidate) and is not as likely to
cease production given the relatively optimistic outlook for continued
demand growth for this pigment. Based on projected industry demand and
examination of the actual producers, no plant closures are forecast for
the four producers corresponding to the two largest model plants.
Medium Plants
The profitability decline and required price rise for the medium-sized
producers will fall between those for the small and the larger plants.
Of the three medium-sized producers in the chrome pigments industry, two
plants are likely to maintain chrome pigments production. One plant
produces only chrome oxide green and is therefore expected to continue
operating since chrome oxide green will not face increased worker safety
costs and is expected to experience continued demand growth. A second
plant is already in compliance with the regulations. The third medium-
sized producer manufactures chrome yellow and molybdate chrome orange.
Effluent control and OSHA costs, along with declining demand for these
pigments, may encourage this producer to close its chrome pigments pro-
duction line over the next five years. As in the case of the small-size
closure candidate, chrome pigments sales are estimated to account for
less than ten percent of the plant's revenues. The plant is therefore
likely to continue operations independent of the viability of its chrome
pigments line.
3-46
-------
3.2.3.3 Other Impacts and Conclusion
At most, one immediate production line closure is predicted for small
chrome pigments producers with one additional line closure possible for
medium-sized producers within the next five years. If hoth of these
producers were to discontinue chrome pigments production, unemployment
could result for approximately 60 persons, or 8 percent of subcategory
employment (see Table 3-12). Reabsorbing these unemployed workers into
the local labor force could be difficult; both producers are located in
metropolitan areas with current unemployment rates (as of April 1981)
above the national average. However, both plants are operated by large
manufacturing companies and intra-company transfers could mitigate job
displacement resulting from plant closures.
If the production line clsoures discussed above occur no permanent supply
disruption is predicted. The two closure candidates account for approxi-
mately 8 percent of estimated subcategory production. With the industry
currently operating at approximately 75 percent capacity, larger producers
will be able to expand production sufficiently to meet demand for chrome
pigments. In addition, imports are available for all types of chrome pig-
ments and could alleviate any temporary bottlenecks in domestic supply.
Industry concentration will not be significantly affected by the plant
closures and no single producer is expected to gain significant inarket
power that might allow monopoly pricing.
Currently imported chrome pigments account for only 8 percent of U.S.
consumption. However imports are expected to become a more significant
factor in the domestic inarket for two reasons:
• The availability of imported pigments will act as a constraint
on the price increases achievable by domestic producers attempt-
ing to pass through pollution control costs.
• As worker safety and pollution control costs increase the
price differential between domestic and imported chrome pig-
ments, imports can be expected to capture a larger share of
the market. However, import penetration is not expected to
increase beyond 12 percent.*
* Mr. Larry Johnson, International Trade Commission, telephone communication,
January 13, 1980. " 3-47
-------
4. COPPER SULFATE
4.1 CHARACTERIZATION
(NOTE: As discussed below in Section 4.2, this industry subcategory in-
curs no compliance costs. The following characterization data is pre-
sented for informational purposes only.)
Copper sulfate (CuSO,) is a relatively low volume chemical with a vari-
ety of applications in agriculture and industry. The agricultural
sector uses it primarily as a fungicide, but also as an algicide and a
micronutrient additive in fertilizers and animal feeds. Industrially,
copper sulfate is used in froth flotation, wood preservation, electro-
plating, leather tanning, dye manufacture, and petroleum refining (see
Figure 4-1 for sources and uses of copper sulfate).
Domestic production of copper sulfate has declined dramatically over the
last 25 years. This is due to a worldwide shift away from copper sul-
fate as an agricultural fungicide in favor of organic fungicides. The
once large export market for copper sulfate (which represented 24 percent
of production in 1960) is now nonexistent. However, a recent upturn in
copper sulfate sales has given rise to renewed industry optimism.
Industry spokesmen view the recent turnaround in the sales decline as
the start of a long term trend. The strong markets and anticipated
growth also have attracted importers. Low priced copper sulfate imports
will continue to compete vigorously for a substantial share of the
domestic copper sulfate market.
4-1
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4.1.1 Demand
4.1.1.1. Agricultural Fungicides and Other Agricultural Uses
The agricultural sector accounted for 42 percent of copper sulfate
consumption in 1977. Most of this was used as a fungicide in the form
of the "Bordeaux mixture," a simple mixture of hydrated lime and copper
sulfate pentahydrate (CuSO,-5H 0).
Fungicides are essential to the agricultural industry. The investment
return is about two to four dollars in crops for every dollar of fungi-
cide applied. Their effectiveness has yielded a strong and steadily
growing demand for agricultural fungicides: total sales were 112 mil-
lion dollars in 1975; growth in demand will be about seven percent
annually through 1985. (Chemical and Engineering News, September 5,
1977).
Copper sulfate, once one of the two most widely used fungicides, now
holds less than 15 percent of the agricultural fungicide market. In
either the Bordeaux mixture or unmixed (basic) form, copper sulfate acts
to inhibit the inception of fungus growth. It is used on citrus fruits,
deciduous fruits, and nuts. Together with sulfur compounds, copper
sulfate fungicides control about one-third of the fruit and nut market.
(Chemical Purchasing, February 1978).
In addition to its use as a fungicide, copper sulfate is used as an
algicide, in seed treatment, and as an additive in feeds and fertilizers
to correct for copper deficiencies in poultry and plants.
Demand for copper sulfate in its agricultural end uses fluctuates with
agricultural demand, which is highly variable. Demand for fungicides is
also affected by rainfall (fungus growth is encouraged by damp condi-
tions) causing fungicide sales to be robust during rainy periods and
slack during dry spells. Demand varies regionally for the same reason.
4-3
-------
4.1.1.2 Industrial Uses
Copper sulfate is used in a variety of industrial applications. Each of
these markets will be discussed separately.
Froth Flotation
Copper sulfate is one of the most widely used froth flotation agents.
This market accounted for approximately 16 percent of copper sulfate
demand in 1977. Froth flotation is a refining process used in sepa-
rating metals (primarily zinc) from their ores. Because the use of
froth flotation agents is application specific, copper sulfate's froth
flotation end use market is secure. Moderate demand growth (three to
five percent annually) is expected in this market.
Wood Preservation
Approximately 10 percent of copper sulfate production is used in the
manufacture of the wood preservative chromated copper arsenate (CCA).
This substance binds chemically to wood, rendering it impervious to
fungus. Large quantities of wood preservatives are used by the con-
struction industry to protect wood exposed to damp conditions. (Chem-
ical Purchasing, February 1978).
Electroplating
The electroplating industry accounts for about 10 percent of copper
sulfate consumption. Electroplating is a process whereby objects are
coated with a thin layer of one or more metals in order to improve the
appearance, durability, or electrical properties of the surface. The
process involves placing the object in a bath containing a metal salt.
An electric current is passed through the solution and the object such
that the metal from the salt (copper iii the copper sulfate solution)
attaches itself to the surface of the object.
4-4
-------
Copper plating is used to improve heat conductivity (as in cookware), to
improve electrical conductivity in electrical equipment, and as a first
coat before nickel and chromium on automobile parts.
There is some concern that demand for copper sulfate from the electro-
plating industry may fall off during the early 1980's as the industry
begins to recycle the spent copper sulfate solution in order to reduce flow.
However, only a small portion of the industry has begun to recycle because
recycling systems are expensive and involve separation of wastewater.
The number of manufacturers recycling copper sulfate solution may in-
crease with rising copper prices and stringent discharge requirements.
This may reduce demand for copper sulfate from the electroplating in-
dustry. Nevertheless, one major copper sulfate producer currently is
experiencing rising demand for the chemical from metal platers, and
expects the trend to continue.
Other Industrial Uses
Copper sulfate is used in dye manufacture, leather tanning and hide
preservation, as a "sweetener" for sulfur removal in petroleum refining,
and as a starting material for other copper salts. Copper sulfate also
is used as an algicide in municipal water treatment and reservoirs.
(Chemical Purchasing, February 1978).
4,1.1.3 Demand Summary
Copper sulfate has a number of end uses in both agricultural and in-
dustrial markets:
o Agricultural fungicides and other agricultural uses (42 percent
of copper sulfate demand in 1977)
o Froth flotation (16 percent)
o Wood preservation (10 percent)
4-5
-------
o Electroplating (10 percent)
o Intermediates (10 percent)
o Miscellaneous (12 percent)
Demand for copper sulfate declined at a rate of 3.3 percent per year
between 1968 and 1977 (see Table 4-1). While market demand for some end
uses (particularly froth flotation and wood preservation) will experience
moderate growth in the early and mid-I9601s, these growing markets are
too small to have a great impact on overall demand. Whether this de-
cline will continue at the same rate or turn around (as some producers
have predicted) is not clear.
4.1.2 Supply
4.1.2.1 Production
Production of copper sulfate has suffered a rather precipitous decline
since World War II, when large quantities were produced for export as an
agricultural fungicide. This foreign demand disappeared with the intro-
duction of organic fungicides in the 1940's, and production has fallen
from over 80 thousand short tons in 1955 to a low of 30.1 thousand tons
in 1977. Production rose by 17 percent in 1978 to 35.1 thousand tons
leading industry spokesmen optimistically to forecast a period of
renewed interest in copper sulfate. (Chemical Marketing Reporter,
September 11, 1978). This forecast may be premature, especially in
light of the chemical's recent production history. (See Table 4-1 and
Graph 4-1.)
4.1.2.2 Producers
There are eleven firms that manufacture copper sulfate (see Table 4-2).
Individual plant production capacities are unavailable.
4-6
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GRAPH 4-1
COPPER SULFATE PRODUCTION AND PRICE
53.00 -
39.75 -
VOLUME 26.50 -
(000's of tons)
13.25 -
0.00 -r
1968
I I I I
1972 1976
YEAR
PRICE
U/lb)
33.00 -
28.50 -
19.00 -
9.50 -
0.00 -{—
19*68
I I I I
1972
1976
YEAR
SOURCE: Department of
-------
TABLE 4-2
PRODUCERS OF COPPER SULFATE
COMPANY
Cities bcrvjcu Co., Inc.
North American Chemical
and Industrial Chemical
U i v i s i on
CP Chemicals, Inc.
Hliclps Dodge Corp.
I'hclps Dodge Refining
Corp. Subsidiary
Chevon Chemical Co.
Imperial hest Chemical Co.
Kocide Chemicals Co.
Liquid Chemical Corp.
Mallinckrudt Chemical
Southern California
Chemical Co.
Univar Corp.
LOCATION
Copperlull, TN
Sewaren, NJ
Powder Springs, GA
Ul Paso, TX
Muspeth, NY
Richmond, CA
Houston, TX
Hanford, CA
St. Louis, MO
Bayonne, NJ
Sunte Fe Springs, CA
Union, IL
Hetaline Falls, WA
INTEGRATION
ANNUAL CAPACITY ESTIMATED PERCENTAGE OF
(thousand tons) INDUSTRY CAPACITY RAW MATERIALS END PRODUCTS
N/A • ' Copper
Sulfuric Acid
N/A •
N/A • Copper
Sulfuric Acid
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Van Maters & Rogers
Midvale. Utah
Pinehurst, ID
Wallace, ID
N/A
N/A > Not Available.
* These three producers together account for more than 90 percent of industry production (Department of Conmerce).
4-9
-------
Phelps Dodge and Cities Service, the two largest producers, account for
80 percent of domestic copper sulfate manufacture, according to one
industry source. CP Chemicals is the third major producer with approx-
imately 10 to 15 percent of industry production. The remaining eight
producers market only small quantities of copper sulfate.
Due to the nature of the industry and the copper sulfate market, the
list of firms claiming copper sulfate production changes often. The
production process is relatively simple and capital equipment require-
ments are low compared to those of an ore refining operation. Therefore,
firms find it feasible to enter the market in periods of increased
demand and withdraw when demand declines. For example, Anaconda Company
produces copper sulfate as a by-product in their copper refining process.
However, they serve only available local markets and have not marketed
any copper sulfate for some time. They have stated that they intend to
re-enter the copper sulfate market in the future.
Two of the three largest producers, Phelps Dodge and Cities Service, are
copper refiners. They are, therefore, integrated backward to copper
sulfate's main constituent.
4.1.2.3 Process
The principal inputs for the production of copper sulfate are copper,
sulfuric acid, and oxygen. Approximately 20-30 percent of the total
volume of copper sulfate production is a by-product of copper refining.
During refining, copper is leached from its ores with sulfuric acid.
Most of the resulting copper sulfate solution is treated to remove pure
copper, but some of the solution is removed to eliminate impurities.
Commercial-grade copper sulfate can be recovered from this by-product.
Copper sulfate also is produced by action of sulfuric acid on scrap or
copper shot. The resulting copper sulfate solution is allowed to settle
4-10
-------
and evaporate to form crystalline cupric sulfate. The reaction in this
process is:
2Cu + .2H2S04 + 02 -»• 2CuS04 + 21^0
There are no significant co-products or by-products of the process. Most
production wastes are recycled to recover copper.
Estimated manufacturing costs and capital costs for copper sulfate
production are presented in Table 4-3. Raw material copper costs account
for 35 to 42 percent of total manufacturing costs. Capital investment
is approximately $770 per ton of capacity which is moderately high.
(Capital costs in inorganic chemicals manufacture range from 300 dollars
per ton to 1500 dollars per ton, depending on the chemical produced and
the process used.) However, total capital investment is small compared
to copper refinery equipment, according to industry sources.
4.1.3 Competition
There are three sources of competition facing a copper sulfate producer:
o Competition from other producers of copper sulfate;
o Import competition;
o Competition from products which may serve as substitutes for
copper sulfate in each of its end uses.
Each of these will be discussed separately.
4.1.3.1 Intra-industry Competition
One way in which a producer of a fairly homogeneous product, such as
chemicals, will compete is by differentiating the product slightly. In
the chemical industry, this often takes the form of performing addi-
tional finishing steps to improve the chemical's properties according to
the requirements of a specialized market. Copper sulfate is manufac-
4-11
-------
TABLE 4-3
ESTIMATED COST OF MANUFACTURING COPPER SULFATE*
(mid-1978 dollars)
Plant Capacity 2,850 tons/year
Annual Production 2,250 tons/year
(79% capacity utilization)
Fixed Investment $2.2 million
VARIABLE COSTS Unit/Ton $/13nit $/Ton
• Materials
- Copper Shot (scrap) 480.71 Ib .55 264.40
- Sulfuric Acid (66 Be')801.79 Ib .016 12.80
• Utilities
- Power 90.70 kWh .03 2.70
- Steam 9.07 klb 3.25 29.50
- Cooling Water 5.44 kgal .10 .50
- Process Water 3.27 kgal .75 2.50
Total Variable Costs $312.40
SEMI-VARIABLE COSTS
• Labor 141.00
• Maintenance 34.50
Total Semi-Variable Costs $175.50
FIXED COSTS
• Plant Overhead 35.30
• Depreciation 86.10
• Taxes & Insurance 12.90
Total Fixed Costs $134.30
TOTAL COST OF MANUFACTURE $622.20
SOURCE: Contractor and EEA estimates
r?See Appendix C
-------
tured in a number of forms (grades) in an attempt to appeal to spe-
cialized markets.
Pentahydrate is sold in technical, United States Pharmaceutical (U.S.P.)
and chemically pure (CP) grades. The technical grade is used in Bordeaux
mixture, metal plating, water treatment, wood preservation, and algicides.
Chemically pure copper sulfate has specialized applications. The purifi-
cation procedure is expensive and is reflected in CP's higher price,
almost twice that of the technical grade. At least one company (Mallin-
krodt) manufactures only chemically pure copper sulfate. (Chemical
Purchasing, February 1978).
Basic copper sulfate (also known as Tri-Basic, the registered trademark
of Cities Service's basic product) is used as a fungicide on citrus
fruits. Both pentahydrate and basic are sold in four pound and 100
pound bags.
4.1.3.2 Import Competition
Imports of copper sulfate (primarily from Spain) have risen during the
last three years from 460 short tons in 1975 to 2,700 in 1977, a six-fold
increase. Imports captured nearly 10 percent of the market in 1977.
Import prices are about 20 percent lower than domestic prices. This has
forced domestic producers to sell copper sulfate at less than published
list prices in order to remain competitive. U.S. producers have claimed
that imported copper sulfate is highly impure, overly acidic, and gen-
erally inferior to the domestic chemical. There also have been murmurings
of possible dumping (sale of imports at below cost, which is a violation
of trade regulations) but no suits have been filed.
All of these charges have been refuted by the leading importer of copper
sulfate, Calabrian International Corporation. A spokesman for Calabrian
claims that importers of copper sulfate.are, in fact, at a disadvantage.
4-13
-------
Copper sulfate used as algicides must be registered with EPA, and
registration is sometimes difficult. This has resulted in domestic
producers reducing prices only in markets where there is import competi-
tion, and selling at list price where there is no import competition.
Imports will remain a significant competitive force in the domestic
copper sulfate market (Chemical Marketing Reporter, September 11,
1978).
4.1.3.3 Substitute Competition
Copper sulfate's major market, agricultural fungicides, has declined
with the introduction of new and more effective products. The organic
fungicides usurped many of copper sulfate's markets because they are as
good a fungal deterrent and have the added advantage of being able to
arrest fungal infection after it has started. While unit costs of the
organics are higher, labor and application costs are lower. The dithio-
carbonate group of organic fungicide almost eliminated the use of copper
sulfate on bananas by 1960. (Chemical Purchasing, February 1978).
Copper sulfate's share of the agricultural fungicide market has dropped
to 10 to 25 percent. Recently, however, there has been a renewed inter-
est in copper sulfate fungicides due to a suspicion that the organics
may be carcinogens. Whether this will boost sales of copper sulfate in
the fungicide market is uncertain.
Copper sulfate is an ingredient in chromated copper arsenate (CCA), a
wood preservative. As such, it competes with two other wood preserva-
tives: pentachorophenal (PCP) and creosote. PCP may lose some of its
market to CCA because it is under investigation for possible toxic
effects. PCP use has been limited by the State of Michigan, where it is
suspected of having caused the illness and death of dairy herds.
(Chemical Purchasing, March 1978).
4-14
-------
Overall, demand for copper sulfate seems to be dependent on price;
buyers will switch to substitutes as the relative price of copper sul-
fate rises. It is possible that the suspected health hazard posed by
some of copper sulfate's major end use substitutes may result in in-
creased copper sulfate demand.
4.1.4 Economic Outlook
4.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
4.1.4.1.1 Quantity
Both domestic copper sulfate production and import volumes are rising.
Considering the chemical's recent history of short term surges and
declines in production, it is too early to tell if the current produc-
tion increase is a long term trend or merely another fluctuation.
Producers of copper sulfate view the production gains of the last year
as the beginning of a five year increase in demand for copper sulfate,
although they seem uncertain about the source of the demand. Neverthe-
less, their enthusiasm attracted one new manufacturer, brought on stream
in late 1978. (Chemical Marketing Reporter, September 11, 1978).
Copper sulfate is in the latter (mature) stage of its product life
cycle, and its use has been declining. The only end uses that seem to
have growth potential are wood preservation and froth flotation. Copper
sulfate's use as an agricultural fungicide probably will continue to
decline, although it will retain its share in some applications. Growth
in other end uses will parallel that of the Gross National Product.
Recent producer optimism may be due to short term factors affecting
demand, such as low prices and the questions being raised by health
officials about products which compete with copper sulfate.
4-15
-------
4.1.4.1.2 Price
The single most important factor in the price of copper sulfate penta-
hydrate is the price of copper.
Price is also influenced by market factors. Low priced imports will
continue to force domestic producers to sell below list prices in those
end markets where imports are a threat.
4.1.4.2 Manufacturing Costs
Copper is the primary raw material in the manufacture of copper sulfate.
The domestic copper industry currently is depressed due to:
*
o Overcapacity
o Federal air pollution regulations which required heavy invest-
ments in pollution abatement equipment
o Low world copper prices resulting from high production by
Third World copper mines
Producer prices for refined copper were 63 cents per pound at the begin-
ning of 1978, 72 cents in late October, and 69 cents by mid-November.
The average price was 66 cents, compared with 67 cents in 1977. (Bureau
of Mines, January 1979) Continuing reduction in previously large inven-
tories has caused copper prices to rise, however, and the New York
Commodity Exchange price of copper rose to $1.00 per pound in March of
1979 (Chemical Marketing Reporter, March 5, 1978).
Production costs for refined copper will continue to rise with the price
of energy, as the refinery process is energy intensive. Further cost
increases due to pollution control and other government regulations are
expected. However, a recently developed refinery process may reduce
operating costs by half. Capital costs are approximately one-third
those of a conventional process plant, according to the developers of
the new technology. (Chemical and Engineering News, March 13, 1978).
4-16
-------
4.1.4.3 Profit Margins
The competitive nature of the copper sulfate industry and rising copper
prices will combine to keep profit margins narrow during the next few
years. Pricing will remain competitive for the following reasons:
o There are a number of manufacturers capable of entering and
leaving the copper sulfate market according to prevailing
demand conditions.
o Copper sulfate importers vie for market share by pricing below
domestic list prices.
o Domestic manufacturers must price low to meet import prices.
The same competitive factors which keep prices low will similarly influ-
ence capacity utilization. Waning demand and competition from imports
could cause capacity utilization to decline. This will result in higher
costs and lower profit margins.
Profit margins will be squeezed further by rising copper prices. According
to a study by Chase Econometrics, a worldwide shortage of copper users
will push U.S. copper prices to over two dollars per pound by 1985
(Chemical Week, February 21, 1979). The 1980 annual average price for
copper was $1.02 per pound (Survey of Current Business, August 1981).
4.1.5 Characterization Summary
Copper sulfate is used primarily as an agricultural fungicide, froth
flotation agent, and wood preservative. Other uses include electro-
plating, tanning, dye manufacture, and petroleum refining. Copper
sulfate production has declined during the last ten years due to a
worldwide shift to organic fungicides.
Increased copper prices in the mid-1980's will cause copper sulfate's
price to increase. Users of copper sulfate will be induced to switch to
substitutes. Copper sulfate sales volume will decline due to high price
4-17
-------
and generally declining end use markets. Further, the higher copper
price will encourage more intensive copper recovery efforts, reducing
the supply of by-product copper sulfate.
Factors causing production to decline may be mitigated by growth in some
end markets if organic substitutes for copper sulfate fungicide are
regulated because they are carcinogenic. But even if this happens,
other fungicides may be developed to take their place. Overall, the
copper sulfate market probably will not grow faster than the GNP, and
may continue to decline.
4.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
copper sulfate subcategory to comply with BAT and PSES effluent control
standards. EPA has determined that no plants in this subcategory will
incur compliance costs under this rulemaking:
o All 15 direct dischargers already have BPT in place, and BAT has
been set equal to BPT for this subcategory.
o Pretreatment standards for indirect dischargers were promulgated
previously. The current rulemaking revises the limitations to
equal BAT, but does not change the technology basis or the com-
pliance costs. Therefore, while the one indirect discharger in
the industry may not have treatment in place, the compliance
costs it will have to incur are attributable to an earlier PSES
rulemaking (40 CFR 415.374). There are no additional compliance
costs associated with the current regulation.
Accordingly, these regulations will have no economic impact on the sub-
category.
4.2.1 Pollution Control Technology and Costs
As noted above, no plants will incur compliance costs under this rule-
making. The following detail on control technology and costs is pre-
sented for informational purposes only.
4-18
-------
Capital and operating costs were developed by the technical contractor
for pollution control technologies designed to meet BPT levels of waste
removal. BPT removal is equivalent to pretreatment. Pollutants from
copper sulfate manufacture include copper, zinc, nickel, and arsenic.
The wastewater is treated in a batch process to achieve BPT/PSES:
o After reaching a holding tank, caustic soda is added to the
effluent to precipitate metals.
o Overflow from the settling tank is filtered.
o Solids are landfilled.
Pollution control cost estimates were developed for one model plant,
with an annual production rate of 2,300 tons. Table 4-4 summarizes
pollution control costs for the model plant.
4-19
-------
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5. HYDROGEN CYANIDE
5.1 CHARACTERIZATION
Hydrogen cyanide (HCN) is a highly toxic chemical used as an interme-
diate in the production of plastics, herbicides, and fibers (see Figure
5-1). The hydrogen cyanide industry is characterized by a high degree
of captive use: of the 198,000 short tons produced in 1977, industry
sources estimate that more than 90 percent was used by the manufacturer
in the production of "downstream" chemicals. These chemicals are:
• Methyl methacrylate (60 percent of HCN use in 1977) used to
make plastics such as Rohm and Haas' PLEXIGLAS® and DuPont's
LUCITE®
• Cyanuric chloride (16 percent) used in manufacture of triazene
herbicides, a high growth product
• Chelating agents (12 percent) used in metal cleaners, soaps,
and industrial water treatment
• Sodium cyanide (9 percent) used in metal treatment and plastic
manufacture
• Synthetic methionine and other uses (3 percent)
This breakdown excludes HCN's captive use in the manufacture of adiponi-
trile, an organic intermediate in nylon 6/6 production. Hydrogen cyanide
produced for this purpose is not separated or purified and is, therefore,
not included in Bureau of Commerce production statistics. Because HCN
used in the production of adiponitrile is not considered a separate
product and will be regulated as part of the production process of
adiponotrile, it will not be considered here.
The high degree of captive use implies that producers of HCN are guided
by the costs and profitability of the downstream chemicals. The costs
5-1
-------
of reducing effluents from HCN manufacture will be perceived as increased
costs in the production of MMA, cyanuric chloride, etc. Thus, the
markets and financial conditions for these end-use products give the
best indication of the state of the HCN manufacturing industry.
5.1.1 Demand
The demand for HCN is a function of the demand and demand growth of its
end markets. To facilitate an understanding of the demand side of the
industry each of the end markets for HCN will be discussed separately.
5.1.1.1 End Markets
Methyl Methacrylate (MMA) — MMA is polymerized to yield a durable
acrylic plastic which is used in a number of ways:
• Cast sheet (40 percent) used in glazing applications, outdoor
signs, and fluorescent lighting diffusers
• Surface coatings (25 percent)
• Molding and extrusion powders (15 percent) used in automotive
headlight lenses
• Oil additives (5 percent)
• Miscellaneous and exports (15 percent)
Approximately 70 percent of the MMA produced is used captively in acrylic
production. In 1977, approximately 745,000,000 pounds of MMA were
produced (see Table 5-1), using 124,000 tons of HCN. HCN production is
closely tied to MMA demand, as indicated by the similarities in the pro-
duction figures for each. Both HCN and MMA production dropped sharply
in 1977 reflecting the slump in MMA's major markets (the automotive and
construction industries).
Because MMA's end markets are in majo-r sectors of the economy, demand
growth projections usually are based on Gross National Product (GNP)
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TABLE 5-1
PRODUCTION OF METHYL METHACRYLATE
YEAR
1977
1976
1975
1974
1973
1972
PRODUCTION
(thousands
of pounds)
744,900
NA
545,624
718,810
706,295
598,992
SALES
(thousands
of pounds)
195,000
NA
NA
NA
NA
NA
SALES
(dollars)
72.1
NA
NA
NA
NA
NA
SOURCE: International Trade Commission.
NA = Not Available
-------
growth projections. Of the three MMA producers (see Table 5-2), two are
forecasting growth at a rate just ahead of GNP growth, while the third
foresees growth concurrent with GNP growth -- about three percent per
year. Other observers have predicted growth as high as seven percent
per year (Chemical Engineering, July 3, 1978). This is a marked reduc-
tion from the 15 percent annual growth experienced in the 1960fs when
MMA first was penetrating its major markets.
While the demand outlook for MMA is reasonably strong, HCN demand
probably will not keep pace. A new MMA manufacturing process has been
developed which uses no HCN. Conversions to this new process are
expected to take place in the early to mid-1980's.
In the conventional ("acetone cyanohydrin") process, acetone and hydro-
gen cyanide are reacted to form acetone cyanohydrin, which is then
reacted with sulfuric acid to form methacrylamide sulfate. This product
is then reacted with methanol to yield MMA.
The new technology ("C,-oxidation") starts with a four carbon molecule
(isobutylene or tert-butyl alcohol). The alcohol is oxidized to metha-
crolein and this is esterified to MMA.
One manufacturer has stated that any new grassroots MMA plant would have
to employ the new technology, although older, depreciated, conventional
technology plants still could compete (Chemical Engineering, July 3,
1978). Capital costs for a new 300 million Ib/year plant are estimated
at $113 million; a conventional plant, at $96 million. However, assuming
integration back to feedstock tert-butyl alcohol, MMA produced by the
new process could be sold for 20 percent less than conventionally pro-
duced MMA. (Chemical and Engineering News, July 26, 1976). Plans for
adopting this new technology are being made by MMA producers. (See
Section 5.1.4.1 for a discussion of the full implications of the new
technology.)
5-5
-------
Cyanuric Chloride — Cyanuric chloride is used primarily in the produc-
tion of triazene herbicides. Worldwide herbicide production uses 84
percent of all cyanuric chloride produced.
Two to three million pounds of herbicides are produced domestically, of
which approximately 70 percent is exported. Most of the exports go to
Canada, Brazil, and Argentina. Other uses are optical brighteners and
dyes (Chemical and Engineering News, July 26, 1976). Worldwide demand
for cyanuric chloride was approximately 95,000 metric tons in 1975;
capacity, 130,000 metric tons. Capacity is expected to grow to 170,000
metric tons worldwide in the next few years, with demand growing at 7.5
percent annually.
About 35,000 tons of HCN (16.5 percent of the total) went to domestic
cyanuric chloride production in 1977. This use of HCN can be expected
to increase with herbicide demand in the future.
Chelating Agents — Six producers produced 170 million pounds of chelating
agents in 1977, consuming 26.5 thousand tons of HCN (12.5 percent of the
total). Markets for chelates include metal cleaning, textile processing,
soaps and cleaning formulations, and industrial water treatment. Demand
growth for chelates is expected to be moderate (about seven percent per
year).
Sodium Cyanide -- Twenty thousand tons of HCN were used in the production
of sodium cyanide in 1977. Sodium cyanide is used in the heat treatment
of steel, extraction of gold and silver, electroplating of metals, and
as a raw material in the manufacture of plastics. There is only one
domestic manufacturer of sodium cyanide, and the required HCN is cap-
tively produced. Demand growth is expected to be low — 3.5 percent
per year — but because sodium cyanide production represents only a
fraction of total HCN use, it is of little significance.
5-6
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Synthetic Methionine and Other Uses — Two and one-half thousand tons of
HCN went into synthetic methionine production in 1977. Ninety-five
percent of the methionine is used in poultry feed. Domestic production
supplied only 40 to 50 percent of the methionine consumed in the U.S. in
1977; imports made up the remainder. Other uses of HCN accounted for
less than two percent of HCN use in 1977.
5.1.1.1.1 The Merchant Market
Less than 10 percent of all HCN produced is sold on the merchant market.
Many industry sources believe the merchant market for HCN will disappear
completely in five years, citing a general reluctance on the part of
by-product HCN producers to market the HCN due to its toxLcity. (Many
by-product producers simply burn the HCN for fuel at the plant site to
circumvent disposal problems.) In light of the chemical's toxicity and
low market potential (only small users currently are purchasing HCN) it
is unlikely that there will ever be a substantial merchant market for
HCN.
5.1.1.2 Demand Summary
Table 5-3 summarizes the end uses for HCN and provides estimates of
expected demand in 1984 based on the most likely rate of projected
demand growth. The projected demand for HCN in MMA manufacture assumes
that there will be no market penetration by the new technology ("C,-
oxidation") by 1984; however, if the C -oxidation production method does
come on stream prior to 1984, a substantial amount of HCN could be
displaced. This uncertainty is discussed further in Section 5.1.3.1.
5.1.2 Supply
5.1.2.1 Production
Hydrogen cyanide production was just under 198,000 short tons in 1977,
12 percent less than the peak of 226,000 tons in 1965. Production over
-------
Table 5-3
CURRENT AND PROJECTED DEMAND FOR HCN BY USE
1977 Consumption Projected Annual Projected 1984
End Use of HCN (OOP tons) Growth Rate Demand
MMA
Cyanuric
Chloride
Chelating
Agents
Sodium
Cyanide
Other
TOTAL
124.0
35.0
26.5
20.0
6.5
212.0
4.0%
7.5
7.0
3.5
4.0
163*
(66)
58
43
25
9
298*
(201)
The first number is projected 1984 demand at a four percent
growth rate and assumes that no "C. technology" MMA plants
(which do not use HCN as a raw material) are built. The
parenthesized number is a worst case estimate of 1984 demand.
It assumes a slow market growth rate and some replacement
of traditional-technology capacity with new technology
plants. For a complete discussion of the uncertainties of
the future MMA industry, see Section 5.1.3,1.
SOURCE: Department of Commerce and EEA Estimates
_Q
5-9
-------
the past decade has been variable (see Table 5-4 and Graph 5-1), reflect-
ing major changes in end use. Hydrogen cyanide is useful in its ability
to upgrade other raw materials (by specific addition to carbon atoms).
However, technical advances may render the use of HCN obsolete in the
manufacture of certain products, particularly methyl methacrylate.
Production of HCN can be expected to decline somewhat over the next few
years depending upon the rate at which new technologies are adopted.
5.1.2.2 Producers
Hydrogen cyanide currently is produced at 12 plant sites by nine producers
(see Table 5-5). Two plants account for 43 percent of industry capacity:
a 92.5 thousand ton/year plant in Memphis, TN, operated by DuPont, and a
100 thousand ton/year plant in Houston, TX, operated by Rohm and Haas.
Of the remaining 10 plants, eight are medium sized (10-55 thousand
tons/year) and two are small.
There is considerable forward integration in HCN production; captive use
has been estimated at greater than 90 percent. Most HCN (about 75
percent) is manufactured for captive use in MMA or cyanuric chloride.
Many of the larger plants are part of integrated complexes.
The two major producers of MMA, DuPont and Rohm and Haas, are integrated
®
backward to HCN. In addition, they are integrated forward to LUCITE ,
PLEXIGLAS , molding and extrusion powders, and surface coatings. The
third producer, CY/RO Industries, is a joint venture of Cyanamid and
Roehm GmbH (a German-based firm) and is supplied with HCN by American
Cyanamid's Fortier, LA, plant.
Ciba-Geigy and Degussa are the only two producers of cyanuric chloride.
Both are integrated backward to HCN, and Ciba-Geigy forward to herbicides.
The Ciba-Geigy Andrussow process HCN plant, located in St. Gabriel,
Louisiana, has a 45,000 ton/year capacity. Degussa recently began
-------
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GRAPH 5-1
HYDROGEN CYANIDE PRODUCTION
200.00 -
150.00'
VOLUME 100.00-
(000's of tons)
50.00-
0.00
1968
1972
1976
YEAR
SOURCE: Department of Commerce
5-12
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operation of its 26.5 thousand ton/year capacity HCN plant in Mobile,
Alabama. Construction of these plants was undertaken to ensure supply
in the face of what the cyanuric chloride producers perceived as an
uncertain HCN supply situation.
HCN production by MMA manufacturers will decline in the next 5-10 years
as they adopt the new MMA technology (see Section 5.1.3.1). No HCN
capacity expansions currently are planned by the cyanuric chloride
producers; however, rapid industry growth may prompt expansion.
5.1.2.3 Process
Most hydrogen cyanide (about 70 percent) is produced by a method known
as the Andrussow process. The remaining HCN is produced as a by-product
in acrylonitrile manufacture.
In the Andrussow process, air, ammonia, and natural gas are passed over
a platinum or platinum rhodium catalyst and heated to 900 to 1000 C.
The resulting hot gas stream contains hydrogen cyanide and several
by-products, including hydrogen and carbon dioxide. The gas mix is
cooled, stripped of unreacted ammonia, then routed to a cold water
boiler where HCN is recovered. It is then distilled to a 99+ percent
purity product. The reaction is:
2CH. + 2NH. + 30. -> 2HCN + 6H00
432 2
The major pollutants in the waste stream are cyanides (both free and
complex), ammonia, and ammonia salts. There are approximately 2.8
pounds of cyanides and 3.6 pounds of ammonia and ammonia salts for each
ton of hydrogen cyanide produced. Some producers treat the wastewater
by addition of chlorine which oxidizes the cyanides, but this method is
not always successful. More reliable wastewater treatment systems are
under development.
5-14
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Table 5-6 shows the estimated costs of manufacturing one ton of hydrogen
cyanide. Fixed investment, between $500 and $600 per ton of capacity,
is fairly high. (Capital costs in inorganic chemicals manufacture range
from 300 dollars per ton to 1500 dollars per ton, depending on the
chemical produced and the process used.) Manufacturing costs are depen-
dent on the cost of ammonia and natural gas which together account for
about 50 percent of manufacturing costs.
Production of acrylonitrile, the source of by-product HCN, has grown
rapidly (9.2 percent per year from 1971 to 1976). However, HCN produc-
tion by this method will be moderated by two factors. First, the pro-
duction process is continually being improved so that there is a greater
acrylonitrile yield and a smaller by-product HCN yield. Whereas the
process previously produced 0.15 to 0.20 kg of HCN for each kg of acrylo-
nitrile, recent technological advancements can reduce this yield to as
little as 0.07 kg per ton of acrylonitrile. Second, demand growth for
acrylic, acrylonitrile1s major end use, may be as low as two to three
percent annually according to industry forecasts. Thus, this source of
by-product HCN will probably decline significantly in the next five
years.
By-product HCN is produced by oxidation of a propylene-ammonia mixture:
2CH = CHCH + NH +30 -> 2 CH = CHCN + 6H 0
£, -3 3 £ « «
Both hydrogen cyanide and acetonitrile are formed as by-products. There
is no wastewater produced in this process.
5.1.3 Competition
A producer in any industry faces a number of sources of competition:
• Competition from other manufacturers of the product
• Import competition
• Competition from similar products which may serve as substi-
tutes
5-15
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In the case of hydrogen cyanide, with more than 90 percent of production
used captively, manufacturers view the end products as the profit center.
If a less expensive input or process is found for the main product, then
discontinuing the manufacture of the input product may be economical.
Because hydrogen cyanide is an "upstream" product, competition at the
end product level (i.e., MMA, cyanuric chloride, etc.) is the most
critical factor. This section addresses competition in HCN's major end
use markets, MMA and cyanuric chloride, which together account for
three-fourths of HCN's use.
5.1.3.1 Methyl Methacrylate End Markets
There are currently three producers of MMA in the U.S. Domestic demand
was about 350,000 tons in 1977. Of this, 80 percent was used captively
by the manufacturer in the production of acrylic sheet and surface
coatings. Most of the competition takes place in the acrylic sheet end
market; but because of high profitability, MMA producers also compete
vigorously for the relatively small merchant market share.
Industry capacity has risen in the last few years. Two of the three
producers made significant capa.city expansions in 1977: Rohm and Haas
added 55,500 tons/year in Houston, Texas, and DuPont doubled its Memphis,
Tennessee plant capacity to 120,000 tons/year. Capacity currently
stands at 550,000 tons/year. Capacity utilization was about 80 percent
in 1976, but somewhat lower in 1977 (about 68 percent) as the new capac-
ity came on line.
There are no substitutes for MMA in the production of acrylic sheet or
molding and extrusion powders. Several differentiated acrylic products
are manufactured with special features to meet the specialized needs of
consumers. For example, one grade of acrylic sheet is formulated so
that it has a non-reflective surface. Another grade has three to four
5-16
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TABLE 5-6a
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSOW PROCESS*
(mid-1978 dollars)
Plant Capacity 56,500 tons/year
Annual Production 35,000 tons/year
(62% capacity utilization)
Fixed Investment $34.8 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Ammonia
Natural Gas
Sulfuric Acid (66
Phosphoric Acid
Sulfuric Dioxide
Ammonium Sulfate
Credit
Catalyst
2099 Ib
63.9 mscf
Be') 960 Ib
17 Ib
0.8 Ib
1288 Ib
0.065
1.50
0.016
0.20
0.074
0.02
136.40
95.90
15.40
3.40
0.06
(25.80)
9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 mlb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 12.40
• Maintenance 45.00
Total Semi-Variable Costs $ 57.40
FIXED COSTS
• Plant Overhead 3.10
• Depreciation 90.00
• Taxes & Insurance 13.50
Total Fixed Costs $106.60
TOTAL COST OF MANUFACTURE $439.00
SOURCE: Contractor and EEA estimates
*See Appendix C
5-17
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TABLE 5-6b
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSOW PROCESS*
(mid-1978 dollars)
Plant Capacity 90,500 tons/year
Annual Production 56,000 tons/year
(62% capacity utilization)
Fixed Investment $48.4 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Ammonia 2099 lb 0.065 136.40
- Natural Gas 63.9 mscf 1.50 95.90
- Sulfuric Acid (66 Be') 960 lb 0.016 15.40
- Phosphoric Acid 17 lb 0.20 3.40
- Sulfuric Dioxide 0.8 lb 0.074 0.06
- Ammonium Sulfate
Credit 1288 lb 0.02 (25.80)
- Catalyst 9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 mlb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 10.10
• Maintenance 39.00
Total Semi-Variable Costs $ 49.10
FIXED COSTS
• Plant Overhead 2.50
• Depreciation 78.20
• Taxes & Insurance 11.70
Total Fixed Costs $92.40
TOTAL COST OF MANUFACTURE $416.50
SOURCE: Contractor and EEA estimates
*See Appendix C
5-18
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TABLE 5-6c
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSOW PROCESS*
(mid-1978 dollars)
Plant Capacity 113,000 tons/year
Annual Production 70,000 tons/year
(62% capacity utilization)
Fixed Investment $56.5 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Ammonia 2099 Ib 0.065 136.40
- Natural Gas 63.9 roscf 1.50 95.90
- Sulfuric Acid (66 Be') 960 Ib 0.016 15.40
- Phosphoric Acid 17 Ib 0.20 3.40
- Sulfuric Dioxide 0.8 Ib 0.074 0.06
- Ammonium Sulfate
Credit 1288 Ib 0.02 (25.80)
- Catalyst 9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 ralb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 8.30
• Maintenance 36.60
Total Semi-Variable Costs $ 44.90
FIXED COSTS
• Plant Overhead 2.10
• Depreciation 73.10
• Taxes & Insurance 11.00
Total Fixed Costs $86.20
TOTAL COST OF MANUFACTURE $406.10
SOURCE: Contractor and EEA estimates
*See Appendix C
5-19
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times the impact strength of general purpose acrylic sheet and is aimed
at the personnel and property protection market. Prices for the dif-
ferent grades of acrylic sheet vary according to the degree of product
specialization.
Substitutes for acrylic sheet include glass and polycarbonates. Glass
is heavier than acrylic sheet and breakable, but it is of better optical
quality and scratch resistant. Acrylic sheet is used instead of glass
in cases where strength is desirable. Its use in high rise buildings as
an alternative to glass has not been as widespread as the industry
anticipated. (Instead of acrylic sheet being used throughout the build-
ing, it is often used only on the ground floors, where there is a high
risk of glass breakage.) Polycarbonates are making inroads into the
acrylic sheet market, but are more expensive and less weatherproof.
Historically, competition in the MMA merchant market has been on the
basis of price. A small import share (approximately 10 percent) has
been responsible for downward pressure on domestic prices. The threat
of import penetration is of major concern to domestic MMA producers, but
they have maintained their market share by meeting low import prices.
Competition in the MMA industry will increase in the next five to 10
years as new "C -technology" plants come on line. If Oxirane's 300
million Ibs/year plant comes on line in 1981 as planned, overall capac-
ity utilization will remain at a low 70 percent. If demand should grow
only two percent annually, as some analysts predict, capacity utiliza-
tion will plunge to 61 percent. If another company builds a new MMA
plant (both Rohm and Haas and Vistron have tentative plans), the mid-
1980 's are likely to see firms competing fiercely for market share
(Chemical Engineering, July 3, 1978).
5-20
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A number of Japanese and European manufacturers also are considering
building new technology MMA plants. Japanese producers have begun to
import HCN to cover demand shortfalls caused by a decrease in by-product
HCN production. This gives them additional incentive to adopt the new
MMA technology which may lower costs. The added cost advantage could
mean a larger share of the U.S. MMA market for Japanese products. To
retain market share, U.S. producers would be forced either to lower MMA
prices to meet import competition, thereby reducing profit margins, or
to make a more rapid shift to the new MMA technology.
Table 5-7 illustrates how an industry shift to the new C, technology
will affect MMA industry competition, and, ultimately, HCN production
levels. Because industry estimates of demand growth vary widely, two
possible scenarios, which assume extreme rates of market growth, are
examined. In scenario A, demand grows at seven percent, and capacity
jumps to 1,700 million Ibs/yr by 1984 as both Oxirane and Rohm and Haas
bring on the new technology plants. Oxirane plans to sell 100 percent
of their MMA, and if they successfully penetrate the MMA merchant market,
could edge out the other producers. Some firms would be forced to
reduce capacity.
In scenario B, MMA demand grows at a modest 2 percent annually. This
means that even if Oxirane were to capture 100 percent of the merchant
market, they could only operate at 76 percent capacity. If a second new
technology plant were to come on line by 1984, some plants surely would
be forced to shut down. These shutdowns most likely would occur in
older, acetone cyanohydrin plants which utilize HCN. If the new plants
were to operate at 76 percent of capacity, demand for HCN from MMA
products would drop to 66 thousand tons in 1984, a reduction of 46
percent from 1977 levels. This implies that total demand for HCN in
1984 would drop by five percent from 1977 levels. In any event,
scheduled construction of the new technology MMA plants is likely to
reduce the demand for HCN. Within 10 to 15 years, HCN demand from MMA
production should be near zero.
5-21
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5.1.3.2 Cyanuric Chloride End Markets
The two domestic producers share a patent on the process for manufac-
turing cyanuric chloride. This eliminates inter-producer competition.
Industry sources expect rapid growth in the number of producers when the
patent expires in the near future.
There are no substitutes for cyanuric chloride in triazine herbicide
manufacture. The triazine herbicides experience little competition from
substitutes due to the product's high effectiveness and low toxicity.
5.1.4 Economic Outlook
5.1.4.1 Revenue
Total revenue is the product of total sales volume and the average unit
price. Although these two variables are discussed separately below,
they are interrelated.
5.1.4.1.1 Quantity
The production volume of hydrogen cyanide depends on the production
levels of its end use products, and on the production of acrylonitrile,
which produces HCN as a by-product. While growth can be expected for
each of these end product chemicals, there are factors which may cause
overall primary HCN production to decline. On the positive side:
• MMA is an important chemical with many end uses. MMA produc-
tion should grow at least as rapidly as the rest of the economy.
• Cyanuric chloride is a high growth chemical. Industry capacity
is likely to grow as new producers enter the triazine herbicide
industry; increasingly favorable trade conditions will continue
to expand markets.
On the negative side, use of HCN in MMA manufacture eventually will be
eliminated by use of the new C,-oxidation technology. The rate of new
process adoption will determine the rate of HCN decline. The rate of
5-22
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adoption depends on the success of the first domestic new technology
plant (scheduled for 1981 startup), competition from imports, and the
need for capacity additions based on MMA demand growth.
Demand growth in acrylonitrile, the source of by-product HCN, has slowed,
causing overcapacity, over-supply, and a halt in capacity expansions.
In addition, technology improvements already have reduced HCN yield per
pound of acrylonitrile and further advances are likely.
The net result of these influences will be a decline in total HCN pro-
duction. The cyanuric chloride industry will become the largest user of
HCN. New entrants into the cyanuric chloride industry may find it
economical (as the existing producers have) to build small to medium
size primary HCN facilities. In the long run, this may give rise to a
new generation of Andrussow process plants.
5.1.4.1.2 Price
Because the merchant market for HCN is of such small consequence and, in
fact, likely to disappear altogether in the next few years, a discussion
of HCN price would be superfluous. Cyanuric chloride is sold by one
producer to one buyer (Degussa to Shell Chemicals) so the details of
that market are not available. MMA also is highly captive but, unlike
HCN and cyanuric chloride there is a well developed market for the 15
to 20 percent of total production not used captively. The July 1978
list price was $.43/lb. MMA is highly profitable at this price,
according to one industry source.
MMA prices are not likely to rise significantly in the next five years
for a number of reasons:
• Growth in demand will be sluggish due to expected slow growth
in the economy.
• Planned capacity additions will force competitive pricing by
manufacturers in order for them to retain market share and
keep capacity utilization at profitable levels.
-------
• Imports will continue to constrain prices. More rapid adop-
tion of the cheaper C, manufacturing technology by foreign MMA
producers (due to acetone and HCN shortages they are exper-
iencing) may allow import prices to stay uncomfortably low.
The import price advantage may be augmented by recovery of the
U.S. dollar on foreign exchange markets.
The existing profit margin may narrow in the future as input prices
(tied to natural gas prices) rise faster than MMA prices.
5.1.4.2 Manufacturing Costs
5.1.4.2.1 Hydrogen Cyanide (Andrussow Process)
Ammonia, a natural gas product, and natural gas are the major inputs in
HCN manufacture, and their prices have increased rapidly in the past few
years. Manufacturing costs are linked closely to natural gas prices.
The deregulation of natural gas prices is likely to stimulate gas sup-
plies, but also guarantee future price increases. The cost of manufac-
turing HCN will continue to rise with natural gas prices.
5.1.4.2.2 Methyl Methacrylate
Raw materials in the acetone cyanohydrin route to MMA are acetone,
hydrogen cyanide, and sulfuric acid. Acetone is a petroleum derivative,
and its price will continue to increase with that of crude oil. However,
acetone is manufactured as a by-product in phenol production and there
have been recent large phenol capacity additions. This will serve to
ensure acetone availability (Chemical Engineering, July 3, 1978).
The feedstock for MMA production by the new process (C, oxidation),
isobutylene or tert-butyl alcohol, is cheaper than the feedstock used in
the traditional process. The price of the feedstock will rise with
petroleum prices. Manufacturers who are integrated backward to feed-
stock isobutylene or tert-butyl alcohol may have a significant cost
advantage over feedstock purchasers.
-------
5,1.4.2.3 Cyanuric Chloride
Cyanuric chloride uses HCN and chlorine as raw materials. Both of its
producers are integrated backward to HCN, ensuring ample supply at a
cost closely tied to natural gas prices. Chlorine prices will rise
somewhat to reflect increased energy cost (chlorine is an energy inten-
sive product with electricity as its major input).
5.1.4.3 Profit Margins
MMA will remain profitable even with a slowly growing economy. However,
the adoption of the new technology will reduce the need for HCN.
Profits in the triazine herbicide industry (cyanuric chloride's major
end use) currently are high, and industry spokesmen are optimistic that
they will remain so. The high profits may attract new entrants to the
industry — entrants who will require feedstock HCN. Cyanuric chloride
will emerge as the most important of the remaining end uses for HCN, and
the one with the greatest potential for growth.
5.1.5 Characterization Summary
Hydrogen cyanide is produced captively, primarily for use in:
• Methyl methacrylate (MMA), an intermediate in plastics;
• Cyanuric chloride, used in the manufacture of herbicides, and
• A number of other chemicals, which include chelating agents,
sodium cyanide, and synthetic methenine.
Despite a reasonably strong overall demand outlook for the end product,
hydrogen cyanide production will decline. This is because a new, less
costly MMA production process has been developed which does not require
HCN. As MMA manufacturers complete construction of new technology
plants, their captive production of HCN will fall.
-------
Of HCN's other end markets, cyanuric chloride has the greatest potential
for growth. The projected 8 to 10 percent annual demand growth will
partially offset reductions in HCN demand in the MMA market.
5.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
hydrogen cyanide subcategory to comply with BAT effluent control stan-
dards. The technical contractor has designed and estimated the cost of
effluent control technologies to achieve these standards. The cost of
the technology is used to make an assessment of the economic impacts
that BAT control levels will have on the subcategory. Only primary
process hydrogen cyanide producers are covered by proposed regulations.
All but one of the primary process hydrogen cyanide manufacturers are
direct dischargers. A survey by the technical contractor revealed that
all direct dischargers and the one indirect discharger have BPT treatment
in place. This analysis assesses the additional costs required for
direct dischargers to meet higher effluent removal levels. For the
single indirect discharger, PSES guidelines are based on BPT treatment
and, accordingly, will require no additional control costs for compliance
with pretreatment regulations.
5.2.1 Pollution Control Technology and Costs
Capital and operating costs were developed by the technical contractor
for pollution control technologies designed to meet BPT and BAT waste
removal.
The two major pollutants in this subcategory are cyanide compounds and
ammonia. In the model HCN plants, wastewater is assumed to contain an
average of 2.8 pounds of cyanides and 3.6 pounds of ammonia per ton of
manufactured HCN.
5-27
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BPT treatment involves the following procedure:
• Wastewater is collected in an eight hour detention pond.
• Caustic soda and chlorine are added to the wastewater to
neutralize the acid and oxidize the cyanide.
• The overflow goes to a one hour pond where additional chlorine
and caustic soda are added before final discharge.
BAT treatment includes two additional steps:
• Additional chlorine is used to remove cyanide.
• The wastewater is then dechlorinated.
Pollution control cost estimates were developed for three sizes of model
hydrogen cyanide plants. Model plant production rates are 35,000,
56,000 and 70,000 tons per year. All model plants use the Andrussow
process, since by-product production during acrylonitrile manufacture
produces no wastewater. Table 5-8 summarizes pollution control costs
for the model plants.
The costs of manufacturing HCN, estimated by a subcontractor, are $463.70,
$439.70, and $428.30 per ton, for the small, medium, and large plants,
respectively. These estimates are based on those presented in Table 5-6
and include the cost of meeting BPT effluent limitations. Table 5-9
summarizes the cost parameters used in the model plant analysis.
The total compliance costs for the hydrogen cyanide subcategory are
summarized in Table 5-10. These costs are based on the model plant
pollution control costs and current primary process production levels.
All primary process hydrogen cyanide manufacturers have base level
removal equipment in place. The total additional cost to the subcategory
for compliance with BAT removal levels is estimated to be $713,489. As
noted above, no additional costs are required for compliance with PSES
regulations.
5-28
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-------
5.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information in the characterization section; it suggests the
degree to which the price can be raised and the probable prof-
itability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
5.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 5-11 summarizes the price increase required of
each model plant for BAT removal. No more than a 0.81 percent price
increase is required to pass through all the pollution control costs
associated with BAT removal.
5.2.2.2 Profitability Analysis
The profitability analysis examines the decline in the return on invest-
ment (ROI) and internal rate of return (IRR) when no price pass-through
is possible. For the purposes of the analysis, a market price of HCN
-------
was assumed to be $660/ton (Chemical Marketing Reporter, July 28, 1978).
However, since HCN is predominantly produced for captive use, market
price is somewhat artificial. Under these assumptions the hydrogen
cyanide model plants had a decline in both the ROI and IRR of less than
four-tenths of one percentage point representing a decrease in profit-
ability of less than 1.5 percent. These results are summarized in
Table 5-12.
5.2.2.3 Price Elasticity of Demand
Since most hydrogen cyanide is captively produced for use in various
downstream products, the price elasticity of demand for this chemical is
determined by the price elasticity of demand for its end products.
About 60 percent of HCN goes to methyl methacrylate (MMA) production,
which is used in acrylic sheet production. Another 15 percent is used
to make cyanuric chloride which ultimately becomes triazene herbicide.
Demand for acrylic sheet is fairly strong, although somewhat dependent
upon the construction industry. Acrylic sheet is the preferred material
in many applications, despite the existence of a number of substitutes
for acrylic sheet. This implies that demand is somewhat price inelastic
and the manufacturer should be able to raise prices to cover increased
HCN cost. However, domestic acrylic sheet manufacturers face competition
from imports which could restrain prices.
Producers of cyanuric chloride are in an even stronger position to pass
on a cost increase in higher prices. There are no real substitutes for
end-product triazene herbicide. This implies a low price elasticity of
demand for cyanuric chloride in the relevant price range. If HCN costs
were to increase significantly due to effluent control regulations,
cyanuric chloride producers would have little difficulty raising prices
to cover these costs. Based on these factors, demand for HCN is assumed
to be price inelastic. (See Sections 5.1.1, Demand and 5.1.3, Competition,
for a complete analysis).
5-32
-------
TABLE 5-11
PERCENTAGE PRICE RISE
Chemical: Hydrogen Cyanide
Price: $660/ton
Model Plant
Production
(tons/year) BAT
35,000 0.81%
56,000 0.67%
70,000 0.69%
5-33
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5-34
-------
5.2.2.4 Capital Analysis
End product demand and industry profits are high enough to warrant the
investment of four-tenths to five-tenths of one percent of total fixed
investment (see Table 5-13). The alternative to making the investment
(i.e., shutting down) is more costly in the long run. All three producers
are large, profitable chemical companies and should have little difficulty
raising capital.
5.2.2.5 Closure Analysis
Table 5-14 summarizes the price elasticity of demand, price rise, and
profitability decline for hydrogen cyanide model plants and compares
these to EPA's closure criteria (see methodology description). Since
most hydrogen cyanide is produced for captive use, demand is price
inelastic for all model plants. The required price increase is less
than one percent for all model plants. The potential profitability
decline does not exceed one percentage point, or ten percent of baseline
profitability for any of the models. Based on the EPA's closure criteria,
no plant closures are forecast.
5.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on hydrogen cyanide manufacturers.
5.2.3.1 Price and Profitability Impacts
The increase in the production cost of HCN due to BAT treatment is no more
than 0.81 percent for all model plant sizes (see Table 5-11). Manufacturers
should have little trouble passing this cost increase through to consumers of
downstream products.
One way of placing this increase in perspective is to compare it with an
increase in the price of one of HCN's raw materials. A five percent
5-35
-------
increase in the price of natural gas (from $1.50 per 1000 cubic feet to
$1.58 per 1000 cubic feet) would increase HCN's manufacturing cost by
$5.11/ton. This is approximately equivalent to a one percent cost
increase that would result from pollution control cost.
Another method of assessing the impacts of an HCN price increase is to
evaluate the effects on end product prices. The magnitude of price
increases in downstream products will depend on the quantity of HCN used
in their manufacture. One ton of MMA requires 0.27 tons of HCN at a cost
of $178 (0.27 tons of HCN at $660/ton). The additional cost of HCN
wastewater treatment would raise this cost to roughly $180 (0.27 tons of
HCN at the new cost of $665/ton). Therefore, MMA manufacturers would
need to raise the price of merchant MMA 0.32 percent in order to keep
profits constant. Assuming a production cost of $620/ton for MMA, the
cost increase would be $2.00.
Dealing with a one time cost increase of less than one percent should
present no problem to an industry that successfully has dealt with
quickly rising costs in the past. The profit outlook for both MMA and
cyanuric chloride is sound. MMA producers have raised prices by 120
percent since 1973 to offset increased energy costs. Producers will be
able to raise prices by the small amount necessary to cover pollution
control costs.
Should producers be unable to pass on the higher costs of effluent
control to consumers, the resulting profitability decline, as measured
by the change in IRR and ROI, would be negligible.*
* This cash flow analysis assumed that HCN was manufactured in a self-
standing plant, and acted as a profit center. Since HCN is a captive,
intermediate product, this is not the case. However, this assumption
was made in order to gauge the "profitability" decline.
5-36
-------
TABLE 5-13
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Hydrogen Cyanide
Model Plant Production (tons/year)
Level of
Removal 35,000 56,000 70,000
BAT 0.5% 0.4% 0.5%
5-37
-------
TABLE 5-14
IMPACT SUMMARY
Chemical: Hydrogen Cyanide
PRICE ELASTICITY
CLOSURE CRITERIA
DESCRIBED IN Medium or High
METHODOLOGY SECTION
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Percentage
CLOSURES
Predicted
If all
Criteria Met
Point or
Greater Than
10% of Baseline
Profitability
MODEL PLANT RESULTS
REMOVAL
LEVEL
BAT
PLANT
PRODUCTION
(ton/year)
35,000
56,000
70,000
MAXIMUM
PRICE ELASTICITY PRICE RISE
0.81%
Low 0.67%
0 . 69%
MAXIMUM
PROFITABILITY
DECLINE
(% DECLINE)
0.27%
(1.24%)
0 . 25%
(1.01%)
0.27%
(1.03%)
CLOSURES
no
no
no
SOURCE: EEA estimates.
5-38
-------
The change in profitability (IRR) is less than three-tenths of one
percentage point, or less than 1.3 percent from the base case, for each
model plant size. The small profitability decline indicates that MMA
producers will not have increased incentive to replace existing MMA plants
with new technology plants to reduce HCN production.
5.2.3.2 Other Impacts and Conclusion
Because the price and profitability impacts are small, the hydrogen
cyanide subcategory will not suffer severe impacts from BAT effluent
control costs. Therefore, all other impact areas (plant closures,
employment, communities, etc.) will be unaffected.
5-39
-------
6. HYDROGEN FLUORIDE
6.1 CHARACTERIZATION
Hydrogen fluoride (HF) or hydrofluoric acid, is a very reactive in-
organic acid used to fluorinate both organic and. inorganic molecules.
Its principal uses are (1) in the production of aluminum fluoride where,
together with cryolite, it forms a molten electrolyte for aluminum
reduction, and (2) as a reagent in the formation of chlorofluorocarbons
("fluorocarbons") which serve primarily as solvents, blowing agents, and
refrigerants. In addition, hydrogen fluoride is used in stainless steel
pickling, uranium processing, petroleum alkylation, and several other
smaller applications.
Hydrogen fluoride is not an end use commodity. It functions as an input
in the production of other goods. As such, demand for HF is determined
largely by the profitability, growth, and current production technology
of its end use markets. Changes in these variables have had a severe
impact on the hydrofluoric acid market over the last four years, and
considerable uncertainty remains concerning the product's future. This
characterization will examine the manufacturing cost outlook for hydro-
fluoric acid, the strengths and weaknesses of its end use markets, and
potential changes in demand.
6.1.1 Demand
Hydrogen fluoride has two main end uses, primary aluminum production,
and fluorocarbons production. The most recent statistics indicate that
these uses accounted for 27 percent and 39 percent of total HF produc-
tion, respectively. In addition to these functions, HF is used in
approximately 10 other end markets, each accounting for one percent or
more of total production. Among the most significant of these are
6-1
-------
stainless steel and exotic metals processing, uranium fuels processing,
and petroleum alkylation. A breakdown of end uses for HF can be found
in Figure 6-1.
In order to depict the total demand for hydrogen fluoride, the conditions
in the individual end markets are summarized below.
6.1.1.1 End Markets
Aluminum - There have been severe forces acting on the two primary end
use markets for HF. The aluminum market has been hardest hit, with HF
consumption dropping from a high of 166,900 tons in 1974 to just 91,260
tons in 1977. This drop is a result of extensive fluoride recovery
efforts by the aluminum manufacturers, and a seven percent reduction in
total aluminum output in 1977 as compared to 1974. Recovery efforts
were precipitated in part by the economic advantages of recovering
cryolite and sodium fluoride from solid waste and in part by fluoride
emission guidelines imposed by EPA.
Hydrofluoric acid demand in aluminum production is expected to continue
declining, but at a much more moderate pace. Fluoride recovery tech-
nology, with its consequent reduction in HF demand, is not yet fully
operational in some aluminum smelting plants. Thus, further reductions
can be expected when the equipment comes on line. In addition, HF
producers cannot expect an increase in aluminum ingot capacity to bol-
ster the market. Aluminum producers were hurt in the early 1970*s and
in 1975 by expanding capacity too rapidly. In the face of a strong
aluminum market in 1978 they reduced expansion in order to support
higher prices and increase return on equity. Additionally, long-term
power contracts, considered essential to investment in new capacity, are
becoming increasingly difficult to negotiate. Thus, short-term growth
prospects for HF in the aluminum end market are poor.
6-2
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A more substantial threat exists in the longer term. Alcoa has devel-
oped a smelting process, based on a chloride electrolyte, which would
eliminate the need for HF in aluminum production altogether. As a
result, electricity savings of 30 percent over the most efficient alu-
minum smelting technology have been reported at a pilot plant in Texas.
Electricity is a major cost input in aluminum production with 16,000
kilowatt hours required to produce one ton.
Fluorocarbons - The fluorocarbon end market also has experienced severe
cutbacks. Prior to 1975, 20 to 25 percent of total HF production was
used in manufacturing fluorocarbon aerosols. In 1975, however, evidence
showed that fluorocarbon gases could cause degradation of the protective
ozone layer of the atmosphere, increasing the incidence of skin cancer.
This prompted EPA and FDA to ban the use of fluorocarbons as aerosols in
1978. Fluorocarbon production for these regulated uses ceased in December
of that year. Consumption of HF in fluorocarbon manufacturing fell from
approximately 160,000 tons in 1974 to 109,000 tons in 1977.
Other fluorocarbon applications, such as refrigerants, blowing agents,
and solvents, have remained strong and are expected to grow at five or
six percent per year. This would certainly strengthen the market for
HF. However, EPA is currently considering regulation of all fluorocarbon
uses. No regulatory schedule has been announced at this time (summer 1981)
The hydrofluoric acid industry could suffer another setback if EPA imposes
strict regulations.
Other Markets - Other markets for hydrogen fluoride are more promising
than aluminum and fluorocarbons. Development of nuclear energy sources,
although slower than previously anticipated, will expand the use of
hydrofluoric acid in uranium processing. Petroleum alkylation, stain-
less steel pickling, and several other minor uses also offer the poten-
tial for moderate growth.
6-4
-------
6.1.1.2 Demand Summary
Demand for hydrogen fluoride has decreased substantially since 1974. The
main reasons for this decline are summarized below:
• The EPA and FDA ban on fluorocarbon aerosols has eliminated a
major market for hydrofluoric acid.
• Fluoride recovery efforts by aluminum manufacturers have
substantially reduced the consumption of cryolite and aluminum
fluoride in aluminum production. Both of these products use
HF as a starting material.
• Demand could be further weakened by the introduction of Alcoa's
chloride reduction technology (see Section 6.1.1.1), which
would eliminate the need for fluoride electrolytes.
Barring any further environmental regulation of fluorocarbon use such as
for refrigerants and blowing agents, this market should grow five to six
percent annually according to industry sources. The use of HF in petro-
leum alkylation and uranium processing is also growing. Overall pre-
dictions for HF consumption range from a continued decline to a growth
rate of one to four percent.
6.1.2 Supply
6.1.2.1 Production
Hydrofluoric acid production grew at an annual compound rate of 4.9
percent between 1967 and 1974, reflecting growing demand for fluoro-
carbons and large expansions in aluminum production. Peak production of
381,005 tons was reached in 1974. During the years 1974 to 1977, sharply
declining demand from the aluminum and fluorocarbon industries caused
production to fall 27 percent, an annual compound rate of decline of 9.9
percent (see Table 6-1 and Graph 6-1). Domestic production should
continue to decline slightly in the short-term, as fluoride recovery
efforts continue in the aluminum industry.
6-5
-------
In the longer term, production of HF will depend upon the status of
further fluorocarbon regulation and development of Alcoa's new chloride
reduction technology. Strict regulation and the elimination of fluorides
as an electrolyte in aluminum production could severly impact the industry.
6.1.2.2 Producers
Presently there are six producers of hydrogen fluoride operating nine
plants. Three producers, Allied, DuPont, and Alcoa account for 80
percent of capacity. HF capacity has diminished considerably since 1974
in response to decreasing demand. Current producers and facilities are
illustrated in Table 6-2. Four plants have closed, and capacity has
been reduced 31 percent from 398,000 tons/year to 274,000 tons/year.
Two of these shutdowns occurred during December 1978 when Stauffer and
Kaiser reduced their capacity by a combined total of 68,000 tons/year.
Further closures can be expected if demand continues downward, and may
occur even if demand stabilizes, as imports are offering increasing
competition.
The majority of hydrofluoric acid is used captively. Alcoa uses it in
the production of aluminum fluoride; DuPont, Allied, Essex, and Pennwalt
in the production of fluorocarbons; and Harshaw in the production of
fluoride salts. Some of the acid is sold to smaller consumers on a
merchant basis, but this accounts for only a fraction of total output.
Backward integration is not as prevalent as forward integration.
Fluorspar (generally imported) and sulfuric acid are the two major
material inputs in HF production. Domestic production is low and the
arsenic content of some domestic ores creates technical problems in
fluorocarbon manufacturing. Major import sources are Mexico, Canada,
Europe, and Africa.
6-6
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GRAPH 6-1
HYDROGEN FLUORIDE PRODUCTION AND PRICE
VOLUME
(tons)
390000-
292500-
195000-
97500-
0.00-r .-
i I
1968
1972
1976
YEAR
AVERAGE
UNIT
VALUE
(dollars)
680 -
510-
340-
170
0.00-}—
19*68
1972
1976
YEAR
SOURCE: Department of Commdrtie
-------
TABU 6.2
PRODUCERS OF HYDROGEN FLUORIDE
COMPANY
Allied Chemical
Corporation
AluainuB Corpora.
tion of America
(ALCOA)
LOCATION
Baton Rouge, LA
Geisaar, LA
Nitro. M. VA
Port Chicafo, CA
Ft. Comfort, TX
ANNUAL CAPACITY
(thousand tons)
90
SS
ESTIMATED PERCENTAGE OF
INDUSTRY CAPACITY
32.8
20.1
INTEGRATION
RAW MATERIALS END PRODUCTS
Sulfuric Acid Aluminum
Fluoride
Fluorocarbons
Aluminum
Fluoride
DuPont
Strang, TX
75
27.4
Sulfuric Acid Fluorocarbons
Fluorspar
Essex
Harshaw
Pennwalt
TOTAL
Paulsboro, NJ 11
Cleveland. OH IS
Calvert City, ICY 25
274
4.0
6.6
9.1
100.0
Sulfuric Acid Fluorocarbons
Fluoride Salts
Fluorocarbons
SOURCE: Chemical Marketing Reporter and Contractor Estimates.
6-9
-------
Some producers, such as DuPont, are integrated to fluorspar through
interests in foreign subsidiaries. Many producers, however, buy fluor-
spar on the market. Allied, DuPont, and Essex are producers of sulfuric
acid. The remaining three HF manufacturers purchase sulfuric acid
commercially.
6.1.2.3 Process
Hydrofluoric acid is manufactured by the reaction of sulfuric acid and
the mineral fluorspar (97 percent calcium fluoride) in a reaction vessel
heated to between 200 and 250 C. Hydrogen fluoride is evolved as a gas,
which is cleaned of dust and traces of sulfuric acid, then condensed.
The condensed liquid is distilled to obtain 99.90 to 99.95 percent
hydrofluoric acid. The process is governed by the following reaction:
CaF2 + H2S04 -»• 2HF + CaS04
For each ton of HF, approximately 3.8 Ib of calcium sulfate is formed as
a by-product along with small amounts of fluosilicic acid. The fluosilicic
acid can be used in water treatment, but is generally discarded with the
calcium sulfate as landfill.
The reaction process is endothermic (requiring energy to drive the
reaction) and the energy requirements represent a significant cost input
in the production process.
DuPont has developed a variation of this process using the heat generated
by the reaction of water and sulfur trioxide to drive the reaction between
fluorspar and sulfuric acid. With the proper mix of inputs, no external
heat source is required for the production of HF. The procedure is based
on the following reaction:
+ H2S04 + SC>3 + H20 -> 2CaS04 +4HF
Net heat of reaction is 0.
6-10
-------
Estimated material requirements and costs for the standard HF production
process are found in Table 6-3.
6.1.3 Competition
The domestic hydrogen fluoride industry serves primarily captive end
markets. The producers are large aluminum, chemical, and diversified
firms. There is no domestic competition for this segment of the market
because these firms supply their own needs. There is some price com-
petition in the merchant market. Its degree, however, is moderated by
the fact that hydrofluoric acid is a chemical reagent, or building
block, fundamental to many processes. This accounts for the long-term
contracts and stable supply sources which characterize the market.
Few substitutes for HF threaten its market position in any of its pri-
mary applications. However, hydrofluoric acid does face stiffening
competition from imports, which have several advantages. The majority
of imported HF comes from Mexico, where DuPont opened a 75,000 tons/year
plant in 1975. Mexico offers the advantages of large deposits of fluor-
spar and sulfur (the primary inputs in' HF production), relatively cheap
labor, and a tariff structure which places no duty on finished acid, yet
taxes unfinished fluorspar, thus raising the costs of U.S. production.
6.1.4 Economic Outlook
An industry's profitability is the difference between total revenues and
total costs. There are factors that influence these independently so it
is therefore useful to present a revenue outlook and cost outlook separately.
6.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
6-11
-------
6.1.4.1.1 Quantity
The outlook for domestic production and sale of hydrogen fluoride is, at
best, one of stable or very slightly increasing volume. More likely,
however, is a continuing decline in the quantity of HF produced and sold
by the domestic industry. Several forces are acting to bring about this
change. Among the most important are the following:
• Continuing fluoride recovery by domestic aluminum producers
• New aluminum smelting technology which eliminates the need for
fluorides in aluminum production
• Potential regulation of all fluorocarbon uses including refriger-
ants and blowing agents for rigid foam insulation
Provided that the EPA does not invoke new fluorocarbon regulations,
there are some promising aspects to the hydrofluoric acid market. The
most important are:
• Uranium fuels processing for nuclear reactors
• Petroleum alkylation
Increases in these and other smaller markets may offset the continuing
decline in HF and stabilize the market.
6.1.4.1.2 Price
The hydrogen fluoride market is highly captive. Integrated producers
use it as an input in aluminum production, fluorocarbon manufacturing,
and several smaller applications. In captive roles, the price of HF has
little meaning, as the profitability of the entire production stream
determines its value.
6-12
-------
End uses which constitute the merchant market for HF (primarily uranium
processing, petroleum alkylation, electronics, and stainless steel
pickling) are strong and offer good growth potential. Thus, from a
demand perspective, the merchant market appears able to sustain moderate
price increases. However, falling demand for HF in captive uses may
create an oversupply which could temporarily mitigate those increases.
Sustained periods of excess capacity probably would bring further plant
closures.
Competition from Mexican imports also could limit price increases. The
threat of expanded production of Mexican HF could require price restraint
by domestic producers.
6.1.4.2 Manufacturing Costs
Hydrofluoric acid production uses energy intensive inputs and requires
process temperatures above 200 C for reaction. Thus, manufacturing
costs will continue to rise with the cost of energy. In addition, the
cost of sulfuric acid, one of the two material inputs, has risen at an
annual compound rate of 18 percent since 1972. Sulfuric acid prices are
not expected to stabilize, as it too is produced by an energy intensive
process.
Price increases for fluorspar have been moderate by comparison. The
price has increased at a compound annual rate of 5.4 percent per year
from 1974 to 1979, which is low compared to price increases in the
chemical industry as a whole.
The overall outlook is for costs to increase at a relatively brisk pace,
primarily due to high process energy requirements. Estimated material
requirements and costs can be- found in Table 6-3.
6-13
-------
6.1.4.3 Profit Margins
There are serious questions concerning the profitability of hydrofluoric
acid production. If large decreases in demand occur due to EPA regulation
or fluoride recycling by aluminum producers, excess capacity will force
price competition and ultimately plant closures. In addition, imports
from Mexico, which have some cost advantages (see Section 6.1.3), may
force price restraint on the merchant market.
In the merchant segment of the market, demand increases are expected to
provide support for future price hikes. This is based on the assumption
that capacity will shrink if demand falls in the captive sectors, alle-
viating any oversupply situations. Price increases will be required to
keep the merchant market profitable, as costs will continue increasing,
particularly for energy inputs.
6.1.5 Characterization Summary
The hydrofluoric acid industry has changed substantially over the past
five years. Production dropped 27 percent between 1974 and 1977, pri-
marily due to fluoride recovery and recycling efforts in the aluminum
industry, and the EPA and FDA ban on fluorocarbon aerosols. Further
reductions may be forthcoming if the EPA decides to regulate all fluoro-
carbon uses, or if the aluminum industry accomplishes substantial further
reductions in HF requirements.
Depending upon the resolution of the two issues mentioned above, growth
in HF demand could range between a continued decline and growth of five
or six percent.
Industry profitability will also depend, in large part, on the outcome
of these two issues.
6-14
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TABLE 6-3a
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
25,400 tons/year
21,000 tons/year
(83% capacity utilization)
$11.3 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
- Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
- Cooling water
- Steam
- Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
32.20
15.50
$ 47.70
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
58.80
53.80
10.80
$123.40
$596.80
'See Appendix C
6-15
-------
TABLE 6-3b
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
50,700 tons/year
42,000 tons/year
(83% capacity utilization)
$18.4 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
- Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
Cooling water
Steam
- Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
19.00
12.60
$ 31.60
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
45.80
43.70
8.70
$98.20
$555.50
*See Appendix C
6-16
-------
TABLE 6-3c
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
76,100 tons/year
63,000 tons/year
(83% capacity utilization)
$24.4 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
- Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
- Cooling water
- Steam
- Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
14.40
11.10
$ 25.50
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
40.90
38.60
7.70
$87.20
$538.40
*See Appendix C
6-17
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6.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
hydrogen fluoride subcategory to comply with BAT effluent control
standards. The technical contractor has designed and estimated the cost
of effluent control technologies required to achieve these standards.
The cost of the technology is used to make an assessment of the economic
impacts that BAT control levels will have on the subcategory.
A survey by the technical contractor revealed that all hydrogen fluoride
manufacturers are direct dischargers having BPT treatment in place.
Therefore, this analysis assesses the impact of only the additional
costs required to meet BAT effluent renloval levels.
6.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical con-
tractor for pollution control equipment designed to meet BPT and BAT
levels of waste removal.
The primary source of wastewater in hydrofluoric acid manufacture is
kiln waste. Calcium sulfate is formed following the reaction of fluor-
spar and sulfuric acid. This waste is removed by means of a wastewater
slurry. Approximately 3.8 pounds of solid calcium sulfate is generated
in the rotary kiln per pound of product.
In addition to kiln waste, other sources of process waste are air pollu-
tion control equipment (scrubbers), leaks, spills and washdown. Scrubber
waste flows depend upon plant operations and state and local air pollu-
tion regulations.
BPT treatment is achieved by the following process:
• Wastewater is collected in an equalization tank. Lime is
added to precipitate fluoride and toxic metals.
6-18
-------
• The wastewater is transferred to a mixing tank where the pH is
raised to 10. Fluorides and metals are precipitated as calcium
fluoride and metal hydroxides.
• Solids are settled in a lagoon, dredged, and stored on-site.
To meet BAT regulations, plants will be required to reuse at least 65
percent of the effluent for kiln residue slurrying. This will require
an additional treatment step between precipitation and settling.
Pollution control cost estimates have been calculated for three model
plant sizes, producing 21,000, 42,000 and 63,000 tons of HF per year.
The wastewater flow associated with these plant sizes are 5,200, 10,450
and 15,700 cubic meters per day, respectively. Pollution control costs
for the model plants are summarized in Table 6-4.
Hydrogen fluoride manufacturing cost estimates are $710.20, $586.50 and
$535.80 per ton for the small, medium and large plants respectively.
These cost estimates are based on the estimates presented in Table 6-3
and include the cost of meeting BPT effluent limitations. Table 6-5
summarizes the cost parameters used in the model plant analysis.
The total annualized and investment costs for the hydrogen fluoride sub-
category are summarized in Table 6-6. These costs are based on the
model plant pollution control costs and current industry production
levels. All hydrogen fluoride manufacturers have BPT removal equipment
in place. The total additional cost to the subcategory for compliance
with BAT removal levels is $377,876.
6.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
6-19
-------
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
6.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 6-7 summarizes the price rise required of each
model plant for BAT levels of removal. The price increase necessary to
pass through the incremental pollution control costs of BAT is less than
four-tenths of one percent for all model plants.
6.2.2.2 Profitability Analysis
The profitability analysis examines the decline in the return on invest-
ment (ROI) and internal rate of return (IRR) when no price pass-through
is possible. For BAT removal levels the smallest model plant incurs a
decline in the IRR of one-half of one percentage point, representing an
11.61 percent decline from the base case, and the ROI decreases by less
than one-half of one percentage point or decreases by only 6.11 percent
of baseline profitability. The two larger model plants have smaller
declines in the ROI and IRR. These results are summarized in Table 6-8.
6-20
-------
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TABLE 6-7
PERCENTAGE PRICE RISE
Chemical: Hydrofluoric Acid
Price: $650/ton
Model Plant
Production
(tons/year) BAT
21,000 0.34%
42,000 0.22%
63,000 0.19%
6-23
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6-24
-------
6.2.2.3 Price Elasticity of Demand
While there are few substitutes for HF which currently threaten any of
its major uses, imports represent a constraint on domestic prices.
Therefore, the demand for HF is assumed to be moderately price elastic.
(See Sections 6.1.1, Demand, and 6.1.3, Competition, for a complete
analysis.)
6.2.2.4 Capital Analysis
Raising the capital necessary to install the pollution control equipment
is a potential problem for a firm. The capital requirements of the
suggested HF pollution control technologies for BAT pollution control
are minimal. The required investment in control equipment is approxi-
mately 0.6 percent of the plant's total fixed investment. (See Table
6-9). These modest capital requirements should not pose a problem for
the subcategory.
6.2.2.5 Closure Analysis
Table 6-10 summarizes the price elasticity of demand, price rise, and
profitability decline for hydrogen fluoride model plants and compares
these to EPA's closure criteria (see methodology description). For BAT
removal levels no plant closures are predicted. For the medium and
large size model plants, the calculated price increase is less than one
percent, and the decrease in profitability is less than one percentage
point and less than ten percent of baseline profitability. For the
small model plant size, the decrease in profitability is slightly greater
than ten percent of baseline profitability (11.61 percent). However, a
complete price pass-through is likely and would result in a price rise
of less than 0.4 percent. This price pass-through of pollution control
costs should mitigate any profitability declines. Therefore, no plant
closures are projected for this subcategory.
6-25
-------
6.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on hydrogen fluoride manufacturers.
The demand for hydrogen fluoride has decreased substantially since 1974.
The EPA ban on fluorocarbon aerosols eliminated one of hydrogen fluoride's
major markets. The resulting decline in demand prompted a number of
plant closings. Four plants have closed since 1974, reducing industry
capacity by 31 percent. If the EPA expands fluorocarbon regulation to
include other uses, demand will continue to diminish and further clo-
sures can be expected. Even if demand stabilizes, some producers could
be threatened by increasingly competitive imports.
6.2.3.1 Price and Profitability Impacts
The price rise required to fully pass through the pollution control
costs incurred by going from BPT to the more stringent BAT removal level
is no more than 0.40 percent. This is considered inconsequential.
Table 6-8 presents the profitability changes resulting from the firms
fully absorbing the costs of BAT pollution control. The changes in the
ROI and IRR from this control level are small. For the medium and large
size model plants, the reduction is one-half of one percentage point or
"less, which represents a decrease of less than ten percent of the base-
line profitability levels. For the small model plant the maximum profit-
ability decline of 0.52 percentage points represents an 11.61 percent
decrease from baseline profitability, exceeding the EPA closure criterion
of a ten percent change in baseline profitability. Because demand is
only moderately price elastic and the required price rise is minimal
(0.34 percent), a complete pass-through of pollution control costs is
likely. This price pass-through should mitigate any profitability
6-26
-------
TABLE 6-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemcial: Hydrofluoric Acid
Model Plant Production (tons/year)
Level of
Removal 21,000 42,000 63,000
BAT 0.6% 0.6% 0.6%
6-27
-------
TABLE 6-10
IMPACT SUMMARY
Chemical: Hydrofluoric Acid
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1
Percentage
CLOSURES
Predicted
If all
Criteria Met
Point or
Greater Than
10% of Baseline
Profitability
MODEL PLANT RESULTS
REMOVAL
LEVEL
BAT
PLANT
PRODUCTION
(ton/year)
21,000
42,000
63,000
MAXIMUM
PRICE ELASTICITY PRICE RISE
0.34%
Medium 0 . 22%
0.19%
MAXIMUM
PROFITABILITY
DECLINE
(% DECLINE)
0.52%
(11.61%)
0.18%
(1.28%)
0.15%
(0.87%)
CLOSURES
no
no
no
SOURCE: EEA estimates.
6-28
-------
declines. The model plant analysis indicates that the cost of achieving
BAT control should not pose a problem for the industry.
6.2.3.2 New Source Standards
New source performance standards (NSPS) and pretreatment standards for
new sources (PSNS) for the hydrogen fluoride subcategory will require a
different control technology from that discussed above for existing
plants. Pollution control for new plants will involve lime and soda ash
precipitation, recycle of 65 percent of the effluent, and dry handling
of kiln waste in order to reduce the waste load and effluent flow. This
treatment system is available to new plants since they have the oppor-
tunity to design and install the most efficient control systems. The
costs for this system are similar to or slightly less than BPT removal
costs. Since all current hydrogen fluoride plants are now incurring the
costs of BPT removal, new sources will not be operating at a cost dis-
advantage. Therefore, new source performance standards will not result
in more severe impacts on new producers and are not expected to signifi-
cantly discourage new hydrogen fluoride plants from entering this subcate-
gory.
6-29
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7. NICKEL SULFATE
7.1 CHARACTERIZATION
(NOTE: As discussed below in Section 7.2, this industry subcategory in-
curs no compliance costs. The following characterization data is pre-
sented for informational purposes only.)
Nickel sulfate (NiSO,) is a low volume chemical used primarily in metal
plating (see Figure 7-1 for sources and uses of nickel sulfate). Total
production of nickel sulfate has declined from a high of about 21,000
short tons in 1969 to 7,032 tons in 1977. This represents a 15 percent
average annual decrease in demand for nickel sulfate.
Two factors are contributing to the decline in nickel sulfate demand:
• Metal platers, the primary purchasers of nickel sulfate, are
recycling nickel sulfate solution in an effort to meet 1973
water pollution control regulations
• Some end markets for plated metal, particularly the automobile
industry, are replacing plated parts with plastics and aluminum,
because they are lighter.
Recycling efforts and substitution of other materials will cause nickel
sulfate production to continue declining for the next few years.
7.1.1 Demand
7.1.1.1 End Markets
Most nickel sulfate (between 80 and 90 percent, according to industry
sources) is used in metal plating. The remainder is used in the manu-
facture of hydrogenation catalysts.
7-1
-------
Electroplating
Electroplating is a process whereby objects are coated with a thin layer
of one or more metals in order to improve the appearance, durability, or
electrical properties of the surface. The process involves placing the
object to be plated in a bath containing a metal salt. An electric
current is passed through the solution and the object such that the
metal from the salt (nickel in the nickel sulfate solution) attaches
itself to the surface of the object.
Between 10,000 and 20,000 electroplating installations in the United
States use nickel sulfate. Of these, almost 3,000 are independently
owned and operated electroplating shops. The remainder are captive
operations engaged in the manufacture of products or parts that require
plating, such as automobile bumpers.
Nickel is used in all decorative plating applications. A relatively
thick (0.4 - 1.5 mm) coating of nickel is applied as a base (or over a
layer of copper) and is then covered by a thin layer of chromium. The
nickel base acts to inhibit corrosion; the chromium resists tarnish.
Electroplating industry sources estimate that 40 to 50 percent of nickel
plating is used by the automobile industry in the chroming of steel
bumpers and decorative trim. Nickel plating is also used in marine
hardware, tools and appliances, and electronics.
Plating has many applications and is used by a number of industries.
Therefore, demand for plating is dependent on the demand for the plated
end products, such as automobiles and appliances. However, production of
nickel sulfate has declined due to increased recycling of the chemical.
Because of these recovery efforts, demand for nickel sulfate is expected
to decline for the next five to 10 years, although the rate of this
decline is uncertain. As platers install closed loop systems to avoid
7-2
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wastewater disposal, the total demand for nickel sulfate may be reduced
by as much as 50 percent. It is possible, however, that some platers
may find it economically feasible to sell the spent solution and purchase
"fresh" nickel sulfate.
Hydrogenation Catalysts
Nickel sulfate is one of a number of nickel salts used to prepare a
variety of nickel hydrogenation catalysts. Hydrogenation catalysts are
used in the preparation of vegetable oils and other foods, alcohols, and
plastics. Food processing accounts for almost half of nickel catalyst
end use. This market is relatively mature and will grow with Gross
National Product.
7.1.1.2 Demand Summary
Demand for nickel has decreased substantially in the last few years.
The decline is primarily due to the increased recycling efforts by metal
platers. The industry has not completed its transition to recycle
systems. When it does, demand for nickel sulfate may be reduced to as
little as 50 percent of 1973 levels.
Demand for nickel hydrogenation catalysts, accounting for 10 to 15
percent of the nickel sulfate market, will grow slightly faster than the
GNP. The catalysts are used in food processing and plastics industries,
both of which have strong, steady markets. This end use represents such
a small share of the total nickel sulfate market that it will do little
to offset the overall decline in demand.
7.1.2 Supply
7.1.2.1 Production
Nickel sulfate production was only seven thousand tons in 1977, a very
low volume compared to some other inorganic chemicals. (For example,
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GRAPH 7-1
NICKEL SULFATE PRODUCTION AND PRICE
22.00
16.50 -
VOLUME n.oo -
(000's of tons)
5.50 -
0.00
-r—•
1968
1300.00 -
975.00 -
AVERAGE
UNIT
VALUE 650.00 —
(dollars)
325.00 -
0.00 -]•--
1&8
1972
1976
YEAR
1972
I
1976
YEAR
SOURCE: Department of
-------
production of chlorine, a major inorganic chemical, was 10 million tons
in 1977.) As discussed above, nickel sulfate production has declined
steadily since 1967 (see Table 7-1 and Graph 7-1). The average rate of
production decline since 1967 has been 7.2 percent annually. The slight
production rise in 1976 represents a recovery from abnormally low levels
brought about by the 1974-75 recession. Nickel sulfate manufacturers
expect the decline in production to continue due to falling nickel
sulfate demand.
The sharp demand decline should cease within five to 10 years as the
metal plating industry completes its transition to nickel recovery
systems. By that time, the previously steep production decline will
moderate to less than two percent annually.
7.1.2.2 Producers
There are 10 producers of nickel sulfate operating 11 plants (see Table 7-2)
The newest producer, Federated Metals Corporation, began nickel sulfate
production in October 1978. Four large, multi-industry companies account
for most of the production: Harshaw Chemical Company, McGean Chemical
Co., Inc., C.P. Chemicals, Inc., and M&T Chemicals. The remaining
plants produce only small amounts of nickel sulfate, often as a by-product
in copper refining operations. Captive use is believed to be very low.
Specific capacity figures are not available, but recent estimates indicate
that Harshaw Chemical, a subsidiary of Kewanee Industries, Inc., and
C.P. Chemicals each account for about 30 percent of industry production.
7.1.2.3 Process
Nickel sulfate is produced from two types of raw materials: pure nickel
or nickel oxide, and impure nickel-containing materials (e.g., spent
nickel catalysts, nickel carbonate). In the first case, the metal or
oxide is digested in sulfuric acid and filtered. The liquid then is
either sold or further processed into a solid. In the second case, the
7-7
-------
raw materials also are digested in sulfuric acid. The solution is then
treated in series with oxidizers, lime, and sulfides to precipitate
impurities. The solution is filtered and marketed or further processed
into a solid.
The reaction is as follows:
Ni + H2S04 -> NiS04 + H2
In addition, some nickel sulfate is produced as a by-product during
copper refining operations.
Nickel sulfate manufacturing costs are presented in Table 7-3. Based on
an average of three plant sizes, the total cost of manufacturing nickel
sulfate was estimated to be approximately $1,660 dollars per short ton
(see Table 7-3). The cost of raw materials (primarily nickel) accounts
for 50 to 75 percent of the manufacturing costs. Total fixed investment
for a nickel sulfate plant having an annual capacity of 6,000 tons is
estimated to be five million dollars (mid-1978 dollars).
7.1.3 Competition
Nickel sulfate is sold by the manufacturer directly to consumers (pri-
marily metal platers) in either solid or liquid form. Producers of
nickel sulfate compete mainly on the basis of price. One producer, C.P.
Chemicals, has been particularly aggressive in pricing. By consistently
selling below other producers' list prices, C.P. Chemicals has gained a
significant market share in only a few years. Another source of low
priced nickel sulfate is the group of copper refiners who produce small
quantities of the chemical during copper refining. They often sell
their nickel sulfate on the market at very low prices in an attempt to
sell the by-product quickly. The intense price competition keeps profits
on nickel sulfate sales very low. Producers who sell a number of chemi-
7-8
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TABLE 7-3a
ESTIMATED COST OF MANUFACTURING NICKEL SULFATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
1,400 tons/year
990 tons/year
(71% capacity utilization)
$2.0 million
VARIABLE COSTS
• Materials
Unit/Ton
$/Unit
- Nickel Metal (scrap) 785 Ib
- Sulfuric Acid (66 Be')1510 Ib
• Utilities
- Power
- Cooling Water
- Steam
- Process Water
Total Variable Costs
$/Ton
85 Ib
10 Ib
91 kWh
36 kgal
9 klb
6 kgal
1.35
.016
.03
.10
3.25
.75
1059.10
24.20
2.70
3.60
29.50
4.80
$1123.90
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
461.90
80.60
$ 542.50
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
115.50
201.50
30.20
$ 347.20
$2013.60
*See Appendix C
7-10
-------
TABLE 7-3b
ESTIMATED COST OF MANUFACTURING NICKEL SULFATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
6,200 tons/year
4,400 tons/year
(71% capacity utilization)
$5.0 million
Unit/Ton
- Nickel Metal (scrap) 785 Ib
- Sulfuric Acid (66 Be')1510 Ib
• Utilities
- Power
- Cooling Water
- Steam
- Process Water
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$/Unit
85 Ib
10 Ib
91 kWh
36 kgal
9 klb
6 kgal
1.35
.016
.03
.10
3.25
.75
1059.10
24.20
2.70
3.60
29.50
4.80
$1123.90
183.10
45.40
$ 228.50
45.80
113.40
17.10
$ 176.30
$1528.70
*See Appendix C
7-11
-------
TABLE 7-3c
ESTIMATED COST OF MANUFACTURING NICKEL SULFATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
10,800 tons/year
7,700 tons/year
(71% capacity utilization)
$7.3 million
VARIABLE COSTS
• Materials
Unit/Ton
$/Unit
- Nickel Metal (scrap) 785 Ib
- Sulfuric Acid (66 Be')1510 Ib
• Utilities
- Power
- Cooling Water
Steam
- Process Water
Total Variable Costs
85 Ib
10 Ib
91 kWh
36 kgal
9 klb
6 kgal
1.35
.016
.03
.10
3.25
.75
1059.10
24.20
2.70
3.60
29.50
4.80
$1123.90
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
127.30
37.80
$ 165.10
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
31.80
94.60
14.20
$ 140.60
$1429.60
*See Appendix C
7-12
-------
cals to the plating industry continue to manufacture and sell nickel
sulfate in order to complete a chemical product line.
There are no substitutes for nickel sulfate in its primary end use,
metal plating. However, automobile manufacturers have begun switching
to materials such as plastic and aluminum (which do not require protec-
tive metal plating) in an effort to reduce automobile weight. These
alternatives to plated metals have not been well received — consumers
seem to prefer chromed bumpers to those made of plastic or brushed alu-
minum. Manufacturers of plastic and aluminum parts are, therefore,
engaged in finding ways of improving the appearance of their product,
such as applying a metal finish to the plastic. Nevertheless, light-
weight plastic and aluminum are certain to become more widely used by
the automobile industry in the interest of lighter cars and gasoline
mileage improvements.
7.1.4 Economic Outloook
7.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
7.1.4.1.1 Quantity
Nickel sulfate is at the end of its product life cycle. Volume of
sales, which has been declining at about six percent per year for the
last 10 years, will continue to decline due to the following:
• Manufacturers will continue to substitute lightweight plastics
and aluminum for heavier plated metals in many applications
• The metal plating industry will require less nickel sulfate
due to recycling systems which allow spent nickel sulfate
solution to be reused
7-13
-------
The development of more efficient electroplating methods will
affect the market for nickel sulfate and other electroplating
chemicals. A system recently tested by Bell Telephone
Laboratories reduces chemical wastes by 90 percent and is
less polluting (Chemical Marketing Reporter, April 22, 1978).
These factors will continue to reduce nickel sulfate's sales volume by
about six percent per year for the next three to five years. Producers
expect the decline to become more gradual (about zero to two percent per
year) in the mid-1980's.
7.1.4.1.2 Price
The single most important factor in nickel sulfate's price is the price
of nickel, discussed in the following section. Price also is influenced
by competitive market factors, such as aggressive pricing policies on
the part of nickel sulfate manufacturers seeking an increased market
share for their line of electroplating chemicals.
7.1.4.2 Manufacturing Costs
The cost of manufacturing nickel sulfate is dependent on the price of
nickel. Most of the nickel used by nickel sulfate manufacturers is
imported from Canada since very little nickel ore is mined domestically.
However, some nickel is supplied by a domestic company (Amax Nickel,
Port Nickel, LA) that refines imported nickel ore. At current prices
(about $2.00 per pound), the cost of nickel represents at least half of
the total manufacturing costs. Almost all of the remaining cost is
shared equally by labor, maintenance, and plant overhead costs.
7.1.4.3 Profit Margins
Profitability in the nickel sulfate industry has always been marginal.
Profitability will erode even further due to:
• Declining sales: the primary consumers of nickel sulfate,
metal platers, are reducing their consumption through nickel
sulfate recycle systems.
7-14
-------
• Competitive pricing: manufacturers will continue to price
competitively in an effort to win a. larger market share for
their complete line of electroplating chemicals.
• Rising costs: nickel prices are expected to rise at a 7 to 10
percent annual rate in the long run.
Despite the bleak profitability outlook, manufacturers will continue to
produce and sell nickel sulfate in order to offer customers a complete
line of electroplating chemicals.
7.1.5 Characterization Summary
Production of nickel sulfate, used primarily in electroplating, has
declined to about one-third of 1970 levels. Demand has fallen due to
efforts by the electroplating industry to recycle nickel sulfate in
order to meet water pollution standards. Consumers of plated metals,
especially the automobile industry, are turning to plastic and aluminum
substitutes because they are lightweight. The development of a more
efficient plating process is likely to further erode nickel sulfate
demand.
In addition to its use in electroplating, nickel sulfate is used in the
manufacture of hydrogenation catalysts. These are used by the food
processing and plastics industries, which are growing steadily. However,
only 5 to 10 percent of nickel sulfate production is used in hydrogenation
catalyst manufacture. Therefore, growth in this market will not affect
the overall decline in nickel sulfate production.
7.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
nickel sulfate subcategory to comply with BAT and PSES effluent control
standards. EPA has determined that no plants in this subcategory will
incur compliance costs under this rulemaking:
• All five direct dischargers already have BPT in place, and BAT has
been set equal to BPT for this subcategory.
7-15
-------
• Pretreatment standards for indirect dischargers were promulgated
previously. The current rulemaking revises the limitations to
equal BAT, but does not change the technology basis or the com-
pliance costs. Therefore, while two of the six indirect dischar-
gers may not have treatment in place, the compliance costs they
will have to incur are attributable to an earlier PSES rulemaking
(40 CFR 415.374). There are no additional compliance costs as-
sociated with the current regulation.
Accordingly, these regulations will have no economic impact on the sub-
category.
7.2.1 Pollution Control Technology and Costs
As noted above, no plants will incur control costs under this rulemaking.
The following detail on control technology and costs is provided for in-
formational purposes only.
Capital and operating costs were developed by the technical contractor
for the pollution control technologies designed to meet BAT/PSES removal
levels. Both BAT and PSES are equivalent to BPT for this subcategory.
The major pollutants in nickel sulfate production are solid waste metals.
To achieve BPT/PSES, the following procedure is used:
• Caustic soda is added to precipitate metals.
• The overflow from the settling tank is filtered and discharged
after pH adjustment.
• Solids, filtered from the settling tank, are landfilled.
Pollution control cost estimates were developed for three model plant
sizes, with production rates of 990 tons per year (TPY), 4,400 TPY, and
7,700 TPY. Table 7-4 summarizes pollution control costs for the model
plants.
7-16
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8. SODIUM BISULFITE
8.1 CHARACTERIZATION
Sodium bisulfite (NaHSO^), also called sodium hydrogen sulfite and
sodium acid sulfite, is a chemical widely used as a reducing agent. A
reducing agent has the ability to change the chemical properties of
another chemical by adding one or more electrons. For example, hexa-
valent chromium, the highly toxic form of chromium, can be reduced by
sodium bisulfite to less toxic trivalent chromium. Treatment of chro-
mium-containing wastewater is one of sodium bisulfite's major end uses.
The other uses for sodium bisulfite, all of which utilize its reducing
ability, include photographic processing, food processing, tanning, and
textile manufacturing (see Figure 8-1).
8.1.1 Demand
While Bureau of Census data are unavailable, the total annual market for
sodium bisulfite is estimated at just under 100,000 tons. This market
should grow with Gross National Product, since sodium bisulfite is a
mature product and its end markets are fairly diverse.
In order to depict the total demand for sodium bisulfite, the conditions
in its individual end markets are summarized below.
8.1.1.1 End Markets
Photographic Processing — Approximately half of sodium bisulfite pro-
duction is used in photographic processing. Manufacturers sell to large
photo-processing concerns (e.g., Kodak) as well as photography supply
houses that repackage the chemical for sale to small users. This is a
very secure market for sodium bisulfite since there are no other proces-
8-1
-------
sing agents which are as effective and inexpensive. Demand in this mar-
ket is expected to grow with Gross National Product.
Food Processing and Preservatives — Approximately 30 percent of sodium
bisulfite production is used in food processing and as a food preservative.
This market is very secure because sodium bisulfite inhibits the growth
of specific yeasts and is less expensive than alternative preservatives.
Processes using sodium bisulfite include canning, winemaking, sugar
syrup processing, and vanillin (artificial vanilla) manufacture. Because
this end-use is closely tied to the food industry, growth in the end
market is expected to grow with population.
Water Treatment — Sodium bisulfite is used in effluent treatment of
toxic and chrome wastes. Because it is easy to handle in powder form,
sodium bisulfite is widely used to treat smaller quantities of waste-
water. When large quantities are involved, sulfur dioxide is preferred
due to its lower cost. However, handling difficulties associated with
sulfur dioxide give sodium bisulfite a competitive edge in some uses.
Growth in this end-use market may grow slightly ahead of GNP, according
to industry sources.
Other Markets
Sodium bisulfite is used in a number of other applications:
• Textile manufacture -- Bisulfite is used as antichlor after
bleaching and dying. Demand fluctuates with textile imports
and fashion changes, which makes it difficult to forecast
demand in this market.
• Leather tanning — This market is expected to grow at a moder-
ate pace (about 2 to 5 percent annually) due to a strong
export demand for leather.
• Manufacture of L-Dopa (a drug used to treat Parkinson's Dis-
ease) — This market is not likely to experience any growth
and should eventually decline.
8-2
-------
FIGURE 8-1
SODIUM BISULFITE:
INPUTS AND END MARKETS
MAJOR
INPUTS
PROCESS
% CAPACITY
PRODUCT
DIRECT
MARKETS
1977
8-3
-------
Preparation of chemicals such as aldehydes and surfactants
(wetting agents) — This market should grow with Gross National
Product.
8.1.1.2 Demand Summary
Principal markets for sodium bisulfite include:
• Photographic chemicals (approximately 50 percent of end market
sales)
• Food processing and preservatives (30 percent)
• Effluent treatment (10 percent)
These are well developed, stable markets and should provide relatively
steady demand for sodium bisulfite. The smaller markets will not sig-
nificantly affect total demand.
Overall, sodium bisulfite demand is expected to grow with GNP (about two
to three percent annually).
8.1.2 Supply
8.1.2.1 Production
Data are not available for the production of sodium bisulfite.* Pre-
vious reports show a 5.5 percent average annual growth rate in produc-
tion from 1968 to 1974. Industry sources report that sales have been
strong and steady since that time. Imports appear to be negligible.
8.1.2.2 Producers
There are four producers of sodium bisulfite at seven plant sites in the
United States. Exact capacity figures for some plants are not available
(see Table 8-1).
* Very little information has been available on the sodium bisulfite
industry due to two factors: (1) the Department of Commerce does
not collect data on this chemical; and (2) individual firms are
reluctant to disclose information.
8-4
-------
TABLE 8-1
PRODUCERS OF SODIUM BISULFITE
COMPANY
Allied Chemical
DuPont
Virginia Chemicals
Olympic Chemicals
TOTAL
LOCATION
Al Sequndo, CA
North Clayaont, DE
Linden, NJ
Mobile, AL
Chester. SC
Portsmouth, VA
Tacoma, NA
ANNUAL CAPACITY
(thousand tons)
40,000
20,000
40,000
8,000
108,000
INTEGRATION
ESTIMATED PERCENTAGE OF
INDUSTRY CAPACITY RAW MATERIALS END PRODUCTS
37 Soda Ash
Sulfur Dioxide
19 Sulfur Dioxide
37 Sulfur Dioxide
7
100
EEA estmates from industry sources.
8-5
-------
Allied Chemical and Virginia Chemicals are the major producers of sodium
bisulfite, probably accounting for most of the production capacity of
the industry. The two manufacturers produce the chemical in both liquid
and powdered form. DuPont markets sodium bisulfite in a 38 percent
solution. Olympia Chemicals also manufactures the liquid form, the
bulk of which is sold to a nearby Monsanto plant.
Allied is integrated backwards to two major raw materials: soda ash and
sulfur dioxide. Virginia Chemicals and DuPont produce only sulfur
dioxide. Captive use is very low. Virginia Chemicals expanded its
capacity sometime between 1973 and 1977. Since that time, no new expan-
sions have been planned by either company.
8.1.2.3 Process
Sodium bisulfite is produced by a variety of methods. The bulk of the
commercial product is sodium metabisulfite (Na~S_C- , a dehydrated deriv-
ative of two NaHSO- molecules).
Dry Process
Moist soda ash is treated with a gas containing 49 percent sulfur diox-
ide and less than four percent oxygen. The product, sodium metasulfite,
is discharged from the reactor and crushed.
Liquid Process
A saturated solution of sodium bisulfite is prepared by combining sodium
hydroxide and sulfur dioxide. Savings are realized in fuel, bagging,
etc. Extra costs, however, are incurred in transportation so liquid
plants must be located close to their markets (usually within 300 miles).
"Mother Liquors" Process
Sodium bisulfite is produced by passing seven to eight percent sulfur
dioxide through a suspension of soda ash in mother liquors saturated
with sodium bisulfite. The product is obtained from the solution by
centrifuging.
8-6
-------
Material requirements and estimated costs of manufacturing by the mother
liquor process are presented in Table 8-2. Raw material costs account
for between one-third and one-half of total costs. Capital costs vary
from 127 dollars per ton of capacity to 247 dollars per ton of capacity.
This is a relatively low per-ton capital investment (capital investment
in chlorine manufacture is about $280 per ton; in titanium dioxide, $900
per ton).
8.1.3 Competition
The two largest sodium bisulfite manufacturers, Allied Chemicals and
Virginia Chemicals, account for 90 percent of sales in the industry. As
an effective duopoly (by definition, an industry with only two suppliers)
they are likely to set a price and market share which maximizes profits
for both of them. Repeated price cutting in an effort to invade the
other's market is likely to lead to reduced profits for both. (The
small producers follow the price lead of the major producers.) This
appears to explain the pricing behavior of sodium bisulfite producers.
Prices have always been strong and producers have typically not offered
discounts on list prices. High industry capacity utilization is also
typical of such an industry.
Sodium bisulfite is sold as a liquid (36, 38, or 42 percent solution) or
powder (100 Ib bags). The liquid is slightly less expensive since
drying and bagging costs are not incurred. However, added transporta-
tion costs are such that buyers of liquid are usually located close to
the plant. Conversely, powdered sodium bisulfite (accounting for the
bulk of sodium bisulfite sales) can be easily and economically shipped
over long distances (although care must be taken to guard against moisture)
As discussed in Section 8.1.1, there are no substitutes for sodium
bisulfite threatening its markets. Industry sources report that this
situation is due to the convenience of the powdered material. It can
be handled easily and diluted to the desired concentration by the buyer.
8-7
-------
TABLE 8-2a
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
8,500 tons/year
5,000 tons/year
(62% capacity utilization)
$2.1 million
VARIABLE COSTS
• Materials
- Soda Ash
- Sulfur Dioxide
• Utilities
- Electric Power
Steam
- Cooling Water
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 mlb
3.72 mgal
0,034
0.074
0.03
3.25
0.10
38.40
100.30
3.10
4.10
.40
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
55.30
16.00
$ 71.30
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
13.80
39.90
6.40
$ 60.10
$277.70
*See Appendix C
8-8
-------
TABLE 8-2b
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
30,000 tons/year
18,500 tons/year
(62% capacity utilization)
$4.7 million
VARIABLE COSTS
• Materials
- Soda Ash
- Sulfur Dioxide
• Utilities
- Electric Power
- Steam
- Cooling Water
Unit/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 mlb
3.72 mgal
$/Unit
0.034
0.074
0.03
3.25
0.10
$/Ton
38.40
100.30
3.10
4.10
.40
Total Variable Costs
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
20.50
10.10
Total Semi-Variable Costs
$ 30.60
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
5.10
25.20
3.80
$ 34.10
$211.00
*See Appendix C
8-9
-------
TABLE 8-2c
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
56,500 tons/year
35,000 tons/year
(62% capacity utilization)
$7.2 million
VARIABLE COSTS
• Materials
Soda Ash
- Sulfur Dioxide
• Utilities
- Electric Power
Steam
- Cooling Water
Unit/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 mlb
3.72 mgal
$/Unit
0.034
0.074
0.03
3.25
0.10
38.40
100.30
3.10
4.10
.40
Total Variable Costs
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
16.10
8.20
$ 24.30
FIXED COSTS
• Plant Overhead
• Depreciation
t Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
4.00
20.50
3.10
$ 27.60
$198.20
*See Appendix C
8-10
-------
Foreign trade in sodium bisulfite is reportedly negligible, although
data are unavailable. A small volume of the chemical is imported from
Great Britain, and there have been exports to Canada. At least one
company has indicated that it plans to pursue European markets in the
future.
8.1.4 Economic Outlook
8.1.4.1 Revenue
Total revenue is the product of total sales volume and average unit
price. Although these two variables are discussed separately below,
they are interrelated.
8.1.4.1.1 Quantity
Sodium bisulfite is a mature product with no competitive substitutes to
threaten its markets. Overall growth in these markets will follow
growth in the Gross National Product (about two to three percent annually)
8.1.4.1.2 Price
Prices vary according to the quantity and form of the product. Current
(summer 1981) prices (per 100 pound bag) are $22.50 on the East coast
and $24.50 on the West coast. Historically, prices have risen at an
average rate of about 11 percent per year (1969-1979). (See Table 8-3
and Graph 8-1). Future price increases are anticipated as manufacturers
continue to successfully pass through manufacturing cost increases (see
below).
8.1.4.2 Manufacturing Costs
The two main raw materials in the manufacture of sodium bisulfite are
soda ash and sulfur dioxide, which together make up 35 to 50 percent of
total manufacturing costs. The per ton price of soda ash has jumped
8-11
-------
TABLE 8-3
SODIUM BISULFITE LIST PRICES
Year List Price C$/ton)
1967 $114
1968 110
1969 117
1970 117
1971 127
1972 132
1973 132
1974 162
1975 162
1976 232
1977 267
1978 267
SOURCE: Chemical Marketing Reporter.
8-12
-------
PRICE
Cdoliars)
GRAPH 8-1
SODIUM BISULFITE PRICE
280.00-
210.00-
140.00-
70.00-
0.00 —
1967
1972
YEAR
I
1977
SOURCE: Department of Commerce
8-13
-------
from $55 to $66 in the space of one year. This is due to a tight supply
situation caused by several plants shutting down and a delay in the
planned construction of new capacity. While the new capacity should
ease the tight supply, industry sources expect future price increases.
Sulfur (used to make sulfur dioxide) is also in short supply and the
worldwide supply situation is expected to worsen (Chemical Marketing
Reporter, April 9, 1979). Between August 1980 and August 1981, crude
sulfur prices rose from approximately $47 per ton to $89 per ton, an
increase of 89 percent. Further increases are likely.
8.1.4.3 Profit Margins
Despite rising manufacturing costs, producers of sodium bisulfite have
managed to maintain high profit margins by increasing prices. Contractor
estimates of manufacturing costs (see Table 8-2) imply a high pre-tax
margin on sales. Based on the past performance of the industry, all
future manufacturing cost increases will be passed through and the high
profit margins will remain intact.
8.1.5 Characterization Summary
The sodium bisulfite industry can be characterized as follows:
• Sodium bisulfite is a very efficient, convenient, and economi-
cal reducing agent which is used in photographic chemicals,
food processing and food preservatives, and wastewater treat-
ment.
• It is manufactured by four firms, two of which (Allied Chemi-
cals and Virginia Chemicals) dominate industry production.
• Total demand for the chemical is estimated by industry sources
at just under 100,000 tons per year.
• Because sodium bisulfite is a mature product, demand is expected
to grow with Gross National Product (two to three percent
annually).
8-14
-------
• Profit margins are high and should remain so as manufacturers
have been able to pass through increased costs in the form of
higher prices.
8.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
sodium bisulfite subcategory to comply with BAT and PSES effluent control
standards. The technical contractor has designed and estimated the cost
of the effluent control technology required to achieve these standards.
The cost of the technology is used to make an assessment of the economic
impacts that PSES and BAT control levels will have on the subcategory.
A survey by the technical contractor revealed that six sodium bisulfite
manufacturers are direct dischargers and have BPT treatment technology
in place. For this subcategory, BAT is the same as BPT. Therefore,
these six plants will incur no incremental costs over BPT for compliance
with BAT regulations.
The technical contractor's survey also showed that there is one indirect
discharger in the sodium bisulfite industry currently not pretreating
wastewater. Therefore, the pollution control costs estimated by the
technical contractor corresponding to BPT removal are applied to the
model plants to assess the impacts of pretreatment costs on this one
indirect discharger. Pretreatment costs are equivalent to BPT costs.
8.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical contrac-
tor for pollution control equipment designed to meet BPT removal.
The major pollutant in the process waste stream is sodium bisulfite
product which results in high chemical- oxygen demand (COD). To achieve
BPT removal, the following procedure is used:
8-15
-------
• Caustic soda is added to wastewater to adjust the pH and
precipitate toxic metals.
• The effluent is then aerated to reduce COD
Pollution control cost estimates were developed for three model plant
sizes with average production rates of 5,000, 18,500 and 35,000 tons per
year. Pollution control costs for the model plants are summarized in
Table 8-4. Subsequent to the development of these estimates, EPA has
determined that the control system is oversized. Therefore, the esti-
mated capital and operating costs for the control technology are over-
stated.
The costs of manufacturing sodium bisulfite used in the impact analysis
were estimated by an economic subcontractor to be $277.70, $211.00, and
$198.20 per ton for the small, medium and large plants, respectively.
These estimates do not include the cost of pollution control. Table 8-5
summarizes the model plant manufacturing costs used in the analysis.
The total annualized control costs for the sodium bisulfite subcategory
are summarized in Table 8-6. These costs are based on the model plant
pollution control costs and current industry production levels. All
direct dischargers have BPT removal technology in place. For this sub-
category, BAT is the same as BPT. Since all direct dischargers have BPT
in place and operating, there are no incremental costs over BPT required
for compliance with BAT regulations. Therefore, the only additional
removal costs will be incurred by the one indirect discharger. PSES
costs for this plant are estimated at $92,337 annually.
8.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
8-16
-------
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• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
As noted in Section 8.2.1, the control costs, and thus the estimated im-
pacts, are overstated.
8.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 8-7 summarizes the price rise required of each
model plant. The model plant price increases required to fully recover
the costs of PSES technology range from 2.27 to 8.97 percent.
8.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through and calculates
the resulting decline in the return on investment (ROI) and the internal
rate of return (IRR).
Model plant profitability declines range from 2.1 to 5.41 percentage
points, depending on model size (based on ROI). Application of BPT/PSES
removal costs reduced the ROI by 5.41 percentage points in the small
8-19
-------
TABLE 8-7
PERCENTAGE PRICE RISE
Chemical: Sodium Bisulfite
Price:, $267/ton
Model Plant
Production
(tons/year) PSES BAT
5,000 8.97% For this subcategory,
BAT and PSES are the
18,500 3.18 same as BPT. All
direct dischargers
35,000 2.27 have BPT in place and
operating. There will
be no incremental
costs have BPT required
for compliance with BAT
regulations.
8-20
-------
model size, representing a decrease in profitability of 64.02 percent,
and by approximately 1.44 to 1.62 percentage points, or a profitability
decrease of 4.99 to 6.88 percent, in the two larger plants (see Table 8-8).
8.2.2.3 Price Elasticity of Demand
While sodium bisulfite is not a critical input to any process, its major
market, photographic processing chemicals, is very secure because no
substitutes exist which are as convenient and inexpensive. The same
applies to demand in its other major end-use, food processing. This
implies relatively inelastic demand for sodium bisulfite in the relevant
price range. (See Sections 8.1.1, Demand, and 8.1.3, Competition, for a
complete analysis.)
8.2.2.4 Capital Analysis
The investment in BPT/PSES removal equipment required for pretreatment
represents roughly five to seven percent of total fixed investment in
place (see Table 8-9). These capital requirements can be met without
difficulty.
8.2.2.5 Closure Analysis
Table 8-10 summarizes the price elasticity of demand, price rise, and
profitability decline for sodium bisulfite model plants and compares
these to EPA's closure criteria (see methodology description).
The indirect discharger currently not in compliance with PSES limitations
corresponds to the smallest model size. The price increase required to
pass through pretreatment costs is greater than one percent for this plant.
Further, the profitability decline exceeds one percentage point, and this
decline represents 64 percent of the model plant baseline profitability
level. Although price elasticity of demand is low, further analysis is
required to determine the probability of plant closure for the one indirect
discharger. This analysis is presented in the following section.
8-21
-------
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8-22
-------
TABLE 8-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Sodium Bisulfite
Model Plant Production (tons/year)
Level of
Removal 5,000 18,500 35,000
PSES 6.9% 4.6% 4.7%
BAT For this subcategory, BAT and PSES are the same as BPT. All
direct dischargers have BPT in place and operating. There will
be no incremental costs above BPT required for compliance with
BAT regulations.
8-23
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TABLE 8-10
IMPACT SUMMARY
Chemical: Sodium Bisulfite
PRICE
CLOSURE CRITERIA
MAXIMUM
MAXIMUM PROFITABILITY
ELASTICITY PRICE RISE DECLINE CLOSURES
DESCRIBED IN Medium or High Greater Greater Predicted
METHODOLOGY SECTION Than 1% ^han l ".a11. M «.
Percentage Criteria Met
Point or
Greater than
10% of Baseline
Profitability
MODEL PLANT RESULTS
PLANT
REMOVAL PRODUCTION
LEVEL (ton/year)
PSES 5,000
18,000
35,000
MAXIMUM
PROFITABILITY
MAXIMUM DECLINE
PRICE ELASTICITY PRICE RISE (% DECLINE) CLOSURES
8.97% 5.41%* no
(64.02%)
Low 3.18 1.62 no
(6.88%)
2.27 1 . 44 no
(4.99%)
*Based on ROI.
SOURCE: EEA estimates.
8-24
-------
8.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on sodium bisulfite manufacturers.
Sodium bisulfite is a mature product and its markets are expected to
grow with real GNP. While it is not a critical input to any process,
its two major markets (photographic processing chemicals and food pro-
cessing) are very secure because no substitutes exist which are as
convenient and inexpensive. Therefore, reasonable price increases could
be sustained without an appreciable decline in the quantity demanded.
8.2.3.1 Price and Profitability Impacts
The model plant analysis indicates significant price and profitability
impacts for the one indirect discharger in the subcategory. The price
rise required for the indirect discharger to fully recover pretreatment
costs is about nine percent, a price rise that will not be required by
the rest of the subcategory which is already meeting effluent limitations.
However, three factors should mitigate the impacts on this plant:
• The indirect discharger should currently be operating with a
slight cost advantage since the other plants in the industry
have been required to operate pollution control equipment
under the promulgated BPT regulations. Since the indirect
discharger will need to incur the same costs (plus capital
cost inflation), the plant's cost and profit levels will again
be in line with the industry-wide levels.
• If the plant does require a price increase to remain competi-
tive, price pass-through is likely. Demand for sodium bisul-
fite is relatively price inelastic; further, the plant enjoys
a regional market advantage since it is one of two bisulfite
producers on the West coast. The other West coast producer is
very small, and it is unlikely to expand its bisulfite produc-
tion sufficiently to pe'netrate the indirect discharger's
existing markets.
8-25
-------
• The plant is insulated from competition from East Coast
producers because of transportation costs. The plant's ability
to recover its costs through a price increase will depend on
the magnitude of the delivery costs required to ship bisulfite
from East Coast producers to West Coast markets relative to
the pollution control costs to be incurred by the plant.
Based on current price levels, the required price increase
(8.97 percent) would raise the affected plant's price from
$490/ton to $534/ton. Transportation costs to the West Coast
(via rail) would raise the East Coast price of $450/ton to
$6l5/ton. Given this delivered selling price comparison, it
appears that the plant would be able to pass through most if
not all of its pollution control costs.
These factors suggest that pretreatment standards will not cause severe
problems for the indirect discharger.
8.2.3.2 Other Impacts and Conclusion
The price and profitability impacts will not cause severe problems for
sodium bisulfite producers. Resulting impacts in areas such as inflation,
plant closures, employment, and community disruption, are similarly
inconsequential. Sodium bisulfite is neither imported nor exported, so
there will be no impact on the balance of payments.
8-26
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9. SODIUM DICHROMATE
9.1 CHARACTERIZATION
(NOTE: As discussed below in Section 9.2, this industry subcategory
incurs no compliance costs. The following characterization data is
presented for informational purposes only.)
Sodium dichromate (or sodium bichromate) (Na^Cr^O-) is a principal
source of chromium for a variety of applications. It is an important
starting material for chromium containing chemicals, such as chrome
pigments, tanning agents, and wood preservatives.
The element chromium has chemical properties which make it attractive in
several respects. It is an effective preservative for wood and leather;
together with lead and other metals it forms brilliant pigments; and it
offers excellent corrosion resistance. Despite its excellent properties,
chromium poses serious problems. In its hexavalent oxidation state, it
is one of the most objectionable water borne pollutants. It is highly
carcinogenic and the discharge of chromium into air and water is scru-
tinized closely by OSHA and EPA. Trivalent chromium is not a proven
carcinogen.
9.1.1 Demand
The sodium dichromate industry and its end markets are well established
and mature. There are few prospects for rapid expansion and demand
growth is expected to parallel GNP growth. Figure 9-1 illustrates
sodium dichromate 's inputs and end markets.
In order to depict the total demand for sodium dichromate, the con-
ditions in its individual end markets are summarized below.
9-1
-------
9.1.1.1 End Markets
Chromic Acid - Chromic acid manufacturing consumes approximately 29
percent of current sodium dichromate production. Chromic acid is used
primarily in metal treating and plating, which account for 80 percent of
total output. In terms of cost effectiveness, consumer appeal, corro-
sion resistance, and ability to withstand wear and high tolerance machining,
chrome plated components have few substitutes. Demand is, therefore,
expected to remain stable in this segment of the market. There has been
some fear that OSHA regulations concerning worker exposure to hexavalent
chromium in plating shops would force a cutback in chromium plating.
However, many of these fears have been dismissed by development of
efficient systems for venting chromium vapors. Chromic acid is used
also in wood treatment (ten percent of production) and in chemical
manufacturing (five percent). The remaining five percent is consumed in
miscellaneous uses.
Chrome Pigments - Approximately 26 percent of current dichromate produc-
tion is used in manufacturing chrome pigments. These pigments are used
primarily in paints, surface coatings, floor products, paper, and print-
ing inks. The chrome pigments market is mature, and industry sources
indicate that there will be zero growth or possibly declining demand in
the future. This outlook is based in part upon fears that OSHA regula-
tions concerning worker exposure to lead (most chrome pigments are lead
chromates) will force smaller consumers of chrome pigments to switch to
organic colors rather than install the equipment necessary to lower lead
levels in the workplace.
Leather Tanning - Approximately 18 percent of sodium dichromate produc-
tion is used in leather tanning. Sodium dichromate is converted to
chromic sulfate and applied to the leather to inhibit chemical decom-
position. This market has experienced significant fluctuations in
demand in recent years. While shipments of sodium dichromate to domestic
leather tanners are increasing at approximatley five percent per year,
9-2
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growth in this market may not continue at this rate. The depreciation
of the dollar has allowed the domestic leather industy to recapture a
large fraction of the market previously held by imports and domestic
leather tanners anticipate growth in their industry as a result. However,
recent contacts with industry sources indicate that the U.S. is currently
exporting large volumes of hides abroad, the majority of which are not
tanned before shipment. Therefore a growth rate of five percent for the
leather tanning industry is an optimistic figure with actual growth
rates likely to be somewhat lower.
Corrosion Resistance and Metals Treatment - Chromium has excellent
corrosion inhibiting properties which make it useful for protecting
industrial systems and treatinfa metal. These two end uses comprise 11
percent of the sodium dichromate market. The active ingredient in
protecting industrial systems from corrosion is sodium chromate. Sodium
chromate can be purchased as a finished product. However, generally it
is less expensive to buy the raw materials (sodium dichromate and caustic
soda) and make the chromate in situ. Zinc chromate is used in metals
treatment as a corrosion inhibiting primer. Both of these markets are
mature, and are expected to grow with the GNP.
Wood Preservatives - Wood preservation is the fastest growing end market
for sodium dichromate. The market is expanding at an annual rate of
approximately 10 percent per year and currently accounts for five percent
of total dichromate consumption. Sodium dichromate is used to form
chromated copper arsenate (CCA), which acts upon wood in a manner similar
to the action of tanning agents on leather. The copper and arsenic bind
to cellulose fibers in the wood, inhibiting decomposition. The market
is growing as wood preservers switch to CCA from creosote and pentachloro-
phenol (PGP).
Drilling Muds - The use of sodium dichromate in petroleum drilling muds
also is growing fairly rapidly and currently accounts for four percent
of the dichromate market. Drilling muds are formed of chromium ligno
9-4
-------
sulfinates. These compounds are used to lubricate the tips of drill
bits to facilitate their movement through stone, and to carry away stone
chips from the bit head. Demand for these compounds has grown substan-
tially with increased drilling activity in the U.S., and is expected to
continue growing.
Other Markets - Other end uses of sodium dichromate include chrome
chemicals, catalysts, and other miscellaneous uses. It appears that
demand for dichromate in these end markets will remain stable.
9.1.1.2 Demand Summary
End markets for sodium dichromate generally are mature. Total demand
growth is expected to be roughly two or three percent per year. Spe-
cific predictions and conditions in each end market are summarized
below.
• Chromic Acid - Principal use is in chrome plating; should
track GNP growth - The major potential obstacle is OSHA regu-
lation of worker exposure to hexavalent chromium, which could
force closure of small plating shops.
• Chrome Pigments - End uses - paints, surface coatings, floor
products, paper, and printing inks are all mature, and should
experience no major changes in demand. OSHA regulation of
worker exposure to lead in the production and use of chrome
pigments may force some smaller users to switch to organic
colors.
• Leather Tanning - Use of chromic acid in leather tanning is
expected to grow at a moderately fast pace due to strong
demand for leather exports. This has been caused by the
dollar's depreciation. However, many hides are being exported
before tanning and growth of leather tanning may be less than
expected.
• Corrosion Resistance and Metals Treatment - This market is
mature, and demand should remain stable.
• Wood Preservatives - Demand for dichromate for use in wood
preservatives is growing at 10 percent per year, and should
continue to penetrate the markets of creosote and PCP.
9-5
-------
o Drilling Muds - Increased domestic drilling activity is driv-
ing up demand for sodium dichromate in the production of
drilling muds.
The greatest industry growth is in dichromate's smaller markets and,
therefore, should not have a significant impact upon overall demand for
the product. Most industry sources predict demand growth at two to
three percent, barring any serious cutbacks in demand due to OSHA regulations,
9.1.2 Supply
9.1.2.1 Production
Sodium dichromate production has varied widely during the period 1968-1977,
with changes as great as 30 percent during the recession years of 1974-1975.
Total growth in production has been only 7.3 percent, which is equivalent
to an annual growth rate of 0.79 percent. Part of the depressed growth
rate from 1968 to 1977 was due to the severe drop in production in 1975,
from which the industry has not yet recovered fully. The parallel
between production and general economic conditions, indicates that the
sodium dichromate industry is mature, and that its growth will tend to
follow or trail GNP growth in the long run. Table 9-1 and Graph 9-1
summarize production and prices during the period 1968-1977.
9.1.2.2 Producers
There are three producers of sodium dichromate, each operating one
plant. Two producers, Allied Chemical and Diamond Shamrock are inte-
grated to soda ash as a raw material and to chromic acid as an end
product. The third producer, PPG Industries, has no vertical inte-
gration. Table 9-2 summarizes current producers and facilities.
9-6
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GRAPH 9-1
SODIUM BICHROMATE PRODUCTION AND PRICE
182.00 -
136.50 -
VOLUME 91.00 -
(000's of tons)
45.50 -
0.00 —
1968
1972
1976
YEAR
AVERAGE
UNIT
VALUE
(dollars)
600.00 -
450.00 -
300.00 -
150.00 _
0.00 -J—
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I I !
1972
YEAR
1976
SOURCE: Department of
-------
TABLE 9-2
PRODUCERS OF SODIUM DICHROMATE
COMPACT
LOCATION
INTEGRATION
ANNUAL CAPACITY ESTIHATEB PERCENTAGE OF
(thousand tons) INDUSTRY CAPACITY RAW MATERIALS END PRODUCTS
Allied Chemical
Company
Baltimore. MD
65.0
36
Sod* Ash
Chromic Acid
Diamond Shamrock
Castle Haynt. NC
84.2
47
Soda Axh
Chromic Acid
PPG Industries, Inc. Corpus Christie, TX
30.0
17
TOTAL
179.2
100
SOURCE: Chemical. Marketing Reporter, July 12, 1976.
9-9
-------
9.1.2.3 Process
Production of sodium dichromate is a two stage process. The first stage
is the production of sodium chromate by calcining a mixture of chromite
ore, soda ash, and limestone. In the second stage, sodium dichromate is
produced by the reaction of sodium chromate and sulfuric acid. Sodium
sulfate is produced as a by-product of the second stage reaction. (See
Table 9-3 for estimates of raw material requirements and manufacturing
costs.)
The production process is governed by the following reactions:
1) 4(FeO-Cr.O_) -i
2. J £. J f. £. t £.3 f.
(Formation of sodium chromate)
(Formation of the dichromate)
9.1.3 Competition
Sodium dichroraate is a principal starting material for a variety of
processes which result in products containing chromium. In this role,
dichromate has few substitutes except for sodium chromate, which is
produced in the first stage of the dichromate production process.
Sodium chromate generally is more expensive than sodium dichromate.
The main form of competition in sodium dichromate use is end market
competition. The primary substitutes and the nature of competition in
dichromate's major end markets are summarized below.
9.1.3.1 End Market Competition
Chrome Plating - There are two submarkets in the chrome plating industry:
hard chrome plating and decorative chrome plating. Hard chrome plating
provides hardness, low friction, and long wear in industrial applications.
9-10
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TABLE 9-3a
ESTIMATED COST OF MANUFACTURING SODIUM BICHROMATE*
(mid-1978 dollars)
Plant Capacity 28,700 tons/year
Annual Production 22,000 tons/year
(77% capacity utilization)
Fixed Investment $8.7 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Chromite Ore
(50% Cr 0 ) 2199 Ib .031 68.20
- Soda Ash 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• La'bor 88.10
• Maintenance 15.80
Total Semi-Variable Costs $103.90
FIXED COSTS
• Plant Overhead 22.00
• Depreciation 39.50
• Taxes & Insurance 5.90
Total Fixed Costs $ 67.40
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 .027 (32.40)
TOTAL COST OF MANUFACTURE $438.80
SOURCE: Contractor and EEA estimates
*See Appendix C
9-1:
-------
TABLE 9-3b
ESTIMATED COST OF MANUFACTURING SODIUM DICHROMATE*
(mid-1978 dollars)
Plant Capacity 71,700 tons/year
Annual Production 55,000 tons/year
(77% capacity utilization)
Fixed Investment $15.8 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Chromite Ore
(50% Cr.O ) 2199 Ib .031 68.20
- Soda Ash 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• Labor 51.20
• Maintenance 11.40
Total Semi-Variable Costs $ 62.60
FIXED COSTS
• Plant Overhead 12.80
• Depreciation 28.70
• Taxes & Insurance 4.30
Total Fixed Costs $ 45.80
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 Ib .027 (32.40)
TOTAL COST OF MANUFACTURE $375.90
SOURCE: Contractor and EEA estimates
*See Appendix C
9-1:
-------
TABLE 9-3c
ESTIMATED COST OF MANUFACTURING SODIUM BICHROMATE*
(mid-1978 dollars)
Plant Capacity 100,300 tons/year
Annual Production 77,000 tons/year
(77% capacity utilization)
Fixed Investment $19.6 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Chromite Ore
(50% Cr,0.) 2199 Ib .031 68.20
- Soda Ash J 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• Labor 41.10
• Maintenance 10.20
Total Semi-Variable Costs $ 51.30
FIXED COSTS
• Plant Overhead 10.20
• Depreciation 25.40
• Taxes & Insurance 3.80
Total Fixed Costs $ 39.40
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 Ib .027 (32.40)
TOTAL COST OF MANUFACTURE $358.20
SOURCE: Contractor and EEA estimates
*See Appendix C
9-13
-------
In this area, there are no direct substitutes. Both iron and electroless
nickel (a plating process using a chemical catalyst rather than electrical
current) can be plated for industrial applications, but neither offers
comparable performance characteristics, and electroless nickel is much
more expensive. In decorative applications, chrome plating has the
advantages of cost effectiveness, consumer appeal, and strong corrosion
resistance, all of which contribute to its strength in this market.
Plastics and painted materials offer some competition in automobile
interiors and other uses.
Chrome Pigments - The chrome pigments industry may face serious compe-
tition from organic colors. Some small pigment consumers may be covered
by OSHA regulations further limiting worker exposure to lead. The cost
of implementing these regulations may force these consumers to switch to
organic substitutes. Increased switching to organic colors may also
result as chrome pigments manufacturers attempt to pass through their
increased OSHA regulatory costs by raising pigment prices. Thus, OSHA
regulations may directly or indirectly stimulate a shift from inorganic
pigments to organic coloring agents.
Tanning - There is no widely accepted substitute to chromic sulfate in
leather tanning. Synthetic and vegetable tanning agents are limited to
certain product uses and chromic sulfate has wider applicability.
Wood Preservatives - There are three commonly used wood preservatives:
chromated copper arsenate (CCA), creosote, and pentachlorophenol (PCP).
These three products are often interchangeable in industrial applications.
CCA is preferred for interior uses and home applications. Creosote is a
black, sticky product derived from coal tar. It cannot be painted, and
is of little use in interior applications. PCP-treated wood cannot be
used in closed spaces as it emits toxic vapors.
9-14
-------
Drilling Muds - Many mineral compounds can be substituted for chromium
drilling muds. The chrome muds, however, are more cost effective than
prevalent substitutes.
Metals Treatment and Corrosion Inhibition - Chromium corrosion inhibitors
have few cost effective substitutes in industrial applications. Zinc
compounds are used for metal treatment, but are less cost effective than
chromium and have a strong white color.
Imports are no longer a factor in the sodium dichromate market. As
recently as 1971, imports were an important aspect of the market.
However, increases in ocean shipping rates and the depreciation of the
dollar have made imported dichromate noncompetitive. The United States
currently is a net exporter of sodium dichromate.
9.1.4 Economic Outlook
9.1.4.1 Revenue
Sodium dichromate sales are expected to grow zero to five percent annually.
The most pessimistic prediction is based on the assumption that OSHA
regulations will cause a drop in consumption in the chrome pigments and
chromic acid end markets. The most favorable prediction assumes that
this will not occur, and that the smaller markets of tanning, wood
preservatives, and drilling muds will continue to grow at a fairly rapid
pace. Most predictions are for a growth rate of two percent.
Diamond Shamrock plans to expand capacity from 240 tons/day to 300
tons/day during the 1980's. This represents an 11 percent increase in
industry capacity, and has -the potential for lowering capacity utili-
zation in the industry if demand growth remains sluggish.
9-15
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9.1.4.2 Manufacturing Costs
Considerable uncertainty exists with respect to future manufacturing
costs for sodium dichromate. The chromite ore used in chemicals manu-
facturing is imported almost entirely from South Africa. There is some
potential for political instability in this region, which could disrupt
supplies and drive up the price. The price rose considerably during the
embargo imposed on Rhodesian ore in 1977, but subsequently leveled off
and has not changed substantially since the embargo was lifted in 1980.
The price of soda ash has declined due to an increase in the production
of natural soda ash in the western United States.
Sulfuric acid, another major input, has increased in price rapidly over
the last five years. Prices for this commodity are expected to continue
their strong rise.
Energy is a comparatively small input, and while it is expected to
contribute to cost increases, it should not have an overwhelming impact.
Total production costs for sodium dichromate can be expected to climb in
the future. The rate of increase, however, should not be as great as
that for the chemical industry in general.
9.1.4.3 Profit Margins
Demand growth for sodium dichromate is expected to be moderate (2-3
percent) during the next several years. This prediction, however, is
based primarily on the maturity of dichromate*s end markets, rather than
on competition from substitute products. Sodium dichromate has rela-
tively secure end markets, and relatively few substitutes in them.
Moderate cost increases are likely to be reflected in the product price,
and profit margins in this industry should remain secure.
9-16
-------
9.1.5 Characterization Summary
Sodium dichromate is an effective preservative for wood and leather, an
ingredient in pigments used in paints, and a corrosion inhibitor.
Approximately 157,000 tons were produced in 1977 by three companies:
Allied Chemical, Diamond Shamrock, and PPG. Substantial demand growth
is anticipated in some of sodium dichromate's end markets, particularly
wood preservatives. However, because the highest growth rates will
occur in dichromate's smaller markets, the overall demand growth for the
product will be slow to moderate. Industry observers cite possible OSHA
regulations of worker exposure to hexavalent chromium as a potential
threat to growth in dichromate's main market, chromic acid. If demand
cutbacks due to OSHA regulations are not severe, growth of the sodium
dichromate industry should be 2 to 3 percent annually.
9.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
sodium dichromate subcategory to comply with BAT effluent control standards.
All sodium dichromate manufacturers are currently complying with the BPT
effluent limitations promulgated and in effect for this subcategory.
For this subcategory, BAT is equivalent to BPT. Since there will be no
incremental costs above BPT required for compliance with BAT regulations,
effluent regulations will have no impacts on the sodium dichroraate sub-
category.
9.2.1 Pollution Control Technology and Costs
As noted above, no new pollution control costs will be incurred by the
sodium dichromate subcategory. Capital and operating costs, developed
by the technical contractor for pollution control equipment designed to
meet BPT levels of waste removal, are shown in Table 9-4.
The major waste in sodium dichromate manufacture is the undigested por-
tion of the chromite ore. To achieve BPT removal levels, the following
procedure is used:
9-17
-------
o Sodium bisulfide and caustic soda are added to the wastewater to
reduce hexavalent chromium, and to precipitate toxic metals and
chromium hydroxide.
o Solids are settled in lagoons, where additional sodium bisulfide
is added.
o Overflow from the clarifier is pH adjusted and discharged.
Underflow is returned to the lagoon.
Pollution control cost estimates were developed for three model plant
sizes, with average production rates of 22,000, 55,000 and 77,000 tons
per year. For the model plants, an average unit wastewater flow of
1,625 gallons per ton (7mg/kkg) was assumed. Pollution control costs
for the model plants are summarized in Table 9-4.
9-18
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10. TITANIUM DIOXIDE
10.1 CHARACTERIZATION
Titanium dioxide (TiO ) is a white pigment used to whiten or opacify
paints, paper, plastics, and several other products. It is used more
than other white pigments because of its exceptional hiding power,
negligible color, and inertness. Titanium dioxide is a high volume
chemical ranking 49th in terms of production volume for all U.S. chem-
icals. It is also a high value commodity with recent prices around
$1,000 per ton (many chemicals are worth one-tenth this much). Because
of its high value, Ti02 can be shipped internationally, making foreign
competition a significant characteristic of the U.S. market.
Titanium dioxide is a well established, mature product having been
produced for over 40 years. Most of its many end markets are also
mature, and product demand has paralleled GNP growth. Although the
chemical has been produced for many years, relatively recent techno-
logical advances have reduced manufacturing costs.
10.1.1 Demand
Over one-half of the titanium dioxide produced is used in paints, var-
nishes, and lacquers. Almost a third is used in paper and plastics.
Other uses are found in ceramics, ink, and rubber (see Figure 10-1).
Production of titanium dioxide is particularly dependent on the use of
paint and coatings in housing starts and restoration and in automobile
manufacture. In 1975, demand for paint and coating products slipped
well below the 1974 level. As a result, .paint and coating manufacturers
reduced their output as well as their purchases of titanium dioxide. In
10-1
-------
addition, they used inventories accumulated in anticipation of a shortage
and cut the proportion of titanium dioxide used in trade paints (to
avoid raising paint prices). Reduction of hiding power was exchanged
for lower prices. The paper industry followed the same pattern. Both
industries have recovered somewhat and the titanium dioxide content has
been increasing again. In paper especially, TiO can improve the qual-
ity of coated materials and save weight.
U.S. demand for TiO is increasing and slowly shifting. Forecasts show
a long run growth rate of about three percent. Surface coatings will
continue to dominate TiO ' s market, but growth in other areas will be
faster than that in coatings. The use of TiO~ in plastic, for example,
is expected to grow about eight percent per year and use in paper, about
five percent. Overall, TiO has mature markets and its long run increase
in volume is expected to follow real GNP growth.
10.1.2 Supply
10.1.2.1 Production
Production of TiO grew steadily between 1964 and 1974 at an average
rate of 3.25 percent per year. The last several years, however, have
seen highly variable demand (and thus production). In 1975, a recession
year, production fell 23 percent. This is indicative of TiO ' s depen-
dence on general economic conditions. Production rose in 1976, but was
still below the peak production in 1973-74 (see Table 10-1 and Graph
10-1). In 1977, production fell again to a level 14 percent below the
peak year of 1974. In 1978, production rose 5 percent above 1977 levels
to 720,000 tons.
10.1.2.2 Producers
There are six producers of TiO at 11 plant sites in the United States
(see Table 10-2). DuPont controls 55 percent of the total industry
10-2
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GRAPH 10-1
TITANIUM DIOXIDE PRODUCTION AND PRICE
800.00-
600.00 -
VOLUME 400.00.
(OOO's of tons)
200.00-
0.00 ._-
1967
1971
1975
YEAR
AVERAGE
UNIT
VALUE
(dollars)
900.00-
675.00-
450.00-
225.00-
1971
YEAR
10-5
1975
SOURCE: Department of Coiraneide-
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capacity with the next three producers accounting for another one-third.
Most of the producers are large chemical corporations or conglomerates.
There is a considerable amount of forward integration by the producers
to the main end product, paint. Backward integration has actually
decreased in some cases as TiO_ producers have sold their ore interests.
Kerr McGee has a synthetic rutile ore plant in Mobile, Alabama which
resumed operation in 1980 after a two-year shutdown for additions and
improvements to the plant's equipment. (Kerr McGee 10 K Report, 1979).
The total industry capacity is over one million tons per year with
individual plant capacities ranging in size from 30,000 to 228,000
tons/year. Titanium dioxide is produced by the sulfate, chloride or
chloride-ilmenite process. Of the three processes, sulfate plants
account for 269,000 tons (25 percent) of the total industry capacity,
chloride plants account for 239,000 tons (23 percent), arid chloride-
ilmenite plants account for 545,000 tons (52 percent). The newer
plants all utilize the chloride process in part because of the higher
pollution control costs associated with sulfate production.
The four sulfate plants range in age from 23 to 44 years. All four
plants are completely dedicated to titanium dioxide production. Thus,
except for some sulfuric acid plants at the facilities (used in TiO-
production), there are no other chemicals produced. The startup dates
for the plants are:
• NL - Sayreville: 1935
• NJ Zinc - Gloucester: late 1940's
• American Cyanamid - Savannah: 1955
• SCM - Baltimore: 1956
Capacity has been expanding steadily in the industry. Before 1971 there
was an oversupply of TiO in the market, in 1973 and 1975 a shortage,
10-7
-------
and more recently, oversupply. In the past decade, DuPont has more than
doubled the capacity at its New Johnsonville, Tennessee plant. Recent-
ly, the chloride-ilmenite capacity at its Edge Moor, Delaware plant was
tripled as the last of DuPont's sulfate plants was shut down (a 155,000
ton/year unit in Edge Moor). DuPont has a new 150,000 ton/year chloride
plant partially on stream in DeLisle, Mississippi. (The plant is not
expected to be operating at capacity until 1982.) They also are interested
in building a unit the size of the DeLisle plant in Europe.
10.1.2.3 Process
There are three ways of making TiO?: by the chloride process, by the
chloride-ilmenite process or by the sulfate process. There are also two
basic types of TiO_ crystals produced: rutile and anatase. The rutile
form of the pigment normally results from the chloride process and the
anatase pigment from the sulfate process. All three processes can now
produce both types of pigment although there are subtle differences
between the pigments.
10.1.2.3.1 Sulfate Process
The sulfate process is the older process which uses sulfuric acid to
digest titanium ores. The ore used in this process is either ilmenite
(40 percent to 55 percent TiO_) or an upgraded ilmenite (70 to 85
percent). Naturally, when dealing with an ore which contains only 50
percent product, there are significant waste products. The reactions
are:
FeTiO. + 2H_SO. -* FeSO. + TiO"SO, + 2H.O
324 4 42
TiO"SO, + 2H00 -» TiO "H00 + H SO.
4 2 22 24
10-8
-------
The iron content of the ilmenite dissolves as ferric sulfate and is
converted to ferrous sulfate through the addition of scrap iron. Many
other metals which may have been in the ore also dissolve as sulfates.
The result is a waste stream which may contain three to four tons of
hydrated iron sulfate and 40 tons of dilute sulfuric acid and wash water
for each ton of product. The acid stream may be neutralized using
limestone. This, in turn, results in approximately four tons of gypsum
(calcium sulfate) for each ton of product. There are markets for the
gypsum (e.g., wallboard manufacture) but its price is low.
The estimated manufacturing costs for sulfate TiO» production are given
in Table 10-3. Included are material requirements for producing one
short ton of TiO .
10.1.2.3.2 Chloride Process
In the chloride process, first used in the late 1950*s, an ore high in
titanium and low in iron is chlorinated in a fluidized bed. Rutile,
synthetic rutile, or upgraded ilmenite are generally used. The reactions
for the chloride process are:
3Ti00 + 4C + 6C10 -» 3TiCl. + 2CO + 2CO_
224 2
(94 percent yield based on titanium)
The estimated manufacturing costs for chloride TiO« production are pre-
sented in Table 10-4. Included are material requirements for producing
one short ton of TiO .
10.1.2.3.3 Chloride-Ilmenite Process
The chloride-ilmenite process is a proprietary process developed by DuPont ,
This process utilizes lower grade ilmenite ores which are cheaper and
10-9
-------
more available than the ilmenite and rutile ores used in the chloride
process described*above. Therefore, DuPont has a significant cost
advantage as a result of using the chloride-ilmenite process.
10.1.3 Competition
10.1.3.1 The Titanium Dioxide Pigments
Titanium dioxide pigments are produced in many forms. Starting with
either the rutile crystal (the denser form) or the anatase crystal, a
great variety of coatings and other additives can be used to make the
pigment perform best in any particular end use. In addition to the
chemical differences in pigments, the form of the product also varies.
About 20 percent of TiO- in 1978 was shipped in a slurry rather than in
its usual powdered form. Because of these differences in pigment charac-
teristics, the TiCL market is really segmented into several submarkets
depending on the end use. However, manufacturers can switch production
among several grades of pigments so there is competition in each submarket
(based predominantly on price). In 1973, when there was a TiO shortage,
availability, as well as price, became an important competitive factor.
More recently there has been excess capacity and availability has not
been a major factor.
10.1.3.2 The World Market
Titanium dioxide is a high value commodity used throughout the world.
Because of its very high unit value (around $l,000/ton), it can be
economical to ship it internationally. In the United States, foreign
trade has played an important role (see Table 10-5). Net imports have
been growing since 1975 and presently represent nearly 15 percent of
consumption. This is unusually high for a U.S. process chemical. SCM
Corporation filed a complaint with the Treasury Department in September
of 1978, alleging that imports from Belgium, West Germany, the United
Kingdom, and France have been sold at less than fair market value. The
10-10
-------
(mid-1978dollars)
46,000 tons/year
35,000 tons/year
(76% capacity utilization)
$84.2 million
$/Unit
37.80
20.06
108.00
$/Ton
73.70
82.80
162.30
TABLE 10-3a
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Ilmenite Ore
- Sulfuric Acid
- Scrap Iron
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Unit/Ton
1.95 tons
4.13 tons
.16 tons
102.3 mgal
23.26 mlb
26.74 mgal
514.8 kWh
9.6 MMBtu
.031
2.83
.41
.019
2.18
3.20
65.80
11.00
9.80
20.90
$446.80
115.90
53.00
$168.90
81.90
240.00
448.00
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$369.90
$985.60
*See Appendix C
10-11
-------
TABLE 10-3b
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Ilmenite Ore
- Sulfuric Acid
- Scrap Iron
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
(mid-1978 dollars)
69,000 tons/year
52,500 tons/year
(76% capacity utilization)
$111.8 million
Unit/Ton
1.95 tons
4.13 tons
.16 tons
102.3 mgal
23.26 mlb
26.74 mgal
514.8 kWh
9.6 MMBtu
$/Unit
37.80
20.06
108.00
.031
2.83
.41
.019
2.18
$/Ton
73.70
82.80
17.30
162.30
3.20
65.80
11.00
9.80
20.90
$446.80
86.60
45.60
$132.20
95.10
212.80
42.50
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$350.40
$929.40
*See Appendix C
10-12
-------
TABLE 10-3c
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Ilmenite Ore
- Sulfuric Acid
- Scrap Iron
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
(mid-1978 dollars)
108,000 tons/year
82,000 tons/year
(76% capacity utilization)
$153 million
Unit/Ton
$/Unit
102.3 mgal .031
23.26 mlb 2.83
26.74 mgal .41
514.8 kWh .019
9.6 MMBtu 2.18
$/Ton
1.95 tons
4.13 tons
.16 tons
37.80
20.06
108.00
73.70
82.80
17.30
162.30
3.20
65.80
11.00
9.80
20.90
$446.80
61.90
39.50
$101.40
131.50
186.40
37.30
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$355.20
$903.40
*See Appendix C
10-13
-------
TABLE 10-4a
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - CHLORIDE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Rutile Ore
- Metallurgical Coke
- Chlorine
- Oxygen
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
(mid-1978 dollars)
24,200 tons/year
18,500 tons/year
(77% capacity utilization)
$36.5 million
Unit/Ton
$/Unit
$/Ton
1.06 tons
.26 tons
.14 tons
. 5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
120 mgal
10.25 mlb
7.5 mgal
920 kWh
.031
5.67
.41
.019
3.70
58.10
3.10
17.50
2.40
$482.20
143.80
40.30
$184.10
104.20
196.20
39.20
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and" EEA estimates
$339.60
$1,005.90
*See Appendix C
10-14
-------
TABLE 10-4b
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - CHLORIDE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Rutile Ore
- Metallurgical Coke
- Chlorine
- Oxygen
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
(mid-1978 do. .ars)
36,400 tons/year
28,000 tons/year
(77% capacity utilization)
$48.6 million
Unit/Ton
120 mgal
10.25 mlb
7.5 mgal
920 kWh
$/Unit
.031
5.67
.41
.019
$/Ton
1.06 tons
.26 tons
.14 tons
. 5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
3.70
58.10
3.10
17.50
2.40
$482.20
109.40
35.50
$144.90
96.80
173.50
33.60
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$303.90
$931.00
*See Appendix C
10-15
-------
TABLE 10-4c
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - CHLORIDE PROCESS*
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Rutile Ore
- Metallurgical Coke
- Chlorine
- Oxygen
- Other
• Utilities
- Cooling Water
- Steam
- Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
(mid-1978 dollars)
65,000 tons/year
50,000 tons/year
(77% capacity utilization)
$72.9 million
Unit/Ton
120 mgal
10.25 mlb
7.5 mgal
920 kWh
$/Unit
1.06 tons
.26 tons
.14 tons
.5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
.031
5.67
.41
.019
3.70
58.10
3.10
17.50
2.40
$482.20
78.90
29.90
$108.80
102.00
145.60
29.20
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$276.80
$867.80
*See Appendix C
10-16
-------
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International Trade Commission (ITC) was then asked by the Treasury
Department to determine if there was a reasonable indication of injury
or the likelihood of injury to an industry in the U.S. The commission
decided, in November of 1978, that there was such an indication and that
the Treasury Department's investigation should not be terminated. This
finding indicated, at a minimum, that imported pigment is competitive
with domestic pigment. A subsequent investigation resulted in a decision
by the ITC in November of 1979 that the U.S. industry is not being
injured by titanium dioxide imported from Europe.
World capacity for TiO~ was about 2.4 million metric tons in 1978.
Western Europe accounts for the greatest share (46 percent) followed by
the U.S. and Canada (37 percent), Japan (9 percent), and other non-
Communist countries (8 percent). Because TiO consumption closely
follows general economic conditions in each country, the demand varies
by country as some economies outpace others. In the U.S., for example,
weak European markets generally cause an increase in imports. Historically,
as European capacity utilization has fallen, their exports have increased.
Conversely, as European demand increases, their exports to the U.S.
decrease.
10.1.3.3 The U.S. Market
There are six producers of TiO- in the U.S. with DuPont accounting for
55 percent of capacity (including their new Mississippi plant). There
have been several plant closings since 1969 with NL's St. Louis sulfate
process plant the most recent (June 1978). DuPont has closed down its
sulfate plants and greatly expanded its chloride-ilmenite process capacity.
Other plants have been expanded or sold since 1969. The net result of
these changes was insufficient capacity in 1973, and overcapacity in
1977 and 1978. With overcapacity and especially rapid cost increases
occurring simultaneously, profit margins were reduced.
10-18
-------
Since Ti02 competes predominantly on the basis of price, the pricing
practices of the industry are the best indicators of the competitive
stature of the industry. Given a certain level of demand, the two main
factors influencing U.S. market price are the price of imports and the
price set by the lowest cost domestic producer. The International Trade
Commission (1TC) initially found some evidence of sales lost to European
competitors, although the commission eventually ruled that the U.S.
industry is not being injured by imports. In the long run, foreign
producers could increase their market share if they could consistently
underprice U.S. producers. According to the ITC study, some import
prices in 1977 and 1978 were below and some above those of domestic
producers. However, some sources consider the pricing of foreign pig-
ment of secondary importance to the prices set by DuPont. One ITC
commissioner, dissenting with the ITC's initial finding of injury, said,
"DuPont is clearly the dominant firm in the domestic industry,
with about half of domestic production and a unique chloride
production process which is much more efficient than any other
in the world. DuPont's profits are at reasonable levels and
it plans major capacity expansions. I have not found much
evidence of injury in the factors analyzed, but I am convinced
that any injury which may exist is not by reason of imports
from these four countries, but is more likely related to
conditions of competition among domestic producers."
Thus, the U.S. market prices are delineated by DuPont as the lowest cost
producer setting a floor, and import prices limiting the ceiling for
other U.S. producers.
DuPont's market dominance was scrutinized in a Federal Trade Commission
investigation. In 1978, DuPont was accused by the FTC of attempting to
monopolize TiO production, but the case was subsequently dismissed in
October 1980. This finding makes it likely that DuPont will continue to
dominate U.S. production and exert a strong influence on TiO,, pricing for
the next several years.
10-19
-------
10.1.4 Economic Outlook
The future profitability of TiO_ manufacture will depend on maintaining
strong physical volume, adequate profit margins, and moderated increases
in manufacturing costs.
10.1.4.1 Revenue
Total revenue is the product of the quantity sold and unit price.
Though these two variables are discussed separately below, it should be
recognized that they are interrelated.
10.1.4.1.1 Quantity
Sales volume of titanium dioxide, in general, reflects the overall
condition of the U.S. economy. End products of Ti02 are marketed in
major sectors of the economy (e.g., construction and housing starts).
The trend in volume has shown little growth over recent years (1972 to
1977) while price has increased considerably (see Graph 10-1). Long-term
demand growth is expected to parallel that of the economy as a whole.
That is, physical volume will increase with real GNP. The use of TiO.
in some sectors, such as plastics, is expected to increase substan-
tially. Most estimates anticipate an annual growth rate of approximately
three percent.
10.1.4.1.2 Price
The price of TiO pigments depends on the type of crystal (rutile or
anatase), the grade, and the volume and form of the shipment. Minimum
orders of about 20 tons are required to receive list base prices. Most
shipments are made in dry form (e.g., 50 Ib bags) but there are in-
creasing amounts of shipments in the wet slurry form. Purchasers receive
discounts for this form of shipment which now represents about 20 percent
of volume. (This form of shipment can also reduce the quantity of water
effluents at the plant.)
10-20
-------
During the 1960*s TiO prices were relatively constant. From 1970 to
1972, weak demand and what industry sources describe as a "price war"
caused prices to fall 11 percent below the 1968 average unit value of
$511. In 1973 and 1974 demand increased markedly and, with supply
unable to meet demand, prices rose six percent in 1973 and 33 percent in
1974. In 1975, the recession caused demand to fall significantly as
volume dropped 23 percent. Prices, however, continued to rise as manu-
facturers experienced large increases in manufacturing costs (especially
energy and pollution control). Overall, from 1972 to 1977, prices
increased 81 percent while volume decreased one percent (see Table 10-1
and Graph 10-1).
Prices remained near 1977 levels until June of 1978 when producers
raised prices 2.5 cents per pound ($50 per ton) and started to remove
discounts from list prices (which were near two cents per pound). Price
competition through discounting is not uncommon. Because of varying
discounts it is often difficult to find the "real" price of the product.
By the end of 1978, the new prices were "holding up well" i.e., there
was little discounting. The list prices were: 51 cents per pound
($l,020/ton) for rutile and 46 cents per pound ($920/ton) for paper
grade anatase.
10.1.4.2 Manufacturing Costs
Until recently, the chloride process for the manufacture of titanium
dioxide was suitable only for use with rutile, a rare (and consequently
expensive) compound. New technological advances may have ameliorated
this raw material problem. According to industry sources, Quebec Iron
and Titanium Company plans to build a complex in South Africa which will
convert ilmenite ore into titanium slag (85 percent TiO ) . This slag
will be suitable for use in siilfate plants. The company presently
operates a similar plant in Sorel, Quebec which produces a 71 percent
TiO. slag. As producers switch to these higher purity ores, it is
possible that pollution control costs (quoted as high as $140 per ton of
pigment) will be reduced.
10-21
-------
DuPont, the leading manufacturer of titanium dioxide, produces TiCL by
the chloride-ilmenite process, using ilemnite or ilmenite/rutile mixtures.
Both of these improvements should begin to solve the raw materials
problems as well as help to restrain prices and strengthen the industry.
Energy costs and availability will also play an important role in future
TiO. manufacturing costs. Utilities now represent approximately 10
percent of manufacturing costs. With energy rising faster than most
other input costs, manufacturing cost increases will continue to be tied
to energy costs. Coke and chlorine prices will also be affected by
rapidly escalating energy costs.
Manufacturing costs for TiCL are subject to technological advances and
other producers may follow DuPont in shutting down sulfate plants and
building more efficient new chloride plants. For example, SCM has said
that its expansions are likely to be in additional chloride capacity
(SCM Annual Report, 1977). There are now hundreds of patents worldwide
covering various stages of TiO_ manufacture and processing of ores. As
these processes continue to improve and manufacturers apply more of them
in their plants, manufacturing cost increases are likely to be moderated.
There are difficulties with chloride technology however, and some producers
may not consider the available technologies competitive. Further research
and development (or access to DuPont chlcride-ilraenite process technology)
may aid in reducing manufacturing costs.
10.1.5 Characterization Summary
With manufacturing costs increasing and competitive pressure causing
resistance to price increases, it will be difficult for all producers to
remain profitable. One industry source has said that, except for DuPont,
all U.S. manufacturers probably operated marginally or at a loss between
1975 and mid-1978. There are several factors which will influence
profits in the long run. On the positive side:
10-22
-------
• Titanium dioxide is unique in that its opacity far exceeds
that of substitutes
• New ores, new technologies, and perhaps widespread use of
DuPont's technology may dampen cost increases and make U.S.
TiO more competitive
• Capacity utilization should be adequate if demand does not
falter and if some of the older plants are shut-down
However, there are several potential problems:
• Pigment demand may fall significantly if the U.S. economy
experiences another recession
• DuPont's new plant (DeLisle) has added significantly to indus-
try capacity, other producers plan to add capacity, and there
is no guarantee that older plants will shut down
• Foreign competition will continue to threaten U.S. producers
Under these circumstances there is some uncertainty as to the future
economic condition of the industry.
On a worldwide scale, (non-Communist) demand has increased and capacity
additions have slowed. This resulted in several successful price in-
creases in 1978. Rising demand in Japan and western Europe will reduce
their propensity to export to the U.S. Thus the U.S. market should see
a growth in volume of 3.0 to 3.5 percent per year and prices should be
adequate for most producers.
10.2 IMPACT ANALYSIS
This section examines the potential economic impacts of requiring the
titanium dioxide subcategory to comply with BAT/PSES limitations. The
technical contractor has estimated the costs of compliance with BAT/PSES
effluent limitations. These costs are used to make an assessment of
economic impacts on the titanium dioxide subcategory.
10-23
-------
As discussed in the characterization section, titanium dioxide is pro-
duced by the sulfate, chloride, or chloride-ilmenite process. Plants
using the chloride or chloride-ilmenite process will incur no additional
effluent control costs for compliance with BAT limitations:
1) For chloride process plants, BAT limitations are based on BPT. BPT
equipment is already in place and operating for all chloride pro-
cess titanium dioxide plants.
2) All chloride-ilmenite process plants are currently achieving removal
levels equivalent to BAT standards and therefore will incur no
additional effluent control costs.
Thus, the analysis of economic impacts for the titanium dioxide subcate-
gory is confined to the impacts of BAT/PSES costs on sulfate process
plants.
There are four titanium dioxide plants using the sulfate process, as
summarized below:
1) One plant has BPT equipment (required to meet BAT limitations)
installed and operating. This plant will incur no incremental
effluent control costs.
2) A second plant is ocean-dumping part of its waste stream and dis-
charging the remaining waste to a POTW. This plant may incur in-
cremental costs for compliance with PSES regulations.
3) A third plant does not have land-based BPT equipment in place and
therefore will incur incremental effluent control costs for com-
pliance with BAT regulations.
4) A fourth plant has BPT equipment only partially installed. The
equipment is not functioning adequately to meet BAT limitations.
Therefore, this plant will incur incremental effluent control
costs.
10.2.1 Pollution Control Technology and Costs
Because the chloride and sulfate processes used to manufacture titanium
dioxide are inherently different and produce dissimilar waste streams,
the technical contractor has developed effluent control costs separately
for each process.
-------
10.2.1.1 Sulfate Process
Two steps in the sulfate manufacturing process, filtration and washing
of the precipitated product, result in two distinct wastewater streams
of high and low acidity, respectively. The strong acid stream contains
up to 30 percent sulfuric acid, dissolved iron, and heavy metal salts.
The weak acid stream contains approximately two percent H^SO, and some
heavy metal sulfate salts. Other significant wastewater sources are
contact cooling water, scrubber waste, and waste from final product
preparation.
Achieving BAT/PSES removal levels (which are equivalent to BPT in this
subcategory) will require three steps:
• Limestone precipitation of heavy metals with subsequent clarification
• Aeration of effluent from precipitation step
• Lime precipitation for settling of remaining metals.
There are three sulfate process model plants, with production rates of
35,000, 52,500 and 82,000 tons per year. The plants are designed for
continuous operation, 350 days per year.
Sulfate process plants will not require iron removal (as previously
proposed by EPA) in order to meet BAT/PSES limitations. Pollution
control cost estimates exclusive of iron removal were developed on
the basis of 1979 treatment cost estimates from the technical contrac-
tor with and without iron removal.
Table 10-6a shows the BAT/PSES cost estimates with and without iron
removal for the three sulfate process model plants. It should be
noted that one plant, corresponding to model size three, is currently
ocean dumping a portion of its waste stream (and will be allowed to
continue ocean dumping through at least 1989) and discharging the re-
mainder of its waste stream to a POTW. This plant may require additional
10-25
-------
pretreatment for the portion of its effluent being discharged to a POTW.
Technical contractor estimates indicate that the plant's cost for addi-
tional pretreatment would be approximately 25 percent of the costs of a
total land-based pretreatment system. Therefore, this plant's costs are
estimated as 25 percent of the corresponding model plant's costs.
Sales of by-product gypsum (generated by the waste treatment process)
may help defray part of these effluent treatment operating costs. The
technical contractor has estimated that sales of by-product gypsum
(generated by effluent treatment equipment) could reduce BAT/PSES costs
for sulfate process titanium dioxide (TiO.) plants by $22 per ton of
Ti02 production. However, it is possible that the total volume of
gypsum by-product may not be sold (or could be sold only at reduced
prices).
Table 10-6b shows the effect of three gypsum credit scenarios on BAT/PSES
costs for each sulfate process model plant. The three gypsum credit
scenarios are:
1) Sulfate plants receive no gypsum by-product sales credit.
2) Sulfate plants receive only half of the $22 (per ton of Ti02)
reduction in costs as a result of unsuccessful sales and/or gypsum
price reductions required to sell the by-product.
3) Sulfate plants receive the full $22 (per ton of TiO ) reduction in
effluent treatment costs with successful sale of their total gypsum
production.
(Note that the required price increase and maximum potential profit-
ability decline are calculated assuming no, half, and full gypsum credits
for each model plant to define the possible range of price and profit-
ability impacts.)
Titanium dioxide manufacturing cost estimates for sulfate process plants
are $985.60, $929.40, and $903.40 ->er ton for the small, medium, and
10-26
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large model plants excluding the costs of pollution control (See Table
10-3). Table 10-7 summarizes titanium dioxide sulfate process model
plant financial parameters.
The total investment and annualized control costs for sulfate process
plants are summarized in Table 10-8. Currently, one of the four plants
(corresponding to model size 2) has BPT effluent control equipment
installed and operating and will require no additional costs for compli-
ance with BAT/PSES limitations. As indicated in the table, the addi-
tional annualized subcategory costs required for compliance with BAT/PSES
limitations are estimated as approximately $7.9 million assuming no
gypsum credit. A full gypsum credit would reduce these costs by about
$2 million per year to $5.9 million annually. Also note that one of the
Size 1 plants currently has partial compliance equipment in place. This
is not reflected in the analysis, which therefore overstates the incremen-
tal costs for this plant and total subcategory compliance costs.
10.2.1.2 Chloride Process
For chloride process plants, BAT limitations are based on BPT, already
in place and operating for all six chloride process plants. BPT removal
includes three steps:
o Equalization of effluent
o Lime precipitation of effluent
o Settling or clarification before discharge
The technical contractor estimated BPT costs for three chloride process
model plant sizes, producing 18,500, 28,000, and 50,000 tons per year.
Table 10-9 shows these costs. As noted above, since BAT is based on
BPT (already in place and operating for all chloride process plants),
chloride process titanium dioxide plants will incur no incremental costs
for compliance with BAT limitations.
10-29
-------
10.2.1.3 Chloride-Ilmenite Process
As noted above, all three chloride-ilmenite process plants are currently
achieving removal levels equivalent to BAT limitations and, therefore,
will incur no incremental effluent control costs.
10.2.2 Model Plant Analysis
This section outines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
o Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
o Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
o Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
o The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
The impact analysis is not performed for chloride or chloride-ilmenite
process titanium dioxide plants; these plants are already in compliance
with BAT limitations. Therefore, the model plant analysis results are
presented only for the sulfate process.
10.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Clearly, the price increases necessary for sulfate
10-30
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process plants to pass through BAT/PSES costs will depend on the magni-
tude of the gypsum by-product credit obtainable. Price increases were
calculated assuming no, half, and full gypsum credit. For the 35,000
ton per year (TPY) model plant, the required price increase ranges from
7.13 percent (with full gypsum credit) to 9.52 percent (with no gypsum
credit). The 52,500 TPY model plant would require price increases
between seven and nine percent and the 82,000 TPY model would require
a one to two percent price rise. Table 10-10 summarizes these required
price increases for sulfate process titanium dioxide manufacturers.
10.2.2.2 Profitability Analysis
The profitability analysis calculates the decline in the return on
investment (ROI) and the internal rate of return (IRR) when no price
pass-through is assumed.
Because the by-product gypsum generated by effluent treatment equipment
has a marketable value, the actual profitability decline due to pollution
control compliance will depend on the credit received from by-product
gypsum sales. Tables 10-lla, 10-llb, and 10-llc present the model plant
profitability impacts of effluent control costs under three gypsum
credit scenarios.
1) Sulfate plants receive no gypsum by-product sales credit.
2) Sulfate plants receive only half of the $22 per ton of TiO? reduc-
tion in costs as a result of unsuccessful sales and/or gypsum price
reductions required to sell the by-product.
3) Sulfate plants receive the full $22 per ton of TiO? production (as
estimated by the technical contractor) reduction in effluent treat-
ment costs with successful sale of their total gypsum production.
As shown in the tables, application of BAT/PSES costs to the largest
sulfate model plant reduced the IRR by less than one percentage point
(or by less than seven percent from the base case) in all scenarios.
However, for the small and medium model plant sizes, the IRR declined by
over one percentage point in all gypsum credit scenarios. With no
10-34
-------
TABLE 10-10
PERCENTAGE PRICE RISE
Chemical: Titanium Dioxide - Sulfate Process
Price: $920/ton
BAT/PSES*
nuutLi r j-irtiN j.
PRODUCTION
(tons/year)
35,000
52,000
82,000
WITH NO
GYPSUM CREDIT
9.52%
9.06
2.11
WITH HALF
GYPSUM CREDIT
8.33%
7.87
1.81
WITH FULL
GYPSUM CREDIT
7.13%
6.67
1.51
*For this subcategory, BAT and PSES costs are equivalent.
Note: Costs and resulting impacts are overstated for one of the two plants
corresponding to model Size 1. See Sections 10.2.1.1 and 10.2.3.2.
10-35
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10-38
-------
gypsum credit, the small model plant incurs a 4.6 percentage point
decline in profitability (representing over 61 percent of baseline
profitability). Even with the full gypsum credit, the small model
plant's IRR declines by over three percentage points (over 40 percent
from the base case). The medium model plant experiences a 3.7 percent-
age point decline (about 38 percent of baseline profitability) with no
gypsum credit and a 2.4 percentage point decline (about 25 percent of
baseline profitability) with the full gypsum credit.
10.2.2.3 Price Elasticity of Demand
Titanium dioxide is a unique white pigment, and therefore has no real
substitute. This lack of substitutes implies that the demand for titanium
dioxide is relatively price inelastic. However, due to rigorous competi-
tion between domestic and foreign producers for U.S. market share, U.S.
prices are constrained by import prices, and demand facing the U.S.
industry is slightly elastic. (See Sections 10.1.1, Demand and 10.1.3,
Competition, for a complete analysis.) Since sulfate process production
is the only segment of the titanium dioxide subcategory incurring effluent
control costs, and TiO_ produced by either the chloride or chloride-
ilmenite process is a perfect substitute for sulfate process TiO?, demand
for sulfate process producers' titanium dioxide is highly elastic.
10.2.2.4 Capital Analysis
Raising capital for the pollution control investment required by sulfate
process BAT/PSES limitations in an amount less than or approximately
three percent (see Table 10-12) of fixed capital investment should not
pose significant problems for sulfate process titanium dioxide producers.
All of the firms involved probably have sufficient capital at the corpo-
rate level. Thus the capital investment hurdle probably will not pre-
vent the installation of pollution control equipment. The critical
issue, however, is whether sufficient price increases could be passed
through to justify the investment from a long run capital budgeting
point of view.
10-39
-------
10.2.2.5 Closure Analysis
Table 10-13 illustrates that for BAT/PSES costs, the small and medium
sulfate model plants are likely closure candidates according to the
EPA's suggested closure criteria. Since the price of titanium dioxide
is severely constrained by import prices and by the domestic price set
by the lowest cost producers, demand facing producers in the sulfate
subcategory is highly elastic. Therefore, producers may suffer the full
profitability decline. The magnitude of this decline is likely to cause
producers to consider shutdown. Section 10.2.3 discusses the probabi-
lity and impact of actual plant closures in more detail.
10.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resulting impacts on sulfate process titanium dioxide manufacturers.
10.2.3.1 Price and Profitability Impacts
The model plant analysis results indicate that plants corresponding to
the small or medium model size will experience severe impacts from
BAT/PSES costs. Required price increases (even with a full gypsum
credit) are substantially above one percent and two factors may signifi-
cantly constrain price increases. First is competition from chloride
and chloride-ilmenite process producers, particularly from DuPont, a
firm which is in a good position to avoid large price increases, and
whose market share (55 percent of titanium dioxide capacity) may be
large enough to influence the pricing decisions of other producers.
DuPont is the single chloride-ilmenite process titanium dioxide producer,
holding sole rights to the unique comparatively low-cost process.
Further, DuPont's chloride-ilmenite plants will incur no additional
effluent control costs since they are capable of achieving removal
levels equivalent to BAT limitations via the relatively inexpensive
deep-well injection process at two of its plants and via ocean dumping
10-40
-------
TABLE 10-12
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT
Chemical: Titanium Dioxide - Sulfate Process
Model Plant Production (tons/year)
Level of 35,000 52,500 82,000
Removal
BAT/PSES* 3.17% 3.14% 0.08%
*For this subcategory, BAT and PSES costs are equivalent.
Note: Costs and resulting impacts are overstated for one of the two plants
corresponding to model Size 1. See Sections 10.2.1.1 and 10.2.3.2.
10-41
-------
TABLE 10-13
IMPACT SUMMARY
Chemical: Titanium Dioxide - Sulfate Process
PRICE ELASTICITY
rKVTTTRF PTiTTFPTA • ...
DESCRIBED IN Medium or High
METHODOLOGY SECTION
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1 Per-
centage Point
or Greater
Than 10 Per-
cent of Base-
line Profit-
ability
CLOSURES
Predicted
If all
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
BAT/PSES*
PLANT
PRODUCTION
(ton/year)
35,000
52,500
82,000
MAXIMUM
PRICE ELASTICITY PRICE RISE
9.52%
High 9 . 06
2.11
MAXIMUM
PERCENTAGE
POINT
PROFITABILITY
DECLINE
(% DECLINE)
4.64
(61.62%)
3.73
(37.91%)
0.75
(6.86%)
CLOSURES
May result
in the small
or medium
size cate-
gories
*For this subcategory, BAT and PSES costs are equivalent.
10-42
-------
at the third plant. Chloride process producers will not incur any
additional effluent control costs at this time.
Second, foreign titanium dioxide is very price-competitive and occasional-
ly undersells domestic products. If foreign producers do not face
similar cost increases, domestic producers will have to moderate their
price pass-through to retain their market share.
The high pollution control costs will put sulfate producers at a signi-
ficant cost disadvantage relative to imports and the other domestic
production processes. Domestic sulfate process producers may be able to
completely pass through cost increases over a period of years. They
will, however, face depressed or negative profitability during the
interim time period. During 1978 some sulfate producers went from a
loss situation to one of positive profits. Although this was partially
due to volume increases, a $0.05 price increase from $0.41 to $0.46 per
pound was a major factor. Pollution control costs of $0.04 per pound
(which are indicated by this analysis) would significantly reduce their
profitability.
An example of the effects of pollution control costs on competition is
illustrated by the American Cyanamid Corporation. The corporation
installed a $17 million treatment facility at their Savannah, 'Georgia
plant in response to the 1977 Effluent Limitations Guidelines. When
these regulations were remanded by the courts, American Cyanamid was
left in the position of having installed an expensive process and equip-
ment, while some of its competitors had not. In order to remain compet-
itive, American Cyanamid entered into a consent agreement with the State
of Georgia, under which the plant bypasses a large segment of the treat-
ment process and discharges directly into the surface waters following
neutralization. SCM also had a multi-million dollar pollution control
system installed in its Baltimore plant. However, the system is under-
sized and successful continuous operation of the pollution control
system has not been achieved.
10-43
-------
Given that the probability of pass-through is low for sulfate process
plants, these producers are likely to suffer the full profitability
decline. Depending on the gypsum credit obtainable, small plants will
incur profitability declines of 3.1 to 4.6 percentage points (40.64
percent to 61.62 percent of baseline profitability) and medium plants
will incur declines of 2.4 to 3.7 percentage points (24.80 percent to
37.91 percent of baseline profitability). The implications of these
profitability declines for plant closure decisions are discussed in
Section 10.2.3.2.
10.2.3.2 Other Impacts and Conclusion
As noted above, there are four sulfate process plants. Two plants
correspond to the small model size. The only plant corresponding to
model size 2 already has BPT in place and operating and, therefore, will
incur no additional effluent control costs for compliance with BAT/PSES
limitations. The model plant analysis indicated profitability declines
of less than one percentage point (and less than 10 percent of baseline
profitability) for the large model plant size. Therefore, the single
plant corresponding to this size category is not likely to suffer severe
impacts from BAT/PSES costs.
Given the large price and profitability impacts for small sulfate plants,
it is possible that both small plants would close. However, while the
quantitative indicators do suggest a high probability of closures, the
actual circumstances of these plants make closures appear highly unlikely.
As noted previously, on plant has already made a partial investment in
treatment equipment. The analysis does not reflect this investment, and
therefore overstates the price and profitability impacts for the plant.
In addition:
o The final regulation incorporates specific changes requested by
this producer.
o Company spokesman have publicly announced that they plan to
continue production, and foresee a long-term market for the
anatase grade produced by the sulfate process (Chemical
Marketing Reporter, December 24, 1979).
10-44
-------
The other plant has recently signed a court agreement to meet limita-
tions equal to those set forth in the final regulation and has agreed to
install wastewater treatment controls and continue production in compli-
ance with the regulation. Accordingly, continued operation of that
plant appears likely.
In summary, although the quantitative indicators show significant
negative impacts, the actual circumstances of these plants makes
closures very unlikely.
10-45
-------
APPENDIX A
EXPLANATION OF THE PRICE RISE CALCULATIONS
The basic model plant price rise calculation is:
(pollution control pollution control
annual operating + annualized capital!T annual
costs costs / production
control costs
Of the three terms on the right side of the equation, the annual operating
costs* and annual plant production are given by the technical contractor.
What must be calculated is the annualized capital cost — i.e.,
the annual cash return required to recover all capital investment costs
plus a specified return on investment. This annualized capital cost is
estimated by use of a capital recovery factor, which is multiplied by
initial investment to yield the annual capital cost which must be recovered.
The remainder of this section will show how the capital recovery factor
is derived.
The calculation of the capital recovery factor is based on the following
economic assumptions:
• Capital is composed of 65 percent equity and 35 percent debt.
• The required return on equity is 15 percent.
« The interest rate on debt is 12 percent before tax (i.e., 2
percentage points above an assumed 10 pecent prime rate).
*In calculating the annual operating costs required for RCRA-ISS compliance
in the affected subcategories, the annual closure fund payment is divided
by (1 - tax rate), or 0.53, to reflect the fact that this payment is
a non-tax deductible expense, unlike other operating costs. See Section 3.2.3
of the Methodology Description for futher discussion.
apx-1
-------
• Marginal income tax rate of 47 percent. This is calculated as
follows:
(1) TS + (1-TS) x TF = TR
where:
TR is the marginal income tax rate
TS is the marginal state income tax rate (.02)
TF is the federal marginal income tax rate (.46)
• Depreciation is 15 years, straight-line
• Construction period is zero years, with no interest during
construction
The first step is to estimate the after-tax cost of capital. This is
the weighted average of the cost of equity and debt, or:
(2) 65 percent equity x 15 percent cost of equity =
35 percent debt x (12 percent x (1-TR)) ' =
11.98 percent
9.75 percent
2.23 percent
Given the weighted cost of capital, it is then possible to estimate the
cash flow required to recover the initial investment. This is done via
the following formula:
(3) CF = i (l+i)n
where: i = weighted cost of capital
n = number of periods
CF = cash flow
For tax purposes pollution control equipment can be depreciated over
as few as five years. This five year assumption (and 10 years for
other investment) is incorporated in the cash flow calculations used
to develop the ref«.rn-on-investment indicators, since these calcula-
tions must reflect the actual cash returns which would be shown in
an income tax return. However, in the case of the capital recovery
factor, which is internal to the corporation, a longer 15 year depre-
ciable period is used. This is because the larger period better
reflects the life of the equipment, and moderates the immediate re-
quired price-rise.
21
i.e., 35 percent times the after-tax interest rate on debt.
apx-2
-------
Substituting 11.98 percent for i and 15 years for n, the equation reduces
to 0.147. In other words, every dollar of initial investment requires
an annual return of $0.147 to yield an after tax return on capital of
11.98 percent. '
CF, the cash flow, only shows the direct return required on capital
investment. The next step is to estimate the total revenue requirement
needed to recover the initial investment, including the effects of
depreciation and taxes on required revenue. In order to solve for
the revenue-based capital recovery factor (CRF), the calculations begin
with the following formula:
(4) (R-OC-D) x (1-TR) = NIAT
where: R = revenue
OC = operating costs
D = depreciation factor
TR = marginal tax rate
NIAT = net income after taxes
Operating costs can be set equal to zero and ignored since this calculation
is concerned only with returns to the capital cost portion of the investment.
If depreciation, a paper expense rather than a real drain on income is
added back in, equation (4) will reduce to total cash returns, or cash
flow (CF):
(5) [(R-D) (1-TR)] + D = CF
The term 1-TR equals 1-.47, or 0.53. Using this value, equation (5)
becomes:
(6) .53R - .53D + D = CF
or
(7) .53R + .47D = CF
Another way of stating this is that the present value of $0.147 per
year for 15 years is $1.00.
apx-3
-------
Solving for R, equation (7) becomes:
(8) .53R = CF - .47D
(9) R = CF .47D
.53 " .53
This equation represents the annualized cash flow and depreciation for a
15 year investment. To solve for the annual revenue requirement per
dollar of investment — i.e., the revenue-basis capital recovery factor --
the previously determined values for CF (0.147) and D (0.067) are substituted
in:
(10) R = .147 .47(.Q67)
.53 " .53
(11) R = .218
In other words, for each dollar of capital investment the firm must
recover $0.218 annually in order to recover all capital costs plus the
11.98 percent return on investment.
The factor of 0.218 is used for depreciable initial investment. This
factor applies to the effluent control investment costs and to the
RCRA-ISS capital costs. However, a portion of the initial RCRA-ISS
control costs for each model plant in the affected subcategories cannot
be depreciated; that is, they are capitalized expenses. Calculation of
the capital recovery factor for non-depreciable investment proceeds as
above, except that no depreciation allowance is included. Therefore,
instead of equation (5), the following equation is used:
(12) R x (1-TR) = CF
Substituting in the known values, this becomes
(13) R x (1-.47) = .147
(14) R = .278
Thus, the unit price rise required to recover all pollution control
costs is simply (total operating costs) plus (annualized capital costs)
apx-4
-------
divided by (total production). Operating costs and total production are
given. Annualized capital costs are calculated by multiplying capital
investment costs by the appropriate capital recovery factor, with de-
preciable capital expenses multiplied by .218 and non-depreciable
investment multiplied by .278.
apx-5
-------
APPENDIX B
DERIVATION OF THE FINANCIAL ANALYSIS EQUATIONS
The cash flows in the internal rate of return (IRR) and net present
value (NPV) calculations are discounted to reflect the fact that a
dollar received in the future is less valuable than one received today.
The present value of a cash flow over n time periods is :
NPV = (
The cash flow (CF) for each period is the total revenue minus total costs
for that period and can be negative or positive. The cash flows are
also affected by the inflation rate. The inflation rates are assumed
constant throughout the life of the plant: operating costs and chemical
product prices are all assumed to inflate at 6% annually. The discount
factor (k) is usually taken to be the cost of capital and reflects the
opportunity cost between receiving a dollar in the present and receiving
a dollar one time period in the future. In calculating the net present
value the cash flows and discount rates are known and the present value
is calculated from equation 7 (Table B-l). To calculate the internal
rate of return the net present value (NPV) is set equal to zero and
equation 6 (Table B-l) is solved yielding a value for r. Return on
investment (ROI) is the ratio of total investment to cash flow in a
given year.
I/ If the cash flows are not well behaved, it is possible to have two
values of "r" that satisfy the equation. See J.F. Weston and E.F.
Brigham; Managerial Finance, fifth ed.; Dryden Press; Hinedale,
Illinois, 1975, (p. 296).
apx-7
-------
The equations and assumptions used to derive IRR, NPV, and ROI are
presented in Table B-l.
apx-8
-------
TABLE B-l
IRR, NPV, AND ROI EQUATIONS
(1) Tax Rate and Credits
TR = .47
ITC = .08 x FI (where the investment tax credit for fixed
investment in plant and equipment is 8%,
taken in the third year)
ITCpc = . 1 x PCI (where the investment tax credit for pollu-
tion control equipment is 10%, taken the
year after the investment is made)
(2) Taxable Income
TI = REVt - OPt - DEPt
(3) Depreciation*
10 year double-declining balance/straight line for fixed investment
5 year straight line for pollution control investment
(4) Tax Liability
TL = TR x TI
(5) Cash Flow
CF = (TI - TL)t + DEPt + ITC - FI**
(6) Internal Rate of Return (solve for r)
(7) Net Present Value
27
NPV = I CF
t=l 1+k
* See Footnote 1, page apx-2.
**Cash flow after pollution control would be calculated by also subtracting
PCI in this equation.
apx-9
-------
TABLE B-l (Continued)
IRR, NPV, AND ROI EQUATIONS
(8) Return on Investment
ROI = CF -r Total Investment (for this analysis cash flow was
always calculated for the fourth
year; i.e. t=4)
(9) Inflation Rate
Prices, operating costs, and capital costs increase at the rate of
6 percent annually.
Variable Names and Values
TR = Marginal income tax rate (0.47)
ITCpc= Investment tax credit for pollution control equipment (.10 x PCI)
ITC = Investment tax credit for fixed plant and equipment (.08 x FI)
TTP
total = ITCpc + ITCf
FI = Fixed investment
PCI = Pollution control investment
TI = Taxable income
REV = Revenues
OP = Operating Costs
DEP = Depreciation
TL = Tax liability
CF = Cash flow
k = Discount factor or cost of capital (11.98 percent)
t = Time period (year)
r = Internal Rate of Return
apx-10
-------
APPENDIX C
THE MANUFACTURING COST ESTIMATES: SOURCES, USES, AND LIMITATIONS
The manufacturing cost tables presented in the characterization section
for each subcategory are process engineering estimates. These costs are
not necessarily based on the cost experience of an actual plant in the
industry. In fact, costs may be under- or overstated for several reasons.
For example, the raw materials variable costs assume that materials and
power are purchased at published list price. For a given plant, material
prices may actually be lower due to the existence of long term contracts
or captive supply sources. Materials and utility costs vary geographically:
chemicals are generally more expensive in the West; natural gas is often
less expensive on the Gulf Coast; electricity rates vary widely depending
on the local utilities' fuel mix.
The semi-variable and fixed cost estimates were calculated using accepted
process-economic algorithms to allocate overhead expenses. Labor costs
include operating labor and labor overhead. Operating labor cost esti-
mates were based on labor requirements and an average wage. Labor over-
head was taken as a percentage of labor costs ranging from 40 to 60
percent, depending on the process. Maintenance and plant overhead were
estimated as a portion of either fixed investment or labor costs depend-
ing upon the process. Depreciation was calculated as 10 percent of
fixed investment. Since the fixed investment estimate is in 1978 dollars,
and therefore represents the replacement cost for the plant, these
overhead costs probably overstate the manufacturing costs for plants
built before the rapid capital inflation of the early 1970's. Taxes and
insurance were calculated as 1.5 or two percent of fixed investment.
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While the uncertainty inherent in the engineering cost estimates is
substantial, they are highly useful in this analysis for a number of
reasons. First, variable costs estimates can indicate which chemical
processes are presently vulnerable to rising energy costs or shortages
of key materials which will tend to rapidly inflate the manufacturing
costs. Second, while the semi-variable and fixed costs estimates are
subject to a wide margin of error, they still provide an indication of
scale economies. This facilitates the analysis of differential impacts
within subcategories.
The cost estimates were used to calculate model plant profitability.
However, impacts were evaluated not on the basis of the absolute levels
of profitability, but rather according to the decline in profitability
which resulted from the pollution control costs. Since the magnitude of
profitability decline does not vary with the absolute profitability
level (see Appendix D), the manufacturing costs as estimated serve the
purpose of the analysis.
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APPENDIX D
SENSITIVITY OF THE PROFITABILITY ANALYSIS TO THE FINANCIAL DATA
1. INTRODUCTION
One of the tools employed to measure the economic impact of pollution
control costs on the model plants is the discounted cash flow (DCF)
analysis, from which the internal rate of return (IRR) is derived. The
internal rate of return is computed for each model plant before and
after pollution control costs are incurred. The resulting model plant
profitability decline is analyzed (along with other measures developed
for the model and industry specific information) to determine:
• Differential impacts among plants in a subcategory
• Probability of plant closures
• Effects on industry structure and growth
That is, it is necessary to determine how changes in the financial
parameters used would alter the results of the profitability analysis
and, therefore, the conclusions made in the impact assessment.
2. HOW THE PROFITABILITY ANALYSIS IS USED
The profitability analysis is designed as a simulation model. The
financial parameters are estimated as accurately as possible in order to
generate an internal rate of return that reflects the actual industry
profitability. As in any simulation model, the results are subject to
the judgement of the modelers. The model financial parameters and
resulting profitability figures were refined by intensive analysis of
the subcategory and contacts with the industry.
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The magnitude of the modeled profitability decline is evaluated to
assess the probability of closure in the actual plants represented by
the models used in the analysis. One of two possible conclusions is
drawn depending on the magnitude of the profitability decline:
• The profitability decline will not result in the model plant
becoming unprofitable if the magnitude of the decline is small
in relation to the baseline profitability level.
• The profiability decline may result in the model plant profit-
ability becoming negative or nearly so if the magnitude of the
decline is large in relation to the baseline profitability
level. In this case, the probability of plant closure result-
ing from the profitability decline is assessed.
Implicit is the assumption that the actual magnitude of the profit-
ability change does not vary significantly with baseline profitability
levels. The analysis assumes that over a reasonable distribution of
profitability levels around the base level, the magnitude of the pro-
fitability decline resulting from pollution control costs is approximately
the same. For example, if a model plant has 25 percent baseline profit-
ability which declines by two percentage points to 23 percent with
pollution control, it is assumed that if the same model has 20 percent
baseline profitability, the plant would also incur approximately a two
percentage point decline - from 20 to 18 percent - given the same pollu-
tion control costs. If this assumption is wrong, two types of errors
are possible:
• High impacts may be understated by small profitability declines;
• Low impacts may be overstated by large profitability declines.
Therefore, it is important to determine whether the absolute magnitude
of the profitability decline is dependent upon the absolute level of
profitability, and if so, to what extent. If the size of the decline is
largely determined by the baseline profitability, then the profitability
analysis is of only limited value. However, if the results of the
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sensitivity analysis indicate that the magnitude of the profitability
decline is unaffected by the baseline profitability, then the profitability
analysis is a valuable tool.
3. RESULTS OF THE SENSITIVITY ANALYSIS
The computer model was used to generate IKR's given a range of different
baseline profitability assumptions. IRR's were computed both without
pollution control costs (the baseline profitability) and with costs.
The magnitude of the Decline in IRR was calculated and plotted as a
function of the baseline IRR. The results for two representative cases
are presented in Graphs D-l and D-2.
Graph D-l shows how the magnitude of the profitability decline changes
with baseline IRR for one chrome pigments model plant. In this case,
the control costs are substantial (pollution control capital costs of
$2.4 million are approximately one-third the capital cost of the manufac-
turing facility; total annualized costs are 5.3 percent of the selling
price of the product). The impact analysis indicates that the model
plant will incur a large profitability decline of about 10 percentage
points. At a baseline profitability level (20 percent), the decline is
larger (about 11.5 percentage points). The absolute magnitude of the
decline varies within a narrow range between 10 and 11.5 percentage
points over baseline profitability levels ranging from 20 to 55 percent.
I/ The results presented in this section were obtained from the sensitiv-
ity analysis conducted for the April 1980 "Economic Analysis of Proposed
Revised Effluent Guidelines and Standards for the Inorganic Chemicals
Industry." The same model plant financial parameters used in the April 1980
effluent guidelines report are used in this analysis. Therefore, the
sensitivity analysis results presented in the earlier report are also
applicable to this analysis.
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For the sodium hydrosulfite model plant, the pollution control costs are
relatively small (capital costs are 1.49 percent of investment in fixed
plant and equipment; total annualized costs are 1.4 percent of product
price) and this is reflected in the small profitability decline. The
decline ranges from .5 to 1.3 percentage points over baseline IRR levels
ranging between six and 30 percent. (See Graph D-2.)
In both cases, the magnitude of the profitability decline varies within a
narrow range (between one and two percentage points), implying that
large profitability declines remain large and small declines remain
small.
4. FURTHER DISCUSSION
Two aspects of the graphs are of further interest:
• At the lower end of the baseline profitability scale, the
change in profitability begins to increase, apparently asymp-
totically;
• At the upper end of the baseline profitability scale, the
profitability decline increases in one case and decreases in
the other.
The asymptotic increase in the profitability decline at the low end of
the scale is due to a simplifying assumption of the model. In actual
business practice, a firm can use a portion of a loss to reduce its
future tax liability. More importantly for its immediate cash position,
it can "carry-back" a portion of the loss and apply it against taxes
paid in profitable years. Through this provision it can receive a
refund of some, or possibly all of the taxes it paid in those years.
The model, however, does not include these provisions. Therefore, while
it does incorporate the effect of taxes on restraining the growth in net
income, it does not show how the tax laws can act to reduce losses.
This point is illustrated by Table D-l. As income increases, as from
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GRAPH D-l
PROFITABILITY DECLINE V. BASELINE PROFITABILITY
LARGE CHROME PIGMENTS MODEL PLANT
13.0
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DECLINE
IN 7.0'
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BASELINE PROFITABILITY^)
(IRR)
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DECLINE IN
PROFITABILITY
(IRR)
GRAPH D-2
PROFITABILITY DECLINE V. BASELINE PROFITABILITY
SODIUM HYDROSULF1TE MODEL PLANT
1.4
1.3
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period 1 to period 2, cash flow increases by 0.5. But once the firm
becomes unprofitable (beyond period 5) the change in cash flow accelerates
with cash flow declining by 1 in each period. In actual business practice,
the tax carryover provisions would offset part of the decline in cash
flow in unprofitable years.
The implication of the above discussion is that in cases where the
baseline profitability is estimated as low, the profitability decline is
being overstated. However, for high impact plants (Graph D-l), the
overstatement does not appear to become significant until baseline
profitability is in the 15 to 25 percent range. At that point, however,
the after-pollution control cost IRR drops below zero and it is sufficient
to assume that potential impacts are severe and further analysis is
required.
For the light impact case, the profitability decline also begins to
decline rapidly at five to 10 percent. In such cases, the plants are
marginally profitable to begin with and while the profitability decline
may be small, it may be the extra cost burden needed to encourage plant
closures. In these cases, if the after control cost IRR is still positive
and the profitability decline is small, concluding that the impact is
slight is probably correct, especially since the profitability decline
is probably being overstated.
The second point is that in the "normal" profitability range (that is,
when profit margins are significantly greater than zero), the magnitude
of the profitability decline gradually increases or decreases. To put
it another way, the before control cost and after control cost IRR's
either gradually converge or diverge. However, this divergence or
convergence cannot be analytically predicted: it is case specific and
depends on the configuration of cash flows over the modeled life of the
plant. The change in the magnitude of the profitability decline is so
slight in this range that it can be assumed that it does not affect the
conclusions made in the impact analysis.
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5. SENSITIVITY OF THE PROFITABILITY DECLINE TO THE CAPITAL COST ESTIMATE
A secondary issue is how the profitability decline responds to changes
in the estimate of fixed investment in plant and equipment. In calculating
the cash flow (CF) in each period, the following formula is used:
CF = (1-tax rate) (Revenues - Costs - Depreciation) + Depreciation
+ Investment Tax Credit - Fixed Investment
Half the pollution control capital cost is subtracted from fixed investment
in calculating the first year cash flow and half is subtracted in the
second year. Since the cash flows in the first two years are weighted
more heavily (i.e. discounted less heavily), the incremental costs of
pollution control in the later years will have relatively less of an
effect on the discounted cash flow if the estimate of fixed capital
investment increases. This is demonstrated in Graph D-3. The scale
along the abscissa is the multiplier applied to the best estimate of
investment in plant and equipment. Thus, when the best estimate is
used, the profitability decline is about five-tenths of a percentage
point. When the capital cost is doubled, the decline drops to about
three-tenths of a point; when the cost is halved, the decline increases
to about one percentage point. This variation is relatively small.
Further, the capital cost estimate is probably within 25 percent of the
true value and the magnitude of the profitability decline is relatively
constant within this range of capital investment.
6. SUMMARY AND CONCLUSION
The sensitivity analysis reasonably demonstrates that the magnitudes of
the profitability declines does not vary significantly with baseline
profitability or capital investment costs. In cases of small declines
in model plant profitability we can be confident that impacts on plants
will be small, with the understanding that plants that are known to be
marginal in the baseline case may have great difficulty absorbing pollu-
tion control costs of any magnitude.
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In those cases where the profitability decline is large, additional
research is always warranted. Particular attention should diverted to
estimating current profitability levels through market research and
contact with the industry.
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APPENDIX E
REGULATORY FLEXIBILITY ANALYSIS
1. INTRODUCTION
The Regulatory Flexibility Act (Public Law 96-354), promulgated in September
1980, requires that a Regulatory Flexibility Analysis (RFA) be performed
for rules which have a significant economic impact on a substantial number
of small entities. Though an RFA is only required for regulations proposed
after January 1, 1981 (guidelines for the Inorganic Chemicals Manufacturing
Industry were proposed on July 24, 1980), an RFA was performed as an appendix
to the economic impact analysis to further explore the impacts of the pol-
lution control regulations on small plants in each subcategory.
The effluent guidelines and standards discussed in this report were proposed
under the authority of the 1977 Clean Water Act (33 USC 1251) and in response
to EPA's Settlement Agreement with the Natural Resources Defense Council.
The Regulatory Flexibility Act, in Sections 603 and 604, requires a descrip-
tion of the economic impact of the rule on small entities and an analysis
of alternative requirements that would minimize any significant economic
impacts on small businesses. Through the RFA, the regulatory authority
attempts to make the burden of any rule more equitable with respect to the
size of the business. In this way, regulatory objectives can be met through
regulatory options designed to minimize the economic impacts on small
businesses.
Section 605(a) of the Act allows the RFA to be performed as part of other
analyses conducted by EPA to avoid duplicative analysis. Therefore, the
RFA for these regulations is included as a part of the Agency's economic
analysis. A more detailed explanation of subcategory characterization,
impact analysis methodology, and projected economic impacts can be found in
the main body of this report.
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The Act defines a "small business" on the basis of the definition of a
"small business concern" under section 3 of the Small Business Act (13 CFR
Part 121). The definition is based on the number of employees within the
firm or on the dollar volume of sales. However, both the Regulatory Flexi-
bility Act and the Small Business Act recognize that a single definition
may not be applicable to an entire industry due to the diversity of plant
sizes. When the diversity of plant sizes within an industry warrants a
more specific definition for the individual subcategory, both the Regula-
tory Flexibility and the Small Business Acts allow the establishment of a
subcategory-specific small business definition based on parameters such as
the industry output concentration ratio, the total number of concerns in
the industry, and the size of the industry leaders.
Within the inorganic chemicals industry, the smallest plant production
levels range from approximately 250 tons per year within the copper sulfate
subcategory to 150,000 tons per year in the chloride-ilmenite segment of
the titanium dioxide subcategory. Likewise, the largest plant production
level within each subcategory ranges from approximately 2,400 tons per year
to 228,000 tons per year. Because of the wide range in plant sizes, a small
business definition based on production level was established for each
subcategory.
In developing the model plant pollution control cost estimates for each
subcategory, the technical contractor surveyed plants within each subcate-
gory. From these surveys, the technical contractor determined a model
plant size range based on the production levels of the actual plants in
each subcategory. Small, medium, and large model plant sizes were then
identified to reflect the actual plant size distribution within each sub-
category. The small model plant size, reflecting the actual small plant
production levels within each subcategory, is used as the "small business"
definition for each subcategory.
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2. ECONOMIC IMPACT ANALYSIS METHODOLOGY
Since it is often impractical to examine every plant in an industry, the
financial analysis is based on model plants. The model plant parameters,
including process type, production capacity, flow rates, and pollutant
loads, were developed by the technical contractor based on surveys of
actual plants in each subcategory. For each subcategory, small-, medium-,
and large-size model plants were developed, based on estimated annual
production. Pollution control costs were then developed by the technical
contractor for each model plant size.
2.1 POLLUTION CONTROL TECHNOLOGY AND COSTS
Model plant annual control costs are calculated on a per ton basis and
include the following:
• Operation and maintenance costs of the pollution control equipment
• Annualized capital costs of the pollution control investment.
Plant-specific capacity information, current production levels, and the
technical contractor's estimate of control costs, industry profiles, and
capacity utilization were also used to determine the per ton annual pol-
lution control costs.
In addition, the chlorine (mercury and diaphragm cell) and chrome pigments
subcategories will incur costs for compliance with the Resource Conserva-
tion and Recovery Act's Interim Status Standards (RCRA-ISS) promulgated in
1980. For these subcategories, the technical contractor developed RCRA-ISS
compliance cost estimates including:
• Capital investment
• Initial costs
• Annual operating costs
• Total closure fund (to be built up over 20 years).
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The impacts of the combined effluent control and RCRA-ISS costs* were then
evaluated.
2.2 INDUSTRY IMPACTS
Four indicators were used to evaluate the impacts of pollution control
costs for each subcategory:
• Price rise calculation
• Maximum potential profitability decline
• Price elasticity of demand
• Capital ratio.
2.2.1 Price Rise Calculation
The price rise analysis determines the magnitude by which the product price
must increase to fully recover all annualized capital and operating pollu-
tion control costs. The assumption underlying the price rise analysis is
that demand is completely inelastic, that the full price increase can be
passed on to the consumer without resulting in any decline in physical
sales volume.
2.2.2 Profitability Decline
The profitability analysis determines the degree to which profitability
declines if no price pass-through is possible, i.e.; demand is infinitely
elastic. Under this assumption, the manufacturer must absorb all pollution
control costs in the form of reduced margins or increased losses. Baseline
profitability is compared to profitability after pollution control equip-
ment is installed using two indicators based on a discounted cash flow
analysis for each model plant:
• Return on Investment (ROI) - yearly cash income divided by
the total investment (calculated for each year in the analysis)
vNote that the RCRA costs used in this analysis include baseline RCRA costs
as well as the incremental costs associated with solid wastes generated by
effluent treatment.
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• Internal Rate of Return (IRR) - the discount factor used to yield a
net present value of zero from the summation of the discounted cash
flow in each year over the life of the plant.
2.2.3 Price Elasticity of Demand
Price elasticity of demand measures the ability of a firm to pass through a
portion of its increased pollution control costs in the form of higher
prices. This elasticity is a function of:
• The number, closeness, and relative cost of available substitutes
• "Importance" to the purchaser's budget
• Time period.
Price elasticity estimates were based on the market information developed
in the subcategory characterization.
2.2.4 Capital Analysis
Pollution control facilities can require a significant investment, especial-
ly for smaller plants. To determine the relative burden of this one-time
expense, the pollution control capital costs, estimated by the technical
contractor, are compared to the fixed investment in plant and equipment.
2.2.5 Closure Analysis
The above four impact indicators are used in a closure analysis which
identifies potentially "high impact" plants and closure probabilities.
Under the EPA's closure criteria, a model plant is considered a possible
closure candidate if the demand is elastic, the price increase is greater
than one percent, and the resulting profitability decline (in the case of
no pass-through) is greater than one percentage point or greater than 10
percent of baseline (without pollution control) profitability. Price
increases of one percent or less are assumed to have little effect on
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consumers or producers since a product price may fluctuate by at least one
percent due to granting of discounts to volume purchasers and also due to
short-term supply and demand surges and declines. Similarly, if a profit-
ability decline of less than or equal to one percentage point and less than
10 percent of baseline profitability is assumed to have an insignificant
impact on a plant's decision to curtail production or shut down. In this
way, model plants that are potential closure candidates are screened for
further analysis.
Once the closure criteria are applied to the model plants, the probability
of closure for the corresponding actual plants is examined in detail based
on plant-specific factors and actual market conditions. The detailed
analysis evaluates the extent to which price pass-through is possible and
the extent to which profitability will decline if immediate and complete
price pass-through is not possible. Thus, the model plant analysis serves
to identify potentially high impact plants (based on EPA's closure criteria);
the plant closure projections are made only after detailed evaluation of
actual plant and market conditions.
3. SUMMARY OF IMPACTS
The economic impacts of effluent control costs were analyzed for ten inor-
ganic chemicals subcategories, covering 13 manufacturing processes. In
addition, the combined impacts of effluent control and RCRA-ISS costs were
analyzed for three of the 13 processes. Out of the 144 plants in the ten
inorganic chemicals subcategories covered by effluent regulations, 69
plants corresponded to the small model plant size. Incremental effluent
control costs were incurred by 53 of the 69 "small" plants. Only two
subcategories, chrome pigments and titanium dioxide-sulfate process, were
significantly affected by the effluent control costs. In the chrome pig-
ments subcategory, four of the five small plants were projected for closure
under the regulations. One or both of the small titanium dioxide-sulfate
process plants were potential closure candidates. The additional impacts
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of RCRA-ISS costs on the chrome pigments subcategory were minimal compared
to the effluent control cost impacts.
3.1 ALUMINUM FLUORIDE
• Small Model Plant Size: 17,500 tons per year (TPY)
• Number of Corresponding Plants: 2 (total production = 31,050 TPY)
• Total Number of Plants in Subcategory Affected by Regulations: 4
(total production = 100,050 TPY)
• Total Capital Investment in Pollution Control Equipment: None
• Required Additional Effluent Control Costs: None (For the aluminum
fluoride subcategory, BAT regulations are based on BPT technology,
already in place and operating for all plants in the subcategory.)
• Number of Projected Small Plant Closures: None
Both aluminum fluoride plants categorized as small plants are direct dis-
chargers with BPT in place and operating. For this subcategory, BAT is
equivalent to BPT. Since there will be no incremental costs above BPT
required for compliance with BAT regulations, these regulations will have
no impacts on the two small plants in the aluminum fluoride subcategory.
Therefore, no small plant closures are projected. No further regulatory
alternatives are considered for this subcategory because no significant
impacts are projected.
3.2 CHLORINE
The two major manufacturing processes to produce chlorine use either mer-
cury cells (20 percent of capacity) or diaphragm cells (74 percent of
capacity). The remaining six percent of capacity is produced by processes
that are not regulated by EPA. Pollution control cost impacts are different
for each production process and therefore will be analyzed separately. In
addition, the costs and impacts of compliance with RCRA-ISS requirements are
included in the analysis.
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3.2.1 Chlorine-Mercury Cell
• Small Model Plant Size: 21,000 tons per year (TPY)
• Number of Corresponding Plants: 8 (total production = 311,000 TPY)
• Total Number of Plants in Subcategory: 25 (total production =
1,209,000 TPY)
• Number of Small Plants Affected by Effluent Regulations: 7 (total
production = 278,000 TPY)
• Number of Small Plants Affected by RCRA-ISS requirements: 8 (total
production = 311,000 TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $244,398
• Total Annualized Costs for Small Plants: $469,820
• Pollution Control Capital Costs as Percentage of Capital
Investment: 0.23 percent
• Maximum Price Rise (all pollution control costs passed through to
consumer): 1.54 percent
• Maximum Profitability Decline (all pollution control costs absorbed
by the firm): 0.21 percentage points or 24.42 percent of baseline
profitability (based on ROI)
• Number of Projected Small Plant Closures: None
Eight plants, or approximately one-third of all mercury cell chlorine
plants, correspond to the small model size. One small plant is an
indirect discharger already in compliance with PSES limitations and
will not incur incremental effluent control costs. The other seven
plants are direct dischargers, all having BPT in place. These plants
will incur the additional costs of BAT treatment. All eight mercury
cell chlorine plants will incur additional hazardous waste disposal costs
in order to comply with RCRA-ISS requirements.
Both the maximum profitability decline and the maximum price rise exceed
the EPA closure criteria. Though the maximum profitability decline is less
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than one percentage point (0.21 percentage points), this decline corresponds
to a 24.42 percent decrease of baseline profitability. Also, the maximum
price rise exceeds the EPA closure criterion of a one percent change in
price for compliance with BAT regulations (1.54 percent).
RCRA-ISS compliance costs increase the price and profitability impacts.
Total investment costs in pollution control equipment for small plants
including RCRA-ISS costs total $780,462 with annualized costs of $1,604,970.
Pollution control capital costs represent a higher percentage of capital
investment, increasing from 0.23 percent for BAT costs alone to 0.67 percent
including RCRA-ISS costs. The maximum profitability decline increases from
0.21 percentage points to 0.67 percentage points or from 24.42 percent to
77.91 percent of baseline profitability. The impact of RCRA-ISS costs on
the required price rise is 4.85 percent, an increase from 1.54 percent to
pass through BAT costs alone. Implementing a one to five percent increase
in price would be difficult given the current market conditions of excess
capacity and slow demand growth.
Detailed analysis shows that no small mercury cell chlorine plants are pro-
jected to close as a result of BAT and RCRA-ISS costs. Almost two-thirds
of chlorine production is used in the manufacture of more profitable down-
stream products. End users of chlorine-containing products would be cushion-
ed from the full impact of the projected one to five percent price increase.
Further, the mercury cell process produces sodium hydroxide (caustic soda)
as a co-product. Demand for caustic soda is currently very strong, and it
may be possible to at least partially recover effluent control and RCRA-ISS
costs through caustic soda price increases.
Because the impacts of effluent control and RCRA-ISS costs have the potential
of being mitigated, no small plant closures are projected for this subcategory.
No further regulatory alternatives are considered for this subcategory
because no significant impacts on small plants are projected.
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3.2.2 Chlorine-Diaphragm Cell
• Small Model Plant Size: 21,000 tons per year (TPY)
• Number of Corresponding Plants: 10 (total production = 320,000 TPY)
• Total Number of Plants in Subcategory: 36 (total production =
6,367,000 TPY)
• Number of Small Plants Affected by Effluent Regulations: 10 (total
production = 320,000 TPY)
• Number of Small Plants Affected by RCRA-ISS Regulations: 3 (total
production = 42,000 TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $652,740
• Total Annualized Costs for Small Plants: $707,200
• Pollution Control Costs as Percentage of Capital Investment:
0.47 percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 2.01 percent
• Maximum Profitability Decline (all pollution control costs absorbed by
the firm): 0.25 percentage points or 8.96 percent of baseline
profitability
• Number of Projected Small Plant Closures: None
Ten diaphragm cell chlorine plants correspond to the small model plant
size. All ten plants are direct dischargers, and all are meeting BPT ef-
fluent limitations. Therefore, these plants will incur only the incremental
costs of compliance with BAT effluent limitations. Three of these small
plants use graphite anodes and will also incur additional hazardous waste
disposal costs in order to comply with RCRA-ISS requirements.
The maximum profitability decline is less than the EPA closure criterion of
a one percentage point change in profitability and a ten percent decrease
in baseline profitability (0.25 percentage points or 8.96 percent). How-
ever, the maximum price rise exceeds the EPA closure criterion of a one
percent change in price to pass through BAT costs (2.01 percent).
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The incremental impacts of RCRA-ISS costs on price and profitability are
minimal. It is assumed the plants will dispose of their wastes in an
off-site landfill; therefore no capital or closure fund costs will be
incurred for compliance with RCRA-ISS requirements. Total pollution control
investment costs for the three small plants incurring RCRA-ISS costs are
$195,922 with total annualized costs of $103,320. The maximum profitability
decline with RCRA-ISS costs added to BAT increases from 0.25 percentage
points to 0.29 percentage points or from 8.96 percent to 10.39 percent of
baseline profitability. The additional RCRA-ISS costs increase the maximum
price rise from 2.01 percent to 2.24 percent.
As explained in Section 3.2.1 on mercury cell chlorine plants, while price
increases required to recover combined effluent control and RCRA-ISS costs
exceed one percent, chlorine producers should be able to pass through their
cost increases in final product prices. If cost pass-through is not immedi-
ate and complete, resulting profitability impacts will be minimal, with a
profitability decline of less than 0.3 percentage points or 8 to 10 percent
of baseline profitability.
Because the impacts of effluent control and RCRA-ISS costs are minimal or
have the potential of being mitigated, no small plant closures are projected
for this subcategory. No further regulatory alternatives are considered
for this subcategory because no significant impacts on small plants are
projected.
3.3 CHROME PIGMENTS
• Small Model Plant Size: 1,650 tons per year (TPY)
• Number of Corresponding Plants: 5 (total production = 6,000 TPY)
• Total Number of Plants in Subcategory: 12 (total production =
72,500 TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $1,036,954
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• Total Annualized Costs for Small Plants: $676,950
• Pollution Control Capital Costs as Percentage of Capital Investment:
37.03 percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 14.03 percent
• Maximum Profitability Decline (all pollution control costs absorbed
by the firm): 17.92 percentage points or over 100 percent of baseline
profitability (based on ROI)
• Number of Projected Small Plant Closures: One (production line only)
For this subcategory, BAT and PSES limitations are based on BPT and, there-
fore, the effluent control costs for direct and indirect dischargers are
equivalent. None of the small chrome pigments plants have control equip-
ment in place. Therefore, the analysis addressed the impact of effluent
control costs required for compliance with BAT/PSES regulations. In addi-
tion, the impacts of the combined costs of compliance with BAT/PSES and
RCRA-ISS were also examined.
The cost of installing and operating BAT/PSES removal level equipment would
impose significant impacts on the small chrome pigments plants. The capi-
tal requirements of complying with pollution control regulations represent
approximately 37 percent of the present fixed investment of the plant and
could pose severe problems to small plants. To pass through the costs of
BAT/PSES regulations, small chrome pigments plants would require a 14.03
percent price rise. Alternatively, if no price pass-through is possible,
plants would suffer a 17.92 percentage point profitability decline which
represents over 100 percent of baseline profitability. Thus, according to
EPA's closure criteria, the significant impacts of effluent control regu-
lations would result in possible plant closures for all five small chrome
pigments plants.
The incremental price and profitability impacts of RCRA-ISS costs are
relatively small in comparison to the impacts of effluent control costs.
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The price of pigments would have to be raised an additional 1.33 percent.
Similarly, the incremental decline in profitability (1.87 percentage points
or 17.07 percent of baseline profitability) would be small relative to the
large profitability impacts of BAT/PSES costs.
Small plants would suffer more severe impacts from effluent regulations
than larger plants. Larger plants would require a price rise of 5.54 to
8.63 percent compared to the 14.03 percent price rise required for smaller
plants. Small plants would suffer a 17.92 percentage point profitability
decline or a decrease of over 100 percent of baseline profitability while
larger plants' profitability decline ranges from 9.79 to 11.67 percentage
points or 35.78 percent to 54.38 percent of baseline profitability. While
all plants in the subcategory could be projected to close according to
EPA's closure criteria, the small baseline profit margins and severe impacts
on small plants would make them the most likely candidates for shutdown.
Two factors will constrain any price increase by small plants: the poten-
tial market shift to organic pigments and competition from imports. While
organic pigments are currently much higher in price, some pigment users are
now choosing them to avoid the current and anticipated health and regula-
tory problems associated with many lead-containing chrome pigments. A
price increase in chrome pigments will only accelerate this move to organics.
Imports also constrain price increases. Imports are currently very cost
competitive and will become even more so with further domestic price in-
creases. Thus, profit margins and profitability will decline. Given the
low baseline profitability for the small plants, even a small profitability
decline could encourage them to cease operations.
Due to the high control costs and capital requirements of BAT/PSES and
RCRA-ISS regulations, difficulty in achieving complete pass-through of cost
increases, and low baseline profitability, imposition of the effluent
regulations could result in plant or production line closures, as discussed
below.
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One small plant is involved solely in chrome oxide green production, and
therefore will not be affected by OSHA's further limitations on worker ex-
posure to lead and will not face the high costs of compliance with these
regulations. Further, demand for chrome oxide green is much stronger than
for the other chrome pigments, and sustained demand strength will probably
allow this small producer to pass-through part of the control costs to
customers. Therefore, it is less likely to close than the other small
chrome pigments plants which must comply with both OSHA and EPA regula-
tions.
Three small plants were projected to close due to these regulations. Be-
cause of these severe impacts, and the small size of the plants (approxi-
mately 1000 tons of pigment annually), the final regulations include an
exemption from categorical pre-treatment standards for plants producing
less than 2200 tons annually.
The remaining small plant is too large to qualify for the exemption.
Therefore, a chrome pigment production line closure is projected for this
plant. Chrome pigments account for only a small portion of the plant's
total production, and the plant is therefore expected to remain open.
This plant accounts for roughly three percent of subcategory production and
employment (20 workers). The facility is owned by a large chemical concern,
raising the possibility that the employees could be reassigned to other
operations.
3.3.1 Other Subcategory Regulations
The chrome pigments subcategory is also subject to OSHA regulations concern-
ing air quality in production facilities. OSHA regulations call for a
reduction in lead and chromium dust levels to 50 micrograms per cubic meter
of air in both end market workshops (i.e., paint manufacturing plants) and
pigment production facilities. In addition, producers will face strict
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limits on the discharge of hexavalent chromium, a known carcinogen, from
production facilities.
The impacts of OSHA regulations are uncertain. However, these regulations,
particularly those concerning lead-containing dusts, will raise the price
of chrome colors and cause some substitution with organic colors. Chrome
oxide green and zinc yellow contain no lead and should be affected less
severely by OSHA regulations.
3.4 COPPER SULFATE
• Small Model Plant Size: 2,300 tons per year (TPY)
• Number of Corresponding Plants: 16 (total production - 30,100 TPY)
• Total Number of Plants in Subcategory: 16 (total production » 30,100
TPY)
• Number of Projected Small Plant Closures: None
All plants in this subcategory correspond to the small model plant size.*
EPA has determined that no plants in this subcategory will incur compliance
costs under this rulemaking:
• All 15 direct dischargers already have BPT in place, and BAT has
been set equal to BPT for this subcategory.
• Pretreatment standards for indirect dischargers were promulgated
previously. The current rulemaking revises the limitations to
equal BAT, but does not change the technology basis or the com-
pliance costs. Therefore, while the single indirect discharger
in the industry may not have treatment in place, the compliance
cost it will have to incur is attributable to an earlier rule-
making (40 CFR 415.374). There are no additional compliance
costs associated with the current regulation.
Accordingly, these regulations will have no economic impact on the sub-
category.
*For this subcategory, the technical contractor developed only one model
size with annual production of 2,300 tons per year.
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3.5 HYDROGEN CYANIDE
• Small Model Plant Size: 35,000 tons per year (TPY)
• Number of Corresponding Plants Affected by Effluent Regulations: 5
(total production = 78,325 TPY)
• Total Number of Plants in Subcategory: 11 (only 7 are affected by the
effluent regulations with total production = 143,325 TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $948,750
• Total Annualized Costs for Small Plants: $419,039
• Pollution Control Costs as Percentage of Capital Investment: 0.5
percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 0.81 percent
• Maximum Profitability Decline (all pollution control costs absorbed by
the firm): 0.27 percentage points or 1.24 percent of baseline profit-
ability
• Number of Projected Small Plant Closures: None
Only primary process hydrogen cyanide manufacturers will be affected by the
effluent regulations. Of the seven primary process manufacturers, five
plants correspond to the small model size category. All five small plants
are direct dischargers having BPT in place and operating. Therefore, the
economic impact analysis assessed the additional costs required by all five
small plants to meet BAT effluent removal levels.
Both the required price rise (0.81 percent) and maximum profitability
decline (0.27 percentage points or 1.24 percent of baseline profitability)
are less than the EPA closure criteria of a one percent change in price,
and a one percentage point or ten percent decline in profitability. Based
on the EPA's closure criteria, the cost of complying with BAT regulations
will have minimal impact on small hydrogen cyanide plants. Therefore, no
small plant closures are projected for this subcategory. No further regula-
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tory alternatives are considered for this subcategory because no significant
impacts on small plants are projected.
3.6 HYDROGEN FLUORIDE
• Small Model Plant Size: 21,000 tons per year (TPY)
• Number of Corresponding Plants: 6 (total production = 77,520 TPY)
• Total Number of Plants in Subcategory: 9 (total production = 227,400
TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $409,860
• Total Annualized Costs for Small Plants: $172,094
• Pollution Control Costs as Percentage of Capital Investment: 0.6
percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 0.34 percent
• Maximum Profitability Decline (all pollution control costs absorbed by
the firm): 0.52 percentage points or 11.61 percent of baseline profit-
ability
• Number of Projected Small Plant Closures: None
Of the nine hydrogen fluoride manufacturers, six plants correspond to the
small model size category. All six plants are direct dischargers having
BPT in place and operating. Therefore, the economic impact analysis
assessed the impact of the additional costs required by all six small
plants to meet BAT effluent removal levels.
The required price rise (0.34 percent) is less than the EPA closure criterion
of a one percent change in price. However, the maximum profitability
decline of 0.52 percentage points represents an 11.61 percent decrease in
baseline profitability, exceeding the EPA closure criterion of a ten percent
change in baseline profitability. Further analysis shows demand for hydrogen
fluoride to be moderately price elastic; because demand is only moderately
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price elastic and the required price rise is minimal (0.34 percent), a
complete price pass-through of pollution control costs is likely. This
price pass-through should mitigate any profitability declines.
Based on the EPA's closure criteria, the costs of complying with effluent
regulations will have minimal impacts on small hydrogen fluoride plants.
Therefore, no small plant closures are projected for this subcategory. No
further regulatory alternatives are considered for this subcategory because
no significant impacts on small plants are projected.
3.7 NICKEL SULFATE
• Small Model Plant Size: 990 tons per year (TPY)
• Number of Corresponding Plants: 10 (total production = 4,518 TPY)
• Total Number of Plants in Subcategory: 11 (total production = 7,032
TPY)
• Number of Projected Small Plant Closures: None
Ten of the 11 plants in the subcategory correspond to the small model
size category. Five plants are direct dischargers and five are indirect
dischargers. EPA has determined that no plants in this subcategory will
incur compliance costs under this rulemaking:
• All five small direct dischargers already have BPT in place, and
BAT has been set equal to BPT for this subcategory.
• Pretreatment standards for indirect dischargers were promulgated
previously. The current rulemaking revises the limitations to
equal BAT, but does not change the technology basis or the com-
pliance costs. Therefore, while one of the five small direct dis-
chargers may not have treatment in place, the compliance costs it
will have to incur are attributable to an earlier rulemaking (40
CFR 415.374). There are no additional compliance costs associated
with the current regulation.
Accordingly, these regulations will have no economic impact on the sub-
category.
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3.8 SODIUM BISULFITE
• Small Model Plant Size: 5,000 tons per year (TPY)
• Number of Corresponding Plants: 3 (total production = 13,928 TPY)
• Total Number of Plants in Subcategory: 7 (total production = 66,960
TPY)
• Total Investment Costs in Pollution Control Equipment for Small
Plants: $144,174
• Total Annualized Costs for Small Plants: $92,337
• Pollution Control Costs as Percentage of Capital Investment: 6.90
percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 8.97 percent
• Maximum Profitability Decline (all pollution control costs absorbed by
the firm): 5.41 percentage points or 64.02 percent of baseline profit-
ability (based on ROI)
• Number of Projected Small Plant Closures: None
Three of the seven plants in the subcategory correspond to the small model
size category. Two small plants are direct dischargers with BPT in place
and operating. For this subcategory, BAT and PSES are equivalent to BPT.
Since there will be no incremental costs above BPT, BAT regulations will
have no impacts on these two plants.
One small sodium bisulfite plant is an indirect discharger without pretreat-
ment equipment in place. Therefore, the economic impact analysis addressed
the impacts of pretreatment costs, which are equivalent to BPT removal costs,
on this indirect discharger.
The maximum price rise (8.97 percent) and the maximum profitability decline
(5.41 percentage points or 64.02 percent of baseline profitability) both
significantly exceed the EPA's closure criteria of a one percent change in
price, and a one percentage point or ten percent change in profitability.
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Based on EPA's closure criteria, the model plant analysis shows that a
small sodium bisulfite plant currently without BPT in place would be pro-
jected for closure. However, further analysis shows that the actual small
plant is not likely to close.
While sodium bisulfite is not a critical input to any process, its major
market, photographic processing chemicals, is very secure because no sub-
stitutes exist which are as convenient and inexpensive. The same applies
to the demand situation in its other major end-use, food processing. This
implies relatively inelastic demand, allowing for increased costs to be
passed on to the consumer without a significant loss of demand.
Four other factors should mitigate the impacts on this plant:
• The indirect discharger should currently be operating with a slight
cost advantage since the other plants in the industry have been re-
quired to operate pollution control equipment under the promulgated
BPT regulations. Since the indirect discharger will need to incur the
same costs (plus capital cost inflation), the plant's cost and profit
levels will again be in line with the industry-wide levels.
• If the plant does require a price increase to remain competitive,
price pass-through is likely. The plant enjoys a regional market
advantage since it is one of two bisulfite producers on the West
Coast. The other West Coast producer is very small, and it is un-
likely to expand its bisulfite production sufficiently to penetrate
the indirect discharger's existing markets.
• The plant is insulated from competition from East Coast producers
because of transportation costs. The plant's ability to recover its
costs through a price increase will depend on the magnitude of the
delivery costs required to ship bisulfite from East Coast producers to
West Coast markets relative to the pollution control costs to be
incurred by the plant. Based on current price levels, the required
price increase (8.97 percent) would raise the affected plant's price
from $490/ton to $534/ton. Transportation costs to the West Coast
(via rail) would raise the East Coast price of $450/ton to $615/ton.
Given this delivered selling price comparison, it appears that the
plant would be able to pass through most if not all of its pollution
control costs.
• EPA has subsequently determined that the model control system used
in this analysis is oversized. The costs of compliance and associated
economic impacts are therefore overstated.
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These factors suggest that pretreatment standards will not cause severe
problems for the indirect discharger. Therefore, no small plant closures
are projected for the entire subcategory. No further regulatory alterna-
tives are considered for this subcategory because no significant impacts
on small plants are projected.
3.9 SODIUM BICHROMATE
• Small Model Plant Size: 22,000 tons per year (TPY)
• Number of Corresponding Plants: 1 (total production = 26,186 TPY)
• Total Number of Plants in Subcategory: 3 (total production = 156,800
TPY)
• Total Capital Investment in Pollution Control Equipment: None
• Required Additional Effluent Control Costs: None (For the sodium
dichromate subcategory, BAT regulations are based on BPT technology,
already in place and operating for all plants in the subcategory.)
• Number of Projected Small Plant Closures: None
Only one plant in the sodium dichromate subcategory corresponds to the
small model size category. BPT effluent limitations are in effect for
all sodium dichromate manufacturers. Therefore, the economic impact
analysis assumed that BPT equipment was in place and operating for this
plant. For this subcategory, BAT is equivalent to BPT. Since there will
be no incremental costs above BPT for compliance with BAT regulations, these
regulations will have no impact on the one small sodium dichromate plant.
Therefore, no small plant closures are projected for this subcategory. No
further regulatory alternatives are considered for this subcategory because
no significant impacts on small plants are projected.
3.10 TITANIUM DIOXIDE
Titanium dioxide is manufactured by three processes: sulfate, chloride, and
chloride-ilmenite. Pollution control cost impacts are different for each
production process and will be analyzed separately.
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3.10.1 Titanium Dioxide - Sulfate Process
• Small Model Plant Size: 35,000 tons per year (TPY)
• Number of Corresponding Plants: 2 (total production = 73,720 TPY)
• Total Number of Plants in Subcategory: 4 (total production = 204,440
TPY)
« Total Investment Costs in Pollution Control Equipment for Small
Plants: $5,345,454
• Total Annualized Costs for Small Plants: $6,457,872
• Pollution Control Capital Costs as Percentage of Capital Investment:
3.17 percent
• Maximum Price Rise (all pollution control costs passed through to
consumers): 9.52 percent
• Maximum Profitability Decline (all pollution control costs absorbed by
the firm): 4.64 percentage points or 61.62 percent of baseline profit-
ability
• Number of Projected Small Plant Closures: None
Of the four titanium dioxide plants using the sulfate process, two plants
correspond to the small model size. Both plants will incur BAT effluent
control costs.
The technical contractor has estimated that sales of the gypsum by-product,
generated by effluent treatment equipment, could reduce BAT costs for sulfate
process titanium dioxide plants by $22 per ton of titanium dioxide produced.
Though it is possible that the total volume of gypsum by-product may be
sold, the price rise and profitability change analysis assumes that no
gypsum credit is received by the manufacturer in order to determine the
maximum impact of effluent control costs.
The model plant analysis shows that small sulfate process titanium dioxide
plants will suffer significant impacts from the costs of BAT limitations.
The required price rise (9.52 percent) and maximum profitability decline
(4.64 percentage points or 61.62 percent of baseline profitability) signi-
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ficantly exceed the EPA closure criteria of a one percent change in price,
and a one percentage point or ten percent change in profitability. Even
with a full gypsum credit, the price and profitability impacts are signi-
ficant.
The BAT cost impacts on small titanium dioxide plants are much greater than
on larger plants. Large plants would require a 2.11 percent price rise
compared to the 9.52 percent required for small plants. Also, large plants
incur a profitability decline of only 0.75 percentage points (6.86 percent
of baseline profitability) compared to the 4.64 percentage points (61.62
percent of baseline profitability) decline for small plants. Large plants,
better able to absorb or pass through the BAT costs, are not projected to
close. The impacts on small plants, which are less able to absorb or pass
through the control costs, indicate that plant closure is possible for both
small plants.
However, even given these indications of substantial price and profita-
bility impacts it is unlikely that either small plant will close. One of
these two small producers has already made a partial investment in waste
treatment facilities which is not reflected in the analysis; therefore, the
price and profitability impacts for this plant are overstated. Moreover,
despite the additional costs that would be incurred to reach full compli-
ance, the producer has publicly announced that it plans to continue produc-
tion and foresees a long-term market for the anatase grade pigment produced
by the sulfate process (Chemical Marketing reporter, December 24, 1979).
The final regulation also incorporates specific changes requested by this
manufacturer. Given these circumstances, it seems unlikely that the plant
would close.
The other plant has recently signed a court agreement to meet limitations
equal to those set forth in this final regulation and has agreed to install
wastewater treatment controls and continue production in compliance with
the regulation. Accordingly, continued operation of the plant appears
likely.
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In summary, although the quantitative economic indicators suggest possible
closure of these two plants, their actual circumstances are such that
closures appear highly unlikely.
3.10.2 Titanium Dioxide - Chloride
• Small Model Plant Size: 18,500 tons per year (TPY)
• Number of Corresponding Plants: 1 (total production = 23,100 TPY)
• Total Number of Plants in Subcategory: 6 (total production = 184,030
TPY)
• Required Additional Effluent Control Costs: None (For the chloride
process segment of the titanium dioxide subcategory, BAT regulations
are based on BPT technology, already in place and operating for all
plants).
• Number of Projected Small Plant Closures: None
All chloride process titanium dioxide plants are direct dischargers with
BPT installed and operating. For this subcategory, BAT is equivalent to
BPT. Therefore, no incremental costs above BPT are required for compliance
with BAT regulations. Accordingly, no impacts or plant closures are pro-
jected for chloride process titanium dioxide plants.
3.10.3 Titanium Dioxide - Chloride-Ilmenite
• Small Model Plant Size: 150,000 tons per year (TPY)
• Number of Corresponding Plants: None
• Total Number of Plants in Subcategory: 3 (total production = 419,650
TPY)
No titanium dioxide plants, using the chloride-ilmenite process, are cate-
gorized as small plants. Therefore, no further analysis of regulatory
impacts or alternatives is undertaken for this segment of the titanium
dioxide subcategory.
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APPENDIX F
SOCIAL COSTS OF EFFLUENT GUIDELINE REGULATIONS
\
1. BACKGROUND
Executive Order 12291, released in February 1981, is intended to ensure
that regulatory agencies evaluate the need for taking regulatory action,
consider a wide range of alternatives, and select the regulatory alterna-
tive in light of their knowledge of the costs and benefits of the regula-
tion. Toward this end, the Order establishes a set of regulatory reform
and review procedures, including a requirement that regulations be ana-
lyzed in terms of their total cost to society, as well as the direct
compliance costs.
This appendix presents estimates of the social costs associated with the
effluent guideline regulations. Social costs may be defined as:
The value of goods and services lost by a society re-
sulting from the use of resources to comply with a regul-
lation, the use of resources to implement a regulation,
and reductions in output due to compliance.
2. METHODOLOGY
In many cases, including the inorganic chemicals regulations, the annual-
ized direct compliance (or direct resource) costs of a regulation are ef-
fectively equal to social costs. The direct compliance costs associated
with the effluent guidelines regulations consist of an initial capital
investment and annual operations and maintenance (O&M) costs. Under EPA's
current methodology, annual resource costs are equal to the annualized
present value of the direct compliance costs extended perpetually. In
the simplified calculation used for this analysis:
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Annual Social Costs « (0.1 x CI) + O&M
where: CI = capital investment
O&M = operations and maintenance costs
0.1 « capital recovery factor for a 10% real perpetual
return
Note: 10% real rate specified by the Office of Management and
Budget
In addition to the real resource costs, other, less significant costs
which could be applicable include:
• Government Administrative Costs; The incremental effort to
monitor and enforce these regulations is believed minor compared
to total social costs.
• Deadweight Welfare Loss: Losses which occur due to the net change
in consumer and producer surplus resulting from a decrease in
production. The production impact of these regulations is minor,
so this loss is insignificant.
• Adjustment Costs for Unemployed Resources; Unemployment caused
by the regulations is expected to be small, and is discussed in
the report.
3. RESULTS
Table F-l presents the annual social costs for all subcategories incur-
ring incremental effluent guidelines BAT/PSES costs. The industry-wide
total of $19.0 million is primarily accounted for by three subcategories:
titanium dioxide-sulfate process (38.4 percent of the total), chrome pig-
ments (30.0 percent), and chlorine (25.8 percent). The remaining five
subcategories were responsible for social costs of only $1.1 million, or
5.8 percent of the total.
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TABLE F-l
SOCIAL COSTS
(Millions of Dollars)
Annual Percent
Subcategory Social Costs of Total
Chlorine - Mercury Process 1.2 6.3
Chlorine - Diaphragm Process 3.7 19.5
(Total Chlorine) (4.9) (25.8)
Chrome Pigments 5.7 30.0
Copper Sulfate 0.0 0.0
Hydrogen Cyanide 0.7 3.7
Hydrogen Fluoride 0.3 1.6
Nickel Sulfate 0.0 0.0
Sodium Bisulfite # 0.1 0.5
Titanium Dioxide - Sulfate Process 7.3 38.4
TOTAL 19.0 100.0
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* U.S. GOVERNMENT PRINTING OFFICE: 1982 361-082/314
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