&EPA
United States
Environmental Protection
Agency
Office of Water Regulations
and Standards
Washington, DC 20460
EPA 440/2-84-004
February 1984
Water
Economic Impact Analysis of
Effluent Limitations and Standards
for the Nonferrous Metals
Manufacturing Industry,
Phase I
QUANTITY
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ECONOMIC IMPACT ANALYSIS
OF EFFLUENT LIMITATIONS AND STANDARDS
FOR THE NONFERROUS METALS
MANUFACTURING INDUSTRY
(PHASE I)
Submitted to:
U.S. Environmental Protection Agency
Office of Water Regulations and Standards
Washington, D.C. 20460
Under Contract No. 68-01-6731
Submitted by:
Policy Planning & Evaluation, Inc.
8301 Greensboro Dr., Suite
McLean, VA 22102
February 1984
U.S. Environmental Protection Agency
Region V, Library
230 South Dearborn Street
Chicago, Illinois 60604.
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UjS. Environmental Protection
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\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
o V\J/V T WASHINGTON. D.C. 20460
This document is an economic impact assessment of the recently-
issued effluent guidelines. The report is being distributed to EPA
Regional Offices and state pollution control agencies and directed to
the staff responsible for writing industrial discharge permits. The
report includes detailed information on the costs and economic impacts
of various treatment technologies. It should be helpful to the permit
writer in evaluating the economic impacts on an industrial facility that
must comply with BAT limitations or water quality standards.
The report is also being distributed to EPA Regional Libraries, and
copies are available from the National Technical Information Service
(NTIS), 5282 Port Royal Road, Springfield, Virginia 22161
(703/487-4600).
If you have any questions about this report, or if you would like
additional information on the economic impact of the regulation, please
contact the Economic Analysis Staff in the Office of Water Regulations
and Standards at EPA Headquarters:
M Street, S.W. (WH-586)
Washington, D.C. 20460
(202) 382-5397
The staff economist for this project is Debra Maness (202/382-5385).
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Mention of trade names or commercial products does not constitute
endorsement or recommendation for use.
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PREFACE
This document is a contractor's study prepared for the Office of
Water Regulations and Standards of the Environmental Protection Agency
(EPA). The purpose of the study is to analyze the economic impact which
could result from the application of effluent standards and limitations
issued under Sections 301, 301, 306, and 307 of the Clean Water Act to
the Nonferrous Metals Manufacturing Industry (Phase I).
The study supplements the technical study (EPA Development Document)
supporting the issuance of these regulations. The Development Document
surveys existing and potential waste treatment control methods and
technologies within particular industrial source categories and supports
certain standards and limitations based upon an analysis of the
feasibility of these standards in accordance with the requirements of
the Clean Water Act. Presented in the Development Document are the
investment and operating costs associated with various control and
treatment technologies. The attached document supplements this analysis
by estimating the broader economic effects which might result from the
application of various control methods and technologies. This study
investigates the impact on product price increases, the continued
viability of affected plants, employment, and foreign trade.
This study has been prepared with the supervision and review of the
Office of Water Regulations and Standards of EPA. This report was
submitted in fulfillment of EPA Contract No. 68-01-6731 by Policy
Planning & Evaluation, Inc. This analysis was completed in February
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TABLE OF CONTENTS
Page No.
EXECUTIVE SUMMARY .............................................. 1
I. INTRODUCTION
A . Purpose and Scope ...................................... 1-1
B . Industry Characteristics ............................... 1-2
C . Approach ............................................... 1-2
1. Methodology ........................................ 1-2
2 . Effluent Limitation Guidelines ..................... 1-3
D. Organization of the Report ............................. 1-3
II. ECONOMIC IMPACT ANALYSIS METHODOLOGY
A. Overview ............................................... II- 1
B. Step 1: Description of Production Technology .......... II-3
C. Step 2: Description of Structure of the Industry ...... II-3
D. Step 3: Factors Affecting Demand ...................... II-H
E. Step U: Trends and Projections in Prices and
Capacity Utilization and Consideration of
Baseline Population ........................... II-U
F . Step 5 : Compliance Cost Estimates ..................... II-5
G. Step 6 : Plant-Level Economic Impacts .................. II-6
1 . Description of Screening Analysis ................. . II-6
2. Discussion of Plant Closure Tests .................. II-7
a. Net Present Value Test ......................... II-7
b. The Liquidity Test ............................. II-9
c. Interpretation of Plant Closure Tests .......... II-9
H. Step 7: Industry-Wide Impacts ......................... 11-10
1. Changes in the Cost of Production .................. 11-10
2. Price Changes ...................................... 11-10
3- Changes in Return on Investment .................... 11-10
1. Effects on Capital Expenditures .................... 11-10
5. Employment Impacts ................................. 11-11
6 . Effects on the Balance of Trade .................... II-1 1
I. Step 8: New Source Impacts ............................ 11-11
J. Step 9: Small Business Analysis ....................... 11-11
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TABLE OF CONTENTS (Continued)
Page No.
III. PRIMARY ALUMINUM
A. Introduction III-1
B. Technology III-1
C. Industry Structure III-2
1. Overview III-2
2. Primary Aluminum Smelters III-2
D. Aluminum Demand Ill-7
1. Construction Industry III-7
2. Transportation III-7
3. Cans and Containers 111-10
4. Electrical 111-10
5. Appliances and Equipment 111-10
6. Other Uses 111-10
E. Current Trends Capacity Utilization and Prices 111-10
F. Estimates of Prices and Capacity Utilization Ill-11
G. Effluent Control Guidelines and Costs 111-11
1. Regulatory Alternatives 111-11
2. Costs for Existing Plants III-ll
H. Economic Impact Analysis 111-14
1. Screening Analysis 111-14
2. Other Impacts III-1U
a. Increase in Cost of Production 111-14
b. Price Change 111-16
c. Change in Return on Investment 111-16
d. Capital Impacts 111-16
e. Employment Impacts 111-17
f. Foreign Trade Impacts 111-17
IV. PRIMARY COPPER
A. Introduction IV-1
B. Technology IV-1
C. Industry Struc ture IV-1
1. Overview IV-1
2. Primary Copper Smelters and Refineries IV-2
3. Description of Plants IV-2
D. Primary Copper Demand IV-2
E. Current Trends Capacity Utilization and Prices IV-7
vi
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TABLE OF CONTENTS (Continued)
Page No.
F. Estimates of Prices and Capacity Utilization IV-9
G. Effluent Control Guidelines and Costs IV-12
1. Regulatory Alternatives IV-12
2. Costs for Existing Plants IV-12
H. Economic Impact Analysis IV-12
1. Screening Analysis IV-12
2. Plant Closure Analysis IV-1H
3. Other Impacts IV-11
a. Increase in Cost of Production IV-11
b. Price Change IV-15
c. Change in Return on Investment IV-15
d. Capital Impacts IV-15
e. Employment Impacts IV-16
f. Foreign Trade Impacts IV-16
V. PRIMARY LEAD
A. Introduction V-1
B. Technology V-1
C. Industry Struc ture V-2
1. Overview V-2
2. Primary Smelting and Refining Plants V-5
3. Description of Plants V-5
D. Lead Demand V-7
1. Batteries V-7
2. Chemicals V-7
3. Pigments V-7
1. Ammunition V-7
5. Other Metal Products V-9
6. Miscellaneous V-9
E. Current Trends Capacity Utilization and Prices V-9
F. Estimates of Prices and Capacity Utilization V-9
G. Effluent Control Guidelines and Costs V-11
1. Regulatory Alternatives V-11
2. Costs for Existing Plants V-11
vii
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TABLE OF CONTENTS (Continued)
Page No.
H. Economic Impact Analysis V-11
1. Screening Analysis V-11
2. Other Impacts V-1U
a. Increase in Cost of Production V-14
b. Price Change V-15
c. Change in Return on Investment V-15
d. Capital Impacts V-16
e. Employment Impacts V-16
f. Foreign Trade Impacts V-16
VI. PRIMARY ZINC
A. Introduction VI-1
B. Technology VI-1
C. Industry Structure VI-2
1. Overview VI-2
2. Domestic Smelters VI-2
D. Zinc Demand VI-2
1. Galvanized Steel VI-2
2. Die Castings VI-6
3. Brass and Bronze VI-6
4. Zinc Oxide VI-6
5. Other Uses VI-6
E. Current Trends Capacity Utilization and Prices VI-6
F. Estimates of Prices and Capacity Utilization VI-7
G. Effluent Control Guidelines and Costs VI-10
1. Regulatory Alternatives VI-10
2. Costs for Existing Plants VI-10
H. Economic Impact Analysis VI-10
1. Screening Analysis VI-10
2. Other Impacts VI-12
a. Increase in Cost of Production VI-12
b. Price Change VI-12
c. Change in Return on Investment VI-13
d. Capital Impacts VI-13
e. Employment Impacts VI-13
f. Foreign Trade Impacts VI-H4
Vlll
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TABLE OF CONTENTS (Continued)
Page No.
VII. SECONDARY ALUMINUM
A. Introduction VII-1
B. Technology VII-1
C. Industry Structure VII-2
1. Overview VII-2
2. Description of Plants VII-2
D. Aluminum Demand VII-5
E. Current Trends Capacity Utilization and Prices VII-5
F. Estimates of Prices and Capacity Utilization VII-5
G. Effluent Control Guidelines and Costs VII-8
1. Regulatory Alternatives VII-8
2. Costs for Existing Plants VII-8
H. Economic Impact Analysis VII-8
1. Screening Analysis VII-8
2. Plant Closure Analysis VII-8
3. Other Impacts VII-10
a. Increase in Cost of Production VII-10
b. Price Change VII-10
c. Change in Return on Investment VII-11
d. Capital Impacts VII-11
e. Employment Impacts VII-12
f. Foreign Trade Impacts VII-12
VIII. SECONDARY COPPER
A. Introduction VIII-1
B. Technology VIII-1
1. Refined Unalloyed Copper VIII-1
2. Brass and Bronze Alloys VIII-1
C. Industry Structure VIII-2
1. Overview VIII-2
2. Secondary Smelters and Refineries VIII-2
3. Description of Plants VIII-5
D. Secondary Copper Demand VIII-5
E. Current Trends Capacity Utilization and Prices VIII-7
F. Estimates of Prices and Capacity Utilization VIII-7
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TABLE OF CONTENTS (Continued)
Page No.
G. Effluent Control Guidelines and Costs VIII-10
1. Regulatory Alternatives VIII-10
2. Costs for Existing Plants VIII-10
H. Economic Impact Results VIII-10
1. Screening Analysis VIII-10
2. Other Impacts VIII-10
a. Increase in Cost of Production VIII-12
b. Price Change VIII-12
c. Change in Return on Investment VIII-12
d. Capital Impacts VIII-13
e. Employment Impacts VIII-13
f. Foreign Trade Impacts VIII-13
IX. SECONDARY LEAD
A. Introduction IX-1
B. Technology IX-1
C. Industry Structure IX-2
1. Overview IX-2
2. Secondary Smelters IX-5
a. Integrated Battery Producers IX-5
b. Large Secondary Smelting Companies IX-5
c. Small Independents and Integrated
Battery Producers IX-5
d. Recyclers/Remelters IX-6
D. Lead Demand IX-6
E. Current Trends Capacity Utilization and Prices IX-6
F. Estimates of Prices and Capacity Utilization IX-7
G. Effluent Control Guidelines and Costs IX-7
1. Regulatory Alternatives IX-7
2. Costs for Existing Plants IX-7
H. Economic Impact Analysis IX-11
1. Screening Analysis IX-11
2. Plant Closure Analysis IX-11
3. Other Impacts IX-12
a. Increase in Cost of Production IX-12
b. Price Change IX-12
c. Change in Return on Investment IX-13
d. Capital Impacts IX-13
e. Employment Impacts IX-13
f. Foreign Trade Impacts IX-11
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TABLE OF CONTENTS (Continued)
Page No.
X. SECONDARY SILVER
A. Introduction X-1
B. Technology X-1
C. Industry Structure X-2
1. Overview X-2
2. Description of Plants X-6
D. Secondary Silver Demand X-6
1. Photography X-6
2. Electrical and Electronic Components X-6
3. Electroplated Ware, Sterlingware, Jewelry
and Arts X-6
4. Brazing Alloys and Solders X-8
5. Other X-8
E. Current Trends Capacity Utilization and Prices X-8
F. Estimates of Prices and Capacity Utilization X-8
G. Effluent Control Guidelines and Costs X-9
1. Regulatory Alternatives X-9
2. Costs for Existing Plants X-12
H. Economic Impact Analysis X-12
1. Screening Analysis X-12
2. Closure Analysis X-12
3. Other Impacts X-15
a. Increase in Cost of Production X-15
b. Price Change X-16
c. Change in Return on Investment X-16
d. Capital Impacts X-16
e. Employment Impacts X-17
f. Foreign Trade Impacts X-17
XI. PRIMARY COLUMBIUM/TANTALUM
A. Introduction XI-1
B. Technology XI-1
1. Columbium XI-1
2. Tantalum XI-2
XI
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TABLE OF CONTENTS (Continued)
Page No.
C. Industry Structure XI-3
1. Columbium XI-3
a. Overview XI-3
b. Description of Plants XI-3
2. Tantalum XI-5
a. Overview XI-5
b. Description of Plants XI-8
D. Demand XI-8
1. Columbium XI-8
a. Construction XI-8
b. Machinery XI-8
c. Oil and Gas XI-11
d. Transportation XI-11
e. Other XI-11
2. Tantalum XI-11
a. Electronics XI-11
b. Metal-Working Machinery XI-11
c. Transportation XI-13
e. Other XI-13
E. Current Trends Capacity Utilization and Prices XI-13
1. Columbium XI-13
2. Tantalum XI-13
F. Estimates of Prices and Capacity Utilization XI-14
G. Effluent Control Guidelines and Costs XI-16
1. Regulatory Alternatives XI-16
2. Costs for Existing Plants XI-16
H. Economic Impact Analysis XI-16
1. Screening Analysis XI-16
2. Plant Closure Analysis XI-16
3. Other Impacts XI-18
a. Increase in Cost of Production XI-18
b. Price Change XI-18
c. Change in Return on Investment XI-19
d. Capital Impacts XI-19
e. Employment Impacts XI-20
f. Foreign Trade Impacts XI-20
XII. PRIMARY TUNGSTEN
A. Introduction XII-1
B. Technology XII-1
xii
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TABLE OF CONTENTS (Continued)
Page No.
C. Industry Structure XII-1
1. Overview XII-1
2. Description of Plants XII-2
D. Tungsten Demand XII-2
1. Metal-Working, Mining, and Construction
Machinery XII-2
2. Transportation XII-5
3. Lamps and Lighting XII-5
1. Electrical XII-5
5. Other Uses XII-5
E. Current Trends Capacity Utilization and Prices XII-5
F. Estimates of Prices and Capacity Utilization XII-6
G. Effluent Control Guidelines and Costs XII-9
1. Regulatory Alternatives XII-9
2. Costs for Existing Plants XII-9
H. Economic Impact Analysis XII-9
1. Screening Analysis XII-9
2. Plant Closure Analysis XII-9
3. Other Impacts XII-11
a. Increase in Cost of Production XII-11
b. Price Change XII-11
c. Change in Return on Investment XII-12
d. Capital Impacts XII-12
e. Employment Impacts XII-13
f. Foreign Trade Impacts XII-13
XIII. NEW SOURCE IMPACTS XIII-1
XIV. SMALL BUSINESS ANALYSIS XIV-1
XV. LIMITATIONS OF THE ANALYSIS XV-1
A. Data Limitations XV-1
B. Methodology Limitation ; XV-2
C. Sensitivity Analysis XV-2
1. Compliance Costs XV-2
2. Sludge Disposal Costs XV-3
3. Prices XV-3
4. Sludge Disposal and Prices in Secondary Lead XV-3
5. Profit Margins for Secondary Producers XV-1
xiii
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TABLE OF CONTENTS (Continued)
Page No.
BIBLIOGRAPHY
APPENDIX A: DESCRIPTION OF THE NPV TEST AND ITS
' SIMPLIFICATION A-1
APPENDIX B: IMPLEMENTATION OF THE NPV TEST B-1
APPENDIX C: CALCULATION OF TOTAL ANNUAL COSTS FOR THE
TWO CLOSURE ANALYSIS TESTS C-1
APPENDIX D: PROCEDURE FOR CALCULATING INDUSTRY-WIDE IMPACTS D-1
xiv
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LIST OF TABLES
Page No.
1 Compliance Costs for the Nonferrous Metals
Manufacturing Industry 5
2 Results of the Screening and Plant Closure Analyses
for the Nonferrous Metals Manufacturing Industry 6
3 Summary of Other Impacts 8
III-1 World Aluminum Industry, 1982 III-3
III-2 U.S. Production, Imports, and Exports III-4
III-3 Aluminum Ingot Production Capacity III-5
111-4 U.S. Aluminum Consumption Ill-8
III-5 U.S. Aluminum Demand by End Use III-9
III-6 U.S. Aluminum Prices 111-12
III-7 Primary Aluminum Production and Capacity 111-13
III-8 Primary Aluminum Compliance Cost Estimates 111-15
IV-1 World Copper Industry -- 1982 IV-3
IV-2 U.S. Imports and Exports of Refined Copper IV-4
IV-3 Primary Copper Industry Plants and Locations IV-5
IV-lJ Consumption of Copper Products by Industry, 1982 IV-6
IV-5 U.S. Demand by End Use IV-8
IV-6 Average Annual U.S. Producer Copper Price IV-10
IV-7 Capacity Utilization Rates for U.S. Smelters and
Refineries IV-11
IV-8 Primary Copper Compliance Cost Estimates IV-13
V-1 World Lead Industry 1982 V-3
V-2 U.S. Imports and Exports of Primary Lead V-4
V-3 Lead Smelters/Refiners -- 1982 V-6
V-4 Lead Consumption in the United States by End-Use Markets .. V-8
V-5 Average Annual U.S. Producer Price of Lead V-10
V-6 Primary Lead Industry - Capacity Utilization V-12
V-7 Primary Lead Compliance Cost Estimates V-13
VI-1 U.S. Imports and Exports of Zinc VI-3
VI-2 Primary Zinc Smelters 1982 VI-4
VI-3 1982 U.S. Slab Zinc Consumption by End Use VI-5
VI-*J Average Annual U.S. Producer Price of Zinc VI-8
xv
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LIST OF TABLES (Continued)
Page No.
VI-5 Capacity Utilization Rates for Domestic Primary Producers VI-9
VI-6 Primary Zinc Compliance Cost Estimates VI-11
VII-1 U.S. Primary and Secondary Aluminum Production VII-3
VII-2 U.S. Imports and Exports of Aluminum Scrap VII-4
VII-3 U.S. Aluminum Prices VII-6
VII-4 Capacity Utilization Rates VII-7
VII-5 Secondary Aluminum Compliance Cost Estimates VII-9
VIII-1 Domestic Copper Recovery from Scrap VIII-3
VIII-2 U.S. Imports and Exports of Copper-Base Scrap VIII-1
VIII-3 Domestic Consumption of Copper Scrap VIII-6
VIII-4 Average Annual U.S. Producer Copper Price VIII-8
VIII-5 Secondary Copper Production and Capacity VIII-9
VIII-6 Secondary Copper Compliance Cost Estimates VIII-11
IX-1 U.S. Primary and Secondary Lead Production IX-3
IX-2 U.S. Exports of Lead Scrap IX-4
IX-3 Average Annual U.S. Producer Price of Lead IX-8
IX-U Secondary Lead Production and Capacity IX-9
IX-5 Secondary Lead Compliance Cost Estimates IX-10
X-1 U.S. Refined Silver Production by Source X-3
X-2 Refined Silver Production by Ownership of Source Materials X-4
X-3 U.S. Imports and Exports of Refined Silver X-5
X-1 U.S. Silver Consumption by End Use X-7
X-5 U.S. Silver Prices X-10
X-6 Secondary Silver Capacity Utilization Rates X-11
X-7 Secondary Silver Compliance Cost Estimates X-13
X-8 Secondary Silver Summary of Potential Closures X-11
XI-1 U.S. Imports and Exports of Columbium XI-U
XI-2 Major U.S. Columbium Processing and Producing
Companies - 1982 XI-6
XI-3 U.S. Imports and Exports of Tantalum XI-7
XI-4 Major U.S. Tantalum Processing and Producing Companies .... XI-9
XI-5 U.S. Columbium Demand Pattern XI-10
XI-6 U.S. Tantalum Consumption by End Use XI-12
xvi
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LIST OF TABLES (Continued)
Page No.
XI-7 U.S. Columbiura and Tantalum Prices XI-15
XI-8 Primary Columbium/Tantalum Compliance Cost Estimates ... XI-17
XII-1 U.S. Tungsten Imports and Exports XII-3
XII-2 Major U.S. Tungsten Producers XII-4
XII-3 U.S. Tungsten Prices XII-7
XII-4! Primary Tungsten Production and Capacity XII-8
XII-5 Primary Tungsten Compliance Cost Estimates XII-10
XIV-1 Annual Compliance Costs as a Percent of Annual Revenues
for Large and Small Plants XIV-4
XIV-2 Annual Compliance Costs as a Percent of Total Production
Cost for Small Plants XIV-5
B-1 Values for Group Ratios B-10
XVI1
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EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY
A. PURPOSE
This study assesses the economic impacts likely to result from the
effluent guidelines, limitations, and standards applicable to the
nonferrous metals smelting and refining industry. These regulations are
based on Best Practicable Control Technology Currently Available (BPT),
Best Available Technology Economically Achievable (BAT), New Source
Performance Standards (NSPS), and Pretreatment Standards for New and
Existing Sources (PSNS and PSES), which are being issued under authority
of Sections 301, 304, 306, and 307 of the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977. The economic
impacts have been evaluated for specific regulatory options that
correspond to varying levels of effluent controls. The approach
consists of two parts:
assessing the potential for plant closures; and
determining the general industry-wide impacts, including changes
in prices, employment, rates of return on investment, balance of
trade, and small business impacts.
This economic analysis revises and updates the analysis issued with the
proposed regulations.
B. INDUSTRY COVERAGE
For purposes of this study, ten nonferrous metal smelting and
refining industries are considered. These industries and the number of
plants, by discharge status, covered by this regulation are listed
below.
Metal
Primary Aluminum
Primary Copper
Primary Lead
Primary Zinc
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Primary Columbium/
Tantalum
Primary Tungsten
Number of Plants
Incurring Costs
Direct
24
3
4
4
9
0
8
6
3
4
Indirect
0
0
2
1
15
6
25
26
2
6
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Primary operations reduce metal ores to metal and metal products.
Secondary operations convert scrap and waste to useful metal and metal
products. Primary and secondary operations are treated separately in
the analysis. Operating and financial conditions are calculated
independently for each of the ten metal processes.
C. METHODOLOGY
The following paragraphs describe the steps followed in the analysis
to evaluate the potential economic impacts of each regulatory option as
of the effective date of compliance, estimated to be in 1985. The
methodology has been consistently applied to all metal types.
1. Description of the Industry
The first step in the analysis is to develop a description of
the industry as it currently exists. The analysis of the current
conditions addresses the following areas:
technology;
industry structure;
demand for the metal products; and
current trends in prices and capacity utilization.
This information forms the basis for conducting financial tests and
analyzing the potential for plant closures. Basic industry information
was obtained from the Department of the Interior's Bureau of Mines,
trade associations, and contacts with industry representatives.
2. Industry's Baseline Conditions in 1985
Plants subject to this regulation will be required to install
the necessary control equipment by 1985. It is expected that the
current economic recovery will continue, even if at a slow pace, and
that the general economic conditions in 1985 will be somewhat better
than those in 1982, but not as good as those at the peak of 1978-1979.
Since 1985 will be neither a "boom" nor a "bust" year, it is reasonable
to assume that: (1) most plants will operate at less than full capacity
(this implies that companies will not add new capacity to their
operations); and (2) plants that survived the 1982 recession will be
operating in 1985. Hence, this study assumes that the plant population
and the total capacity in an industry segment in 1985 will remain the
same as it was in 1982.
3. Costs of Compliance
The water treatment control systems, costs, and effluent
limitations and pretreatment standards recommended for the nonferrous
smelting and refining industry are discussed in a separate document.
Comprehensive descriptions of the methodology, the recommended
technologies, and the estimated costs are provided in the Development
Document for Effluent Limitations Guidelines and Standards for the
Nonferrous Metals Point Source Category (Development Document). Several
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treatment and control options based on BPT, BAT, NSPS, PSES, and PSNS
for facilities within the industry are considered. The engineering
estimates of costs for the pollution control options are used to form
the basis for the economic impact analysis.
4. Plant Closure Analysis
It is assumed that plants incurring small compliance costs will
not be forced to close. Therefore, the closure analysis is conducted in
two steps. First, a screening analysis is conducted to identify plants
that clearly will not be affected by this regulation. Second, a net
present value test and a liquidity test are carried out for those plants
that fail the screen.
a. Screening Analysis
Total annual compliance cost as a percentage of annual
revenues is used as the screening criterion. The threshold value chosen
for the screen is 1.0 percent. If compliance costs for the plant are
less than 1.0 percent of plant revenues, the plant is not considered
highly affected, and is not analyzed further.
b. Closure Analysis
Pollution control expenditures will result in reduction of
income when costs cannot be passed through. These expenditures may
create a permanent change in income levels and thereby reduce average
income in the future. The expenditures may also adversely affect a
plant's short-term cash flow. The consideration of cash flow becomes
important when a plant is already in poor financial health. These long-
term and short-term effects of pollution control expenditures are
analyzed by conducting a net present value (NPV) test and a liquidity
test. The NPV test is used to determine the long-term viability of a
plant; the liquidity test addresses potential short-term cash flow
problems.
5. Other Impacts
In addition to closures, other industry-wide impacts are
assessed. These include:
increase in cost of production;
price change (note that this varies from the closure analysis
which assumes that costs may not be recovered through increased
prices);
change in return on investment;
capital compliance costs compared to annual capital expenditures
(capital impacts);
employment impacts; and
foreign trade impacts.
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In addition, a separate analysis is performed for the small
businesses affected by the imposition of compliance costs.
D. BASIS FOR COMPLIANCE COSTS
Brief descriptions of the various treatment options are listed
below. These descriptions do not necessarily correspond to the specific
options considered for a particular metal. A complete description of
the options can be found in the Development Document.
Option A - This option includes equalization, chemical
precipitation, and sedimentation ("lime and settle").
Option B - This option includes Option A plus flow reduction
before lime and settle.
Option C - This option includes Option B plus multimedia
filtration of the final effluent. For some metals,
this option also includes sulfide precipitation.
Option E - (Primary Aluminum only) This option includes Option
C plus activated carbon adsorption of the final
effluent when organics are present.
Option G - (Secondary Copper only) This option includes the
treatment cited for Option A, but also includes flow
reduction of casting water via a cooling tower or
holding tank and 100 percent recycle of all treated
water to reuse in the plant.
Not all options were considered for each metal type. The costs
estimated for each metal type are presented in Table 1. Costs were
calculated for each plant based on production, wastewater flows, and
treatment in place. All costs are in 1982 dollars. Investment costs in
Table 1 represent the total capital necessary to construct the treatment
facilities. Total annual costs are comprised of annual operating and
maintenance costs plus the annualized portion of the investment costs.
E. FINDINGS
1. Screening and Plant Closure Analyses
The overall results of the screening and plant closure analyses
are presented in Table 2. For most metals, no more than one plant at
any option level violates the screening test (annual cost greater than 1
percent of revenues). The exceptions are Primary Columbium/Tantalum,
Secondary Lead, and Secondary Silver. For Primary Columbium/Tantalum
one plant fails the screening test at Options A and B, and three fail at
Option C. For Secondary Lead, five plants at Options A and B, and six
plants at Option C fail the screen. For Secondary Silver there are nine
screen failures at each option.
-4-
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-6-
-------
Of the plants discussed above which were selected for further
analysis, application of the NPV and liquidity closure tests identified
potential closures in only one metal type Secondary Silver. For each
option, two plants and five secondary silver product lines did not pass
the closure tests.
2. Other Impacts
a. Increase in Cost of Production
The increase in cost of production is measured by expressing
annual compliance costs as a percentage of total production costs. This
figure represents the incremental increase to production costs
associated with each treatment option. The results, which are generally
less than 1 percent, are found in Table 3-
b. Price Change
Price change is measured by annual compliance costs
expressed as a percentage of revenues. In contrast to the screening and
closure analyses, in which no costs are assumed to be passed through to
consumers, the computation of price change assumes that all costs of
compliance are passed through to consumers. The impact represents the
maximum increase in price expected under this assumption. Price impacts
are presented in Table 3 and in most cases are small.
c. Change in Return on Investment
This impact represents the change in earnings per dollar of
assets that plants will face under each treatment option. These results
are summarized in Table 3- The results range from a decrease of less
than 1 percent for Primary Lead to no more than 18 percent for Primary
Columbium/Tantalum.
d. Capital Impacts
Investment compliance costs are expressed as a percentage of
estimated average capital expenditure. The capital impact is the amount
of additional capital expenditure needed by plants to comply with each
treatment option while maintaining their previous investment programs.
Results are found in Table 3- For the most part, the ratio of
investment costs to average annual expenditures is under 20 percent.
The maximum ratio value is 37 percent, for Secondary Silver.
e. Employment Impacts
Employment impacts are measured by the total number of jobs
lost at plants expected to close. For Secondary Silver, two plants and
five lines identified as potential closures for Option C are small
operations. The total number of jobs lost is estimated to be 62.
This figure represents total employment at the plant, and
therefore overstates the potential number of job losses because only the
-7-
-------
TABLE 3
SUMMARY OF OTHER IMPACTS
(percent)
Primary Aluminum
Direct
Option B
Option C
Option E
Primary Copper
Direct
Option B
Option C
Primary Lead
Direct
Option A
Option B
Option C
Indirect
Option A
Option B
Option C
Primary Zinc
Direct
Option B
Option C
Indirect
Option B
Option C
Secondary Aluminum
Direct
Option B
Option C
Indirect
Option B
Option C
Increase
in Cost of
Production
0.12
0.13
0.17
0.08
0.12
0.01
0.02
0.06
a
0.06
0.27
0.01
0.23
0.09
0.10
0.20
0.23
Price
Change
0.11
0.12
0.15
0.07
0.11
0.01
0.02
0.05
0.06
0.25
0.04
0.21
0.09
0.09
0.20
0.21
Change
in Return
on Investment
-1.89
-2.04
-2.62
-1.11
-1.84
-0.23
-0.40
-0.95
-0.10
-0.10
-0.10
-0.98
-4.34
-0.54
-3.70
-3.57
-3.83
-7.96
-8.48
Capital
Impacts
2.15
2.36
3.45
1.07
2.31
0.39
0.65
1.42
0.29
0.29
0.29
1.24
6.33
0.36
5.40
7.86
8.52
15.95
17.11
(Continued)
-------
TABLE 3 (Continued)
Secondary Copper
Direct
Option G
Secondary Lead
Direct
Option A
Option B
Option C
Indirect
Option A
Option B
Option C
Secondary Silver
Direct
Option A
Option B
Option C
Indirect
Option A
Option B
Option C
Primary Columbium/
Tantalum
Direct
Option A
Option B
Option C
Indirect
Option A
Option B
Option C
Primary Tungsten
Direct
Option A
Option B
Option C
Indirect
Option A
Option B
Option C
Increase
in Cost of
Production
0.07
0.10
0.40
0.44
0.31
0.31
0.35
0.04
0.04
0.05
0.19
0.19
0.21
1.41
1.44
1.50
0.69
0.70
0.72
1.05
1.05
1.13
0.43
0.43
0.47
Price
Change
0.06
0.39
0.39
0.43
0.30
0.30
0.34
0.04
0.04
0.05
0.17
0.17
0.19
1.29
1.32
1.37
0.63
0.64
0.66
0.90
0.90
0.97
0.36
0.36
0.40
Change
in Return
on Investment
-2.73
-15.38
-15.38
-16.90
-12.16
-12.19
-13.64
-0.44
-0.44
-0.62
-2.57
-2.61
-2.84
-17.11
-17.52
-18.41
-9.65
-9.80
-10.23
-7.17
-7.19
-7.80
-3.20
-3.20
-3.52
i
Capital
Impacts
8.04
28.34
28.34
32.34
25.42
25.59
29.29
1.93
1.93
4.85
33.48
34.18
37.33
25.03
27.12
30.57
27.82
28.65
30.28
10.03
10.10
12.08
7.21
7.21
8.13
SOURCE: Policy Planning & Evaluation, Inc. estimates.
aLess than 0.01.
-Q-
-------
silver product line has been identified as a potential closure. The
impacts on the communities where these plants are located will be
minimal since the plants and lines are spread across the country and in
any given area represent a small portion of the total community
employment.
f. Foreign Trade Impacts
The economic impact of this regulation on foreign trade is
the combined effect of price pressure from higher costs and production
loss due to potential plant closure. Because minimal price impacts are
expected even if compliance costs are passed through, no significant
foreign trade impact is forecast. Additionally, potential plant
closures in the Secondary Silver industry are not expected to affect
foreign trade because these closure candidates represent only a small
fraction of total industry production.
3. Small Business Impacts
Small business impacts are analyzed using two tests: (1) total
annual compliance costs as a percentage of total revenues; and (2)
compliance investment cost as a percentage of average capital
expenditures. The results show that a substantial number of small
businesses are not significantly affected by this regulation.
4. New Source Impacts
The basis for new source performance standards (NSPS) and
pretreatment standards for new sources (PSNS) as established under
Section 306 of the Clean Water Act is the best available demonstrated
technology. For regulatory purposes new sources include greenfield
plants and major modifications to existing plants.
In evaluating the potential economic impact of the NSPS/PSNS
regulations on new sources, it is necessary to consider the costs of the
regulations relative to the costs incurred by existing sources under the
BAT/PSES regulations.
The Agency has determined that the new source regulations are
not significantly more costly than those for existing sources. The
technology basis of the new source regulations is the same as for BAT
but with additional flow reduction for some subcategories. There is no
incremental cost associated with these additional flow reductions,
however, and new sources will therefore not be operating at a cost
disadvantage relative to existing sources due to the regulations.
-10-
-------
CHAPTER I
INTRODUCTION
-------
I. INTRODUCTION
A. PURPOSE AND SCOPE
This study assesses the economic impacts likely to result from the
imposition of effluent guidelines, limitations, and standards on plants
engaged in the smelting and refining of the following nonferrous metals:
Primary Aluminum
Primary Copper
Primary Lead
Primary Zinc
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Primary Columbium/Tantalum, and
Primary Tungsten
These subcategory designations do not^ precisely correspond to the
list of technical subcategories in the actual regulation. Primary
copper plants cov .red by this regulation
operate smelters, refineries,
and acid plants. For purposes of this economic impact analysis, these
facilities are included in the same subcaUegory. The primary lead and
zinc subcategories will be treated similarly. The technical analysis on
which the regulation is based addresses smelters, refineries, and acid
plants separately.
This study represents a revision to the economic impact analysis
issued with the proposed regulation. The Agency received many
significant comments that addressed tjhe economic and financial
assumptions used in the proposed document. Of particular concern is the
fact that the previous analysis does not apcount for the 1982 recession
and the accompanying setbacks experienced by many firms in prices,
capacity utilization, and profits. Certjain assumptions made in the
analysis at proposal predicted that industry shipments would grow
steadily from 1978 to 1985, that plants would run at close to capacity,
and that compliance costs could be passed through to customers in the
form of higher costs. The methodology developed for this analysis
responds to the concerns expressed about these assumptions. For
example, in this study, financial conditions in 1985 are derived from
data that include the 1982 downturn. Also, plants are not expected to
run at full capacity. This study also assumes that price increases
which pass through costs are impractical due to the competitive nature
of the metals markets.
Of the plants in the U.S. that smelt and refine the nonferrous
metals listed above, only those that discharge wastewater and will incur
compliance costs are analyzed in this study. Analysis results are
presented separately for direct and indirect (those that discharge to
publicly-owned treatment works) dischargers.
1-1
-------
Compliance coats are developed for each discharging plant, taking
into account production levels, wastewater flows, and treatment
equipment already in place. Technical information on smelting and
refining plants was collected from a survey of the industry conducted
under the authority of Section 308 of the Clean Water Act; however, only
a limited amount of this data was appropriate for use in this economic
analysis. Therefore, industry-level information available from public
sources and the business segment data included in corporate annual
reports were used in the economic analysis to augment plant-level
information.
B. INDUSTRY CHARACTERISTICS
All metals segments, with the exceptions of Primary Columbium and
Tantalum, are treated separately for purposes of this analysis. Because
columbium and tantalum are generally produced together at most plants,
compliance costs for the total operation have been estimated. Primary
production of lead, copper, and aluminum are considered apart from the
production of these metals by secondary plants. Industry
characteristics and financial conditions have been derived separately
for primary and secondary producers, taking into account the distinct
difference in raw materials and processes. However, with respect to
demand and prices, the primary and secondary industries compete in
similar markets and, therefore, have been treated similarly.
C. APPROACH
This study begins with a discussion of the methodology developed to
perform the economic impact and plant closure analyses. Research of
existing financial analysis literature suggests that cash flow analysis
is the most appropriate method of predicting financial distress and
closure. Hence, net present value and liquidity tests based on cash
flows are performed for each plant expected to experience significant
compliance costs. The methodology is then applied to each metal type,
allowing for differences in the financial conditions of metal groups.
For example, key industry-level financial ratios used in the analysis
have been calculated separately for primary and secondary producers;
alloy and metal powder producers; and producers of precious and non-
precious metals. Finally the results of the economic analysis are
presented, including a discussion of the various impacts of factors such
as the cost of production, prices, employment, and foreign trade.
1. Methodology
The methodology for this analysis involves two major steps.
First, a screening analysis is performed to determine those plants for
which the regulatory compliance costs will clearly not be significant.
Second, for those plants expected to incur significant costs of
compliance, two closure tests are performed. These tests, the net
present value test and the liquidity test, assess long-term and short-
term viability, respectively. The impacts on the cost of production,
prices, rate of return on investment, capital expenditures, employment,
and foreign trade are predicted by calculating a variety of ratios and
reviewing pertinent summary statistics.
1-2
-------
2. Effluent Limitation Guidelines
The effluent limitation regulations covered by this analysis
include:
Effluent limitations based on the Best Practicable Control
Technology Currently Available (BPT) to be met by existing
industrial dischargers;
Effluent limitations based on the Best Available Technology
Economically Achievable (BAT) to be met by existing industrial
dischargers;
New Source Performance Standards (NSPS) based on the Best
Available Demonstrated Technology to be met by new source
industrial dischargers;
Pretreatment Standards for Existing Sources (PSES) for existing
dischargers to publicly-owned treatment works; and
Pretreatraent Standards for New Sources (PSNS) for new
dischargers to publicly-owned treatment works.
D. ORGANIZATION OF THE REPORT
Chapter II presents the methodology employed for this economic
impact analysis. The analysis for each nonferrous metal is presented in
Chapters III through XII. Each of these chapters includes a discussion
of the technology, the structure of the industry, current trends in
capacity and prices, projections of prices and capacity utilization,
costs of effluent control, and the economic impact analysis. Chapters
XIII and XIV discuss the impacts on new sources and small businesses
respectively, and Chapter XV discusses the limitations of the analysis.
1-3
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CHAPTER II
ECONOMIC IMPACT ANALYSIS METHODOLOGY
-------
II. ECONOMIC IMPACT ANALYSIS METHODOLOGY
A. OVERVIEW
This section describes the analytical approach that is used to
estimate the economic impacts of effluent guidelines controls on the
nonferrous metals manufacturing industry. This industry includes plants
that produce primary metals from ore concentrates and plants that
recover secondary metals from recycled metallic wastes. For regulatory
purposes, the category is divided into two separate segments. This
report covers the Phase I segment, which consists of:
primary aluminum, lead, copper, zinc, tungsten, and columbium/
tantalum production; and
secondary aluminum, lead, copper, and silver production.
The analytical approach has been revised from the approach used at
proposal in response to public comments which state that: (1) current
economic conditions have not been considered in determining impacts; (2)
some of the threshold values used in the analysis are not appropriate;
and (3) the methodology used is not sensitive enough to capture
impacts. The theoretical construct of the methodology, however, is
similar to that used at proposal. The tests of plant viability focus on
net present value of cash flow and liquidity.1
The economic impacts on each of the ten metal industries have been
evaluated for specific regulatory options that correspond to varying
levels of effluent control. The general approach consists of two parts:
assessing the potential for plant closures; and
determining the general industry-wide impacts, including changes
in prices, employment, rates of return on investment, balance of
trade, and small business impacts.
The assessment of plant closures is made by using two financial
analysis tests: (1) a net present value (NPV) test, and (2) a liquidity
test. The NPV test evaluates the impact of pollution controls on the
long-term economic viability of a plant; the liquidity test measures the
short-term solvency.
Production and capacity utilization behavior of the industry between
1978-1982 form the basis of assumptions used in the analysis. The
Economic Impact Analysis of Proposed Effluent Limitations and Standards
for the Nonferrous Smelting and Refining Industry, EPA-MO-2-83-002.
U.S. Environmental Protection Agency, January 1983.
-------
approach also considers information, which has been obtained from
industry and government sources, on updated industry conditions. The
approach proceeds with the following steps:
1) description of production technology;
2) description of structure of the industry;
3) factors affecting demand and description of markets;
1) trends and projections of prices and capacity utilizations and
consideration of baseline population;
5) calculation of annualized compliance costs;
6) assessment of plant closures;
7) determination of industry-wide impacts;
8) new source impacts; and
9) small business analysis.
Each of these steps is described below to provide a broad framework
for the analysis. Then, each of the chapters (for specific metal
industries) follows the same approach.
The broad framework that follows is designed to describe the basic
methodology. The details of the calculations, including associated
equations, are given in four appendices. The appendices also provide
details on the methods and assumptions used to implement the NPV and the
liquidity equations.
The major sources of data used in this study are listed below:
U.S. Environmental Protection Agency: EPA industry surveys
conducted in 1978 and 1982 under Section 308 of the Clean Water
Act. Of particular importance are data on products produced,
production volume, value of regulated products, value of plant
shipments, capacity utilization, total employment, and
employment in the regulated sector.
U.S. Department of Commerce: Census of Manufacturers, U.S.
Industrial Outlook, Quarterly Financial Report for
Manufacturing, Mining and Trade Corporations.
U.S. Department of the Interior: Mineral Industry Surveys,
Mineral Facts and Problems, Minerals and Materials, Mineral
Commodity Summaries, and Mineral Industry Profiles.
The trade and business publications American Metal Market and
Modern Metals.
II-2
-------
Interviews with trade association and industry personnel.
Annual and 10-K reports of companies engaged in mining,
smelting, and refining-nonferrous metals.
B. STEP 1; DESCRIPTION OF PRODUCTION TECHNOLOGY
Nonferrous metals are produced in a series of steps that may include
smelting, refining, alloying, and producing metallic chemicals. Some of
these steps are covered by existing regulations (such as effluent
guidelines for inorganic chemicals manufacturing) and others will be
covered by future regulations. The purposes of this section are to
describe the production technology in simple terms and indicate the
steps involved in producing metal and metal products from ore as well as
from recovered materials (scrap), and to identify the stages covered by
this regulation. This information is used to provide relevant
information regarding the industry structure and to classify plants into
various categories.
C. STEP 2: DESCRIPTION OF STRUCTURE OF THE INDUSTRY
The structure of the industry is described in terms of:
production, exports, and imports;
types of manufacturers; and
description of plants.
Time series data on production, exports, and imports are used to
discuss the importance of imports, the relationship between secondary
and primary production, and changes in the basic structure of the
industry over time. For many of these metals, imports of either raw
material or finished metals constitute a significant part of total
production. Further, secondary metal industry production forms a large
part of total production. High regulatory compliance costs can have
significant effects on the future income of domestic producers if
imports are a large part of total consumption. Similarly, secondary
metal producers may find themselves at a competitive disadvantage if
their compliance costs are disproportionately high.
For most of the Phase I metals, the following types of producers
exist: (1) large integrated companies that produce metals from ore from
their own mines; (2) integrated metals producers who also produce final
products; (3) independent firms; and (U) recyclers. The characteristics
of each type of manufacturer are taken into account in analyzing the
ec onomi c e ff ec ts.
The last part of the industry structure section is the description
of plants in the industry. Plants have been classified on the basis
of: (1) raw material, (2) outputs, and (3) the use of outputs. Some
plants use ore; others use recycled materials; and others use byproduct
ores. A few plants produce metals; others produce formed product and
metallic chemicals. Some plants use the output captively, while others
sell products to outside companies. The descriptions of plants, along
H-3
-------
with the structure of the companies that own the plants, are used to
analyze the effects of the regulations in terms of potential plant
closures. For purposes of conducting the two financial tests, each
plant is first placed into one of eight business groups. Business
segment information given in financial reports of almost 30 metals
companies forms the data base for this classification. Two broad
criteria type of metal and type of manufacturing processes have
been used to form the groups. For example, primary production is
separated from secondary production. The secondary production is
divided into two groups: reclamation of precious metals and reclamation
of non-precious metals. Primary production is divided into six groups
based on metal types. Analysis of the financial data shows that
significant differences in financial characteristics exist among
groups. After a plant has been classified into a group it is evaluated
by using the financial characteristics of the group and plant-specific
information. The plants in the Phase I category fall into five of the
eight groups. A description of the business groups and the development
of financial characteristics for those groups are shown in Appendix B.
The business group characteristics are based on business segment
information in the financial reports rather than corporate income
information. This is because the business segments of a corporation can
be associated closely with the operations of a plant. A corporation,
especially a large one, is often an amalgam of diverse businesses, and
corporate ratios based on corporate financial data may not have much
relevance to the financial performance of its business segments. For
this reason, business segment information is used to the extent
possible. Business segment information was not always available,
however. For example, corporate taxes and current assets had to be
allocated to business segments because these data are not available for
the segments separately. The allocation procedure is described in
Appendix B.
D. STEP 3: FACTORS AFFECTING DEMAND
Changes in major end use markets of a metal can cause long-term
structural changes in its demand. For example, increased production of
both private and military aircraft as well as further substitutuion of
aluminum for heavier metals in transportation equipment is expected to
result in average annual demand growth of approximately four percent
over the 1980s and 1990s. Such structural changes are likely to affect
the long-term profitability of existing plants. This section in each
chapter discusses the historical trends in the size of each major end-
use market and assesses the impacts of the trends on overall demand.
E. STEP 4; TRENDS AND PROJECTIONS IN PRICES AND CAPACITY UTILIZATION
AND CONSIDERATION OF BASELINE POPULATION
Prices of metals and metal products depend to a large extent on
final demand. When the demand is high, an industry operates its plants
at a relatively high capacity, the prices are high, and operating income
is also high. On the other hand, when demand is low, capacity
utilization, prices, and income are generally low. The trends in
-------
capacity utilization and prices, in general, parallel the trends in
general economic conditions. I In this study, the trends over the five-
year period between 1978-1982
ire used to determine economic impacts.
In order to estimate th
usually ' requires projections
total production at the est
discussed below, the methodoL
for such projections. The ;
liquidity tests to determine
uses long-term "constant" in
this income is based on the
concept of constant income is
constant income estimated he
equipment. No attempt is ma
specific future year as in f
future year is extremely diff
term constant income can be
historical prices and production
representative because it cove
production occurred during the
1982. Hence, averages of pr
period, used to calculate ir
estimates of constant income.
The liquidity test
examining their cash flows.
conditions are tested is five
are used to conduct the test
required.
high level of inventories anc
survived the 1982 recession
again. It is expected that th
at a slow pace, and that the g
somewhat better than those in
of 1978-1979. Since 1985 will
is reasonable to assume that:
; effects of regulations, a methodology
of product prices, number of plants, and
mated time of compliance. However, as
gy used for this analysis avoids the need
nalysis in this report uses the NPV and
potential plant closures. The NPV test
ome, and for purposes of this analysis,
iverage of income between 1978-1982. The
different than that of forecasting. The
e covers the lifetime of the compliance
de to predict the value of income for a
recasting. While forecasting to any one
cult and subject to wide variation, long-
reasonably estimated by using average
The 1978-1982 period is considered
rs a complete business cycle; the peak in
early years and the trough took place in
ces and capacity utilization during this
come of plants, will provide reasonable
evaluates
short-term viability of plants by
he short-term period over which financial
years. Since constant income estimates
price and production forecasts are not
During the 1982 recession, capacity utilization in most of the
nonferrous metals industries was extremely low. It was accompanied by a
a low level of profits. In fact, many
plants were unprofitable durirg 1982. However, most of the plants that
are now operating at higher capacity
utilization levels and in nany cases have started earning profits
e economic recovery will continue, even if
meral economic conditions in 1985 will be
982, but not as good as those at the peak
be neither a "boom" nor a "bust" year, it
(1) most plants will operate at less than
full capacity (this implies that companies will not add new capacity to
their operations); and (2) plants that survived the 1982 recession will
be operating in 1985. Hence, this study assumes that the plant
population and the total capacity in an industry segment in 1985 will
remain the same as it was in 1982.
F. STEP 5: COMPLIANCE COST ESTIMATES
Pollution control technologies result in two types of compliance
costs: (1) capital costs of the control equipment, and (2) annual costs
for operation and maintenance. Compliance costs are based on engineer-
II-5
-------
ing estimates of specific treatment alternatives, and were developed for
each plant after accounting for wastewater treatment already in place.
Descriptions of the costing procedures and treatment alternatives are
presented in the Development Document. These costs are used in this
report to determine economic impacts. The increased costs have the
following effects on the capital structure of a plant: (1) increased
tax benefits due to investment tax credits and greater depreciation; (2)
reduced overall taxes due to additional operating and maintenance costs;
(3) increased asset base; and (U) increased overall production costs.
The capital and annual compliance costs can be converted to total annual
costs of controls as follows.
The net present value of the tax benefits due to depreciation,
which occur over the depreciable life of the equipment, is
calculated.
Tax benefits due to depreciation and investment tax credits are
subtracted to obtain effective capital costs.
Effective capital costs are amortized over the useful life of
the assets to obtain annualized capital costs.
Total annual costs are calculated by adding the annualized
capital costs and annual operating and maintenance costs after
taking into account tax effects of increased operating and
maintenance costs.
The detailed procedures for calculating total annual costs are given
in Appendix C.
G. STEP 6: PLANT-LEVEL ECONOMIC IMPACTS
Pollution controls affect plants in different ways. Some plants
bear relatively high costs in order to comply with the regulations;
others incur much smaller costs. It is reasonable to assume that the
plants incurring relatively small costs will not close as a result of
the regulations. Therefore, the analysis is conducted in two steps.
First, a screening analysis is conducted to identify plants that will
not be seriously affected by the regulations. Second, the NPV and the
liquidity tests are carried out to determine whether plants that fail
the screen will close. The screen and the two closure tests are
discussed below.
1. Description of Screening Analysis
Total annual costs as a percent of annual revenues is used as
the screening criterion. The threshold value chosen for the screen is
1.0 percent. If the compliance costs for a plant are less than 1.0
percent of the revenues, it is not considered to be highly affected, and
is not analyzed further.
The screening analysis is conducted for each plant expected to
incur compliance costs. Total annual costs are calculated by adding the
II-6
-------
annualized portion of capital costs and the annual operating and
maintenance costs. Annual revenues are calculated by multiplying the
price of the product by estimated production of the plant. Price values
for each product are generally based on an average of 1978-1982 prices
for the metal product. The specific values and their sources are
presented in each chapter.
The production level for a plant is estimated by multiplying
plant capacity by a subcategory capacity utilization rate. Plant
capacity data were generally available from public sources. The
capacity utilization rate is based on an average of 1978-1982 values for
each subcategory. The subcategory rates used in the analysis are
identified in each chapter.
2. Discussion of Plant Closure Tests
Pollution control expenditures result in reduction of income
(when costs cannot be passed through). These expenditures may create a
permanent change in income levels and thereby reduce average income in
the future. The expenditures may also adversely affect a plant's short-
term cash flow. The consideration of cash flow becomes important when a
plant is already in poor financial health. It should be expected that
such a plant will have to finance the pollution control expenditures
through a bank and that the bank will not lend money for a period longer
than five years the depreciable life of the asset for tax purposes.
Negative cash flows may be created by principal and interest payments;
however, there will also be positive cash flow due to tax benefits.
These long-term and short-term effects of pollution control expenditures
are analyzed by conducting the net present value (NPV) test and a
liquidity test. Financial analysis frequently relies upon examination
of cash flows. Cash flow analysis is commonly used by investors to
assess the economic viability of firms in a variety of industries. In
particular, cash flow analysis provides an accurate measure of a firm's
profit potential over the long run and its ability to meet debt
obligations in the short run. The NPV test is used to determine the
long-term viability of a plant; the liquidity test addresses potential
short-term cash flow problems.
a. Net Present Value Test
The net present value test is based on the assumption that a
company will continue to operate a plant if cash flow from future
operations is expected to exceed its current liquidation value. This
assumption can be written mathematically as follows:
1 - L
Where: U^ = cash flow in year t =
earning before interest but after taxes (EBIAT) =
revenues - all operating expenses including deprecia
tion at book value - taxes
II-7
-------
LQ = current liquidation value
L.J. = terminal liquidation value, i.e., liquidation value at the
end of the planning horizon of T years
r = cost of capital.
In order to use this formula in this form, forecasts of the
terminal liquidation value and earnings (U^) in every year during the
planning period (T) have to be made. However, the equation shown above
can be simplified (and the need to make forecasts avoided) by making
several assumptions. The simplified formula and the assumptions are
given in Appendix A. The NPV test, after simplification and
consideration of annual costs (see Appendix C), can be written as
follows:
U - APC
Lo
then the plant will stay in operation.
Where: U, L , and r are, respectively, real earnings, real liquidation
value, and real cost of capital (definitions of these variables
are given in Appendix A); and
APC = total annual costs as given in Appendix C.
This equation states that if the rate of return on the
liquidation value (U/L ) is greater than or equal to the real after-tax
rate of return on assets (which corresponds to r), then the plant will
continue in operation.
This test is carried out for every plant that fails the
screen that is, where total annual costs are greater than 1 percent
of revenues. In order to conduct the test, each plant is first
classified into one of the eight groups discussed in Appendix B.
Then, U and L are calculated (for each plant) by using various group
ratios. The total_ annual costs are subtracted from real earnings (U),
and the _ratio (U - APC )/L is compared with the group's cost of
capital (r).
By subtracting the appropriate compliance cost (APC ), the
NPV test implicitly assumes that increased costs will not be passed
through to consumers. This assumption avoids overlooking potential
impacts by incorporating the full effect of the costs on a plant's
earnings. This procedure is also responsive to public comments that
plants cannot pass cost increases on to consumers.
II-8
-------
b. The Liquidity Test
The basic premise of this test is that a plant will close if
pollution control expenditures result in net negative cash flows in the
foreseeable future. It is assumed that pollution control equipment will
be financed over five years; the associated total annual costs represent
cash outflows. The test can be stated in simple terms as follows (see
Appendix C for details):
If
U - APC <_ 0,
then the plant will close.
Where: U = real earnings (as defined above)
APC = total annual costs for the liquidity test (see Appendix
C; note that there is a difference between APC and
APCq.)
The treatment of cost pass-through for the liquidity test is
the same as for the NPV test; the full compliance cost is assumed to be
absorbed by the plant and is subtracted from the plant's earnings.
c. Interpretation of Plant Closure Tests
A potential plant closure is projected if either of the two
tests is failed. The identification of plants as potential closures in
this step is interpreted as an indication of the extent of plant impact
rather than as a prediction of certain closure. The decision by a
company to close a plant also involves other considerations, such as
non-competitive markets for products, degree of integration of
operation, use of output of plants as intermediate products (captive
markets), and existence of specialty markets. Most of these factors can
only be evaluated qualitatively and are taken into account only after
the quantitative results of the two financial tests have been obtained.
For some of the facilities included in this study,
production of the relevant nonferrous metal represents only a limited
portion of total production capacity at the plant. For example, some
secondary silver manufacturers produce a variety of metals, many of
which are not included in the Phase I segment of the industry. The
production of silver may be a very small proportion of total metal
production. If the closure tests are failed by a plant meeting this
description, the analysis suggests it would be unprofitable for the
plant to continue operations for the metal associated with the
compliance cost. In this case, the effect is identified as a production
line closure. It is not reasonable to extend this conclusion to the
entire production facility because the compliance costs, sales, and
plant closure tests are all based on production of the one metal.
II-9
-------
H. STEP 7: INDUSTRY-WIDE IMPACTS
As compared to the plant-level closure analysis, this step focuses
on impacts that are likely to occur at an industry-wide level. These
iirpacts include effects on: (1) cost of production; (2) prices; (3)
return on investment; (*!) capital expenditures; (5) employment and
communities where plants and their suppliers are located; and (6)
balance of trade.
Each of these impacts is calculated for each subcategory, and the
results are presented in Chapters III through XII. The calculations
rely on both group ratios and plant-specific information. The equations
used to calculate the impacts are shown in Appendix D.
1. Changes In the Cost of Production
The financial impact of the regulatory alternatives on each
industry is evaluated in terms of the increase to cost of production.
This impact is measured by calculating the ratio of total annual
compliance cost to total production cost, where production costs are
calculated as plant revenues less operating income. This ratio
represents the percentage increase in operating costs due to compliance
expenditures.
2. Price Changes
The price change is the ratio of total annual compliance cost to
annual plant revenue. This ratio represents the maximum percentage
increase in price that would be required to maintain pre-compliance
income levels. It is calculated with the assumption of full pass-through
of costs. This assumption of full pass-through is not used in the
closure analysis, but only in the calculation of price changes.
3. Changes in Return on Investment
Return on investment is calculated before and after the
imposition of compliance cos_ts. The return on investment before
compliance costs is the value r, which is computed for each group. The
return on investment after compliance costs accounts for the effect of
these costs on both income and assets. Annual compliance costs act to
reduce income, while capital costs increase the asset base. A
percentage change in return on investment is then derived from the two
values. The change in return on investment represents the change in
earnings per dollar of assets that is expected to result under each
treatment option.
U. Effects on Capital Expenditures
This impact compares the capital compliance cost to expected
capital expenditures. This ratio represents the percentage of
additional capital expenditure needed to comply with each treatment
option while maintaining previous investment programs.
11-10
-------
5. Employment Impacts
Employment impacts are measured by the total number of jobs lost
at plants expected to close. Employment estimates for production
.facilities projected to close are based on individual plant production
data obtained from the Agency's survey of the industry and an estimate
of production per employee. Community impacts are assessed by comparing
the number of job losses due to the regulations to total employment in
the community. Data on community employment are available through the
Bureau of the Census and the Bureau of Labor Statistics.
6. Effects on the Balance of Trade
The economic impact of this regulation on foreign trade is the
combined effect of price pressure from higher costs and production loss
due to potential plant closure. The impact on foreign trade is
discussed in the context of these two effects.
I. STEP 8; NEW SOURCE IMPACTS
New facilities and existing facilities that undergo major
modifications are subject to NSPS/PSNS guidelines. Compliance costs of
new source standards have been defined as incremental costs over the
costs of selected standards for existing sources. The purpose of this
approach is to determine if control costs constitute significant
barriers to the entry of new sources into the industry.
J. STEP 9: SMALL BUSINESS ANALYSIS
The Regulatory Flexibility Act (RFA) of 1980 (P.L. 96-354) requires
Federal regulatory agencies to consider "small entities" throughout the
regulatory process. In this study, an initial screening analysis is
performed to determine if a substantial number of small entities will be
significantly affected. This step identifies the economic impacts
likely to result from the promulgation of regulations on small
businesses. The primary economic variables that are covered are those
that are analyzed in the general economic impact analysis, including
compliance costs, plant financial performance, plant closures, and
unemployment. Most of the information and analytical techniques in the
small business analysis are drawn from the general economic impact
analysis which is described above.
11-11
-------
CHAPTER III
PRIMARY ALUMINUM
-------
III. PRIMARY ALUMINUM
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary aluminum industry of alternative pollution control
technologies.
The technology used in aluminum production is discussed in
Section B. The structure of the domestic industry, including the size
and location of the plants, is presented in Section C. Section D
describes aluminum demand characteristics and major end markets; Section
E discusses current trends of the domestic industry. Estimates of
prices and capacity utilization for the industry are made in Section
F. Section G presents the cost estimates for the alternative control
technologies, and Section H presents the results of the economic impact
analysis.
All compliance cost and economic impact information is stated in
1982 dollars, unless otherwise indicated.
B. TECHNOLOGY
The primary aluminum industry produces aluminum (metal) from bauxite
ore in two basic operations:
1) Refined alumina (Al20g) is produced from bauxite by the Bayer
process, and
2) The alumina is converted to aluminum metal by electrolytic
reduction in the Hall-Heroult process.
These two operations are conducted at separate locations. This
regulation covers only the second operation, that is, conversion of
alumina to aluminum metal.
Most U.S. aluminum plants produce primary aluminum from refined
alumina by the conventional Hall-Heroult process. This is an electro-
lytic reduction process that decomposes alumina to aluminum metal.
A Hall-Heroult cell consists of a steel box lined with insulating
refractory and carbon. The cell is filled with a molten electrolyte
containing 80-85 percent cryolite (Na,AlFg), 5-7 percent calcium
fluoride (CaF2), 5-7 percent aluminum fluoride (A1F,), and 2-8 percent
alumina. A carbon anode is suspended in the electrolyte from above the
cell and carbon blocks at the bottom of the cell serve as the cathode.
During operation, the alumina decomposes to aluminum and oxygen. The
molten aluminum settles to the bottom of the cell on the cathode and is
periodically siphoned off. The oxygen liberated at the anode reacts
with the carbon anode, forming COp and CO, which are released.
III-l
-------
There are two versions of the Hall-Heroult cell, which differ mainly
in the nature of the carbon anode: the Soderberg (continuous self-
baking) type and the prebaked type. The early, larger (high-amperage)
cells had low current densities and used Soderberg anodes because
prebaked anodes large enough for the high-amperage cells were originally
difficult to produce, and the capital cost for a moderate-sized plant
was lower with Soderberg cells. However, industry has since learned how
to make large prebaked anodes and is building larger capacity reduction
plants using prebaked anodes. All the smelters built in the last 15
years have been of the prebake type because they require less power,
present fewer pollution problems, and are less difficult to control and
automate than the Soderberg smelters.
C. INDUSTRY STRUCTURE
1. Overview
The domestic aluminum industry has always depended largely on
imports for most of its supply of bauxite. A comparative picture of the
United States with respect to other countries is presented in Table III-
1. Although the United States consumes almost 26 percent of world
aluminum production and produces 24 percent of the world's primary
aluminum, it produces less than 1 percent of the world's bauxite. The
members of the International Bauxite Association (IBA) account for about
69 percent of total world production of bauxite and, therefore,
collectively constitute a cartel. Australia dominates this category
with about 30 percent of total bauxite production.
Worldwide recessionary conditions in the early 1980s resulted in
a decline in U.S. production and exports, as shown in Table III-2.
Primary production fell approximately 27 percent in 1982 from the 1981
level of 4,950 thousand short tons. Exports totalled 780 thousand short
tons, down 10 percent from 1981.
2. Primary Aluminum Smelters
The U.S. primary aluminum industry encompasses 33 aluminum
smelters operated by 12 firms, 4 of which (Alcoa, Kaiser, Martin
Marietta, and Reynolds) account for more than 66 percent of total
domestic ingot-producing capacity. These plants, their production
capacities, and configurations are presented in Table III-3- Total
primary aluminum capacity in 1982 was more than 5 million short tons,
with individual plant capacities ranging from 16,500 to 341,700 short
tons per year.
The location of the domestic smelters is basically determined by
the availability of low-cost energy and accessibility to river systems
for the transportation of alumina. Aluminum refining is an energy-
rn-2
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III-3
-------
TABLE III-2
U.S. PRODUCTION, IMPORTS, AND EXPORTS
(thousands of short tons)
1. Production: Primary
Secondary
(from old scrap)
2. Imports for Consumption
3. Exports
1978
4,804
575
1,080
520
1979
5,023
614
840
773
1980
5,130
680
713
1,483
1981
4,950
886
935
867
1982
3,600
950
970
780
SOURCE: Mineral Commodity Summaries, U.S. Department of the Interior,
Bureau of Mines, 1983.
III-4
-------
TABLE III-3
ALUMINUM INGOT PRODUCTION CAPACITY
(end of 1982 - short tons)
Company
Aluminum Company of America
Subtotal
Alumax
Eastalco (50% interest)
Intalco (50$ interest)
Santa Carolina
Subtotal
ARCO Aluminum
Division of ARCO Metals
Subtotal
Consolidated Aluminum
Corporation
Subtotal
Howmet Corp.
Eastalco (50% interest)
Intalco (50% Interest)
Subtotal
Kaiser Aluminum and
Chemical Corporation
Subtotal
Location of
Plant
Evansville, IN
Badin, NC
Massena, NY
Alcoa, TN
Anderson County, TX
Point Comfort, TX
Rockdale, TX
Vancouver, WA
Wenatchee, WA
Frederick, MD
Bellingham, WA
Mount Holly, SC
Columbia Falls, MT
Sebree, KY
New Johnsonville, TN
Lake Charles , LA
Frederick, MD
Bellingham, WA
Chalmette, LA
Mead, WA
Tacoma , WA
Ravenswood , WV
Smelter
Technology
CWPB
CWPB
CWPB
CWPB
CWPB
VSS
CWPB
CWPB
CWPB
SWPB
SWPB
SWPB
VSS
CWPB
SWPB
SWPB
SWPB
SWPB
HSS
CWPB
HSS
CWPB
Annual
Capacity
292,000
126,800
226,000
220,500
16,500
159,800
3^1,700
121,200
220,500
1,725,000
88,200
110,000
197,000
425,200
180,000
180,000
360,000
146,000
36,000
182,000
88,200
130,500
218,700
260,000
220,000
81,000
163,000
724,000
Continued
III-5
-------
TABLE III-3 (Continued)
Company
Martin Marietta Aluminum, Inc.
Subtotal
National-Southwire Aluminum Co.
Noranda Aluminum, Inc.
Ormet Corp.
Revere Copper and Brass Inc.
Reynolds Metals Co.
Subtotal
Total
Location of
Plant
The Dalles, OR
Goldendale, WA
Hawesville, KY
New Madrid, MO
Hannibal, OH
Scottsboro, AL
Listerhill, AL
Arkadelphia, AR
Jones Mills, AR
Massena, NY
Troutdale, OR
San Patricio, TX
Longview, WA
Smelter
Technology
VSS
VSS
CWPB
CWPB
CWPB
SWPB
HSS
HSS
CWPB
HSS
CWPB
HSS
Annual
Capacity
90,000
185,000
275,000
180,000
225,000
250,000
120,000
202,000
68,000
125,000
126,000
130,000
114,000
210,000
975,000
5.659.900
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
CWPB i- Center-Worked Prebake Cells.
SWPB = Side-Worked Prebake Cells.
HSS = Horizontal Soderberg System.
VSS = Vertical Soderberg System.
III-6
-------
intensive process, consuming 3.3 percent of all electricity generated in
1982. Aluminum plants are located in four general areas:
along the Mississippi and Ohio Rivers, because of the availa-
bility of low-cost coal-based electricity and the transportation
system provided by the rivers;
along the Gulf Coast, because of previously low-cost natural gas
resulting in low-cost purchased or self-generated electrical
energy ;
in Massena, New York, because of the access and transportation
advantages provided by the St. Lawrence Seaway and the
availability of low-cost hydroelectric and nuclear power; and
in Washington, Oregon, and western Montana, principally because
of the availability of low-cost hydroelectric power.
D. ALUMINUM DEMAND
Demand for aluminum exhibited steady growth between 1965-1978.
Since 1978, weak markets in the automobile production and residential
construction industries have resulted in declining consumption. Between
1978 and 1982, aluminum consumption fell by 16.8 percent to 5,940,000
short tons (Table
Packaging is the largest end-use for aluminum in the United
States, followed by transportation, building construction, the
electrical industry, and appliances and equipment (Table III-5).
1 . Construction Industry
In the construction industry, the two major applications for
aluminum are in windows, doors, and screens, and in external cladding
for walls and roofs. Aluminum is used for primary construction and,
even more widely, in building renovation (particularly residential).
The recent growth in mobile homes has also contributed to the demand for
aluminum in the building market. Other building and construction
applications are tubing, piping, roofing, and gutters. Building
construction accounted for 14 percent of total aluminum consumption in
1982, the lowest since 1971. Weak markets in the residential
construction industry and competition from steel were major factors for
the low amount of consumption in this sector.
2. Transportation
The domestic transportation industry has historically accounted
for about 20 percent of aluminum consumption. In 1981 and 1982, weak
domestic passenger car sales contributed to a large decline in aluminum
consumption. However, aluminum alloys are becoming increasingly popular
substitutes for steel in the automobile industry because of the weight
factor, although they face competition from magnesium and titanium.
From an average of 30 pounds of aluminum used per car in 1955, an
III-7
-------
TABLE III-4
U.S. ALUMINUM CONSUMPTION
(thousand short tons)
Year
1965
1970
1975
1978
1979
1980
1981
1982
Consumption
3,095
4,519
4,806
7,142
7,058
6,123
6,224
5,940
^on-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
111-3
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average of 118 pounds was used in the 1979 models. In 1979, passenger
cars accounted for one-half of total transportation uses; trucks, buses,
trailers, and semi-trailers accounted for about one-quarter of the
aluminum used in this sector. The high strength and light weight of
aluminum have been most important in aircraft, which accounted for about
10 percent of the transportation sector in 1979. Other transportation
uses include commercial and naval marine vessels, and rail, military,
and recreational vehicles.
3. Cans and Containers
Packaging has been the fastest growing major aluminum market,
accounting for 15 percent of aluminum consumption in 1971, 23 percent in
1978, and 39 percent in 1982. Sheet shipments for use in can production
have tripled since 1970. In 1981, aluminum can market shipments
increased 14 percent with approximately H3 billion aluminum beverage
cans used in the United States. Aluminum is becoming popular because
much of it is recyclable; it now substitutes in durable goods for many
other materials, primarily steel, wood, zinc, and brass.
4. Electrical
Overhead electrical transmission and distribution lines were the
first applications in which the substitution of aluminum became a
serious threat to copper. Aluminum has captured this market worldwide;
in 1979 it accounted for about 70 percent of total aluminum consumed in
this sector. Other applications include plastic-insulated aluminum
telephone cables, television cables, electronics and communication
equipment and parts, rigid conduit and electrical metallic tubing, and
wire for home electrical conductors. This sector accounted for 8
percent of the total aluminum consumption in 1982.
5. Appliances and Equipment
Aluminum consumption in this sector has remained relatively
stable at approximately 8 percent. Refrigerators, air conditioners,
washing machines, furniture, utensils, and other consumer appliances and
equipment are important markets in this sector.
6. Other Uses
Machinery and equipment comprise the major end-use market in
this category. Major applications are for special industrial machinery,
agricultural machinery, materials handling equipment, and irrigation
equipment.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
The world aluminum industry has experienced a major restructuring as
a result of the recent economic recession. Both large integrated and
small independent aluminum companies divested their unprofitable sectors
in 1981 and 1982. U.S. primary metal production was cut back during
1981 and 1982 to about 58 percent of annual capacity as a result of low
111-10
-------
demand, low prices, and high energy costs. By late 1982, six primary
plants, representing 791,000 short tons of capacity, remained idle.
Inventories in the hands of producers climbed to record levels.
Consequently, aluminum prices fell sharply from their historic averages.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
aluminum production will experience constant real incomes over the
lifetime of the compliance equipment. The income level used is based on
the average prices and capacity utilization rates for the period 1978-
1982. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the aluminum industry.
The aluminum price used for this analysis is based on U.S. producer
list prices. Historically, producer prices and market prices have been
generally the same. The two diverged somewhat in 1981 and 1982 due to
widespread price discounting. However, the Department of the Interior's
Bureau of Mines projects primary aluminum demand to increase at an
annual average rate of 4 percent from 1981 to 2000 (Mineral Commodity
Profiles, Bureau of Mines, 1983). Consequently, the disparity between
producer and market prices is not expected to persist. The aluminum
price for the analysis is $1,567.08 per ton (see Table III-6).
The capacity utilization rate is 87 percent (see Table III-7). For
both prices and capacity utilization rates, the values used in the
analysis show improvement over 1982. This is consistent with the
overall improvement in the industry predicted by the Bureau of Mines and
the Bureau of Industrial Economics (U.S. Industrial Outlook, U.S.
Department of Commerce, 1983).
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the primary aluminum
industry are described in the Development Document. The treatment
options considered for the industry are as follows:
Option B - This option includes recycle of casting contact
cooling water using cooling towers (where required),
preliminary treatment using cyanide precipitation on
certain streams, equalization, oil skimming, chemical
precipitation, and gravity settling.
Option C - This option includes Option B plus multimedia
filtration of the final effluent.
Option E - This option includes Option C plus activated carbon
adsorption on the final effluent when organics are
present. This option applies only to plants with
organic pollutants in their wastestreams.
III-ll
-------
TABLE III-6
U.S. ALUMINUM PRICES
Year
1978
1979
1980
1981
1982
Cents per Pound
Actual
54
61
72
76
76
1982 Dollars
71.10
77.32
83.^9
80.56
76.00
1982 Dollars per Ton
1,188.00
1,516.10
1,669.80
1,611.20
1,520.00
Average = 1 ,567.08
SOURCE: Mineral Commodity Profiles,
U.S. Department of the Interior,
Bureau of Mines, 1983.
111-12
-------
TABLE III-7
PRIMARY ALUMINUM PRODUCTION AND CAPACITY
(thousand short tons)
Year
1978
1979
1980
1981
1982
Production
4,804
5,023
5,130
4,948
3,609
Capacity
5,197
5,282
5,503
5,467
5,487
Average
Capacity
Utilization
92$
95%
93%
90%
651
= 87$
SOURCE: Mineral Commodity Profiles, U.S.
Department of the Interior, Bureau
of Mines, 1983.
111-13
-------
2. Costs for Existing Plants
The compliance cost estimates developed for each of the plants
in the aluminum industry, for each level of control, are presented in
Table III-8.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
For the screening assessment, the plant-specific compliance
costs for alternative control technologies are evaluated against
anticipated revenue. The annual compliance cost includes operating and
maintenance costs, and annualized capital costs. The estimated revenues
are based on the subcategory price and capacity utilization rate. If
the compliance cost represents more than 1 percent of anticipated
revenue, the plant is considered for further analysis. The results of
the screening assessment show that none of the affected primary aluminum
smelters exceed the threshold value of 1 percent. The largest ratio
calculated for the selected option was 0.31 percent. Since no plants
fail the screening analysis, no additional closure tests are applied.
These results suggest that the compliance costs will not have a
significant effect on any of the facilities.
2. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The effect of compliance costs on the financial performance
of the primary aluminum industry is evaluated in terms of the increase
in cost of production. Since plant-specific unit cost of production is
not known, an estimate of the increase in the cost of production is made
by assuming that revenues minus operating income equals cost of
production. The estimated increase in the cost of production is shown
in the following table.
Direct Dischargers
Increase in Cost of Production
Option B
0.12
Option C
0.13
Option E
0.17
111-14
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111-15
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As shown in the table, the maximum increase in the cost of
production is only 0.17 percent. These changes in the cost of
production are minimal and are not expected to significantly affect the
domestic industry structure.
b. Price Change
The price change is expressed as the total annual costs as a
percent of plant revenues. If the compliance costs are completely
passed through in the form of higher prices (an assumption not used in
the screening and closure analyses), this ratio represents the maximum
price increase attributable to compliance costs.
Direct Dischargers
Price Change
Option B
0.11
Option C
0.12
Option E
0.15
As shown in the table, the price effect ranges from 0.11
percent under Option A to 0.15 percent under Option C. These small
changes would not be expected to significantly affect the domestic
industry structure.
c. Change in Return on Investment
The primary aluminum industry is a highly capital-intensive
and energy-intensive industry. With both capital costs and energy costs
rising sharply, industry profitability is expected to decrease in the
near future. This decrease as a result of pollution control costs is
shown below.
Direct Dischargers
Change in Return on Investment
Option B
-1.89
Option C
-2.04
Option E
-2.62
As shown in the table, the overall profitability of the
industry, in terms of return on investment, is expected to decline by
2.62 percent under Option E, and by less under other options. Even at
Option E, the reduction in return on investment is not expected to
adversely affect the industry.
d. Capital Impacts
The incremental compliance capital costs for each of the
primary aluminum plants have been compared to the average annual capital
111-16
-------
expenditures of primary aluminum plants.
are presented in the following table.
The results of the assessment
Direct Dischargers
Investment Cost
as a % of Capital Expenditures
Option B
2.15
Option C
2.36
Option E
3.45
Investment costs are not a significant portion of average
capital expenditures. Investment costs amount to only 3-45 percent of
average expenditures for Option E.
e. Employment Impacts
No incremental effects on production or employment are
projected for this industry, and demand is expected to remain stable.
With unchanged demand, and negligible price increases even under the
assumption of full pass-through of costs, production and employment are
also expected to remain unchanged as a result of compliance costs.
f. Foreign Trade Impacts
The impact of regulatory costs on the balance of trade is
examined in the context of increases in imports. However, since the
changes in prices and production are not expected to be significant, it
is estimated that the industry growth rate will not be hampered. Hence,
with no general rise in imports, there should be essentially no change
in the balance of trade as a result of these regulations.
111-17
-------
CHAPTER IV
PRIMARY COPPER
-------
IV. PRIMARY COPPER
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary copper industry of alternative pollution control
technologies.
The technology used in copper production is discussed in
Section B. The structure of the domestic industry, including the size,
location, and ownership of the plants, is presented in Section C.
Copper demand and end use characteristics are discussed in Section D and
the current trends of the industry are discussed in Section E.
Estimates of price and capacity utilization to 1985 are given in
Section F. Section G presents the cost estimates for the alternative
control technologies, and Section H presents the results of the economic
impact analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise noted.
B. TECHNOLOGY
There are many types of copper ore but commercially recoverable
deposits are either sulfides or, less commonly, oxides. Occasionally,
copper is extracted from complex minerals containing other metals such
as lead or zinc.
The ores are concentrated by crushing or flotation. Copper salts
may be extracted by leaching, i.e., treating the ore with an acid that
will preferentially combine with the copper. The resulting copper-rich
solution can, in turn, be treated to extract the metal. Leaching is
particularly useful for refining low-grade ores or mine waste. Many
copper ores contain other useful nonferrous metals such as molybdenum,
cobalt, and selenium, and methods to extract these metals in refinable
form are incorporated in the copper refining process.
The ores may first be roasted, if the required desulfurization is
impossible in the smelting process. The smelter produces an impure form
of metal known as blister copper, which is cast into large flat
ingots. These are used as anodes for the electrolytic refining process,
which is carried out in the normal way using thin sheets of pure copper
as cathodes, onto which the copper is plated.
C. INDUSTRY STRUCTURE
1. Overview
The U.S. and the U.S.S.R. are the largest copper-producing
countries in the world, each accounting for between 13-18 percent of
total mine, smelter, and refined production. These two countries
IV-1
-------
together account for about 33 percent of total refined consumption
(Table IV-1). However, the U.S. remains a net importer of refined
copper a trend that began in the early 1970s (Table IV-2). The bulk
of imports made by the United States and the rest of the developed world
are supplied by members of the Intergovernmental Council of Copper
Exporting Countries (CIPEC).
2. Primary Copper Smelters and Refineries
In 1982, the U.S. primary copper smelting and refining industry
was comprised of 15 smelters and 21 refineries. A partial listing of
these plants and their approximate capacities is shown in Table IV-3.
Traditionally, the smelters have been situated near the mines in order
to minimize transportation charges for concentrates. Since the major
copper mines are centered in the West, most of the smelting capacity is
in that area. Most firms are integrated vertically, to different
degrees, from mining through refining. A few are also further
integrated, either directly or through subsidiaries, into fabrication.
3. Description of Plants
Four of the producers participate either directly or through
subsidiaries in all stages of production: Kennecott, Phelps Dodge,
Asarco, and Copper Range. Magma and Inspiration are integrated
vertically from mining through refining and produce semi-fabricated
shapes. Most of the major copper producers are also integrated
horizontally into other metals such as gold, silver, lead, zinc, and
aluminum.
The productive capacities of the different stages of production
for vertically integrated companies are not always evenly matched. The
most important comparison is between mine output of copper concentrate
and the smelter feed capacity for concentrate. If a company's mines
cannot produce sufficient concentrate feed for its smelters, the company
can either buy concentrate from non-integrated mining companies, or it
can process concentrates owned by others for a fee, or toll. The former
is referred to as a custom smelter, the latter as a toll smelter.
D. COPPER DEMAND
Demand for copper is a derived demand, since copper is used as an
intermediate input in the production of goods for consumption. The
largest sources of demand are wire and brass mills (see Table IV-4).
The major industrial markets are described below.
Wire mills, which use only refined copper, accounted for 7^.2
percent of refined copper consumption (52.2 percent of total
consumption) in 1982, The major products from these mills are
bare wire, and insulated wire for communications and other uses.
Brass mills, which consume refined copper and scrap in fairly
equal proportions, accounted for about 3*< percent of total
consumption in 1982. The major brass mill products are sheet,
IV~2
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IV-3
-------
TABLE IV-2
U.S. IMPORTS AND EXPORTS OF REFINED COPPER
(thousand metric tons)
Year
1972
1974
1975
1977
1978
1979
1980
1981
1982
Imports
160
284
130
351
403
204
427
331
258
Exports
166
115
156
47
92
74
14
24
31
Net Exports
(Imports)
6
(169)
26
(304)
(311)
(130)
(413)
(307)
(227)
SOURCE: Mineral Commodity Profiles, U.S.
Department of the Interior, Bureau
of Mines, 1983.
IV-4
-------
TABLE IV-3
PRIMARY COPPER INDUSTRY PLANTS AND LOCATIONS
Company
Asarco Incorporated
Tennessee Chemical Company
Inspiration Consolidated
Copper Company
Magma Copper Company
San Manuel Division
Kennecott Corporation
Nevada Mines Division
Chino Mines Division
Ray Mines Division
Utah Copper Division
Phelps Dodge Corporation
Douglas Smelter
Morenci Branch
New Cornelia Branch
Tyrone Branch
Copper Range Company3
White Pine Copper Division
Total
Copper Smelters
End of 1982
Short Tons of Feed Capacity
Location of
Smelter
El Paso, TX
Hayden, AZ
Tacoma, WA
Copperhill, TN
Inspiration, AZ
San Manuel, AR
McGill, NV
Hurley, NM
Hayden, AZ
Carfleld, UT
Douglas, AZ
Morenci, AZ
AJo, AZ
Playas, NM
White Pine, MI
Annual
Capacity
576,000
960,000
600,000
18,000
150,000
800,000
255,000
300,000
360,000
820,000
700,000
900,000
250,000
610,000
20,000
7,869,000
Copper Refineries
End of 1982
Short Tons
Location of Refinery
Amarillo, TX
Inspiration, AZ
San Manuel, AR
Garfield, UT
Anne Arundel County, MD
Hurley, NM
El Paso, TX
Laurel Hill, L.I., NY
White Pine, MI
Total
Type
Electrolytic
Electrolytic
Electrolytic
Electrolytic
Electrolytic
Fire
Electrolytic/
Fire
Electrolytic/
Fire
Electrolytic
Annual
Capacity
120,000
70,000
215,000
213,000
276,000
103,000
120, OOO/
25,000
72.000/
20,000
60,000
1 ,891,000
SOURCE: Non-Ferrous Metal Data 1982. American Bureau of Metal Statistics, Inc., 1982.
aTons of product.
IV-5
-------
TABLE IV-4
CONSUMPTION OF COPPER PRODUCTS BY INDUSTRY, 1982a
(thousand of short tons of copper content)
Wire Mills
Brass Millsb
Foundries*3
Powder Millsb
Ingot Makers
Otherb'c
Total
Refined
Copperb
1,356.4
433.3
15.1
6.5
4.4
12.7
1,828.4
Scrap
447.5
72.1
10.1
173.2
66.1
769.0
Total
1,356.4
880.8
87.2
16.6
177.6
78.8
2,597.4
Percent
Breakdown
52.2$
33.9
3.4
0.6
6.9
3.0
100.0$
SOURCE: Copper Development Association, Copper Supply
and Consumption Annual Data.
Preliminary.
Direct consumption only: not including consumption of
copper in ingots from ingot makers.
cChemical, steel, aluminum, and other industries.
rv-6
-------
strip and plate, rod, bar and mechanical wire, plumbing tube and
pipe, and commercial tube and pipe.
Ingot makers, who use almost entirely scrap, were the third
largest consumers of copper at 6.9 percent in 1982. These
intermediate processors sell to brass mills, foundries, powder
plants, and other industries.
Foundries accounted for 3-1 percent of refined copper
consumption in 1982. The major foundry products are sand
castings, die castings, and permanent mold castings.
Powder plants accounted for less than 1.0 percent of refined
copper consumption in 1982.
The electrical and electronics industry group has grown to be the
principal consumer of copper, accounting for almost 60 percent of all
copper consumption in 1982 (Table IV-5). Aluminum has been competing
with copper in electrical uses since the 1950s, and in 1982 the two
metals had roughly equal shares of the annual market when measured on a
conductance basis.
Building construction continues to be a significant consumer of
copper for electrical wiring and pipe, accounting for approximately 30
percent of U.S. annual copper consumption. The use of plastics in
drainage plumbing has posed a potential threat to copper in this sector.
Transportation accounted for about 7 percent of total consumption
between 1972-1982. The automotive industry is the biggest consumer of
copper in this sector. Both the building construction and
transportation industries were particularly affected by the recession
and the high interest rates that accompanied it, which effectively
reduced production levels in copper smelters and refiners.
The other principal copper-using industries industrial machinery
and equipment, ordnance, and coinage, together accounted for about 17
percent of total consumption in 1982. Substitution of plastics and
tainless steel in machine parts, and substitution of aluminum in
commercial air conditioning and refrigeration units, has somewhat
reduced the demand for copper in this sector. The requirements for
ordnance fluctuate widely, depending on the degree of military
mobilization. Copper consumption in coinage dropped by nearly 10,000
tons when copper pennies were replaced by copper-plated zinc pennies.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
Copper is traded on both the London Metal Exchange (LME) and the
COMEX exchange in New York, and almost all of the world's trade in the
metal is based on the price traded on one or the other of these
markets. U.S. producers now follow Comex pricing, even though most of
them are highly vertically integrated. Comex and LME prices are used as
a basis for the sale of copper in all stages of its treatment, including
ores, concentrates, blister copper, cathodes, wire bars, semi-fabricated
IV-7
-------
TABLE IV-5
U.S. DEMAND BY END USE
(thousand metric tons)
End Use
Electrical
Construction
Machinery
Transportation
Ordnance
Other
Total Demand
Total U.S. Primary Demand
(industrial demand less
old scrap)
1978
1,284
472
273
198
24
118
2,369
1,868
1979
1,318
487
292
195
18
122
2,432
1,828
1980
1,194
423
271
152
27
__ 1°1
2,176
1,562
1981
1,223
449
293
174
25a
_M4
2,278
1,680
1982
1,039
322
187
100
25a
88
1,761
1,243
SOURCE: Mineral Commodity Profiles, U.S. Department of the
Interior, Bureau of Mines, 1983.
Estimated.
IV-8
-------
products, and scrap. Several countries rely heavily on copper as a
source of foreign exchange, and they are reluctant to cut production
(and, in fact, tend to increase output), as prices fall, in an effort to
stem the erosion of needed currency. This was the situation for most of
1982, and the result was a worsening of the world oversupply.
The domestic copper industry suffered a setback during 1982 as
demand, production, prices, and profitability all declined. By July
1983, U.S. copper mines were operating at about 60 percent of capacity,
having operated at less than 50 percent of capacity in the late summer
of 1982. Thirteen of the 25 largest mines and four of the 15 primary
domestic copper smelters were closed. U.S. mine r.eduction has not
attained a rate consistently above 80 percent of capacity since 197**.
The industry appeared to begin a recovery in 1983.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the production of copper will experience constant real incomes over the
lifetime of the compliance equipment. The income level used is based on
the average prices and capacity utilization rates for the 1978-1982
period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the copper industry.
The copper price used for this analysis is based on U.S. producer
list prices. As discussed in the previous section, U.S. producer prices
have historically been close to LME prices. Both copper smelters and
refiners are included in this analysis. The product prices used
correspond to the specific production activity (i.e., smelting or
refining). The price of refined copper for the analysis is $1,972.^0
per ton (see Table IV-6). The price for smelted copper is computed on
the basis of the ratio of smelting capacity to refining capacity. It is
assumed that refiners contribute 10 percent to the value of the
product. Therefore, the approximate computed price for smelted copper
is $1,972.40 x 0.26 x 0.9 = $U6l.5U. Data on the ratio of smelting to
refining capacity and the value added at smelters were obtained from the
Department of Commerce's Bureau of Census (1977 Census of Manufactures).
The capacity utilization rate is 66 percent (see Table IV-7). For
both prices and utilization rates, the values used in the analysis show
improvement over 1982. This is consistent with publicly available
information from the Department of the Interior's Bureau of Mines (BOM)
which shows an overall improvement in the primary copper industry.
Specifically, the BOM projects primary copper demand to increase at an
annual average rate of 1 percent from 1981 to 2000 (Mineral Commodity
Profiles, Bureau of Mines, 1983).
IV-9
-------
TABLE IV-6
AVERAGE ANNUAL U.S. PRODUCER COPPER PRICE
Year
1978
1979
1980
1981
1982
Cents Per Pound
Actual
66.5
93.3
102.4
85.1
74.3
1982 Dollars
91.6
118.3
118.7
90.2
7^.3
1982 Dollars per Ton
1,832.00
2,366.00
2,374.00
1,804.00
1,486.00
Average = 1 ,972.40
SOURCE: Mineral Commodity Profiles, U.S. Department of the
Interior, Bureau of Mines, 1983.
IV-10
-------
TABLE IV-7
CAPACITY UTILIZATION RATES FOR U.S. SMELTERS AND REFINERIES
Smelting
Production (000
metric tons)
Capacity (000
metric tons)
Capacity
Utilization
Rate (percent)
Refining
Production (000
metric tons)
Capacity (000
metric tons)
Capacity
Utilization
Rate (Percent)
Combined
Production (000
metric tons)
Capacity (000
metric tons)
Capacity
Utilization
Rate (percent)
1978 1979 1980
1,228 1,336 1,008
1,870 1,870 1,690
66* 71* 60?
Average = 67%
1,246 1,311 1,013
2,080 1,9*10 1,710
60% 68% 59$
Average = 66%
2,474 2,647 2,021
3,950 3,810 3,400
63$ 69$ 59$
Average = 66$
1981 1982
1,317 976
1,690 1,690
78$ 58$
1,320 1,054
1,710 1,568
77$ 67$
2,637 2,030
3,400 3,258
78$ 62$
SOURCE: Mineral Commodity Profiles, U.S. Department of the
Interior, Bureau of Mines, 1983.
IV-11
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the primary copper
industry are described in the Development Document. The treatment
options considered for this industry are as follows:
Option B - This option includes flow reduction plus chemical
precipitation and sedimentation.
Option C - This option includes Option B plus multimedia
filtration of the final effluent. One plant also
includes preliminary treatment with sulfide
precipitation and a filter press.
2. Costs for Existing Plants
Three plants are expected to incur costs to comply with this
regulation. They include both smelters and refineries. Table IV-8
presents the investment and total annual costs for each treatment
option. All of these primary copper plants are direct dischargers.
Some copper producers covered by this regulation have acid
manufacturing plants located at the same site as the smelter or
refinery. Both processes are subject to effluent guideline limitations
in this regulation. Therefore, costs have been estimated for the acid
plant and for the smelter/refinery. The two facilities are treated as a
single financial entity for purposes of this impact analysis.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
The plant-specific compliance costs presented in Table IV-8 for
existing sources are used to assess the probability of plant closures
using the methodology presented in Chapter II. Total annual compliance
costs as a percent of plant annual revenues is the screen used to
identify plants that are likely to face difficulties in complying with
pollution control requirements. The threshold value for this screen is
1 percent. If total annual compliance costs for a plant represent less
than 1 percent of revenues, the plant is not expected to incur
significant problems with its compliance costs and is not analyzed
further.
The results of the screening assessment showed that only one
plant had total annual compliance costs in excess of 1 percent of
revenues, for both treatment options.
IV-12
-------
TABLE IV-8
PRIMARY COPPER COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
214
215
7001
Total
Investment Costs
Option B
501 ,737
117,287
197,5*16
816,570
Option C
1,379,812
146,437
237,008
1,763,257
Total Annual Costs
Option B
298,346
51,613
96,317
446,276
Option C
519,365
62,981
114,077
696,422
SOURCE: U.S. Environmental Protection Agency.
Detail may not add to totals due to rounding.
IV-13
-------
2. Plant Closure Analysis
This plant is further analyzed by using the liquidity test and
the net present value (NPV) test. The liquidity test judges the short-
run viability of the firm. If the pollution control expenditures cause
a negative cash flow over a short period (five years), the plant does
not have adequate cash reserves to meet short-term contingencies.
For the NPV test, if net income as a percent of the liquidation
value of the assets (as defined in Chapter II) is less than the real
cost of capital for the industry (10.14 percent), the plant will
probably not continue in operation.
The results of the NPV test for the plant failing the screen
show that at each option level the ratio of net income to plant
liquidation value exceeded the threshold of 10.14 percent. The
liquidity test showed that cash flows are expected to be positive for
the short term (five years), totaling nearly $0.3 million at each
option.
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The financial impact of the regulatory alternatives on the
primary copper industry is evaluated in terms of the increase to cost of
production. This impact is measured by calculating the ratio of total
annual compliance costs to total production cost. This ratio represents
the percentage increase in operating costs due to the compliance
expenditures. This ratio is presented below.
Direct Dischargers
Increase in Cost of Production
Option B
0.08
Option C
0.12
As shown above, the increase in cost of production is not of
sufficient magnitude to result in structural changes in the domestic
primary copper industry.
IV-I4
-------
b. Price Change
The ratio of total annual compliance cost to annual plant
revenue is used to assess the maximum increase in price under the
assumption of full pass-through of incremental compliance costs. The
industry average for this ratio is presented below. It should be noted
that in performing the screening and closure analyses, zero cost pass-
through is assumed.
Direct Dischargers
Price Change
Option B
0.07
Option C
0.11
If all incremental costs are passed on to consumers, prices
would rise by slightly more than one-tenth of 1 percent under either
option. These results are very small and indicate the potential price
impact is not significant for this subcategory.
c. Change in Return on Investment
Additional environmental costs adversely affect
profitability by reducing profit margins and consuming investment
capital. Computed on an industry-wide basis, changes in return on
investment are presented below.
Direct Dischargers
Change in Return on Investment
Option B
-1.11
Option C
-1.81
As a result of compliance costs, return on investment for
the primary copper industry could decline by 1.11 percent under Option B
and 1.8U percent under Option C. This represents minimal impacts on the
structure of the domestic industry.
d. Capital Impacts
On an industry-wide basis, investment compliance costs
represent 1.0? percent and 2.31 percent of expected average industry
IV-15
-------
capital expenditures under Options B and C, respectively.
are presented below.
These results
Direct Dischargers
Investment Cost
as a % of Capital Expenditures
Option B
1.07
Option C
2.31
Investment costs are shown to be a small portion of the
average capital expenditures.
e. Employment Impacts
Because there are no projected closures, no adverse
employment impacts are anticipated. Small production decreases, if any,
caused by the higher cost of production, will not result in capacity
shutdowns. Thus, employment will remain essentially unchanged by this
regulation.
f. Foreign Trade Impacts
Despite the highly competitive nature of the world market
for copper products, very small increases in production costs, which
were discussed above, are not expected to materially reduce competition
or affect the balance of trade.
IV-16
-------
CHAPTER V
PRIMARY LEAD
-------
V. PRIMARY LEAD
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary lead industry of the cost of alternative pollution
control technologies.
The technology used in lead production is discussed in Section B.
The structure of the domestic industry, including the size, location,
and ownership of the plants is presented in Section C. Lead demand
characteristics and end-use markets are discussed in Section D. The
current trends of the industry are discussed in Section E. Section F
describes price and capacity utilization estimates. Section G presents
the cost estimates for the alternative control technologies, and Section
H presents the economic impact analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise noted.
B. TECHNOLOGY
Lead is found in several minerals, but is found most commonly in
galena (lead sulfide). Commercially viable lead ores may also be
associated with certain zinc-bearing minerals. Since galena is the most
common of the lead minerals, and sphalerite (zinc sulfide) is the most
common of the zinc minerals, the two are often separated through
selective flotation of sulfides during the milling stage. Typical
analysis of a lead concentrate produced from the flotation process
yields 55-70 percent lead, 6.5 percent zinc, 0.5-4 percent copper, 13-
18.5 percent sulfur, 5 percent iron, and minor amounts of silica, lime,
cadmium, silver, gold, arsenic, and other metals, depending on the
source.
The concentrate is first roasted in air to remove sulfur, then
smelted in a blast furnace or open hearth furnace with coke to reduce
lead oxide to lead bullion with a purity of about 97-98 percent. At the
same time, other volatile impurities are driven off in the form of gas
and fume. The impurities are combined in a slag which yields additional
byproduct zinc in the form of zinc oxide. The lead in the slag is
returned to the furnace.
Copper is removed from lead bullion in a dressing operation whereby
the bullion is heated to just above its melting point and copper dross
is skimmed from the surface. The bullion is then "softened," usually
through a reverberatory process. This process involves the removal of
arsenic, antimony, and tin, the elements that increase the hardness of
pure lead. The temperature of the lead bullion is raised and the bath
is agitated to induce surface oxidation. Tin, arsenic, and antimony
oxides rise to the surface with some lead oxide and are skimmed off as
slag.
V-l
-------
After softening, the lead bullion goes to the desilverizatlon
kettles. Zinc is added and forms oxide crusts (Parkes crusts),
containing lead, zinc, gold and silver. The Parkes crusts are treated
in the reverberatory furnace. Lead and other base metals are oxidized
and slagged off, leaving silver. If gold is present, the bullion is
cast into thin anodes for electrolytic parting.
The zinc remaining in the lead after desilverizing is removed by
vacuum distillation. Any remaining bismuth is removed by adding an
alloy. Remaining traces of zinc, arsenic, and antimony are removed in a
final refining kettle by the Harris process and the lead is cast as
refined bullion. The refined lead product contains more than 99.9
percent lead.
C. INDUSTRY STRUCTURE
1. Overview
The United States is one of the leading producers of primary
lead. Table V-1 presents the U.S. lead industry in world perspective.
The United States and the U.S.S.R., the world's principal mining
countries, account for about one-third of world output, each producing
about 0.6 million tons per year. Australia contributes for about 12
percent of world mine production. Canada, Peru, Mexico, and China are
other important producers. Some Western European industrial countries,
such as Belgium, the United Kingdom, and France do not have sufficient
reserves to support a mining industry which could supply adequate feed
to their lead smelters, and hence depend on imported concentrates. The
relative importance of the various lead mining countries has changed in
recent years, with the top ten accounting for about three-quarters of
world output and the top four for about half.
Production of refined lead from ores is concentrated in those
countries which have traditionally been large consumers of lead. About
59 countries report production of refined lead, but nine of them account
for over 60 percent of world production. The United States, U.S.S.R.,
and Germany are the three largest producers of refined metal, together
accounting for an estimated MO percent of total world production.
Germany and some other countries such as the United Kingdom and Japan
refine imported ores and bullion; Mexico, Canada, and Australia refine a
portion of their domestic ore production.
As shown in Table V-2, exports of primary lead materials have
fluctuated considerably over the years. Low domestic consumption forced
exports upwards from an average of about 8,000 metric tons between 1976-
1979 to about 16*1,000 metric tons in 1980. However, the 1981 worldwide
recession effected an 86 percent decline in exports. In 1982, exports
rebounded by more than twice the 1981 total of 23,000 tons, to 55,000
tons.
V-2
-------
TABLE V-1
WORLD LEAD INDUSTRY
1982
Country
United States
Australia
U.S.S.R.
Other
Total
Production
Mine
(Thousand
Short Tons)
598.6
503.9
628.3
2,245.9
3,976.7
%
World
15.05
12.67
15.80
56.47
100
Refined
(Thousand
Short Tons)
1,098.0
272.4
881.8
3,443.4
5,695.9
%
World
19.27
4.78
15.481
60.45
100
Refined
Consumption
Thousand
Short Tons
1,168.4
103.6
881.8
3,502.0
5,655.8
%
World
20.65
1.83
15.58
61.92
100
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
V-3
-------
TABLE V-2
U.S. IMPORTS AND EXPORTS OF PRIMARY LEAD
(thousand metric tons)
Year
1971
1972
1975
1978
1979
1980
1981
1982
Imports
175
223
90
225
183
81
100
90
Exports
5
8
19
8
11
l6iJ
23
55
Net Exports
(Imports)
(170)
(215)
(71)
(217)
(172)
83
(77)
(35)
SOURCE: Mineral Commodity Profiles, U.S. Department
of the Interior, Bureau of Mines, 1983, and
American Bureau of Metal Statistics, 1982.
V-4
-------
2. Primary Smelting and Refining Plants
Primary smelters use both domestic and imported concentrates as
raw material. Some scrap is also consumed by primaries but only in very
small amounts. Primaries produce soft (refined) lead, the bulk of which
is used in batteries or gasoline (as tetraethyl lead (TEL)). The
primaries also produce small amounts of hard (antimonial) lead.
Lead smelters tend to be located near mines and can be
differentiated as either Missouri or non-Missouri smelters. Missouri
lead ores contain small amounts of byproduct zinc, coproduct copper,
silver, nickel, and cobalt. Smelters treating Missouri ores have been
constructed to handle only low levels of these impurities and,
consequently, cannot utilize western ores with their much higher
impurity levels. Non-Missouri smelters have much more extensive
refining facilities and handle the higher byproduct levels found in more
complex western and imported ores.
3. Description of Plants
Table V-3 lists the three primary lead producers in the U.S. These
companies operate five smelters and four refineries. They are large,
integrated, multiplant companies producing a variety of nonferrous
metals and other products. They are generally not integrated into
fabrication, although there are some specific exceptions.
Asarco, Inc. operates lead smelters at El Paso, Texas, East
Helena, Montana, and Glover, Missouri, and a lead refinery in Omaha,
Nebraska, which refines the lead bullion from El Paso and East Helena.
Asarco is extensively integrated horizontally with various plants and
divisions smelting and refining a large number of metals including lead,
zinc, copper, a variety of precious metals, and high-purity metals.
Asarco is integrated back to the mine level but acquires most of its
concentrate on a custom or toll basis. In 1976, only 6 percent of the
lead produced by Asarco was from its own mines. Asarco's Federated
Metals Corporation also produces lead and other metals and alloys from
secondary materials. Asarco also operates some fabrication
facilities. In metal processing, Asarco is an almost completely self-
contained operation. Lead residues from copper smelters are processed
at either El Paso or East Helena. The El Paso and Hayden (Arizona)
copper smelters send lead-bearing residues to the El Paso lead smelter,
while lead-bearing materials from the Tacoma copper smelter are sent to
East Helena. Glover's production is principally on a custom basis from
Missouri producers, because it is designed to handle the higher purity
concentrates found in the Missouri New Lead Belt.
The smelter at Buick, Missouri, is a joint venture of Amax, Inc.
and Homestake Mining Company. Half of the capacity at Buick is
committed on a tolling contract to an outside source of concentrates.
The remainder is used to treat concentrate from the Amax-Homestake mine.
St. Joe Minerals is also an integrated producer. It operates a
lead smelter in Herculaneura, Missouri, which is almost totally self-
V-5
-------
TABLE V-3
LEAD SMELTERS/REFINERS 1982
Company
Asarco, Inc.
Amax-Homestake
St. Joe Lead Co.
Location
Omaha, NE
East Helena, MT
El Paso, TX
Glover, MO
Buick, MO
Herculaneum, MO
Facility
Refinery
Smelter
Smelter
Smelter/Re fineryc
Smelter/Refinery0
Smelter/Refinery0
Annual Capacity
(Thousand
Short Tons)
1803
420b
M20b
110a
1403
225a
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
aRefined lead capacity.
Charge capacity.
°Limited to the refining of Missouri concentrates,
V-6
-------
sufficient on company production of lead concentrate from its Missouri
lead mines. St. Joe occasionally does some custom smelting, and is
forward integrated into rolling.
D. LEAD DEMAND
Lead consumption by end use is presented in Table V-4.
1. Batteries
Batteries are lead's largest single demand sector, accounting
for about 65 percent of all lead consumed in 1982. Most of the lead
used for batteries is in small starting, lighting, and ignition (SLI)
batteries. The development of low antimony (less than 1 percent Sb) and
antimony-free or "maintenance-free" (MF) batteries has resulted in a
substantial increase in the demand for soft lead. Lead consumption in
batteries in 1982 fell 12 percent from the 1981 level, and 23 percent
from the 1978 level. The fall was due to the substantial decline in new
car sales and the fact that less lead is used in new batteries.
2. Chemicals
The chemicals industry is the second largest demand sector for
lead. In 1982, this sector accounted for about 11 percent of total lead
consumption. Tetraethyl lead (TEL) and, to a lesser extent, tetramethyl
lead (TML) are used as anti-knock additives in gasoline production.
Current regulations allow gasoline producers to add 0.5 grams of lead
per gallon for both leaded and unleaded gasoline combined. While this
was intended to reduce the use of lead as a gasoline additive, lead use
in TEL rose 7 percent from 1981 to 1982. This surprising result was due
to a significant increase in unleaded gasoline production, which allowed
producers to add more lead to their leaded product. However, EPA's
proposed lead-in-gasoline regulations would limit the use of lead to 1.1
grams per gallon of leaded gasoline, and thus prevent gasoline producers
from adding more lead to leaded gasoline as their product mix changes to
the production of more unleaded gasoline.
3. Pigments
Lead use in pigments, primarily in the form of litharge and red
lead, declined about 20 percent to 70,000 short tons, reflecting
depressed demand from the construction sector. Pigments accounted for 6
percent of lead consumption in 1982.
4. Ammunition
Ammunition accounted for M percent of lead consumption in
1982. Ammunition consumption as a percentage of total lead consumption
remained steady between 1978-1982. However, in absolute terms, the use
of lead for this purpose is on the decline. Lead alloy with 2-6 percent
antimony and up to 1 percent arsenic is used in bullet cores and shot.
Lead chemicals in the form of lead azide are also used in the
manufacture of ordnance materials.
V-7
-------
TABLE V-4
LEAD CONSUMPTION IN THE UNITED STATES BY END-USE MARKETS
(thousand short tons)
Metal Products
Ammunition (shots and bullets)
Batteries
Other metal products^
Pigments
Chemicals-Petroleum Refining
Miscellaneous uses
Total
1978
61
969
208
101
197
43
1,579
1979
59
898
203
100
206
32
1,198
1980
54
711
168
86
111
20
1,180
1981
55
849
148
88
123
24
1,287
1982
47
743
130
70
131
24
1,145
SOURCE : Non-Ferrous Metals Data 1982 ,
American Bureau of Metal Statistics, Inc.
metal products include bearing metals, cables, building
construction, casting metals, pipes, traps, sheet lead, solder lead,
and term lead.
V-8
-------
5. Other Metal Products
The use of lead in this category declined about 12 percent from
the 1981 level of 148,000 short tons, owing not only to the slump in the
construction sector but also to increased substitution by plastics,
aluminum, tin, and iron in building construction, electrical cable
covering, and cans and other containers.
6. Miscellaneous
Miscellaneous uses accounted for about 2 percent of total lead
consumption between 1978-1982.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
The United States relies on three main sources of lead supply:
primary production, secondary recovery, and imports. Annual production
of primary lead has been relatively stable in the range of 500,000-
600,000 metric tons. Development of Missouri's New Lead Belt has
reduced U.S. reliance on foreign lead ores and concentrates. Over 95
percent of all domestic primary lead now comes from low-cost, high-yield
Missouri mines that are owned and operated by highly integrated
producers. This production has resulted in a relatively constant
capacity in the primary lead sector.
The annual U.S. producer price for lead reached a high of 52.7 cents
per pound in 1979, the most recent high demand year. Low 1982 prices,
25.5 cents per pound, were attributed to generally poor overall economic
conditions. The U.S. producer price is usually 2.5-3 cents per pound
higher than the London Metal Exchange (LME) settlement price, which
equates the cost of ocean freight, import duties, and dock charges, to
be competitive in the U.S. market.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed for purposes of this analysis, that plants engaged in
the production of lead will experience constant real incomes over the
lifetime of the compliance equipment. The income level used is based on
the average prices and capacity utilization rates for the 1978-1982
period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the lead industry.
As discussed in the previous section, U.S. producer prices have
historically been close to LME prices. Both lead smelters and refiners
are included in this analysis. The product prices used correspond to
the specific production activity (i.e., smelting or refining). The
price of refined lead used for this analysis, $906.32 per ton (see Table
V-5), is based on U.S. producer list prices. The price at which
smelters sell lead to refiners is not quoted in the market. Hence, the
price for smelted lead is computed on the basis of the ratio of the
smelting capacity to refined capacity. It is also assumed that refiners
contribute 10 percent to the value of the product. The average price of
V-9
-------
TABLE V-5
AVERAGE ANNUAL U.S. PRODUCER PRICE OF LEAD
Year
1978
1979
1980
1981
1982
Cents
Actual
33.7
52.7
42.4
36.5
25.5
per Pound
1982 Dollars
46.43
66.79
49.17
38.69
25.50
1982 Dollars per Ton
928.60
1,335.80
983.40
773.80
5 1 0 . 00
Average price = $906.32
SOURCE: Mineral Commodity Profiles,
U.S. Department of the Interior,
Bureau of Mines, 1983.
V-10
-------
refined lead for the 1978-1982 period is, therefore, $906.32 x 0.21 x
0.9 = $171.29 per ton. Data on the ratio of smelting to refining
capacity and the value added at smelters were obtained from the
Department of Commerce's Bureau of Census (1977 Census of Manufactures).
The capacity utilization rate is 76 percent (see Table V-6). For
both prices and utilization rates, the values used in the analysis show
improvement over 1982. This is consistent with publicly available
information from the Department of the Interior's Bureau of Mines (BOM),
which shows an overall improvement in the primary lead industry.
Specifically, the BOM projects primary lead demand to increase at an
annual average rate of 2 percent from 1981 to 2000. (Mineral Commodity
Profiles, Bureau of Mines, 1983).
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the primary lead industry
are described in the Development Document. The treatment options
considered for this industry are as follows:
t Option A - This option includes equalization, chemical
precipitation, and gravity settling.
Option B - This option includes Option A plus flow reduction of
all scrubber wastestreams via a holding tank and
recycle system before lime and settle.
Option C - This option includes Option B plus sulfide precipita-
tion, gravity sedimentation, and multimedia filtra-
tion of the final effluent.
2. Costs for Existing Plants
The compliance costs for three levels of treatment are analyzed
for this industry. The compliance cost estimates developed for each of
the plants for each level of control are presented in Table V-7. Some
lead producers covered by this regulation have acid manufacturing plants
located at the same site as the smelter or refinery. Both processes are
subject to effluent guideline limitations included in this regulation.
Costs have been estimated for both the acid plant and the smelter/
refinery and the combined costs are applied to a facility with both
activities. For purposes of this impact analysis, the two processes at
one location are treated as a single financial entity.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
The plant-specific compliance costs for the alternative control
technologies for each plant are evaluated against anticipated revenue.
The total annual compliance cost (consisting of operating and
V-ll
-------
TABLE V-6
PRIMARY LEAD INDUSTRY - CAPACITY UTILIZATION
Year
1978
1979
1980
1981
1982
Refined Metal Production
(thousand metric tons)
568.1
578.2
548.4
498.3
516.8
Average
Capacity
(thousand
metric tons)
714
714
714
714
714
Capacity
Utilization
(?)
80
81
77
70
72
capacity utilization = 76?
SOURCE: Mineral Commodity Profiles and Mineral Industry
Survey, U.S. Department of the Interior, Bureau
of Mines, 1983.
V-12
-------
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maintenance costs, and annualized capital costs), is evaluated against
an estimate of plant revenues, which is based on the subcategory price
and capacity utilization rate. If the compliance cost represents more
than 1 percent of anticipated revenue, the plant is considered for
further analysis.
The results of the screening assessment show that no plant had
total annual pollution control costs exceeding 1 percent of anticipated
revenues. Even under the most costly alternative for all dischargers,
the maximum pollution control cost is only about 0.1 percent of
anticipated total annual revenues. Since no lead plants violated the
screening analysis, there are no expected plant closures in this
industry due to this regulation. These results support a conclusion
that the compliance costs are not significant for this subcategory.
2. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The effect of compliance with the regulatory alternatives on
the financial performance of the primary lead industry is evaluated in
terms of the increase in cost of production. The primary lead industry
is expected to incur relatively low annual and investment costs;
therefore, the cost of production does not increase to a significant
extent. As shown in the table below, the increase in cost of production
varies from 0.01 percent under Option A to 0.06 percent under Option C
for direct dischargers. For indirect dischargers, the increase in the
cost of production is less than 0.01 percent.
Direct Dischargers
Indirect Dischargers3
Increase in Cost of Production
Option A
0.01
Option B
0.02
Option C
0.06
Less than 0.01 percent.
V-14
-------
b. Price Change
The results of the screening assessment (total annual
compliance costs as a percentage of total revenue) presented above have
been used to assess the maximum increase in price under the assumption
of full pass-through of incremental costs. Therefore, if all
incremental costs were passed on to consumers, the maximum price
increase will be approximately 0.05 percent. The following table shows
the maximum price increase under each option. It should be noted that
in performing the screening and closure analysis, zero cost pass-through
is assumed.
Direct Dischargers
Indirect Dischargers3
Price Change
Option A
0.01
Option B
0.02
Option C
0.05
Less than 0.01 percent.
The price increase for the direct dischargers would range
from 0.01 percent under Option A to 0.05 percent under Option C. For
the indirect dischargers, the price increase associated with compliance
costs would be less than 0.01 percent. These increases are small and
would not constitute a significant impact on the domestic industry.
c. Change in Return on Investment
As a result of the increased capital requirements for
pollution control, the overall profitability of the primary lead
industry, in terms of operating margin on investment, is estimated to
decrease by less than 1 percent even at the most costly option.
The following table shows the change in the return on
investment (ROI) for the primary lead industry.
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option A
-0.23
-0.10
Option B
-O.UO
-0.10
Option C
-0.95
-0.10
These changes in ROI are very small and do not indicate a
significant effect on profitability for these facilities.
V-15
-------
d. Capital Impacts
The additional capital investment for compliance with the
regulatory options for each of the primary lead plants is shown below.
These costs have been compared to the average investment expenditures of
lead plants.
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditures
Option A
0.39
0.29
Option B
0.65
0.29
Option C
1.42
0.29
The table shows that incremental cost is no more than 1.^2
percent of capital expenditures, even under the most costly option. The
impacts on capital expenditures, therefore, are not expected to be
significant.
e. Employment Impacts
Employment effects of the regulatory costs are examined in
the context of plant closures. Since no plant closures have been
identified in the primary lead industry, it is estimated employment will
experience no adverse effects as a result of this regulation. Small
production decreases, if any, caused by the regulatory-induced higher
cost of production, will not result in capacity shutdowns. Thus, with
minimal changes in prices or production, employment will remain
essentially unchanged.
f. Foreign Trade Impacts
The economic impact of the compliance costs on the balance
of payments is studied in relation to domestic price and production. As
shown above, no significant increase in price has been estimated.
Similarly, it is assumed that domestic production will not be hampered
by the regulatory costs. With negligible changes in price and
production, there will not be any general increase in imports. Thus,
the balance of trade will not be affected by the regulations.
V-16
-------
CHAPTER VI
PRIMARY ZINC
-------
VI. PRIMARY ZINC
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary zinc industry of the cost of alternative pollution
control technologies.
The technology used in zinc production is discussed in Section B.
The structure of the domestic industry, including the size, location and
ownership of the plants, is presented in Section C. Zinc demand
characteristics and major end-use markets are discussed in Section D,
and the current trends of the industry are discussed in Section E.
Estimates of prices and capacity utilization are presented in
Section F. Section G presents the cost estimates for the alternative
control technologies and relates the control technologies to three
regulatory options. Section H presents the results of the economic
impact analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise indicated.
B. TECHNOLOGY
Zinc ore occurs in nature most abundantly as a sulfide. The
deposits usually contain some lead associated with lesser quantities of
iron and copper sulfides. The sulfides are separated from the waste
and, to a certain extent, from each other by differential flotation. A
typical zinc concentrate prepared for smelting may contain 52-60 percent
zinc, 30-33 percent sulfur, and JJ-11 percent iron. There is also a
small amount of lead and minor quantities of cadmium, copper, and other
metals.
The concentrate is first roasted to oxidize the sulfur-bearing zinc
minerals. The roasting typically converts more than 90 percent of the
sulfur to sulfur dioxide, which can then be used to dissolve the zinc
contained in the ore to produce zinc sulfate. The reduction of the
roasted concentrate may be accomplished in two ways: by electrolytic
deposition from a sulfate solution; and by distillation in retorts or
furnaces.
At electrolytic plants, the roasted zinc concentrate is leached with
dilute sulfuric acid to form a zinc sulfate solution. The solution is
then purified and piped to electrolytic cells, where the zinc is
electrodeposited on aluminum cathodes. The cathodes are lifted from the
tanks at intervals and stripped of the zinc. At a pyrometallurgical
smelter, the roasted concentrate is mixed with coke and heated to reduce
the zinc oxide to zinc metal. During the hot smelting of the coke-
concentrate mixture in furnaces called retorts, the zinc metal vaporizes
and is collected in cooled condensers. In both methods, the refined
metal is cast into slabs.
VI-l
-------
C. INDUSTRY STRUCTURE
1. Overview
The United States was the principal world mine producer of zinc
until the mid-1960s when Canada became the world's leading zinc
producer. Domestic mine production declined almost continuously from
1971 to 1982.
U.S. imports and exports are listed in Table VI-1. As shown in
the table, the United States has been historically dependent upon
imports of concentrates for a substantial portion of smelter feed.
However, the need for foreign concentrates has declined significantly
because of the substantial reduction in smelting capacity. This has
resulted in an increase in zinc imports to meet the demand for finished
metal. Imports of metal rose by 52 percent between 1969-1982.
2. Domestic Smelters
Several large, vertically integrated firms with mines, smelters,
and refineries are prominent in the domestic primary zinc industry. The
principal zinc smelters that operated in 1982 are listed in Table
VI-2. All of the plants are fairly large, with the smallest; at 56,000
tons and the largest at 114,000 tons of zinc metal.
D. ZINC DEMAND
Table VI-3 shows the major end-use markets for zinc. Die
casting and galvanized steel constitute the two major markets of U.S.
zinc consumption over 70 percent. Zinc is also used as a component
of brass and bronze, and in smaller quantities by the paint, rubber,
ceramics, and chemical industries. Approximately 500 firms in Illinois,
Indiana, New York, Ohio, and Pennsylvania account for about 50 percent
of total consumption.
1. Galvanized Steel
Zinc use in steel galvanizing continues to be the largest demand
sector, accounting for slightly more than 50 percent of slab zinc
consumption in 1982. The slump in construction activity and low
automobile production caused zinc consumption for galvanized steel to
fall to 367,000 tons a 19 percent decline from the previous year. In
addition, alternatives to galvanizing, such as aluminum and plastics,
are now competing with zinc for these markets. Galvalume, which
consists of 55 percent aluminum, 13»3 percent zinc, and 1.6 percent
silicon alloy is making inroads on conventional galvanizing of sheet and
strip steel. However, a new galvanizing alloy composed of 95 percent
zinc and 5 percent aluminum may be competitive with Galvalume in some
uses.
VI-2
-------
TABLE VI-1
U.S. IMPORTS AND EXPORTS OF ZINC
(thousand metric tons of zinc content)
Year
1969
1972
1973
1974
1975
1976
1978
1979
1981
1982
Imports of
Metal
295
474
537
489
345
648
618
527
603
447
Imports of
Ore and
Concentrates
546
231
181
218
132
88
188
225
118
49
Exports of
Metal
8
4
13
17
6
3
1
b
b
b
Exports of
Ore and
Concentrates
a
a
a
a
a
a
11
20
54
77
SOURCE: Mineral Facts and Problems, U.S. Department of
the Interior, Bureau of Mines, 1983.
aNot available.
"Less than 0.5 thousand metric tons.
VI-3
-------
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TABLE VI-3
1982 U.S. SUB ZINC CONSUMPTION BY END USE
(in percentages)
End Use
Galvanizing
Die casting alloys
Brass and bronze
Zinc oxide
Other usesa
Total
Share
50
28
11
3
8
100
SOURCE: Non-Ferrous Metals Data -- 1982,
American Bureau of Metal Statistics, Inc.
alncludes zinc used for zinc dust, wet batteries,
desilverizing lead, light-metal alloys, and other
uses.
VI-5
-------
2. Die Castings
Zinc die castings are suitable for components having complex
shapes that require good mechanical properties, close dimensional
accuracy, and corrosion resistance. This sector accounted for about 28
percent of zinc consumption in 1982. Zinc use by this sector, primarily
in the automotive industry, has declined substantially because of
substitution by plastics, particularly ABS (acrylonitrile butadiene
styrene) and other metals, as well as automotive downsizing.
3. Brass and Bronze
Brass and bronze (5-40 percent zinc content) accounted for 11
percent of slab zinc consumption in 1982. Brass and bronze alloys are
highly sensitive to overall economic activity rather than to one or two
industries, because they are used by many economic sectors. Aluminum
alloys are being substituted increasingly for brass and bronze alloys.
4. Zinc Oxide
A small percentage of zinc is consumed in the form of oxides.
About 3 percent of the zinc consumed in 1982 went into this sector.
Zinc oxides are produced from zinc concentrates, slab zinc, and scrap,
and are used extensively in the rubber industry and in making white
paint and pigments.
5. Other Uses
The decision of the U.S. Treasury in 1981 to replace the old
penny, made from 95 percent copper and 5 percent zinc, with a new penny,
made from 98 percent zinc with a 2 percent copper coating, created a
major new market for zinc. This decision was made because the price of
zinc is significantly lower than the price of copper. The production of
the penny during 1982 used about 15,000 tons of zinc. Other uses of
zinc accounted for 8 percent of zinc consumption in 1982.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
The economic recession that characterized the U.S. automotive and
construction industries in 1982 had a severe impact on the domestic zinc
industry. Throughout the year, zinc refineries operated at
substantially reduced levels, and some closed entirely for several
months. Capacity utilization fell from 72 percent in 1981 to 46 percent
in 1982.
Because zinc is an internationally traded commodity, its price is
determined in the world marketplace. There are three main price
quotations for zinc: the U.S. producers' price, the European producers'
price (EPP), and the London Metal Exchange (LME) price. The U.S.
producers' price is based on High Grade zinc and reflects a weighted
average of prices charged by individual North American producers. The
EPP, instituted in 1964 by major European, Canadian, and Australian
producers, is quoted for Good Ordinary Brand (GOB) zinc. The LME price
VI-6
-------
is a free-market price. Although the LME price covers less than 10
percent of the world market for zinc, it exerts a strong influence on
producers' prices. Both U.S. producers' and European producers' prices
are generally higher than the LME price. Major U.S. producers still
market the'bulk of their product on a producer price system and buy what
zinc concentrates they need on the same price basis, but many smaller
smelting companies and zinc mining companies without smelting facilities
trade their material on LME prices. U.S. producers cannot allow their
producer price to stray too far from the free market price. If the
price is set too high, zinc would flood in from outside the U.S.; if the
price is too low, margins fall. The latter situation occurred in the
period 1971-1973 when the economic stabilization program froze the price
of zinc at 17 cents per pound. The LME price then was quoted very high
at one time over 99 cents per pound. Foreign smelters took the
advantage and outbid U.S. producers. From the mid-1970s until 1981, the
price of zinc rose steadily; in 1981 it attained a level of 45 cents per
pound. Weak markets in 1982, however, depressed the price. By midyear,
the price had fallen to 35 cents per pound, but recovered to 38 cents
per pound by the end of the year, mainly due to a combination of
production cutbacks, strikes in Canada, and declining inventories.
The price recovery that occurred in the second half of 1982 is
expected to continue. Zinc demand will be supported by an increase in
motor vehicle production and the expected upturn in new construction.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the production of zinc will experience constant real incomes over the
lifetime of the compliance equipment. The income level used is based on
the average prices and capacity utilization rates for the period 1978-
1982. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the zinc industry.
The zinc price used for this analysis is based on U.S. producer list
prices. As discussed in the previous section, U.S. producer prices have
been generally close to LME prices. The price of refined zinc produced
at both refineries and smelters for the analysis is $876.20 per ton (see
Table VI-M). The capacity utilization rate is 60 percent (see Table
VI-5). For both prices and utilization rates, the values used in the
analysis show improvement over 1982. This is consistent with publicly
available information from the Department of the Interior's Bureau of
Mines (BOM) which shows an overall improvement in the primary zinc
industry. Specifically, the BOM projects primary zinc demand to
increase at annual average rate of 2 percent from 1981 to 2000 (Mineral
Commodity Profiles, Bureau of Mines, 1983).
VI-7
-------
TABLE VI-4
AVERAGE ANNUAL U.S. PRODUCER PRICE OF ZINC
Year
1978
1979
1980
1981
1982
Cents per Pound
Actual
30.97
37.30
37.43
44.56
38.47
1982 Dollars
42.67
47.27
43.41
47.23
38.47
1982 Dollars per Ton
853.40
945.40
868.20
944.60
769.40
Average = 876.20
SOURCE: Mineral Commodity Profiles, U.S. Department of the Interior,
Bureau of Mines, 1983.
VI-8
-------
TABLE VI-5
CAPACITY UTILIZATION RATES FOR DOMESTIC PRIMARY PRODUCERS
Year
1978
1979
1980
1981
1982
Production
(000 Metric Tons)
1407
472
3^0
317
228P
Capacity
(000 Metric
716
720
575
1*84
493
Capacity
Utilization
Tons) (Percent)
57%
66%
59%
72%
46*
Average = 60%
SOURCE: Mineral Commodity Profiles, U.S. Department of the
Interior, Bureau of Mines, 1982.
^Preliminary.
VI-9
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the primary zinc industry
are described in the Development Document. The treatment options
considered for this industry are as follows:
Option B - This option includes flow reduction of all scrubber
wastestreams via a holding tank and recycle system
before lime and settle.
Option C - This option includes Option B plus sulfide
precipitation, gravity sedimentation, and multimedia
filtration of the final effluent.
2. Costs for Existing Plants
Five primary zinc' plants are expected to incur costs for
compliance with this regulation. These five plants represent
approximately 80 percent of the total industry capacity. The total
annual and investment compliance costs for these five plants, for each
treatment option, are presented in Table VI-6.
Some zinc producers covered by this regulation have acid
manufacturing plants located at the same site as the smelter or
refinery. Both processes are subject to effluent guideline limitations
in this regulation. Therefore, costs have been estimated for both the
acid plant and the smelter/refinery. The two facilities are treated as
a single financial entity for purposes of this impact analysis.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
The plant-specific compliance costs are used to assess the
probability of plant closures using the methodology presented in Chapter
II. The screening analysis identifies plants for which the compliance
costs may be significant. The screening analysis is based on total
annual compliance costs as a percent of annual revenues. The threshold
value for this screen is 1 percent. If total annual compliance costs
for a plant are less than 1 percent of revenues, the plant is assumed
not to face difficulties with compliance costs and is not analyzed
further. Under the most stringent option reviewed, estimated total
annual costs did not exceed 0.31* percent of anticipated annual revenues
for any plant. Since no zinc plants violated the screening analysis,
there are no expected plant closures in this industry due to this
regulation. These results indicate that compliance costs do not
represent a significant economic impact for this subcategory.
VI-10
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TABLE VI-6
PRIMARY ZINC COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
Direct Dischargers
279
281
283
9060
Subtotal
Indirect Discharger
278
Total
Investment Costs
Option B
92,125
85 , 387
56,925
31,075
265,512
18,975
284j 487
Option C
399,712
3^0,312
352,412
260,562
1,352,998
283,250
40636^21*8
Total Annual Costs
Option B
32,772
26,891
27,793
16,260
103,717
15,697
119,414
Option C
124,499
100,389
138,895
82,336
446,120
93,358
539.478
SOURCE: U.S. Environmental Protection Agency.
Detail may not add to total due to rounding.
VI-LI
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2. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
This impact is measured by calculating the ratio of total
annual compliance costs to the total cost of operations. The cost of
operations is assumed to equal annual revenues minus operating income of
a plant. This ratio represents the percent increase in operating costs
due to the compliance expenditures. For the primary zinc industry, the
average increases are shown below.
Direct Dischargers
Indirect Dischargers
Increase In
Cost of Production
Option B
0.06
0.04
Option C
0.27
0.23
It can be seen by this analysis that the annual costs due to
this regulation will increase operating costs by no more than 0.27
percent for any treatment option. This is not expected to significantly
affect the domestic zinc industry.
b. Price Change
This change is expressed as the ratio of total annual
compliance costs to total plant revenues. This ratio represents the
percent increase in price a plant would have to impose to pass through
the entire cost of these regulations. The average price increases are
shown below. It should be noted that for the screening and closure
analyses, zero cost pass-through is assumed.
Direct Dischargers
Indirect Dischargers
Price Change
Option B
0.06
0.04
Option C
0.25
0.21
VI-12
-------
A maximum price increase of 0.25 percent would be required
to pass through the entire cost of these regulations for the primary
zinc industry. This amount is small and would not be expected to
adversely affect the industry.
c. Change in Return on Investment
Return on investment (ROI) is expressed as net income
divided by total assets. For this regulation, the change in ROI is as
follows:
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option B
-0.98
-0.51
Option C
-4.31
-3.70
Rates of return on investment for the industry are expected
to decrease by between 0.51* percent and 1.3^ percent. These declines
represent a minimal impact on the profitability of the zinc industry.
d. Capital Impacts
For the primary zinc industry, the average
investment costs to capital expenditures are as follows:
ratios of
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditures
Option B
1.2U
0.36
Option C
6.33
5. MO
These results show that primary zinc plants will incur costs
due to this regulation of between 0.36 percent and 6.33 percent of their
average annual capital expenditures. Impacts of this magnitude are not
expected to affect plants' ability to raise capital for compliance
equipment.
e. Employment Impacts
Because there are no projected closures, no adverse
employment impacts are anticipated. Small production decreases, if any,
caused by the higher cost of production, will not result in capacity
shutdowns. Thus, employment will remain essentially unchanged by this
regulation.
VI-13
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f. Foreign Trade Impacts
Despite the highly competitive nature of the world market
for zinc products, the very small increases in production costs, as
discussed above, are not expected to materially reduce competition or
affect the balance of trade.
VI-14
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CHAPTER VII
SECONDARY ALUMINUM
-------
VII. SECONDARY ALUMINUM
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States secondary aluminum industry of the cost of alternative
pollution control technologies.
The technology used to produce aluminum from scrap is briefly
discussed in Section B. The structure of the industry is presented in
Section C. Section D discusses aluminum demand and end-use markets.
Section E describes current trends in the industry, and Section F
presents price and capacity utilization estimates. Section G discusses
the cost estimates for the alternative control technologies. The
results of the analysis are presented in Section H.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise noted.
B. TECHNOLOGY
The secondary aluminum industry produces metallic aluminum from
aluminum scrap in four broad stages:
1) The scrap material is upgraded by either dry or wet milling
operations to separate the metallic aluminum from the non-
metallic.
2) Feed material, after being cleaned to remove tramp metals (e.g.,
iron) and oil or grease (primarily from bearings and turnings),
is charged to the furnace and melted. Primary ingot, a high
purity scrap, is added to the melt to reduce impurity levels to
the desired specification.
3) The slag is then skimmed off and fluxed to retard oxidation.
Copper, silicon, or zinc are added to bring the melt up to
specification. Magnesium is removed from the melt by the
addition of chlorine. Magnesium reacts with chlorine and floats
to the surface of the melt where it combines with the fluxing
agent and is skimmed off.
4) The adjusted metal is degassed by bubbling dry nitrogen,
chlorine, or a mixture of the two gases through the molten metal
bath. It is then cast into ingots or transported as liquid
metal in insulated ladles.
vn-i
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C. INDUSTRY STRUCTURE
1. Overview
The United States is a significant producer of secondary
aluminum. Historically, the secondary smelting industry has accounted
for approximately one-quarter of total aluminum production (see Table
VII-1). Despite recessionary conditions in 1980-1982, production of
secondary aluminum has been increasing, reaching 2,124,000 short tons in
1982, which was about 37 percent of total aluminum production. Rising
energy costs in recent years have resulted in increased recovery of
secondary aluminum because production of secondary aluminum requires
only about 5 percent as much energy as does aluminum production from
bauxite (i.e., primary). The amount of aluminum (in millions of pounds)
recovered from recycled cans has increased from 360 in 1979 an estimated
1,140 in 1982, due to a dramatic increase in the use of aluminum cans
for beer and soft drinks in the last ten years. In 1981, 95 percent of
all beer cans and ?4 percent of all soft drink cans, or 85 percent of
the total market, were aluminum cans.
As shown in Table VII-2, the United States has been a net
exporter of scrap; in 1980, exports of scrap material peaked at 444,681
short tons. In 1981, worldwide recessionary conditions, as well as
increased recovery of aluminum in the domestic market, resulted in a.
sharp decline in scrap exports. In 1981, 241,162 short tons of aluminum
scrap were exported, compared with imports of 81,99*1 short tons. Of the
total exports, 73 percent went to Japan, while 82 percent of total
imports came from Canada. Scrap exports were about 11 percent less in
1982 than in 1981; imports were about 9 percent less.
2. Description of Plants
Many firms in the secondary aluminum industry have one plant and
are either family-owned or owned by small corporations. The integration
level of these firms is generally low. However, a minority of firms,
which represent a large portion of production, are large corporations or
subsidiaries of large corporations and are generally multiplant
operations. Most smelters buy aluminum scrap and smelt and refine it
to hot metal and billets. Foundries and extruders consume these semi-
finished products. Other secondary products are de-oxidizing materials
(notched bar and shot) which are used in steel mills.
A small segment of the industry consumes billet-grade aluminum
scrap for the manufacture of extrusion billets. Most of the billet
manufacturers are forward-integrated. They commonly produce semi-
finished and finished products (such as extrusions) and building
construction items (such as doors, windows, and storm doors).
Most plants currently producing secondary aluminum metal are
located near heavily industrialized areas in order to have access to a
good supply of scrap and also to customers. These plants are chiefly
located in or near the Chicago, Cleveland, and Los Angeles metropolitan
areas. Approximately 35 percent of U.S. secondary aluminum production
VII-2
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TABLE VII-1
U.S. PRIMARY AND SECONDARY ALUMINUM PRODUCTION
(thousands of short tons)
Year
1968
1970
1973
1975
1978
1979
1980
1981
1982
Total
Production
1,285
5,009
5,759
5,115
6,177
6,800
6,868
7,003
5,733
Primary
Production
3,255
3,976
1,529
3,879
1,801
5,023
5,130
1,918
3,609
Secondary
Recovery3
1,031
1,033
1,230
1,236
1,673
1,777
1,738
2,055
2,121
Secondary
Production As a
Percentage of
Total Production
21.1
25.3
21.1
21.2
25.8
26.1
25.3
29.3
37.0
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
alncludes both new and old scrap.
VII-3
-------
TABLE VII-2
U.S. IMPORTS AND EXPORTS OF ALUMINUM SCRAP
(short tons)
Year
1978
1979
1980
1981
1982
Imports
92,153
68,316
59,802
81,994
74,388
Exports
194,508
307,080
444,681
241,162
214,299
Net Exports
(Imports)
102,355
238,764
384,879
159,168
139,911
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc,
VII-4
-------
is done within a 100-mile radius of downtown Chicago. Within a similar
radius of Cleveland, another 20 percent of the production can be
found. The remaining 45 percent is located near Los Angeles, New York
City, and Philadelphia.
D. ALUMINUM DEMAND
Demand for aluminum is independent of the production source, whether
primary or secondary. Cans and containers, transportation, and
construction are the major end-use markets for aluminum. For a
description of these markets and demand patterns for the aluminum
industry as a whole, see Chapter III, Section D.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
Secondary aluminum production is an important part of the aluminum
industry, especially following recent, substantial increases in electric
power rates. Since 1979, power rates have increased 750 percent in the
Pacific Northwest, where one-third of the U.S. primary aluminum industry
is located. According to a survey conducted by the American Metal
Market in 1981, the capacity to produce aluminum from old scrap was
about 1.13 million metric tons.
Secondary aluminum prices are generally the same as primary aluminum
prices. Differences do exist, but are usually only a function of purity
levels. Secondary aluminum list prices are not applicable to this
analysis because premiums and discounts are commonly applied. Further,
these list prices do not provide a reliable indication of actual
transaction prices. Therefore, primary aluminum prices are used in the
following analysis.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the secondary production of aluminum will experience constant real
incomes over the lifetime of the compliance equipment. The income level
used is based on the average prices and capacity utilization rates for
the period 1978-1982. This period was selected because it represents a
complete business cycle with a peak year in 1979 and a recession in
1982. The period reflects the long-term potential for the secondary
aluminum industry.
The aluminum price for the analysis is $1,567.08 per ton (see Table
VII-3). The capacity utilization rate is 63.13 percent (see Table VII-
4). For both prices and utilization rates, the values used in the
analysis show improvement over 1982. This assessment is consistent with
publicly available information from the Department of the Interior's
Bureau of Mines (BOM), which shows an overall improvement in the
secondary aluminum industry. Specifically, the BOM projects secondary
aluminum demand to increase at an average annual rate of 7 percent from
1981 to 2000. (Mineral Commodity Profiles. Bureau of Mines, 1983).
VII-5
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TABLE VII-3
U.S. ALUMINUM PRICES
Year
1978
1979
1980
1981
1982
Cents
Actual
54
61
72
76
76
per Pound
1982 Dollars
71. 40
77.32
83.49
80.56
76.00
1982 Dollars per Ton
1,488.00
1,546.40
1,669.80
1,611.20
1,520.00
Average price = 1,567.08
SOURCE: Mineral Commodity Profiles, U.S. Department of the
Interior, Bureau of Census, 1983.
VII-6
-------
TABLE VII-4
CAPACITY UTILIZATION RATES3
Year
1978
1979
1980
1981
1982
Production
(thousand
metric t,ons)
575
614
680
836
862
Average
Capacity^
(thousand
metric tons)
1,130
1,130
1,130
1,130
1,130
capacity utilization
Capacity
Utilization
(percent)
50. 88*
54.34
60.18
73.98
76.28
= 63.13*
SOURCE: Production data Mineral Commodity Profiles,
and Mineral Industry Survey, U.S. Department
of the Interior, Bureau of Mines, 1983-
Capacity data (1981) American Metal Market,
1981.
alncludes only old scrap.
Historical data is not available on industry
capacity. Industry sources suggest capacity levels
remained relatively constant over the 1978-1982
period.
VII-7
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the secondary aluminum
industry are described in the Development Document. The treatment
options considered for this industry are as follows:
Option B - This option includes recycle of casting contact
cooling water using cooling towers (where required),
equalization, activated carbon adsorption (where
required), ammonia steam stripping (where required),
oil skimming, equalization, chemical precipitation,
and gravity settling.
Option C - This option includes Option B plus multimedia filtra-
tion of the final effluent.
2. Costs for Existing Plants
Compliance cost estimates for two treatment options are
developed for each of the plants and are presented in Table VII-5.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
The plant-specific compliance costs for each treatment option
are compared to anticipated revenues. Total annual compliance costs
include operating and maintenance costs, depreciation, and annualized
capital costs. The estimated revenue is based on a metal selling price
of $1,567.08 per ton and a capacity utilization rate of 63 percent. The
threshold value for the screen is 1 percent. If compliance costs for a
plant represent less than 1 percent of revenues, the plant is not
expected to incur significant costs and is not analyzed for potential
closure.
The results of the screening assessment show that the compliance
costs are less than 1 percent of anticipated revenue even under the more
costly alternative for all direct dischargers. One indirect discharger,
however, does not pass the screen, and is analyzed further using a
detailed cash-flow analysis.
2. Plant Closure Analysis
The potential closure candidate is further analyzed with the
liquidity and the NPV tests. The results of the liquidity test for this
plant show that annual net cash flows are positive under both Options B
and C, indicating that the plant will not have any cash problems in the
short run (five years) due to this regulation. Therefore, the liquidity
test does not project closure for this plant.
VII-8
-------
TABLE VII-5
SECONDARY ALUMINUM COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
Direct Dischargers
312
320
327
333
342
505
626
628
4101
Subtotal
Indirect Dischargers
14
18
37
48
309
310
319
326
332
335
340
427
624
4104
4501
Subtotal
TOTAL
Investment Costs
Option B
35,062
224,812
39,462
145,337
105,325
120,175
76,312
209,275
88,931
1,044,691
53,900
198,275
229,762
182,600
60,500
0
198,000
291,500
232,512
29,562
121,550
203,500
29,562
173,525
105,462
2,110,210
3,154,901
Option C
37,675
227,975
59,125
175,450
107,800
140,937
80,850
213,262
89 , 379
1,132,453
57,062
202,812
252,037
188,100
63,387
0
207,487
313,912
255,750
32,037
127,600
224,950
32,037
197,175
109,175
2,263,521
3,395,974
Total Annual Costs
Option B
23,113
99,756
20,266
59,853
18,848
48,314
26,813
44,531
14,095
355,587
21,680
45,666
94,179
56,569
21,790
660
55,750
155,487
117,540
17,869
24,567
78,804
18,734
74,148
18,028
801,471
1, 157 1 058
Option C
24,861
101,882
23,318
68,314
19,594
53,707
29,390
46,730
14,233
382,028
23,410
48,112
100,234
59,496
23,364
660
60,678
161,619
124,009
19,209
26,222
84,522
20,140
80,785
20,731
853,191
1,235,219
SOURCE: U.S. Environmental Protection Agency.
Detail may not add to totals due to rounding.
VII-9
-------
For the NPV test, if U/L, operating income as a percentage of
the liquidation value of a plant, as defined in Chapter II, is greater
than the real cost of capital for the industry (1.04 percent), the plant
will continue in operation. The results of the NPV test show that U/L,
under both options, is greater than the real cost of capital. Thus, no
plant closures have been identified in the secondary aluminum industry
as a result of this regulation.
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The financial impact of the regulatory options on the
secondary aluminum industry is evaluated in terms of the increase in
cost of production. An estimate of the cost of production is made as
the difference between revenues and operating income. The following
table shows the estimated increase in cost of production under each
treatment option.
Direct Dischargers
Indirect Dischargers
Increase in
Cost of Production
Option B
0.09
0.20
Option C
0.10
0.22
As shown in the table, the increase in cost of production is very low
and is not significant enough to result in any structural changes in the
domestic secondary aluminum industry.
b. Price Change
Total annual compliance cost as a percentage of total
revenue is used to assess the maximum increase in price under the
assumption of full pass-through of incremental costs. Although some
plants have very low compliance costs associated with these regulations,
an average of compliance costs for all plants gives a reasonable
estimate of the increase in price required to cover those costs. The
following table shows the estimate of these price increases. It should
be noted that in performing the screening and closure analyses, zero
cost pass-through is assumed.
VII-10
-------
Direct Dischargers
Indirect Dischargers
Price Change
Option B
0.09
0.20
Option C
0.09
0.21
Thus, if the industry were able to pass all incremental costs on to the
consumers, prices would have to increase by no more than 0.21 percent,
which is considered an insignificant amount.
c. Change in Return on Investment
The pre-compliance real return on investment for secondary
aluminum industry is calculated as 4.0*1 percent. As a result of the
additional compliance costs, overall profitability of the industry is
reduced. The following table presents estimates of this decrease in
profitability.
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option B
-3.57
-7.96
Option C
-3.83
-8. 48
The expected reduction to return on investment is no more than 8.48
percent for either option. This is not expected to adversely impact the
profitability of secondary aluminum plants.
d. Capital Impacts
The additional capital investment required to purchase the
necessary treatment equipment is compared to the average annual
expenditures of secondary aluminum plants to measure the effect of such
costs on a plant's financial resources. The analysis is presented in
the following table.
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditure
Option B
7.86
15.95
Option C
8.52
17.11
VII-11
-------
The table shows that incremental investment ranges from 7.86 to 17.11
percent of annual capital expenditures. Although higher for indirect
dischargers than for direct dischargers, the investment costs are not a
significant portion of annual expenditures and should not adversely
affect a plant's ability to fund other capital improvements.
e. Employment Impacts
Employment effects are examined in the context of plant
closures. Since no plant closures have been identified in the secondary
aluminum industry, it is estimated that there will not be any adverse
impact on employment. Small production decreases, if any, caused by the
higher cost of production will not result in capacity shutdowns. Thus,
with minimal changes in prices or production, employment will remain
essentially unchanged by this regulation.
f. Foreign Trade Impacts
The economic impact of the compliance costs on the balance
of trade is evaluated in relation to domestic prices and production.
Domestic prices are estimated to remain at levels competitive with
international prices (mainly LME prices). Similarly, it is assumed that
domestic production will not be hampered by these regulatory costs.
With small changes in price and production, there will not be any
general increase in imports. The balance of trade is not expected to be
affected by these regulations.
VII-12
-------
CHAPTER VIII
SECONDARY COPPER
-------
VIII. SECONDARY COPPER
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States secondary copper industry of the cost of alternative
pollution control technologies.
The technology used to produce copper from scrap is briefly
discussed in Section B. Section C presents the industry structure.
Secondary copper demand and consumption is described in Section D, and
current trends in the industry are discussed in Section E. Section F
presents estimates of prices and capacity utilization. Section G
contains effluent control guidelines and costs; Section H presents the
results of the analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise noted.
B. TECHNOLOGY
The secondary copper industry converts copper scrap into two types
of intermediate products: refined unalloyed copper, and brass and
bronze alloys. The industry uses many of the same processes as primary
copper facilities, such as smelting, fire-refining, and electrorefining,
as well as other processes unique to the secondary industry.
1 Refined Unalloyed Copper
Refined unalloyed copper produced by the secondary industry
competes directly with primary refined copper. Any copper-bearing scrap
can be utilized. The process employed depends on the grade of scrap
being used, and many variations are possible.
Low-grade copper and brass scraps, refinery slags, drosses, and
skimmings are charged into a blast furnace or cupola furnace along with
coke, fluxes, and sulfur. In the furnace, metallic and non-metallic
copper materials are chemically reduced to 80-90 percent pure copper
metal. The non-copper materials form a slag layer.
Copper products (i.e., blister copper) smelted from low-grade
scrap, slags, drosses, and sludges are brought together with other
impure copper products for fire refining. The impurities are removed by
melting the scrap in an oxidizing atmosphere. Electrolytic refining may
be necessary if silver and gold remain in the copper in substantial
amounts after fire refining.
2. Brass and Bronze Alloys
Charge materials used in making brass or bronze ingots consist
of batches or lots of scrap selected to produce a melt of the desired
VIII-l
-------
composition with a minimum of flux and as little dilution of metal
constituents as possible. Scrap is charged at regular intervals until
the furnace is filled to capacity. Melting is more efficient if light
scrap is densified by baking or briquetting. Oxidation and
volatilization losses from copper-based alloys are usually kept to a
minimum by rapid melting in a slightly oxidizing atmosphere with a
fairly fluid slag cover.
The stationary reverberatory furnace is the most practical one
for producing very large tonnages of standard alloys from scrap.
C. INDUSTRY STRUCTURE
1. Overview
Copper is one of the most extensively recycled of the common
metals. Recycled metal constitutes a substantial part of domestic
copper supply. The unalloyed refined copper produced by the secondaries
competes directly with the unalloyed metal produced by the primaries.
Unalloyed copper can be in the form of blister copper, fire-refined
copper, cathodes, wire bar, continuous cast, or finished product,
depending upon both the production scheme and customer specifications.
Several precious metals are also recovered as a result of electro-
refining to produce cathode copper. Cathode copper has become the
single most important commercial form of refined copper. Alloyed copper
(brass and bronze ingot) from scrap is generally produced by small and
individually owned firms. The brass and bronze producers operate in a
market which is linked to the primary copper market (i.e., scrap and
ingot are both priced on copper content and copper price), but direct
competition between the two rarely occurs.
2. Secondary Smelters and Refineries
Copper-bearing scrap is the single most important scrap used to
recover copper. As shown in Table VIII-1, copper recovery from scrap
other than copper-base is generally a small portion of total recovery.
Between 1962-1982, copper-base scrap contributed 97-99 percent to total
copper recovery. New scrap is generally excluded from supply-demand
balances since it does not, in general, represent an inflow of copper to
the industry. New scrap, or manufacturing scrap, is generated during
the fabrication of copper products. The larger fabricators, such as the
major brass mills, remelt their own scrap; smaller fabricators sell the
scrap they generate to scrap dealers who sell it to brass mills,
refineries, and other scrap consumers. About one-quarter of the copper
in new scrap is recovered as refined copper; the remainder is recovered
in alloyed form, mostly by brass mills. Old scrap consists of worn-out,
discarded, or obsolete copper-containing end products. In 1981, total
scrap (new plus old) contributed U5 percent of copper input to the
manufacturing process. Old scrap alone accounted for 19 percent of the
copper in the input.
U.S. imports and exports of copper-base scrap are presented in
Table VIII-2. While there has been little change in imports since 1976,
VIII-2
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TABLE VIII-1
DOMESTIC COPPER RECOVERY FROM SCRAP
(copper content, thousands of short tons)
Year
1962
1966
1969
1975
1978
1979
1980
1981
1982*>
Recovery from
Copper-Base Scrapa
480.4
627.1
686.0
440.1
563.3
603.3
604.5
585.4
520.7
Recovery from
Scrap Other than
Copper Basea
5.2
6.8
6.1
10.7
16.9
18.0
16.4
16.8
14.1
Total
Recovery
485.6
633.9
692.1
450.8
580.2
621.3
620.9
602.2
534.8
SOURCE: Annual Data 1983: Copper Supply and Consumption,
Copper Development Association, Inc.
alncludes production from old scrap only.
^Preliminary.
VIII-3
-------
TABLE VIII-2
U.S. IMPORTS AND EXPORTS OF COPPER-BASE SCRAP
(copper content, thousands of short tons)
Year
1962
1964
1966
1970
1972
1976
1978
1979
1980
1981
19823
Imports
7.2
5.2
31.7
3.8
18.8
29. 4
28.8
32.0
32.5
38.8
38.8
Exports
38.3
93.9
49.8
82.8
58.0
83.5
121.7
132.7
153.3
118.8
120.6
Net Exports
(Imports)
31.1
88.7
18.1
79.0
39.2
51.1
95.9
100.7
120.8
80.0
81.8
SOURCE: Annual Data 1983: Copper Supply and
Consumption, Copper Development
Association, Inc.
aPreliminary.
VIII-4
-------
exports rose substantially between 1976-1980. Exports in 1980 were
approximately 84 percent higher than 1976 levels. The U.S. has
historically been a net exporter of copper-based scrap. However, with
declining demand in 1981 and 1982, exports fell by about 20 percent.
3. Description of Plants
Several of the secondary copper refiners are integrated forward
into captive fabricating facilities using copper as a raw material and
turning out saleable finished products such as electrical wire, valves,
fittings, and copper tubings. Aurax and Cerro-Marman Corporation have
historically been the two most important secondary copper refiners.
While Aurax sells refined copper, Cerro-Marman and a number of other
corporations, e.g., Chemetco, Southwire, and Reading, consume most of
their refined copper output in their own captive fabricating
facilities. The producers of unalloyed copper are generally not
diversified; however, many of these firms produce a number of precious
metals as a by-product or co-product. These precious metals are derived
from such sources as printed circuit boards and electrical contacts
contained in the scrap feed material.
The brass and bronze producers manufacture a wide variety of
copper-based alloys. Almost all of these firms have established a
moderate level of diversification. In many cases, the plants are also
processors of secondary aluminum and frequently secondary lead and zinc-
based materials. Often they are combined with steelyard operations.
For the most part, the secondary brass and bronze ingot-making segment
of the industry is non-integrated. None of the smallest smelters is
integrated to the point of producing a finished or semi-finished
product. Basically, each produces alloy ingots.
D. SECONDARY COPPER DEMAND
Copper-containing scrap, accumulated by manufacturing plants and
scrap dealers, flows to brass mills, ingot-makers, foundries, powder
plants, and other industries. About 70 percent of domestic copper is
used as unalloyed copper, while nearly 30 percent is used in brasses and
only 2 percent is used in bronzes. Cathode copper has become the single
most important commercial form of refined copper, accounting for nearly
three-fourths of the refined copper consumed annually; it is used
directly by many wire-rod mills, without being cast into wire bars. A
considerable quantity of refined copper is melted and cast into various
refinery shapes for consumer use.
Domestic consumption of copper scrap by end-use is presented in
Table VIII-3. Between 1962-1982, brass mills accounted for an average
of 54 percent of total scrap consumption, followed by ingot-makers (24
percent), and foundries (11 percent). Copper scrap consumption by brass
mills, ingot-makers, and foundries peaked in 1979. By 1982, consumption
by most markets had fallen approximately 25 percent below 1979 levels.
The major brass mill products are sheet, strip and plate, rod, bar and
mechanical wire, plumbing tube and pipe, and commercial tube and pipe.
Foundries accounted for 113,000 short tons of scrap in 1979. Powder
VIII-5
-------
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VIII-6
-------
plants account for about 1-2 percent of total copper scrap
consumption. Consumption by chemical, steel, and other industries
increased substantially between 1962-1982; by 1979, consumption had more
than doubled from the 1962 level of 40,1400 short tons. However, 1982
consumption was approximately 39 percent below the 1979 levels.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
The price of scrap, which represents 75 percent of the cost of
producing secondary copper, is a fundamental determinant of the
financial performance of this industry. The price of copper scrap is
determined in the scrap market. The market is competitive with many
participants on both the demand and supply sides. International trade
in scrap also significantly affects supply conditions, and therefore has
an influence on domestic scrap price levels.
The prices for the various scrap types are separated by a generally
constant difference which reflects the quality of scrap and the ease of
processing it into ingot. Published data on scrap prices are
indicative, yet do not pinpoint the level at which transactions actually
occur. The American Metal Market publishes a price series for various
grades of copper scrap, as well as for various standard grades of brass
and bronze ingot. The ingot prices, which represent list prices,
closely correlate with the price of scrap. Because they compete in the
same markets, primary and secondary copper producers sell at the same
prices.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the secondary production of copper will experience constant real incomes
over the lifetime of the compliance equipment. The income level used is
based on the average copper price and average capacity utilization rate
for the 1978-1982 period. This period was selected because it
represents a complete business cycle with a peak year in 1979 and a
recession in 1982. The period reflects the long-term potential for the
secondary copper industry.
The copper price for the analysis is $1,972.40 (see Table VIII-4).
The capacity utilization rate is 87 percent (see Table VIII-5). For
both prices and utilization rates, the values used in the analysis show
improvement over 1982. This assessment is consistent with publicly
available information from the Department of the Interior's Bureau of
Mines (BOM) which shows an overall improvement in the secondary copper
industry. Specifically, the BOM projects secondary copper demand to
increase at an average annual rate of 2 percent from 1981 to 2000.
(Mineral Commodity Profiles, Bureau of Mines, 1983).
VIII-7
-------
TABLE VIII-1
AVERAGE ANNUAL U.S. PRODUCER COPPER PRICE
Year
1978
1979
1980
1981
1982
Cents
Actual
66.5
93.3
102.1
85.1
74.3
per Pound
1982 Dollars
91.6
1118.3
118.7
90.2
74.3
1982 Dollars per Ton
1,832.00
2,366.00
2,374.00
1,804.00
1,486.00
Average = 1 ,972.10
SOURCE: Minera1 Commodi t y P ro f i 1 es, U.S. Department of
the Interior, Bureau of Mines, 1983.
VIII-8
-------
TABLE VIII-5
SECONDARY COPPER PRODUCTION AND CAPACITya
(thousands of metric tons)
Year
1978
1979
1980
1981
1982
Production
242
3^6
300
274
237
Capacity
Capacity Utilization
350
350
300
300
300
Average
69*
99*
100*
91*
79*
= 87*
SOURCE: Minerals Yearbook,
U.S. Department of the Interior,
Bureau of Mines, 1979-1982.
^Includes production and capacity data for
secondary plants only.
VIII-9
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the secondary copper
industry are described in the Development Document. The treatment
option analyzed for this industry is as follows:
Option G - This option consists of equalization, lime and settle
of all process water with oil skimming where
necessary, vacuum filtration and contract hauling of
sludge. This option also includes flow reduction of
casting water via a cooling tower or holding tank and
100 percent recycle of all treated water to reuse in
the plant.
2. Costs for Existing Plants
Six secondary copper plants are expected to incur costs to
comply with this regulation. They include five smelters and one
integrated refiner. Table VIII-6 presents the total investment and
annual costs for each treatment level. All six secondary copper plants
are indirect dischargers.
H. ECONOMIC IMPACT RESULTS
1. Screening Analysis
The plant-specific compliance costs for each treatment option
are compared to anticipated revenues. Plants with total annual
compliance costs in excess of 1 percent of annual plant revenues were
analyzed according to the closure analysis described in Chapter II.
Plants with total annual compliance costs less than the threshold value
of 1 percent are not expected to face difficulty in incurring the
compliance costs and were not analyzed further. The results of the
screening assessment show that no plant has total annual compliance
costs in excess of 1 percent of annual plant revenues. Since no
secondary copper plants violated the screening analysis, there are no
expected plant closures in this industry due to this regulation.
2. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
VIII-10
-------
TABLE VIII-6
SECONDARY COPPER COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
Indirect Dischargers
15
16
17
37
207
9050
TOTAL
Investment Costs
Option G
95,012
10,099
10,175
9,598
103,9^8
10,099
159,9*45
Total Annual Costs
Option G
16,025
31, 487
21,862
50,187
424,050
31,487
654,085
SOURCE: U.S. Environmental Protection Agency.
VIII-11
-------
a. Increase in Cost of Production
The financial impact of the regulatory alternatives on the
secondary copper industry has been evaluated in terms of the increase to
cost of production. This impact is measured by calculating the ratio of
total annual compliance cost to total production cost. This ratio
represents the percentage increase in operating costs due to compliance
expenditures. Cost of production is assumed to equal revenues minus
operating income. The results are presented below.
Indirect Dischargers
Increase in
Cost of Production
Option G
0.07
As shown above, the increase in cost of production is not of
significant magnitude to cause structural changes in the domestic
secondary copper industry.
D- Price Change
The ratio of total annual compliance cost to annual plant
revenue is used to assess the maximum increase in price under the
assumption of full pass-through of incremental compliance costs. The
average for this ratio is presented below. It should be noted that in
performing the screening and closure analyses, zero cost pass-through is
assumed.
Indirect Dischargers
Price Change
Option G
0.06
Thus, if all incremental costs are passed on to the
consumers, prices would rise by only 0.06 percent. This represents a
very small impact on the competitiveness of the secondary copper plants
subject to this regulation.
c. Change in Return on Investment
Additional compliance costs may adversely affect
profitability by reducing profit margins and consuming investment
VIII-12
-------
capital. Computed on an industry-wide basis, changes in return on
investment are presented below.
Indirect Dischargers
Change in Return on Investment
Option G
-2.73
As a result of additional compliance costs, return on
investment for the secondary copper plants can be expected to decline
only 2.73 percent. This is not a significant impact on plant
profitability.
d. Capital Impacts
On an industry-wide basis, investment compliance costs
represent 8.0*4 percent of average annual industry capital
expenditures. These results are presented below.
Indirect Dischargers
Investment
as a % of Capital
Option
Costs
Expenditures
G
8.04
Costs of this magnitude will not have an adverse impact on
funds available for other capital improvements.
e. Employment Impacts
Because there are no projected closures, no major adverse
employment impacts are anticipated. Small production decreases, if any,
caused by the higher cost of production will not result in capacity
shutdowns. Thus, employment will remain essentially unaffected by this
regulation.
f. Foreign Trade Impacts
Despite the highly competitive nature of the world market
for copper products, very small increases in production costs, discussed
above, are not expected to materially reduce competitiveness or affect
the balance of trade.
VIII-13
-------
CHAPTER IX
SECONDARY LEAD
-------
IX. SECONDARY LEAD
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States secondary lead industry of the cost of alternative
pollution control technologies.
The technology used to produce lead from scrap is briefly discussed
in Section B. Section C describes the structure of the industry.
Section D discusses lead demand and end-use markets, and Section E
covers current industry trends. Section F discusses price and capacity
utilization estimates. Section G presents the cost estimates for the
alternative control technologies. The results of the economic impact
analysis are discussed in Section H.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise indicated.
B. TECHNOLOGY
Secondary lead is lead recovered from new scrap (refinery drosses
and residues), home scrap or runaround scrap (which is generally in the
form of lead metal), and old scrap consisting of product wastes (b-t^ery
plates and oxides, cable covering, pipe, and sheet). Some secondary
lead materials are re-used after remelting without refining, but an
increasing proportion is processed in refineries to meet customer
specifications. Normally, three grades of lead are produced: refined
or soft lead, antimonial or hard lead, and remelt lead.
Soft lead is generally produced from new scrap and/or runaround
scrap. New scrap, composed of drosses and residues, normally contains
various impurities, and must therefore be refined for re-use.
Battery scrap used to produce antimonial lead accounts for the
largest category of lead scrap recycled. Whole battery scrap is decased
to separate the metallic components from the non-metallic waste. The
Ginatta process, developed by an Italian manufacturing company, involves
cutting the bottoms off spent batteries and immersing them directly in
an electrolytic solution preparatory to metal recovery.
Smelting is carried out by feeding the prepared scrap material into
a furnace. If only hard lead (or alloy) is to be produced, all of the
scrap can be charged to the blast furnace. However, producers generally
use reverb/blast furnace combinations to meet customer specifications.
The lead scrap consisting of antimonial lead battery plates, battery
paste containing lead oxide, and other scrap with lead or lead alloy is
melted under mildly reducing conditions in the reverb. Upon melting,
two layers are formed a lead layer containing about half of the
incoming lead and less than 1 percent antimony and other impurities, and
IX-1
-------
a slag layer containing lead oxide (65-90 percent), antimony oxide (5-9
percent), and other impurities.
The reverb slag is cast, cooled, and charged to the blast furnace
along with coke, limestone, scrap iron, sand, re-run slag, and some lead
scrap or residues. The lead produced in the blast furnace, because of
the high antimony reverb slag, typically is antimonial lead containing
2-7 percent antimony.
The lead from the reverb and blast furnaces is refined in kettles by
the addition of various fluxes such as sodium hydroxide, sulfur, and
sodium nitrate, to adjust the final composition to meet the desired
product specifications.
C. INDUSTRY STRUCTURE
1. Overview
The United States is the leading producer of both primary and
secondary lead. In secondary refined lead production, the U.S.S.R.
ranked second, followed by the United Kingdom, the Federal Republic of
Germany, and Italy. Nine countries that refined over 50,000 tons each
in 1981 constituted 77 percent of the world's secondary refined metal
output. The chief source of secondary lead is automobile storage
batteries that have been scrapped after use. In the United States and
other industrialized countries, about 90 percent of the lead used in the
manufacture of storage batteries is recycled.
Production from secondary lead smelters, as shown in Table IX-1,
increased by 36 percent between 1968-1979, peaking at 7^2,000 short tons
in 1979. Secondary lead production has since decreased owing to
inadequate scrap availability and low lead prices. Production in 1982
was 16 percent lower than that of 1979. Nonetheless, secondary lead
supplied about 52 percent of the total domestic demand in 1982, a fall
of only 1.5 percent from the 1979 level. Gradual structural and
technological changes in the industry are expected to result in greater
recycling by the secondary lead industry.
As shown in Table IX-2, domestic exports of lead scrap increased
sharply between 1971-1980. Some of this increase was due to high
domestic costs of processing scrap. In the 1960s, exports averaged
3,600 tons per year. In the 1970s, the average jumped to 60,000 tons
per year, reaching more than 131,000 short tons of lead scrap export in
both 1979 and 1980. However, depressed foreign markets resulting from
the worldwide economic recession in 1981 and 1982 have effected a
substantial decrease in U.S. exports of lead scrap. Exports fell by 57
percent in the 1979-1982 period.
IX-2
-------
TABLE IX-1
U.S. PRIMARY AND SECONDARY LEAD PRODUCTION
(thousands of short tons)
Year
1968
1971
1971
1976
1978
1979
1980
1981
1982
Total
Production
1,018
1,247
1,372
1,276
1,339
1,377
1,215
1,183
1,186
Primary
Refined
467
650
673
653
623
635
604
5U6
565
Secondary3
551
597
699
623
716
742
641
637
621
Secondary
as a $
of Total
54.0
47.8
50.9
48.8
53.4
53.9
51.5
53.8
52.4
SOURCE: Non-Ferrous Metal Data 1982, American
Bureau of Metal Statistics.
a
Does not include production from new scrap.
IX-3
-------
TABLE IX-2
U.S. EXPORTS OF LEAD SCRAP
(short tons)
SOURCE:
Year
1971
1974
1978
1979
1980
1981
1982
Exports
17,091
59,366
108,723
131,998
131,820
65,498
57,047
Non-Ferrous Metal Data 19?
American Bureau of Metal Statistics.
IX-4
-------
2. Secondary Smelters
The secondary lead industry is split into four segments:
1) large integrated battery producers;
2) operators of large or multiplant secondary smelters;
3) small single-plant secondary smelting companies, including
small integrated battery producers; and
4) recycling/remelting firms.
The first three segments primarily smelt battery plates and
oxides, while the recycling/remelting segment reclaims lead from a
variety of obsolete and recycled materials.
a. Integrated Battery Producers
The largest integrated operator is Gould Incorporated, with
two operating plants and about 120,000 tons of lead smelting capacity.
Gould's capacity increased following the opening of a new 80,000-ton-
per-year secondary lead smelter in Los Angeles.
General Battery Inc. and Chloride Inc. (a British company)
each have more than one secondary smelter and each total over 10,000
tons in annual lead capacity. Exide (Refined Metals) recently closed
two smelters at Beech Grove, Illinois, and Jacksonville, Florida, and
now operates only one facility, in Memphis, Tennessee.
b. Large Secondary Smelting Companies
In addition to the large integrated battery manufacturers, a
number of firms produce secondary lead at large smelters. The largest
of these firms is RSR, with five plants and a total capacity approaching
200,000 tons. Other large firms with capacity at several plants include
Schuylkill Metals, Taracorp, and Bergsoe. In addition, several other
single-plant firms have significant capacity, including Sanders Lead
(Troy, Alabama), Tonolli (Nesquehoning, Pennsylvania), and ILCO (Leeds,
Alabama).
c. Small Independents and Integrated Battery Producers
There are approximately 13 small independent secondary
smelter operators, four of which are integrated battery producers.
These firms operate smelters producing from 1,000 to 20,000 tons of lead
per year. These firms range from old established firms, such as Viener
Metals, to the new secondary smelter in Tennessee opened in 1980 by Ross
Metals. Also included in this group is National Smelting and Refining,
a subsidiary of Standard Metals Corporation, which operates the
Sunneyside lead-zinc mine in Colorado. These two groups represent
almost 20 percent of total secondary smelting capacity.
IX-5
-------
d. Recyclers/Remelters
Small tonnages of lead are reclaimed in remelting
operations. The main sources of lead metal are cable scrap, type metal
and alloys, lead-bearing slags and drosses, and scrap resulting from
battery production processes. A large plant producing 10,000 batteries
per day would remelt about 1,000 to 1,500 tons of lead waste per year on
an intermittent basis that is, whenever enough waste is accumulated
to make remelting worthwhile.
Some of the lead remelters included in this category are
Delco-Remy, Nassau Smelting (a subsidiary of Western Electric which
reclaims lead cable), Asarco-Federated Division, Roth Brothers, Canton
Metals, River Smelting, Inland Metals, and Detroit Smelting.
Actual secondary production is constrained by lead scrap
availability. These producers probably produce about 80,000 tons in
reverb and rotary-type furnaces on an intermittent basis.
D. LEAD DEMAND
Demand for lead is independent of the production source, whether
primary or secondary. Batteries, chemicals, paints, and ammunition are
the major end-use markets for lead. For a description of these markets
and demand patterns for the lead industry as a whole, see Chapter V,
Section D.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
Most of the firms engaged in secondary lead smelting and battery
manufacture are privately held. However, irrespective of their
ownership status, practically all secondary manufacturers follow the
price set by the primaries. Some of them have installed equipment to
remove antimony from recycled antiraonial lead to achieve the higher
purity soft lead. This move has led to direct competition between the
primaries and the secondaries.
The 1980-1982 decline in lead prices has created a difficult market
environment for most secondary producers. Low lead prices and non-
availability of scrap resulted in a capacity shutdown of about 320,000
tons between 1979-1981. NL Industries, formerly the largest producer of
secondary lead with nine secondary smelter facilities, divested itself
of its metal recovery operations in 1979 by selling all but two of its
recycling plants.
Three large battery producers, each with more than U0,000 tons of
smelter capacity, are now highly integrated with two or more smelters.
In addition, four other non-integrated secondary lead producers have
large or multiple plants with more than 60,000 tons of smelting
capacity. While total secondary capacity totalled over 1.0 million tons
in 1982, available lead scrap was limited to about 750,000-850,000 short
tons, of which foreign buyers acquired 14-15 percent. Low ocean
transport costs enabled foreign buyers to bid competitively for U.S.
lead scrap in some coastal markets, e.g., San Francisco and Boston.
IX-6
-------
Lead is an internationally traded commodity; its price is determined
in the world marketplace. Both primary and secondary producers have
very little influence on the determination of this price. The domestic
market price varies from the London Metal Exchange price only to the
exten.t of the import duty and transportation charges.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the secondary production of lead will experience constant real incomes
over the lifetime of the compliance equipment. The income level used is
based on the average prices and capacity utilization rates for the 1978-
1982 period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the secondary lead industry.
The lead price for the analysis is $906.32 per ton (see Table IX-
3). The capacity utilization rate is 67 percent (see Table IX-JJ). For
both prices and utilization rates, the values used in the analysis show
improvement over 1982. This assessment is consistent with publicly
available information from the Department of the Interior's Bureau of
Mines (BOM), which shows an overall improvement in the secondary lead
industry. Specifically, the BOM projects secondary lead demand to
increase at an average annual rate of 2 percent from 1981 to 2000
(MineralCommodity Profiles, Bureau of Mines, 1983).
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the secondary lead
industry are described in the Development Document. The treatment
options considered for this industry are as follows:
Option A - This option includes equalization, chemical
precipitation, and sedimentation, with oil skimming
where necessary.
Option B - This option includes Option A plus flow reduction of
casting water via a holding tank or cooling tower.
Option C - This option includes Option B plus multimedia
filtration of the final effluent.
2. Costs for Existing Plants
The costs for three treatment options are analyzed. The
compliance cost estimates for each of the plants are presented in Table
IX-5.
In addition to effluent control regulations, the secondary lead
smelting industry will also be subject to lead exposure limitations,
which have been promulgated by the U.S. Occupational Safety and Health
IX-7
-------
TABLE IX-3
AVERAGE ANNUAL U.S. PRODUCER PRICE OF LEAD
Year
1978
1979
1980
1981
1982
Cents per Pound
Actual 1982 Dollars
33.7 16.43
52.7 66.79
12.1 49.17
36.5 38.69
25.5 25.50
1982 Dollars per Ton
928.60
1,335.80
983.40
773.80
510.00
Average price = $906.32
SOURCE: Mineral Commodity Profiles, U.S. Department
of the Interior, Bureau of Mines, 1983.
IX-S
-------
TABLE IX-U
SECONDARY LEAD PRODUCTION AND CAPACITY
(thousands of short tons)
Year
1978
1979
1980
1981
1982
Production
848
883
715
707
612
Capacity
Capacitya Utilization
1,138
1,138
1,138
1,138
1,138
Average
75$
78$
65$
62$
54$
= 67$
SOURCE: Production Data Mineral Commodity Summaries, U.S. Department
of the Interior, Bureau of Mines, 1983. Capacity Data (1982)
Economic and Environmental Analysis of the Current OSHA Lead Standard,
U.S. Department of Labor, Occupational Safety and Health Administration,
1982,
Historical data are not available on industry capacity. Industry
sources suggest capacity levels remained relatively constant over the
1978-1982 period.
IX-9
-------
TABLE IX-5
SECONDARY LEAD COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
Direct Dischargers
225
231
271
391
H28
652
655
6605
Subtotal
Indirect Dischargers
222
223
239
211
2148
219
251
263
26H
265
266
272
273
392
1427
6601
6602
6603
66014
6606
6608
6611
66T4
6615
9001
Subtotal
Investment Costs
Option A
106,700
110,375
198,962
152,212
111,562
305,800
110,687
197., 725
1,631,023
211 ,062
282,150
73,700
277,175
172,975
263,725
106,150
111,100
175,037
91,875
92,125
71,250
319,525
109,725
71 ,775
171,167
157,050
71,500
121,987
11,990
57,175
0
0
0
301,537
3,691,375
5,325,398
Option B
106,700
111,375
198,962
152,212
111,562
305,800
110,687
197,725
1,631,023
211 ,062
282,150
73,700
298,375
172,975
263,725
106,150
111,100
175,037
91,875
92,125
71,250
319,525
109,725
71,800
171,187
157,050
71,500
121,987
11,990
57,175
0
0
0
301,537
3,718,300
5.319,323
Option C
126,225
179,850
221,675
182,162
111 ,650
331,512
112,150
232^512
1,861,336
216,287
308,825
101,062
319,687
203,637
281,187
128,837
168,575
205,562
116,050
116,187
81,287
373,037
133,100
77,825
218,762
^33,637
80,025
116,137
15,565
82,362
9,625
2,750
3,025
327,250
1,256,883
6,118,219
Total Annual Costs
Option A
17,391
113,390
57,121
78,063
102,712
82,913
73,118
129,161
683,930
56,106
89,817
55,611
71,922
85,132
70,719
20,003
81,255
89,516
69,150
60,113
31,020
80,777
59,986
153,090
101,811
108,507
32,682
62,580
3,088
10,831
0
0
0
85,512
1,311,922
2^28 ,852
Option B
17,391
113,390
57,121
78,063
102,712
82,913
73,118
129,161
683,930
56,106
89,817
55,611
73,697
85,132
70,719
20,003
81,255
89,516
69,150
60,113
31,020
80,777
59,986
16,251
101,811
108,507
32,682
62,580
3,088
10,831
0
0
0
85,512
1,317,558
2,031,188
Option C
52,118
123,907
61,535
86,602
110,672
90,356
82,252
139,186
719,958
58,912
97,608
63,632
80,327
93,839
76,112
26,291
91,228
98,212
71,711
67,218
36,392
87,103
66,533
17,706
116, 199
131,819
36,930
68,298
1,063
11,013
1,178
1,562
1,121
92,926
1,507,926
2,257,881
SOURCE: U.S. Environmental Protection Agency.
IX-10
-------
Administration (OSHA). The lead standards are expected to result in
compliance costs at approximately the same time as the effluent control
regulations. In order to properly assess the effect of the effluent
control costs, the lead standard costs and impacts were incorporated
into the baseline of the following analysis (discussed in the Response
to Comments, included in the rulemaking record). Thus, the following
analysis is incremental over the impacts associated with the OSHA
regulations, and the conclusions appropriately reflect the costs of
effluent controls.
H. ECONOMIC IMPACT ANALYSIS
1. jcreening Analysis
The plant-specific compliance costs are used to assess the
probability of plant closures using the methodology presented in Chapter
II. Individual plants are screened by comparing total annual compliance
costs to annual revenues. The threshold value for this screen is 1
percent. If the compliance costs for a plant represent less than 1
percent of revenue, the plant is assumed not to face difficulties with
the cost of pollution control requirements.
The results of the screening assessment show that four indirect
dischargers and one direct discharger have total annual compliance costs
greater than 1 percent of their annual revenues under all three
treatment levels. One direct discharger exceeds the threshold for
Option C only. These plants have been analyzed further using the
liquidity test and the net present value (NPV) test.
2. Plant Closure Analysis
The plants failing the screen were further analyzed using the
liquidity test and the net present value test. The liquidity test
assesses the short-term viability of the firm. If the pollution control
expenditures cause negative cash flow over a short period (five years),
the plant may not have adequate cash reserves to meet short-term
contingencies. The results for these six secondary lead plants indicate
that all cash flows are positive, so that all plants are viable in the
short run.
For the NPV test, the ratio of income to liquidation value, as
defined in Chapter II, is greater than the real cost of capital (4.0^4
percent) for all six plants under all options. The net present value
test evaluates the long-term economic viability of a firm. Based on the
results of the liquidity and NPV tests, it is estimated that plants in
the secondary lead industry will remain profitable and no closures will
result from this regulation.
IX-11
-------
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase In Cost of Production
The effect of regulatory compliance on the financial
performance of the secondary lead industry is evaluated in terms of the
increase in cost of production. An estimate of the increase in cost of
production is made using the incremental compliance costs. The
following table presents the estimated increases in cost of production
under all three alternatives.
Direct Dischargers
Indirect Dischargers
Increase in
Cost of Production
Option A
o.io
0.31
Option B
0.10
0.31
Option C
0.41
0.35
As shown in the table, the increase in cost of production is
less than 0.5 percent, even under the most costly option. These low
results suggest that there will not be any significant increases in the
production costs of the secondary lead industry.
b. Price Change
Production costs will increase as a. result of incremental
pollution control costs. The table below shows the maximum price
increase under each option, if producers are able to pass on compliance
costs to consumers in the form of increased prices. The assumption of
complete cost pass-through is not used in the closure or screening
analyses.
Direct Dischargers
Indirect Dischargers
Price Change
Option A
0.39
0.30
Option B
0.39
0.30
Option C
0.13
0.31
IX-12
-------
The maximum price increase is only 0.43 percent; hence, the
price increase, if implemented, would not have a significant impact on
the industry.
c. Change in Return on Investment
Additional compliance costs may adversely affect
profitability by reducing profit margins and consuming investment
capital. The table below summarizes the decrease in profitability.
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option A
-15.38
-12.16
Option B
-15.38
-12.19
Option C
-16.90
-13.64
The decrease in profitability represented by the above
results is not expected to cause a significant impact on plant
profitability.
d. Capital Impac ts
The estimated pollution control investment costs for each of
the secondary lead plants is compared to the annual capital expenditures
of the industry. The table below summarizes the effect of new
investment costs.
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditures
Option A
28.34
21.42
Option B
28.34
25.59
Option C
32.34
29.29
This table shows that incremental capital costs are between
24-32 percent under all three options. Costs of this magnitude should
not have an adverse impact on the availability of funds for other
capital projects.
e. Employment Impacts
Employment impacts have been evaluated relative to plant
closures and production change. For minor changes in production levels,
no significant change in employment is anticipated. As no plant
closures were identified in the secondary lead industry, no major
production changes have been identified. The compliance costs are thus
estimated to have no impact on employment.
IX-13
-------
f. Foreign Trade Impacts
The economic impact of the compliance costs on the balance
of trade is studied in relation to changes in domestic price and
production. As no significant changes in price or production have been
estimated, the balance of trade will not be specifically affected as a
result of the additional pollution control costs.
IX-14
-------
CHAPTER X
SECONDARY SILVER
-------
X. SECONDARY SILVER
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States secondary silver industry of the cost of alternative
pollution control technologies.
The technology used in silver production is discussed in
Section B. The structure of the domestic industry, i.e., the size,
location and .ownership of the plants, is presented in Section C.
Section D discusses silver demand characteristics and end-use markets,
and Section E describes current capacity utilization and price trends.
Section F estimates prices and capacity utilization for the expected
time of compliance. Section G presents the cost estimates for the
alternative control options. Section H presents the results of the
economic impact analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise indicated.
B. TECHNOLOGY
Three major classes of scrap low grade, film, and metallic are
processed for recovery of silver. The low-grade material includes film,
circuit board scrap, sweepings, polishing residues, and sludges from
pollution control devices at nonferrous smelters. These materials are
either chemically treated or more commonly burned to recover the metal
values. The resulting ash or chemical concentrate is then melted with
metallic scrap from jewelry and tableware manufacturing and upgraded
hydrochemically to remove any base metals. If no other precious metals
are present, the refined silver is fabricated into usable forms and
sold. If gold or other precious metals are to be recovered, the silver
is cast into anodes for electrolytic separation. The silver
electrolytic cells separate the silver from the other precious metals.
The silver is deposited onto a cathode with the gold and other precious
metals remaining behind in a cloth-wrapped anode.
Silver from photographic film is usually recovered by chopping
followed by acid stripping of the silver from the film. The silver-rich
solution is separated by sedimentation, decantation, and filtration.
The plastic portion of the film is usually disposed of as solid waste
while the solution is treated to precipitate silver. The dried cake
undergoes roasting, and the roasted metal is then cast into ingots or
Dore plates. The furnace slag is crushed and classified and the silver
concentrate is returned as furnace feed while the tailings are
landfilled. Alternately, photographic film may be burned with the
silver-bearing ash undergoing roasting followed by casting into ingots
or plates.
X-l
-------
Dore plates are electrolytically refined on site or, occasionally,
shipped to others. If electrolytic refining is practiced, the cell
slimes may be further processed for gold and platinum recovery.
Silver-rich solutions from photographic film development and
manufacturing undergo precipitation and purification as described
above. The recovery of silver from photographic wastes is usually done
on a toll basis.
High purity metallic waste is melted after separation and reused if
the quality is high. Lower quality scrap is melted and cast as silver
bullion and sent to an electrolytic refinery.
C. INDUSTRY STRUCTURE
1. Overview
Secondary silver plays an important part in the balancing of
supply and demand of silver. As shown in Table X-1, old scrap (used
photo film and other products) accounts for approximately 50 percent of
total production. Secondary silver production was the highest in 1980
(the year of record high prices). Total silver production reached a
high in 1980 as well 132.745 million troy ounces. As silver prices
rose, coins became a source of silver for other uses. Silver coins
accounted for 13.11 percent of total production in 1980. Since 1980,
however, falling prices have led to the re-appearance of silver coins.
Silver scrap is purchased based on value of the contained
silver, wherein the purchase price is determined after deducting
processing costs. Smelting and refining operations are also conducted
on a custom or toll basis, where the scrap is processed for the customer
without actually taking title for the material. As shown in Table X-2,
in 1981, 74 percent of total production came from the refiners' own or
purchased materials. The remainder was produced on a toll basis. In
1980, production on a toll basis was 56.38 million troy ounces, or 34
percent of total refined production.
In 1982, total U.S. consumption of silver was about 125.1
million troy ounces. About 22 percent of this came from the secondary
silver industry. The photographic industry, accounting for 40 percent
of silver consumption, provided substantial portions of old scrap for
recycling.
The United States has traditionally been a net importer of
refined silver. In 1980, the year of the record high prices and
secondary production, exports rose by approximately 250 percent from the
1979 level, to reach 57.205 million troy ounces. However, in spite of
such a vast increase in exports, the United States remained a net
importer of refined silver (Table X-3). Exports fell dramatically (by
about 74 percent) in 1981 from 1980 levels. Imports, as a percent of
apparent consumption, averaged 42 percent between 1978-1982. In 1982,
imports averaged 97 million troy ounces of silver. The principal
sources for imported silver in 1982 were Canada (37 percent), Mexico (24
percent), and the United Kingdom (5 percent).
X-2
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TABLE X-2
REFINED SILVER PRODUCTION BY OWNERSHIP OF SOURCE MATERIALS
(999 Fine in thousands of troy ounces)
Year
1978
1979
1980
1981
1982
Total
Production3
137,325.5
151,233.2
166,326.2
130,782.8
108,251.8
Refiners'
Own or
Purchased
Materials
105,979.4
107,084.6
109,944.2
97,581.3
~b
Percent
of Total
Production
77.17
70.81
66.10
74.61
~b
Toll
for
Others
31,346.1
44,148.6
5,638.2
33,201.5
b
Percent
of Total
Production
22.83
29.19
33.90
25.39
b
SOURCE: Non-Ferrous Metals Data ~ 1982, American Bureau of Metal
Statistics.
aTotal production includes production from new scrap.
Reporting discontinued.
X-4
-------
TABLE X-3
U.S. IMPORTS AND EXPORTS OF REFINED SILVER
(Thousands of troy ounces)
Year
1978
1979
1980
1981
1982
Imports
61,359
78,372
61,763
75,920
96,917
Exports
9,989
16,331
57,205
15,131
12,875
Net Exports
(Imports)
(51,370)
(62,041)
(7,558)
(60,789)
(84,042)
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics,
Inc.
X-5
-------
2. Description of Plants
Entry into the secondary silver industry is relatively easy
since the refining of high-grade silver scrap is an uncomplicated
operation requiring little capital. Two large companies, Handy and
Harraan, Inc. and Engelhard Minerals and Chemical Corporation, each
control a large portion of the secondary market. These companies are
vertically integrated from smelting scrap through refining, and
downstream into fabrication and production. Both companies also produce
other precious metals.
D. SECONDARY SILVER DEMAND
Silver is critical to the production of many manufactured
products. It provides high electrical conductivity, resistance to
oxidation, and strength at a wide range of temperatures. Silver
consumption in many end uses is based upon the superior performance of
the metal or one of its compounds. Silver consumption by end-use is
presented in Table X-4.
1. Photography
The largest domestic use of silver is in the production of
photographic materials. The light-sensitive properties of silver
halides are critical to the manufacture of photographic film for
military and civilian applications. This sector accounted for an
average of 37 percent of total silver consumption between 1971-1982.
Silver consumption in photography was approximately 5 percent less in
1982 than the 1981 level. The decrease has been attributed to the
development of substitutes for the silver halides and to technological
developments such as nonphotographic diagnostic equipment and electronic
cameras.
2. Electrical and Electronic Components
Electrical contacts and conductors accounted for about 29
percent of total consumption in 1982. Silver used as contact metal in
switches is highly reliable because of its high conductivity and
resistance to oxidation at elevated temperatures. Batteries
incorporating silver are used in certain military and aerospace
applications and have a long shelf life, high surge voltage under load,
and temperature stability.
3. Electroplated Ware, Sterlingware, Jewelry and Arts
Silver consumption in these end uses ranged between 13.7-^9.7
million troy ounces between 1971-1981. Silver usage in electroplated
ware in 1982 declined by about 6^4 percent from the 1971 level, and that
in sterlingware fell by about 81 percent. The development of new
techniques for plating with thinner coats and less waste accounted for
the low consumption of silver in electroplated ware. Silver usage in
both sterlingware and jewelry is dependent on fashion trends and
economic conditions. U.S. consumption of silver in jewelry and arts has
X-6
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generally remained at a low level, averaging about 6.7 million troy
ounces between 1971-1981.
4. Brazing Alloys and Solders
Silver-containing brazing alloys are used in refrigeration
equipment, electrical equipment, motor vehicles, some aircraft parts,
and in plumbing and heat exchanger equipment, all of which have
important defense applications. Silver improves the wettability, joint
strength, and flow properties of some solders, and silver in brazing
alloys can wet various base metals at temperatures below their melting
points. Brazing alloys and solders accounted for about 7 percent of
total consumption between 1971-1982.
5. Other
Miscellaneous uses accounted for about 11 percent of total
consumption in 1982. Miscellaneous uses of silver include silver
consumption in coins, medallions, commemorative objects, medicine, and
dentistry. The important uses of silver in medicine and dentistry are
as antiseptics in the treatment of certain infections and as an amalgam
for dental fillings.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
Silver is an internationally traded commodity, with a unified world
market where the price is largely determined by worldwide supply and
demand forces. Speculation in this precious metals market has also
caused some wild fluctuations in prices. The most notorious case in the
recent past has been the Hunt episode in 1979, which sent silver prices
spiralling upwards before bringing down a total collapse of the
market. In December 1979, silver had reached a record high level of $28
per troy ounce. In 1980, the price averaged $20.63 per troy ounce; it
subsequently fell by 64 percent to $7.50 per troy ounce in 1982. These
prices are still higher than historic average prices. These high prices
have led to the exploration and development of previously uneconomic
deposits. The secondary silver refiners benefit from high prices
because the supply of secondary silver increases during such periods.
Domestic and foreign coins, worldwide private and commodity exchange
accumulations, and personal accumulations represent the main sources of
secondary silver to be reclaimed, smelted, and channeled into industrial
production.
A number of secondary refiners have expanded their capacity as a
result of high silver prices. For example, Engelhard Corporation
substantially expanded its capacity in 1982.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the secondary production of silver will experience constant real incomes
over the lifetime of the compliance equipment. The income level used is
based on the average prices and capacity utilization rates for the 1978-
XQ
o
-------
1982 period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the secondary silver
industry.
The silver price used for this analysis is based on the U.S.
price. Historically, U.S. and London market prices have been
practically identical. The silver price for the analysis is $12.90 per
troy ounce (see Table X-5). The capacity utilization rate is 61 percent
(see Table X-6). For both prices and utilization rates, the values used
in the analysis show improvement over 1981 and 1982. This assessment is
consistent with publicly available information from the Department of
the Interior's Bureau of Mines (BOM). Projections by the BOM show that
demand for secondary silver will remain relatively flat through 1990,
showing only a slight increase over 1981. (Mineral Commodity Profiles,
Bureau of Mines, 1983). The average prices and capacity utilization
rates used in this analysis to estimate plant income also show only
slight improvement over 1981 values.
These estimates apply to all producers, regardless of whether a
plant takes ownership of the silver in the scrap or processes the silver
on a toll or fee basis. This is because both the fee charged by a
tolling operation and the discount at which a scrap refiner purchases
scrap reflect the difference between the market value of scrap and
market value of silver. In addition, many scrap refiners frequently
operate on a toll basis, depending on market conditions. The similarity
of the two types of operation warrants the use of similar prices and
capacity utilization.
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the secondary silver
industry are described in the Development Document. The treatment
options considered for this industry are as follows:
Option A - This option includes flow reduction via recycle using
holding tanks on all scrubber streams, ammonia steam
stripping (where required), equalization, chemical
precipitation, gravity settling, and partial effluent
recycle for floor wash.
Option B - This option includes Option A plus additional flow
reduction of furnace scrubber effluent to achieve
zero discharge and flow reduction via cooling tower
recycle of casting contact cooling water.
Option C - This option includes Option B plus multimedia
filtration of the effluent.
X-9
-------
TABLE X-5
U.S. SILVER PRICES
(dollars per troy ounce)
Year
1978
1979
1980
1981
1982
Actual 1982 Dollars
5.40 7.44
11.09 14.06
20.63 23.92
10.52 11.15
7.95 7.95
Average = 12.90
SOURCE: Non-Ferrous Metal Data 1982,
American Bureau of Metal Statistics, Inc.
X-10
-------
TABLE X-6
SECONDARY SILVER CAPACITY UTILIZATION RATES
(million troy ounces)
Year
1978
1979
1980
1981
1982
Production
82.9
94.2
125.8
86.4
64. 0
Capacity3
148.0
148.0
148.0
148.0
148.0
Capacity
Utilization (*)
56*
65*
85*
58*
43*
Average = 61$
SOURCE: Non-Ferrous Metals Data 1982,
American Bureau of Metal Statistics, Inc.
Historical data are not available on industry
capacity. Industry sources suggest capacity levels
remained relatively constant over the 1978-1982 period.
X-ll
-------
2. Costs for Existing Plants
Compliance costs for each treatment option have been estimated
for each plant and are listed in Table X-7.
H. ECONOMIC IMPACT ANALYSIS
Group ratios calculated from annual reports for this subcategory
reflect the financial conditions of large secondary silver producers
more accurately than small producers (small plants are defined as having
a production capacity of 25,000 troy ounces per year or less). For this
reason, separate group ratios were calculated for small plants using the
Small Business Administration's FINSTAT data base. The ratio values
calculated for small plants are lower than those for large plants.
1. Screening Analysis
The plant-specific compliance costs for the alternative control
technologies for each smelter are evaluated against anticipated
revenues. If the compliance cost represents more than 1 percent of
anticipated revenue, the plant is considered for further analysis.
The results of the screening assessment show that four plants
and five product lines are expected to incur total annual costs greater
than 1 percent of revenues. A product line refers to a silver producing
operation within a plant that manufactures other precious metals. All
plants and lines failing the screen were studied in more detail in the
closure analysis using the net present value (NPV) test and the
liquidity test.
2. Closure Analysis
The four plants and five lines with high compliance costs
relative to revenues are analyzed to assess the likelihood of their
closure. Applying the methodology described in Chapter II, detailed
plant-specific data for individual plants were estimated using the NPV
test and the liquidity test.
The liquidity test evaluates a firm's short term viability by
examining the short-run (five-year) total cash flow. Under Option C,
four product lines are expected to encounter severe cash problems. The
results of the liquidity test show that pollution control expenditures
cause negative cash flow over a short period for all of these lines.
The NPV test evaluates a firm's long-run viability. If the ratio of
operating income to plant liquidation value exceeds the real cost of
capital for the industry (20.69 percent for large plants, 13.1 percent
for small plants), the plant is sound in the long run. The results of
the NPV test show that two plants and five lines, four of which were
also liquidity test failures, do not pass the test under any of the
three regulatory options (see Table X-8).
None of the potential plant or line closures produces more than
1,000 pounds or 14,600 ounces of silver per year. In fact the average
X-12
-------
TABLE X-7
SECONDARY SILVER COMPLIANCE COST ESTIMATES
(1982 dollars)
Plant ID
Number
Direct Dischargers
519
563
611
30927
25
1128
Subtotal
Indirect Dischargers
71
157
538
1301
9023
1018
1029
1053
1063
1072
1081
1101
1138
1165
18
1023
160
9020
1092
1100
118
1117
578
1161
1167
1201
Subtotal
TOTAL
Investment Costs
Option A
21,062
0
11,962
65,312
1,100
__T_j975 '
110,111
178,062
0
73,012
29,975
3,203
0
50,162
2,035
30,112
1,959
2,378
2,175
0
1,237
5,610
1,113
82
22,550
0
10,862
11,770
0
31
8,112
67,100
62,700
561,810
675,251
Option B
21,062
0
11,962
65,312
1,100
7,975
110,111
178,062
0
73,012
29,975
3,203
0
50,162
2,035
30,112
1,993
2,378
2,175
0
1,237
5,610
1,113
82
31,237
0
10,862
11,770
0
31
8,112
67,100
62,700
576,561
686 ,972
Option C
28,050
0
11,137
219,312
1 ,100
11,712
277,611
178,062
0
76,150
32,725
6,916
0
50,696
1,510
32,150
3,613
1,991
5,087
112
1,512
6,160
1,113
110
11,112
115
11,687
13,282
0
1,569
9,075
77,825
63.937
629,739
907 , 350
Total Annual Costs
Option A
17,831
261
5,107
163,588
2,868
21,111
210,806
75,110
162
26,392
9,311
2,739
66
13,009
3,967
12,112
1,557
2,511
1,783
505
791
2,053
317
11
38,257
680
3,193
5,111
261
2,123
1,376
61,197
18,027
286,710
197,516
Option B
17,831
261
5,107
163,588
2,868
21 ,111
210,806
75,110
162
26,392
9,311
2,739
66
13,075
3,967
12,112
1,562
2,511
1,783
1,863
791
2,053
317
11
11,210
680
3,193
5,111
261
2,123
1,376
61,197
18,027
291,121
501.927
Option C
19,968
261
6,361
222,237
3,073
_23.595
275,501
77,905
162
27,960
11 ,Mi4l
1,161
66
13, 178
5,091
13,372
2, 120
3,826
2,805
2,072
895
2,288
U08
51
11,798
719
3,978
5,856
261
1,593
1,821
65,251
18,523
316,915
592,116
SOURCE: U.S. Environmental Protection Agency.
X-13
-------
TABLE X-8
SECONDARY SILVER ~ SUMMARY OF POTENTIAL CLOSURES
Direct
Dischargers
Indirect
Dischargers
Plants
Incurring Cost
6
26
Potential Closures
Plants
1
1
Lines
0
5
Total
1
6
Total Closures as % of
Plants Incurring Cost
17
23
X-14
-------
capacity for the seven plants and lines is just over 5,000 ounces per
year. Two of the lines produce less than 500 ounces per year. The
impact of these potential closures on the silver industry is expected to
be small because their combined capacity is less than 0.03 percent of
that for the industry. Any drop in production from these plants will
probably be replaced by other plants.
The five potential line closures are at plants that also produce
other precious metals. The value of silver production did not exceed 1
percent of the total value of shipments for any of these plants in
1982. These plants are therefore likely to continue their non-silver
operations if these remain profitable. Furthermore, inasmuch as the
plants will be covered by other effluent regulations, the actual
incremental cost of compliance for the lines mentioned above will
probably be less than that estimated for this analysis.
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The cost structure of the plants in the secondary silver
industry is highly variable, being strongly dependent upon the type of
scrap being utilized and the size of the operation. There is also a
great variation in tolling fees as a function of scrap. Limited
information indicates that significant economies of scale exist within
the industry. The table below summarizes the increase in the cost of
production, where the cost of production is assumed to equal plant
revenues minus operating income.
Direct Dischargers
Indirect Dischargers
Increase in
Cost of Production
Option A
O.OU
0.19
Option B
o.ou
0.19
Option C
0.05
0.21
The table shows that the maximum increase in cost of production is no
more than 0.21 percent. Therefore, additional pollution control
expenditures are not expected to have a significant effect on the cost
structure of the industry.
X-15
-------
b. Price Change
With the increase in the cost of production as a result of
pollution control expenditures, producers, in order to maintain
profitability, may try to pass compliance costs on to consumers. Even
though this pass-through assumption is not used for the screening and
closure analyses, here it represents the maximum price increase that
could be associated with the increase to cost of production., The table
below summarizes the price effects on the secondary silver industry.
Direct Dischargers
Indirect Dischargers
Price Change
Option A
O.OU
0.17
Option B
O.OU
0.17
Option C
0.05
0.19
The maximum price increase is expected to be low and, therefore, would
not have a significant effect on the industry.
c. Change in Return on Investment
Additional pollution control expenditures may affect the
profitability of the industry. The change in profitability can be
analyzed by examining the change in return on investment (ROI). The
potential impact of the compliance costs is shown below.
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option A
-O.U1
-2.57
Option B
-O^H
-2.61
Option C
-0.62
-2.84
The estimated reduction in revenues is based on the assumption that the
industry absorbs all incremental pollution control expenditures. The
change in ROI ranges from -Q.W to -2.84, and is not considered a
significant factor in plant profitability.
d. Capital Impacts
Secondary silver plants are affected in different ways by
the additional capital expenditures required to set up new treatment
equipment. The relative differential is rather large, depending on
plant size and treatment already in place, and varies from insignificant
amounts to $178,062. The table below illustrates the impact of
X-16
-------
investment compliance costs on plants' ability to finance new plant
expenditures.
Direct Dischargers
Indirect Dischargers
Investment Cost
as a it of Capital Expenditures
Option A
1.93
33.48
Option B
1.93
34.18
Option C
4.85
37.33
The results show that for some plants the investment compliance costs
represent a substantial portion of capital expenditures. This is
reflected in the potential closures identified in the closure analysis.
e. Employment Impacts
Employment impacts are measured by the total number of jobs
lost at plants expected to close. The two plants and five lines
identified as potential closures for Option C are small operations. The
total number of jobs lost is estimated to be 62.
This figure represents total employment at the plant and,
therefore, overstates the potential number of job losses because, as
stated above, only the silver product line has been identified as a
potential closure. The impacts on the communities where these plants
are located will be minimal since the plants and lines are spread across
the country and in any given area represent a small portion of the total
community employment.
f. Foreign Trade Impacts
The economic impact of this regulation on foreign trade is
the combined effect of price pressure from higher costs and production
loss due to potential plant closure. Despite a highly competitive world
silver market, price pressure resulting from these regulations is not
expected to materialize. Even if domestic producers pass through all
compliance costs, prices would rise by at most 0.20 percent. Therefore,
no adverse foreign trade effects are anticipated from price pressure.
Under the assumption that the seven candidates identified as potential
closures do in fact close, and this production is lost to domestic
producers, domestic secondary silver capacity will fall by only 37,000
troy ounces. This potentially lost capacity represents less than 0.3
percent of current domestic capacity. A decline in productive capacity
of this small magnitude is not expected to significantly affect foreign
trade.
X-17
-------
CHAPTER XI
PRIMARY COLUMBIUM/TANTALUM
-------
XI. PRIMARY COLUMBIUM/TANTALUM
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary colurabium/tantalum industry of the cost of
alternative pollution control technologies.
Section B of the chapter briefly describes the technology. The
structure of the industry, including the size, location, and ownership
of the plants is presented in Section C. Section D discusses demand
characteristics and end-use markets. Section E describes current trends
of the industry. Section F describes price and capacity utilization
estimates. Section G contains the cost estimates for the alternative
control technologies; Section H presents the results of the economic
impact analysis.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise indicated.
B. TECHNOLOGY
Columbium and tantalum have strong geochemical coherence, are
closely associated, and are frequently found together, often in
association with other minerals.
1. Columbium
Colurabium occurs in ores mixed with tantalum in varying degrees,
often associated with tin. The columbium content of the ore may range
from as high as 83 percent to almost none. Columbium may also be a
byproduct of tin smelting, where as much as 14 percent columbium may be
present in the slag, together with lesser amounts of tantalum.
Separation by gravity is usually the first step in concentrating
the ore, followed by magnetic or electrostatic separation and
flotation. Processing depends on the mineral content, which may vary
within a single deposit, so most mills are designed for flexibility.
Columbium concentrates, pyrochlore and columbite, may be
processed into columbium metal, columbium oxide, columbium carbide
and/or ferroalloys. Pyrochlore concentrates have been solely used in
the manufacture of ferrocolumbium for steelmaking. Columbite
concentrates and related raw materials, on the other hand, are used to
make columbium oxide for conversion into other columbium materials.
For production into ferroalloys, the concentrates are generally
directly smelted. In the electric furnace process, the concentrates are
reduced to metal with silicon or ferrosilicon alloys, and lime or
silica. A less common process is the thermite method, which us'es
aluminum as the reducing agent. In both methods, the reaction product
XI-1
-------
is cooled and crushed, and the alloy is mechanically separated from the
slag, ready for marketing.
For production into columbium metal, the ore concentrates are
decomposed by fusion with hot sodium hydroxide or, in the case of tin
slags, smelted with coke. The product is leached with water and acid,
then boiled with hydrofluoric acid.
The columbium and tantalum that remain after filtering can then
be separated by the Marignac process, by liquid-liquid extraction, or by
fractional distillation. The liquid-liquid, or solvent extraction,
process is the most widely used. Columbium compounds are dissolved from
an aqueous solution into an organic solvent at a different acidity.
Columbium is then precipitated as oxyfluoride and is roasted to produce
a pure oxide. Columbium oxide is reduced to metal by the thermite
process followed by electron beam melting.
2. Tantalum
Tantalum-bearing ores have been obtained from deposits that
frequently contain columbium. Refinable tantalum ore is either high in
tantalum and low in unrefinable impurities or is high enough in
columbium content to warrant refining both as co-products. Tantalum is
also produced as a byproduct of tin mining, from the mineral tantalite.
Processes for obtaining concentrates from ores generally employ
flotation and magnetic separation. The concentrates are usually sold on
the basis of pentoxide content and percentage of tantalum to total
weight.
Production of tantalum from concentrates consists of three
production stages: (1) relatively pure intermediate compounds, such as
tantalum oxide or potassium tantalum fluoride, are produced from
concentrate; (2) the compounds are refined to pure metal powders; and
(3~) ingot is formed from the powder.
The concentrates are digested with hydrofluoric acid to form
fluorides. After filtering to remove undissolved impurities, liquid-
liquid extraction is used to separate the mixed fluorides from any
remaining dissolved impurities and produce the purified fluoride
products.
Potassium tantalum fluoride is reduced to tantalum metal in one
of two ways, depending on the desired grade. High quality capacitor-
grade powder is made by a sodium reduction process. Electrolytic
reduction yields a less pure product suitable for alloys, but this
process is not currently practiced.
The final stage is fabrication of ingot into rod, sheet or
wire. Depending on circumstances, melting is accomplished either by arc
casting or by electron-beam melting.
XI-2
-------
C. INDUSTRY STRUCTURE
1. Columbium
a. Overview
The United States has been a small producer of columbium
since 1959f when small unreported quantities of columbium-bearing
concentrates were produced. Production has been from mine operations in
South Dakota, as well as from existing stockpiles. In 1982, domestic
production of ferrocolumbium, expressed as contained columbium, was down
by more than 15 percent from 1981 levels. The value of ferrocolumbium
production also decreased, to an estimated $8.6 million. The regular
grade was favored over the high-purity grade of ferrocolumbium in the
production mix.
The United States has satisfied its columbium requirements
primarily by importing the following:
ferrocolumbium from Brazil (73 percent of total imports in
1982); \
pyrochlore concentrate from Canada (6 percent);
columbite concentrates from Nigeria;
tin slags from Malaysia and Thailand (6 percent); and
synthetic concentrates from the Federal Republic of Germany.
Columbium mineral concentrate imports declined substantially
in 1982, reflecting decreased demand. As shown in Table XI-1, 1982
imports fell by 31.53 percent from the 1981 level, and by 43-97 percent
from the 1980 level. In 1982, imports for consumption from Brazil
included more than 4.8 million pounds of ferrocolumbium with a value of
$17.2 million, compared to 9 million pounds valued at $32.6 million in
1981. Imports of columbium oxide from Brazil also declined to 84,000
pounds valued at $468,000, substantially lower than the 1981 totals of
159,000 pounds and $1.3 million. While imports of these raw materials
were decreasing, trade volume was up for all export items. The Federal
Republic of Germany was the main recipient, with over 70 percent of
total shipments.
b. Description of Plants
Columbium is produced in the form of metal, carbide, and
oxide. Appreciable amounts of columbium are also used in nickel-,
cobalt-, and iron-base superalloys. In 1982, the domestic columbium
industry consisted of nine firms with plants at ten locations. Three of
these firms were integrated from raw materials processing to columbium
end products: Fansteel, Inc. at Muskogee, Oklahoma; Cabot Corporation,
KBI Division, at Boyertown, Pennsylvania; and Teledyne Wah Chang, Albany
Division, at Albany, Oregon. All three companies produced columbium
metal.
Columbium alloys were manufactured by Cabot's KBI division
at Revere, Pennsylvania; The Pesses Company at Newton Falls, Ohio;
XI-3
-------
TABLE XI-1
U.S. IMPORTS AND EXPORTS OF COLUMBIUM
(thousand pounds of colurabium content)
Year
1971
1973
1975
1977
1978
1979
1980
1981
1982°
Imports3
2,526
4,669
2,939
5,108
6,577
8,3^2
9,728
7,960
5,450
Exports
19
48
27
38
48
50
60
75
75
Net Exports
(Imports)
(2,507)
(4,621)
(2,912)
(5,070)
(6,529)
(8,292)
(9,668)
(7,885)
(5,375)
SOURCE: Mineral Commodity Profiles,
U.S. Department of the Interior,
Bureau of Mines, 1983.
almports include imports of concentrates,
ferrocolumbium, tin slags, and other.
Exports include exports of metal, alloys, waste
and scrap.
Estimated figures.
XI-4
-------
Reading Alloys, Inc. at Robesonia, Pennsylvania; Shieldalloy Corporation
at Newfield, New Jersey; and Teledyne Wah Chang, Albany Division, at
Albany, Oregon.
Mallinckrodt, Inc. was merged into Avon Products, Inc., as a
wholly-owned subsidiary in March 1982. Shieldalloy Corporation
completed the modernization of its manufacturing facilities at Newfield,
New Jersey, enabling it to produce high-purity refractory metals such as
colurabium and tantalum. NRC Inc. built a new plant at Newton,
Massachusetts, to produce columbium mill products in addition to its
production of tantalum mill products and powders. Major domestic
columbium processing and producing companies and their products are
shown in Table XI-2.
Several domestic processors that were originally privately
owned are now publicly owned, often as subsidiaries of larger
corporations. Examples of such companies are Wah Chang Corporation,
Fansteel, Inc., Mallinckrodt, Inc., and KBI. Among privately-owned
companies, Shieldalloy is a subsidiary of Metallurg, Inc., of New
York. Fansteel and KBI both have interests in foreign operations
involving refractory metals and alloys, including columbium.
2. Tantalum
a. Overview
The U.S. has about 3-t million pounds of tantalum
resources. The low-grade resources have been identified in numerous
pegmatites and placer deposits in Arizona, Colorado, North Carolina,
South Dakota, Utah, New Mexico, and Alaska.
World production of tantalum raw materials averaged
approximately 2,0 million pounds per year over the last decade. Between
1979-1981, production increased to 2.6 million pounds per year. This
production increase has been attributed to expansion programs in
Australia, Brazil, and Canada as a result of increased tantalum raw
material prices.
The U.S. has historically been a net importer of tantalum
concentrates and tin slags for its primary tantalum supply. Imports of
concentrates come chiefly from Canada, Brazil, and Australia for
tantalum mineral concentrates, the Federal Republic of Germany for
synthetic concentrates, Thailand and Malaysia for tin slags, and a
number of other countries for feed material used to produce tantalum
products. Additional tantalum powder, metal, waste, and scrap
(estimated to contain 70,000 pounds of tantalum) was also imported from
other Western European countries and Mexico. The majority of tantalum
feedstocks were processed for domestic consumption.
Domestic imports and exports are presented in Table XI-3.
Imports in 1980 were approximately 91 percent higher than in 1971,
although there have been many fluctuations during this period. Imports
in 1982 are expected to fall sharply approximately 27 percent below
XI-5
-------
TABLE XI-2
MAJOR U.S. COLUMBIUM PROCESSING AND PRODUCING COMPANIES - 1982
Company
Cabot Corporation:
KBI Division
KBI Division
Kennametal, Inc.
Metallurg, Inc.:
Shieldalloy Corp.
Avon Products, Inc.:
Mallinckrodt , Inc.
NRC, Inc.5
The Pesses Co.
H. K. Porter Co., Inc.:
Fansteel, Inc.
Reading Alloys, Inc.
Teledyne, Inc.:
Teledyne Wah
Chang Albany Division
Plant Location
Boyertown , PA
Revere, PA
Latrobe, PA
Newfield, NJ
St. Louis, MO
Newton, MA
Newton Falls, OH
Muskogee , OK
Robesonia, PA
Albany, OR
Products
Metal3
X
X
X
Carbide
X
X
X
X
Oxide
X
X
X
X
X
F e rro-Columbium/
Nickel-Columbium
X
X
X
X
X
SOURCE: Minerals Yearbook, U.S. Department of the Interior, Bureau of Mines, 1982.
alncludes miscellaneous alloys.
^Jointly owned by South American Consolidated Enterprises, S.A. and H.C. Starck
Berlin.
XI-6
-------
TABLE XI-3
U.S. IMPORTS AND EXPORTS OF TANTALUM
(thousand pounds of tantalum content)
Year
1971
197^4
1975
1977
1978
J979
1980
1981
1982a
Imports
1,023
1,730
933
2,058
M09
1,914
2,280
1,580
1,160
Exports
201
435
428
539
607
721
706
222
400
Net Exports
(Imports)
(822)
(1,295)
(505)
(1,519)
(802)
(1,193)
(1,574)
(1,358)
(760)
SOURCE: Mineral Commodity Profiles and Mineral
Commodity Summaries, U.S. Department of
the Interior, Bureau of Mines, 1983.
Estimate.
XI-7
-------
1981 levels and approximately 50 percent below 1980 levels primarily
as a result of the 1981-1982 worldwide economic recession. However, the
U.S. exported fairly large amounts of tantalum to Western European
countries and Japan in 1982, when exports were about 80 percent higher
than in 1981.
b. Description of Plants
The domestic tantalum industry consists of seven firms with
plants at eight locations. Table XI-*» lists the major processing and
producing companies and their products. NRC Inc. is almost totally
committed to the production and processing of tantalum powder and
metal. Kennametal, Inc. and Shieldalloy Corporation mainly produce
tantalum carbide. The main tantalum products at Mallinckrodt, Inc. are
potassium fluotantalate and tantalum oxide, both intermediate products
used by other firms to make tantalum metal and other end products. Two
of these firms, Fansteel, Inc., and the KBI Division of Cabot
Corporation, are integrated from raw materials processing through to
tantalum end products.
D. DEMAND
1. Columbium
Columbium is classified as a defense-related strategic and
critical material, because of its uses in the aerospace, energy, and
transportation industries. Almost all columbium is used in the form of
ferrocolumbium, and more rarely in the form of pentoxide, in the
manufacture of alloy steels. Columbium oxide itself is not considered
strategic, but it is the principal non-metallic form in which columbium
has been used. The largest demand for columbium oxide has been as an
intermediate in the manufacture of high-purity ferrocolumbium, nickel-
columbium, columbium metal, and columbium carbide. Columbium carbide is
used in steel-cutting grade cemented carbide tools. Columbium
consumption by end-use is presented in Table XI-5.
a. Construction
Steelznaking has accounted for about four-fifths of domestic
columbium consumption in recent years. Columbium's corrosion resistance
enhances its use in exhaust manifolds, pressure vessels, and fire
walls. Columbium-bearing HSLA steels (also called high-strength, low-
alloy steels) have been increasingly used for structural purposes in
buildings and bridges. Construction has been the largest single demand
sector, accounting for about 36-^0 percent of total columbium
consumption.
b. Machinery
This sector has historically accounted for about 15-16
percent of total consumption of columbium, though, in the early 1970s,
its share was around 20 percent. Columbium is used in the manufacture
of heavy mining equipment such as rock cutters, and also for machine
components where shock resistance is required.
XI-8
-------
TABLE XI-U
MAJOR U.S. TANTALUM PROCESSING AND PRODUCING COMPANIES
Company
Cabot Corp.:
KBI Div.
Kennametal, Inc.
Avon Products, Inc.:
Mallinckrodt , Inc.
Metallurg, Inc.:
Shieldalloy Corp.
NRC Inc.b
H. K. Porter Co., Inc.:
Fansteel, Inc.
Fansteel, Inc.
Teledyne Inc.:
Teledyne Wan Chang
Albany Div.
Plant Location
Boyertown , PA
Latrobe, PA
St. Louis, MO
Newfield, NJ
Newton, MA
Muskogee , OK
N. Chicago, IL
Albany, OR
Products
Metala
X
X
X
X
X
X
X
Carbide
X
X
X
__
Oxide
X
X
X
X
_
SOURCE: Mineral Commodity Profiles, U.S. Department of the Interior,
Bureau of Mines, 1983.
alncludes miscellaneous alloys.
Jointly owned by South American Consolidated Enterprises, S.A., and
H. C. Stark Berlin.
XI-9
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XI-10
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c. Oil and Gas
The strength and toughness of the HSLA steels has made them
attractive for use in oil and gas pipelines. One effect of the 1974 oil
price rise has been to greatly encourage the construction of oil
pipelines, creating an unforeseen demand for columbium. This sector
accounted for about 20 percent of total columbium consumption.
d. Transportation
Columbium use in transportation has been spurred by the
aerospace industry, due to the development of coatings resistant to
oxidation at high temperatures. High strength steels have also been
used in both private and public transportation vehicles. This sector
accounted for 20 percent of total columbium consumption in 1982, down by
over 12 percent from the 1980 level.
e. Other
Minor uses for the metal occur in the nuclear energy and
electronics industries. Columbium is used as a construction material in
nuclear reactors because of the resistance to super-heated water, to
liquid sodium and to other metals. This sector accounted for about 7
percent of total consumption in 1982. Between 1971-1982, this sector's
share has ranged between U-12 percent.
2. Tantalum
The two most important domestic tantalum demand sectors during
the past five years have been electronic components and metal-working
machinery, which together accounted for four-fifths of consumption.
Total world tantalum demand in 1981 is estimated to be about 2 million
pounds, with the U.S. consuming about 62 percent of the total. As shown
in Table IX-6, domestic consumption is categorized into three main
markets: electronics (65 percent), machinery (24 percent), and
transportation (9 percent). Other uses constitute 2 percent of the
tantalum market between 1971-1981.
a. Electronics
The tantalum capacitor has become the standard for
capacitors used in electronic systems; this market accounted for
approximately 70 percent of the tantalum consumed in 1982. Tantalum in
this sector is used in the form of powder produced from tantalum oxide
by first converting the oxide to fluoride. It is also used to produce
components such as contact points and electrodes.
b. Metal-Working Machinery
This sector is the second largest category of tantalum use
in the United States, accounting for about 22 percent of total
consumption in 1982. Tantalum carbide, mostly in mixtures with carbides
XI-ll
-------
TABLE XI-6
U.S. TANTALUM CONSUMPTION BY END USE
(percent of total consumption)
Electronic
components
Transportation
Machinery
Other
Total
1971
46
22
27
5
100
1971
69
8
21
2
100
1975
63
6
28
3
100
1977
66
6
27
1
100
1978
68
6
25
1
100
1979
66
8
26
__b
100
1980
73
6
19
2
100
19813
70
8
22
b
100
1982a
70
8
22
1
100
SOURCE: Mineral Commodity Profiles and Mineral Commodity Summaries,
U.S. Department of the Interior, Bureau of Mines, 1983-
Estimated.
Less than .05 percent.
XI-12
-------
of such metals as tungsten, titanium, and colurabium, is used in cutting
tools, wear-resistant parts, dies, turning and boring tools, milling
cutters, and lathe centers. Tantalum's corrosion resistance has found
many applications in the chemical industry, where it is used to make
pipes, crucibles, retorts, etc.
c. Transportation
About 8 percent of the total tantalum consumed in 1982 was
used in aerospace and other transportation applications. Demand for
tantalum in transportation applications decreased markedly in the last
decade. Increased aircraft production and greater diversity of uses in
superalloys could, however, reverse the trend.
d. Other
Miscellaneous uses ordinarily account for 1-2 percent of
total demand. In 1982, consumption of tantalum in other uses such as
nuclear reactors, optical glass, laboratory ware, and electroplating
devices, was responsible for less than 1 percent of the total
consumption in 1982.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
1. Columbium
In recent years, columbium producer prices have risen steadily
in line with the growth of consumption and inflation. The real price
has, therefore, remained relatively stable. The price for standard
grade ferrocolumbium, which had increased moderately over the last
decade, decreased 11 percent in midyear 1982 to about $6 per pound of
columbium content. Brazil's largest producer of pyrochlore
concentrates, CBMM, entered the high-purity ferrocolumbium market at
midyear; as a result, the price for high-purity grade ferrocolumbium
declined H percent.
Columbium has not been particularly popular with metal merchants
in the past, due mainly to the efficient and flexible pricing policy of
main producers who can adjust prices and stocks according to demand.
Most producers either sell directly to consumers or have local agents to
market their product. International merchant activity is apparent only
during temporary shortages of material.
2. Tantalum
U.S. tantalum supply depends to a large degree upon maintenance
of a stable price for tantalum and its co-products, principally tin and
columbium. Some tantalum mining operations are high-cost operations and
only relatively high prices can maintain their production or bring new
ones onstream. A steep rise in the price of tantalum between 1978-1980,
from $^4 per pound to $138 per pound, stimulated the discovery of new,
relatively large tantalum resources. Tantalum product prices rose as a
result of the high raw materials prices. However, low midyear 1983
XI-13
-------
tantalum prices (the lowest since 1977) and weak demand have resulted in
the shutdown of one major tantalum mine and an overall cutback in
others. The spot market price for tantalum concentrates which began
1982 at nearly $40 per pound of contained pentoxide was down to about
$35 by midyear, and was quoted in the fourth quarter at around $25, as
demand dropped further. The price for capacitor-grade tantalum powder
was lowered about 7 percent at midyear, and subsequently decreased in
the fourth quarter by an estimated 6-10 percent.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the production of columbium and tantalum will experience constant real
incomes over the lifetime of the compliance equipment. The income level
used is based on average prices and capacity utilization rates. The
average price for columbium and tantalum is based on the 1978-1982
period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the columbium/tantalum
industry. Historical capacity and production information is not
available. Therefore, the capacity utilization rate for 1982 is used as
a conservative estimate of the industry's long-term potential. The
rates for 1982 are calculated as follows:
Capacity (pounds)
Production (pounds)
Capacity Utilization (percent)
Columbium
2,800,000
1,720,000
61
Tantalum
2,000,000
1,000,000
50
SOURCE: U.S. Department of the Interior, Bureau of Mines,
1983.
The columbium and tantalum prices for the analysis are $5.0*4 and
$89.87 per pound, respectively (see Table XI-7). The prices used in the
analysis show improvement over 1982. This assessment is consistent with
publicly available information from the Department of the Interior's
Bureau of Mines (BOM), which shows an overall improvement in the col-
umbium/tantalum industry. Specifically, the BOM projects columbium
demand to increase at an average annual rate of 5 percent, and tantalum
demand to increase by 3 percent, from 1981 to 2000 (Mineral Commodity
Profiles, Bureau of Mines, 1983).
XI-14
-------
TABLE XI-7
U.S. COLUMBIUM AND TANTALUM PRICES
(dollars per pound of contained columbium/tantalum)
Year
1978
1979
1980
1981
1982
Constant
Columbium Prices
5
4
5
5
4
Average prices: 5
.08
.84
.24
.19
.86
.04
1982 Dollars
Tantalum Prices
47.11
101.40
146.54
105.48
48.84
89.87
SOURCE: Mineral Commodity Profiles.
U.S. Department of the Interior,
Bureau of Census, 1983.
XI-15
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the colurabiura and tantalum
industries are described in the Development Document., The treatment
options considered for these industries are as follows:
Option A - This option includes ammonia steam stripping,
equalization, chemical precipitation, and gravity
settling.
Option B - This option includes Option A plus flow reduction of
all scrubber waters (except reduction of tantalum
salt to metal scrubber liquor) via a holding tank and
recycle system, and lime and settle treatment.
Option C - This option includes Option B plus multimedia
filtration of the final effluent.
2. Costs for Existing Plants
Five columbium/tantalum plants are expected to incur costs
subject to compliance with this regulation. They include both direct
and indirect dischargers. Table XI-8 presents the investment and total
annual compliance costs for the columbium/tantalum industry.
Of the five plants incurring costs, one produces only columbium
and another produces only tantalum. The remaining three plants produce
both products in varying amounts. Product prices and capacity
utilization rates are attributed to these plants in proportion to the
ratio of colurabium and tantalum production. Compliance costs are based
on the combined production of both metals.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
Estimates of the plant-specific compliance costs presented in
Table XI-8 are used to assess the probability of plant closures.
Individual plants are first screened to identify plants for further
analysis. The total annual compliance costs are evaluated against
plant-specific estimated revenues. If the compliance cost represents
more than 1 percent of anticipated revenue, the plant is considered for
further analysis.
The results of the screening assessment show that one plant has
annual costs greater than 1 percent of its annual revenues, for all
three options, while two other plants have annual costs greater than 1
percent of revenues for Option C only.
2. Plant Closure Analysis
Plants identified in the screening analysis were first studied
using the liquidity test. The test results indicate that all the plants
XI-16
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XI-17
-------
have positive cash flows even under the most costly alternative. That
is, the pollution control expenditures do not have a significant impact
on the short-term (five-year) liquidity of the plants.
The NPV test compares a plant's ratio of operating income to
liquidation value to the real cost of capital for the industry. If the
ratio of income to liquidation value, as defined in Chapter II, is less
than the threshold value of 16.69 percent, the plant is a potential
closure. The NPV test shows that no plant has a ratio of less than
16.69 percent under any option, and hence, no plants are expected to
close.
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
The effect of regulatory compliance costs on the financial
performance of the columbium/tantalum industry is evaluated in terms of
the increase in the cost of production. Since the plant-specific unit
cost of production is not known, an estimate of the cost of production
is sales minus operating income. The following table gives an estimate
of the increase in the cost of production for the three options.
Direct Dischargers
Indirect Dischargers
Increase in
of Cost of Production
Option A
1.11
0.69
Option B
1.11
0.70
Option C
1.50
0.72
As shown in the table, the maximum increase in the cost of production is
less than 1.5 percent and is not considered to be significant,,
b. Price Change
The additional compliance costs evaluated against the annual
revenues of the plants have been used to estimate the increase in price
of columbium/tantalum under the assumption of full pass-through of
costs. The price effect has been summarized in the following table.
The assumption of complete cost pass-through is not used in the closure
or screening analyses.
XI-18
-------
Direct Dischargers
Indirect Dischargers
Price Change
Option A
1.29
0.63
Option B
1.32
0.61
Option C
1.37
0.66
The results indicate that if all compliance costs could be
passed on to customers, the maximum price increase would be 1.37
percent. This amount is not likely to adversely impact the
competitiveness of the columbium/tantalum producers subject to this
regulation.
c. Change in Return on Investment
With the increase in the cost of production, the potential
decrease in industry profitability is estimated in direct proportion to
the increase in compliance costs. The following table presents the
estimated decrease in the overall profitability in terms of return on
investment (ROI).
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option A
-17.11
- 9.65
Option B
-17.52
- 9.80
Option C
-18.11
-10.23
The decrease in profitability represented by the above
results is not expected to cause a significant impact on plant
profitability.
d. Capital Impacts
The additional capital costs imposed by the regulatory
options for each of the columbium/tantalum plants have been evaluated
against the annual capital expenditures of the plants. The results are
summarized below.
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditures
Option A
25.03
27.82
Option B
27.12
28.65
Option C
30.57
30.28
The table shows that incremental investment costs are
between 25-31 percent of annual capital expenditures under each of the
XI-19
-------
three options. Costs of this magnitude should not have an adverse
impact on the availability of funds for other capital projects.
e. Employment Impacts
Employment impacts of the regulatory costs have been
examined in the context of plant closures. For small production
decreases, there is generally no change in capacity. Only major
production changes arising due to plant closures are expected to have a
direct effect on employment levels. Because no plants are expected to
close, no employment impacts are expected.
f. Foreign Trade Impacts
The economic impact of the compliance costs on the balance
of trade is analyzed in relation to changes in domestic price and
production. Because there are no expected closures, and only minor
price impacts, the regulations are expected to have minimal impacts on
the balance of trade.
XI-20
-------
CHAPTER XII
PRIMARY TUNGSTEN
-------
XII. PRIMARY TUNGSTEN
A. INTRODUCTION
This chapter presents an analysis of the economic impact on the
United States primary tungsten industry of the cost of alternative
pollution control technologies.
The technology used to produce tungsten from ore is briefly
discussed in Section B. The structure of the industry is presented in
Section C. The demand and end-use markets for tungsten are discussed in
Section D; Section E discusses current trends of the industry. Section
F presents estimates for prices and capacity utilization. Section G
presents the cost estimates for the alternative control technologies.
The economic impact results are discussed in Section H.
All compliance cost and economic impact information is stated in
1982 dollars unless otherwise indicated.
B. TECHNOLOGY
Because of the complexity of tungsten ores, tungsten is traded
mainly in the intermediate forms of the metal. These are concentrates
(wolframite and scheelite), ferro-tungsten, and ammonium paratungstate
(APT). Practically all tungsten concentrates are produced by very
simple flotation and gravitational separation from the ore. Ferro-
tungsten is either produced by the normal alumino thermic method
(reduced from the ore with aluminum powder in the presence of iron) or
by reduction in an electric ore furnace. Tungsten scrap is usually the
stock for the latter method.
Most pure tungsten is produced in powder form from APT. The
production of APT requires chemical treatment of the concentrates in
addition to the physical concentration. Separation of tungsten from
molybdenum and other byproducts, as well as treatment of slimes and
products not amenable to complete concentration by physical means, also
necessitate chemical treatment. Tungsten powder is produced from APT by
reducing it with hydrogen. The powder is then compacted into the final
desired shape (wire, rod or sheet) by compressing, sintering and
heating.
C. INDUSTRY STRUCTURE
1. Overview
The United States plays a fairly active role in the world
tungsten market, consuming about 20 percent of the world's tungsten
concentrate production. The People's Republic of China, the U.S.S.R.,
the United States, and Australia are the four largest producers,
together accounting for approximately 56-60 percent of world mine
production.
XII-l
-------
Domestic tungsten supply comes from the production of primary
and secondary material, shipments from excesses in government
stockpiles, imports, and industry stocks. The United States is becoming
increasingly dependent on imports and government stockpile releases.
The General Services Administration (GSA) manages the American strategic
stockpile, and retains large stocks of tungsten in various forms. This
material is currently made available to buyers in regular official
sales.
Imports of tungsten concentrate and intermediate products for
consumption were at their lowest levels since 1972. As indicated in
Table XII-1, imports of concentrate fell 3^4 percent from 11.75 million
pounds in 1981 to 7.8 million pounds in 1982. During 1978-1981, net
import reliance as a percent of apparent consumption was at a low of 50
percent in 1981, down from a high of 58 percent in 1979. Exports of
tungsten in concentrate and primary products decreased 15 percent from
5.2 million pounds in 1981 to 4.4 million pounds in 1982. Exports of
tungsten in concentrate fell precipitously from a high of 2.029 million
pounds in 1980 to a low of 0.175 million pounds in 1981. Exports
recovered in 1982 to reach a level of 0.672 million pounds.
2. Description of Plants
Table XII-2 lists the major domestic companies engaged in
tungsten operations since 1982. The Union Carbide Corporation, the
largest U.S. tungsten producer, is integrated vertically from mining to
the manufacture of tungsten intermediate products. It is also the only
producer of ferro-tungsten, and the largest domestic producer of
ammonium paratungstate. Teledyne Tungsten began production of tungsten
concentrate at a full capacity rate in mid-1978.
D. TUNGSTEN DEMAND
Tungsten is a typical example of a vitally important raw material
which is produced mainly in third-world countries, but consumed mainly
in the industrialized countries. Tungsten-containing products have
diverse applications throughout the economy. These products are found
in automobiles, airplanes, appliances, electric lamps, paints, petroleum
catalysts, and many other end uses. Substitution on a large scale with
other materials in these uses is very difficult. Specific end-use
categories are discussed in detail below.
1. Metal-Working, Mining, and Construction Machinery
Tungsten is an extremely hard substance and does not oxidize at
high temperatures. It is, therefore, used primarily in the production
of high-speed steels and tool-and-die (cold-and-hot-work) steels, which
are used as cutting tools. Cutting and wear-resistant materials
represent the major market for tungsten carbide, accounting for
practically all carbide consumption and about half of all tungsten metal
powder consumption. New metal-shaping methods, such as laser and mining
machinery may, however, reduce tungsten use in this field.
XII-2
-------
TABLE XII-1
U.S. TUNGSTEN IMPORTS AND EXPORTS
(thousand pounds of tungsten content)
Year
1977
1978
1979
1980
1981
1983
Imports for
Consumption3
6,919
9,138
11,352
11,372
11,752
7,778
Exports3
1,283
1,853
1,929
2,029
175
672
Net Exports
(Imports)
(5,636)
(7,285)
(9,123)
(9,343)
(11,577)
(7,106)
SOURCE: Mineral Commodity Summaries, U.S. Department of the
Interior, Bureau of Mines, 1983.
almports and exports of tungsten concentrate.
XII-3
-------
TABLE XII-2
MAJOR U.S. TUNGSTEN PRODUCERS
Company
Location of Mine, Mill,
or Processing Plant
Producers of Tungsten Concentrate:
Climax Molybdenum Co., A Div.
of AMAX, Inc.
Teledyne Tungsten
Union Carbide Corp., Metals Div.
Utah International, Inc.
Processors of Tungsten:
AMAX, Inc., AMAX Tungsten Div.
Adamas Carbide Corporation
Fansteel, Inc.
General Electric Co.
GTE Products Corporation
Kennametal, Inc.
Li Tungsten Corporation
North American Phillips Lighting Corp.
Teledyne Firth Sterling
Teledyne Wah Chang Huntsville
Union Carbide Corporation, Metals Div.
Climax, CO
North Fork, CA
Bishop, CA & Tempiute, NV
Imlay, NV
Fort Madison, IA
Kenilworth, NJ
North Chicago, IL
Euclid, OH & Detroit,
Towanda, PA
Latrobe, PA & Fallon,
Glen Cove, NY
Bloomfield, NJ
McKeesport, PA
Huntsville, AL
Niagara Falls,
MI
NV
NY
SOURCE: Mineral Commodity Profiles, United States Department of
the Interior, Bureau of Mines, 1983.
XII-4
-------
Production of mining machinery and equipment stemmed from the
energy crisis. Tungsten, with its characteristic hardness and
resistance to oxidation at high temperatures, found a major application
in the development of such equipment to perform necessary deep
exploration and mining of various fuels. The growth in tungsten demand
was further enhanced by construction of the national interstate highway
network. This sector accounted for 72 percent of total tungsten
consumption in 1982.
2. Transportation
Tungsten in the transportation sector is used principally in
superalloys and as heat-and-abrasion-resisting cladding on high-
temperature components of gas turbines and jet engines, primarily in
contact points. Gas turbines are used mainly in the aircraft industry;
automotive applications are also being developed. This sector accounted
for about 11 percent of all tungsten consumed in 1982.
3. Lamps and Lighting
There is no satisfactory substitute for tungsten in this
sector. Tungsten wire is used for filaments in incandescent lamps and
for heating elements in fluorescent lamps and vacuum tubes. The amount
of tungsten used in fluorescent-type and wall panel lighting is
essentially the same as that used in lamp filaments except that more
light is provided at lower cost by fluorescent lighting. This sector
accounted for 8 percent of total tungsten consumption in 1982.
4. Electrical
Tungsten demand in electrical uses is based on the degree of
high-temperature and wear resistance required for current applications
such as contact points. There are no satisfactory substitutes for
tungsten's wear resistance. Where lower temperatures are involved,
however, molybdenum-tungsten alloys are preferred. Electrical uses
accounted for 5 percent of total tungsten consumption in 1982.
5. Other Uses
Miscellaneous uses of tungsten include some chemical
applications such as dyes, phosphors, reagents, and corrosion-
inhibitors. Tungsten is also consumed for chemical vapor deposition
(CVO), as a catalyst in chemical processing, and as self-lubricating
powder-metal compacts. Tungsten is also used for kinetic penetration;
however, in this market it competes with depleted uranium. In 1982,
miscellaneous uses accounted for *l percent of total tungsten consumed in
the United States.
E. CURRENT TRENDS CAPACITY UTILIZATION AND PRICES
The tungsten market is controlled by international merchants. The
market is extremely volatile and highly speculative. The international
price is relatively unaffected by domestic demand because of the large
XII-5
-------
size of the international market. The U.S. market price, therefore,
hovers around the international price. The difference, if any, is due
to the import duty and transportation charges.
The price of concentrate in current dollars was unusually stable
from 1978 until October 1981, when it began a decline that extended
through 1982. Prices fell approximately 25 percent from the 1981
levels, reflecting the general economic downturn in 1982.
Low prices and a substantially reduced demand led to low .capacity
utilization in the domestic tungsten industry in 1982. Mine capacity
utilization in 1982 was only 35 percent. The Pine Creek Mine, which had
been the largest producer, operated at a reduced capacity from April
1982 until its closure in early August. An improved demand for tungsten
is expected for the near future due to an increase in industrial capital
investment, expanded automobile production, expanding applications of
tungsten-using materials, an increase in expenditure on armaments, and
generally better economic conditions in the near future.
F. ESTIMATES OF PRICES AND CAPACITY UTILIZATION
It is assumed, for purposes of this analysis, that plants engaged in
the production of tungsten will experience constant real incomes over
the lifetime of the compliance equipment. The income level used is
based on the average prices and capacity utilization rates for the 1978-
1982 period. This period was selected because it represents a complete
business cycle with a peak year in 1979 and a recession in 1982. The
period reflects the long-term potential for the tungsten industry.
The tungsten price used for this analysis is based on the U.S.
price. As discussed in the previous section, U.S. producer prices have
historically been close to the international market price. The tungsten
price used for the analysis is $9.15 per pound (see Table XII-3). The
capacity utilization rate is 86 percent (see Table XII-U). For both
prices and utilization rates, the values used in the analysis show
improvement over 1982. This assessment is consistent with publicly
available information from the Department of the Interior's Bureau of
Mines (BOM), which shows an overall improvement in the tungsten
industry. Specifically, the BOM projects tungsten demand to increase at
an average annual rate of 3 percent from 1981 to 2000 (Minerals
Yearbook, Bureau of Mines, 1982).
XII-6
-------
TABLE XII-3
U.S. TUNGSTEN PRICES
(dollars per pound)
Year
1978
1979
1980
1981
1982
Average Annual
Actual Prices 1982
8.08
8.03
8.26
8.21
6.18
Average
Price
Dollars
11.13
10.18
9.58
8.70
6.18
= 9.15
SOURCE: Mineral Commodity Profiles and
Mineral Commodity Summaries, U.S.
Department of the Interior,
Bureau of Mines, 1983.
XII-7
-------
TABLE XII-4
PRIMARY TUNGSTEN PRODUCTION AND CAPACITY
(000 pounds metal powder)
Year
1978
1979
1980
1981
1982
Production
16,548
18,426
18,116
19,754
13,425
Capacity
Capacity3 Utilization
20,000
20,000
20,000
20,000
20,000
Average
83$
92$
91$
99$
67$
= 86$
SOURCE: Production data Mineral Commodity
Profiles, U.S. Department of the
Interior, Bureau of Mines, 1983.
Capacity data (1982) Personal
communication, U.S. Department of
the Interior, Bureau of Mines.
Historical data are not available on industry
capacity. Industry sources suggest capacity
levels remained relatively constant over the
1978-1982 period.
XII-8
-------
G. EFFLUENT CONTROL GUIDELINES AND COSTS
1. Regulatory Alternatives
Process-related wastewater sources in the tungsten industry are
described in the Development Document. The treatment options considered
for this industry are as follows:
Option A - This option includes ammonia steam stripping,
equalization, chemical precipitation, gravity
settling, and vacuum filtration.
Option B - This option includes Option A plus flow reduction of
all scrubber wastestreams via a holding tank and
recycle system, and lime and settle treatment.
Option C - This option includes Option B plus multimedia
filtration of the final effluent.
2. Costs for Existing Plants
Ten primary tungsten plants are expected to incur costs for
compliance with this regulation. They include four direct dischargers
and six indirect dischargers. Table XII-5 shows the total annual and
investment compliance costs, by discharge status and treatment option.
H. ECONOMIC IMPACT ANALYSIS
1. Screening Analysis
The plant-specific compliance costs presented above for existing
sources are used to assess the probability of plant closures using the
methodology presented in Chapter II. Individual plants are screened to
identify plants for further analysis. Total annual compliance costs as
a percent of plant annual revenues is the screen used to identify plants
that might face difficulties with pollution control costs. The
threshold value for this screen is 1 percent. If total annual
compliance costs for a plant represent less than 1 percent of revenues,
the plant is clearly not a high-impact case and is not analyzed further.
The results of the screening assessment show that for each
option, one direct and one indirect discharger exceed the threshold of 1
percent.
2. Plant Closure Analysis
The two plants which do not pass the screen are further analyzed
by using the liquidity test and the net present value (NPV) test. The
liquidity test judges the short-run viability of the firm. If the
pollution control expenditures cause a negative cash flow over a short
period (five years), the plant does not have adequate cash reserves to
meet short-term contingencies.
XII-9
-------
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XII-10
-------
For the NPV test, if net income as a percent of the liquidation
value of the assets (as defined in Chapter II) is greater than the real
cost of capital for the industry (14.66 percent), the plant will
probably continue in operation.
The results of the NPV test show that, at each treatment option,
the ratio of net income to plant liquidation value exceeds the threshold
of 14.66 percent. Also, all cash flow values are positive for the
short-run liquidity test. These results demonstrate that the costs of
compliance will not cause any plant closures in the primary tungsten
industry.
3. Other Impacts
In addition to closures, other impacts on the industry have been
assessed. These include:
increase in cost of production;
price change;
change in return on investment;
capital impacts;
employment impacts; and
foreign trade impacts.
a. Increase in Cost of Production
This impact is measured by calculating the ratio of total
annual compliance costs to the total cost of production. Cost of
production is assumed to equal revenues minus the operating income of a
plant. This ratio represents the percent increase in production costs
due to the compliance expenditures. The table below presents the
average increases for each option.
Direct Dischargers
Indirect Dischargers
Increase in
Cost of Production
Option A
1.05
0.43
Option B
1.05
0.43
Option C
1.13
0.47
These results indicate that the annual costs due to this
regulation will increase operating costs by no more than 1.13 percent
for any treatment option. This amount is not expected to significantly
affect the structure of the industry.
b. Price Change
This change is expressed as the ratio of total annual
compliance costs to total plant revenues. This ratio represents the
XII--11
-------
percent increase in price a plant will have to impose to pass through
the entire cost of these regulations. The following table shows the
average price increases under each option. The assumption of complete
cost pass-through is not used in the closure or screening analyses.
Direct Dischargers
Indirect Dischargers
Price Change
Option A
0.90
0.36
Option B
0.90
0.36
Option C
0.97
0.40
Price increases of less than 1.0 percent would be sufficient
to pass through the entire cost of these regulations for the primary
tungsten industry. This amount is not likely to adversely impact the
competitiveness of the tungsten plants subject to this regulation.
c. Change in Return on Investment
Return on investment (ROI) is expressed as net income
divided by total assets. For this regulation, the change in ROI is as
follows:
Direct Dischargers
Indirect Dischargers
Change in Return on Investment
Option A
-7.17
-3.20
Option B
-7.19
-3.20
Option C
-7.80
-3.52
Rates of return on investment for the industry are expected
to decrease by 7.8 percent or less for all plants at all treatment
options. This does not represent a significant impact on future
earnings potential for plants in the primary tungsten industry.
d. Capital Impacts
For the primary tungsten industry, the average
investment costs to capital expenditures are as follows:
ratios of
Direct Dischargers
Indirect Dischargers
Investment Cost
as a % of Capital Expenditures
Option A
10.03
7.21
Option B
10.10
7.21
Option C
12.08
8.13
XII-12
-------
These results show that primary tungsten plants will incur
costs due to this regulation of no more than 12.08 percent of their
average annual capital expenditures. These compliance costs, therefore,
will not impose restrictions on funds available for new production
.equipment.
e. Employment Impacts
Employment impacts of the regulatory costs have been
examined in the context of plant closures. For small production
decreases, there is generally no change in capacity. Only major
production changes arising due to plant closures are expected to have a
direct effect on employment levels. Because no plants are expected to
close, no employment impacts are expected.
f. Foreign Trade Impacts
Despite the highly competitive nature of the world market
for tungsten products, very small increases in production costs and
prices, which are detailed above, are not expected to materially reduce
competitiveness or affect the balance of trade.
XII-13
-------
CHAPTER XIII
NEW SOURCE IMPACTS
-------
XIII. NEW SOURCE IMPACTS
The basis for new source performance standards (NSPS) and
pretreatraent standards for new sources (PSNS) as established under
Section 306 of the Clean Water Act is the best available demonstrated
control technology. Builders of new facilities have the opportunity to
install the best available production processes and wastewater treatment
technologies, without incurring the added costs and restrictions
encountered in retrofitting an existing facility. Therefore, Congress
directed EPA to require that the best demonstrated process changes, in-
plant controls, and end-of-pipe treatment technologies be installed in
new facilities. For regulatory purposes new sources include greenfield
plants and major modifications to existing plants.
The potential economic impact of concern to EPA in evaluating new
source regulations is the extent to which these regulations represent a
barrier to the construction of new facilities or exert pressures on
existing plants to modernize, and thereby reduce the growth potential of
the industry.
In evaluating the potential economic impact of the NSPS/PSNS
regulations on new sources, it is necessary to consider the costs of the
regulations relative to the costs incurred by existing sources under the
BAT/PSES regulations, and whether the methodology used to estimate the
impacts of the BAT/PSES regulations is appropriate for estimating the
impacts of the NSPS/PSNS regulations.
Regarding the costs of the NSPS/PSNS regulations, the Agency has
determined that the regulations are not significantly more costly. The
technology basis of the new source regulations is the same as for
existing sources but with additional flow reduction for some
subcategories. There is no incremental cost associated with these
additional flow reductions, however, and new sources will therefore not
be operating at a cost disadvantage relative to existing sources due to
the regulations.
Regarding the applicability of the economic impact analysis
methodology to the new source regulations, the methodology is applicable
because the financial tests of plant closure are based on inflation-
adjusted values of assets and net income and not book values.
Given that the costs incurred under the NSPS/PSNS regulations are
not significantly different than those incurred under the BAT/PSES
regulations, and that the economic impact analysis methodology is
applicable to both sets of regulations, the findings of the analysis of
the BAT/PSES regulations reflect the potential impacts on new sources as
well as on existing sources. Based on these findings, the NSPS/PSNS
regulations will not create a barrier to the construction of new
nonferrous metals manufacturing facilities or to the modernization of
existing facilities.
XIII-1
-------
CHAPTER XIV
SMALL BUSINESS ANALYSIS
-------
XIV. 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 whether 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 effluent control regulations on small nonferrous metals
manufacturers. As described in Chapter II, the small business analysis
was developed as an integral part of the general economic impact
analysis and was based on an examination of plant capacity levels and
compliance costs from the regulations. Based on this analysis, EPA has
determined that there will not be a significant impact on a substantial
number of small entities.
For purposes of this small business analysis, the following
alternative approaches were considered for defining small nonferrous
metal smelting and refining operations:
the Small Business Administration (SBA) definition;
annual plant capacity; and
annual plant production.
In the nonferrous metals smelting and refining industry, the SBA
defines as small those firms whose employment is less than the
following:
Industry Segment
Primary Aluminum
Primary Copper
Primary Lead
Primary Zinc
Other Primary Metals
Secondary Producers
Firm Employment
2,500
2,500
2,500
2,500
2,500
500
This definition is, however, inappropriate because this analysis is
concerned only with plants operating as distinct units rather than with
firms composed of several plants. Many of the plants are, in fact,
owned by firms that produce metals not covered by this regulation. In
order to avoid this confusion and to maintain consistency, annual plant
capacity was used as an indicator of size. Because industry segments
are assumed to operate at uniform capacity utilization levels in 1985,
annual plant production yields the same classification as annual plant
capacity.
XIV-1
-------
In order to designate large and small plants for this small business
analysis, all plants in a subcategory were first ranked by annual
capacity. This ranking revealed a clear distribution between large and
small plants. The following definitions of small plants are derived
from this review of annual plant capacities.
Industry Segment
Primary Aluminum
Primary Zinc
Primary Columbium/
Tantalum
Primary Tungsten
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Annual Plant Capacity
100,000 tons
75,000 tons
750,000 pounds
250,000 pounds
15,000 tons
15,000 tons
15,000 tons
25,000 troy ounces
Of the primary copper and primary lead plants subject to this
regulation, none is small. The following table shows the number of
small plants identified in each of the other subcategories.
Industry
Subcategory
Primary Aluminum
Primary Zinc
Primary Columbium/
Tantalum
Primary Tungsten
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Number of Plants
Incurring Costs
21
5
5
10
21
6
33
32
Number of
Small Plants
Incurring Costs
3
1
1
1
7
3
12
8
As a % of
Total
12.5
20.0
20.0
10.0
29.2
50.0
36.1
25.0
The results of the screening and plant closure analysis indicate no
significant impacts in any subcategory. The only potential closures are
in the secondary silver subcategory, where the analysis projects two
plant closures and five production line closures. These impacts are not
regarded as significant because the potential closures are very small
producers of silver, and the effect on the industry is expected to be
minimal. Further, silver production at many of these plants is a very
limited portion of their total metal production. The same plants are
expected to be covered by other effluent limitations and standards, and
the actual incremental cost of compliance for the secondary silver line
may be less than the amount used to project the closures identified in
Chapter X.
XIV-2
-------
EPA guidelines on complying with the Regulatory Flexibility Act
suggest several additional ways of determining what constitutes a
significant impact on a substantial number of small businesses.
Evaluation pursuant to these specific criteria are not required by the
Regulatory Flexibility Act, nor suggested in the legislative history.
However', the Agency is examining impact criteria beyond those used in
its economic analysis in order to investigate fully whether this
regulation could have a significant impact on small businesses. These
additional criteria for the small business analysis are:
Annual compliance costs as a percentage of revenues for small
entities are at least 10 percent higher than annual compliance
costs as a percentage of revenues for large entities, or
Annual compliance costs increase total costs of production for
small entities by more than 5 percent.
Table XIV-1 presents a comparison of annual compliance costs as a
percentage of revenues between small and large plants. In most
instances, annual compliance costs as a percentage of revenues for small
plants are more than 10 percent higher than the same ratio for large
plants. However, the ratios of compliance costs to revenues for small
plants are quite low, indicating minimal impact. Thus the comparison
between large and small plants does not provide a true indication of the
magnitude of the costs on small plants.
Annual compliance costs as a percentage of total production costs
for small plants are presented in Table XIV-2. In no instance does this
ratio exceed the 5 percent threshold value used here as an indicator of
disproportionate effects.
XIV-3
-------
TABLE XIV-1
ANNUAL COMPLIANCE COSTS AS A PERCENT OF ANNUAL REVENUES
FOR LARGE AND SMALL PLANTS
(percent)
Primary Aluminum
Small
Large
Primary Zinc
Small
Large
Secondary Aluminum
Small
Large
Secondary Copper
Small
Large
Secondary Lead
Small
Large
Secondary Silver
Small
Large
Primary Columbium/
Tantalum
Small
Large
Primary Tungsten
Small
Large
Option A
0.62
0.32
1.51
0.06
0.47
1.05
0.68
0.62
Option B
0.15
0.11
0.09
0.05
0.60
0.15
0.63
0.33
1.51
0.06
0.47
1.10
0.68
0.62
Option C
0.16
0.12
0.34
0.23
0.63
0.18
0.71
0.36
2.00
0.07
0.52
1.16
0.92
0.67
Option E
0.25
0.22
Option G
0.10
0.01
SOURCE: Policy Planning & Evaluation, Inc. estimates.
XIV-4
-------
TABLE XIV-2
ANNUAL COMPLIANCE COSTS AS A PERCENT OF TOTAL PRODUCTION COST
FOR SMALL PLANTS
(percent)
Primary Aluminum
Primary Zinc
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Primary Columbium/
Tantalum
Primary Tungsten
Option A
0.64
4.14
0.52
0.79
Option B
0.15
0.10
0.61
0.64
3.80
0.52
0.79
Option C
0.18
0.37
0.65
0.73
4.65
0.57
1.07
Option E
0.27
Option G
0.11
SOURCE: Policy Planning & Evaluation, Inc. estimates.
XIV-5
-------
CHAPTER XV
LIMITATIONS OF THE ANALYSIS
-------
XV. LIMITATIONS OF THE ANALYSIS
This chapter discusses the major limitations of the economic impact
analysis. It focuses on the limitations of data and methodology and the
key assumptions and estimations made in these areas.
A. DATA LIMITATIONS
Economic theory dictates that the financial health of the major
impacted industries is determined by the volume of economic activity
(e.g., value of shipments), capacity utilization, and prices. Economic
analyses also generally distinguish between long-run and short-run
effects. Decisions regarding variable costs, capacity, and relatively
small amounts of resources are generally made on short-run criteria. On
the other hand, decisions regarding large investment in fixed assets are
made on the basis of long-run expectations.
In the absence of complete and current plant-specific financial
data, a financial profile of the various metal industry segments plants
was developed based on an extensive review of trade literature and
published financial reports. This financial profile is subject to the
following major assumptions and limitations:
A "normal" or average year, in terms of aggregate economic
conditions and financial performance, has been used as a
baseline in the economic impact analysis. Therefore, estimates
of price, capacity utilization, real durable goods sales, fixed
investment, and total corporate profits have been based on the
assumption that economic conditions in the impact period will be
an average of conditions in the 1978-1982 business cycle. In
general, due to adverse conditions in 1982, this implies that
macroeconomic conditions during the impact period will be better
than those in 1982.
The industry capacity is assumed to be constant at 1982
levels. Industry sources indicate that firms are not
contemplating any major expansions in capacity in the near
future.
Plant-specific economic variables have been estimated using
financial ratio analysis. Financial information was obtained
from the annual and 10-K reports of companies engaged in the
smelting and refining of nonferrous metals. For the Secondary
Silver subcategory, additional financial information was
obtained from the FINSTAT data base. It was assumed that the
financial characteristics of each plant could be approximated by
the average financial characteristics of corporate segments
XV-1
-------
operating in like industries. Hence, the financial
characteristics of the plants were estimated by using corporate
and segment information.
The time value of money was taken into account by basing the
analysis on constant prices and constant income. Current cost
information presented in annual reports was utilized in order to
create financial ratios consistent with this approach.
B. METHODOLOGY LIMITATION
Two types of performance measures have been used in the economic
impact analysis:
liquidity (short-term analysis); and
solvency (long-term analysis).
The liquidity and solvency (net present value) measures are quite
rough, primarily because of the lack of data. Industry-wide information
has been used to analyze the firms in both the short term and the long
term, because the forecasting of firm-specific economic and
institutional variables is extremely difficult. The analysis described
here is not intended to be a structural specification of the
profitability, liquidity, or solvency of the industries. Rather, it is
designed to demonstrate that variations in the performance of the firms
over time are likely to reflect general industry trends. The
difference, if any, may be explained by a number of factors that were
not explored in greater detail, such as capital-output ratios, or
technological and market changes.
C. SENSITIVITY ANALYSIS
Sensitivity analysis is used to determine whether variations in
certain key factors significantly affect the results of the economic
impact study. Several parameters of the study have been varied to
assess the sensitivity of the study's results. The conclusions in
previous chapters are based on the best estimates for each of these
paramaters. The following sections address the question of changes to
the study's assumptions. The results indicate that even under these
unlikely circumstances, there would not be significant adverse economic
impacts in any subcategory, and that even under these conditions, the
regulation is economically achievable in all subcategories.
1. Compliance Costs
A major determinant of the economic impacts is the compliance
cost. Thus, the accuracy of this study's conclusions is largely related
to the accuracy of the compliance costs. While the plant-specific
estimates used in the impact analysis are considered to be correct,
these costs have been increased 25 percent to determine the effect such
an increase would have on the study's conclusions.
XV-2
-------
The screening and plant closure analysis is performed using the
increased costs, and only three additional plants are identified as
potential closure candidates at the selected option. Of these, one
plant is in the secondary silver subcategory; one plant is in the
primary copper subcategory; and one is in the secondary lead
subcategory. These results are not significantly different than those
obtained with the original costs.
2. Sludge Disposal Costs
The original set of cost estimates for the secondary lead
subcategory are developed under the assumption that wastewater treatment
sludges will be disposed of as non-hazardous wastes. While the original
analysis is based on the Agency's judgment that these sludges will not
be classified as hazardous, this assumption was varied to address
industry's concerns that the sludges need to be treated as hazardous
wastes.
In order to vary this assumption, sludge disposal costs were
doubled to approximate the cost of hazardous waste disposal, which is
assumed to be contract hauling to a hazardous waste disposal site.
The analysis was then conducted with the higher costs. In terms
of projected plant closures, the results are not different than with the
original costs; no plant closures are projected. Thus, even if the
original treatment costs were underestimated due to incorrect
assumptions about hazardous wastes, no significant economic impacts
would be projected for the secondary lead subcatgory.
3. Prices
The prices used in the impact analysis are an average of recent
prices in each subcategory. The years 1978-1982 are generally used to
reflect the long-term potential of a subcategory. In two subcategories,
secondary lead and secondary silver, these averages are strongly
influenced by one especially high price year (1979 for lead and 1980 for
silver).
In order to test the sensitivity of the analysis' conclusions to
the possibly overstated prices, the highest value was eliminated from
the averaging calculations. A new, lower average price was calculated
and the analysis was then conducted with the lower price. In the
secondary silver subcategory, one additional closure is projected. In
the secondary lead subcategory, no closures are projected. Thus, even
when the lower price is used, the results do not significantly vary from
the original set of conclusions.
4. Sludge Disposal and Prices in Secondary Lead
For the Secondary Lead subcategory, public comments stressed the
economic hardships and declining nature of the industry. Further, they
addressed the uncertainty of the hazardous waste assumptions. An
additional sensitivity analysis for secondary lead considered the
XV--3
-------
combined effect of doubling the sludge disposal cost and using the lower
price (see 2. and 3- above).
When both of these variations are combined, the closure analysis
indicates one plant closure. This result is not significantly different
than the original result of no closures for this subcategory. The
conclusion of economic achievability is supported by these results.
5. Profit Margins for Secondary Producers
For plants producing secondary silver, lead, copper, and
aluminum, industry comments suggest that plants engaged in secondary
production are at somewhat of a disadvantage compared to primary
producers and, as a result, have lower profit margins. For the economic
analysis in the previous chapters, average financial ratios are
calculated for various metal groups. Secondary lead, copper, and
aluminum plants are included in a group designated "Reclamation of
Metals" and secondary silver plants are included in the "Reclamation of
Precious Metals" group. As a sensitivity analysis, the financial ratios
for these two groups are altered by including financial conditions for
more recessionary years than peak years in the averages. Using these
lower financial ratios to calculate plant income and liquidation value
does not result in any closures for the secondary copper, lead, and
aluminum subcategories. For secondary silver, only one additional
closure is projected at each treatment option. These results are not
significantly different than those obtained with the original set of
financial ratios. This analysis supports the conclusion of economic
achievability.
XV-4
-------
BIBLIOGRAPHY
-------
BIBLIOGRAPHY
1. Annual Data 1983.' Copper Supply and Consumption, Copper Develop-
ment Association, Inc.
2. Census of Manufactures, U.S. Department of Commerce, Bureau of
Census, 1977.
3- Economic and Environmental Analysis of the Current OSHA Lead
Standard, U.S. Department of Labor, Occupational Safety and Health
Administration, 1982.
4. Miller, M.H., "Debt and Taxes," The Journal of Finance, May 1977,
pp. 261-275.
5. Mineral Commodity Profiles, U.S. Department of the Interior, Bureau
of Mines, 1983.
6. Mineral Commodity Summaries, U.S. Department of the Interior,
Bureau of Mines, 1983.
7. Mineral Facts and Problemst U.S. Department of the Interior, Bureau
of Mines, 1983.
8. Minera1 Industry Surveys, U.S. Department of the Interior, Bureau
of Mines, 1983.
9. Minerals Yearbook, U.S. Department of the Interior, Bureau of
Mines, 1979-1982.
10. Non-Ferrous MetalsData 1982, American Bureau of Metal Stat-
istics, Inc.
11. U.S. Industrial Outlook, U.S. Department of Commerce, Bureau of
Industrial Economics, 1983.
-------
APPENDIX A
DESCRIPTION OF THE NPV TEST AND ITS SIMPLIFICATION
-------
APPENDIX A
DESCRIPTION OF THE NPV TEST AND ITS SIMPLIFICATION
A. THE BASIC NPV TEST
The net present value test is based on the assumption that a company
will continue to operate a plant if the cash flow from future operations
is expected to exceed its current liquidation value. This assumption
can be written mathematically as follows:
>- Lo
T
£ U
|_t=1
where: Ufc = cash flow in year t
LQ = current liquidation value
Lp 5 terminal liquidation value of the plant at the end of
a planning horizon of T years
r = cost of capital.
In order to use this formula, in this form, and in nominal dollars,
forecasts of the terminal liquidation value (L-j.) and income in every
year during the planning period (U^.) have to be made. However, the need
to make the forecasts can be avoided by using a simplified NPV formula,
which is discussed in the following section.
B. SIMPLIFICATION OF THE NPV TEST
Equation (1) can be simplified by making the following three
assumptions:
the equation considers real dollars, that is, the income, the
liquidation value, and the rate of return are all expressed in
real terms (see Section C for definitions);
Ufc = U^ = U, that is, real cash flows over the planning horizon
are constant (or income in any given year is equal to the income
in any other year); and
the current liquidation value_ is equal to the terminal
liquidation value, that is, L_ = L .
T o
A-1
-------
Based on these assumptions, equation (1) can be rewritten as:
T
t=1
L >L
This expression can be simplified in the following manner. Let
1
(1+r)'
Equation (2) may be written:
t T
U Z k + k L > L
t=1 -
Redefining the first bracket, and combining the two C terms:
U
I k - I k
> Lo(l-k4)
_t=1 t=T+1
Using the expression for the sum of a geometric series,
T+1
(2)
TTik)
(3)
Where: r = real after-tax cost of capital
U = real cash flow
L = current liquidation value in real terms.
O " " ""
These terms are defined in more detail in Section C below.
Equation (3) states that if the rate of return on the liquidation
value (U/L ) is greater than or equal to the real after-tax rate of
o
A-2
-------
return on assets, then the plant will continue in operation. Equation
(3) is the same test as expressed in Equation (1), but is simpler to
use. It does not require the forecasts of income and liquidation value.
The real rate of return on assets can be shown to be equal to the
cost of capital. This relationship is explained in Section C. Thus,
the methodology employed for the NPV test uses the rate of return on
assets as a proxy for the cost of capital.
C. DISCUSSION OF REAL CASH FLOWS, COST OF CAPITAL, AND
LIQUIDATION VALUE
1 . Real Cash Flows
The difference between nominal cash flows and real cash flows is
in the calculation of depreciation. While depreciation is calculated at
book value for nominal cash flows, it is calculated at replacement value
for real cash flows. In accordance with the definition of nominal cash
flows used in Section II-G, real cash flows are as follows:
Real Cash A11 °Peratin6 Expenses
_,, ,,7:, = Revenue - Including Depreciation - Taxes
FIOWS (U) i. e i .. tr i
at Replacement Value
Normally, depreciation is not taken into account in calculating
cash flows; however, it is included in the cash flow definitions. This
inclusion means that a plant continuously maintains or replaces the
capital equipment. The cost of maintaining and/or replacing equipment
is equal to the depreciation. In order to calculate real cash flow,
depreciation is taken at replacement value, not book value. Using this
approach implies that the value of a plant's equipment remains constant,
and therefore, the current liquidation value (LQ) is equal to the
terminal liquidation value (L).
2. Real Cost of Capital
This report uses rate of return on assets as a substitute for
cost of capital. However, the cost of capital can be shown to be
equivalent to the rate of return on assets as follows. According to the
Modigliani-Miller model (M-M model) the value of a leveraged firm is
calculated by the formula (Miller, 1977):
v = X(1"
K
u
Where: V = value of the firm
X = operating income before taxes
t = tax rate
A-3
-------
KU = cost of capital of an unleveraged firm
D = debt.
The cost of capital of a leveraged firm in the M-M model is given by the
formula:
KL = Ku(1 - t|) (2)
Where: K^ = cost of capital of a leveraged firm. By solving Equation
(2) for Ku, we get
KL
' =
Using this value of KU in equation (1), and simplifying, we get:
X(1 - t)(1 - t£)
v = - - L- + (D)(t) (4)
\
Dividing the whole equation by V, we get:
VK
Therefore,
1 -
VKL
, XO - t)
VK.
L*
VKL = x(1 - t)
or
- t)
(5)
Since the value of the firm = Equity + Debt = Assets, Equation (5) can
be rewritten as:
r = X(1 - fc)
LJ /»
Where: A = assets of the firm.
-------
The equation above says that cost of capital (K, ) is equal to the after-
tax rate of return on assets. The return on assets for a firm or a
group of firms can be calculated by using information from financial
statements. For the purposes of this report the real rate of return is
calculated as follows:
»,,_ , j. - .. /\ real cash flows (U)
The real rate of return (r) =
total assets at replacement value
3. Real Liquidation Value
When a plant is liquidated (that is, when its assets are sold),
its owner can expect to get only a portion of the value of the assets.
The assets can be valued at their replacement value or at book value.
If they are calculated at replacement value and a fraction of the
replacement value is taken in calculating the liquidation value, then
the liquidation value is called the real liquidation value.
A-5
-------
APPENDIX B
IMPLEMENTATION OF THE NPV TEST
-------
APPENDIX B
IMPLEMENTATION OF THE NPV TEST
A. PRIMARY PROBLEM IN IMPLEMENTING THE TEST
The NPV formula reduces to the following equation:
L
o
If there were no limitations to the availability of plant-specific
financial data, the values of these three variables could be calculated
for each plant. The data collected in the Agency's survey of the
industry, however, is limited with respect to current financial and cost
information. Information on income, depreciation, capital expenditures,
cost of capital and future sales are needed to carry out the NPV test;
hence, it must be estimated for each plant from publicly available
information.
The task of estimating the data for each plant is simplified by:
classifying the nonferrous metals industry into eight groups;
estimating the values of ratios such as: operating income/
sales, operating income/assets, current assets/sales, non-
current assets/sales, and capital expenditure/sales for each of
the eight groups; and
classifying a plant into one of the eight groups, and applying
the ratios associated with the group to the plant.
B. ORGANIZATION OF THIS APPENDIX
Section C below describes the method used to classify the industry
into eight groups, defines the groups, and describes the applicability
to the specific metals covered in this report. Section D discusses the
procedure used to calculate group ratios. Section E presents the method
used to estimate sales of each plant, and Section F discusses the
methods used to estimate operating income, current assets, fixed assets,
capital expenditures, and the liquidation value of each plant. Section
G summarizes the earlier sections with an overview of the NPV test.
B-1
-------
C. DEVELOPMENT OF GROUPS AND APPLICATION TO METALS
1. Definition of Groups
The eight groups were formed by using the following steps:
The annual and 10K reports of 30 companies engaged in the
production of nonferrous metals were obtained.
Most annual and 10K reports provide financial information
pertaining to major lines of business (business segment
information). The 30 annual reports contained data on HO
business segments. (Some companies had more than one line of
nonferrous metal business.)
These 1JO business segments were classified into eight relatively
homogenous groups by examining qualitative descriptions of
business segments, and by calculating average group ratios and
evaluating the differences among groups.
Data for the years 1980, 1981, and 1982 were used to establish
the eight groups. These groups, representing similar business and
financial characteristics, are as follows:
Group 1. Smelting and Refining of Primary Base Metals This
group includes the mining, smelting, and refining of primary
base metals, such as copper, lead, zinc, and aluminum. Many
large-scale companies such as Asarco, Alcoa, and Amax are
primarily engaged in the production of such metals.
Group 2. Smelting and Refining of Precious Metals Four
companies have concentrated their operational activities in the
mining, smelting, and refining of precious metals such as gold,
silver, and platinum.
Group 3. Smelting and Refining of Other Nonferrous Metals (not
included in Groups I and II) About six companies are engaged
in the mining, smelting, and refining of other metals, such as
lithium, molybdenum, columbium, tungsten, zirconium, beryllium,
nickel, cobalt, and chrome. Such metals generally have anti-
wear, anti-corrosion characteristics. They also enhance the
toughness and strength of ferrous-based alloys.
Group 4. Reclamation of Precious and Semi-Precious Metals
Reclamation of such metals from scrap, jewelry, and electronic
components is being undertaken on a large scale by various
companies such as Handy and Barman, Refinement Corporation, and
Diversified Industries, Inc. The value of shipments of
reclaimed metals is a significant portion of shipments for these
companies.
B-2
-------
Group 5. Smelting and Refining for Producing Alloys Mining,
smelting, and refining for the purpose of producing alloys is an
important segment for many companies, including Foote-Mineral
Co., Cabot Corporation, and nanna Mining Co. These products
include ferro-alloys, tantalum alloys, columbium alloys, and
nickel alloys. Reclamation of alloys from metal scrap is also
included in this segment because it constitutes a significant
part of business operations for these companies.
Group 6. Reclamation of Base and Other Nonferrous Metals In
addition to producing metals such as copper, aluminum, and zinc
from their respective ores, companies may also reclaim these
metals from scrap, junked automobiles and electronic
appliances. This group covers reclamation activities for these
and other nonferrous metals.
Group 7. Production of Metal Products, Alloys, and Metal
Powders The combination of metal products, alloys, and metal
powders is considered one segment. It does not involve any
mining or recycling. Companies engaged in such production
purchase raw materials to manufacture such items.
Group 8. Production of Rai q-Earth Metals Rare-earth metals
have special characteristics cf their own. They improve many
common items; for example, some nelp polish glass, decolor it,
or tint it, and others filter out or absorb light rays.
Examples of such metals are mischmetal, cerium, lanthanum, and
didymium. Because of these special characteristics, the
production of rare-earth metals has been taken as a separate
segment.
2. Application of Groups to Subcategories
Ten metal subcategories are included in the economic analysis.
The plants in these subcategories are evaluated with financial ratios
from the groups defined above. Assigning the subcategories to specific
groups is straightforward. The following list identifies the
assignments.
B-3
-------
Subcategory
Primary Aluminum
Primary Copper
Primary Lead
Primary Zinc
Secondary Aluminum
Secondary Copper
Secondary Lead
Secondary Silver
Primary Columbium/Tantalum
Primary Tungsten
Group Used for
Financial Ratios
Group 1: Smelting and Refining
of Primary Base Metals
Group 1: Smelting and Refining
of Primary Base Metals
Group 1: Smelting and Refining
of Primary Base Metals
Group 1: Smelting and Refining
of Primary Base Metals
Group 6: Reclamation of Base and
Other Nonferrous Metals
Group 6: Reclamation of Base and
Other Nonferrous Metals
Group 6: Reclamation of Base and
Other Nonferrous Metals
Group 14: Reclamation of
Precious and Semi-Precious Metals
Group 5: Smelting and
Refining for Producing Alloys
Group 7: Production of Metal
Products, Alloys, and Metal
Powders
D. PROCEDURE FOR CALCULATING GROUP RATIOS
Each of the eight groups defined above is comprised of several
business segments. Group financial ratios are calculated as follows:
calculate financial ratios for each segment within the group over
several years; and
average segment ratios over all segments and all years.
The details of the calculations for each group ratio are presented
below. The results of these calculations (the group ratios) are shown
in Table B-1, at the end of this Appendix.
B-lJ
-------
1. Calculation of Operating Income/Sales
_g _ real cash flow of group g
S ~ sales of group g
o
U T . M Um ,t
_£ _ 1 v 1 Z S
S ~ T . , M . S ,.
g t=1 m=1 m t
O
Where: U = real cash flow of segment m in group g in year
g' t (calculated from business segment information of
annual reports).
Sm t = sales of segment m in group g in year t (given
8' in business segment information of annual reports).
M = number of segments in group g.
t = 1978, 1979, 1980, 1981, 1982.
2. Operating Income/Assets (Real Cost of Capital)
g real cash flow of group g
g ~ A(adj) " adjusted assets of group g
o
U , T . M Um ,t
P - . 6 _ 1 v 1 v 8'
rg - A(adj)g - T tal M £, A(adj)m ^
o
Where: A(adj)m ^ - adjusted value of assets of segment m in group
8' g in year t.
A(adj) t = (A tV(Ux)
/
, depreciation at replacement
Where: (1+x) = current costs _ 1 s value in 1982
historical costs ~ h . depreciation at book
value in 1982
h = Number of companies in the data base.
Am ^ is obtained from business segment information contained in annual
reP&rts.
B-5
-------
3. Current Assets/Sales
(CA)
g current assets
of group g
S sales of group g
o
(CA) 1 T 1 M (CA)m ,t
S ~ T * M Z,
g t=1 m=1
Smg,t
Where: (CA)
m
O
= current assets of segment m in group g 1.1 year t.
The business segment information contained in corporate annual
reports does not give any information on current assets of the
segments. Therefore, current assets of the segments have been estimated
based on the characteristics of the company to which they belong.
(CA)
Where: (CA),
vt =
r(c4)vl
L V J
Smg,t
^ = current assets of the company c (to which the
£' segment m belongs) in group g in year t.
£ = sales of company c (to which the segment m
6' belongs) in group g in year t.
S_ f = sales of segment m of company c in group g in
LU_ U
8' year t.
Non-Current Assets/Sales
(BV)
sg
(BV)
S
g
-------
5. Capital Expenditure/Sales
(CE).
capital expenditures of group g
.II -. . »
s
g
(CE)
^
S
g
Sales of group g
T
' V
" T
t=1
i
i
M
M
r
u
M=1
(CE)
V
B
Smg,t
t
Where: (CE)m ^ = capital expenditures of segment m in group g in
8' year t. (Given in business segment information
of annual reports of companies.)
E. ESTIMATION OF ANNUAL REVENUES (SALES) OF EACH PLANT
S,- i-, = sales of plant i in group g in the year D (1985)
VU
_ \C x (CO) 1 P
Sig,D - L 1982 *J Z
Where: C, = Capacity of plant i in 1982 (assumed to be the same
^982 in 1985).
= Average capacity utilization of plant i belonging to
industry I between 1978 and 1982.
= Average capacity utilization of industry I between
1978 and 1982.
= Average real (inflation adjusted) price of metal in
industry I under between 1978 and 1982.
F. ESTIMATION OF PLANT LEVEL OPERATING INCOME, CURRENT ASSETS, PLANT
AND EQUIPMENT, CAPITAL EXPENDITURES. AND LIQUIDATION VALUE
It is assumed that each plant possesses the characteristics of the
group in which it falls. Hence, group ratios are used to estimate
plant-level variables. The values of most of these variables are
calculated by multiplying a group ratio (as defined in Section D above)
by the plant's sales (Section E above).
B-7
-------
1. Calculation of Operating Income of Plants
U = real cash flow of plant i in group g In the year D.
YD
u
Ui ,D = Si ,D X I*
g g g
2. Calculation of Current Assets of Plants
(CAh p = current assets of plant i in group g in the year D.
g'
(CA)
A D =
o
(CA)
S
- g J
3. Calculation of Plant and Equipment of Plants
= adjusted book value of plant and equipment of
plant i in group g in the year D.
(BVadJ), n = (BVh D x (Ux)
V g'
where (1+x) =
current costs
historical costs
(BV)
g'D ig' Sg
Calculation of Capital Expenditures of Plants
(CE)^ p r capital expenditures of plant i in group g in
g' the period D.
(CE>ig,D = Sig,D *
(CE)g"]
L g
Calculation of Liquidation Value
L = real liquidation value of plant i in group g in
ig'0 period D.
B-8
-------
Under the assumption that plant and equipment have no scrap
value except as a tax write-off (a common practice in the industry), the
liquidation value is calculated as follows:
L = O.T(CA). + t (BV)
,D VD VD
Where: t = tax rate.
Only a portion of the value for current assets is included in
the liquidation value because only a certain amount can be recovered
when the plant is liquidated. Financial literature suggests this
portion to be approximately 70 percent of current assets.
Neither short-term nor long-term liabilities are taken into
account while calculating the liquidation value of plants, because they
do not affect the plant closure decisions. Whether the plant is closed
or is kept operating, liabilities will have to be paid, and so they are
not crucial decision factors in plant-closure analysis.
G. IMPLEMENTATION OF NPV TEST
The general form of the NPV test is
In order to implement the NPV test, the annual compliance cost must
be subtracted from the real cash flow of the plant. Thus, the NPV test
for each plant can be written as:
Ui ,D(adj)
B - > r
L ~ g
V
where
U, n(adj) = U. n - (Total Annual Cost).
1 I L) 1 i) J,
g 8
L = liquidation value of plant i
°i ,D (defined above in Section F.5)
O
r = real cost of capital for group g (defined above in
g Section D.2)
The procedure for calculating total annual cost is explained in
Appendix C.
B-9
-------
TABLE B-1
VALUES FOR GROUP RATIOS
Group
No.
1
2
3
4
5
6a
7
8
Real Cost
of Capital
(r)
0.1014
0.2562
0.1725
0.2069
0.1669
0.0404
0.1466
0.1187
Operating
Income
to Sales
(U/S)
0.0740
0.2993
0.2064
0.0936
0.0848
0.0274
0.1430
0.0884
Capital
Expenditure
to Sales
(CE/S)
0.1188
0.1036
0.1415
0.0100
0.0452
0.0328
0.0906
0.3890
Non-Current
Assets
to Sales
(BV/S)
0.5430
0.4521
0.4781
0.0717
0.2075
0.1644
0.2881
0.3396
Current
Assets
to Sales
(CA/S)
0.4187
0.5265
0.4373
0.3988
0.3510
0.3217
0.4507
0.4362
aThe following ratios were Calculated from FINSTAT data for small
secondary silver plants: r = 0.131; U/S = 0.022; BV/S = 0.023;
CA/S = 0.133.
B-10
-------
APPENDIX C
CALCULATION OF TOTAL ANNUAL COSTS
FOR THE TWO CLOSURE ANALYSIS TESTS
-------
APPENDIX C
CALCULATION OF TOTAL ANNUAL COSTS
FOR THE TWO CLOSURE ANALYSIS TESTS
Both the Net Present Value test (NPV test) and the liquidity test
deduct the incremental compliance costs from revenues (operating
income). While the NPV test judges the firm from the long-term point of
view, the liquidity test appraises the short-term viability of the
firm. The incurrence of pollution control expenditures, therefore,
calls for an adjustment to the real cash flows discussed in Appendix
A. The additional costs result in annual cash outflows as a result of
increased operating costs, depreciation, maintenance expenditures, and
payments for the initial capital outlay. However, these costs also
result in some tax benefits, as taxable income is determined after the
deduction of both operating and depreciation expenditures. The firms
also benefit from the Investment Tax Credit (ITC). For purposes of
estimating the pollution control costs for the two tests, all tax
benefits must be considered.
A. CALCULATION OF TAX BENEFITS DUE TO INCREASED DEPRECIATION
Since depreciation is an allowable expense for tax purposes, it has
the effect of reducing taxes. If the tax rate is assumed to be t and
depreciation is D, taxes decrease by (t)(D) every year. The tax savings
are in nominal dollars; hence, the present value of the tax benefits
must be calculated by discounting the nominal tax savings by the nominal
rate of return.
The depreciation tax benefit in year k =
Where: DR = dk x 0.95P1
d^ = depreciation rate in year k
P = capital cost to the plant.
The present value of the depreciation tax shelter =
K t(D. )
k=1 [(Ur) (1+g)]
1In accordance with the terms of the Tax Equity and Fiscal Responsibil-
ity Act of 1982, only 95$ of the capital costs can be depreciated.
Thus, the amount P, which is the initial capital cost, is adjusted to 95
percent of its value.
C-1
-------
Where: r = real cost of capital (as defined in Appendix B, Section D.2;
this value varies by group)
g = inflation rate (assumed to be 6 percent)
K = taxable life of the asset.
The capital expenditures required to install the necessary treatment
equipment have been depreciated over the taxable life of five years. In
accordance with the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), capital equipment can be depreciated as follows.
1) 15$ of the depreciable assets (95$ of P) equals the depreciation
in the first year.
2) The remaining portion of the asset (85$) is depreciated on a
straight-line basis over four years. In this study, the
depreciation rates are taken to be 22$ for the second year and
21$ for each of the last three years.
B* CALCULATION OF EFFECTIVE CAPITAL COST (NPV TEST)
The effective capital cost is calculated after the deduction of the
following items from the capital costs of pollution control equipment:
1) Investment tax credit (ITC), which in accordance with TEFRA
equals 10$ of capital costs;
2) Present value of depreciation and interest tax shelters.
5 1
Z tD x :r-!
k=1 [(1+rKUg)]
Therefore,
»
_ / r
= x TU+r;
= <0.9P - £ tD. x - :->
{ k=1 *
-------
D. CALCULATION OF TOTAL ANNUAL COSTS (NPV TEST)
The annual pollution control expenditures (APC ) are calculated as
follows:
'APC = ACC + (l-t)AAC
Where: ACC = annualized capital cost (see Section C)
AAC = annual operating costs. The term (1-t) takes into account
the tax effect of increased expenses.
E. THE NPV TEST
The NPV test, which now takes into account the pollution control
expenditures, can be stated as follows:
If
0 - APC
C
o
Then, a plant will continue in operation.
P. CALCULATION OF ANNUAL POLLUTION CONTROL EXPENDITURES
(LIQUIDITY TEST)
The liquidity test is designed to measure the short-term solvency of
the firm. The basic premise of this analysis is that a plant will close
if pollution control expenditures cause negative cash flows in the
foreseeable future. The cash flows are defined as earnings after all
operating expenses (including depreciation), interest, and taxes.
The effective capital cost is, therefore, amortized over a shorter
period of five years. The annualized capital cost (ACC ) in this case
is
ACC = 0.9P - E tD. x
Q ( k=1
Total annual pollution control expenditures (APC ) in the case of the
liquidity test are, therefore, greater than in the case of the NPV test.
C-3
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G. THE LIQUIDITY TEST
The liquidity test can now be stated as follows;
If
U - APC < 0
q -
Then, the plant will close.
C-U
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APPENDIX D
PROCEDURE FOR CALCULATING INDUSTRY-WIDE IMPACTS
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APPENDIX D
PROCEDURE FOR CALCULATING INDUSTRY-WIDE IMPACTS
This appendix briefly details the procedures followed in computing
certain ratios used to analyze industry-wide impacts. These impacts
concern: (1) changes in production costs; (2) price changes; (3)
changes in return on investment; and (1) effects on capital
expenditures .
A. CHANGES IN PRODUCTION COSTS
Changes in production costs =
£ (APC.)
n _
£ (S. - U.)
1=1
Where: APC^ = annual pollution control expenditures of plant i
S^ = annual sales of plant i
U^ = real income of plant i
n = number of plants in subcategory
B. PRICE CHANGES
Changes in price =
n
E APC.
L=J
n
Z S
ial
Where: APC^ = annual pollution control expenditures of plant i
S.j = annual sales of plant i
n = number of plants in subcategory
C. CHANGES IN RETURN ON INVESTMENT
Changes in return on investment = '
Where: "r = precompliance real rate of return for each subcategory,
as defined in Appendix A.
"r1 = postcompliance real rate of return for each subcategory
D-1
-------
r' is computed as follows:
_
E (U. - APC }
rt = -
n
Z (A. + CC )
1=1
Where: U, = real income of plant i
= annual pollution control expenditures of plant i
A£ = assets of plant i, which equal U./r
CC^ = pollution control capital costs of plant i
n = number of plants in subcategory
D. EFFECTS ON CAPITAL EXPENDITURES
Effects on capital expenditures =
n
Z CC
1=1
n
Z CE
1=1
Where: C^ = pollution control capital costs of plant i
CEi = estimated capital expenditure budget of plant i
n = number of plants in subcategory
D-2
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REPORT DOCUMENTATION
PAGE
1. REPORT NO.
EPA 44/2-84-004
3. Recipient's Accession No.
4. Title end subtitle Economic Impact Analysis of Effluent Limitations
and Standards for the Nonferrous Metals Manufacturing Industry,
Phase I
5. Report Oete
February 1984 (issued)
7. Authors)
8. Performing Organization Rept. No.
9. Performing Organization Name and Address
Policy Planning and Evaluation, Inc.
8301 Greensboro Drive, Suite 460
McLean, Virginia 22102
10. Project/Task/Work Unit No.
11. Contract(C) or Grant(G) No.
68-01-6731
(G)
12. Sponsoring Organization Name and Address
U.S. Environmental Protection Agency
Office of Water Regulations and Standards
401 M Street, SW
Washington, B.C. 20460
13. Type of Report & Period Covered
Final
14.
15. Supplementary Notes
16. Abstract (Limit: 200 words)
The U.S. Environmental Protection Agency issued effluent limitations guidelines
and standards for the Nonferrous Metals Manufacturing Industry in February 1984.
This report estimates the economic impact of pollution control costs in terms of
price changes, effects on profitability, continued viability of plants, and
other effects. A plant-specific approach is used to assess these impacts for
ten metal subcategories, which comprise one phase of this industry. For most of
these subcategories, the impacts are expected to be minimal.
17. Document Analysis a. Descriptors
b. Identifiers/Open-Ended Terms
c. COSATI Field/Group
18. Availability Statement
19. Security Class (This Report)
2O. Security Class (This Page)
21. No. of Pages
246
22. Price
(SeeANSI-239.18)
*(J.S. GOVERNMENT PRINHN& OFFICE : 1984 0-4-21-082/510
See Instructions on Reverse
OPTIONAL FORM 272 (4-7?)
(Formerly NTIS-35)
Department of Commerce
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