-------
TABLE 3-1. METAL CAN INDUSTRY CHARACTERISTICS, 1977
SIC 3411 SIC 34113 SIC 34114
Metal CansJL' Steel CansJL' Aluminum Cans
Number of Companies 153 73J1/ 25^7
Number of Establishments 403 253 52
Value of Shipments ($ millions) 8,142.8 4,852.7 1,620.4
Number of Cans Shipped (million cans) 88,311 61,761 26,550
Number of Employees (thousands) 59.8 42.3 13.6
Number of Production Workers (thousands) 50.2 36.1 10.8
Productivity (thousand cans per employee) 1,477 1,460 1,952
' Includes both seamless two-piece cans and seamed three-piece cans. Only
seamless cans are covered by the proposed regulations.
_' Number of companies with shipments of 5100,000 or more.
SOURCE: U.S. Department of Commerce, 1977 Census of Manufactures.
3-5
-------
TABLE 3-2. NUMBER OF METAL CAN PLANTS BY EMPLOYMENT SIZE, 1977f/
(SIC 3411)
Plant Size
Establishments with:
1-19 employees
20 - 99 employees
100 - 499 employees
over 500 employees
Total*
Coverage Ratio.*!'
Specialization Ratio£/
No. of
Plants
103
117
165
18
403
% of
Total
Plants
25.6
29.0
40.9
4.5
100.0
Value of
Shipments
($ Millions)
117.8
1,255.2
5,345.1
1,424.8
8,142.8
% of Total
Value of
Shipments
1.4%
15.4%
65.6%
17.5%
100.0%
98%
96%
* Numbers may not add due to rounding.
!L' Includes plants that manufacture steel cans (seamed and seamless),
aluminum cans, and metal can lids, ends, and parts. Only seamless cans
are covered by the proposed regulations.
JL/ Coverage ratio is ratio of a given industry's primary product shipments
to total shipments of these products by all industries.
£_' Specialization ratio is ratio of primary product shipments to product
shipments for primary plus secondary products.
SOURCE: U.S. Department of Commerce, 1977 Census of Manufactures.
3-6
-------
EPA has identified 93 plants in the United States which manufacture seam-
less metal cans. Eighty-nine of the plants wash their cans and generate pro-
cess wastewater and are covered by this regulation. Table 3-3 presents the
geographic distribution of these 89 plants. The plants are dispersed through-
out the country, with some concentration in populated areas such as California,
Texas, and New York/New Jersey. Total employment by seamless two-piece
metal can plants is estimated to be about 29,800 people..-/
A data set of 49 of these 89 plants that manufacture and wash seamless
cans was used to represent the industry for the economic impact analysis.
These data included information on volume of production, discharge status,
and compliance cost estimates.dJ Table 3-4 presents summary characteristics
of these 49 sample plants. Approximately 90 percent of these plants are
aluminum two-piece can plants and most of the plants operate between 2 and 4
can lines. The 49 sample plants operate a total of 147 lines. Table 3-5
presents the distribution of the plants by the number of lines at each plant
and shows that about 50 percent of the production is accounted for by plants
with three or four lines.
3.3 FIRM CHARACTERISTICS
The Department of Commerce estimated that there were 153 companies that
produced metal cans (both two-piece and three-piece cans) in 1977. The major
producers of metal cans are Continental Can; American Can; National Can; Crown
Cork and Seal; Reynolds Metals; Ball Corp.; Kaiser Aluminum and Chemical; and
2J Based on total shipments of seamless two-piece metal cans of 58.1 billion
cans in 1981 (see Section 3.4), and assuming a productivity of 1.95 million
cans per employee (productivity of aluminum can plants as reported in
the 1977 Census of Manufactures and shown in Table 3-1).
~J EPA found 88 plants operating 224 production lines that discharge wastewater.
EPA estimated compliance costs for 61 of these discharging plants. However,
production quantities were not available for 12 of these 61 plants, thus,
the 49-plant data set used in the analysis.
3-7
-------
TABLE 3-3. GEOGRAPHIC LOCATION OF 89 SEAMLESS CAN PLANTS WITH PROCESS WASTEWATER
State Number of Plants
Arizona 1
California 10
Colorado 2
Connecticut 1
Florida 5
Georgia 5
Hawaii 1
Illinois 2
Indiana 1
Maine 1
Maryland 2
Minnesota 3
Missouri 5
New Jersey 7
New York 4
North Carolina 3
Ohio 7
Oklahoma 1
Pennsylvania 2
South Carolina 2
Texas 11
Virginia 1
Washington 3
Wisconsin 6
Wyoming 1
Puerto Rico 2_
TOTAL 89
SOURCE: 1978 and 1982 EPA 308 Surveys.
3-8
-------
TABLE 3-4. CHARACTERISTICS OF 49 SAMPLE PLANTS
Number of Firms 12
Number of Plants:
Aluminum Cans 44
Steel Cans 3
Both 2
Total Number of Can Lines 147
Number of Plants with:
1 line 1
2 lines 22
3 lines 10
4 lines 11
5 lines 2
6 lines 3
SOURCE: 1978 and 1982 EPA 308 Surveys.
3-9
-------
TABLE 3-5. DISTRIBUTION OF 49 SEAMLESS CAN SAMPLE PLANTS
BY NUMBER OF CAN LINES
No. of
Types of Plants Plants
Plants with:
2 lines or less 23
3-4 lines 21
5 lines or more 5
No. of
Production
Production
Range
Lines Million Cans % of Total (Million Cans)
45 12,890.4 32.9
74 19,766.8 50.4
28 6,569.2 16.7
345.0 - 813.5
272.6 - 1,250.0
1,198.0 - 1,517.0
SOURCE: 1978 and 1982 EPA 308 Surveys.
3-10
-------
Diamond International. Table 3-6 indicates that the metal can industry is
moderately concentrated with the four largest manufacturers accounting for
over 50 percent of total industry shipments.
Most metal cans are produced for sale by commercial can manufacturers.
However, in recent year's, many breweries (e.g., Anheuser-Busch, Coors, Miller,
Schlitz) and food processors (e.g., Carnation, Campbell, Del Monte, Van Camp)
have increased their production of cans for their own use. Table 3-7 shows
that captive beverage can manufacturers increased their shipments from 20
percent to 25 percent of total beverage can shipments between 1979 and 1981.
Since beverage cans accounted for 95 percent of total two-piece can shipments
in 1981, these figures are representative of total two-piece can shipments.
Table 3-8 presents selected financial ratios of 18 canmaking companies
for which published financial data were available for the 1979-1981 period.
There are 11 commercial manufacturers and 7 companies with captive canmaking
operations in the group. This data shows that the profit performance (measured
by the firm's profit margin and return on equity) of most commercial can pro-
ducers are, in general, below that of both the companies with captive opera-
tions and the All Manufacturing average. In terms of capital structure, the
commercial can manufacturers are generally more leveraged and exhibit lower
equity to assets ratios than the captive producers and the all manufacturing
average.
3.4 MARKET CHARACTERISTICS
3.4.1 Product Characteristics and Substitution
Table 3-9 summarizes the shipments of all metal cans and seamless two-
piece cans by market in 1981. Beverage containers are the largest users of
seamless metal cans and accounted for 95 percent of total seamless metal can
3-11
-------
TABLE 3-6. CONCENTRATION RATIOS OF CANMAKING INDUSTRY, 1977
Class of Product
Metal Cans (SIC 3411)£/
Steel Cans (SIC 34113X2/
Aluminum Cans (SIC 34114)
Percent of Value of Shipments Accounted for by
4 Largest 8 Largest 20 Largest
Companies Companies Companies
56
62
55
71
79
79
89
92
99+
JL' Includes both seamless and seamed cans. Only seamless cans are covered by
the proposed regulations.
SOURCE: U.S. Department of Commerce, 1977 Census of Manufactures.
3-12
-------
TABLE 3-7. TOTAL SHIPMENTS OF BEVERAGE CANS BY MARKET
(BILLIONS OF CANS)
Year Total Shipments For Salef/ Own Use£/
1979 54.4 43.5 11.0
(80.0%) (20.0%)
1980 55.2 42.9 12.3
(77.7%) (22.3%)
1981 56.3 42.2 14.1
(75.0%) (25.0%)
*/ Numbers in parentheses represent percent of total shipments.
SOURCE: Can Manufacturers Institute, Metal Can Shipments Report, 1981.
3-13
-------
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3-14
-------
TABLE 3-9. METAL CAN SHIPMENTS, 1981
Two-Piece Cans
All Cans
(Billion Cans)
Billion Cans
% of Total
Two-Piece Cans
All Metal Cans Shipments
by Market:
Beverage
Beer
Soft Drink
Food
General Packaging
Total
56.3
30.9
25.4
27.7
4.3
88.3
55.2
30.6
24.5
2.7
0.2
95.0
52,
42,
58.1
5.3
0.3
100.0
Aluminum Cans Shipments
by Market:
Beverage
Beer
Soft Drink
Food
General Packaging
Total
47.7
28.8
18.8
1.0
*
48.9
47.7
28.8
18.8
1.0
*
48.7
82.1
49.6
32.4
1.7
0.1
83.8
Steel Cans Shipments
by Market:
Beverage
Beer
Soft Drink
Food
General Packaging
Total
8.6
2.0
6.6
26.7
4.3
39.6
7.5
1.8
5.7
1.7
0.1
9.4
12.9
3.1
9.8
2.9
0.2
16.2
*Less than 0.05 billion cans.
SOURCE: Can Manufacturers Institute, Metal Can Shipments Report, 1981,
3-15
-------
shipments in 1981. Ninety-eight percent of all beverage can shipments in
1981 were seamless cans. The reasons for the popularity of the seamless can
are that it uses less metal, can be made faster and cheaper, has high integrity
(less prone to leakage), and is lighter to transport than the seamed can.
For beverage packaging, metal cans have the advantages of lighter weight
and ease of shipping and handling over other containers such as glass and
plastic bottles. However, competition from glass and plastic bottles is
strong. Glass bottles enjoy advantages over metal cans such as quality image
and lower cost (the cost of producing a bottle is higher, however, a bottle
can be reused many times), although this is partially offset by higher costs
in handling, bottling, and transportation. In addition, because they are
resealable, glass and plastic (also called PETpolyethylene terephthalate)
bottles have a clear advantage over cans in the large family-size beverage
container market.
Shipments of seamless cans in the food and general packaging markets
represent a relatively small portion of the market, accounting for 5 percent
of all seamless cans shipped in 1981 and for less than 10 percent of 1981
total metal can shipments in these two markets. The reason for this low
demand is that seamless cans lack rigidity needed for food packaging and can
only be made in small sizes; seamed cans are stronger and can be made in
many different sizes to meet the needs of food processors.
Competition for the food and general packaging markets also comes from
other types of containers, such as:
Retort pouch: a flexible, lightweight, sterile,
laminated plastic and aluminum foil food package
that does not require refrigeration or preserva-
tives. Because it is easy to open, heat, transport,
and dispose of, this food package is very attractive
to a growing number of consumers. In addition, this
container has advantages of storage space savings of
99 percent and weight savings of 86 percent over metal
3-16
-------
cans of the same capacity when empty!/ and, therefore,
is easier to ship and handle. The disadvantages of
the retort pouch over metal cans are slow filling
speeds and high costs.
Aseptic package: a flexible, sterile, laminated
container that is used to package juices so that
they do not need refrigeration.
Composite can: a container that consists of many
layers of paper or heavy paperboard wrapped around
a mandrel to form a tube; foil or plastics are
laminated to the paper to add strength and impermea-
bility.
Until recently, the seamless metal cans found only limited use in packaging
noncarbonated beverages. This is because the carbonation, which is contained
in beer and carbonated soft drinks, helps pressurize and strengthen the can
which otherwise may collapse due to the thin sidewalls. A recent development
by Reynolds Metals using liquid nitrogen allows the use of seamless metal cans
for noncarbonated beverages such as wines, juices, and waters. In the new
process, a drop of liquid nitrogen is put in the filled can before sealing;
the nitrogen then expands and creates pressure against the sidewall.
Another recent technological development is the aluminum bottle (i.e.,
resealable can) developed by Continental Can. This container has a drawn
and ironed body and a dome cap with a resealable plastic closure (referred
to as a "clicker top"). This aluminum bottle may improve the metal can
industry's competitive position as it combines the advantages of both metal
cans (i.e., lightweight, ease of shipping and handling) and bottles (i.e.,
resealability).
h/ Food Engineering, October 1981.
3-17
-------
100-
go-
so-
70-
60-
50-
40-
30-
20-
10
9
8
7
6
5
Total Metal
Cans
Beverage Cans
Two-piece
Beverage Cans
Beer Cans
Two-piece Beer
Cans
Soft Drink Cans
Two-piece Soft
Drink Cans
1976
1977
1978
1979
1980
1981
Year
FIGURE 3-2. METAL CAN SHIPMENTS, 1976 - 1981
3-18
-------
TABLE 3-10. METAL CAN SHIPMENTS, 1976-1981
1976-1981
Average Annual
1976 1977 1978 1979 1980 1981 Growth Rate (%)
Total Metal Cans
Billion Cans
% Change
Beverage Cans
Total
Billion Cans
% Change
Two-Piece Cans
Billion Cans
% of Total
% Change
Beer Cans
Total
Billion Cans
% Change
Two-Piece Cans
Billion Cans
% of Total
% Change
Soft Drink Cans
Total
Billion Cans
% Change
Two-Piece Cans
Billion Cans
% of Total
% Change
82.6
46.4
26.4
56.9
26.9
20.3
75.5
19.5
6.1
31.3
86.9
5.2
51.2
10.3
33.1
64.6
25.4
27.9
3.7
23.6
84.6
16.3
23.3
19.5
9.5
40.8
55.7
89.8
3.3
54.4
6.3
39.9
73.3
20.5
28.9
3.6
26.4
91.3
11.9
25.5
9.4
13.5
52.9
42.1
89.3
(0.6)
54.4
0
44.7
82.2
12.0
28.7
(0.7)
27.0
94.1
2.3
25.7
0.8
17.6
68.5
30.4
87.9
(1.6)
55.2
1.5
50.8
92.0
13.6
29.5
2.8
28.9
99.0
7.0
25.7
0
21.9
85.2
24.4
88.3
0.5
56.3
2.0
55.2
98.0
8.7
30.9
4.7
30.6
99.0
5.9
25.4
(1.2)
24.5
96.5
11.9
1.4
4.0
16.0
2.8
8.7
5.7
32.9
SOURCE: Can Manufacturers Institute, Metal Can Shipment Report, 1981.
3-19
-------
3'4-2 Shipment Trends
As illustrated in Figure 3-2 and Table 3-10, shipments of seamless two-
piece beverage cans (which accounted for 95 percent of all seamless cans
shipped in 1981) have experienced strong growth between 1976 and 1981, aver-
aging a 16 percent increase per year. The increased demand for seamless cans
has been mainly at the expense of the seamed cans, as shipments of total
beverage cans grew at a more moderate average annual rate of 4 percent during
that same period.
Despite the strong growth in shipments of seamless cans, the industry
reported excess capacity as new, more efficient facilities were added in
recent years to improve productivity, and as more captive plants were built
by major beverage and food processing companies. This excess capacity has
put pressure on the industry's prices and profitability and has also forced
the shutdown of some older, less efficient operations.
3.4.3 Foreign Trade
Imports and exports of metal cans have been insignificant, since trans-
portation costs for empty cans are high. Table 3-11 shows that U.S. exports
of metal cans have always been less than 1 percent of total industry value
of shipments. Statistics on imports of cans are not available, however,
industry sources indicate that they are also insignificant due to high trans-
portation costs.
3-20
-------
TABLE 3-11. U.S. EXPORTS OF METAL CANS, 1977-1981
Year
1977
1978
1979
1980
1981
Value of
Shipments
($ Million)
8,242.8
8,972.3
9,822.7
10,600.0
11,100.0
Value of
Exports
($ Million)
45.0
36.7
52.1
85.9
90.0
Export/
Shipment
(%)
0.7
0.5
0.6
0.9
0.9
SOURCE: U.S. Department of Commerce, 1982 U.S. Industrial Outlook.
3-21
-------
4. BASELINE PROJECTIONS OF INDUSTRY CONDITIONS
This section provides projections of conditions in the canmaking industry
to 1990 in the absence of additional effluent regulations. These projections
will be used together with estimated compliance costs and other information to
assess the effects of the effluent control requirements on future industry
conditions.
The basic approach followed in developing the projections began with a
demand forecast. Then, using the resulting initial volume estimates, industry
supply factors were assessed to determine if there would be any significant
changes in.the level of capital requirements and anticipated growth in terms
of the number of plants and quantity of production.
4.1 DEMAND FORECASTS
The primary reason for beginning the baseline projections with the demand
analysis is based on the hypothesis that the canmaking industry supply factors
will adjust to demand conditions. This results from two factors: (1) the
canmaking industry group is very small compared to the total economic activity
in the U.S. and is, therefore, more likely to react to general trends rather
than influence them and (2) the demand for metal cans is a derived demand,
depending on the demand for beverage, food, and other consumer goods.
As indicated in Chapter 3, annual shipments of seamless two-piece cans
grew rapidly between 1976 and 1981, and by the end of 1981 98 percent of
total shipments were seamless cans. This rapid growth can be explained by
the preference of seamless cans over the seamed threepiece cans for beverage
packaging. Beverage cans have always been, by far, the largest market for
seamless cans, accounting for 95 percent of all seamless cans shipped in
1981 (see Table 3-9). Since there was no clear evidence that the above demand
4-1
-------
that the above demand patterns would change substantially during the 1980s,
it was, therefore, assumed that further growth of seamless can shipments
between 1982 and 1990 would approximate that of beverage cans.
For this study, projections of seamless can shipments were based on
industry forecasts of beverage can shipments published in Beverage magazine.!.'
These projections are shown in Table 4-1 and indicate that seamless can ship-
ments are expected to grow at an average annual growth rate of 4 percent to
reach 68 billion cans in 1985. Between 1985 and 1990, it was assumed that
shipments of seamless cans would grow at the same rate as beverage shipments,
2 /
which are projected to increase 3 percent a year during that time period .±J
The above projections are probably conservative forecasts, as recent
technological developments may open new markets for seamless cans. Some of
these innovations are described in Chapter 3 and include the aluminum bottle,
the use of liquid nitrogen in canning noncarbonated drinks, and the "draw and
redraw" steel food can. If these new products are well accepted by consumers,
then the growth of the seamless can industry will probably be faster than as
projected above.
4.2 SUPPLY FORECASTS
This section addresses the number of baseline closures and new sources
that might be expected during the 1980s. The increase in demand through the
1980s forecasted in Section 4.1 can be supplied by (a) increasing capacity
utilization at current plants, (b) modifying current plants to increase their
capacity, (c) constructing new plants, and (d) increasing imports.
.L Beverage, February 19, 1982, p. 16.
JL' Predicast, Inc., Predicast Forecasts, June 1982, p. A-23.
4-2
-------
TABLE 4-1. PROJECTIONS OF TWO-PIECE METAL CAN SHIPMENTS (BILLION CANS)
Year
1976
1977
1978
1979
1980
1981
Beverage Can Shipments^.'
Beer Soft Drink Total
26.9
27.9
28.9
28.7
29.5
19.5
23.3
25.5
25.7
25.7
46.4
51.2
54.4
54.4
55.2
30.9
25.4
56.3
Seamless
Two-Piece Can
Shipments
NA
NA
NA
NA
52.6
58.1
Projected
1985
1990
35. Ob/
31. O
66.0
76.5
68.0
79.0
Annual Growth
Rate (%)
1976-1980 2.3 7.1
1979-1980 2.8 0
1980-1981 4.7 -1.2
Projected Annual
Growth Rate (%)
1981-1985 3.2 4.9
1985-1990
1981-1990
4.4
1.5
2.0
4.0
3.0£/
3.5
NA
NA
10.5
4.0
3.0
3.5
.£' Includes both seamed and seamless cans.
b/ Industry forecasts (Beverage, February 19, 1982, p. 16).
£/ Predicast's forecast for beverage shipments (Predicast Forecast, June
1982, p. A-23).
SOURCE: JRB Associates estimates.
4-3
-------
As indicated in Chapter 3, there was substantial excess capacity in 1981.
Industry sources estimated that by the end of 1981, the seamless two-piece
beverage can industry had a production capacity of 65 billion cans.2.' Total
shipments in 1981 amounted to 55 billion cans, representing an average capacity
utilization of 85 percent. The overcapacity resulted from the combination of
the rapidly increasing capacity of captive can manufacturers (shipments by
captive beverage can plants increased from 11 billion cans to 14 billion cans
between 1979 and 1981) and the addition of new, more efficient facilities by
commercial manufacturers to improve productivity and profitability.
Table 4-2 summarizes the supply forecasts for beverage cans. This
table indicates that the commercial beverage can manufacturers are expected
to have an excess capacity of 5 billion cans by 1985. Assuming an average
production rate of 260 million cans per line,A' it is estimated that approxi-
mately 20 older, less efficient can lines may be shut down to eliminate the
overcapacity. During that time, the captive manufacturers are projected to
increase their production capacity by about 6 billion cans. This will require
the addition of 20 new beverage can lines that will cost between $200 and
$300 million.
Since beverage cans have always accounted for a very large share of
the seamless can market (95 percent of all seamless cans shipped in 1981), it
is assumed that the above supply forecasts would reflect the future supply
conditions of the seamless can industry.
As discussed in Section 3.4, imports and exports of metal cans have always
been insignificant because transportation costs for empty cans are high. This
situation is not expected to change in the future.
I Modern Metals, January 1982.
ft! It was estimated that there were 250 D&I can lines in operation in 1981
(Modern Metals, January 1982).
4-4
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TABLE 4-2. SUMMARY OF SUPPLY FORECASTS FOR BEVERAGE CANS INDUSTRY
All Commercial Captive
Producers Manufacturers Operations
1981 (Actual)
Shipments (Billion Cans) 55 41 14
Production Capacity (Billion Cans) 65£/ 51 14jl/
Number of Lines 250£/ 195 55
Capacity Utilization Rate (%) 85 80 100
Excess Capacity (Billion Cans) 10 10
1985 Forecasts
Shipments (Billion Cans) 66 46 20£/
Additional Capacity Needed between 1-56
1981-1985 (Billion Cans)
Number of Potential Baseline 20 2Ql/
Line Closures
Number of Additional New Lines 20 20£/
Capital Requirements for New Lines 200- 200-
($ Million) 300 300£/
Total Number of Lines 250 175 75
^.'Industry estimate of seamless two-piece D&I beverage can capacity at end of
1981 (Modern Metals, January 1982).
k/It is expected that the beverage companies will operate their captive can-
making facilities at full capacity.
£/Assume shipments of beverage cans by captive plants will continue to grow
at the average 1979-1981 rate of 1.5 billion cans a year (see Table 3-7).
jL/Assume average capacity of 260 million cans per line.
fl/Assume average capacity of 300 million cans per new line, and investment
cost of $10-$15 million per line (telephone communication with Mr. R. Gere,
American Can Co., December 1982).
SOURCE: JRB Associates estimates.
4-5
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5. EFFLUENT GUIDELINE CONTROL -OPTIONS AND COSTS
5.1 OVERVIEW
The alternative water treatment control systems, costs, and effluent
limitations for the Canmaking Point Source Category are enumerated in the
Development Document. The Development Document also identifies various
characteristics of the industry, including manufacturing processes; products
manufactured; volume of output; raw waste characteristics; supply, volume,
and discharge destination of water used in the production processes; sources
of waste and wastewaters; and the constituents of wastewaters. Using these
data, pollutant parameters requiring limitations or standards of performance
were selected by EPA.
The EPA Development Document also identifies and assesses the range of
control and treatment technologies for the industry. This involved an evalu-
ation of both in-plant and end-of-pipe technologies. This information was
then evaluated for existing surface water industrial dischargers to determine
the effluent limitations required for the Best Practicable Control Technology
Currently Available (BPT), the Best Available Technology Economically Achievable
(BAT), and the Best Conventional Pollutant Control Technology (BCT). Existing
and new dischargers to Publicly Owned Treatment Works (POTWs) are required to
comply with Pretreatment Standards for Existing Sources (PSES) and Pretreatment
Standards for New Sources (PSNS) , and new direct dischargers are required to
comply with New Source Performance Standards (NSPS), which require Best Avail-
able Demonstrated Control Technology (BDT). The identified technologies were
analyzed to calculate cost and performance. Cost data were expressed in
terms of investment, operating and maintenance costs plus depreciation, and
interest expense.
5-1
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5.2 CONTROL AND TREATMENT TECHNOLOGY
Based on the analysis of the potential pollutant parameters and treat-
ment in place in the canmaking industry, EPA identified six treatment tech-
nologies that are most applicable for the canmaking industry:
Treatment Level 1: Chemical emulsion breaking,
dissolved air flotation, and lime precipitation
and clarification
Treatment Level 2: Treatment Level 1 plus in-
process flow reduction
Treatment Level 3: Treatment Level 2 plus
polishing filtration
Treatment Level 4: Treatment Level 3, but substi-
tuting ultrafiltration for polishing filtration
Treatment Level 5: Similar to Treatment Level 2
with the addition of nine-stage countercurrent
rinsing to further reduce wastewater flows
Treatment Level 6: Treatment Level 5 plus polishing
filtration.
Treatment Level 5 and Level 6 are limited to new sources only.
5.3 COMPLIANCE COST ESTIMATES
5.3.1 Critical Assumptions
The assumptions made to estimate compliance costs are outlined in the
Development Document. Some of the critical assumptions are summarized below:
All costs are expressed in first-quarter 1982
dollars.
Plant compliance costs are functions of the plant
number of can lines (i.e., production capacity) and
not functions of plant actual production volume.
5-2
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Provisions are made for equipment-in-place in esti-
mating compliance costs for existing sources.
Capital costs are amortized at 10 years and 12
percent interest. The annual cost of depreciation
was calculated on a straight line basis over a
10-year period.
Treatment Level 1 for existing sources does not require
flow reduction. For this reason, the compliance costs
of Treatment Level 1 are in many cases greater than
those of Treatment Level 2 which includes flow reduction
and allows for smaller-sized end-of-pipe treatment. In
such cases, it was assumed that dischargers would install
Treatment Level 2 instead of Level 1.
5.3.2 Compliance Costs of Existing Sources
Table 5-1 presents the total compliance capital investment and total
annual compliance cost estimate.s of Treatment Levels 1 to 4 for existing
sources in the canmaking industry. Total annual compliance costs for the 49
sample discharging plants for which production and compliance cost data are
available range from $9.0 million for Treatment Level 1 to $22.7 million for
Treatment Level 4. Total annual compliance costs projected for the 88 dis-
charging plants in the industry vary between $18.9 million for Treatment
Level 1 and $35.2 million for Treatment Level 4.
5.3.3 Compliance Costs of New Sources
As indicated in Section 5.2, two treatment technologies (Treatment Levels
5 and 6) are considered for new sources. Table 5-2 summarizes the compliance
cost estimates of these treatment technologies for typical new sources with
one to six can lines. These costs apply to existing facilities that are
substantially modified and to greenfield (new) plants.
5-3
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TABLE 5-1. ESTIMATED COMPLIANCE COSTS FOR CANMAKING EXISTING SOURCES
All Discharging Indirect Direct
Plants Dischargers Dischargers
Total for 49 Sample Plants
Number of Plants 49 44 5
Number of Lines 147 131 16
Compliance Capital Investment
(Thousand Dollars)£/
Treatment Level 1 19,319.3 18,519.0 800.3
Treatment Level 2 15,954.9 15,412.1 542.8
Treatment Level 3 17,881.5 17,155.5 726.0
Treatment Level 4 35,837.2 33,187.9 2,649.3
Annual Compliance Costs
(Thousand Dollars).*'
Treatment Level 1 8,958.1 8,596.8 361.3
Treatment Level 2 8,065.1 7,732.9 332.2
Treatment Level 3 8,619.1 8,330.1 361.0
Treatment Level 4 22,691.1 20,851.0 1,840.1
Projected Total for All Plants in Industry
Number of Plants 88 81 7
Number of Lines 224 204 20
Compliance Capital Investment
(Thousand Dollars)^.'
Treatment Level 1 35,000.0 34,000.0 1,000.0
Treatment Level 2 28,360.0 27,600.0 760.0
Treatment Level 3 32,710.0 31,800.0 910.0
Treatment Level 4 46,800.0 43,500.0 3,300.0
Annual Compliance Costs
(Thousand Dollars).?/
Treatment Level 1 18,852.0 18,400.0 452.0
Treatment Level 2 17,170.0 16,700.0 470.0
Treatment Level 3 17,850.0 17,400.0 450.0
Treatment Level 4 35,200.0 32,900.0 2,300.0
£/ First-quarter 1982 dollars.
SOURCE: Environmental Protection Agency.
5-4
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TABLE 5-2. NEW SOURCE COMPLIANCE COSTS
Typical New Source With
Compliance Capital Investment
(Thousand DollarsXfL'
Treatment Level 1
Treatment Level 2
Treatment Level 3
Treatment Level 4
Treatment Level 5
Treatment Level 6
Annual Compliance Costs
(Thousand Dollars).*/
Treatment Level 1
Treatment Level 2
Treatment Level 3
Treatment Level 4
Treatment Level 5
Treatment Level 6
1 Line
ient
443.6
364.0
385.9
578.3
331.1
348.5
201.2
176.9
181. t)
329.5
188.0
196.3
2 Lines
672.3
557.7
584.9
876.6
499.9
528.2
305.0
268.1
274.4
499.4
283.8
297.5
3 Lines
857.5
703.6
746.0
1,118.0
640.0
673.7
389.0
342.0
350.0
637.0
363.4
379.5
4 Lines
1,019.1
836.2
886.5
1,328.6
760.6
800.6
462.3
406.4
415.9
757.0
431.8
450.9
5 Lines
1,165.1
956.0
1,013.6
1,519.0
869.5
915.3
528.5
464.7
475.5
865.5
493.6
515.5
6 Lines
1,299.7
1,066.5
1,130.7
1,694.6
970.1
1,021.1
589.6
518.4
530.5
965.5
550.7
575.1
£/ First-quarter 1982 dollars.
SOURCE: Environmental Protection Agency.
5-5
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6. ECONOMIC IMPACT ANALYSIS
This chapter provides an estimate of the economic impacts associated
with the costs of the effluent treatment technologies described in Chapter 5.
The analysis was based upon an examination of the estimated compliance costs
and other economic, technical, and financial characteristics of the 49 can-
making plants for which production and compliance costs data were available,
and used the methodology described in Chapter 2. The economic impacts exam-
ined include changes in industry profitability, plant closures, substitution
effects, changes in employment, shifts in imports and exports, and industry
structure effects.
The 49-plant sample represents approximately 55 percent of the discharg-
ing plants in the industry and contains a wide range of both large and small
plants. Therefore, the sample appears to adequately represent the industry
for the purposes of this study.
6.1 PRICE AND QUANTITY CHANGES
As described in Chapters 2 and 3, market competition is strong in the
metal can industry. For this reason, it was assumed that metal can manufac-
turers would attempt to absorb their compliance costs and would not adjust
prices. Consequently, the price changes due to the regulation would be zero.
It follows, also, that quantities demanded would not change because of the
regulations.
6.2 PROFIT IMPACT ANALYSIS
Table 6-1 presents the distribution of the annual compliance costs of
the 49 sample plants for each of the treatment alternatives for existing
sources (i.e., Treatment Level 1 to Level 4). Assuming a price of $90 per
6-1
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TABLE 6-1. SUMMARY OF PROFIT IMPACT ANALYSIS
Treatment Treatment Treatment Treatment
Level 1 Level 2 Level 3 Level 4
Number of Sample Plants with
Annual Compliance Costs to
Revenues between:
0 - 0.25 percent 24 24 25 1
0.25 - 0.50 percent 17 16 16 12
0.50 - 0.75 percent 67 6 14
0.75 - 1.00 percent 22 2 11
Over 1.00 percent 00 0 11
Number of Sample Plants with
After-Compliance ROI
Decrease (dROl) between:
0-0.5 percent 24 24 23 1
0.5 - 1.0 percent 13 12 12 10
1.0 - 2.0 percent 12 13 14 22
2.0 - 3.0 percent 00 0 11
over 3.0 percent!/ 00 05
5
.£/ Plants with dROI greater than 3 percent (i.e., with after-compliance ROI less
than 7 percent) are considered potential closures.
SOURCE: JRB Associates estimates.
6-2
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thousand cans (1982 dollars)!./ it is estimated that most of the plants have
annual compliance costs less than 0.5 percent of plant revenues at Treatment
Levels.1, 2, and 3. Such small compliance costs seem to indicate that the
impact on plant profitability will not be very significant. At Treatment
Level 4, compliance costs are substantially higher and there are eleven plants
with annual compliance costs greater than 1 percent of plant annual revenues.
As described in Section 2.5, the assessment of the impact of compliance
on plant profitability was based on the plants' after-compliance return on
investment (ROI) ratios, investment being defined as total plant assets
(i.e., current assets plus net property, plant and equipment). In the absence
of an industry financial survey, plant-specific baseline financial character-
istics (e.g., plant profit margin and assets value) were not available, thus
average industry financial ratios obtained from Robert Morris Associates'
Statement Studies (1981 edition) were attributed to each plant. The resulting
estimated baseline characteristics are described in Appendix B and summarized
below:
Average before-tax profit margin (or return on sales)
is 5 percent
Average total assets to sales ratio is 0.5 (i.e.,
turnover ratio is 2)
Average before-tax ROI is 10 percent (return on sales
times turnover ratio).
Plants with after-compliance ROI less than 7 percent were considered to be
"potential" plant closures. Since the before-tax ROI is estimated to be 10
±J The U.S. Department of Commerce (Current Industrial Report-Metal Cans,
Summary for 1980) reported 41.91 billion aluminum seamless cans valued at
$3.63 billion were shipped in 1980, or an average selling price of $86.6
per thousand cans. Based on the Bureau of Labor Statistics Wholesale
Price Indexes of SIC 34112 (Aluminum Cans) for 1980 (150.1) and December
1981 (155.8), the price of aluminum cans was estimated to be approximately
$90 per thousand cans.
6-3
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percent, this means that plants with an ROI decrease (dROl) greater than 3
percent would be potential closures. Table 6-1 presents the distribution
of dROIs for the 49 sample plants. This table indicates that none of these
plants were found to be potential closures at Treatment Levels 1, 2, and 3.
At Treatment Level 4, five of the 49 sample plants were estimated to have
dROIs greater than 3 percent and were, therefore, considered to be "potential"
closures.
6.3 CAPITAL REQUIREMENTS ANALYSIS
As presented in Chapter 2, the ratio of "compliance capital investment
to revenues" (CCI/R) was used to evaluate a firm's ability to raise the
capital necessary to install the pollution control systems. Although the
CCI/R ratio does not precisely indicate whether or not firms can afford to
make the required investments, it provides a good indication of the relative
magnitude of the compliance capital investment requirements. The ratio CCI/R
was calculated for each of the 49 sample plants and compared to the plants'
respective capital availability threshold values which were set at 3 percent.
Table 6-2 presents the results of the capital requirements analysis.
None of the plants were found to have CCI/R ratios greater than the threshold
value for all four treatment alternatives.
6.4 PLANT CLOSURE POTENTIAL
As indicated in the profit impact and capital requirements analyses,
Treatment Levels 1, 2, and 3 are not expected to cause any plant closures.
Meanwhile, at Treatment Level 4, five plants are estimated to be potential
closures on the basis of profitability impact.
Table 6-3 summarizes the results of the plant closure analysis for Treat-
ment Level 4 on the 49 discharging plants in the sample. As the table shows,
the plants projected to close at Treatment Level 4 operate 17 canmaking lines
6-4
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TABLE 6-2. SUMMARY OF CAPITAL REQUIREMENTS ANALYSIS
Treatment Treatment Treatment Treatment
Level 1 Level 2 Level 3 Level 4
Number of Sample Plants
with Compliance Capital
Investment to Annual
Revenues Ratios between:
0-1 percent 40 40 39 21
1-2 percent 9 9 10 22
2-3 percent 00 06
over 3 percent 00 00
SOURCE: JRB Associates estimates.
6-5
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TABLE 6-3. SUMMARY OF ESTIMATED POTENTIAL CLOSURES AMONG EXISTING SOURCES
FOR TREATMENT LEVEL 4
Number of Potential Plant Closures
Number of Can Lines Affected by Closures
Annual Production Capacity Affected
by Closures (million cans)
Actual Production of Closures
(million cans)
Market Share of Closures (% of
total shipments).!'
Average Capacity Utilization Rate (%)
Number of Employees Affected by Closures^.'
49-Plant
Sample
5
17
4,420
2,070
5.3
47
1,060
Projection to
Total 88
Discharging Plants
9
31
8,060
3,730
6.4
46
1,900
JL' Total annual production for 49 sample plants was 39.2 billion cans; total
industry shipments of seamless two-piece cans in 1981 was 58.1 billion cans,
B.' Assume average productivity of 1.95 million cans per employee (as explained
in Section 3.2).
SOURCE: JRB Associates estimates.
6-6
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and produce 2.1 billion cans per year. Assuming an average annual production
capacity of 260 million cans per line (as estimated on p. 4-4), these five
plants have a total annual capacity of 4.4 billion cans. The average capacity
utilization for these five plants is below 50 percent.
The above plant closure analysis focused on 49 sample plants with com-
plete data on production and compliance costs. Because the 49-plant sample
contains a wide range of plants of all sizes, the results of the analysis
appear to be representative of the impacts of the regulations on the total
industry and have been extrapolated to the total industry. Since there are
no potential plant closures estimated in the 49-plant sample for Treatment
Levels 1, 2, and 3, there would be no potential closures inferred for the
total 88 known dischargers in the industry. For Treatment Level 4, the
extrapolation of the plant closure analysis to all 88 discharging plants in
the industry is summarized in Table 6-3. This table shows that a total of
nine plants operating 31 can lines are projected to close at Treatment Level 4.
Total annual production of these nine plants is estimated to be approximately
3.7 billion cans and their annual capacity about 8 billion cans.
It should be noted that the baseline projections developed in Chapter 4
showed closures of 20 can lines by 1985 in the absence of additional regula-
tions. However, the identity of the plants that would close in the baseline
could not be determined because plant specific financial data were not avail-
able. It is possible that some of these plants were also projected to close
due to the regulations. Thus the number of plant closures due to the regula-
tions may be overestimated.
6.5 OTHER ECONOMIC IMPACTS
The proposed effluent regulations examined in this report may have
economic impacts other than the plant closure potentials discussed above.
The substitution potential of other processes and materials, and possible
community, employment, foreign trade, and industry structure implications,
will be addressed in the following sections.
6-7
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6.5.1 Substitution Effects
As indicated in Chapter 3, seamless two-piece metal cans face strong
competition from other types of containers. Price increases due to regulatory
compliance costs will likely cause a switch to other types of containers such
as glass and plastic bottles. However, as indicated in the profit impact analy-
sis described in Section 6.2, compliance costs are expected to be absorbed by
the can manufacturers. For this reason, no substitution effects are expected
to result from the regulations.
6.5.2 Community and Employment Impacts
Since there are no plant closures and substitution effects anticipated
for Treatment Levels 1, 2, and 3, there are no anticipated community and
employment impacts expected in the canmaking industry from these treatment
options. Meanwhile, at Treatment Level 4, a total of 1,900 employees could
be affected by the potential plant closures (see Table 6-3). The nine
facilities projected to close are each located in a different large municipality
where they account for a very small portion of the total labor force. Thus,
the impact on local employment situation will not be significant.
6.5.3 Foreign Trade Impacts
As stated in Chapter 3, foreign trade competition in the canmaking indus-
try is not significant. In addition, it is assumed that there will be no
price increases resulting from the regulations. Thus, no foreign trade impacts
are expected.
6.5.4 Industry Structure Effects
Since there are no projected plant closures at Treatment Levels 1, 2,
and 3, these treatment alternatives will have no effect on the structure of
the canmaking industry. At Treatment Level 4, nine plants are projected to
be potential closures. These plants account for 6 percent of total industry
6-8
-------
shipments (see Table 6-3), and their their market shares may be captured
by other existing producers thus increasing the industry concentration ratios.
However, the magnitude of this market share loss does not appear to be great
enough to change industry price-setting behavior.
6.6 NEW SOURCE IMPACTS
As reported in Section 5.2, two treatment alternatives (Treatment Level
5 and Level 6) are considered for canmaking new sources. Total system com-
pliance costs of these two alternatives for typical new sources are summarized
in Table 5-2.
For the purpose of evaluating the new source impacts, compliance costs
of new source standards were defined as incremental costs over the costs of
selected standards for existing sources. Table 6-4 presents the results of
the new source impact analysis assuming the selected treatment technology for
existing sources is Treatment Level 2. This table shows that incremental
annual compliance costs of new sources are less than 0.1 percent of annual
revenues for both new source treatment options; incremental costs of such
magnitude will not deter new entry. Meanwhile, compliance capital investment
costs for Treatment Levels 5 and 6 are-lower than Treatment Level 2 (because
the addition of nine-stage countercurrent rinsing to Treatment Levels 5 and
6 reduces the size of the treatment systems substantially relative to Treat-
ment Level 2); therefore the new source regulations will not impose dispro-
portionate capital requirements on new sources.
6-9
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TABLE 6-4. SUMMARY OF NEW SOURCE IMPACT ANALYSIS
Annual Production of a New Can Line (million cans) 300
Plant Costs ($ million) 15
Plant Revenues ($ million) 27
Treatment Level 5 CostsJ.'
Investment - $000 -32.9
Annual - $000 11.1
- % of Annual Revenues 0.04
Treatment Level 6 Costs£'
Investment - $000 -15.5
Annual - $000 19.4
- % of Annual Revenues 0.07
.£/ Incremental from Treatment Level 2,
SOURCE: JRB Associates estimates.
6-10
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7. SMALL BUSINESS ANALYSIS
The Regulatory Flexibility Act (RFA) of 1980 (P.L. 96-354), which amends
the Administrative Procedures Act, requires Federal regulatory agencies to
consider "small entities" throughout the regulatory process. The RFA requires
an initial screening analysis to be performed to determine if a substantial
number of small entities will be significantly affected. If so, regulatory
alternatives that eliminate or mitigate the impacts must be considered. This
chapter addresses these objectives by identifying and evaluating the economic
impacts of the aforementioned regulations on small metal can producers. As
described in Chapter 2, the small business analysis was developed as an integral
part of the general economic impact analysis and was based on the examination
of the distribution by plant size of the number of can plants, plant production,
wastewater volumes, and compliance costs from the regulations.
As mentioned in Section 2, four alternative approaches were selected to
provide alternative definitions of small canmaking operations for purposes of
regulation development. These approaches were based on the following factors:
The Small Business Administration (SBA) definition
of small business based on firm total employment;
Plant annual production;
Plant number of can lines; and
Plant wastewater flow rates.
7.1 SMALL BUSINESS ANALYSIS BASED ON SMALL BUSINESS ADMINISTRATION DEFINITION
The Small Business Administration defined small canmaking businesses as
companies with less than 1,000 employees in total. Based on this definition,
7-1
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none of the identified two-piece can operations can be considered as small busi-
nesses as they are all owned by companies that employ more than 1,000 people.
7.2 SMALL BUSINESS ANALYSIS BASED ON PLANT ANNUAL PRODUCTION
Table 7-1 presents the distribution by annual production of the number
of can plants, plant production, flow rates, and compliance costs. The three
size categories considered are:
Plants with annual production less than 500 million
cans;
Plants with annual production between 500 and 750
million cans; and
Plants with annual production between 750 million
and 1 billion cans.
Table 7-1 indicates that at Treatment Level 2, the eleven plants with
annual production less than 500 million cans discharge 16.6 percent of the
total wastewater discharged, while they account for 11.6 percent of total
annual production and 20 percent of total annual compliance costs. In con-
trast to these small plants, the eleven plants with annual production over
1 billion cans discharge 29.7 percent of the wastewater and incur only 20.7
percent of total annual compliance costs. Finally, this table also shows
that the unit annual compliance costs ($ per thousand cans) are also greater
for small plants ($0.35 for plants with less than 500 million cans in produc-
tion at Treatment Level 2) than for larger plants ($0.10 for plants with
production over 1 billion cans).
7.3 SMALL BUSINESS ANALYSIS BASED ON PLANT NUMBER OF LINES PER PLANT
Since the production technology -and equipment are quite similar among
plants in the two-piece can industry, the number of lines in a plant generally
7-2
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TABLE 7-1. SUMMARY OF SMALL BUSINESS ANALYSIS BY PLANT ANNUAL PRODUCTION
Plants With Annual Production (in Million Cans)
<5.00 500-750 750-1,000 > 1,000- Total
No. of Plants - Number 11 20 7 11 49
- % of Total 22.4 40.8 14.3 22.4 100.0
Flow Rate - 000 GPH 38.0 80.7 42.6 68.0 229.3
- % of Total 16.6 35.2 18.6 29.7 100.0
Annual Production - Billion cans 4.54 12.06 6.03 16.60 39.23
- % of Total 11.6 30.7 15.4 42.3 100.0
Treatment Level 1 Costs
Investment - $000 3,208 6,671 3,172 3,267 16,318
- % of Total 19.7 40.9 19.4 20.0 100.0
Annual - $000 1,563 3,197 1,449 1,595 7,805
- $/000 cans 0.34 0.27 0.24 0.10 0.20
- % of Total 20.0 41.0 18.6 20.4 100.0
Treatment Level 2 Costs
Investment - $000 3,194 6,489 3,114 3,158 15,955
- % of Total 20.0 40.7 19.5 19.8 100.0
Annual - $000 1,609 3,270 1,514 1,672 8,065
- $/000 cans 0.35 0.27 0.25 0.10 0.21
- % of Total 20.0 40.5 18.8 20.7 100.0
Treatment Level 3 Costs
Investment - $000 3,564 7,156 3,373 3,788 17,881
- % of Total 19.9 40.0 18.9 21.2 100.0
Annual - $000 1,689 3,410 1,733 1,787 8,619
- $/000 cans 0.37 0.28 0.29 0.11 0.22
- % of Total 19.6 39.6 20.1 20.7 100.0
Treatment Level 4 Costs
Investment - $000 6,995 13,779 6,028 9,035 35,837
- % of Total 19.5 38.5 16.8 25.2 100.0
Annual - $000 4,280 8,510 4,075 5,826 22,691
- $/000 cans 0.94 0.71 0.68 0.35 0.58
- % of Total 18.9 37.5 18.0 25.7 100.0
Potential Closures at
Treatment Level 4
Number of Plants 32005
Number of Lines 9 8 0 0 17
SOURCE: JRB Associates estimates.
7-3
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represents the production capacity of that plant. For this reason, a small
business analysis based on the plant number of lines per plant seems to be
appropriate.
Table 7-2 shows that the 23 sample plants with one and two lines discharge
36.5 percent of the total wastewater discharged and account for 32.9 percent
of total annual production and 38 percent of Treatment Level 2 total annual
compliance costs. On the other hand, plants with five can lines or more
generate 12.4 percent of total wastewater discharged and incur less than 10
percent of total annual compliance costs. In terms of unit compliance costs,
they vary between $0.23 per thousand cans for the small plants (with one or
two lines) and $0.12 per thousand cans for the larger plants (with five lines
or more), respectively.
7.4 SMALL BUSINESS ANALYSIS BASED ON PLANT FLOW RATES
For purposes of developing water pollution regulations, plant wastewater
flow rate is a reasonable definition of plant size, as flow rates often vary
with production volume. Additionally, plant flow rate often correlates with
pollutant volume.
Table 7-3 presents the distribution of the 49 canmaking sample plants by
plant flow rates for the number of plants, plant production, and compliance
costs. The plant size categories are as follows:
Plants with less than 1,000 gallons per hour (gph);
Plants with 1,000 to 2,000 gph;
Plants with 2,000 to 5,000 gph; and
Plants with 5,000 to 10,000 gph.
Table 7-3 indicates that about 8 percent (4 plants) of the 49 sample
plants discharge less than 1,000 gph. These "small" plants account for 0.2 per-
cent of total wastewater discharged and about 6 percent of total can production,
while they account for 14 percent of total annual compliance costs at Treatment
7-4
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TABLE 7-2. SUMMARY OF SMALL BUSINESS ANALYSIS BY PLANT NUMBER OF LINES
Plants With the Following Number of Lines:
2 or Less 3 4 5 or More Total
No. of Plants - Number
- % of Total
Flow Rate - 000 GPH
- % of Total
Annual Production - Billion cans
- % of Total
Treatment Level 1 Costs
Investment - $000
- % of Total
Annual - $000
- $/000 cans
- % of Total
Treatment Level 2 Costs
Investment - $000
- % of Total
Annual - $000
- $/000 cans
- % of Total
Treatment Level 3 Costs
Investment - $000
- % of Total
Annual - $000
- $/000 cans
- % of Total
Treatment Level 4 Costs
Investment - $000
- % of Total
Annual - $000
- $/000 cans
- % of Total
Potential Closures at
Treatment Level 4
Number of Plants
Number of Lines
23
46.9
83.7
36.5
12.89
32.9
5,906
36.2
3,004
0.23
38.5
5,897
37.0
3,068
0.24
38.0
6,516
36.4
3,367
0.26
39.1
13,152
36.7
8,244
0.64
36.3
1
2
10
20.4
40.6
17.7
7.08
18.0
3,275
20.0
1,549
0.22
19.8
3,230
20.2
1,615
0.23
20.0
3,597
20.1
1,682
0.24
19.5
7,319
20.4
4,555
0.64
20.1
1
3
11
22.4
76.6
33.4
12.69
32.3
5,656
34.7
2,479
0.20
31.8
5,342
33.5
2,595
0.20
32.2
5,929
33.2
2,699
0.21
31.3
10,792
30.1
6,917
0.55
30.5
3
12
5
10.2
28.5
12.4
6.57
16.7
1,481
9.1
772
0.12
9.9
1,486
9.3
788
0.12
9.8
1,839
10.3
872
0.13
10.0
4,574
12.8
2,975
0.45
13.1
0
0
49
100.0
229.3
100.0
39.23
100.0
16,318
100.0
7,805
0.20
100.0
15,955
100.0
8,065
0.21
100.0
17,881
100.0
8,619
0.22
100.0
35,837
100.0
22,691
0.58
100.0
5
17
SOURCE: JRB Associates estimates.
7-5
-------
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7-6
-------
Level 2. Meanwhile, the two plants with flow rates over 10,000 gph discharge
10.9 percent of the wastewater and account for only 5 percent of Treatment
Level 2 total annual compliance costs. Unit annual compliance costs vary
between $0.47 per thousand cans for "small" plants with wastewater flow rates
less than 1,000 gph to $0.28 per thousand cans for plants with over 10,000 gph.
7-7
-------
8. LIMITATIONS OF THE ANALYSIS
This section discusses the major limitations of the economic impact
analysis. It focuses on the limitations of the data, methodology, assump-
tions, and estimations made in this report.
8.1 DATA LIMITATIONS
The accuracy of the conclusions of this report depends largely on the
accuracy of the data used in the analysis, especially that of the estimated
compliance costs, and plant financial and economic characteristics.
A critical data input to this study is the compliance cost estimates.
The assumptions relating to the estimation of compliance costs are outlined
in the technical Development Document and summarized in Section 5.3 of this
report.
In the absence of a financial survey for the canmaking industry, a
financial profile of the canmaking industry was developed based on extensive
review of trade literature and published financial reports. This financial
profile is subject to the following major assumptions and limitations:
The economic impact analysis was based on a sample
of 49 discharging plants for which both production
data (obtained from EPA 308 industry surveys) and
compliance cost estimates were available. This 49-
plant sample contains a wide range of plants of all
sizes and appears to be representative of the total
industry.
Production data for most plants were reported in terms
of number of cans produced. For several plants produc-
tion data were reported in pounds and were converted to
number of cans assuming 34 aluminum cans per pound and
13 steel cans per pound.
8-1
-------
An average industry price of $90 per thousand cans was
used to derive sales revenue estimates for each sample
plant.
Lacking plant specific operating ratios such as profit
margin and asset values, industry average estimates
were applied to the plants. The methodology for esti-
mating these financial variables is explained in
Appendix B.
8.2 METHODOLOGY LIMITATIONS
In addition to the data limitations described above, this study is also
subject to limitations of the methodology used. These limitations are related
to critical assumptions on price increase, profit impact, and capital availa-
bility analyses,
8.2.1 Price Increase Assumptions
Because of strong competition within the canmaking industry and with other
types of packaging, it was assumed that the can manufacturers would attempt
to absorb their compliance costs and would not raise their prices. If prices
could be raised without significantly affecting demand, the impacts on can-
making firms would be lower than those estimated in Chapter 6.
8.2.2 Profit Impact Assumptions
In studies where detailed, plant-specific data are available, potential
plant closures can be identified by using discounted cash flow analyses.
Using this approach, a judgment can be made about the ability of a plant to
continue in business after compliance with effluent regulations, by comparing
the discounted value of the plant's cash flow with the plant's estimated
salvage value. The application of this approach requires plant-specific data
on cash flows and salvage values, and since data at this level of specificity
8-2
-------
were not available for this study, this approach was not deemed to be practical,
As an alternative method, profitability impacts were measured through the use
of return on investment (assets) analysis. Although this financial ratio
analysis is based upon accounting data and does not account for the time
value of money, it is widely used in comparative financial analyses and is
simple to apply. Moreover, in a situation such as the analysis conducted in
this study, both methods are likely to indicate the same impact (i.e., plant
closure) conclusions.
Finally, long-term profitability estimates were used to project closures
since major investment decisions are made primarily on the basis of long-run
expectations. Economic analysis generally distinguishes between long-run and
short-run outcomes. Decisions regarding variable costs and relatively small
amounts of resources are generally made on short-run criteria. On the other
hand, decisions regarding large investment in fixes assets are made on the
basis of long-run expectations. This means that large capital expenditures
are generally made based on the expected return on the investment over a
period of years. Cyclical fluctuations in the general economic conditions
usually do not affect the outcome of these decisions but only their timing.
8.2.3 Capital Availability Assumptions
The capital investment requirements analysis was assessed through an
evaluation of compliance investments in comparison to cash flow. Although
this technique does not provide a precise conclusion on a firm's ability to
make the investment, it does provide a good indication of the relative burden
of the capital requirement.
8.3 SUMMARY OF LIMITATIONS
Although the above factors may affect the quantitative accuracy of the
impact assessments on specific canmaking plants, it is believed that the
results of this study represent a valid industry-wide assessment of the
economic impacts likely to be associated with effluent guideline control
costs.
8-3
-------
APPENDIX A
CALCULATION OF PROFIT IMPACT THRESHOLD VALUE
-------
APPENDIX A
CALCULATION OF PROFIT IMPACT THRESHOLD VALUE
To assess the impact of compliance on plant profitability, the plants'
after-compliance return on assets (ROI) ratios were calculated and compared to
a threshold value. The threshold value was set at a level that would generate
to the stockholders/owners a return on the liquidation value of their invest-
ment (after taxes return on their equity) equal to the opportunity cost of
other investment alternatives, which in this case is defined as the U.S.
Treasury bond yield. The first step in relating the ROI threshold value and
the opportunity return is the following equation:
BTROI = NPBT NPBT x EQUITY
ASSETS EOUITY ASSETS
BTROE x
ASSETS
ATROE x
(1 - t)
EQUITY
ASSETS
(1)
where
BTROI = Target before-taxes return on assets
NPBT = Net profit before taxes
ASSETS = Asset book value
EQUITY = Equity book value
BTROE = Target before-taxes return on equity
ATROE = Target after-taxes return on equity
t = Average corporate tax rate.
Using the above equation, a projected U.S. Treasury bond yield (or target
after-taxes ROE) of 12 percent, corporate tax rate of 40 percent, and equity-
to-assets ratio of 50 percent, the before-taxes ROI threshold value would be
10 percent.
A-l
-------
However, the liquidation value of a plant is generally a fraction of its
book value. Assuming that the liquidation value is 85 percent of the book
value, the liquidation value of stockholders' equity is only 85 - 50 = 35 or
35/50 = 70 percent of its value if liquidation value equaled book value:
Percent
Asset book value 100
Asset liquidation value 85
Book value of equity 50
Debt 50
Liquidation value of equity
(Assets liquidation value - debt) 35
As a result, a 12 percent return on equity book value (ATROE) would yield
an effective ATROE on liquidation value of 17 percent (12 * .70). That is,
ATROE (effective) = ATROE/(.70).
By similar reasoning, to get an effective ROE of 12 percent liquidation value
requires an 8.4 percent ATROE (12 x .70). Based on equation (1), the corres-
ponding before-taxes ROI will be 7 percent (.084 * (1 - .4) x 50/100 = .07).
Table A-l presents estimates of profit impact threshold values based on
various assumptions on assets liquidation value and equity-to-assets ratio.
A-2
-------
TABLE A-l. ESTIMATED ROI THRESHOLD VALUES THAT GENERATE 12 PERCENT ROE
ASSUMING VARIOUS ASSETS LIQUIDATION VALUES AND EQUITY TO ASSETS RATIOS
CORPORATE TAX RATE: 40%
Assets Liquidation Value (Percent of Book Value)
Equity/Assets Ratio
0
0
0
0
0
0
0
0
0
.30
.35
.40
.45
.50
.55
.60
.65
.70
60%
*
*
*
1
2
3
4
5
6
.0
.0
.0
.0
.0
.0
70%
*
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
CORPORATE TAX
Assets
Equity/Assets Ratio
0
0
0
.60
.65
.70
60%
4
4
5
.3
.6
.0
75%
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
RATE:
Liquidation
70%
6.0
6.5
7,0
75%
6.8
7.4
8.0
80%
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
35%
Value
80%
7.7
8.3
8.9
85%
3
4
5
6
7
8
9
10
11
.0
.0
.0
.0
.0
.0
.0
.0
.0
(Percent
85%
8
9
9
.5
.2
.9
90%
4
5
6
7
8
9
10
11
12
of
.0
.0
.0
.0
.0
.0
.0
.0
.0
Book
90%
9
10
10
.4
.2
.9
100%
6.0
7.0
8.0
9.0
10.0
11.0
12.0
. 13.0
14.0
Value)
100%
11.1
12.0
12.9
A-3
-------
APPENDIX B
ESTIMATION OF KEY FINANCIAL PARAMETERS
OF CANMAKING INDUSTRY
-------
APPENDIX 3
ESTIMATION OF KEY FINANCIAL PARAMETERS
OF CANMAKING INDUSTRY
Table B-l presents the methodology for estimating three key financial
ratios used in the economic impact analysis: plant baseline return on sales
(profit margin), assets to sales, and stockholders' equity to sales ratios.
Data used to estimate these three ratios are obtained from Robert Morris
Associates' (RMA) Statement Studies, 1981 edition.
B-l
-------
TABLE B-l. SELECTED FINANCIAL RATIOS FOR CANMAKING INDUSTRY
Profit Before Taxes
(% of Sales)
Assets to Sales
Stockholders' Equity
(% of Total Assets)
1976 1977 1978 1979 1980
1.7 5.2 4.8 6.9 5.1
0.60 0.57 0.58 0.45 0.41
46.7 47.3 49.1 44.7 53.4
Estimated
Industrya/
Average~
5.0
0.53
47.7
.£/ Average of 1976-1980 ratios, excluding the lowest and the highest years,
SOURCE: JRB Associates estimates based on published financial data for
Metal Cans industry (SIC 3411) from Robert Morris Associates'
Statement Studies, 1981 edition.
B-2
-------