United States Off ice of Water EPA-440/2-80-008
Environmental Protection Planning and Standards April 1980
Agency Washington DC 20460
Water Planning and Standards
&EPA Economic Analysis
of Proposed Revised Effluent
Guidelines and Standards
for the Inorganic
Chemicals Industry
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ECONOMIC ANALYSIS OF PROPOSED
REVISED EFFLUENT GUIDELINES AND STANDARDS
FOR THE INORGANIC CHEMICALS INDUSTRY
Prepared for:
Office of Water Planning and Standards
U.S. Environmental Protection Agency
Washington, D.C. 20460
Prepared by:
Energy and Environmental Analysis, Inc.
1111 North 19th Street
Arlington, Virginia 22209
Under Contract No.
68-01-4618
April 1980
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This document is available in limited quantities
through the U.S. Environmental Protection Agency,
Economic Analysis Staff (WH-586), 401 M Street, S.W.,
Washington, D.C. 20460, (202) 426-2617.
This document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151.
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This report has been reviewed by the Office of
Water Planning and Standards, EPA, and approved
for publicaton. Approval does not signify that
the contents necessarily reflect the views and
policies of the Environmental Protection Agency,
nor does mention of trade names or commercial
products constitute endorsement or recommendation
for use.
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PREFACE
The attached document is a contractor's study prepared for the
Office of Analysis and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative BPT, BAT, PSES,
NSPS, PSNS guidelines established under the Federal Water Pollution
Control Act (the Act), as amended.
The study supplements the technical study ("EPA Development Document")
supporting the proposal of regulations under the Act. The Development
Document surveys existing and potential waste treatment control methods
and technology within particular industrial source categories and supports
proposed limitations based upon an analysis of the feasibility of these
limitations in accordance with the requirements of the Act. Presented
in the Development Document are the investment and operating costs
associated with various alternative control and treatment technologies.
The attached document supplements this analysis by estimating the broader
economic effects which might result from the required application of
various control methods and technologies. This study investigates the
effect of alternative approaches in terms of product price increases,
effects upon employment and the continued viability of affected plants,
effects on production, effects upon foreign trade, and other community
and competitive effects.
The study has been prepared with the supervision and review of the
Office of Analysis and Evaluation of the EPA. This report was submitted
in fulfillment of Contract No. 68-01-4618 by Energy and Environmental
Analysis, Inc. This report reflects work completed as of March 1980.
This report is being released and circulated at approximately the
same time as publication in the Federal Register of a notice of proposed
rule making. The study is not an official EPA publication. It will be
considered along with the information contained in the Development
Document and any comments recieved by EPA on either document before or
during proposed rule making proceedings necessary to establish final
regulations. Prior to final promulgation of regulations, the accompanying
study shall have standing in any EPA proceeding or court proceeding only
to the extent that it represents the views of the contractor who studied
the subject industry. It cannot be cited, referenced, or represented in
any respect in any such proceeding as a statement of EPA's views regarding
the inorganic chemicals industry.
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TABLE OF CONTENTS
Page
A. EXECUTIVE SUMMARY A-l
B. INDUSTRY OVERVIEW B-l
C. METHODOLOGY USED IN ECONOMIC IMPACT ANALYSIS C-l
D. SUBCATEGORY ANALYSIS D-l
1. ALUMINUM FLUORIDE 1-2
1.1 Industry Characterization 1-2
1.1.1 Demand 1-2
1.1.2 Supply 1-7
1.1.3 Competition 1-11
1.1.4 Economic Outlook 1-13
1.1.5 Characterization Summary 1-19
1.2 Impact Analysis 1-20
1.2.1 Pollution Control Technology and Costs 1-20
1.2.2 Model Plant Analysis 1-23
1.2.3 Industry Impacts 1-30
2. CHLORINE 2-1
2.1 Industry Characterization 2-1
2.1.1 Demand 2-1
2.1.2 Supply 2-4
2.1.3 Competition 2-20
2.1.4 Economic Outlook 2-22
2.1.5 Characterization Summary 2-24
2.2 Impact Analysis 2-24
2.2.1 Pollution Control Technology and Costs 2-25
2.2.2 Model Plant Analysis 2-36
2.2.3 Industry Impacts 2-57
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TABLE OF CONTENTS (Cont'd)
Page
3. CHROME PIGMENTS 3-1
3.1 Industry Characterization 3-1
3.1.1 Demand 3-1
3.1.2 Supply 3-6
3.1.3 Competition 3-8
3.1.4 Economic Outlook 3-22
3.1.5 Characterization Summary 3-24
3.2 Impact Analysis 3-25
3.2.1 Pollution Control Technology and Costs 3-26
3.2.2 Model Plant Analysis 3-27
3.2.3 Industry Impacts 3-38
4. COPPER SULFATE 4-1
4.1 Industry Characterization 4-1
4.1.1 Demand 4-1
4.1.2 Supply 4-6
4.1.3 Competition 4-11
4.1.4 Economic Outlook 4-15
4.1.5 Characterization Summary 4-17
4.2 Impact Analysis 4-18
4.2.1 Pollution Control Technology and Costs 4-19
4.2.2 Model Plant Analysis 4-20
4.2.3 Industry Impacts 4-24
5. HYDROGEN CYANIDE 5-1
5.1 Industry Characterization 5-1
5.1.1 Demand 5-2
5.1.2 Supply 5-8
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TABLE OF CONTENTS (Cont'd)
Page
5.1.3 Competition 5-15
5.1.4 Economic Outlook 5-22
5.1.5 Characterization Summary 5-26
5.2 Impact Analysis 5-27
5.2.1 Pollution Control Technology and Costs 5-27
5.2.2 Model Plant Analysis 5-31
5.2.3 Industry Impacts 5-35
6. HYDROGEN FLUORIDE. . . 6-1
6.1 Industry Characterization 6-1
6.1.1 Demand 6-1
6.1.2 Supply 6-5
6.1.3 Competition 6-11
6.1.4 Economic Outlook 6-11
6,1.5 Characterization Summary 6-17
6.2 Impact Analysis 6-17
6.2.1 Pollution Control Technology and Costs 6-18
6.2.2 Model Plant Analysis 6-20
6.2.3 Industry Impacts 6-24
7. NICKEL SULFATE 7-1
7.1 Industry Characterization 7-1
7.1.1 Demand 7-1
7.1.2 Supply 7-4
7.1.3 Competition 7-8
7.1.4 Economic Outlook 7-13
7.1.5 Characterization Summary 7-15
7.2 Impact Analysis 7-16
7.2.1 Pollution Control Technology and Costs 7-16
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TABLE OF CONTENTS (Cont'd)
Page
7.2.2 Model Plant Analysis 7-18
7.2.3 Industry Impacts 7-25
8. SODIUM BISULFITE 8-1
8.1 Industry Characterization 8-1
8.1.1 Demand 8-1
8.1.2 Supply 8-4
8.1.3 Competition 8-7
8.1.4 Economic Outlook 8-11
8.1.5 Characterization Summary 8-15
8.2 Impact Analysis 8-15
8.2.1 Pollution Control Technology and Costs 8-16
8.2.2 Model Plant Analysis 8-17
8.2.3 Industry Impacts ..... 8-26
9. SODIUM DICHROMATE 9-1
9.1 Industry Characterization 9-1
9.1.1 Demand 9-1
9.1.2 Supply 9-6
9.1.3 Competition 9-10
9.1.4 Economic Outlook 9-15
9.1.5 Characterization Summary 9-17
9.2 Impact Analysis 9-18
9.2.1 Pollution Control Technology and Costs 9-18
9.2.2 Model Plant Analysis 9-19
9.2.3 Industry Impacts 9-25
10. SODIUM HYDROSULFITE 10-1
10.1 Industry Characterization 10-1
10.1.1 Demand 10-1
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TABLE OF CONTENTS (Cont'd)
10.1.2 Supply 10-4
10.1.3 Competition 10-10
10.1.4 Economic Outlook 10-11
10.1.5 Characterization Summary 10-13
10.2 Impact Analysis 10-14
10.2.1 Pollution Control Technology and Costs 10-14
10.2.2 Model Plant Analysis 10-15
10.2.3 Industry Impacts 10-25
11. TITANIUM DIOXIDE 11-1
11.1 Industry Characterization 11-1
11.1.1 Demand 11-1
11.1.2 Supply 11-2
11.1.3 Competition 11-16
11.1.4 Economic Outlook 11-20
11.1.5 Characterization Summary 11-23
11.2 Impact Analysis 11-24
11.2.1 Pollution Control Technology and Costs 11-25
11.2.2 Model Plant Analysis 11-30
11.2.3 Industry Impacts 11-44
APPENDIX A: Explanation of the Price Rise Calculations A-l
APPENDIX B: Derivation of the IRR, ROI, and NPV Equations . . . A-4
APPENDIX C: The Manufacturing Cost Estimates: Sources, Uses,
and Limitations A-7
APPENDIX D: Sensitivity of the Profitability Analysis to
the Financial Data A-9
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LIST OF TABLES
Page
A-l Summary of Economic Characteristics A-5
A-2a Summary of Impacts - Direct Dischargers A-6
A-2b Summary of Impacts - Indirect Dischargers A-7
B-l Chemical Production B-6
B-2 High Volume Chemicals B-9
B-3 Capital Spending by 20 Major Chemical Firms B-l3
1-1 Production of Aluminum Fluoride 1-8
1-2 Producers of Aluminum Fluoride 1-12
1-3 Estimated Cost of Manufacturing Aluminum Fluoride. . . . 1-14
1-4 Pollution Control Costs - Aluminum Fluoride 1-22
1-5 Manufacturing Costs - Aluminum Fluoride 1-22
1-6 Subcategory Compliance Costs - Aluminum Fluoride .... 1-24
1-7 Percentage Price Rise - Aluminum Fluoride. ....... 1-26
l-8a Profitability Change - Aluminum Fluoride (Level 2) ... 1-27
l-8b Profitability Change - Aluminum Fluoride (Level 3) ... 1-28
l-8c Profitability Change - Aluminum Fluoride (Level 4) ... 1-29
1-9 Pollution Control Capital Costs as a Percentage of
Fixed Investment - Aluminum Fluoride 1-32
1-10 Impact Summary - Aluminum Fluoride 1-33
2-1 Production of Chlorine 2-7
2-2 Chlor-Alkali Producing Companies, Plants, and
Capacities 2-9
2-3 Estimated Cost of Manufacturing Chlorine -
Mercury Process 2-14
2-4 Estimated Cost of Manufacturing Chlorine -
Diaphragm Process 2-17
2-5a Pollution Control Costs - Chlorine (Mercury) 2-28
2-6a Manufacturing Costs - Chlorine (Mercury) 2-28
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LIST OF TABLES (Cont'd)
Page
2-7a Subcategory Compliance Costs - Chlorine (Mercury). . . . 2-29
2-5b Pollution Control Costs - Chlorine (Diaphragm) 2-32
2-5c Pollution Control Costs - Chlorine (Diaphragm) 2-33
2-6b Manufacturing Costs - Chlorine (Diaphragm) 2-34
2-7b Subcategory Compliance Costs - Chlorine (Diaphragm). . . 2-35
2-8a Percentage Price Rise - Chlorine (Mercury) 2-38
2-9a Percentage Price Rise - Chlorine (Diaphragm Level 3) . . 2-39
2-9b Percentage Price Rise - Chlorine (Diaphragm Level 2) . . 2-40
2-9c Percentage Price Rise - Chlorine (Diaphragm Level 1) . . 2-42
2-10a Profitability Change - Chlorine (Mercury Level 2). ... 2-43
2-10b Profitability Change - Chlorine (Mercury Level 2
with Dechlorination) 2-44
2-lla Profitability Change - Chlorine (Diaphragm Level 3). . . 2-45
2-llb Profitability Change - Chlorine (Diaphragm Level 3
with Dechlorination) 2-46
2-llc Profitability Change - Chlorine (Diaphragm Level 2). . . 2-47
2-lld Profitability Change - Chlorine (Diaphragm Level 2
with Dechlorination) 2-48
2-12 Profitability Change - Chlorine (Diaphragm Level 1)... 2-50
2-13a Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chlorine (Mercury) 2-51
2-13b Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chlorine (Diaphragm) 2-53
2-14 Impact Summary - Chlorine (Mercury) 2-54
2-15 Impact Summary - Chlorine (Diaphragm) 2-55
2-16 Impact Summary - Chlorine (Diaphragm - Indirect
Discharge) 2-56
3-1 Chrome Pigments Production 3-9
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LIST OF TABLES (Cont'd)
Page
3-2 Producers of Chrome Pigments 3-14
3-3 Constituents of Chrome Pigments 3-16
3-4 Estimated Cost of Manufacturing Chrome Yellow Pigment. . 3-17
3-5 Pollution Control Costs - Chrome Pigment 3-29
3-6 Manufacturing Costs - Chrome Pigments 3-29
3-7 Subcategory Compliance Costs - Chrome Pigments 3-30
3-8 Percentage Price Rise - Chrome Pigments 3-31
3-9a Profitability Change - Chrome Pigments (Level 1) .... 3-32
3-9b Profitability Change - Chrome Pigments (Level 2) .... 3-35
3-10 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Chrome Pigments 3-36
3-11 Impact Summary - Chrome Pigments 3-37
3-12 Chrome Pigments Industry Characterization 3-41
3-13 Projected Chrome Pigments Demand - 1985 3-45
4-1 Production of Copper Sulfate 4-7
4-2 Producers of Copper Sulfate 4-9
4-3 Estimated Cost of Manufacturing Copper Sulfate 4-13
4-4 Pollution Control Costs - Copper Sulfate 4-21
4-5 Manufacturing Costs - Copper Sulfate 4-21
4-6 Subcategory Compliance Costs - Copper Sulfate 4-22
4-7 Percentage Price Rise - Copper Sulfate 4-25
4-8a Profitability Change - Copper Sulfate (Level 1) 4-26
4-8b Profitability Change - Copper Sulfate (Level 2) 4-27
4-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Copper Sulfate 4-28
4-10 Impact Summary - Copper Sulfate 4-29
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LIST OF TABLES (Cont'd)
Page
5-1 Production of Methyl Methacrylate 5-4
5-2 Producers of Methyl Methacrylate 5-7
5-3 Current and Projected Demand for HCN by Use 5-9
5-4 Production of Hydrogen Cyanide 5-11
5-5 Hydrogen Cyanide Producers 5-13
5-6 Estimated Cost of Manufacturing Hydrogen
Cyanide - Andrussow Process 5-17
5-7 Future MMA Demand and Capacity 5-23
5-8 Pollution Control Costs - Hydrogen Cyanide 5-29
5-9 Manufacturing Costs - Hydrogen Cyanide 5-29
5-10 Subcategory Compliance Costs - Hydrogen Cyanide 5-30
5-11 Percentage Price Rise - Hydrogen Cyanide 5-33
5-12 Profitability Change - Hydrogen Cyanide 5-34
5-13 Pollution Control Capital Costs as a Percentage
^of Fixed Investment - Hydrogen Cyanide 5-37
5-14 Impact Summary - Hydrogen Cyanide 5-38
6-1 Production of Hydrogen Fluoride 6-7
6-2 Producers of Hydrogen Fluoride 6-9
6-3 Estimated Cost of Manufacturing Hydrogen Fluoride. . . .6-13
6-4 Pollution Control Costs - Hydrogen Fluoride 6-21
6-5 Manufacturing Costs - Hydrogen Fluoride 6-21
6-6 Subcategory Compliance Costs - Hydrogen Fluoride .... 6-22
6-7 Percentage Price Rise - Hydrogen Fluoride 6-25
6-8a Profitability Change - Hydrogen Fluoride (Level 2) ... 6-26
6-8b Profitability Change - Hydrogen Fluoride (Level 3) ... 6-27
6-8c Profitability Change - Hydrogen Fluoride (Level 4) ... 6-28
6-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Hydrogen Fluoride 6-29
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LIST OF TABLES (Cont'd)
Page
6-10 Impact Summary - Hydrogen Fluoride 6-30
7-1 Production of Nickel Sulfate 7-5
7-2 Producers of Nickel Sulfate 7-9
7-3 Estimated Cost of Manufacturing Nickel Sulfate 7-10
7-4 Pollution Control Costs - Nickel Sulfate 7-19
7-5 Manufacturing Costs - Nickel Sulfate 7-19
7-6 Subcategoiy Compliance Costs - Nickel Sulfate 7-20
7-7 Percentage Price Rise - Nickel Sulfate 7-22
7-8a Profitability Change -Nickel Sulfate (Level 1) 7-23
7-8b Profitability Change -Nickel Sulfate (Level 2) 7-24
7-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Nickel Sulfate 7-26
7-10 Impact Summary - Nickel Sulfate 7-27
8-1 Producers of Sodium Bisulfite 8-6
8-2 Estimated Cost of Manufacturing Sodium Bisulfite -
Mother Liquor Process 8-8
8-3 Sodium Bisulfite List Prices 8-13
8-4 Pollution Control Costs - Sodium Bisulfite 8-18
8-5 Manufacturing Costs - Sodium Bisulfite 8-18
8-6 Subcategory Compliance Costs - Sodium Bisulfite 8-19
8-7 Percentage Price Rise - Sodium Bisulfite 8-21
8-8a Profitability Change - Sodium Bisulfite (Level 1). . . . 8-22
8-8b Profitability Change - Sodium Bisulfite (Level 2). ... 8-23
8-8c Profitability Change - Sodium Bisulfite (Level 3). ... 8-24
8-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Sodium Bisulfite 8-27
8-10 Impact Summary - Sodium Bisulfite 8-28
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LIST OF TABLES (Cont'd)
9-1 Production of Sodium Bichromate 9-7
9-2 Producers of Sodium Bichromate 9-9
9-3 Estimated Cost of Manufacturing Sodium Bichromate. . . . 9-11
9-4 Pollution Control Costs - Sodium Bichromate 9-20
9-5 Manufacturing Costs - Sodium Bichromate 9-20
9-6 Subcategory Compliance Costs - Sodium Bichromate .... 9-21
9-7 Percentage Price Rise - Sodium Bichromate 9-23
9-8 Profitability Change - Sodium Bichromate 9-24
9-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Sodium Bichromate 9-26
9-10 Impact Summary - Sodium Bichromate 9-27
10-1 Production of Sodium Hydrosulf ite 10-5
10-2 Producers of Sodium Hydrosulfite 10-7
10-3 Estimated Cost of Manufacturing Sodium Hydrosulfite -
Formate Process 10-9
10-4 Pollution Control Costs - Sodium Hydrosulfite 10-16
10-5 Manufacturing Costs - Sodium Hydrosulfite 10-16
10-6 Subcategory Compliance Costs - Sodium Hydrosulfite . . . 10-17
10-7 Percentage Price Rise - Sodium Hydrosulfite 10-19
10-8a Profitability Change - Sodium Hydrosulfite (Level 1) . . 10-20
10-8b Profitability Change - Sodium Hydrosulfite (Level 2) . . 10-21
10-9 Pollution Control Capital Costs as a Percentage
of Fixed Investment - Sodium Hydrosulfite 10-23
10-10 Impact Summary - Sodium Hydrosulfite 10-24
11-1 Productions^of Titanium Bioxide 11-4
V
11-2 Producers of Titanium Bioxide 11-6
11-3 Estimated Cost of Manufacturing Titanium Bioxide -
Sulfate Process 11-10
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LIST OF TABLES (Cont'd)
11-4 Estimated Cost of Manufacturing Titanium Dioxide -
Chloride Process 11-13
11-5 Titanium Dioxide: U.S. Production, Foreign Trade,
Producers' Stocks and Apparent Consumption, 1973-77,
January - June 1977, and January - June 1978 11-17
ll-6a Pollution Control Costs - Titanium Dioxide (Sulfate) . . 11-27
ll-7a Manufacturing Costs - Titanium Dioxide (Sulfate) .... 11-27
ll-8a Subcategory Compliance Costs - Titanium Dioxide
(Sulfate) 11-28
ll-6b Pollution Control Costs - Titanium Dioxide (Chloride). . 11-31
ll-7b Manufacturing Costs - Titanium Dioxide (Chloride). . . . 11-31
ll-8b Subcategory Compliance Costs - Titanium
Dioxide (Chloride) 11-32
ll-9a Percentage Price Rise - Titanium Dioxide (Sulfate) . . . 11-34
ll-9b Percentage Price Rise - Titanium Dioxide (Chloride). . . 11-36
ll-10a Profitability Change - Titanium Dioxide
(Sulfate-Level 1) 11-37
ll-10b Profitability Change - Titanium Dioxide
(Sulfate-Level 2) 11-38
ll-10c Profitability Change - Titanium Dioxide
(Chloride-Level 2) 11-39
ll-10d Profitability Change - Titanium Dioxide
(Chloride-Level 3) 11-42
11-lla Pollution Control Capital Costs as a Percentage
of Fixed Investment - Titanium Dioxide (Sulfate) .... 11-43
11-llb Pollution Control Capital Costs as a Percentage
of Fixed Investment - Titanium Dioxide (Chloride). . . . 11-42
ll-12a Impact Summary - Titanium Dioxide (Sulfate) 11-45
ll-12b Impact Summary - Titanium Dioxide (Chloride) 11-46
11-13 Labor Statistics for Affected Areas 11-51
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LIST OF TABLES (Cont'd)
Page
B-l IRR, NPV, and ROI Equations A-5
D-l Effect of Simplifying Tax Assumption on Cash Flow
Stream A-15
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LIST OF FIGURES
Page
B-l Demand Flows in the Chemical Industry B-4
1-1 Aluminum Fluoride: Inputs and End Markets 1-4
2-1 Chlorine: Inputs and End Markets 2-3
3-1 Chrome Pigments: Inputs and End Markets 3-3
4-1 Copper Sulfate: Inputs and End Markets 4-3
5-1 Hydrogen Cyanide: Inputs and End Markets 5-3
6-1 Hydrofluoric Acid: Inputs and End Markets 6-3
7-1 Nickel Sulfate: Inputs and End Markets 7-3
8-1 Sodium Bisulfite: Inputs and End Markets 8-3
9-1 Sodium Bichromate: Inputs and End Markets 9-3
10-1 Sodium Hydrosulfite: Inputs and End Markets 10-3
11-1 Titanium Dioxide: Inputs and End Markets 11-3
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LIST OF GRAPHS
Page
1-1 Aluminum Fluoride Production and Price 1-9
2-1 Chlorine Production and Price 2-8
3-1 Chrome Yellow and Orange Production and Price 3-11
3-2 Chrome Oxide Green Production and Price 3-12
3-3 Molybdate Chrome Orange Production and Price 3-13
4-1 Copper Sulfate Production and Price 4-8
5-1 Hydrogen Cyanide Production 5-12
6-1 Hydrogen Fluoride Production and Price 6-8
7-1 Nickel Sulfate Production and Price 7-6
8-1 Sodium Bisulfite Price 8-14
9-1 Sodium Bichromate Production and Price . 9-8
10-1 Sodium Hydrosulfite Production and Price 10-6
11-1 Titanium Dioxide Production and Price 11-5
D-l Profitability Decline V. Baseline Profitability -
Large Chrome Pigments Model Plant A-13
D-2 Profitability Decline V. Baseline Profitability -
Sodium Hydrosulfite Model Plant A-14
D-3 Profitability Decline V. Capital Cost - Sodium
Hydrosulfite Model Plant A-17
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A. EXECUTIVE SUMMARY
Introduction
The ultimate goal of the 1977 Clean Water Act (33 U.S. Code 1251) is to
eliminate the discharge of pollutants into the nation's waterways by
1985. The Act states that this goal is the final step in a three step
process. The two interim steps are:
1) The implementation, by July 1977, of the best practicable pol-
lution control technology currently available (BPT) by all
industries discharging into navigable waterways.
2) The implementation, by 1984, of the best available control
technology economically achievable (BATEA) for existing indus-
trial direct dischargers.
In addition, EPA is required to establish new source performance stan-
dards (NSPS) for new industrial direct dischargers and pretreatment
standards for new and existing dischargers to publicly owned treatment
works (POTW's), called pretreatment standards for existing sources
(PSES) and pretreatment standards for new sources (PSNS).
The Environmental Protection Agency (EPA) was charged with the task of
designing and enforcing regulations in an effort to realize the goals
outlined in the Act.
This document is an assessment of the likely economic impact of effluent
limitations on 11 chemical subcategories of the Inorganic Chemicals
Industry. The subcategories are:
1. Aluminum Fluoride
2. Chlorine
3. Chrome Pigments
A-l
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4. Copper Sulfate
5. Hydrogen Cyanide
6. Hydrogen Fluoride
7. Nickel Sulfate
8. Sodium Bisulfite
9. Sodium Bichromate
10. Sodium Hydrosulfite
11. Titanium Dioxide
The purpose of this study is to analyze the economic impacts which could
result from the application of alternative effluent limitations based on
the performance of various levels of treatment (as described in this
report for each subcategory). The resulting information will be used in
EPA's determination of BPT, BAT, PSES, PSNS, and NSPS guidelines.
Organization of the Report
The report is divided into eleven sections corresponding to the eleven
subcategories under study. Each section has two parts: Characterization
and Impact Analysis. The characterization presents the recent history
of the subcategory and the major forces (exclusive of 1984 effluent
guidelines) that are shaping the future of the chemicals market. These
include sales, changes in capacity, new processes, supply and demand
characteristics, and the competitive structure of the subcategory.
After the industry baseline is described, the impact analysis employs a
model plant approach to determine how various levels of effluent control
will affect the subcategory.
Purpose
The purpose of this report is to examine the economic impacts of placing
more stringent effluent control standards upon direct and indirect
dischargers in 11 subcategories of the Inorganic Chemicals Industry.
The impacts studied are those that result from:
A-2
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• Costs incurred by direct dischargers to go from no pollution
control to "best practicable technology" (BPT) control for
plants with no control in place;
• Costs incurred by direct dischargers to go from BPT to one of
several more stringent "best available technology" (BAT)
control options under consideraton for those plants with BPT
in place;
• Costs incurred by indirect dischargers currently not pretreating
wastewater to achieve "pretreatment standards for existing
sources" (PSES);
• Costs incurred by firms entering the industry to achieve
standards set for new sources (NSPS and PSNS).
The control technologies under consideration were specified by EPA.
These technologies are applicable to both direct and indirect dis-
chargers .
Methodology
The impacts of pollution control costs on the 11 subcategories of the
Inorganic Chemicals Industry are evaluated using a model plant approach.
The methodology consists of 1) calculating a maximum price rise and
profitability decline to define the range of potential impacts and
2) assessing the most probable economic impacts based on the most likely
price increase profitability decline, capital availability, and other
relevant factors.
The price rise analysis assumes that pollution control costs can be
fully passed through by increases in the product price and calculates
the required product price rise necessary to recover the pollution
control costs.
The profitability analysis assumes that the industry is unable to pass
through any of the pollution control costs in the form of higher prices
A-3
-------
and increased costs are fully absorbed. The decreases in the return on
investment (ROI) and internal rate of return (IRR) are calculated under
this assumption. These profitability measures are based upon estimated
manufacturing costs and the technical contractor's pollution control
costs.* They are not meant to precisely quantify the actual returns
experienced at each plant.
The price elasticity of demand is estimated subjectively based on the
information developed in the characterization section. (Important
economic information for each section is summarized in Table A-l.) The
elasticity- estimate (low, medium, high) suggests the probability of an
immediate and complete price increase to recover pollution control
costs.
The capital ratio characterizes the pollution control investment by
comparing it to investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. Model plants with a maximum price rise less than
one percent, a maximum profitability decline of less than one percentage
point, and relatively inelastic demand are considered low impact cases
that do not require further detailed analysis. If price and profitability
impacts are significant, a further investigation is made into potential
plant closures, unemployment, community impacts, industry expansion
effects, and other secondary impacts.
Economic Impacts
Table A-2 summarizes the potential impacts for each chemical subcategory.
Table A-2a summarizes the impacts for direct discharge plants and Table A-2b
An economic subcontractor developed the manufacturing costs.
A-4
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TABU A-l
SUMMARY OF ECONOMIC CHARACTERISTICS
CHEMICAL
I. Aluminum
Fluoride
' 2. Chlorine
(Mercury)
(Diaphragm)
| 3. Chrome
; Pigments
4. Copper
Sulfate
1
S. Hydrogen
j Cyanide
; 6. Hydrogen
Fluoride
'. 7. Nickel
Sulfate
. 8. Sodium
Bisulfite
' 9. Sodium
; Bichro-
mate
10. Sodium
1 Hyrtro-
suifite
11. Titanium
Dioxide
(Sulfate)
, (Chloride)
(Chlonde-
Ilaenite)
SUPPLY
1977 Pro- Production 1977 Capa- Significant
duction I of Pro- • of Concentra- city Utili- Integration
Volume ducers Plants tion (Ota»Y) zation Backward . Forward.
low low
148,500 4 5 CRj-76 59* yes yes
high " " CR.-31 high
10,500,000 2J 4Q1/ C8j'7S «0* yes yes
(1976) low low
71,000 12 12 N/A N/A no no
low low
30,100 11 16 CRj-90 66* yes no
low medium
197,900 9 12 CRj-43 75* yes yes
low medium
278,000 6 9 CRj-80 70* no yes
low low
7,000 10 11 CRj-60 .V/A no yes
low
100,000 4 7 CR,"74 N/A yes no
Celt.) Celt.)
low high
156,800 3 3 CRj-8J SS* no no
(1977) low high
63,600 3 S CRj-57 N/A yes no
4
hl*h 5/ ,, medium
720,000S/ S S4/ CRj-04 75* yes ye,
1 4
DEMAND
End .Market Avg. Annual Growth
Concentration Rates 1968 - 1977
(EMCx-Y) Production Price
high
N/A 0.7* 10.8*
EMCj-17 2.5* 8.1*
low ,.
N/A 0.86* 9.0* '
EMC1*42 -4.1* 6.4*
EMCj-60 3.0* N/A
EMCj-42 -0.9* 14.7*
EMCj-90 -7.2* ll.l*3/
EMCj-50 5.5* 10.4*
EMCj-29 0.8* 9.9*
EMCj-60 5.3* J.I*
BCj'Sl i.4l 5 4%
COMPETITION
1977 1977
Imports Substitutes
high negligible
8* (cryolite)
low
N/A few
high few (organic
8* pigaents)
high many
10* (organic
fungicides)
low
N/A few
high many
N/A secondary
low many
S/A secondary
low
N/A negligible
low negligible
N/A (sodium
chronate)
medium negligible
3* (line hyJro
sulfite)
high negligible
IS*
PROOOCTION VOLUME
low - <200,000 tons
Mdiua - 300,000-600,000 tons
high - >600,000 tons
CAPACITY UTILIZATION - Chemical Industry
avenge • 75* (Capacity Utilization is
the * of naaeplace (official) capacity
actually in use for a given tine period.)
low - <70t
lediun - 70-79*
high - >«0*
IMPORTS - * of total U.S. production
low - <2*
medium - 2-7*
high - >7*
KEY
PRODUCTION CONCENTRATION (CR -T) • Concentration Ratio,
x • number of producers; Y • * of total production.
END-MARKET CONCENTRATION (EMC «r) • Use Ratio
x * number of markets; f « t of total production going
to this(these) narket(s).
INTEGRATION
N/A - information not available.
BACKWARD • Producers Manufacture Raw Materials.
FORWARD « Producers Manufacture End Products.
FOOTNOTES
I/ Six plants produce chlorine by both processes.
2/ Chrome yellow and orange.only.
3/ Growth from 1967-1975.
4/ Two plants produce titanium dioxide by both processes.
S/ Except for the number of producers and plants, information
for this subcatejory applies to titanium dioxide produced
by all tnree processes.
A-5
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-------
presents the impacts for indirect dischargers. The tables present for
each level of removal:
A) total investment and annualized costs of pollution control for
affected plants in each subcategory
B) the range of price impacts assuming full price pass-through
necessary for the model plants to completely recover pollution
control costs and
C) the profitability impacts assuming no pass-through as measured
by changes in the ROI and IRR in each category.
The impacts on most of the 11 subcategories were found to be minimal.
In addition, the control levels proposed by EPA based on the best prac-
ticable pollution control technology (BPT), the best available technology
economically achievable (BAT) and new source performance standards
(NSPS) in each subcategory are indicated in the impact summary table for
direct dischargers (see Table A-2a). Similarly, the control levels
proposed for pretreatment standards for existing sources (PSES) and for
pretreatment standards for new sources (PSNS) are indicated for subcate-
gories with indirect dischargers in Table A-2b.
In seven of the 11 subcategories, some plants currently do not have base
level removal technology in place. For plants in two subcategories,
chrome pigments and titanium dioxide, price and profitability impacts
are significant and plant closures are possible. The total annualized
costs of Level 1 removal required for the five direct dischargers and 15
indirect dischargers affected are estimated to be approximately $24
million, with the largest costs being incurred by chrome pigment and
sulfate-process titanium dioxide producers. Total investment costs in
base level removal technology are estimated to be $32.0 million.
The incremental costs of achieving Level 2 and Level 3 removal were
determined to have no severe impacts in any of the 11 subcategories.
Total annualized costs for direct dischargers to achieve Level 2 removal
A-7
-------
are estimated at approximately $15 million, with their investment in
pollution control equipment estimated at $16.5 million. Level 2 removal
for the 22 indirect discharge plants in the industry would require
additional annualized costs of approximately $,9 million and additional
investment costs of $.6 million. Level 3 removal costs would be incurred
by five subcategories and are estimated to be $8.7 million. Capital
costs are estimated to be $10.6 million.
The incremental costs of Level 4 removal technologies are estimated for
two subcategories. In one of these, hydrogen fluoride, small plants may
experience financial hardship and plant closures are possible, although
unlikely. Total annualized costs for Level 4 removal are estimated to
be $5.1 million; investment costs are estimated to be $3.3 million.
Total annual compliance costs for direct dischargers in the 11 subcate-
gories are estimated to be $33.4 million to $37.8 million depending on
the control options chosen. These estimates represent the costs required
by all direct dischargers in the industry to move from their current
pollution control levels to Levels 2, 3, and 4,
For the 15 indirect dischargers without control equipment in place,
additional annual costs of $5.3 million would be incurred for compliance
with Level 1 removal. Requiring all indirect dischargers to achieve
Level 2 removal would result in total annual compliance costs of approx-
imately $6.7 million.
Depending on the control options chosen for direct and indirect dis-
chargers, total annual compliance costs for the 11 subcategories are
estimated to range from 39.2 to 44.5 million dollars.
In assessing the potential impacts of pollution control costs on each of
the 11 subcategories, the following trends were noted.
A-8
-------
• The costs of achieving first level control costs (BPT or base
level pretreatraent) are much higher than the costs of higher
removal levels. Therefore, for subcategories where all plants
currently have BPT and pretreatment systems in place, economic
impacts of higher level costs are very small. For subcate-
gories in which most plants do not have base level treatment
systems installed, potential economic impacts are much higher
(e.g., titanium dioxide, chrome pigments).
• Operating costs (the annual cost of labor, chemicals, and
maintenance required to operate the pollution control equip-
ment) will be more burdensome than investment costs in almost
every subcategory. Operating costs will rise over time with
other manufacturing costs, while investment costs are a one
time cash outlay. The ratio of investment costs to operating
costs ranges from a low of .49 (for hydrogen cyanide) to 4.92
(for sodium bisulfite) with most subcategories having a ratio
of two to three.
• Impacts, as measured by maximum price rise and profitability
decline, were generally more pronounced in the smallest model
plant in each subcategory. This results from most subcate-
gories experiencing economies of scale in both the effluent
removal systems and in manufacturing costs.
Total revenues for the subcategories were $2.5 billion dollars in 1977,
or .13 percent of the Gross National Product. The total annualized
costs of additional pollution control (estimated at between 39.2 and
44.5 million dollars) are 1.6 to 1.8 percent of total industry revenues.
Since these products are intermediate rather than end use products, and
since the costs are a small percentage of revenues, the impact on infla-
tion would be very slight.
The results of the impact analysis suggest that few, if any, plants will
close as a result of pollution control costs. At worst, base level
removal costs could cause from five to eight plant closures in two
subcategories, affecting from 360 to 1000 employees. Additional plant
closures due to the incremental costs of higher level removal are
unlikely, although possible. At worst, three more plants could shut
down, affecting about 200 employees.
A- 9
-------
There should be no balance of payments impacts since most inorganic
chemicals are low value products serving regional markets. The excep-
tions are titanium dioxide, copper sulfate and hydrogen fluoride. Only
titanium dioxide has a large enough world market to warrant an analysis
of potential balance of payments impacts. However, no consequential
impacts are expected to result from effluent regulations.
New source performance standards (NSPS) and pretreatment standards for
new sources (PSNS) are not expected to significantly discourage entry or
result in any differential economic impacts on new plants in the inorganic
chemicals industry. The pollution control capital investment required
to install a given treatment technology is the same for new and existing
producers in the industry. Therefore, at a given level, new plants will
not be operating at a cost disadvantage relative to current manufacturers.
Immediately following is a brief summary of the impacts of the control
costs on each subcategory.
1. Aluminum Fluoride
Over 90 percent of aluminum fluoride is utilized in the production of
primary aluminum. Hence the profitability, growth and production in the
aluminum industry determine demand for aluminum fluoride. The aluminum
industry is presently restraining capacity expansion in an effort to
increase capacity utilization. This will reduce growth in aluminum
fluoride demand. Decreased demand growth will also result from EPA
fluoride emissions standards which have resulted in increased fluoride
recovery and recycling among aluminum manufacturers.
In the merchant market, the price of aluminum fluoride is likely to
remain low due to vigorous intra-industry competition. This, coupled
with rising manufacturing costs, will keep profit margins low.
A-10
-------
The economic effects of pollution requirements were analyzed in terms of
four indicators:
• Price Rise (all pollution control costs are passed through to
consumers): the maximum price increase needed to cover costs
is 1.72%.
• Profitability Decline (all pollution control costs are absorbed
by the firm): the decline in IRR and ROI is minimal, about 1.0
percentage point.
• Price Elasticity of Demand: assumed inelastic since there are
no close substitutes for aluminum fluoride in its primary end
use.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): the largest capital investment required
is almost three percent of total fixed investment.
Since aluminum fluoride is a captive, intermediate product, its profita-
bility is determined by the profitability of its end product, primary
aluminum. Since aluminum fluoride accounts for only two percent of the
costs of primary aluminum manufacture, primary aluminum should not
experience a noticable decline in profits due to pollution control
costs. The overall impacts are therefore expected to be insignificant.
2. Chlorine
Because chlorine is a critical input for several processes, many producer:
make it for their own use (captive production is approximately 60 percent
of total production). Chlorine's end markets are experiencing varying
growth rates. Overall, demand for chlorine is expected to parallel GNP
growth.
Almost all chlorine is manufactured using one of two processes covered
in this study: diaphragm cell (74% of production) and mercury cell (20%
of production).
A-ll
-------
Rising costs, due to government regulations and increased electricity
prices, have combined with soft prices (the result of industry over-
capacity) to strain industry profitability. However, chlorine's prof-
itability is determined by the profitability of its end products, since
almost two thirds is used captively in the manufacture of construction
materials. Demand for chlorine in most end markets is expected to
remain strong enough to justify continued chlorine manufacture.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): for the one indirect discharger in the industry
without treatment in place, the required price increase to
recover Level 1 removal costs is 2.23 percent. For direct
dischargers, the maximum price increase for either mercury
cell or diaphragm cell producers is 2.91 percent (including
dechlorination costs that will be incurred by some plants).
• Profitability Decline (all pollution control costs absorbed by
the firm): the reduction in ROI for both processes and for
direct and indirect dischargers is minor, less than .4 per-
centage points in all cases.
• Price Elasticity of Demand: assumed inelastic since 1) there
are no direct substitutes for chlorine in many end uses;
2) most chlorine production is used captively; and 3) cost
increases can be passed on through price increases for various
downstream products.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital costs for Level 1 removal
technology (required for pretreatment by indirect dischargers)
represent slightly over one percent of fixed investment.
Additional capital costs for higher effluent removal levels
are only a fraction of one percent of fixed investment for all
plants.
Chlorine manufacturers using most of their production captively in other
downstream products should have little difficulty recovering pollution
control costs through price increases for final products. Merchant
producers may be unable to implement a complete and immediate price rise
A-12
-------
of 3 percent and may suffer a short term decline in profits. However,
this profitability decline (less than .4 percent in all cases) will not
be of sufficient magnitude or duration to seriously injure the industry.
3. Chrome Pigments
The chrome pigments subcategory is made up of chrome yellow and orange,
chrome green, chrome oxide green, molybdate chrome orange, and zinc
yellow. While demand for chrome pigments is strong, the long-term
outlook is not favorable. OSHA regulations on lead exposure will raise
the cost of producing chrome pigments. The resultant price increase
could cause chrome pigments to be replaced by organic colors in some
uses.
The profitability of the producers of chrome pigments is in doubt.
Profitability will depend upon the ultimate costs of meeting the OSHA
regulations and the extent to which these costs can be passed through in
the form of higher prices. Demand forecasts range from zero growth, at
best, to a substantial decline in demand.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): the price rise required to pass through the costs
of Level 1 control ranges from 5.3 to 13.3%. For Level 2
removal, the maximum price increase required to fully recover
control costs is 1.02%.
• Profitability Decline (all pollution control costs absorbed by
the firm): absorbing the costs of Level 1 removal would
result in a decline in ROI of over 14 percentage points for
the smallest and largest plants, and over 8 percentage points
for the two intermediate sizes.
• Price Elasticity of Demand: assumed to be moderately elastic.
While organic substitutes are much more expensive than inorganic
pigments, lower priced imports may constrain domestic price
increases.
A-13
-------
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital costs required of all model
plant sizes to meet Level 1 regulations represent a serious
cost hurdle: approximately one-third of fixed investment.
Incremental capital requirements to meet Level 2 removal are
well under one percent for all model plants.
Smaller chrome pigment plants are operating close to the break even
point and the profitability decline is likely to encourage them to cease
operations. An examination of the five plants that fall into this
"small" category suggests that a maximum of four of these producers will
close down. An additional plant closure for a medium sized producer may
occur within the next five years. These projected closures will affect
60 to 100 employees but should not result in any significant community
effects or further impacts. Since the incremental costs of achieving
the second removal level are very small in comparison to Level 1 removal
costs, no further significant impacts are projected for effluent guide-
lines requiring Level 2 compliance in this subcategory. New effluent
control costs are only one element of the financial problems facing this
industry with other factors being more significant (e.g., OSHA limita-
tions on lead exposure).
4. Copper Sulfate
Copper sulfate is a low volume chemical with a variety of applications
in agriculture and industry. Domestic production of copper sulfate has
declined dramatically over the last 25 years, due to a worldwide shift
away from copper sulfate as an agricultural fungicide. The once large
export market for copper sulfate is now nonexistent. However, a recent
upturn in copper sulfate sales has resulted in some industry optimism.
In 1977, imports captured nearly 10 percent of the copper sulfate market.
Low priced imports have forced domestic producers to sell copper sulfate
at less than published list prices in certain markets to remain competi-
A-14
-------
tive. Rising copper prices, combined with strong competition from imports
and substitutes, may cause profit margins to decline in the near future.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed on to the con-
sumer): a 2.88% price increase would be needed to pass on all
costs of Level 1 removal required for pretreatment; a 0.12%
price increase would be needed to pass on additional costs of
Level 2 removal.
• Profitability Decline (all pollution control costs absorbed by
the firm): the decline in ROI and IRR is less than one per-
centage point for both the first and second removal levels.
• Price Elasticity of Demand: assumed to be highly elastic in
its major end market uses due to the availability of substitutes.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital cost required to meet Level 1
removal is 4.59% of fixed investment; the additional amount
required to meet Level 2 is only 0.08%.
The analysis indicates that copper sulfate plants (including the one
indirect discharger) will not be affected by the increased costs of
pollution control. Both the smaller and larger firms are likely to
continue their copper sulfate operations unaffected by the small poten-
tial decline in profitability.
5. Hydrogen Cyanide
Hydrogen cyanide (HCN) is a highly toxic chemical used as an intermediate
in the production of plastics, herbicides, and fibers. The hydrogen
cyanide industry is characterized by a high degree of captive use: over
90 percent is used by the manufacturers in the production of "downstream"
chemicals.
A-15
-------
The major end use of hydrogen cyanide is in the production of methyl
methacrylate (MMA). MMA is polymerized to yield a durable plastic which
is used in a number of markets. A new, less costly, production process
has been developed that does not utilize HCN, and a number of companies
are considering adopting this new technology. The rate of adoption of
this new technology will determine future HCN demand.
Since HCN is almost entirely a captive input for production of other
chemicals, its profitability is determined by the profitability of its
end products. Most of these end products are currently produced profit-
ably. However, use of HCN is expected to decline due to the adoption of
the new MMA technology.
The economic impacts of pollution control costs were analyzed in terms
of four indicators:
• Price Rise (all pollution control costs can be passed through
to consumers): the increase in HCN's cost needed to recover
the incremental cost of the highest level of pollution control
is approximately one percent for all model plant sizes.
• Profitability Decline (all pollution control costs absorbed by
the firm): should producers be unable to pass on the cost
increases in higher downstream product prices, the decline in
profitability would be less than one-half of one percentage
point of the IRR and ROI for each model plant size.
• Price Elasticity of Demand: assumed inelastic due to high
captive use and the inelastic demand for downstream products.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): in all model plant sizes, the capital
required for pollution control is less than two-tenths of one
percent of fixed investment.
The small increase in HCN cost could be easily passed on in higher
downstream product prices. The demand outlook for all products which
require HCN in their manufacture is sound enough to sustain the small
A-15
-------
increase. The potential profitability decline is so slight that it is
not likely to give captive producers of HCN increased incentive to adopt
new manufacturing technologies, not dependent upon HCN.
6. Hydrogen Fluoride
Hydrogen fluoride (HF) has two main end uses: primary aluminum produc-
tion and fluorocarbon production. Demand in these markets is declining.
In the aluminum market, the decline is a result of extensive fluoride
recovery efforts by the aluminum manufacturers. The fluorocarbon end
market also has experienced severe cutbacks due to the EPA and FDA ban
on fluorocarbons in aerosols. In addition, the Environmental Protection
Agency is considering regulation of all fluorocarbon uses, which would
be another setback for the industry.
The profitability of the hydrogen fluoride industry is dependent upon
the resolution of the uncertain demand factors in aluminum production
and fluorocarbon applications. Most of the reduction in HF demand will
be in captive uses. The merchant market is not expected to suffer, as
long as aluminum manufacturers shut down excess capacity rather than
sell HF on the merchant market.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): passing on the incremental costs of removal
Levels 2 and 3 requires a small price increase of less than
one percent for all model plant sizes. Level 4 removal would
require a price increase of over three percent.
• Profitability Decline (all pollution control costs absorbed by
the firm): removal Levels 2 and 3 have no significant effects
on profitability. However, absorbing the costs of Level 4
removal would cause a decline in IRR of over 3 percentage
points for all model plant sizes.
A-17
-------
Price Elasticity of Demand (pollution control capital costs as
a percentage of fixed investment): the additional capital
requirements for removal Levels 2, 3, and 4 are minimal,
representing between 1.3 and 1.5% of fixed investment in all
cases.
The price and profitability impacts of two of the higher effluent removal
levels are small. However, Level 4 results in price and profitability
effects which could induce small, marginal plants to close. Three
producers fall into the small model plant size category, each of which
produces hydrogen fluoride internally for the manufacture of other
products. Therefore a closure decision will depend on the profitability
of the end product. None of the plants is large enough to cause major
community disruption.
7. Nickel Sulfate
Nickel sulfate is a low volume chemical used primarily in metal plating.
Total production of nickel sulfate has declined from a high of about
21,000 short tons in 1970 to 7,032 tons in 1977. Recycling efforts and
substitution of other materials will cause nickel sulfate production to
continue declining for the next few years. Profitability in the nickel
sulfate industry has been marginal in recent years and is expected to
erode still further due to declining sales, competitive pricing policies
and rising nickel costs. However, manufacturers are expected to continue
producing nickel sulfate to offer customers a complete line of electro-
plating chemicals.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): full pass-through of Level 1 costs (required for
pretreaters) would cause a 2.17% price increase in the small
model size plant and a less than one percent increase for the
two larger sizes. Incremental costs of Level 2 removal will
A-18
-------
require a very small price increase of less than two-tenths of
one percent for all model plant sizes.
Profitability Decline (all pollution control costs absorbed by
the firm): absorbing the cost of Level 1 control (required
for pretreatment) would result in a profitability decline of
less than one percent. The additional decline in profitability
for Level 2 removal is even smaller -- less than one-tenth of
one percentage point for all plant sizes.
Price Elasticity of Demand: assumed moderately elastic.
Although nickel sulfate is an important input with no direct
substitutes for its major end uses, end product demand is
price elastic due to the existence of substitute materials
(e.g., plastics).
Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital investment required for Level 1
removal ranges from two to three percent of fixed investment.
Additional capital costs for Level 2 removal represent less
than one-tenth of one percent of fixed investment.
The price and profitability impacts of pollution control are slight for
both direct and indirect dischargers. Resulting impacts, such as infla-
tion, plant closures and unemployment, and community impacts, are there-
fore similarly inconsequential.
8. Sodium Bisulfite
Sodium bisulfite is used in photographic processing, food processing,
tanning, textile manufacture, and water treatment. The principal markets
for sodium bisulfite should provide steady demand for sodium bisulfite
as they are well developed and secure. The two largest sodium bisulfite
manufacturers, Allied Chemicals and Virginia Chemicals, account for most
of industry sales. Prices have always been strong and producers have
typically not offered discounts on list prices.
Producers of sodium bisulfite have maintained strong profit margins by
successfully increasing prices as manufacturing costs rose. Based on
A-19
-------
the past performance of the industry, future manufacturing cost increases
are likely to be passed through and profit margins are expected to
remain intact.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to the
consumer): the price increases required to pass on the cost
of Level 1 removal (required for pretreatment) range from
1.04% for the largest model size to 3.56% for the smallest.
The price rise required to recover either Level 2 or Level 3
removal costs is just over 1% for the small size and approxi-
mately one-half of one percent for the two larger sizes.
• Profitability Decline (all pollution control costs are absorbed
by the firm): the maximum potential profitability decline
resulting from absorbing the cost of Level 1 control (required
for pretreatment) is 2.24 percentage points for the small
model plant and approximately .70 percentage points for the
two larger sizes. The decline in IRR due to the incremental
costs of removal Levels 2 or 3 is less than one percentage
point for all model sizes.
• Price Elasticity of Demand: assumed inelastic since there are
no close substitutes for sodium bisulfite in its major end
markets.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): the capital investment required for
Level 1 control ranges from 2.87 to 4.24 percent of total
fixed investment. The additional capital investment required
to install removal Levels 2 and 3 is approximately 1.5 percent
for all model plant sizes.
The price rise and profitability impacts on the sodium bisulfite industry
will be small. Direct dischargers should not have difficulty passing
through a one percent price increase to consumers. If, for some reason,
they cannot increase prices, profitability will not decline noticeably.
The greater price increase required of the one indirect discharger is
likely to be passed through since 1) the demand for bisulfite is rela-
A-20
-------
tively price inelastic; and 2) the firm enjoys a geographic advantage as
one of only two sodium bisulfite producers on the West coast. If required
price increases are not immediate and complete, resulting profitability
declines will not be severe.
9. Sodium Bichromate
Sodium dichromate (or sodium bichromate) is the principal source of
chromium for a variety of applications, including chrome pigments,
tanning agents, and wood preservatives. Sodium dichromate has rela- •
tively secure end markets with few substitutes. Industry observers cite
possible OSHA regulations on worker exposure to hexavalent chromium as a
potential threat to growth in dichromate's main market, chromic acid.
If demand cutbacks due to OSHA regulations are not severe, growth should
average two to three percent annually and profit margins should remain
secure.
All plants are achieving base level pollution control. The economic
effects of additional pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed through to
consumers): full pass-through would produce, at worst, a 0.33%
price rise.
• Profitability Decline (all pollution control costs absorbed by
the firm): the decline in profitability is very small, less
than 0.5 percentage points in IRR and ROI.
• Price Elasticity of Demand: assumed inelastic due to the lack
of close substitutes in sodium dichromate's major end markets.
• Capital Ratio (pollution control costs as a percentage of
fixed investment): the capital requirements to install Level 2
removal equipment are minimal, representing less than one-tenth
of one percent of fixed investment for all model plants.
A-21
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The application of the proposed technologies should have no significant
economic impacts on the sodium dichromate industry. No changes in
industry structure and no secondary impacts, in areas such as employment
or the balance of payments, are anticipated.
10. Sodium Hydrosulfite
Sodium hydrosulfite is a low volume chemical with major end uses in the
textile and the pulp and paper industries. The two major markets for
sodium hydrosulfite are considered mature in that their products are
old, well established, and are experiencing relatively low growth rates.
There are only three producers in the industry and each employs a dif-
ferent process with significantly different economics. While manufac-
turing costs vary among the three processes (which are from lowest to
highest cost, formate, sodium amalgam, and zinc), all receive prices
equal to or near list price for the product. This means that profit
margins also vary widely.
This economic impact assessment addresses only the production of sodium
hydrosulfite by the formate process. The other two processes were
determined not to require effluent regulation.
The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution costs passed through to consumers):
the price rise required to pass through pollution control
costs is 1.58% for Level 1 and an additional 0.96% for Level 2.
• Profitability Decline (all pollution control costs absorbed by
the firm): the profitability impacts are minimal. The decline
in IRR is 0.81% for Level 1 removal and 0.50% for Level 2.
• Price Elasticity of Demand: assumed moderately elastic.
There are no close substitutes for sodium hydrosulfite but
price increases will be constrained by competition from other
hydro producers unaffected by new effluent control regulations.
A-22
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• Capital Ratio (pollution control capital costs as a percentage
of fixed investment): capital investment required for both
removal Levels 1 and 2 represent approximately 1.5 percent of
fixed investment in place.
There are three manufacturers of sodium hydrosulfite. Only one uses the
formate process and will therefore be affected by new effluent control
regulations. Since it is the strongest company in the hydrosulfite
market (with 57 percent of industry capacity and the most economical
process), small pollution control costs will not seriously threaten its
position.
11. Titanium Dioxide
Titanium dioxide (TiCL) is a white pigment used to whiten or opacify
paints, paper, plastics, and several other products. It is a well
established, mature product having been produced for over 40 years.
Most of its many end markets are also mature, so demand growth is expected
to parallel GNP growth. Three processes are used to manufacture titanium
dioxide: the sulfate process, the chloride process, and the chloride-
ilmenite process. The chloride process differs from the other two in
economics and pollution control problems. The characteristics of waste-
water from the chloride-ilmenite are similar to those of the sulfate
process and the control technologies for the two processes are similar.
In addition, all four chloride-ilmenite plants are achieving removal
levels equivalent to proposed standards and will incur no additional
control costs. This report, therefore, addresses only the impacts of
various effluent control technologies on sulfate and chloride process
producers in the titanium dioxide subcategory.
Many titanium dioxide manufacturers incurred losses for several months
prior to mid-1978. The competitive pressures of imports and DuPont's
low cost chloride-ilmenite process have restrained prices. Future
profitability for most producers will depend on strong demand and, in
the long term, utilization of lower cost technologies.
A--23
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The economic effects of pollution control requirements were analyzed in
terms of four indicators:
• Price Rise (all pollution control costs passed on to the
consumer):
Sulfate Process. The price rises required to pass through
the cost of Level 1 removal range from 10.7 to 12.6%.
The price rise required to pass on additional Level 2
costs is insignificant by comparison, ranging from 1.0 to
1.3 percent.
Chloride Process. The price increases required to pass
on the incremental cost of removal Levels 2 and 3 range
from 1.17 to 2.11 percent. The small model plant sizes
would require the higher price increases — 2.05 and 2.11
percent for Levels 2 and 3, respectively.
• Profitability Decline (all pollution control costs absorbed by
the firm):
Sulfate Process. The profitability decline resulting
from first level removal is large. The maximum potential
decline in IRR ranges from 4.27 to 6.01%. The potential
profitability decline resulting from going from base
level to Level 2 removal is much smaller — less than one
percentage point in all cases.
Chloride Process. The decline in profitability resulting
from absorbing the incremental costs of second and third
level control is greatest in the small model plant sizes —
approximately 1.4 percentage points in each case. The
two larger model sizes would experience decline in prof-
itability ranging from 0.44 to 0.71 percentage points.
• Price Elasticity of Demand: assumed highly elastic since
price increases are constrained by imports.
• Capital Ratio (pollution control capital costs as a percentage
of fixed investment):
Sulfate Process. Capital required to install Level 1
control represents approximately 7.3% of fixed invest-
ment, which may present a serious cost hurdle. The
incremental capital investment required for Level 2
control is much smaller.
A-24
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Chloride Process. The additional capital requirements of
second and third removal levels do not exceed 1.9% for
any model plant size.
The economic impacts of pollution control requirements differ signifi-
cantly for the two processes.
Sulfate Process: Not all sulfate process TiO producers have Level 1
equipment in place and operating. Therefore, the Level 1 equipment
costs required by effluent control regulations will place a very heavy
cost burden on sulfate process producers. Required price increases are
large and complete pass-through is unlikely since sulfate process plants'
price increases will be constrained by competition from chloride process
producers and TiO, imports. Resultant profitability declines may encour-
age plant closures. At worst, three plant closures may result, although
only one or two plant shutdowns are likely. The number of employees
potentially affected ranges from 300 to 725, but associated community
effects and further impacts are not anticipated to be severe.
Chloride Process; Since all chloride producers currently have Level 1
equipment in place, no severe economic impacts are expected to result
from the incremental costs required to achieve higher removal levels.
A-25
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B. INDUSTRY OVERVIEW
This section briefly describes the chemical industry, the inorganic
chemicals segment of the industry, and the economic relationships between
chemicals and the general economy. The focus, which is emphasized in
this section and applied throughout the report, is on the interrelated
nature of the chemical industry and the rest of the U.S. economy.
Virtually every sector of the economy, from heavy industry to small
scale service operations, uses chemicals in some fashion. Many of these
products which use chemicals are further manufactured to yield final
goods for general consumption. Because of this, there may be any number
of manufacturing steps involved between a chemical's manufacture and
final consumption.
The purpose of this characterization is to determine and evaluate those
factors which affect the economic condition of each of 11 inorganic
chemicals. To do this, two types of economic variables are addressed:
1) the economics of production and those of the immediate end markets
for the chemical, and 2) the final markets and the macroeconomic trends
which affect them. Thus, each chemical is tied to those sectors of the
economy where final consumption takes place. This provides a full
picture of the direct and indirect determinants of demand, supply, and
competition.
For each subcategory, the economic impact of pollution control regula-
tions is determined. The core of the economic impact analysis is a
comparison of the increase in costs due to control and the ability of
the market to absorb these costs. This is only possible having eval-
uated all of the determinants of demand characterizing each subcategory.
B-l
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The subcategory characterization for each chemical is presented in five
sections: 1) Demand, 2) Supply, 3) Competition, 4) Economic Outlook,
and 5) Characterization Summary.
B.I DEMAND
The demand for all chemicals is reflected in diverse product paths which
eventually lead to consumer products. The chemical industry can be
divided into three groups based, in part, on these routes to the final
market. Standard and Poors has developed a classification dividing the
industry into 1) Chemical Products, 2) Synthetics, and 3) Basic Chemicals,
The first group, chemical products, includes final products such as
paints, detergents, agricultural products, and Pharmaceuticals. Demand
for these chemicals flows directly from the end consumers to the chemi-
cal manufacturers. These products account for approximately 40 percent
of the chemical industry's sales.
A second group of chemicals (accounting for 20 percent of sales), syn-
thetics, is composed of man-made fibers, plastics, and synthetic rubber.
This group is characterized by relatively high growth rates and profit
margins although the fibers segment has experienced several bad years.
These chemicals reach the ultimate consumer indirectly in products such
as carpets, clothing, automobiles, and tires. As such, the demand ex-
perienced by chemical firms for acrylonitrile or nylon, for example,
will depend on the demand at the end markets for acrylic or nylon fibers
used in carpets and clothing.
The third group of chemicals (accounting for 40 percent of sales),
called basic chemicals, includes "building block" chemicals, or inter-
mediates, which are often used within the industry to make other chem-
icals. Most of the 11 chemicals of this study fall into this category.
These chemicals are characterized by mature markets, that is, they have
B-2
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low growth rates and relatively stable demand. Chlorine is a good
example of this type of chemical. It is widely produced at relatively
slim profit margins and two-thirds of its production is used captively.
Most producers manufacture chlorine in order to assure reliable supplies
of this important intermediate. Other examples of intermediates and
their uses include:
• Hydrogen cyanide as an input for methyl methacrylate
• Hydrofluoric acid as an input for fluorocarbons and aluminum
fluoride
• Sodium dichromate as an input for chrome pigments and other
chrome containing compounds.
Some of the 11 chemicals of this study are used directly by other in-
dustries. Included among these are:
• Aluminum fluoride which is used in the manufacture of aluminum
• Chrome pigments and titanium dioxide pigments which go into
various paints
• Copper sulfate which is used in agricultural chemicals, in
electroplating, and other industrial uses
• Nickel sulfate which is used in electroplating
• Sodium bisulfite which is used in phototgraphic chemicals, in
effluent treatment, and as a food preservative.
In characterizing the demand for the 11 chemicals of this study, the
immediate markets and all of the downstream markets through final
consumption must be accounted for. For example, reduced airfares in
1978 increased demand for air travel. Airlines, in turn, substantially
increased their orders for aircraft. This increased the demand for
aluminum, and thus aluminum fluoride and hydrogen fluoride (see Figure B-l)
Although there were certainly other factors at work in these markets,
the example does give a good indication of the potential complexity of
demand for these chemicals.
B-3
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CHEMICAL INDUSTRY
FIGURE B-l
FINAL
ALUMINUM INDUSTRY MANUFACTURE CONSUMPTION
Hydrogen
Fluoride
Aluminum
Fluoride
Aluminum
Aircraft
Air
Travel
B.I.I Demand Summary
Having evaluated all of the individual elements of demand and the eco-
nomic forces at play, the total demand for each chemical is determined
by integrating the individual markets. This is done by taking into
account the portion of total demand represented by each submarket, the
strength of each market, and any relationships which may exist among end
markets. Finally, where applicable, a comparison is made between expected
demand growth and the growth in the gross national product (GNP). In
cases where the end markets for a chemical are very diversified and
representative of the general economy, the chemical's total demand can
be expected to grow with real GNP. Often, however, the end markets will
be in faster growing markets (such as plastics) or slower growing markets
(such as some metal plating operations) and the total demand growth will
differ from that of GNP.
The individual end markets for these chemicals are useful in determining
demand strength. To fully understand demand, however, one must also
investigate the channels through which this demand flows, and the com-
petition encountered in each market. Demand channels are discussed
next, competition in a separate section.
B-4
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B.I.2 Demand Channels
Channels of demand refers to the relationships between buyer and seller,
including the extent and type of vertical integration, the type of
contract, and the transportation of the product.
Vertical integration (forwards or backwards) is a measure of the degree
to which one producer makes a series of chemicals in a continuous chain.
Backward integration usually represents an attempt to obtain inputs more
reliably and/or at lower prices. For. example, aluminum companies have
integrated backwards into aluminum fluoride and hydrogen fluoride pro-
duction. Forward integration is a way of expanding a product line with
guaranteed input chemicals. In either type of vertical integration, the
result is captive production of a chemical. Captive production will'
affect an assessment of demand in several ways. Normally a chemical's
production can be economically isolated so that price and profitability
measures can be applied. With captive consumption, this may only be
possible using confidential company data and a company-specific method
for transfer prices.
The type of contract in use is another factor which further defines
demand flows. There are many different types of purchasing arrangements
ranging from no contract at all (i.e., purchases on the merchant market)
to long-term contracts. From the purchaser's point of view, a long-term
contract may be the next best thing to backward integration, offering
sufficient security in price and availability. The other extreme for
consumers is either short-term contracts or purchases on the spot market.
This kind of arrangement may work best where there are many suppliers
and the spot market is well developed. For example, some chlorine con-
sumers make a portion of their needs, run their plants at high capacity
utilization rates, and make spot purchases as necessary for the remainder
of their needs.
B-5
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A third factor which affects demand is transportation cost. The impor-
tance of these costs vary depending on the price of the chemical and the
difficulty of shipment (e.g., dry vs liquid and inert vs hazardous).
When a chemical has a relatively low unit value and is difficult to ship
(such as chlorine), transportation costs can be significant enough to
limit the market of a producer to the immediate region. Hydrogen cyanide
is so poisonous that some firms are afraid to ship it and supply only
captive requirements.
These three factors, which describe the channels through which demand
flows, are considered in each subcategory and used to qualify the demand
estimates where necessary.
B.2 SUPPLY
B.2.1 Production
The index of production for all U.S. manufacturing increased at an
average of three percent per year between 1967 and 1977. Chemical
industry production grew at twice that rate, or six percent, for the
same period. However, the inorganic chemicals segment, which includes
many slow-growth chemicals, experienced an average production increase
of only two percent per year.
TABLE B-l
CHEMICAL PRODUCTION
Total Manufacturing
Chemicals and Products
Inorganic Chemical, n.e.c.
Alkalies and Chlorine
Annual Change in Production
1967 - 1977
3%
6
2
2
SOURCE: Chemical and Engineering News, "Facts and Figures," June, 1978.
B-6
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The production of all chemicals tends to fluctuate with GNP though the
swings in inorganic chemical production are less severe than those of
organics. The 11 inorganic chemicals of this study are generally low-
volume chemicals with production of less than 0.5 million tons per year.
By comparison, the largest volume of chemical is sulfuric acid, with
production of 34 million tons in 1977. Table B-2 illustrates several
high volume chemicals. Two of the chemicals studied in this report rank
among the 50 highest volume chemicals. Also illustrated are five chemi-
cals which are related to some of the 11 chemicals of this report.
Acrylonitrile is co-produced with hydrogen cyanide. Ethylene dichloride,
vinyl chloride, and propylene oxide are end markets for chlorine.
Several interesting characteristics are indicated by the data:
• The highest volume chemicals show less variability than
others. They fell less in the 1975 recession, recovered less
in 1976, and have lower overall growth rates.
• Most chemicals had big production drops in the 1975 recession
with full recoveries in 1976. With some of the more volatile
chemicals like vinyl chloride, the changes were very large
(more than 20 percent).
• Chlorine and sodium hydroxide are co-produced and have very
close production volumes. Demand for the two products, how-
ever, is not always equal, causing problems for manufacturers
in balancing production for two products simultaneously.
• Growth rates have slowed for most chemicals in comparing the
latest five years with the latest 10 years.
In addition to chlorine and caustic soda, titanium dioxide is also a
rather high-volume chemical with production of 0.68 million tons in
1977. Titanium dioxide producers are faced with the dual problems of
high variability in demand and a very low growth rate.
B.2.2 Producers
The 11 chemicals of this study are typically produced by different sized
chemical companies. In addition, oil companies have been expanding into
the chemical field for several years and some of these chemicals are
B-7
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produced predominantly by petroleum firms. Non-chemical companies also
are involved in these chemicals. This usually represents backward
integration on their part. For example, Alcoa aluminum company makes
aluminum fluoride and hydrogen fluoride as inputs for aluminum manufac-
ture. The sales of these chemicals usually represent less than five
percent of corporate sales (typically around one percent).
Captive production is another important characteristic of these chemicals.
Some of the chemicals are produced at large complexes, frequently as one
of the preliminary chemicals in a product line. In this case, the
economic strength of a chemical is very much interrelated with that of
the other products.
B.2.3 Process
The process used to manufacture a chemical is of great importance, both
environmentally and economically. As inputs to a process become more
expensive or as pollution control requirements make a process more
costly, manufacturers have an increasing incentive to find cheaper or
"cleaner" processes. These forces have been acting on producers and
many processes have changed. To decrease costs, producers direct their
efforts towards the most expensive elements of production. These include
inputs such as energy, ores, and process chemicals.
The rising cost of energy is one of the greatest concerns of the chemical
industry, which uses about 30 percent of U.S. total industrial energy.
Of this "energy," 41 percent is used directly for feedstocks. The
inorganic chemicals use fewer of these energy sources as feedstocks than
other chemicals but are nonetheless very dependent on energy costs.
Chlorine production, for example, uses tremendous amounts of electricity.
Hydrogen cyanide uses natural gas for a feedstock. Hydrogen fluoride
and titanium dioxide production use a great deal of process heat.
B-8
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TABLE B-2
HIGH VOLUME CHEMICALS
1977
Production
Chemical (106 tons)
Sulfuric Acid 34
(top volume chemical)
Sodium Hydroxide 10
(co-product with chlorine)
"Chlorine 10
Ethylene Bichloride 5
(chlorine end market)
Vinyl Chloride 2
(chlorine end market)
Propylene oxide
(chlorine end market)
Acrylonitrile 0
(co-product with HCN)
•^Titanium Dioxide
.3
.9
.1
.2
.9
.95
.82
.68
1976
Rank
1
7
8
15
23
41
44
49
Average Annual Change (%)
1976-77
2.7
4
1.9
30.3
2.3
4.0
8.2
-4.8
1972-77
2.0
1.3
1.4
6.1
2.7
4.5
8.1
-0.4
1967-72
1.8
2.6
3.2
10.2
9.1
8.8
9.4
1.4
* Studied in this report.
Source: Chemical and Engineering News, "Facts and Figures," June 1978.
B-9
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The cost of ores is a second factor in the determination of processes.
Titanium dioxide, for example, has two processes (chloride and sulfate)
and two ores (rutile and ilmenite). The rutile ore is purer (resulting
in less process waste), more expensive, and in short supply. Because of
this, efforts have been made to upgrade ores and to make the chloride
process adaptable to lower-quality ores. Copper sulfate can be made
from ore (as a byproduct of copper production) or from scrap. In all of
these cases, the relative prices of the inputs will shape process decisions
A third factor affecting process is the cost of process chemicals. Many
chemical prices have recently risen by 15 percent or more per year. The
price of sulfuric acid, a widely used chemical, increased 18 percent per
year between 1972 and 1978.
Process changes in general are directed towards a higher quality product
and/or lower production costs within constraints. These constraints
include pollution control, capital rationing, and the market strength of
the chemical. Pollution control may make some processes prohibitively
expensive. Capital rationing and market strength are related in that
insufficient demand may force a shutdown decision rather than a shift in
process (even though a process may be more efficient, capital costs
could be prohibitive). Producers will invest first in those areas where
long-run profits look best (i.e., strong demand and reasonable costs).
B.3 COMPETITION
Having determined the end uses for a chemical, the demand within each
end use, the channels through which these demands will be met, and the
suppliers, we then turn to the competition in each market. This in-
cludes an analysis of three areas:
1. competitors selling the same product
2. substitution of other products
3. the market power of the sellers versus the buyers
B-10
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The most obvious competition takes place within a subcategory among all
of the producers of the product. The basic objective is to meet the
demands of the buyer (e.g., quality, service, quantity, timing, location)
at the lowest price. This seemingly simple process is complicated in
the chemical industry by several factors:
• Captive production: Some of these chemicals are produced
predominantly for use within a company as with chlorine. This
can make the remaining non-captive production more competitive
as purchasers have more of a buffer and actually compete with
the sellers.
• Foreign competition: Foreign competition can effectively put
a ceiling on the domestic price of a chemical. This is only
true for a few of these 11 chemicals which have high enough
prices to justify international shipping. The effect is
reduced within the U.S. as the distance increases from major
coastal ports.
• Economics of each process: Within many subcategories there
are significant differences in the cost of production due to
types of process, age, and size of the plant, capacity utili-
zation, availability of inputs, and many other factors.
• Distance to markets: The lower value chemicals of this study
are quite limited in their economical shipping distance.
Thus, a producer can compete by being closer to his markets if
shipping costs are significant.
• Product differentiation: Although these chemicals are gener-
ally "commodities," there are differences in the form (e.g.,
liquid versus dry), shipment size, and sometimes the additives
in these chemicals. Titanium dioxide, for example, has two
basic forms, several types of finishes, and can be shipped in
a dry or slurry form.
• Discounting: Some companies post list prices and sell their
chemicals at various discounts. Even within the industry,
competitors may not know each other's real prices.
Competition through substitution by other products can occur at any
point along the path of a chemical between production and final con-
sumption. When chemicals are sold directly to end markets (as with
paints, detergents, and fertilizers) there is one possibility for
B-ll
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substitution. Titanium dioxide, which is used directly in paints, faces
potential substitution from paint extenders and surfaces which do not
use paint. When chemicals trace complex paths to final consumption,
there are usually several opportunities for substitutions. For example,
chlorine is used to make polyvinyl chloride which is used in pipes.
Substitutes along this line of products include metal pipes and plastic
pipes not using PVC.
The relative market power of sellers and buyers can have a major impact
on the competitive stature of a chemical market. Generally, there is
some balance of power between sellers and buyers but the extreme cases
are useful for illustrative purposes. One extreme is that of a seller's
market in which the demand for the product is strong and the buyers are
price takers. Typically this type of market will have one or only a few
sellers and many buyers. The other extreme is a buyers market in which
many sellers must compete actively for a limited market.
The chemical industry and its end markets are generally quite competi-
tive with few extremes of sellers or buyers markets. The 11 inorganic
chemicals of this study are similarly competitive. The aluminum fluo-
ride and hydrogen fluoride markets are buyers markets in that the
aluminum companies captively supply most of their needs and purchase
the remainder from chemical firms. Generally, however, the market
power of buyers and sellers in these chemicals is determined by the
forces of the marketplace.
B.4 ECONOMIC OUTLOOK
Any characterization of an industry is necessarily based on historical
data. The impact of pollution control regulations, however, may occur
several years hence. Because of this potential incongruity, this cate-
gorization includes an analysis of the major forces shaping the future
of the chemical. This analysis is divided into three parts: 1) revenue;
B-12
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2) manufacturing costs; and 3) profit margins. The implications of this
flow is that revenues must increase at least as fast as manufacturing
costs in order to maintain profit margins. Revenues are divided into
quantity and price. The quantity outlook discusses the factors affecting
demand volume and estimates future growth. The price section discusses
the likelihood that demand will be adequate to allow price increases.
The manufacturing cost section separates the major cost components and
estimates a likely rate of increase in total manufacturing costs.
Finally, the profit margin section estimates the likely outcome result-
ing from revenue and cost increases.
B.5 CHARACTERIZATION SUMMARY
The predominant features in the chemical industry in 1977 and 1978 are
overcapacity and rising costs. The overcapacity results from the 1973-76
period in which capital spending increased 150 percent (see Table B-3).
The spending has slowed but capacity has still been growing.
TABLE B-3
CAPITAL SPENDING BY 20 MAJOR CHEMICAL FIRMS
millions of % Change from
Year dollars Previous Year
1971 $2,516 5
1972 2,416 4
1973 3,031 25
1974 4,873 61
1975 5,661 16
1976 6,125 8
1977 6,144* 0.3
* Planned capital spending in current dollars for 20 firms.
SOURCE: Chemical and Engineering News, "Facts and Figures," June 6, 1977,
B-13
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In general, markets have not expanded as quickly as capacity. In 1977,
producers added 10 percent to U.S. capacity and will add another eight
percent in 1978. However, capacity utilization is less than 80 percent
now and markets have been expanding at only three percent.
In addition to low capacity utilization, manufacturing costs have risen
precipitously. Raw material costs, which rose a total of 15 percent
during 1976 and 1977, are expected to rise seven percent in 1978. Wage
rates are expected to rise by eight percent and the cost of fuels and
electricity by 12 percent.
The result of the overcapacity and rising costs will be tougher compe-
tition. Because of low revenues, producers will want to raise sales
through price and/or volume increases. Price increases are less likely
to be accepted in times of overcapacity because all producers are in-
terested in capturing greater market share to increase volume. The
conditions in the 11 inorganic chemical subcategories vary, but the
conditions of overcapacity and cost increases are being felt in most
subcategories.
B-1A
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C. METHODOLOGY USED IN ECONOMIC IMPACT ANALYSIS
1. INTRODUCTION
The costs of controlling effluents are ultimately borne by the economy
as a whole. A macroeconomic perspective indicates that limited resources
are being allocated to pollution abatement. In this particular case,
chemical producers are incurring additional costs in the form of waste-
water treatment. The chemicals of this study are eventually used in the
manufacture of very diverse end products ranging from chlorinated drinking
water to aircraft, automobiles, and blue denim. The water regulations
internalize the cost of pollution and therefore incorporate a slight
pollution control cost in every end product which uses a regulated chemi-
cal somewhere in its manufacture.
The purpose of this study is to determine the immediate effects of
specific effluent control costs on eleven chemical subcategories. The
approach emphasizes the microeconomic impacts on each subcategory. The
secondary, economy-wide impacts are given less consideration.
2. AREAS OF STUDY
The analyses of the economic impact of potential effluent guidelines on
the subcategories address nine general issues. These issues were chosen
by the EPA as indicative of the effects which regulations might have in
a wide variety of situations. In dealing with the chemical industry,
some will be more important than others. The nine areas of study are:
1. Price
2. Profitability
3. Growth
4. Capital
5. Number of plants
6. Production
C-l
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7. Changes in employment
8. Community effects
9. Other
Although each of these issues is individually important, the interrelation-
ships and the combined effects in all of these areas indicate the total
impacts of the effluent guidelines. In particular, the price and profit-
ability impacts largely determine the impacts in the other areas.
A number of questions can be asked in each impact area:
1. Price: What portion of the product price will go towards pollution
control? Will producers be able to pass costs on completely or
will margins be reduced?
2. Profitability: What will happen to total revenues, total costs and
profits? What secondary effects will a profitability change have?
3. Growth: Will capacity growth rates change? What will happen to
rates of modernization? Will there be plant closures? Will pre-
treatment regulations stimulate direct discharging? Will present
customers convert to substitutes or reduce demand?
4. Capital raising ability: Will pollution control expenditures
affect a company's capital raising capabilities?
5. Number of plants: Will regulations reduce the number of plants in
a subcategory?
6. Production: Will there be curtailments? Will product lines be
affected? What will be the long run effects?
7. Employment: Will there be employment reductions?
8. Communities: What will be the location of any cutbacks or curtail-
ments? Will dislocated employees be absorbed by the local workforce?
What secondary effects might occur?
9. Other: What other effects might there be? e.g., Balance of Payments,
foreign investment in U.S. companies.
In this report, price and profitability impacts form the core of the
analysis. All other impacts are derived from these two areas.
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3. IMPACT METHODOLOGY
The economic impact assessment for each chemical subcategory is divided
into three sections:
1. Costs of Pollution Control
2. Model Plant Analysis
3. Determination of Industry Impacts
The first section describes the pollution control options and their
costs. These were developed by a technical contractor. The second
section describes the results of the model plant analysis including 1)
calculation of the maximum price rise and profitability decline that
could result from operation of control equipment; 2) a subjective estimate
of price elasticity of demand based on the subcategory characterization;
and 3) a screening analysis, based on these measures, designed to pinpoint
model plants which may suffer particularly high impacts and require
further study. In the final section, an assessment of probable industry
impacts is made. This is based on the model plant analysis and market
and industry information developed in the characterization section.
Where pertinent, the limitations of the impact assessment are discussed.
The quality of the available data and intra-industry cost and profit
variability were two significant limitations.
These sections are discussed in more detail below. Much of the detailed
discussion of the financial assumptions and tools has been provided in
appendices in order to present the methodology clearly and concisely.
3.1 Costs
This section includes 1) a description of the model plant parameters and
production costs, 2) an outline of the pollution control technologies
and their costs (prepared by a technical contractor), and 3) an estimate
of total annual pollution control costs for each subcategory.
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3.1.1 Model Plant Parameters
Since it is often impractical to examine every plant in an industry, the
financial analysis is based on model plants. By careful choice of model
plant characteristics, valid approximations to the entire industry can
be made. Some of the key variables used to specify model plants include
process type, production capacity, flow rates, and pollutant loads. The
appropriate number of model plants for each subcategory depends on the
variability in these characteristics and the number of plants in the
subcategory.
3.1.2 Pollution Control Technology and Costs
A description of the recommended pollution control technologies and
their costs is presented in this section. The initial capital invest-
ment can be a serious one-time hurdle for manufacturers; the operating
costs are a continual cash drain every year.
3.1.3 Estimation of Annual Control Costs for the Subcategory
Total annual control costs for each subcategory are estimated based on
the control costs and industry profiles, developed by the technical
contractor, and current industry production levels. Model plant annual
control costs are calculated on a per ton basis and include the following:
• Operating and maintenance costs
• Annualized capital costs obtained by multiplying the pollution
control investment by a capital recovery factor (see Appendix A).
Plant-specific capacity information and the technical contractor's
estimate of capacity utilization were used to determine the tons of
actual production corresponding to each model plant size for each sub-
category. Total estimated annual control costs for each subcategory
were obtained by multiplying the control costs per ton for each model
size by the corresponding production in each size category. These
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control cost estimates will be one of the elements used by the EPA in
setting effluent limitations for each subcategory of the inorganic
chemicals industry.
3.2 Model Plant Analysis
This section presents the results of the model plant analysis used to
predict potential industry impacts. There are four indicators used to
evaluate the impacts of pollution control costs for each subcategory.
• Price Rise Calculation
• Maximum Potential Profitability Decline
• Price Elasticity of Demand
• Capital Ratio
These indicators are discussed below.
3.2.1 Price Rise Calculation
The price rise analysis assumes that the chemical manufacturer can
immediately p?ss on all costs of pollution control in higher prices. It
is assumed that the price can be raised by the full amount necessary
without resulting in any decline in physical sales volume, i.e. that
demand is completely inelastic. To fully recover all pollution control
costs, the price increase must include both the annual operating costs
plus an annualized portion of the initial capital investment. The
annual operating costs are simply divided among the number of tons
produced to obtain cost per ton. The capital costs are annualized using
a capital recovery factor. In this analysis, the recovery factor used
is .215 (i.e., 21.5 percent of the capital costs must be recovered each
year). This implies that all of the capital costs will be recovered in
about five years. The annualized capital costs are added to the annual
operating costs to obtain total annual pollution control costs. These
total costs are divided by sales to derive a product price increase.
Appendix A describes the capital recovery factor and the price pass-
through analysis.
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3.2.2 Profitability Decline
The profitability analysis assumes that no price pass-through is possible,
i.e. demand is infinitely elastic. Therefore, the manufacturer must
absorb all pollution control costs in the form of reduced margins or
increased losses. The first step is to determine the baseline profita-
bility (that is, the profitability of the plant before pollution control
costs are incurred) for each model plant. Then, the after control
profitability is calculated and compared to the baseline profitability.
The magnitude of the profitability decline is used in conjunction with
the other impact indicators to evaluate the potential impacts. Two
measures of profitability are calculated using a discounted cash flow
model: return on investment (ROI) and internal rate of return (IRR).
3.2.2.1 Return on Investment
The return on investment (ROI) is defined as the yearly cash income
divided by the total investment. This measure is similar to the ROI
figure often quoted by the industry. The difference is that the industry
commonly uses earnings after taxes (net earnings) divided by investment,
whereas this ROI is cash earnings (net earnings plus depreciation)
divided by investment. Since the difference in ROI before and after the
pollution control expenditure is what is to be examined, the cash ROI
serves as well as the traditional ROI.
The ROI change from year to year depends on the cash position of the
firm (which will vary with depreciation schedules and changes in oper-
ating costs). The analysis relied on an examination of the decline in
ROI during the fourth period. This year was chosen for three reasons:
• Since the pollution control costs are introduced in the second
period, pollution control operating costs are included in the
cash position that year.
• Both initial capital investment in plant and equipment and
pollution control investment costs are still subject to depre-
ciation expense in that period. (Both are straight line
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depreciated, plant and equipment, for 10 years and control
equipment for five years.)
Since the calculations are made in nominal dollars, the assumed
inflation rate of 6% annually has not yet distorted the costs
based in the calculation.
The reasons cited above would have justified the third, fifth, sixth,
and seventh period as well. However, the cash flows in those periods
were not significantly different from that in the fourth (inflation
accounts for the only differences.)
3.2.2.2 Internal Rate of Return
While the return on investment is easily calculated and used, it does
not capture the effects of the investment life or the cash flow timing.
These factors are taken into account in the discounted cash flow model
which yields the internal rate of return as the profitability measure.
The internal rate of return is calculated for each model plant as follows:
• The cash flow position is calculated for each of 27 years in
the assumed life of the plant. (Simply stated, cash flow per
period is defined as after tax profits plus depreciation, less
any capital costs incurred during the period.)
• Using the opportunity cost of capital (discount rate) each
future cash flow to the present period is discounted. This
step allows for the fact that $1 earned in the future is worth
less than a dollar earned today.
• The discounted cash flows are added to yield the model plant's
net present value (NPV).
• The discount factor is adjusted to yield a net present value
of 0. This discount factor is the internal rate of return.*
Appendix B discusses the assumptions and calculations used to derive
the ROI and IRR. For a more thorough discussion of cash flow analysis,
theory and uses, see Managerial Finance (Weston and Brigham; Dryden
Press: Hinsdale, Illinois).
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For some of the model plants, the baseline internal rate of return or
the return after control costs was negative. This is the result when
the cash flows are such that there is no discount factor which can raise
the net present value to 0 (e.g., when the cash flows in all periods are
0). Since the IRR is therefore indeterminate, nothing can be deduced
from differences in IRR. In these cases, therefore, changes in the
other profitability measure, return on investment, were used. An alter-
native approach is to use a higher price estimate (or lower manufacturing
cost estimate) to increase the cash flows enough to yield positive
values for the before and after control cost IRR's. However, given the
availability of the other profitability measures, this step was usually
considered unnecessary.
3.2.2.3 Sources of Uncertainty in the Profitability Analysis
Profitability is dependent upon price, cost, and capital investment.
The calculation of baseline profitability is made using the best estimate
of these financial parameters presented in the characterization section.
However, these point estimates have a wide variance, especially the
estimate of price. List price and average uait value may differ by as
much as 30-40 percent from actual selling price. Therefore, if the
calculated profitability is inconsistent with profitability estimates
developed through conversations with industry sources, the point estimate
of price is adjusted (within the range suggested by the price data).
This is an important step in the analysis because baseline profitability
is the critical starting point for examining the profitability decline.
The component variables driving the profitability estimate need only be
within a reasonable range surrounding the best estimate in order to
track the profitability decline resulting from pollution control costs.
This profitability analysis is not intended to specify precisely the
actual returns accruing to each subcategory. This would only be possi-
ble using detailed confidential industry data. For this analysis,
-------
manufacturing costs estimated by a subcontractor and EEA were used to
calculate profitability. This is consistent with the intent of the
analysis -- that is, to determine the change in profitability that
occurs when pollution control costs are included in the cash flow stream.
3.2.3 Price Elasticity of Demand
Generally, neither of the extreme assumptions of completely inelastic or
elastic demand will be appropriate. A firm will usually be able to pass
through a portion of the increased production costs from pollution
control. An estimate of the potential for cost pass-through is a key
consideration in the impact analysis. Pass-through is dependent upon
the magnitude of the price rise and the price elasticity of demand.
Price elasticity of demand (rigorously defined as the percentage change
in the quantity purchased given a one percent change in product price)
is a function of:
• The number, closeness, and relative cost of available sub-
stitutes
• "Importance" to the purchaser's budget
• The relevant time period (short vs. long run).
Because there are many problems with historical data, econometric estimates
of price elasticity of demand were judged to be of limited value. Thus,
the analysis relies on subjective estimates of price elasticity, based
on market information developed in the characterization.
3.2.4 Capital Analysis
The impacts of pollution control can go beyond increased annual costs
and the annualized portion of capital costs. Pollution control facili-
ties themselves can pose a significant one time expense, especially for
smaller manufacturers. To determine the relative size of pollution
control capital costs, they are compared with the fixed investment in
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plant and equipment. This comparison is expressed as pollution control
capital expenditures as a percentage of dollar fixed investment in
place. Because the capital intensity of the 11 subcategories varies,
this measure will give a useful indication of the relative burden of a
new capital expenditure.
Because capital construction costs have experienced large increases in
the 1970*s, the fixed investment will vary widely in plants of various
ages. The difference in age will also affect the accumulated deprecia-
tion. (Depreciation in this analysis is calculated as 10 year straight
line for plants and equipment and as five year straight line for pollu-
tion control facilities.)
The cost of land represents a significant portion of initial costs for
many of the proposed technologies. In an accounting sense, its value is
not depreciable. The land may have equal or greater value in the dis-
tant future but physical depletion of the land, as well as the heavily
discounted present value of any residual sales value may reduce its
value. In any case, the initial expense of the land must be recovered
so it is considered part of the capital constraint.
3.2.5 Model Plant Closure Analysis
An important part of the economic impact analysis of pollution control
costs on the industry is to identify potentially "high impact" plants
and closure probabilities. The EPA considers the price increase, prof-
itability decline, and price elasticity of demand useful in providing an
initial indication of high shutdown probability.
For each subcategory and for each of the pollution control options, a
table is presented which summarizes the price elasticity of demand,
necessary product price rise, and maximum potential profitability decline.
Under the EPA's closure criteria, a model plant is considered a possible
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closure candidate if the demand is elastic, the price increase is greater
than one percent, and the resulting profitability decline (in the case
of no pass-through) is greater than one percent. Price increases of
one percent or less are assumed to have little effect on consumers or
producers since a product price may fluctuate by at least one percent
due to granting of discounts to volume purchases and also due to short-
term supply and demand surges and declines. Similarly, a profitability
decline of less than or equal to one percent is assumed to have an
insignificant impact on a plants decision to curtail production or shut
down. In this way, model plants that are potential closure candidates
are screened for further analysis. The "Industry Impacts" section dis-
cusses the likelihood and locations of actual plant closures as well as
secondary impacts on unemployment, the community, etc.
3.3 Industry Impacts
In this section the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on all manufacturers in each subcategory.
3.3.1 Price and Profitability Impacts
The model plant analysis suggests the maximum plant price rise and
profitability decline. The model plant calculations must be evaluated
in light of market information (developed in the characterization section)
to estimate 1) the extent to which the price is likely to increase, and
2) the actual industry profitability decline that will result. If a
significant price increase is needed to maintain profitability, an
evaluation of the probability of achieving that increase is important.
Pass-through is dependent upon a host of factors including industry
competitiveness, available substitutes and product demand, with the
relationships among these factors made more complex by the action of
market variables over time.
Oil
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Profitability impacts are examined wherever complete pass-through is not
possible. The portion of pollution control costs not recovered by price
increases must be absorbed by producers in the form of reduced margins
or increased losses. The likelihood of price pass-through and resultant
impact on plant profitability form the basis for projections of other
impacts in each subcategory.
3.3.2 Other Impacts
The nine impact areas studied in this report are highly interrelated.
As previously indicated, the price and profitability effects are the
keystone of the analysis. Price (and pricing history) is a measure
which summarizes a wide variety of economic variables. It reflects
supply conditions such as manufacturing costs, shipping costs, variation
in the costs of manufacture, and the number of producers. Price re-
flects demand conditions as it measures the value of a chemical as an
input to other processes. It also reflects competitive factors such as
the price and availability of substitutes, foreign competition, capacity
utilization, growth rates, and the number of producers.
Profitability levels in an industry directly affect the number of producers
in an industry. As profitability declines, plants may be forced to shut
down until industry capacity is more in line with demand. Thus, the
profitability decline analysis can be used to help determine the number,
location, and type of plants in a subcategory that may close due to the
regulation; the course of future growth in the subcategory, and the role
of foreign competition. This, in turn, can provide indications of secondary
impacts on the community, employment, and the balance of payments.
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D. SUBCATEGORY ANALYSIS
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1. ALUMINUM FLUORIDE
1.1 CHARACTERIZATION
Aluminum fluoride is a small but essential input in primary aluminum
production. Together with cryolite it forms a molten electrolyte used
to reduce metallic aluminum from alumina. In the reduction process,
alumina (aluminum oxide) is dissolved in this electrolytic bath, and an
electrical current is passed through it. At the carbon anode, oxygen
from the alumina joins with carbon forming carbon dioxide and freeing
aluminum metal. Aluminum fluoride is also used to a minor extent as a
metallurgical and ceramic flux for welding and glazing, and in secondary
aluminum production for the removal of magnesium from molten scrap.
Over 90 percent of the aluminum fluoride (A1F,,) produced is consumed by
one end use: the production of primary aluminum. Given this market
structure, the profitability, growth, and current production technology
in the aluminum industry largely determine demand for A1F~. Accordingly,
this characterization analyzes those facets of the aluminum industry
which affect A1F .
1.1.1 Demand
Since aluminum fluoride's major industrial function is primary aluminum
production, demand for A1F~ is determined by conditions in the aluminum
end market.
Demand for aluminum has risen in almost all of its end use markets since
the setback suffered by the industry in 1975. In 1978 production was
9.6 billion pounds, and 1979 output is expected to exceed the record
1974 level of 9.8 billion pounds. Figure 1-1 illustrates aluminum
fluoride's position in the aluminum production stream relative to its
raw material inputs and ultimate end markets.
1-2
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la order to depict the total demand for aluminum (and thus A1F,,), the
conditions in the individual end markets are summarized below.
1.1.1.1 End Markets
Transportation — The transportation industries have led the resurgence
in aluminum demand. In 1976, deliveries of aluminum to the transporta-
tion markets rose 44 percent and accounted for 19.3 percent of industry
shipments. This increase reflects aluminum's increasing penetration of
the automobile market. In an effort to improve gas mileage by lowering
weight, automobile makers have incorporated an average of 114 pounds of
lightweight aluminum in their 1978 models. This trend is expected to
continue with estimates of aluminum usage per vehicle ranging from 150
to 200 pounds by 1980 and from 225 to 425 pounds by 1985.
Airline deregulation and the need to replace aging jet fleets have also
increased aluminum consumption in the transportation sector. With
passenger traffic and profits sharply higher, airlines are ordering new
equipment at a record pace. Aluminum shipments to aircraft manufac-
turers have therefore increased substantially.
Building And Construction -- Building and construction constitute alum-
inum's largest end market, accounting for 23.1 percent of total 1977
shipments. Aluminum has penetrated the markets of both steel and wood
in residential and industrial siding, doors, and windows. Due to their
design these products can offer good insulating properties. Together
with foil backed fiberglass and foam insulation they should help
strengthen aluminum's position in the building and construction market,
as consumers attempt to conserve energy through improved home construc-
tion and insulation.
Other Markets -- Aluminum continues to penetrate the containers and
packaging market, despite recent price increases. Aluminum offers the
advantages of light weight, corrosion resistance, and relative ease of
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1-4
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recycling. Moreover, steel and plastic, aluminum's primary competitors
in this sector, have also posted recent price increases. Containers and
packaging accounted for 20.8 percent of aluminum's shipments in 1977.
The container industry as a whole, however, faces a serious threat in
the form of a nationwide beverage container deposit law. President
Carter's Resource Conservation Committee was expected to recommend its
enactment in 1979. However, the committee vote was equally split and
further progress on the law will require Congressional action. If the
effect on the container industry in the four states which have adopted
similar legislation is any indication, the share of this market held by
cans could fall sharply with enactment of the regulation.
Shipments to the electrical market (10 percent of the 1977 total) are
expected to remain strong. These shipments consist primarily of alum-
inum cable and towers. Shipments to the machinery and equipment sector,
as well as to the consumer durables industries, are tied to general
business conditions. Recessionary pressures may cause a short term
decline in capital investment and consumer spending in these areas, but,
in the long run, these markets should grow at approximately the rate of
GNP growth. These two markets accounted for a combined total of 14.8
percent of 1977 aluminum shipments.
1.1.1.2 Demand Summary
In general, predictions for growth of demand in the aluminum industry
range from four to seven percent annually through 1982. However, based
upon known expansion plans in 1978, aluminum capacity will grow less
than two percent annually through 1982. The aluminum industry is con-
sciously restraining major capacity expansions in an attempt to drive up
price and return on equity, and to avoid the excess capacity which
severely damaged the industry's price and profit positions during demand
downturns in 1970 and 1975. The difference between the rates of growth
of demand and capacity should raise capacity utilization in the industry
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from the 92.5 percent of the first half of 1978 to approximately 95 per-
cent and imports should increase their market share. Capacity utiliza-
tion, however, is not expected to increase further. Production effi-
ciency decreases beyond a capacity utilization of approximately 95
percent, because increased energy input is required per ton of aluminum.
Increased natural gas and electricity prices will force industry to sac-
rifice output for efficiency. Thus, while aluminum demand will remain
strong, growth in aluminum fluoride demand will be restrained by the
industry's hesitance to expand capacity.
The outlook for A1F- is further clouded by technical developments in the
areas of waste recovery and reduction technology. EPA standards on
fluoride emissions have caused the industry to remove fluorides from air
and water streams and from spent pot linings. These fluorides are then
recycled and returned to the production process. Because aluminum
fluoride is consumed only through mechanical and vapor losses, and not
in the reduction reaction, these reclamation efforts can substantially
reduce A1F- requirements. Industry sources estimate that up to 50
percent of consumed fluorides can be recovered through waste reclamation
efforts.
The same sources differ regarding the remaining amount of fluoride
recovery to be accomplished. Some sources indicate that as much as 25
percent of planned recovery equipment is not yet on line in the indus-
try. Others maintain that virtually all economical fluoride recovery is
currently being accomplished, and that further reductions will not occur
without a substantial technological breakthrough. If further fluoride
recovery is accomplished, slackening of aluminum fluoride demand may
occur.
In addition to this possibility, there is a longer term threat to alum-
inum fluoride demand. Alcoa has developed a smelting process using a
chloride instead of fluoride in reducing alumina. A 15,000 ton/year
1-6
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pilot facility in Anderson County, Texas has been in operation since
1976, aad another 15,000 ton line has been added recently. Alcoa has
plans to further expand this facility. The process is particularly
attractive, as it has demonstrated electricity savings of 30 percent
over the best Hall Cell technology and 44 percent over the industry
average of 16,000 kilowatt hours per ton of aluminum. The process
offers tremendous cost advantages, particularly at a time when the
industry faces soaring electricity costs and difficulty securing the
long-term power contracts essential for capacity expansion. The process
is not yet commercially available due to technical difficulties. How-
ever, when perfected it will be licensed by Alcoa and made available to
the entire industry.
Based upon the age of existing smelting facilities and the current
status of the chloride technology, industry sources expect the Hall-
Heroult process to remain the dominant production technology well into
the 1990's. Until that time aluminum fluoride manufacture should remain
a viable industry.
1.1.2 Supply
1.1.2.1 Production
As Table 1-1 illustrates, aluminum fluoride production has not grown
substantially since 1968, despite a 39 percent increase in the produc-
tion of primary aluminum. (See also Graph 1-1.) This is primarily due
to fluoride recovery by aluminum producers. The large fluctuations in
production during 1974 and 1975 reflect a period of rapid growth followed
by contraction in the aluminum industry. Aluminum fluoride production
should remain stable or decrease slightly over the next few years due to
limited aluminum capacity expansions and continuing fluoride recovery
efforts.
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GRAPH 1-1
ALUMINUM FLUORIDE PRODUCTION AND PRICE
175.00-
131.25-
VOLUME 87.50 —
(OOO's o£ tons)
43.75-
0.00- —-
1968
AVERAGE
UNIT
VALUE
(dollars)
500.00-
375.00-
250.00-
125.00-
o.oo-
I I
1972
YEAR
1972
1976
1976
YEAR
SOURCE: Department of Commerce
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1.1.2.2 Producers
There are three bulk manufacturers of aluminum fluoride operating four
plants. The two leaders, Alcoa and Kaiser, are integrated forward to
aluminum, and account for 76 percent of total industry capacity. The
third bulk producer is Allied Chemical Corporation, which sells its A1F~
on the merchant market. In addition to these producers, the Ozark
Mahoning Corporation produces a highly pure form of A1F« on a special
order basis for use as an additive in dentifrices. Table 1-2 summarizes
current producers and facilities.
Alcoa and Allied Chemical are completely integrated to the two major
inputs, hydrofluoric acid and alumina hydrate. Kaiser has recently shut
down its hydrofluoric acid facility, but maintains an internal source of
alumina hydrate.
The supply situation for A1F» changed in late 1978 when the Stauffer
Chemical Corporation closed its Greens Bayou, Texas facility, reducing
domestic supply by approximately 10 percent. The facility, which was
integrated with Stauffer's hydrofluoric acid unit at Greens Bayou was
closed primarily due to the shrinkage of the HF market following EPA's
and FDA's ban on fluorocarbons. Stauffer had previously supplied Union
Carbide with hydrofluoric acid for fluorocarbon production until the
latter closed its plant due to the regulation.
Two of the three leading aluminum producers, Alcoa and Kaiser, are pro-
ducers of aluminum fluoride. The third, Reynolds Aluminum, is essen-
tially integrated to A1F« except for the processing step. Reynolds
provides acid grade fluorspar and alumina hydrate to Allied Chemical
Corporation, which has a long-term contract to convert these raw mate-
rials to A1F_ on a toll basis for use in Reynolds smelting facilities .
All other aluminum manufacturers purchase A1F~ on the merchant market
from either Alcoa, Kaiser, or Allied.
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1.1.2.3 Process
Aluminum fluoride is produced by the reaction of hydrated alumina and
hydrofluoric acid. Hydrated alumina is an intermediate obtained in the
processing of bauxite ore to alumina. Hydrofluoric acid is produced by
the reaction of the mineral fluorspar with sulfuric acid. The manufac-
ture of aluminum is governed by the following reaction:
A1203-3H20 + 6HF -> 2A1F3 + 6H2 + 302
The process generates no by-product waste materials. However, some
process wastes are generated by gas scrubbers, leaks, and spills.
Estimated material requirements and costs for A1F« production are found
in Table 1-3.
A1F_ can also be produced using fluosilicic acid as a starting material.
Fluosilicic acid is a by-product of phosphoric acid manufacture. Cur-
rently Alcoa operates one plant in Fort Meade, Florida using this process.
It is anticipated, however, that the fluosilicic acid route will continue
to constitute only a minor part of total aluminum fluoride production.
Phosphoric acid manufacturers have a market for fluosilicic acid in
water treatment, and seem unwilling to integrate aluminum fluoride
production into their existing operations.
1.1.3 Competition
There are currently no commercial substitutes for aluminum fluoride in
aluminum manufacturing. Alcoa's chloride process may offer competition
when it becomes commercially available. However, the determining factor
is expected to be potential electricity savings rather than price compe-
tition with aluminum fluoride because on a. per unit of product basis
electricity is a much more costly input than either electrolyte.
Aluminum fluoride is an essential but relatively low volume input in
aluminum manufacturing, and therefore primary aluminum producers seek
1-11
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reliable supplies. Alcoa and Kaiser have achieved reliable supplies
through, backward integration, while other producers have established
long-term contracts and firm supplier-customer relationships. According
to industry sources, contractual arrangements range from one and two
year agreements to long-term toll conversion contracts and changes of
suppliers are rare. Thus, there is very little short-term competition
between domestic producers in the ALF., market. Imported A1F., also
offers little competition because in recent years ocean shipping rates
have made it noncompetitive, particularly in a market with excess domestic
capacity.
1.1.4 Economic Outlook
An industry's profitability is the difference between total revenues and
total costs. There are factors that influence these independently so it
is useful to present a revenue outlook and cost outlook separately.
1.1.4.1 Revenue
Total revenue is the product of the quantity sold and the average unit
price. Though these two variables are discussed separately below, it
should be recognized that they are interrelated.
1.1.4.1.1 Quantity
The quantity of aluminum fluoride produced and sold domestically should
remain stable or decrease slightly through 1984, then grow at the rate
of expansion of Hall cell reduction facilities into the 1990's. Wide
scale commercialization of Alcoa's chloride reduction process will
eventually eliminate A1F,. use in aluminum processing, but this should
not occur until the mid-1990's. Important factors which will influence
demand for this commodity are the following:
• Strength of the aluminum market
• Lack of planned capacity expansion among primary aluminum
producers
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TABLE l-3a
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE-
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
25,400 tons/year
17,500 tons/year
(69% capacity utilization)
$9.7 million
VARIABLE COSTS Unit/Ton $/Unit
• Materials
- Fluorspar (97%) 1.59 tons 73.33
- Sulfuric Acid (98%) 1.98 tons 39.98
- Alumina trihydrate .935 tons 107.75
• Utilities
- Electricity 130 kWh .03
- Fuel 2.04 MMBtu 2.50
$/Ton
116.60
79.20
100.70
3.90
5.10
Total Variable Costs
$305.50
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
19.60
27.60
$ 47.20
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
4.90
55.20
8.30
$ 68.40
$421.10
'rSee Appendix C
1-14
-------
TABLE l-3b
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE-
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
57,300 tons/year
39,500 tons/year
(69% capacity utilization)
$15.8 million
VARIABLE COSTS
• Materials
- Fluorspar (97%)
- Sulfuric Acid (98%)
- Alumina trihydrate
• Utilities
- Electricity
- Fuel
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
1.59 tons
1.98 tons
.935 tons
130 kWh
2.04 MMBtu
73.33
39.98
107.75
.03
2.50
116.60
79.20
100.70
3.90
5.10
$305.50
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
10.90
19.90
$ 30.80
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
2.70
39.80
6.00
$ 48.50
$384.80
"'"See Appendix C
1-15
-------
TABLE l-3c
ESTIMATED COST OF MANUFACTURING ALUMINUM FLUORIDE-
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
73,900 tons/year
51,000 tons/year
(69% capacity utilization)
$18.3 million
VARIABLE COSTS
• Materials
- Fluorspar (97%)
- Sulfuric Acid (98%)
Alumina trihydrate
• Utilities
- Electricity
- Fuel
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
Unit/Ton
$/Unit
1.59 tons
1.98 tons
.935 tons
130 kWh
2.04 MMBtu
73.33
39.98
107.75
.03
2.50
116.60
79.20
100.70
3.90
5.10
$305.50
10.20
18.00
$ 28.20
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
2.50
36.00
5.40
$ 43.90
$377.60
*See Appendix C
• 1-16
-------
• Potential for further fluoride recovery by the aluminum industry
• Alcoa's development of energy conserving chloride reduction
technology, which could ultimately eliminate need for A1F« in
aluminum processing.
Thus, while there are some conflicting forces and trends, the aluminum
fluoride industry appears to have matured and little future growth is
expected.
1.1.4.1.2 Price
A great deal of the aluminum fluoride produced by both Alcoa and Kaiser
is used captively. In this captive segment of the market the price of
A1F» has little meaning. The profitability of the entire aluminum
production stream is the relevant criterion for making production deci-
sions, rather than the merchant market price.
Aluminum fluoride is an essential ingredient in primary aluminum pro-
duction although a relatively insignificant input in terms of cost. It
represents less than two percent of the current aluminum ingot price.
With aluminum prices rising and demand strong, necessary price increases
in Al!\ could be sustained in the merchant market. This assessment is
based on the following factors:
• Demand for A1F., is inelastic. Consumption cannot be curtailed
without cutting primary aluminum production. This will not
occur as long as it remains profitable.
• Three firms control the entire industry.
• There is little competition among producers, with the merchant
market characterized by long-term, stable supplier-consumer
relationships.
There seems to be, however, a chance of increasing competition in the
future. There is currently excess capacity in the industry, with 1977
capacity exceeding consumption by 16 percent, or 27.9 thousand tons.
The situation has improved somewhat with the closure of Stauffer's 16.5
1-17
-------
thousand ton per year facility in Texas, but extensive fluoride recovery
could again depress capacity utilization in the industry.
The downward pressure exerted by excess capacity on the prices of A1F~
could be intensified by the current market structure. Alcoa and Kaiser,
the two producers who are integrated downstream to aluminum, produce
A1F» primarily to meet their own needs. Both, however, have excess
capacity which they attempt to utilize by selling aluminum fluoride on a
merchant basis.
If the excess production is sold at a price above the cost of the vari-
able inputs, then utilizing this productive capacity lowers the unit
cost of the aluminum fluoride they consume captively, as fixed costs are
allocated among a greater number of units produced. Thus, there is an
incentive for the integrated aluminum producers to keep the price low
and capacity utilization high. If this situation develops, Allied must
follow similar pricing policies to remain competitive. Thus, the possi-
bility of increasing profit margins in an industry facing excess capacity
and a demand downturn is substantially lowered. In fact, if demand
declines, margins may shrink as producers compete more vigorously to
maintain high capacity utilization.
1.1.4.2 Manufacturing Costs
Aluminum fluoride production requires two major inputs; hydrofluoric
acid and alumina hydrate. The process for manufacturing HF is rela-
tively energy intensive, and manufacturing costs will climb as energy
prices rise.
Alumina hydrate is an intermediate obtained in the processing of bauxite
to alumina, and thus its cost is a function of current bauxite prices.
About 90 percent of all bauxite used by the domestic aluminum industry
is imported from member countries of the International Bauxite Associa-
tion (IBA). The IBA has been trying to agree on a common price formula,
1-18
-------
but to dace has been unable to do so. However, the successful negotia-
tion of a cartel pricing arrangment could raise the price of bauxite
ore, and thus the cost of producing alumina hydrate.
The overall outlook is for the cost of manufacturing A1F_ to increase at
a moderate rate. The cost of the hydrofluoric acid input should in-
crease fairly rapidly but total cost increases should be moderated
somewhat by lower increases in bauxite costs.
1.1.4.3 Profit Margins
Much of the aluminum fluoride produced is used captively; as such, it
has no "price" and therefore no profit margins.
In the merchant market, the price of aluminum fluoride is likely to
remain low due to vigorous intra-industry competition for market share.
This, coupled with rising manufacturing costs, is likely to keep profit
margins on merchant A1F., fairly slim during the next few years.
1.1.5 Characterization Summary
Aluminum fluoride manufacture should remain a stable industry into the
1990's. As an essential ingredient in aluminum processing, A1F« will be
produced as long as aluminum manufacture by the Hall process is prof-
itable.
Growth, however, is not expected to be strong. The aluminum industry is
restraining major capacity expansions to increase prices and return on
equity, and thus market growth will be small. In addition, fluoride
recovery technology will continue to reduce A1F- consumption per ton of
aluminum produced.
In the long-term, Alcoa's chloride smelting process could potentially
eliminate demand for A1F,,. However, due to the lifetime of current
1-19
-------
smelting facilities and the magnitude of the capital investment neces-
sary to install the new process, it is not expected to have a major
impact until the 1990's.
1.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
aluminum fluoride industry to comply with various effluent control
standards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
A survey by the technical contractor revealed that all aluminum fluoride
manufacturers are direct dischargers having Level 1 treatment technology
in place. Therefore, this analysis assesses the impact of only the
additional costs required to meet higher effluent removal levels.
1.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical con-
tractor for pollution control equipment designed to meet Level 1 and
three increasingly efficient levels of waste removal.
The process reaction for forming aluminum fluoride generates no by-product
waste material. Wastewater flows, however, are generated by air pollution
control scrubbers, leaks, spills and washdown.
The treatment process involves a two stage neutralization to achieve
Level 1 removal. Wastewater streams are collected in an equalization
1-20
-------
tank, and lime is added to raise the pH to six or seven. The wastewater
is then transferred to a mixing tank where the pH is raised to 10.
Fluorides are precipitated as calcium fluoride, and metals as metal
hydroxides. Solids are settled in a lagoon, and the effluent overflow is
discharged after final pH adjustment.
To achieve Level 2 pollution control, a dual media filter is added to
reduce suspended solids in the effluent. Level 3 requires the addition
of ferrous sulfide as a polishing step before the filter to remove toxic
metals from the effluent. The most efficient removal technology (Level
4) is essentially the same as Level 1 removal, except lime is replaced
by soda ash, and all wastewater is recycled. The addition of soda ash
reduces the scaling problem when the effluent is recycled to the scrubber.
The steps for each level are summarized below:
Level 1 - Equalization, Lime Precipitation, and Settling
• Wastewater mixed with lime to raise pH to 6 or 7
• Second stage mixing raises pH to 10
• Fluorides and metals extracted
Level 2 - Level 1 Plus Filtration
• To remove additional toxic metals and fluorides from effluent
Level 3 - Sulfide Precipitation
• Ferrous sulfide added to remove toxic metals before filtration
Level 4 - Recycling
• Lime replaced by soda ash and all wastewater recycled
• Otherwise as in Level 1
1-21
-------
Pollution control cost estimates have been developed for three model
plant production sizes: 17,500 tons per year (TPY), 39,500 TPY, and
51,000 TPY. These costs are summarized in Table 1-4.
The estimated costs of manufacturing aluminum fluoride are $432.08 per
ton for the small plant, $392.38 for the medium plant and $384.36 for
the large plant. These cost estimates are based on the estimate devel-
oped by an economic subcontractor (see Table 1-3) and include the costs
of meeting Level 1 effluent limitations. Table 1-5 summarizes the
aluminum fluoride model plant financial parameters used in the analysis.
The total compliance costs for the aluminum fluoride subcategory are
summarized in Table 1-6. These costs are based on the model plant
pollution control costs and current industry production levels. All
aluminum fluoride manufacturers have Level 1 removal equipment in place,
The total additional cost to the subcategory for compliance with the
second, third, and fourth removal levels are $190,181, $209,773, and
$488,782, respectively.
1.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
1-22
-------
MODEL PUNT PARAMETERS
TABLE 1-4: POLLUTION CONTROL COSTS
Chemical: Aluminum Fluoride
MODEL
PLANT
PRODUCTION
(tons /year)
17,500
39,500
51,000
SECOND LEVEL
OF REMOVAL
CAPITAL
INVEST-
MENT
$109,200
133,600
132,700
ANNUAL
OPERATING
COST
$ 36,296
40,418
46,751
THIRD LEVEL
OF REMOVAL
CAPITAL
INVEST-
MENT
$123,000
153,300
197,400
AJBflJAL
OPERATING
COST
539,216
44,529
51,462
FOURTH LEVEL
OF REMOVAL
CAPITAL
INVEST-
MENT
$269,500
410,200
504,000
ANNUAL
OPERATING
COST
$68,800
96,726
117,720
SOURCE: DevelotmeTve Dacuaent
TABLE 1-5: MANUFACTURING COSTS
Chemical: Aluminum Fluoride
MODEL PLANT
PRODUCTION *
ftons/vsar)
17,500
39,500
51,000
INVESTMENT IN
PLANT AND EQUIPMENT
$ 9,657,000
15,755,000
18,342,000
MANUFACTURING
COSTS PER TON**
$432.08
392.38
384.36
* Cost estimates based on plant capacities of 25,400, 57,300, and
73,900 tons per year [see Table 1-3).
** Includes cost of meeting Level 1 effluent limitations.
(SOURCE: Development Document)
1-23
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The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
1-2.2.1 Price Rise Analysis
The price rise analysis assumes a full pass-through of pollution control
costs. Table 1-7 summarizes the price rise required of the model plants
for each level of removal. Note that Level 1 is not included in the
table. Level 1 treatment technology is in place. Only additional
removal levels are presented.
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1.2.2.2 Profitability Anlysis
The profitability analysis assumes no price pass-through is possible.
The resulting declines in the return on investment (ROI) and the internal
rate of return (IRR) attributable to the costs of achieving each pollution
control level are calculated (see Table 1-8). As illustrated in Table
l-8c for the most stringent level of control the change in the ROI and
IRR is approximately one percentage point for the small model plant and
approximately one-half of one percentage point for the larger model
plants.
1.2.2.3 Price Elasticity of Demand
The major end use for aluminum fluoride is the primary aluminum industry.
Currently, there are no close substitutes for aluminum fluoride in this
end use (see Section 1.1.3). Therefore demand for the chemical is
1-25
-------
TABLE 1-7
PERCENTAGE PRICE RISE
Chemical: Aluminum Fluoride
Price: $420/ton
MODEL PLANT
PRODUCTION
ftons/vear)
17,500
39,500
51,000
SECOND LEVEL
OF REMOVAL
0.31%
0.43
0.41
THIRD LEVEL
OF REMOVAL
0.89%
0.47
0.44
FOURTH LEVEL
OF REMOVAL
1 . 72 %
1.12
1.07
SOURCE: EEA Estimates
1-26
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assumed to be relatively price inelastic (See Sections 1.1.1, Demand,
and 1.1.3, Competition, for a complete analysis.).
1.2.2.4 Capital Analysis
The ability to raise the capital required for pollution control expen-
ditures has been a problem for some industries. The total capital
investment required for installation of Level 4 removal is twice that
required for Level 3 removal, and is approximately three percent of the
total fixed investment. However, the industry is presently profitable
and these capital requirements should not pose a problem for the large,
integrated aluminum and chemical corporations producing this product.
Table 1-9 presents the pollution control capital costs as a percentage
of the plants' fixed investment.
1.2.2.5 Closure Analysis
Table 1-10 summarizes the price elasticity of demand, price rise, and
profitability decline for aluminum fluoride model plants and compares
these to EPA's closure criteria (see methodology description). For
Levels 2 and 3, all models require price increases of less than one
percent and, therefore, are not closure candidates. The price rise
needed to recover Level 4 removal costs is greater than one percent
(1.07-1.72 percent); however, the profitability decline exceeds one
percent only for the small model plant. Given the low price elasticity
of demand, the small plant would face only a part of this profitability
decline. On the basis of the EPA's closure criteria, no closures are
forecast.
1.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on aluminum flouride manufacturers.
1-30
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TABLE 1-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Aluminum Fluoride
LEVEL OF
REMOVAL
2
3
4
MODEL PLANT SIZE
(Annual Production in Tons)**
17,500
1.12 %
1.27
2.79
39,500
0.83 %
0.97
2.60
51,000
1.0 %
1.07
2.73
* Fixed investments are assumed to be $383/ton, $276/ton, and $248/ton
of capacity for the three model plants from smallest to largest.
** 69% capacity utilization.
SOURCE: EEA Estimates and Development Document
1-31
-------
TABLE 1-10
IMPACT SUMMARY
Chemical: Aluminum Fluoride
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
3
4
PLANT
PRODUCTION
(ton/vr)
17,500
39,500
51,000
17,500
39,500
51,000
17,500
39,500
51,000
PRICE ELASTICITY
Low
Low
Low
MAXIMUM
PRICE RISE
0.81%
0.43
0.41
0 . 89%
0.47
0.44
1.72%
1.12
1.07
MAXIMUM
PROFITABILITY
DECLINE
0.51%
0.22
0.23
0.55%
0.24
0.24
1 . 04%
0.56
0.57
CLOSURES
no
no
no s
no
no
no
no
no
no
SOURCE: EEA Estimates
1-32
-------
In order to determine the significance of the impacts of pollution con-
trol on the aluminum fluoride industry, the impacts on the primary
aluminum industry also must be considered. Aluminum fluoride serves as a
production intermediate with 76 percent of total production being captive.
Whether purchased on the merchant market or captively produced, the rise
in aluminum fluoride price due to increased pollution control costs will
ultimately be viewed as an increase in the cost of manufacturing alumi-
num ingot.
1.2.3.1 Price and Profitability Impacts
The price increase required to fully recover the costs of achieving
effluent removal is 1.72 percent at the highest level. However, aluminum
fluoride costs represent less than two percent of the current aluminum
ingot price. The required aluminum ingot price rise needed to cover the
pollution control costs is less than three one-hundreths of one percent.
This is clearly insignificant.
If the aluminum fluoride producers were forced to fully absorb the
additional pollution control costs only a minor decline in profitability
would occur. The most stringent control level reduces the IRR of the
small model plant (17,500 TPY) by one percentage point. The two larger
model plants incurr a decline in the IRR of six-tenths of a percentage
point. Since aluminum fluoride is a captive intermediate product, its
profitability is determined by the profitability of its end product,
primary aluminum. Since aluminum fluoride accounts for only two percent
of the costs of primary aluminum manufacture, primary aluminum producers
should not experience a noticable decline in profits.
1.2.3.2 Other Impacts and Conclusion
The overall impacts are expected to be insignificant. No structural
changes are expected in the industry and there should be no secondary
impacts, such as changes in employment or in the balance of payments.
1-33
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2. CHLORINE
2.1 CHARACTERIZATION
Chlorine is a very large volume chemical with a great number of end uses
in organic chemicals, inorganic chemicals and other industrial applica-
tions. Because it is a critical input for several processes, many
producers make it for their own use; two-thirds of the chlorine is used
captively. Because chlorine is a low value commodity, economical shipping
distances are limited. Therefore, competition occurs on a regional
basis and foreign trade is negligible.
Chlorine is manufactured through the electrolysis of salt using vast
amounts of electricity. Sodium hydroxide is produced as a coproduct in
approximately the same volume. Balancing the demand for these two
products and coping with the rapidly rising cost of electricity are two
of the major concerns of chlorine manufacturers.
2.1.1 Demand
Chlorine and sodium hydroxide (caustic soda) have a very wide variety of
uses, none of which make up a predominant portion of total product
demand. In 1977, end uses for chlorine were as shown in Figure 2-1.
Because of this diversity of uses, demand for these chemicals is not
overly dependent on fluctuations in any one market. In addition, since
60 percent of chlorine production is captive, its internal use is subject
to the demand fluctuations of the final products made by each producer,
such as PVC and pulp and paper. Caustic demand, however, is dissimilar
to chlorine's in that its merchant sales represent 67 percent of produc-
tion and only 33 percent is captive. Thus, many producers who produce
chlorine based upon their needs for downstream chemicals may not produce
2-1
-------
the optimum amount of caustic (and vice versa). This problem is ameliorated
somewhat by the large merchant market for caustic and relatively strong
demand. Although this analysis concentrates on chlorine and its end
markets, it should be kept in mind that manufacturers must continuously
balance the demands of the two chemicals. In order to depict the total
demand for chlorine, the conditions in the individual end markets are
summarized below.
2.1.1.1 End Markets
Polyvinyl Chloride
Polyvinyl chloride (PVC) is chlorine's strongest market, accounting for
approximately 17 percent of chlorine consumption. PVC is a plastic used
in building and construction, electrical applications, household appli-
cations, and consumer goods. The market for PVC has grown rapidly (7.2
percent annually, 1971 through 1978) and is expected to continue growing.
Some sources have predicted annual growth rates as high as 8 percent.
The vinyl siding market may contribute significantly to this growth.
Although demand is strong, capacity utilization fell to 75 to 80 percent
when Diamond Shamrock opened a 500,000 ton/year plant in 1978 (the
average plant is half this size). Reduced capacity utilization has
created weak prices. Several other producers are planning expansions
which may contribute to continuing utilization and pricing problems for
several years.
Propylene Oxide
Propylene oxide (PO) is used in the production of polyurethane foam
products and unsaturated polyester fabricated products. These, in turn,
go into automobiles, refrigerators, furniture, and textiles. Propylene
oxide is produced by the chlorohydrin process, using chlorine, water,
2-2
-------
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propylene, and caustic soda or lime. The chlorine is used as an oxi-
dizing agent and is released as a waste product. Several alternate
processes have been proposed for PO production. Oxirane has developed a
direct oxidation process now being used in several plants. Increased
use of any of these new processes could reduce chlorine consumption.
However, the chlorohydrin process may remain competitive with these
other processes if means of increasing efficiency, such as chlorine
recycling, are adopted.
Ethylene Bichloride
Ethylene dichloride (EDC) is an intermediate chemical with end markets
in the production of vinyl chloride (80 percent of EDC's market), chlor-
inated solvent intermediates (10 percent), and other uses (10 percent).
Vinyl chloride is used in the production of polyvinyl chloride. There-
fore, future demand for EDC is tied closely to that of PVC. EDC demand
is expected to grow by four to five percent annually.
In 1978, the question of EDC's carcinogenic potential was raised. Vinyl
chloride producers had similar problems a few years earlier. Although
most EDC is consumed captively, there is a potential for costly EPA or
OSHA regulation.
Ethylene dichloride and vinyl chloride are good examples of chlorine's
end uses. They also point out the potential for increased downstream
costs due to government regulation of carcinogens. Even the safe use of
chlorine in water treatment is being questioned. The cumulative effects
of regulations have the potential to dampen downstream demand for chlorine
through increased manufacturing costs or outright bans.
2.1.2 Supply
2.1.2.1 Production
Chlorine production reached 10.6 million tons in 1977, placing it eighth
in production volume for all U.S. chemicals. Production volume grew at
2-4
-------
a strong and steady rate throughout the 1950's and 1960's; annual increases
of 10 percent were not uncommon. In the 1970's, two recessions caused
temporary drops in volume. However, the long-term growth trend appears
to have been reduced significantly also. The average annual growth rate
between 1970 and 1977 was 1.1 percent. In the next five years, demand
is expected to keep pace with the GNP. Rapid growth in some end markets,
such as plastics, could cause chlorine demand to outpace GNP by one or
two percentage points. Table 2-1 and Graph 2-1 show production and
average price data for 1968 to 1977.
2.1.2.2 Producers
Chlorine is produced by more than 35 companies; eight producers account
for about 75 percent of the total industry capacity. Dow Chemical is
the largest, with 31 percent of the capacity (see Table 2-2). This
industry concentration statistic can be misleading, however, because
some manufacturers (not necessarily the largest) specialize in merchant
markets, whereas others (including some large producers) produce pri-
marily for captive consumption. Olin, PPG, and Diamond Shamrock are the
largest merchant producers.
Most chlorine (60 percent) is produced for captive use. In chemical
companies, downstream products include a wide variety of chlorinated
inorganic and organic compounds. Nonchemical companies generally use
chlorine and caustic more directly, e.g., for bleaching pulp and paper;
included in the list of manufacturers are several pulp and paper and
aluminum companies. Backward integration by all of these companies
allows them to control the cost and availability of critical raw mate-
rials. A captive producer can lower costs by running his plants at a
high capacity utilization rate. (In general, there is less captive use
of caustic soda, so a large and predominantly captive producer of chlo-
rine may be a major supplier of caustic.)
2-5
-------
Productive capacity has grown faster than demand for several years.
Although several plants have shut down since 1975, capacity additions
have exceeded shutdowns. Further expansions have been planned for the
1980' s, even though capacity utilization has dropped.
2.1.2.3 Processes
About 94 percent of all U.S. chlorine is produced by the electrolysis of
salt. The coproduct, caustic soda (sodium hydroxide), is produced in
nearly the same volume (ratio of 1:1.13).
Production is governed by the following reaction:
2 NaCl + 2 H20 direct . C12 + 2 NaOH
The two major manufacturing methods use either mercury cells (20 percent
of the capacity) or diaphragm cells (74 percent of the capacity). The
trend away from mercury cells is increasing; there have been no new
mercury cells built in the U.S. since 1970. Manufacturing costs were
estimated for three model plants for each process. Table 2-3 presents
cost estimates for mercury cell plants and Table 2-4 presents cost
estimates for diaphragm cell plants.
The two electrolytic processes have many similar characteristics.
Regardless of the process, the brine solution needs to be purified.
Several manufacturers obtain their brine from nearby salt domes through
steam injection. The brine is purified and then sprayed into the elec-
trolytic cells. A typical chlorine plant has rows of cell lines. Thus,
capacity is somewhat flexible. Older electrolytic plants produced from
65 to 475 metric tons of chlorine per day; newer plants generate 725 to
900 metric tons per day. Some plants and expansions under construction
will yield 1000 or more metric tons per day.
2-6
-------
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VOLUME
(000,000'sof
tons)
AVERAGE
UNIT
VALUE
(dollars)
GRAPH 2-1
CHLORINE PRODUCTION AND PRICE
11.00-
8.25-'
5.50-
2.75-
0.00-r--
1968
100.00-
75.00-
50.00
25.00-
0.00-
1972
1976
YEAR
1972
1976
YEAR
SOURCE: Department of Commerce
-------
TABLE 2-2
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
January 1977 Capacity
Companies and Plant (ton/day)
Locations Chlorine Caustic Soda
Allied Chemical Corp. <1,700 <1,915
Acme, NC
Brunswick, GA
Moundsville, WVA
Syracuse, NY
Aluminum Co. of America
(Alcoa) 550 620
Point Comfort, TX
American Magnesium
Snyder, TX
BASF Wyandotte Corp. 1,550 1,745
Geismar, LA
Wyandotte, MI
Port Edwards, WI
Brunswick Chemical Co. 85 85
Brunswick, GA
Champion International Corp. 90 100
Canton, NC
Houston, TX
Diamond Shamrock Chemical Co. 3,200 3,605
Painesville, OH
La Porte, TX
Delaware City, DE
Mobile, AL
Muscle Shoals, AL
Deer Park, TX
Dow Chemical Co. 12,100 13,600
Freeport, TX
Midland, MI
Pittsburg, CA
Plaquemine, LA
Type of
Process
2
2
2
1,2
2
1,2
1
2
1
1
1
1
1
2
2
2
1,2
1,6
1
1
1
Year Built
(Year Cells
Installed)
1963
1957
1953
1-1927, 1968
2-1946,1953
1966
1969
1-1959,1969
2-1964
1938
1967
1967
1916
1936
1928 (1959)
1975
1965
1964
1952
1938
1940
1897
1917
1958 (1976)
2-9
-------
TABLE 2-2
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
(Continued)
January 1977 Capacity
Companies and Plant (ton/day)
Locations Chlorine Caustic Soda
E.I. DuPont de Nemours
§ Co., Inc. >940
Corpus Christi, TX
Memphis, TN
Niagara Falls, NY
Ethyl Corp. 640 200
Baton Rouge, LA
Houston, TX
FMC Corp. 790 890
S. Charleston, WVA
Fort Howard Paper Co. <120 <135
Green Bay, WI
General Electric
Mt. Vernon, IN
Georgia-Pacific Corp. >1,460 >1,64S
Bellingham, WA
Plaquemine, LA
B.F. Goodrich Chemical Co. 300 335
Calvert City, KY
Hercules 18,000 ton/yr
Hopewell, VA
Hooker Chemical Corp. 2,680 3,020
Montague, MI
Niagara FaJJs, NY
Tacoma, WA '
Taft, LA
Type ofa
Process
1
4
4
1,4
4
1
1
1
2
1
2
1
1
1
1
1
Year Built
(Year Cells
Installed)
1974
1958
1898
1938
1952
1916
1968
1976
1965
1974
1966
1939
1954
1898
1929
1966
(1973)
(1976)
(1976)
(1974)
Hooker Sobin Chemicals
Niagara, Falls, NY
1CI Americas
Baton Rouge, LA
135
1961
1937
2-10
-------
TABLE 2-2
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
(Continued)
Companies and Plant
Locations
Jefferson Chemical Co., Inc.
Port Neches, TX
Kaiser Aluminum § Chemical
Corp.
Gramercy, LA
Linden Chlorine Products,
Inc.
Linden, NJ
Mobay Chemical Corp.
Bay town, TX
Monsanto Co.
East Saint Louis, IL
NL Industries, Inc.
Rowley, UT
Olin Corp.
Augusta, GA
Charleston, TN
Mclntosh, AL
Niagara Falls, NY
Pennwalt Corp.
Calvert City, KY
Portland, OR
Tacoma, WA
Wyandotte, MI
PPG Industries, Inc.
Barber ton, OH
Lake Charles, LA
New Martinsville, WA
January 1977 Capacity
(ton/ day)
Chlorine Caustic Soda
150 170
570 640
500 560
200
<250 <280
220
>1,800 >2,025
1,050 1,180
3,330 3,350
Type o£a
Process
1
1
2
5
2
6
2
2
2
2
2
1
1
1
1
1,2
1,2
Year Built
(Year Cells
Installed)
1959
1958 (1976)
1956 (1963,1969)
1972
1922 (1962)
1974
1965
1962
1952
1897 (1960)
1953 (1967)
1947 (1967)
1929 (1976)
1898 (I960)
1936
1-1947
2-1943
1-1943
2-1958
RMI Co.
Ashtabula, OH
115
1949
2-11
-------
TABLE 2-2
CHLOR-ALKALI PRODUCING COMPANIES, PLANTS, AND CAPACITIES
(Continued)
Companies and Plant
Locations
Shell Chemical Co.
Deer Park, TX
Sobin Chemicals, Inc.
Ashtabula, OH
Orrington, ME
Stauffer Chemical Co.
Henderson, NV
LeMoyne, AL
St. Gabriel, LA
Vicksburg Chemical Co.
Vicksburg, MS
Vulcan Materials Co.
Denver City, TX
Witchita, KN
Geismar, LA
January 1977 Capacity
(ton/day)
Chlorine Caustic Soda
375 420
330 370
1,010 1,135
90
1,200 1,350
Type of
Process
1
2
2
1
2
2
1
1
1
Year Built
(Year Cells
Installed)
1966
1963
1967
1942
1965
1970
1962
1947
1952 (1976)
1977
Weyerhaueser Co.
Longview, WA
385
430
(1975)
2-12
-------
FOOTNOTES:
a/ Type of process:
1-Diaphragm cell electrolytic plant producing chlorine, caustic soda and other
products.
2-Mercury cell electrolytic plant producing chlorine, caustic soda and other
products.
3-Mercury cell electrolytic plant producing chlorine and caustic potash but no
caustic soda.
4-Electrolytic plant producina metallic sodium and chlorine.
5-Electrolytic plant producina chlorine and hydrogen from hydrochloric acid.
6-Electrolvtic plant producing magnesium and chloride from molten magnesium
chloride.
b/ Modernization and 30% expansion begun at plant.
c/ Expansion begun.
d/ Expansion of 1000 tons/day begun
SOURCE: "An Investigation of the Best System of Emission Reduction for Mercury
Chlor-Alkali Cells," EPA, October, 1977.
2-13
-------
TABLE 2-3a
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS-
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
Cooling Water
Steam
Process Water
Electricity
Total Variable Costs
28,000 tons/year
21,000 tons/year
(75% capacity utilization)
$15.3 million
Unit/Ton
$/Unit
$/Ton
1.819 tons
7.42 mgal
2.04 mlb
1.1 mgal
3500 kWh
10.00
.10
3.25
.75
.03
18.20
10.80
.70
6.60
.80
91.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
37.50
29.10
$ 66.60
15.30
72.60
14.50
$102.40
$297.10
130.00
$167.10
''See Appendix C
2-14
-------
TABLE 2-3b
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS''
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
140,000 tons/year
105,500 tons/year
(75% capacity utilization)
$47.1 million
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
Steam
Process Water
- Electricity
Total Variable Costs
Unit/Ton
1.819 tons
7.42 mgal
2.04 mlb
1.1 mgal
3500 kWh
$/Unit
10.00
.10
3.25
.75
.03
18.20
10.80
.70
6.60
.80
9.1.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
27.20
17.90
$ 45.10
11.60
44.80
9.00
$ 65.40
$238.60
130.00
$108.60
See Appendix C
2-15
-------
TABLE 2-3c
ESTIMATED COST OF MANUFACTURING CHLORINE - MERCURY PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
280,000 tons/year
210,500 tons/year
(75% capacity utilization)
$76.4 million
Unit/Ton
$/Unit
$/Ton
1.819 tons
7.42 mgal
2.04 mlb
1.1 mgal
3500 kWh
10.00
.10
3.25
.75
.03
18.20
10.80
.70
6.60
.80
91.00
$128.10
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
23.70
14.50
$ 38.20
10.60
36.40
7.30
$ 54.30
$220.60
130.00
$ 90.60
*See Appendix C
2-16
-------
TABLE 2-4a
ESTIMATED COST OF MANUFACTURING CHLORINE-DIAPHRAGM PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
28,000 tons/year
21,000 tons/year
(75% capacity utilization)
$13.9 million
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
- Cooling Water
Steam
Process Water
- Electricity
Total Variable Costs
Unit/Ton
1.76 tons
46.75 mgal
12.4 mlb
5.38 mgal
2,900 kWh
$/Unit
10.00
.10
3.25
.75
.03
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
42.80
26.40
$ 69.20
17.30
66.00
13.20
$ 96.50
$310.40
130.00
$180.40
'•'See Appendix C
2-17
-------
TABLE 2-4b
ESTIMATED COST OF MANUFACTURING CHLORINE - DIAPHRAGM PROCESS*
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
Cooling Water
Steam
Process Water
Electricity
Total Variable Costs
140,000 tons/year
105,500 tons/year
(75% capacity utilization)
$42.8 million
Unit/Ton
$/Unit
$/Ton
1.76 tons
46.75 mgal
12.4 mlb
5.38 mgal
2,900 kWh
10.00
.10
3.25
.75
.03
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
29.30
16.30
$ 45.60
12.40
40.70
8.10
$ 61.20
$251.50
130.00
$121.50
"See Appendix C
2-18
-------
TABLE 2-4c
ESTIMATED COST OF MANUFACTURING CHLORINE - DIAPHRAGM PROCESS''
(Mid-1978 Dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Salt
- Other
• Utilities
Cooling Water
- Steam
- Process Water
- Electricity
Total Variable Costs
280,000 tons/year
210,500 tons/year
(75% capacity utilization)
$69.5 million
Unit/Ton
$/Unit
1.76 tons
46.75 mgal
12.4 mlb
5.38 mgal
2,900 kWh
10.00
.10
3.25
.75
.03
17.60
2.70
4.70
40.30
4.00
75.40
$144.70
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
Coproduct credit: Caustic soda
NET PRODUCTION COST
SOURCE: Contractor and EEA estimates
27.00
13.20
$ 40.20
11.80
33.10
6.60
$51.50
$236.40
130.00
$106.40
*See Appendix C
2-19
-------
The location of chlorine plants usually is determined by access to
inexpensive sources of power and salt. Electricity can represent as
much as 60 percent of total manufacturing costs. The plants which use
chlorine usually are located near their critical inputs such as petro-
chemicals and natural gas. This has led to a large number of plants
being located along the Gulf coast and in the Pacific Northwest where
hydroelectric power has, historically, been plentiful. Because of
chlorine's relatively low value, transportation costs also play an
important role. To control these costs, shipping distances are limited.
2.1.3 Competition
Chlorine and caustic soda compete predominantly on the basis of price.
(Chlorine comes in one grade--technical--99.9 percent). Because they
are high tonnage/low value products, transportation charges are impor-
tant and producers have tried to locate near their markets. About half
of the chlorine produced is consumed in Texas and Louisiana. The more
efficient Gulf Coast producers can economically ship their chlorine well
into the central regions of the country.
Although there is some concentration in the chlorine industry (the top
four producers account for more than half of production), pricing of the
remaining noncaptive chlorine (40 percent) is competitive. In 1978, the
f.o.b. list price was $135 per ton, while spot prices went as low as $80
per ton. This spread illustrates the wide variations common in spot prices.
In 1977, under similar conditions, the average price was $97 per ton,
indicating considerable discounting. Low capacity utilization, plant
expansions, uneven caustic demand, and rapidly rising costs complicate
chlorine pricing patterns.
Capacity utilization, historically in the mid-90 percent range, dropped
to 80 percent around 1974-75 and is not expected to recover very much in
the foreseeable future. This is due to the large capacity additions
2-20
-------
recently made and in progress. This type of low capacity utilization
leads to "weak prices" (often in the form of discounts on list prices)
as the individual firms become more competitive for market shares.
Although no one substitute is likely to take over all of chlorine's
diverse uses, several substitutes may make some inroads. For example,
in chlorine's largest single market (vinyl chloride—17 percent of Cl.) ,
hydrogen chloride can be substituted for chlorine. In pulp and paper,
there is increasing use of sodium chlorate and oxygen bleaching methods.
The manufacture of aerosols composed of fluorocarbons was prohibited
after October 1978. Even the water treatment market is experiencing
competition from chemicals such as ozone.
Because of chlorine's low value, imports and exports are negligible
(less than one percent). Caustic soda exports however are expected to
equal five percent of 1978 production. Increased domestic demand has
reduced the caustic soda available for export.
While some chlorine uses are declining, others such as urethane, poly-
ester, and PVC are growing. Overall, a growth rate of three to four
percent appears likely.
The cost of producing chlorine and caustic soda has been rising since
1969, with a particularly steep rise between 1973 and 1975 (primarily
due to rapid electric rate increases). Chlorine prices rose in response
to these cost increases, with a high degree of pass-through until 1976.
In the 1967 to 1975 period, electricity prices increased by 9.1 percent/
year, chlorine prices by 7.9 percent/year, and value of shipments by
11.2 percent/year, while the consumer price index rose 6.1 percent/year.
However, this situation changed after 1975. Prices did not increase
through 1975, 1976, 1977, and much of 1978. Thus the real price was
falling while energy, salt, and other costs continued to rise. However,
2-21
-------
chlorine prices alone do not cover the full cost of chlorine-caustic
soda production. Currently, the caustic soda market is stronger than
the chlorine market and consequently in a better position to support
price increases. Late in 1978, one of the main merchant producers
raised their price by $10/ton. Actual selling prices were around $110
to $125 per ton. Several producers followed suit and the price increase
may be successful (sometimes price increases are remanded). If it is
successful, it will temporarily ease producer's profitability problems.
2.1.4 Economic Outlook
2.1.4.1 Revenue
Chlorine sales forecasts generally call for annual growth rates of 3 to
7 percent with expected values around 3.5 percent. The last decade
(1967-76) saw annual growth rates of 3.1 percent, so recent forecasts
show a small increase in the growth rate. Recent and planned capacity
additions have significantly added to capacity and will continue to do
so. As discussed, chlorine prices have been weak for three years. With
capacity utilization likely to remain at relatively low levels, price
recovery will be slow.
2.1.4.2 Manufacturing Costs
Manufacturing costs for chlorine are increasing due to rapidly increasing
energy prices. A total of 99.5 percent of chlorine is produced by the
electrolytic process, typically using 2600 to 3300 kwh per metric ton of
3
chlorine (+1.13 metric tons of NaOH and 315 m of H ). Energy costs
currently represent 45 to 60 percent of production costs and may reach
the 75 percent level in the early 1980's due to the exceptionally rapid
increases in energy prices. Increased energy costs will affect the
chlorine end products as well, since many require petrochemicals as
feedstocks. For example, 55 percent of the chlorine produced is used in
2-22
-------
chlorinating organic compounds. As the relative prices in these products
rise due to rising feedstock costs, users will seek less expensive
substitutes. This will also reduce chlorine demand as these end prod-
ucts become less competitive internationally.
Because chlorine is such a critical input to a great number of other
chemicals, many manufacturers are conducting research on reducing costs
and perhaps the energy intensity of chlorine manufacture. For example,
Diamond Shamrock and DuPont are working jointly on a new "membrane cell"
technology. Diamond Shamrock feels that membrane cells will be more
competitive at low capacity plants, with diaphragm cells remaining more
efficient at high capacity plants. The membrane cell produces a salt-free
concentrated caustic, thus reducing the need for evaporation. Further
development of this new technology may yield significant savings.
Experimentation is continuing on their two-membrane cell installations
in Painesville, Ohio, and Muscle Shoals, Alabama.
Other researchers are studying different types of membranes, different
anodes, and varying cell structures. In addition, chlorine recovery
from hydrogen chloride (HC1) may become increasingly attractive. HC1
often is released in the chlorination of organic chemicals. As chlorine
prices continue to rise, recovery economics will improve.
2.1.4.3 Profit Margins
Chlorine is predominantly a captively produced chemical. As such, its
economics are intricately tied up with those of the end products such as
PVC, refrigerants, and polyurethane. For most producers, profit margins
on chlorine are of secondary importance to the profitability of the
whole product line. Although prices may be "weak" on some of these end
products, strong long run demand and efficient processes are likely to
contribute significant earnings to the producers.
2-23
-------
2.1.5 Characterization Summary
Chlorine is an important high volume chemical with a variety of end
uses. These include:
• Polyvinyl chloride (17 percent of chlorine consumption) - a
widely used plastic
• Propylene oxide - used in the products of polyyurethane foam
products
• Ethylene dichloride - an intermediate used in the manufacture
of polyvinyl chloride.
Chlorine is produced by over 30 firms in the U.S. Of the 10.6 million
tons produced in 1977, almost two-thirds was used captively by the
producers. Because products are energy intensive, manufacturing costs
are likely to rise during the next few years. Since most chlorine
production is used captively, its profitability is determined by the
profitability of its end products. Demand for products using chlorine
in their manufacture is expected to remain strong enough to justify
continued chlorine production.
2.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
chlorine industry to comply with various effluent control standards.
The technical contractor has designed effluent control technologies
which can be used to achieve these standards. The cost of each tech-
nology is used to make an assessment of the economic impacts that each
specified control level will have on the industry. The EPA will con-
sider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
2-24
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BPT effluent limitations (based on the Level 1 treatment technology)
affecting all direct discharges are in effect for this subcategory. A
survey by EPA's technical contractor revealed that there are three
indirect dischargers in this subcategory. Two of these are mercury cell
plants already meeting BPT (or Level 1) removal levels. The third is a
diaphragm cell plant currently not pretreating wastewater. For all
plants except the diaphragm cell indirect discharger, this analysis
assesses only the impact of the additional costs required to meet effluent
removal levels higher than BPT or Level 1. The impacts of pretreatment
standards for the indirect discharge plant are evaluated by applying
Level 1 and higher removal level control costs estimated by the technical
contractor to the model plants.
2.2.1 Pollution^Control Technology and Costs
Almost all chlorine is manufactured using one of the following pro-
cesses:
• Diaphragm cell - this process accounts for 74 percent of all
chlorine manufacture and is used in 40 plants.
• Mercury cell - there are currently 27 plants which employ this
technology to produce 20 percent of all chlorine. Production
by this process is declining due to environmental problems.
(The remaining six percent is produced using a number of other tech-
nologies.) Treatment systems for the two processes will be considered
separately.
2.2.1.1 Mercury Cell Plants
In mercury process plants, the raw waste streams must be segregated into
brine mud and mercury bearing process wastes before treatment. The
brine mud stream consists of calcium and magnesium precipitates resulting
from brine purification preceding electrolysis. (See Section 2.1.2.3
for details of the manufacturing process.) A unit flow of 100 gallons
2-25
-------
3
per ton (0.42 m /kkg) was used at a solids content of 10 percent in all
m^> t3 £^ 1 e>
models.
The mercury bearing wastewater results from cell room activities such as
washdown, spills, and cell washing. The model plants assume a unit flow
3
of 300 gallons per ton (1.2m /kkg) of product.
For mercury cell plants, pollution control costs were estimated by the
technical contractor for two levels of effluent treatment. In Level 1
treatment, now in place under best practicable technology regulations
(BPT), the brine mud stream is settled in a lagoon. The mercury streams
are collected in a single tank where the pH is adjusted. Sodium bisulfite
is then added to precipitate the mercury and the flow is filtered and
discharged. Level 2 treatment requires that an activated carbon bed be
added as a polishing step to remove additional mercury. In addition,
some plants are currently not reusing chlorine laden wastewater and will
require a dechlorination step. These steps are summarized below:
Level I - Sulfide Precipitation
• Effluent separated into brine mud and mercury-bearing waste
streams
• Brine mud is settled in a lagoon
• Mercury stream is collected and pH adjusted; sodium bisulfite
is added to precipitate mercury and flow is filtered
Level 2 - Level 1 Plus Carbon Adsorption
• An activated carbon bed is added to remove additional
mercury
Level 2 - With the Addition of Dechlorination
• An activated carbon bed is added to remove additional mercury
• Chlorine is removed from wastewater
2-26
-------
Pollution control cost estimates were developed for three sizes of
mercury cell plants. Model plant annual production rates are 21,000,
105,500 and 210,500 tons per year. Approximately 60 percent of U.S.
production occurs in plants within the production range specified by the
model plants. Those plants falling^beyond the range are reasonably
approximated by the largest or smallest model plants.
Estimates of the investment and operating costs of the technologies are
found in Table 2-5a. Costs of second level removal and second level
removal with dechlorination are presented separately since all plants
will not be faced with the additional dechlorination costs.
Manufacturing costs for mercury process chlorine plants were estimated
to be $176.62, $111.56, and $92.82 per ton of chlorine. These estimates
are based on the estimates presented in Table 2-3 and include the costs
of meeting BPT effluent limitations. Financial parameters are summarized
in Table 2-6a.
The total annualized control costs for mercury cell chlorine producers
are summarized in Table 2-7a.. These costs are based on the model plant
pollution control costs and current industry production levels. All
mercury cell chlorine plants have base level removal technology in place
and no additional costs will be incurred. Subcategory compliance with
Level 2 removal (including dechlorination) would require additional
annual costs of approximately $3.5 million, assuming direct and indirect
dischargers are required to dechlorinate wastewater. If only direct
dischargers are required to dechlorinate their wastewater, additional
annual costs would be roughly $3.0 million.
2.2.1.2 Diaphragm Cell
Segregation of waste streams is required before treatment. The streams
are segregated into brine mud, cell wash, and other metals-bearing
2-27
-------
MODEL PLANT PARAMETERS
TABLE 2-5a: POLLUTION CONTROL COSTS
Chemical: Chlorine (Mercury)
MODEL
PLANT
PRODUCTION
(tons/year)
21,000
105,500
210,500
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 21,700
86,800
163,800
ANNUAL
OPERATING
COST
$ -25,721
39,784
56,794
SECOND LEVEL OF REMOVAL
WITH DECHLORINATION
CAPITAL
INVESTMENT
$ 53,900
156,800
247,800
ANNUAL
OPERATING
COST
$ 53,407
89,784
119,434
SOURCE: Development Document
TABLE 2-6a: MANUFACTURING COSTS
Chemical: Chlorine (Mercury)
MODEL PLANT
PRODUCTION
(tons/year)*
21,000
105,500
210,500
INVESTMENT IN
PLANT AND EQUIPMENT
$ 15,300,000
47,100,000
76,400,000
MANUFACTURING
COSTS PER TON**
$ 176.62
111.56
92.82
Cost estimates based on plant capacities of 28,000, 140,000,
and 280,000 tons per year (see Table 2-3).
Includes cost of meeting BPT effluent limitations.
(SOURCE: Development Document)
2-28
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process water. The brine mud stream is identical in content to the
brine mud stream resulting from mercury cell production, and a unit flow
3
of 100 gallons per ton of product (0.42 m /kkg) was assumed.
The cell wash stream contains asbestos and heavy metals. For the model
plants, a unit flow of 16 gallons per ton of product was used. Other
process waste streams, such as condensates, caustic filter backwash, and
cell room wastes other than cell wash, can be contaminated with metals.
A unit flow of 16 gallons per ton of product was used.
For the diaphragm process chlorine plant, the technical contractor has
developed technologies designed to meet Level 1 and two increasingly
efficient levels of removal.
In Level 1 the brine mud stream is settled in a lagoon. The overflow is
returned to the process and the solids are settled in the lagoon. Soda
ash is added to precipitate the metals. After a filtration step, the
solids are landfilled and the filtrate is returned to the holding tank.
In Level 2 the overflow from the settling tank is passed through a dual
media filter and discharged after final pH adjustment. In addition,
some plants are currently not reusing chlorine laden wastewater and will
require a dechlorination step. In Level 3, ferrous sulfide is added as
a polishing step. These steps are summarized below:
Level 1 - Equalization, Alkaline Precipitation, and Settling
• Brine mud settled in a lagoon
• Metal is precipitated
• After filtration, solids are landfilled
Level 2 - Level 1 Plus Filtration
• Settling tank overflow is passed through a dual-media filter
2-30
-------
Level 2 - With the Addition of Dechlorinatlon
• Settling tank overflow is passed through a dual-media filter
• Chlorine is removed from wastewater
Level 3 - Level 2 Plus Sulfide Precipitation
• Ferrous sulfide is added as a polishing step
Pollution control cost estimates were developed for three sizes of
diaphragm cell plants. Model plant annual production rates are the same
as for mercury cell plants.
Estimates of the investment and operating costs of these technologies
are found in Table 2-5b. Costs of second and third removal levels and
second and third removal levels with dechlorination are presented sepa-
rately since not all plants will incur the additional costs of dechlori-
nation.
The base level pollution control costs required for pretreatment are
assumed equivalent to the Level 1 costs estimated by the technical
contractor. These investment and operating costs are found in Table 2-5c.
Higher effluent removal costs for indirect dischargers would correspond
to those shown for Level 2 (without dechlorination) in Table 2-5b.
The manufacturing costs used to evaluate the impacts of pollution control
costs on diaphragm plants are summarized in Table 2-6b. These manufac-
turing cost estimates do not include the costs of pollution control.
The total annualized control costs for diaphragm cell chlorine producers
are summarized in Table 2-7b. These costs are based on the model plant
pollution control costs and current industry production levels. Currently,
all direct dischargers have installed Level 1 removal equipment. Therefore
2-31
-------
MODEL PLANT PARAMETERS
TABLE 2-5b: POLLUTION CONTROL COSTS
Chemical: Chlorine (Diaphragm)
MODEL
PLANT
PRODUCTION
(tons/year)
21,000
105,500
210,500
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 27,580
41,860
67,620
ANNUAL
OPERATING
COST
$ 25,385
27,541
30,890
THIRD LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 31,710
46,001
71,750
ANNUAL
OPERATING
COST
$ 26,022
28,580
32,427
MODEL
PLANT
PRODUCTION
(tons/year)
21,000
105,500
210,500
SECOND LEVEL OF REMOVAL
WITH DECHLORINATION
CAPITAL
INVESTMENT
$ 59,780
111,860
151,620
ANNUAL
OPERATING
COST
$ 53,071
77,541
93,530
THIRD LEVEL OF REMOVAL
WITH DECHLORINATION
CAPITAL
INVESTMENT
$ 63,910
116,001
155,750
ANNUAL
OPERATING
COST
$ 53,708
78,580
95,067
SOURCE: Development Document
2-32
-------
TABLE 2-5c: POLLUTION CONTROL COSTS
Chemical: Chlorine (Diaphragm)
MODEL
PLANT
PRODUCTION
(ton/year)
21,000
105,500
210,500
FIRST LEVEL
OF REMOVAL*
CAPITAL
INVESTMENT
$ 263,130
590,520
929,960
ANNUAL
OPERATING
COST
$ 168,606
238,867
316,594
* Applies to indirect dischargers
SOURCE: Development Document
-------
TABLE 2-6b: MANUFACTURING COSTS
Chemical: Chlorine (Diaphragm)
MODEL PLANT
PRODUCTION
("tons
INVESTMENT IN
PLANT AND EQUIPMENT
MANUFACTURING
COSTS PER TON**
21,000
105,500
210,500
13,900,000
42,800,000
69,500,000
$ 180.40
121.50
106.40
Cost estimates based on plant capacities of 28,000, 140,000
and 280,000 tons per year (see. Table -2-4).
These costs do not include the costs of first level removal.
To assess the impacts of removal Levels 2 and 3, the per ton
cost of meeting first level removal was added to these manu-
facturing cost estimates.
2-34
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the only additional costs required for subcategory compliance with
Level 1 removal are those for pretreatment. Currently, there is only
one indirect discharge plant and its estimated annual control costs for
meeting Level 1 removal are $458,900. Subcategory compliance with the
most stringent level of control would require additional annual costs of
roughly $5.4 million. These estimates are based on the assumption that
additional dechlorination costs will be required for all diaphragm cell
plants. If only direct dischargers are required to dechlorinate their
wastewater, additional annual control costs would be roughly $5.3 million
for compliance with the most stringent level of control.
2.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution capital costs to
fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
2-36
-------
Since there is only one indirect discharger in the chlorine industry and
all direct dischargers have BPT equipment in place, the following sections
first address the impacts of higher effluent removal levels for direct
discharge plants. Then, a model plant analysis of the impacts of pretreat-
ment standards is presented.
2.2.2.1 Price Rise Analysis
Two chlorine production processes are analyzed, each requiring different
pollution control technologies. For both processes, the price rise
analysis assumes complete pass-through of pollution control costs.
The price rise required of mercury cell plants is shown in Table 2-8.
For plants with dechlorination equipment in place, price increases of .4
to 1.3 percent are required to fully recover the costs of Level 2 effluent
control. The required price increase is larger for plants currently not
operating dechlorination equipment, ranging from .75 to 2.81 percent.
The price increase required of diaphragm cell plants is shown in Tables 2-9a,
9b, and 9c. For direct dischargers, all of which have installed Level 1
control technology, the price increase required to recover pollution
control costs for the highest effluent removal level ranges from .21 to
1.42 percent. For diaphragm cell plants faced with the additional
expense of dechlorination, required price increases are higher, ranging
from .55 to 2.91 percent. These results are summarized in Table 2-9a.
Table 2-9b presents the required price increase for achieving the second
level of removal. For plants with and without dechlorination equipment
in place, the price rise is slightly lower than required to recover
Level 3 pollution control costs.
For mercury and diaphragm cell chlorine plants currently operating
dechlorination equipment, the price increases required to fully recover
2-37
-------
TABLE 2-8
PERCENTAGE PRICE RISE
Chemical: Chlorine (Mercury)
Price: $110/ton
MODEL PLANT
PRODUCTION
(tons/year)
SECOND LEVEL
OF REMOVAL
SECOND LEVEL
OF REMOVAL
WITH DECHLORINATION
21,000
105,500
210,500
1.31%
0.50
0.40
2.81%
1.07
0.75
SOURCE: EEA Estimates
2-38
-------
TABLE 2-9a
PERCENTAGE PRICE RISE
Chemical: Chlorine (Diaphragm)
Price: $110/ton
MODEL PLAiNT
PRODUCTION
(tons/year)
21,000
105,500
210,500
' THIRD LEVEL
OF REMOVAL
1.42%
0.33
0.21
THIRD LEVEL OF REMOVAL
WITH DECHLORINATION
2.91%
0.89
0.55
SOURCE: EEA Estimates
-------
TABLE 2-9b
PERCENTAGE PRICE RISE
Chemical: Chlorine (Diaphragm)
Price: $110/ton
.MODEL. ELANT
PRODUCTION
(tons/year)
SECOND LEVEL
OF REMOVAL
SECOND LEVEL OF REMOVAL
WITH DECHLORINATION
21,000
105,500
210,500
1.35%
0-.32
0.20
2.85%
0.38
0.54
SOURCE: EEA Estimates
2-40
-------
costs of achieving the most stringent level of control are small. The
price rise is less than one-half of one percent for the two larger model
sizes and less than 1.5 percent for the small plant.
The price rise required to recover base level pollution control costs
for diaphragm cell pretreatment is much larger, ranging from 2.23 percent
for the largest plant to 9.72 percent for the small model size (see
Table 2-9c).
2.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through is possible and
calculates the resulting decline in the return on investment (ROI) and
the internal rate of return (IRR) attributable to the costs of achieving
various effluent control levels.
For the mercury cell model plants, profitability declines are very
small. For plants currently operating dechlorination equipment, prof-
itability changes are less than two-tenths of a percentage point (see
Table 2-10a). Profitability declines for plants without dechlorination
equipment in place are slighly higher but are less than one-half of a
percentage point in all cases (see Table 2-10b).
Profitability declines for diaphragm cell direct dischargers are sum-
marized in Table 2-11. For diaphragm cell direct dischargers, profit-
ability declines resulting from the most stringent level of control are
also small. For plants with dechlorination equipment in place, profit-
ability declines are less than .2 percent in all cases (see Table 2-1 la).
Profitability declines for plants currently not operating dechlorination
equipment are slighly higher but are less than one-half of one percent
for all model sizes (see Table 2-1Ib). Incremental profitability impacts
of Level 2 removal costs are even smaller (see Tables 2-1Ic and 2-1 Id).
2-41
-------
TABLE 2-9c
PERCENTAGE PRICE RISE
Chemical: Chlorine (Diaphragm)
Price: $110/ton
MODEL PLANT
PRODUCTION
fton/year)
FIRST LEVEL
OF REMOVAL
21,000
105,500
210,500
9.72%
3.16
2.23
* Applies to indirect dischargers
SOURCE: EEA Estimates
2-42
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2-48
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For diaphragm cell pretreatment, the base level pollution control costs
result in larger profitability impacts. For the smallest plant, the ROI
declines by slightly over one percent. The decline in IRR is less than
half of one-percentage point for the two larger model sizes. Table 2-12
summarizes these results.*
2.2.2.3 Price Elasticity of Demand
Chlorine is an essential input for many downstream chemicals and end
products. There are few competitive substitutes for chlorine in these
uses. In addition, 60 percent of chlorine production is captive. Thus,
cost increases resulting from pollution control regulations will be
partly allocated to downstream products. Therefore, this analysis
assumes demand is relatively inelastic. (See Sections 2.1.1, Demand,
and 2.1.3, Competition, for a complete analysis.)
2.2.2.4 Capital Analysis
The capital investments required for different levels of treatment and
model plant sizes are given in Tables 2-5a, 2-5b, and 2-5c.
For mercury cell producers with dechlorination equipment, the pollution
control capital costs represent .2 percent or less of fixed investment
in place. For plants currently not operating dechlorination equipment,
pollution control capital costs represent roughly one-third of one per-
cent of fixed investment in place. These results are presented in
Table 2-13a. For diaphragm cell producers, pollution control capital
costs of Levels 2 and 3 represent a maximum of one-half of one percent
of fixed investment in place. The capital costs of base level technol-
ogy required for pretreatment are larger. However, these costs only
* Base case profitability is different for Level 1 and higher levels because
manufacturing costs used in the Level 2 and Level 3 profitability analyses
include the per ton cost of Level 1 pollution control.
2-49
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TABLE 2-13a
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Chlorine (Mercury)
LEVEL OF
REMOVAL
2
2 with
dechlorination
MODEL PLANT SIZE ,
(Annual Production in Tons)**
21,000
0.14 %
0.35
105,500
0.18 %
0.33
210,500
0.2 %
0.32
* Fixed investments are assumed to be $545/ton, $336/ton, and $273/
ton of capacity for the three model plants from smallest to largest
** 75% capacity utilization. . . .._...
SOURCE: EEA Estimates and Development Document
2-51
-------
represent between 1.3 and 1.9 percent of fixed invesment in place.
Table 2-13b summarizes these results.
Since all capital costs represent such a small portion of fixed invest-
ment in place, they will not represent a significant problem to any
chlorine manufacturer.
2.2.2.5 Closure Analysis
Tables 2-14, 2-15, and 2-16 summarize the price elasticity of demand,
price rise, and profitability decline for chlorine mercury and chlorine
diaphragm model plants and compares these to EPA's closure criteria (see
methodology description). Since production of chlorine is mostly captive,
the demand for the chemical is relatively price inelastic for all model
plants.
For direct discharge plants currently operating dechlorination equipment,
the price increase required to fully recover the costs of the most
stringent level of control is substantially lower than one percent for
both the medium and large model plants. While the smallest model plant
has a required price increase exceeding one percent, the profitability
decline (as measured by return on investment) is below one percent.
For direct discharge plants without dechlorination equipment in place,
required price increases are greater than one percent for the two smallest
mercury cell plants and for the smallest diaphragm cell plant. However,
profitability declines are far below one percent for all model sizes.
On the basis of the EPA's closure criteria, the costs of direct dis-
chargers achieving higher effluent removal levels are not projected to
result in any plant closures. Tables 2-14 and 2-15 summarize these
impacts.
2-52
-------
TABLE 2-13b
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Chlorine (Diaphragm)
LEVEL OF
REMOVAL
]_***
2
2 with dechlor-
ination
3
3 with dechlor-
ination
MODEL PLANT SIZE
(Annual Production in Tons)**
21,000
1.9%
0.2
0.4
0.2
0.5
105,500
1.4%
0.1
0.3
0.1
0.3
210,500
1.3%
0.1
0.2
0.1
0.2
Fixed investments are assumed to be $495/ton, $300/ton, and
$248/ton of capacity for the three model plants from smallest
to largest.
75% capacity utilization.
Applies to indirect dischargers.
SOURCE: EEA Estimates and Development Document
2-53
-------
TABLE 2-14
IMPACT SUMMARY
Chemical: Chlorine (Mercury)
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
2 with
dechlor-
ination
PLANT
PRODUCTION
(ton/yr)
21,000
105,500
210,500
21,000
105,500
210,500
PRICE ELASTICITY
Low
Low
MAXIMUM
PRICE RISE
1.31%
0.50
0.40
2.81%
1.07
0.75
MAXIMUM
PROFITABILITY
DECLINE
0.16%*
0.08
0.06
0.33%*
0.18
0.13
CLOSURES
no
no
no
no
no
no
* Based on ROI
SOURCE: EEA Estimates
2-54
-------
TABLE 2-15
IMPACT SUMMARY
Chemical: Chlorine (Diaphragm)
CLOSURE CRITERIA
DESCRIBED IN
^THODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
2 with
dechlo-
rina-
tion
3
3 with
dechlo-
rina-
tion
PLANT
PRODUCTION
(jton/yr)
21,000
105,500
210,500
21,000
105,500
210,500
21,000
105,500
210,500
21,000
105,500
210,500
PRICE ELASTICITY
Low
Low
Low
Low
MAXIMUM
PRICE RISE
1.35%
0.32
0.20
2.85%
0.88
0.54
1.42%
0.33
0.21
2.91%
0.89
0.55
MAXIMUM
PROFITABILITY
DECLINE
0.17%*
0.10
0.04
0.17%*
0.27
0.12
0.17%*
0.10
0.07
0.34%*
0.28
0.12
CLOSURES
no
no
no
no
no
no
no
no
no
no
no
no
* Based on ROI.
SOURCE: EEA Estimates
2-5S
-------
TABLE 2-16
IMPACT SUMMARY
Chemical: Chlorine (Diaphragm) (Indirect Discharge)
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than -1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1
PLANT
PRODUCTION
(ton/yr)
21,000.
105,500
210,500
PRICE ELASTICITY
Low
MAXIMUM
PRICE RISE
9.72%
3.. 16
2.23
MAXIMUM
PROFITABILITY
DECLINE
1 . 1%*
0.41
0.30
CLOSURES
yes
no
no
* Based on ROI
SOURCE: EEA Estimates
2-56
-------
The price and profitability impacts for diaphragm cell indirect dischargers
are summarized in Table 2-16. An additional two to ten percent price
increase is required to recover base level control costs. However, the
profitability decline exceeds one percent only for the smallest model
plant. While demand is price inelastic and cost pass-through seems
likely, an evaluation of plant closure probability in this model size
category requires further analysis. This evaluation and its implications
for actual plants in the chlorine industry are discussed in the following
section.
2.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on chlorine manufacturers.
The model plant analysis indicates very low baseline profitability for
chlorine producers, with the IRR ranging from a negative value to only
13 percent. Industry sources confirm that current profitability levels
in the chlor-alkali industry are very low. There are two major factors
responsible for this low-profitability situation:
• Demand growth has been less than anticipated in recent years
and has failed to keep up with the capacity expansions made
throughout the 1970's. The result has been excess capacity,
low capacity utilization, and depressed profitability for many
chlorine producers.
• Manufacturing costs have increased rapidly and have further
reduced profit margins in the industry. Energy and capital
costs, in particular, have skyrocketed in recent years.
These factors are discussed in greater detail below.
In the early 1970's the demand for chlorine end product poly-vinyl
chloride (PVC) primarily in the housing and automobile markets, was
exceptionally strong. This boom in PVC demand resulted in excess demand
2-57
-------
for chlorine which spurred numerous capacity expansions. When the 1975
recession brought about large downturns in the construction and automobile
industries, the demand for PVC (and chlorine) fell drastically. Several
other factors further depressed chlorine demand growth:
• Government regulation and health-related problems in such
areas as fluorocarbons and chlorinated solvents eliminated or
threatened to eliminate major chlorine end markets.
• Substitute competition in several end markets also contributed
to declining demand for chlorine. For example, in the pulp
and paper industry (representing 12 percent of total chlorine
consumption), other bleaching agents are being used increasingly
in place of chlorine.
• Process changes and increased efficiency in the manufacture of
vinyl chloride monomer (consuming 17 percent of total chlorine
production) decreased chlorine demand in these areas. One
industry spokesman noted that "roughly a year's worth of
growth in chlorine demand was eliminated" as a result of these
developments. (Chemical Week, March 14, 1979)
Thus, capacity expansions planned during earlier periods of strong
demand were brought on stream throughout the 1970*s but were not matched
by increased demand. Oversupply and excess capacity have resulted and
capacity utilization rates and profitability levels are currently very
low.
Along with excess capacity and slower demand growth, the chlorine industry
has experienced rapidly rising production costs in recent years. Energy
costs, representing 40 to 60 percent of total manufacturing costs have
skyrocketed. Capital costs have also risen considerably. These cost
increases have operated in conjunction with excess capacity and slower
demand growth to obliterate chlorine producers' profit margins. As
indicated by the model plant analysis, current profitability levels are
verv low.
2-58
-------
The future outlook for the chlorine industry suggests the possibility of
some small improvement. Two factors are particularly important:
• Further capacity expansions have been discouraged by existing
low profitability levels. Therefore, demand may eventually
catch up with industry capacity and result in higher utiliza-
tion rates.
• Demand for a few end uses such as PVC and wastewater treatment
remains strong with growth predicted by the industry at over
five percent annually.
However, because production and regulatory cost increases are expected
to continue, it is unlikely that chlorine producers' profitability
levels will improve dramatically in the near future.
2.2.3.1 Price and Profitability Impacts
For direct dischargers, the model plant analysis indicates price increases
of less than or slightly above one percent for all medium and large
chlorine plants. Smaller plants would need to raise prices by almost
three percent to recover effluent control costs (including the costs of
wastewater dechlorination). Implementing price increases of from one to
three percent in the merchant market would prove difficult given the
current situation, and chlorine produced for sale would become even less
profitable than it is currently. However, almost two-thirds of chlorine
production is used in the manufacture of more profitable downstream
products. End users of chlorine-containing products would be cushioned
from the full impact of the price increase.
For example, poly-vinyl chloride (PVC), a plastic used in the construction
and automobile industries, requires approximately seven-tenths tons of
chlorine for each ton of PVC manufactured. A three percent increase in
the cost of chlorine would raise the cost of PVC by $2.10 per ton, or .1
cent per Ib. Based on the current list price of PVC ($.45/lb), the
price increase required to recover the higher chlorine cost is about .25
2-59
-------
percent. Given the strong demand for PVC in the plastics, piping, and
construction industries, a price increase of this magnitude would have
almost no effect.
Merchant chlorine producers currently face an oversupplied market and
immediate and complete price pass-through is unlikely. However, the
short-term profitability declines are slight (one-half of one percentage
point) and therefore are not likely to result in serious impacts or
plant closures for direct dischargers.
The price and profitability impacts for the one indirect discharger in
the chlorine industry are larger than those for direct dischargers. The
technical contractor survey indicates that the indirect discharger cor-
responds to the largest diaphragm cell model plant. According to the
model plant analysis, the price increase required to fully recover base
level removal costs is 2.23 percent (see Table 2-9c). Again, this
increase represents a very small increase in final product prices,
roughly one-fourth of one percent of current PVC prices. Thus, full
price pass-through is likely. Even if full pass-through is not possible,
the plant would experience only a small decline in profitability, about
.3 percentage points (see Table 2-12). Therefore, plant closure is not
expected for the indirect discharger in the industry.
2.2.3.2 Other Impacts and Conclusion
Additional effluent control costs should not represent a major problem
for the chlor-alkali industry. Required price increases are small for
all plants, ranging from roughly .2 to 3 percent. Chlorine producers
should be able to implement price increases of this magnitude.
If cost pass-through is not immediate and complete, resultant profitability
impacts will be slight, with profitability declines of less than one-half
of one percent for all plants. Therefore, no plant closures or other
secondary impacts (employment, supply, etc.) are expected to result from
new effluent control regulations.
2-60
-------
3. CHROME PIGMENTS
3.1 CHARACTERIZATION
Five chrome colors make up the product group known as chrome pigments.
These five products serve a variety of functions. (See Figure 3-1 for
sources and uses of chrome pigments.) For example, chrome yellows offer
brilliant color and excellent light fastness, characteristics which make
them useful as traffic line paints. Chrome oxide green is an excellent
coloring agent for cement and ceramic products due to its strong resis-
tance to alkalies, acids and high temperatures.
Presently the chrome pigments industry faces serious pollution control
problems at both the end market and production levels. OSHA regulations
call for a reduction in lead and chromium dust levels to 50 micrograms
per cubic meter of air in both end market workshops (i.e., paint manufac-
turing plants) and pigment production facilities. In addition, producers
will face strict limits on the discharge of hexavalent chromium, a known
carcinogen, from production facilities.
3.1.1 Demand
The five pigments forming the chrome pigments product group have widely
differing characteristics and end uses. The particular nature of each
product and its end markets are discussed separately below.
3.1.1.1 Pigment Characteristics and End Markets
Chrome Yellow and Orange
Chrome yellows and oranges derive their color and physical character-
istics from lead chromate. The medium yellow hues are formed from
normal lead chromate (PbCrO,); the redder shades and oranges, from basic
lead chromate (PbO'PbCrO.).
3-1
-------
Chrome yellows are bright, opaque, light fast, and cost effective.
Their largest application is as a coloring agent for traffic line paints.
They also are used in many other paint applications, as well as printing
inks, plastics, paper, and floor coverings. A substantial amount of
chrome yellow is combined with iron blues to form chrome green. The
uses of chrome oranges are very similar to those of chrome yellows. In
addition, the darker shades are used in rust inhibitive paints and
primers for ferrous metals.
Zero growth, or, more likely, a fall in demand, is projected for chrome
yellows and oranges. The primary reason is the increasing severity of
OSHA regulations concerning worker exposure to airborne lead and chromium.
Regulations have been issued requiring end users of chrome pigments
(e.g., paint manufacturers) to limit both airborn lead and chromium to
50 micrograms per cubic meter of air. Current regulations call for
producers of chrome pigments to limit lead dust levels to 200 micrograms
per cubic meter, with the limit falling to 50 micrograms per cubic meter
of air within five years. Producers of chrome pigments currently must
limit chromium dust levels to 50 micrograms per cubic meter of air.
Both producers and consumers of lead chromates anticipate that the cost
of implementing these regulations will force a switch in demand away
from chrome pigments toward organic substitutes. The standards will
increase substantially the cost of producing lead chroraates, as well as
the cost of using them.
Chrome Green
Chrome green is a mixture of chrome yellow and iron blue. Shades of
chrome green run from light to very dark. Chrome green is used in
paints, enamels, inks, oil cloth, and paper.
As a mixture of chrome yellow and iron blue, chrome green is subject to
many of the health problems which currently face chrome yellow. The
costs associated with limiting worker exposure to lead and chromium
3-2
-------
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dusts could be particularly injurious to this product, as it has a very
competitive substitute in the organic color Thalo-Green.
Chrome Oxide Green
There are two chrome oxide greens - anhydrous and hydrated. The anhydrous
product is resistent to alkali, acid, and high temperatures, and exhibits
excellent light fastness. These attributes make it valuable for use in
alkaline environments such as portland cement, ceramic tile glazes, rubber,
certain printing inks, and concrete and bridge paints. Anhydrous chromic
acid (metallurgical grade) is used in the manufacture of chromium metal
and aluminum-chromium master alloys.
Hydrated chrome oxide green is much more brilliant than the anhydrous
product. It also is much less resistant to alkali. It gives a bril-
liant, bluish-green transparent finish, and is widely used in automobile
paints.
Chrome oxide green does not face a lead problem. However, as with all
chrome pigments, there is some concern over the discharge of hexavalent
chromium, a known carcinogen. Demand for this pigment is expected to
increase at the same rate as the GNP.
Molybdate Chrome Orange
The molybdenum oranges are a physical mixture of lead chromate, lead
molybdate, and lead sulfate. As a group, these pigments are very strong
and brilliant, and have excellent tinting strength. Although they cost
more than chrome oranges, they are cost effective in many applications
due to their exceptional strength. They are used in many paints, enamels,
and laquers, as well as floor coverings and printing inks. These lead-
containing pigments also face declining demand due to OSHA regulations.
3-4
-------
Zinc Yellow
Zinc yellow is a complex of zinc, potassium, and chromium compounds.
Zinc yellow has limited water solubility which restricts its use as a
pigment. The same quality, however, makes it a useful corrosion inhibi-
tive pigment for prime coating metals. It has particularly strong
applications for prime coating nonferrous metals such as aluminum and
magnesium.
Zinc yellow has some applications in decorative finishing. However, it
is used most frequently with other colors such as hydrated chrome oxide,
because, used alone, it weathers to a dull greenish finish. Zinc yellow
also is used to make zinc green pigment.
Demand for this pigment should continue to grow with the expansion of
the GNP. Its end markets generally are mature, and it does not face the
serious lead pollution problems experienced by chrome yellow, chrome
green, and molybdenum chrome orange.
3.1.1.2 Demand Summary
Predictions for demand growth in the chrome pigments industry range from
zero growth, at best, to a substantial decline in demand. Health issues
concerning exposure to lead and chromium are an important factor in this
prediction.
Chrome yellows and oranges and molybdate chrome oranges comprise approx-
imately 75 percent of the chrome pigments market. These two products,
as well as chrome green, contain substantial amounts of lead, which is
coming under increasingly strict OSHA regulations on worker exposure.
These regulations could cause a switch to organic colors in many appli-
cations. Lead chromates are expected to remain strong in areas such as
traffic marking paints and water flexographic inks (for printing cartons)
where their durability and light fastness make them very attractive.
3-5
-------
However, they are expected to continue losing market share in areas
where consumer contact with lead-containing pigments is high. They have
already lost a great deal of the trade sale paint and publishing ink
markets, where it is feared that children will be exposed to excessive
lead through ingestion of paint chips and printed material. Auto makers
have attempted to replace chrome colors with other pigments, but as yet
have been unable to find suitable substitutes.
Zinc yellow and chrome oxide green contain no lead and are, therefore,
subject to fewer environmental and health constraints. However, they
must still meet the 50 microgram per cubic meter of air chromium dust
standard. In the long run, these two pigments should grow at approxi-
mately the rate of GNP growth. However, their growth may vary widely
with economic fluctuations.
The outlook for chrome pigments can be summarized as follows:
• OSHA regulations, and particularly those concerning lead-
containing dusts will raise the price of chrome colors, and
make them more difficult and expensive to use in manufacturing
other products. This will cause some substitution with organic
colors. The pigments most severely affected will be chrome
yellow and orange, molybdate chrome orange, and chrome green.
• Chrome oxide green and zinc yellow contain no lead, and should
continue moderate growth. However, these pigments constitute
such a small fraction of total chrome pigments production that
their growth will be insufficient to prevent declining industry-
wide demand.
3.1.2 Supply
3.1.2.1 Production
For the period 1969 to 1977, production statistics for chrome pigments
are available for only three of the five pigments being studied. Par-
tial statistics are available for chrome green and zinc yellow, but have
been withheld during some years to avoid disclosing information concerning
any individual firms.
3-6
-------
From 1968 to 1977, production of chrome yellow and orange, which repre-
sent approximately 50 percent of chrome pigments production, rose at an
annual rate of only .79 percent. Molybdate chrome orange, which repre-
sents 25 percent of total chrome pigments production, rose at an annual
rate of 2.3 percent. During the years for which data are available (see
Table 3-1), production of chrome green fell at a 1.4 percent annual
rate, while zinc yellow production fell at an annual rate of 4.1 percent.
The slow growth rate of chrome pigments in general is an indication of
the maturity of the industry. Table 3-1 and Graphs 3-1 to 3-3 summa-
rize production levels and prices during the period 1968 to 1977.
3.1.2.2 Producers
There are currently 12 producers of chrome pigments, 10 of which produce
chrome yellow and orange. Molybdate chrome orange is manufactured by
seven firms. Two producers, Minnesota Mining and Manufacturing and
Pfizer, manufacture only chrome oxide green. Chrome green is produced
only by Ciba-Geigy* and zinc yellow is manufactured by two companies,
DuPont and Borden. Statistics on plant capacities were unavailable for
chrome pigment producers. A summary of chrome pigments producers is
provided in Table 3-2.
The two largest producers are Ciba-Geigy and DuPont, followed by Harshaw
Chemical Company. American Cyanamid, previously one of the four largest
producers of chrome pigments, shut down their plant in late 1978.
DuPont is the only producer integrated forward to end products (DuPont
is a major paint producer). No firms are integrated backward to sodium
dichromate, which is a major input in chrome pigments production.
3.1.2.3 Process
The manufacturing processes for chrome pigments have several steps in com-
mon, and the various pigments often are produced either simultaneously or
* Formerly Hercules Chemical, Inc.
3-7
-------
sequentially in the same facility. Sodium dichromate serves as a source
of chromium for all of the pigments. Several of the pigments also
contain substantial amounts of lead. Table 3-3 shows the primary con-
stituents of each pigment.
Chrome yellow and orange represent over 50 percent of all chrome pig-
ments manufactured, and serve as an input in producing other pigments.
Chrome yellow has, therefore, been chosen as the typical chrome pigment,
and its manufacturing process will be examined more extensively.
Chrome yellow is a physical mixture of lead chromate, lead sulfate, and,
occasionally, zinc sulfate. The pigment is primarily lead chromate,
which constitutes approximately 93 percent of the product.
The general reaction for producing lead chromate from litharge (lead
oxide), nitric acid, and sodium dichromate, is as follows:
PbO + 2HN03 -» Pb(N03)2 + H20
2Pb(NO ) + H20 + Na2Cr20 -> ZPbCrO^ + 2NaNO + 2HNO
Following the reaction, chrome yellow is precipitated, washed, filtered,
and dried. The product can be packaged for commercial use, or mixed
with iron blues to form chrome green.
Between 82.5 and 88.0 percent of chrome pigments manufacturing costs are
due to raw materials. The remainder of the costs are shared almost
equally by utility, labor and maintenance, and overhead. (Table 3-4
provides estimates of raw material requirements and manufacturing costs
for chrome yellow pigment.)
3.1.3 Competition
There are three principal forms of competition in the pigments market:
substitute competition, import competition, and competition among pro-
ducers. The main substitutes for chrome pigments are organic colors.
3-8
-------
TABLE 3-1
CHROME PIGMENTS PRODUCTION
COLOR
Chrome Green
Chrome Oxide
Green
Chrome Yellow
and Orange
Molybdate
Chrome Orange
YEAR
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1968
1969
1970
1971
1972
1973
1974
197S
1976
1977
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
ANNUAL PRODUCTION
(short tons)
2,828
2,619
2,552
2.707
NA
NA
NA
NA
NA
NA
6,232
5,862
6,751
6,584
6,155
7,159
7,676
5,608
6,140
8,796
32.789
32,001
32,449
29,027
33,770
37,263
37,942
26,091
35,335
35,207
11,375
11,373
11,025
11.375
12,410
14,057
14,586
9,559
16,883
13,976
GROWTH RATE
(percent change
per year)
-7.4
-2.6
6.1
-5.9
15.2
-2.5
-6.S
16.3
7.2
-26.9
9.5
43,3
-2.4
1.4
-10. S
16.3
10.3
1.8
.-31.2
35.4
-.4
-3.1
3.2
9.1
13.3
3.8
-34.5
76.6
-17.2
AVERAGE UNIT
VALUE
(per ton)
950
928
860
965
NA
NA
NA
NA
NA
NA
956
952
954
980
1,011
1,054
1,402
1,759
1,862
1,894
704
710
753
780
764
755
1,104
1,259
1,361
1,530
957
963
998
1,043
1,120
1,166
1,504
1,720
1,903
2,134
PERCENTAGE CHANGE IN
AVERAGE UNIT VALUE
-2.3
-7.3
12.2
-.4
.2
2.7
3.2
4.3
33.0
25.5
5.9
1.7
.9
6.1
3.6
-2.1
-1.2
46.2
14.0
8.1
12.4
.6
3.6
4.5
7.3
4.1
29.0
14.4
10.6
12.1
3-9
-------
TABLE 3-1 (Continued)
CHROME PIGMENTS PRODUCTION
COLOR YEAR
Zinc Yellow 1968
1969
1970
1971
1972
197J
1974
1975
1976
1977
ANNUAL PRODUCTION
(short tons)
7,408
7,291
5.7SO
5,586
5,657
5,307
5,756
NA
NA
NA
GROWTH RATE
(percent change
per year)
-1.6
-21.1
-2.9
1.3
-6.2
8.5
AVERAGE UNIT
VALUE
(dollars per ton)
613
6SS
657
700
766
880
1,178
NA
NA
1,326
PERCENTAGE CHANGE IN
AVERAGE UNIT VALUE
6.9
.3
6.5
9.4
14.9
33.9
NA * Not Available.
SOURCE: Department of Commerce
3-10
-------
GRAPH 3-1
CHROME YELLOW AND ORANGE PRODUCTION AND PRICE
VOLUME
(tons)
38000.00 -
28500.00 -
19000.00 -
9500.00 -
0.00 -r
1968
1600.00 -
1200.00 -
AVERAGE
UNIT
VALUE 800.00 -
(dollars)
400.00 -
0.00 -}•--
19*68
1972
1976
YEAR
1972
1976
YEAR
SOURCE; Department of Commerce
-------
GRAPH 3-2
CHROME OXIDE GREEN PRODUCTION AND PRICE
9000.00 -
6750.00 -
VOLUME 4500.00 —
(tons)
2250.00 -
0.00 -r-
1968
2000.00 -
1500.00 -
AVERAGE
UNIT
VALUE 1000.00 -
(dollars)
500.00 -
0.00 -j—
19*63
1972
1976
YEAR
1972
1976
YEAR
SOURCE: Department of Commerce
3-12
-------
VOLUME
(tons)
GRAPH 3-3
MOLYBDATE CHROME ORANGE PRODUCTION AND PRICE
17000.00-
12750.00_
8500.00-
4250.00-
0.00
• •
1968
AVERAGE
UNIT
VALUE
(dollars)
2200.00-
1650.00-
1100.00-
550.00--
0.00 -^ —
19*68
1972
1976
YEAR
1972
1976
YEAR
SOURCE: Department of Commerce
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-------
TABLE 3-3
CONSTITUENTS OF CHROME PIGMENTS
PIGMENT
CHEMICAL CONSTITUENTS
Chrome Yellow
and Orange
Lead Chromate with Impurities of
Lead Sulfate and Zinc Sulfate
Chrome Green
Physical Mixture of Chrome Yellow
(Lead Chromate) and Iron Blue
(Ferric Ferrocyanide)
Chrome Oxide Green
and Guinet's Green
(Hydrated Chromic Oxide)
Anhydrous and Hydrated Chromic
Oxide
Molybdate Chrome
Orange
Mixture of Lead Chromate, Lead
Sulfate, and Lead Molybdate
Zinc Yellow
Complex Material Containing Com-
pounds of Zinc, Potassium, and
Chromium.
SOURCE: U.S. EPA, Development Document, May 1975
3-16
-------
TABLE 3-4a
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 2,100 tons/year
Annual Production 1,650 tons/year
(78% capacity utilization)
Fixed Investment $1.4 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Lead Oxide 1429 Ib .596 851.70
- Nitric Acid 80 Ib .110 8.80
- Sodium Hydroxide (50%) 265 Ib .080 21.20
- Sodium Dichromate 980 Ib .300 294.00
- Sulfuric Acid 20 Ib .016 .30
- Calcium Hydroxide 25 Ib .016 .40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 158.00
• Maintenance 33.90
Total Semi-Variable Costs $191.90
FIXED COSTS
« Plant Overhead 59.20
• Depreciation 84.70
0 Taxes & Insurance 17.00
Total Fixed Costs $160.90
TOTAL COST OF MANUFACTURE $1,603.20
SOURCE: Contractor and EEA estimates
*See Appendix C
3-17
-------
TABLE 3-4b
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 5,600 tons/year
Annual Production 4,400 tons/year
(78% capacity utilization)
Fixed Investment $2.7 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Lead Oxide 1429 Ib
Nitric Acid
Sodium Hydroxide (50%)
Sodium Bichromate
Sulfuric Acid
Calcium Hydroxide
80 Ib
265 Ib
980 Ib
20 Ib
25 Ib
.596
.110
.080
.300
.016
.016
851.70
8.80
21.20
294.00
.30
.40
• Utilities
- Power 150 ktfh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 125.00
• Maintenance 24.50
Total Semi-Variable Costs $149.50
FIXED COSTS
• Plant Overhead 31.20
• Depreciation 61.20
• Taxes & Insurance 12.20
Total Fixed Costs $104.60
TOTAL COST OF MANUFACTURE $1,504.50
SOURCE: Contractor and EEA estimates
*See Appendix C
3-18
-------
TABLE 3-4c
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 8,500 tons/year
Annual Production 6,600 tons/year
(78% capacity utilization)
Fixed Investment $3.6 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Lead Oxide 1429 Ib .596 851.70
- Nitric Acid 80 Ib .110 8.80
- Sodiua Hydroxide (50%) 265 Ib .080 21.20
- Sodium Bichromate 980 Ib .300 294.00
- Sulfuric Acid 20 Ib .016 .30
- Calcium Hydroxide 25 Ib .016 .40
• Utilities
- Power 150 kWh .03 4.50
- Fuel 25 10 Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 97.70
• Maintenance 21.80
Total Semi-Variable Costs $119.50
FIXED COSTS
• Plant Overhead 24.40
• Depreciation 54.40
• Taxes & Insurance 10.90
Total Fixed Costs $ 89.70
TOTAL COST OF MANUFACTURE $1,459.60
SOURCE: Contractor and EEA estimates
*See Appendix C
3-19
-------
TABLE 3-Ad
ESTIMATED COST OF MANUFACTURING CHROME YELLOW PIGMENT*
(Mid-1978 Dollars)
Plant Capacity 25,400 tons/year
Annual Production 19,800 tons/year
(78% capacity utilization)
Fixed Investment $7.3 million
VARIABLE COSTS Unit/Ton $/Unit $/Tor
• Materials
Lead Oxide 1429 Ib
Nitric Acid
Sodium Hydroxide (50%)
Sodium Bichromate
Sulfuric Acid
Calcium Hydroxide
80 Ib
265 Ib
980 Ib
20 Ib
25 Ib
.596
.110
.080
.300
.016
.016
851.70
8.80
21.20
294.00
.30
.40
• Utilities
- Power 150 ktfh .03 4.50
- Fuel 25 10°Btu 2.50 62.50
- Process Water 9 kgal .75 6.80
- Cooling Water 1.8 kgal .10 .20
Total Variable Costs $1,250.40
SEMI-VARIABLE COSTS
• Labor 27.30
• Maintenance 14.70
Total Semi-Variable Costs $ 42.00
FIXED COSTS
• Plant Overhead 6.80
• Depreciation 36.80
• Taxes & Insurance 7.40
Total Fixed Costs $ 51.00
TOTAL COST OF MANUFACTURE $1,343.40
SOURCE: Contractor and EEA estimates
Appendix C
3-20
-------
Organics are substantially more expensive than chrome colors and are
difficult to work into some manufacturing systems. In addition, they
are less desirable and light fast than chrome pigments. However, if the
costs of pollution control and worker safety significantly raise the
price of chrome pigments, organic colors will become more competitive.
Increasing concern over the adverse health effects of chrome pigments at
the manufacturing and consuming level also could lead to a switch away
from chrome pigments. Retail paint customers switched away from chrome
pigments in the early 1970's largely due to the fear that ingestion of
paints by children would lead to severe health problems.
Imports have become less of a factor in the pigments market since 1972.
From 1972 to 1976, the market share held by imports fell from 16 percent
to approximately eight percent. However, imports continue to be signifi-
cant as constraints on domestic price increases. Major sources of
imports include West Germany, Canada, Japan, Great Britain, and Poland.
Producers in these countries have more modern plant facilities and,
therefore, face fewer environmental problems than U.S. chrome pigments
manufacturers. As a result, foreign producers enjoy a cost advantage.
While imports have decreased since 1972 due to increased ocean shipping
rates and the declining value of the dollar, the worker safety and
pollution control costs incurred by domestic chrome pigments producers,
combined with foreign producers existing cost advantage, may make imports
more competitive in the U.S. market over the next five years.
Competition among domestic producers of chrome pigments can be separated
into two segments. The first segment is the merchant market for pigments.
While consumers of chrome pigments are relatively sensitive to price
and supplier-customer relationships are not always stable, producers
have tended to keep their prices close to one another in this segment of
the market.
3-21
-------
The second, and more competitive segment of the chrome pigments industry
is the market for traffic yellow pigments. These pigments are sold by
competitive bid to local and state governments for use in traffic marking
paints. Volumes sold in this market are so large that producers are
willing to discount from list prices, and bidding becomes very compet-
itive. Producers can afford to discount somewhat, as pigments for
traffic paints do not have to be of the same quality as those for other
applications.
3.1.4 Economic Outlook
3.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
3.1.4.1.1 Quantity
The outlook for domestic production of chrome pigments indicates zero
growth at best, or, more likely, a decline in production. There are
several reasons for this outlook:
• The markets for chrome pigments are mature and offer few
possibilities for significant growth. Sales have been
constant for the last several years.
• Regulations concerning worker exposure to lead- and chromium-
containing pigment dust at both the pigment production and
utilization levels threaten to raise the costs of the raw
pigment and its ultimate end products. This will lead to some
loss of market share.
• The health issues associated with chrome pigments may persuade
manufacturers to use substitute products, regardless of the
cost advantages and desirable qualities of the pigments.
Trade sale paint manufacturers and printers already have
switched away from chromes to some degree, and automakers have
expressed some interest in substitute pigments.
3-22
-------
3.1.4.1.2 Price
Approximately 85 percent of chrome pigments manufacturing costs are due
to raw materials. Among the principal raw material inputs in chrome
pigments production are lead oxide and sodium dichromate. The price of
lead oxide has been rising fairly rapidly, with the price of dichromate
rising at a more moderate pace. According to an industry source, passing
through raw material cost increases should pose little problem, as
chrome pigments are substantially less expensive than their major sub-
stitute—organic colors (approximately $l/lb vs. $4/lb). In addition,
no domestic producers are integrated vertically to raw materials, and,
thus, no producer should have a substantial cost advantage which would
allow them to restrain prices. Foreign producers also should experience
cost increases similar to those faced by domestic manufacturers.
3-1.4.2 Manufacturing Costs
As mentioned previously, raw materials account for 82.5 to 88.0 percent
of chrome pigments manufacturing costs. The price of lead oxide, a
principal input, has been increasing rapidly. Sodium dichromate, another
major input, has experienced more moderate price increases. Sodium
molybdate, a major input in molybdate chrome orange, also has experi-
enced rapidly increasing prices. Raw material costs are expected to
continue increasing at a moderate pace.
The remaining 12.0 to 17.5 percent of manufacturing costs are shared
almost equally by utilities, labor and maintenance, and plant overhead.
These costs should grow at a moderate pace, except for energy, which may
grow more rapidly.
3.1.4.3 Profit Margins
Moderate cost increases are expected in manufacturing chrome pigments,
primarily due to increased raw material costs. It is anticipated that
producers will be able to pass this cost through as price increases,
based on recent history and manufacturer's comments.
3-23
-------
Producers fear, however, that they may be unable to pass along the
increased costs of lowering pigment dust levels in the workplace to the
OSHA standard of 50 micrograms per cubic meter of air. If they were
unable to pass along these costs, profit margins could be eroded sig-
nificantly.
3.1.5 Characterization Summary
Five pigments form the chrome pigments product, group. The pigments are
used in a variety of applications such as paints, plastics, printing
inks, alkali-resistant paints and dyes, and rust inhibitive primers.
Chrome pigments offer several advantages: they are bright, opaque, cost
effective, and light fast. Some of the pigments offer additional advan-
tages: chrome oxide green is an excellent alkali-resistant pigment;
zinc yellow is a useful rust inhibitor.
Chrome pigments face serious problems in meeting OSHA regulations con-
cerning worker exposure to lead and chromium dusts. Current regulations
call for a reduction of both lead and chromium dust levels to 50 micro-
grams per cubic meter of air. These regulations apply to chrome pigment
production facilities as well as facilities using the pigments to manu-
facture other products. Both manufacturers and consumers of chrome
pigments feel that these regulations may force a switch away from chrome
pigments toward organic substitutes. Chrome yellow and orange, molybdate
chrome orange, and chrome green will be affected most severely as they
face lead as well as chromium regulations. Zinc yellow and chrome oxide
green contain no lead.
Chrome pigments are manufactured by 12 firms in the U.S. Ten firms
produce chrome yellow and orange, and several firms produce one or more
of the remaining four pigments. None of the manufacturers are integrated
vertically to inputs. DuPont is the only producer integrated forward to
end products (DuPont is a major producer of paints).
3-24
-------
It is felt generally that chrome pigments producers can pass increased
raw materials costs through to consumers. However, they may be unable
to pass through the increased expenditures required to meet the recent
OSHA regulations on airborne pigment dust. This could lower profit-
ability, as well as force consumers to switch away from chrome colors to
organic substitutes.
3.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
chrome pigments industry to comply with various effluent control stan-
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
The impact analyses for most of the subcategories studied in this report
assume that Level 1 treatment technologies are in place. This is not
assumed in the analysis of the chrome pigments subcategory because:
• The nine plants which discharge to municipal treatment systems
have never been subject to regulations.
• A survey by the technical contractor indicates that only one
of the chrome pigments plants has control equipment in place.
Therefore, this analysis will address the impact of base level removal
costs as well as the costs of the higher levels of removal developed by
the technical contractor. Since costs of installing a given level of
treatment technology are equivalent for direct and indirect dischargers,
the impacts on both are the same.
3-25
-------
3.2.1 Pollution Control Technology and Costs
Capital and operating pollution control costs estimates have been devel-
oped by the technical contractor for pollution control technologies
designed to meet base level and higher levels of waste removal.
Sources of wastewater from chrome pigments production include filtrates,
wastes and effluent from air pollution control. Major pollutants include
suspended solids, soluble and insoluble chromate salts and other metals,
such as lead and zinc. To achieve the first level of removal, the raw
wastewater is collected in a holding tank where sulfuric acid is added
for pH adjustment. In a reaction tank, sulfur dioxide is added to
reduce toxic hexavalent chromium to non-toxic trivalent chromium. Caustic
soda is added to raise the pH and precipitate the chromium. The overflow
is filtered and discharged, while the wastewater remaining in the tank
is filtered and the solid landfilled.
In Level 2 removal ferrous sulfide is added as a polishing step to
precipitate additional metals. The steps for both levels are summarized
below:
Level 1 - Reduction, Alkaline Precipitation, and Filtration
• Sulfuric acid and sulfur dioxide are added to the waste-
water to reduce hexavalent chromium
• Overflow is filtered and discharged; underflow passes
through a filter press and then to a holding pond
• Solids are hauled to a landfill
Level 2 - Level 1 Plus Sulfide Precipitation
• Ferrous sulfide is added to precipitate additional metals
Pollution control costs were estimated for four model plants assumed to
be complex continuous process pigment facilities. Model plant production
3-26
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rates are 1,650, 4,400 6,600 and 19,800 tons per year. For the model
plants, an average wastewater unit flow rate of 12,600 gallons per ton
(52.5 M3/kkg) was used. Pol:
are summarized in Table 3-5.
3
(52.5 M /kkg) was used. Pollution control costs for the model plants
Estimates of chrome yellow manufacturing costs are $1603.20, $1504.50,
$1459.60, and $1343.40 per ton of product. These cost estimates are
based on estimates developed by an economic subcontractor (see Table 3-4);
pollution control costs are not included in these estimates. Table 3-6
summarizes the model plant financial parameters used in the analysis.
The total annual control costs for the chrome pigments subcategory are
summarized in Table 3-7. These costs are based on the model plant
pollution control costs and current industry production levels. Only
one plant, a direct discharger, has base level removal technology in
place. The additional costs required for subcategory compliance with
Level 1 removal are estimated to be about $5.8 million. Subcategory
compliance with the most stringent level of control would require addi-
tional annual costs of about $.4 million.
3.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
3-27
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The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
3.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 3-8 summarizes the price rise calculation for the
model plants. The price increase required to fully recover the costs of
Level 1 control ranges from 5.3 to 13.3 percent. The additional price
increase required for second removal level costs is less than one percent
for the three larger model plants, and slightly greater than one percent
for the smallest model plant.
3.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through and examines
the resulting decline in the return on investment (ROI) and the internal
rate of return (IRR). The profitability impacts of first level removal
costs are large for all four model plants. The ROI declines by over 14
percentage points for the smallest and largest plants and by over 8
percentage points for the two intermediate model plants. Application of
Level 1 technology reduces the IRR by 9 to 11 percentage points for the
three largest model plants (see Table 3-9a).
The profitability impacts of second level removal costs are much less
severe than Level 1 removal costs.* The ROI declines by 1.0 to 1.6
percentage points for the two smaller plants and by roughly 0.5 percent-
age points for the two larger plants. The IRR falls by 2.0 percent for
Base case profitability is different for the two levels because manufacturing
costs used in the Level 2 profitability analysis include the per ton of
Level 1 pollution control.
3-28
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MODEL PLANT PARAMETERS
TABLE 3-5: POLLUTION CONTROL COSTS
Chemical: Chrome Pigments
MODEL
PLANT
PRODUCTION
(tons/year)
1,650
4,400
6,600
19,800
FIRST LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 463,030
814,060
1,058,360
2,412,000
ANNUAL
OPERATING
COST
$ 251,943
402,927
515,086
1,161,760
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 9,100
15,400
21,000
44,800
ANNUAL
OPERATING
COST
$25,183
29,702
33,330
54,324
SOURCE: Development Document
TABLE 3-6: MANUFACTURING COSTS
Chemical: Chrome Pigments
MODEL PLANT
PRODUCTION*
(tons/year)
1,650
4,400
6,600
19,800
INVESTMENT IN
PLANT AND EQUIPMENT
$1,400,000
2,700,000
3,600,000
7,300,000
MANUFACTURING
' COSTS PER TON **
$1,603.20
1,504.50
1,459.60
1,343.40
Cost estimates based on plant capacities of 2,100, 5,600, 8,500,
and 25,400 tons per year (see Table 3-4).
To assess the impacts of removal Level 2, the per ton costs of
meeting Level 1 effluent limitations were added to these model
plant manufacturing costs.
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TABLE 3-8
PERCENTAGE PRICE RISE
Chemical: Chrome Pigments
Price: $l,60S/ton
MODEL PLANT
PRODUCTION
(tons/year)
1,650
4,400
6,600
19,800
FIRST LEVEL
OF REMOVAL
13.25%
8.17
6.99
5.28
SECOND LEVEL
OF REMOVAL
1.02%
0.47
0.36
0.20
SOURCE: EEA Estimates
3-31
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3-32
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the second model plant and by 0.6 percent or less for the two larger
plants (see Table 3-9b).
3.2.2.3 Price Elasticity of Demand
Chrome pigments are intermediate materials used in the manufacture of
various end products such as paints, printing inks, and plastics. The
extent to which chrome pigments producers can increase prices to recover
pollution control costs is primarily determined by the degree that price
pass-through is possible in these end markets. End users of chrome
pigments would be cushioned from the full impact of the price increase.
For example, paints (accounting for over 60 percent of total chrome
pigments consumption) require approximately .09 pounds of chrome pigments
for each gallon of paint produced. A 13 percent increase in chrome
pigments prices would raise the cost of paint by .9 cents per gallon.
Average unit value data on paint products ranged from five to ten dollars
per gallon. Assuming a price of $7.50 per gallon, paint prices would
need to increase by .12 percent to fully recover the higher cost of
chrome pigments. Current demand for paint appears strong enough to
support a price increase of this magnitude. Since this price increase
represents less than one cent per gallon, demand for chrome pigments is
not likely to be affected significantly. Further, available organic
substitutes are four to ten times the cost of chrome pigments. These
observations imply relatively inelastic demand.
However, domestic chrome pigment producers must compete with imports
which will constrain price increases. Further, end users of chrome
pigment-containing products may switch to products that do not require
the special qualities of chrome pigments. For example, equipment pro-
ducers may choose to use paint colors (e.g., gray, blue) that do not use
chrome pigments in their manufacture. Because of these factors, demand
for chrome pigments is assumed moderately elastic. (See Sections 3.1.1,
Demand, and 3.1.3, Competition, for a complete analysis.)
3-33
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3.2.2.4 Capital Analysis
Raising capital to install new pollution control equipment is a potential
problem for industries trying to comply with new regulations. In this
instance the capital requirements of complying with pollution control
regulations will pose a problem. For all model plant sizes the capital
costs are approximately one-third of the present fixed investment of the
plant (see Table 3-10). The additional capital requirements to achieve
the second level of removal will not pose a problem. The pollution
control capital costs are less than one percent of fixed investment for
all four model plants (see Table 3-10).
3.2.2.5 Closure Analysis
Table 3-11 summarizes the price elasticity of demand, price rise, and
profitability decline for chrome pigments model plants and compares
these to EPA's closure criteria (see methodology description).
The costs of installing and operating first removal level equipment will
impose significant impacts on all four model plants, with the impacts
being particularly severe for the smallest model plant. The price rise
required to recover pollution control costs is much greater than one
percent for all models, ranging from five percent for the largest plant
size to 13 percent for the smallest model. Similarly, profitability
impacts are large with declines in the ROI ranging from eight percent to
almost 15 percent. Thus, according to EPA's closure criteria, plant
closures are possible for all model plant sizes. While plant closures
are possible in all size categories, immediate plant shutdowns are most
probable in the smallest size category where the potential decline in
profitability is significantly higher and baseline profitability lower
than in the other three models. The implications of this model plant
closure analysis for actual plants in the industry are discussed in
detail in the following section.
3-34
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TABLE 3-10
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Chrome Pigments
LEVEL OF
REMOVAL
1
2
MODEL PLANT SIZE
(Annual Production in Tons)**
1,650
33.07%
0.65
.
4,440
30.15%
0.57
6,600
29.40%
0.58
19,800
33.04%
0.61
* Fixed investments were assumed to be $661/ton, $478/ton, $424/ton, and
$287/ton of capacity for the four model plants from smallest to largest.
'* 78% capacity utilization.
SOURCE: EEA Estimates and Development Document
3-36
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TABLE 3-11
IMPACT SUMMARY
Chemical: Chrome Pigments
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
PRICE RISE
Greater
Than 1%
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1
2
PLANT
PRODUCTION
(ton/yr)
1,650
4,400
6,600
19,800
1,650
4,400
6,600
19,800
PRICE ELASTICITY
Medium
Medium
MAXIMUM
PRICE RISE
13.25%
8.17
6.99
5.28
1.02%
0.47
0.36
0.20
MAXIMUM
PROFITABILITY
DECLINE
14.03%*
10.84
9.17
10.70
1.56%*
2.03
0.63
0.39
CLOSURES
Possible
plant
closures
yes
no
no
no
* Based on ROI
SOURCE: EEA Estimates
3-37
-------
The incremental costs of achieving the second level of removal are very
small compared to first level removal costs. Therefore, no further
plant closures are expected to result from second level removal costs.
3.2.3 Industry Impacts
In this section the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on chrome pigments manufacturers.
3.2.3.1 Price and Profitability Impacts
The price rise necessary to fully pass through the first level pollution
control costs is likely to present a significant problem for the industry.
In all cases a five to 13 percent price increase would be necessary.
Current demand for chrome pigments is not strong enough to support a one
time and immediate price increase of this magnitude. Two factors will
constrain a price increase: the potential market shift to organic
pigments and competition from imports. While organic pigments are
currently much higher in price, some pigment users are now choosing them
to avoid the current and anticipated health and regulatory problems
associated with many lead-containing chrome pigments. A price increase
in chrome pigments will only accelerate this move to organics. Imports
also report a significant constraint in price increases. Imports are
currently very cost competitive and will become even more so with further
domestic price increases. Thus, profit margins and profitability will
decline. Given current profitability levels in the industry, the prof-
itability decline is likely to cause hardship. The model plant costs
indicate that the smaller plants are operating at close to the break
even point, and even a small profitability decline could encourage them
to cease operations.
The gradual demand decline the industry is experiencing (due, in part,
to its problems with OSHA regulation of toxics) would normally lead to
3-38
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steady plant closures with the least profitable plants closing first.
The profitability decline which would result from effluent control
regulation will serve to accelerate this rate of closure. The likeli-
hood of plant closure is discussed in more detail in Section 3.2.3.2,
Projected Plant Closures.
The incremental price rise and profitability impacts of the second level
removal costs are trivial by comparison to the first level. The price
of pigments would have to be raised an additional 0.2 to 1.02 percent of
current price. Similarly, the incremental decline in profitability
would be small relative to the profitability impacts of the first removal
level costs.
3.2.3.2 Projected Plant Closures
A breakdown of chrome pigments producers according to model plant size
is presented in Table 3-12. The five small plants and three medium
plants account for roughly one-fourth of subcategory production and
employment. The four largest firms dominate industry production and
employment (about 76 percent of the total).
The plant closure projections can be summarized as follows:
o Small plants are currently marginally profitable and any
further profitability decline may cause closures. At most,
four of the five small plants (which together account for less
than eight percent of industry production) will close.
o Large plants are more profitable and able to withstand a
short-term profitability decline. Full price pass-through is
likely in the longer run, and these plants will continue to
produce chrome pigments at current output levels.
o Medium plants have profitability levels between those of the
small and large plants. Of the three medium plants, at most
only one plant will close.
These projections are detailed below.
3-39
-------
Small Plants
Given the inability of achieving full pass-through of control costs in
the short run, all plants will suffer profitability declines. The model
plant analysis indicates that the resulting declines in ROI range from
five to 14 percentage points. The profitability impacts will be most
severe for those producers corresponding to the smallest model plant.
Cost and price data and industry sources indicate that many chrome
pigments manufacturers corresponding to this model are currently only
marginally profitable. Therefore, the potential decline in profit-
ability resulting from producers1 inability to fully pass through pollu-
tion control costs is likely to encourage plant closures for this segment
of the industry. Another significant factor for these small manufacturers
is the potential difficulty in securing the capital necessary for investment
in pollution control equipment, representing one-third of fixed investment
in place. Three of the five producers in this size category are small
privately-owned companies rather than parts of large chemical conglome-
rates and therefore, may have more difficulty in accessing capital
markets.
Faced with the high control costs and capital requirements of Level 1
removal technology, difficulty in achieving complete pass-through of
cost increases, and low baseline profitability, many of the small plants
are predicted to close. (In fact, one small producer is already planning
to discontinue chrome pigment production, citing the high cost of com-
pliance with proposed EPA and OSHA regulations among the reasons.)
However, it is unlikely that all five plants will close. Since one
plant is involved solely in chrome oxide green production, it will not
be affected by OSHA's further limitations on worker exposure to lead and
will not face the high costs of compliance with these regulations.
Further, demand for chrome oxide green is much stronger than for the
other chrome pigments and sustained demand strength will probably allow
this small producer to pass through part of the control costs to customers.
3-40
-------
TABLE 3-12
CHROME PIGMENTS INDUSTRY CHARACTERIZATION
Model
Plant
Production
(ton/year)
Number of Actual
Plants Corresponding
To That Model
Estimated
Total
Production
Estimated
Total
Employment
1,650
4,400
6,600
19,800
TOTALS
for Subcategory
5
3
2
_2_
12
6,000
12,000
18,000
58,000
74,000
60
120
180
380
740
* Based on 10 employees per thousand pounds of production.
SOURCE: Industry Sources and Technical Contractor Survey.
3-41
-------
Therefore, it is less likely to close than other small chrome pigments
plants which must comply with both OSHA and EPA regulations. Thus, it
is likely that, at most, only four of the five small chrome pigments
producers will shut down as a result of effluent control costs.
Large Plants
Larger plants in the industry may be willing to experience the short-run
profitability declines and attempt to recover the pollution control
costs over several years through periodic price increases. Although the
model plant analysis indicates large declines in profitability for these
producers, the profitability levels after control are still sufficient
to justify continued operation, at least in the short run. Thus pollu-
tion control costs are not likely to result in immediate plant closures
for larger producers. However, larger manufacturers' actions will be
determined by the long-run demand outlook for chrome pigments. If
future demand appears insufficient to justify sizeable capital invest-
ment and temporary profitability declines, further plant closures can be
expected in the larger size categories.
In order to evaluate the future U.S. market for chrome pigments, 1985
demand is projected based on the following assumptions:
• Current industry projections for chrome pigments demand growth
are accurate. Demand will remain at 1977 levels for lead-
containing pigments (chrome yellow and orange, molybdate
chrome orange, and chrome green) because of more stringent
OSHA standards and increasing consumer concern over adverse
health effects of lead exposure. Demand for other chrome
pigments (zinc yellow and chrome oxide green) will continue to
grow with GNP since they will not face the serious lead pollu-
tion problems experienced by other chrome pigments.
• Because foreign producers' response to future U.S. demand
cannot be predicted with certainty, import projections are
based on import level performance in recent years. In this
scenario, imports are assumed to achieve the maximum pene-
tration levels observed during the years 1972-1978.
3-42
-------
Table 3-13 presents the estimated demand, potential import penetration
and market for domestic producers in 1985 based on the above assumptions.
The projected market for domestic producers in 1985 is approximately
68,000 tons. This market is sufficient to justify the continued opera-
tion of the four largest domestic producers (corresponding to the two
largest model sizes) whose combined estimated production is currently
56,000 tons per year (see Table 3-12).
The projection of 68,000 tons may underestimate the 1985 domestic market
since import penetration is unlikely to reach the assumed 20 percent.
One International Trade Commission expert estimates that a 10 percent
increase in domestic chrome pigment prices would result in imports'
market share increasing only a few percentage points above their current
level of eight percent and suggests that 11 or 12 percent represents a
reasonable import penetration figure. Therefore, the actual domestic
market is more likely to be approximately 75,000 tons in 1985.
An examination of the large plants reveals other significant factors
that will encourage them to remain in the industry. One large producer
is currently meeting Level 1 removal and will therefore be unaffected by
new effluent regulations. Another large producer is one of two present
manufacturers of zinc yellow (the other is a small plant identified as a
probable closure candidate) and is not as likely to cease production
given the relatively optimistic outlook for continued demand growth for
this pigment. Based on projected industry demand and examination of the
actual producers, no plant closures are forecast for the four producers
corresponding to the two largest model plants.
Medium Plants *
The profitability decline and required price rise for the medium producers
will fall between those for the small and the larger plants. Nevertheless,
of the three medium-sized producers in the chrome pigments industry two
3-43
-------
plants are likely to remain open. One of these produces only chrome
oxide green. This plant is expected to continue operating since chrome
oxide green will not face increased worker safety costs and is expected
to experience continued demand growth. The second plant very recently
entered the industry, indicating th?«" it considers future profitability
sufficient to justify the new investment in plant facilities and pollu-
tion control equipment. Therefore, it is not likely to close in' the
foreseeable future. The third medium-sized producer manufactures chrome
yellow and molybdate chrome orange. Effluent control and OSHA costs,
along with zero demand growth for these pigments may encourage this
producer to close within the next five years.
3.2.3.3 Other Impacts and Conclusion
At most, four immediate plant closures are predicted for small chrome
pigments producers with an additional plant closure possible for a
medium-sized producer within the next five years. If all five of these
closure candidates were to discontinue chrome pigments production,
unemployment would result for approximately 100 persons, or 13.3 percent
of subcategory employment (see Table 3-12). No severe community effects
are expected to result from this unemployment. All five producers are
located within large metropolitan areas with unemployment rates no
higher than the national average, and in which the chemical processing
industry is a major employer. Reabsorption of these unemployed workers
into the local labor force should not pose unusual difficulties. In
addition, two plants are operated by large manufacturing companies and
intra-company transfers could mitigate job displacement resulting from
plant closures.
Assuming no plant closures occur in addition to the possible closures
discussed above, no permanent supply disruption is predicted. The four
small plants account for roughly seven percent of estimated subcategory
production and the medium size plant identified as a possible plant
3-44
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closure accounts for approximately five percent of chrome pigments
production. With the industry currently operating at roughly 75 percent
capacity, larger producers will be able to expand production sufficiently
to meet demand for chrome pigments. In addition, imports are available
for all types of chrome pigments and could alleviate any temporary
bottlenecks in domestic supply. Industry concentration will not be
significantly affected by small plant closures and no single producer is
expected to gain significant market power that might allow monopoly
pricing.
Currently imported chrome pigments account for only eight percent of
U.S. consumption. However imports are expected to become a more sig-
nificant factor in the domestic market for two reasons:
• The availability of imported pigments will act as a constraint
on the price increases achievable by domestic producers attempt-
ing to pass through pollution control costs.
• As worker safety and pollution control costs increase the
price differential between domestic and imported chrome pig-
ments, imports can be expected to capture a larger share of
the market. However, import penetration is not expected to
increase beyond 12 percent.*
* International Trade Commission, telephone communication.
3-46
-------
4. COPPER SULFATE
4.1 CHARACTERIZATION
Copper sulfate (CuSO,) is a relatively low volume chemical with a vari-
ety of applications in agriculture and industry. The agricultural
sector uses it primarily as a fungicide, but also as an algicide and a
micronutrient additive in fertilizers and animal feeds. Industrially,
copper sulfate is used in froth flotation, wood preservation, electro-
plating, leather tanning, dye manufacture, and petroleum refining (see
Figure 4-1 for sources and uses of copper sulfate).
Domestic production of copper sulfate has declined dramatically over the
last 25 years. This is due to a worldwide shift away from copper sul-
fate as an agricultural fungicide in favor of organic fungicides. The
once large export market for copper sulfate (which represented 24 percent
of production in 1960) is now nonexistent. However, a recent upturn in
copper sulfate sales has given rise to renewed industry optimism.
Industry spokesmen view the recent turnaround in the sales decline as
the start of a long term trend. The strong markets and anticipated
growth also have attracted importers. Low priced copper sulfate imports
will continue to compete vigorously for a substantial share of the
domestic copper sulfate market.
4.1.1 Demand
4.1.1.1. Agricultural Fungicides and Other Agricultural Uses
The agricultural sector accounted for 42 percent of copper sulfate
consumption in 1977. Most of this was used as a fungicide in the form
of the "Bordeaux mixture," a simple mixture of hydrated lime and copper
sulfate pentahydrate (CuSO,-5H 0).
4-1
-------
Fungicides are essential to the agricultural industry. The investment
return is about two to four dollars in crops for every dollar of fungi-
cide applied. Their effectiveness has yielded a strong and steadily
growing demand for agricultural fungicides: total sales were 112 mil-
lion dollars in 1975; growth in demand will be about seven percent
annually through 1985. (Chemical and Engineering News, September 5,
1977).
Copper sulfate, once one of the two most widely used fungicides, now
holds less than 15 percent of the agricultural fungicide market. In
either the Bordeaux mixture or unmixed (basic) form, copper sulfate acts
to inhibit the inception of fungus growth. It is used on citrus fruits,
deciduous fruits, and nuts. Together with sulfur compounds, copper
sulfate fungicides control about one-third of the fruit and nut market.
(Chemical Purchasing, February 1978).
In addition to its use as a fungicide, copper sulfate is used as an
algicide, in seed treatment, and as an additive in feeds and fertilizers
to correct for copper deficiencies in poultry and plants.
Demand for copper sulfate in its agricultural end uses fluctuates with
agricultural demand, which is highly variable. Demand for fungicides is
also affected by rainfall (fungus growth is encouraged by damp condi-
tions) causing fungicide sales to be robust during rainy periods and
slack during dry spells. Demand varies regionally for the same reason.
4.1.1.2 Industrial Uses
Copper sulfate is used in a variety of industrial applications. Each of
these markets will be discussed separately.
4-2
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Froth Flotation
Copper sulfate is one of the most widely used froth flotation agents.
This market accounted for approximately 16 percent of copper sulfate
demand in 1977. Froth flotation is a refining process used in sepa-
rating metals (primarily zinc) from their ores. Because the use of
froth flotation agents is application specific, copper sulfate's froth
flotation end use market is secure. Moderate demand growth (three to
five percent annually) is expected in this market.
Wood Preservation
Approximately 10 percent of copper sulfate production is used in the
manufacture of the wood preservative chromated copper arsenate (CCA).
This substance binds chemically to wood, rendering it impervious to
fungus. Large quantities of wood preservatives are used by the con-
struction industry to protect wood exposed to damp conditions. (Chem-
ical Purchasing, February 1978).
Electroplating
The electroplating industry accounts for about 10 percent of copper
sulfate consumption. Electroplating is a process whereby objects are
coated with a thin layer of one or more metals in order to improve the
appearance, durability, or electrical properties of the surface. The
process involves placing the object in a bath containing a metal salt.
An electric current is passed through the solution and the object such
that the metal from the salt (copper in the copper sulfate solution)
attaches itself to the surface of the object.
Copper plating is used to improve heat conductivity (as in cookware), to
improve electrical conductivity in electrical equipment, and as a first
coat before nickel and chromium on automobile parts.
4-4
-------
There is some concern that demand for copper sulfate from the electro-
plating industry may fall off during the early 1980's as the industry
begins to recycle the spent copper sulfate solution in order to meet
zero discharge water pollution regulations. However, only a small
portion of the industry has begun to recycle because recycling systems
are expensive and involve separation of wastewater.
The number of manufacturers recycling copper sulfate solution may in-
crease with rising copper prices and stringent discharge requirements.
This may reduce demand for copper sulfate from the electroplating in-
dustry. Nevertheless, one major copper sulfate producer currently is
experiencing rising demand for the chemical from metal platers, and
expects the trend to continue.
Other Industrial Uses
Copper sulfate is used in dye manufacture, leather tanning and hide
preservation, as a "sweetener" for sulfur removal in petroleum refining,
and as a starting material for other copper salts. Copper sulfate also
is used as an algicide in municipal water treatment and reservoirs.
(Chemical Engineering, February 1978).
4.1.1.3 Demand Summary
Copper sulfate has a number of end uses in both agricultural and in-
dustrial markets:
• Agricultural fungicides and other agricultural uses (42 percent
of copper sulfate demand in 1977)
• Froth flotation (16 percent)
• Wood preservation (10 percent)
• Electroplating (10 percent)
4-5
-------
• Intermediates (10 percent)
• Miscellaneous (12 percent)
Demand for copper sulfate declined at a rate of 3.3 percent per year
between 1968 and 1977 (see Table 4-1). While market demand for some end
uses (particularly froth flotation and wood preservation) will experience
moderate growth in the early and mid-1980's, these growing markets are
too small to have a great impact on overall demand. Whether this de-
cline will continue at the same rate or turn around (as some producers
have predicted) is not clear.
4.1.2 Supply
4.1.2.1 Production
Production of copper sulfate has suffered a rather precipitous decline
since World War II, when large quantities were produced for export as an
agricultural fungicide. This foreign demand disappeared with the intro-
duction of organic fungicides in the 1940's, and production has fallen
from over 80 thousand short tons in 1955 to a low of 30.1 thousand tons
in 1977. Production rose by a healthy 17 percent in 1978 to 35.1 thou-
sand tons leading industry spokesmen optimistically to forecast a period
of renewed interest in copper sulfate. (Chemical Marketing Reporter,
September 11, 1978). This forecast may be premature, especially in
light of the chemical's recent production history. (See Table 4-1 and
Graph 4-1.)
4.1.2.2 Producers
There are eleven firms that manufacture copper sulfate (see Table 4-2).
Individual plant production capacities are unavailable.
4-6
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GRAPH 4-1
COPPER SULFATE PRODUCTION AND PRICE
53.00 -
39.75 -
VOLUME 26.50 —
(000's of tons)
13.25 -
0.00 --
1968
33.00 -
28.50 -
PRICE 19.00 -
9.50 -
0.00 -{---
19*68
1972
YEAR
I I
1972
1976
1976
YEAR
SOURCE: Department of Commerce
F 4-8
-------
TABLE 4-2
PRODUCERS OF COPPER SULFATE
COMPAM
North American Chemical
and industrial Chemical
U i v i :> i on
CP Chemicals, Inc.
Phelps Dodge Corp.
I'helps Dodge Refining
Corp. Subsidiary
Chevon Chemical Co.
Imperial beat Chemical Co.
kocide Chemicals Co.
Liquid Chemical Corp.
Mallinckrudt Chemical
Southern California
Chemical Co.
Univar Corp.
Van Waters £ Rogers
LOCATION
Cooperhill TN
Sew, iron, NJ
Powder Springs, GA
1:1 Piiso, TX
Miispeth. NY
Richmond, CA
Houston, TX
Hanford, CA
St. Louis, MO
Bayonne , NJ
Sante Fe Springs, CA
Union, IL
Mecaline Falls, WA
Midvale, Utah
Pinehurst, ID
Wallace, ID
INTEGRATION
ANNUAL CAPACITY ESTIMATED PERCENTAGE OF
(thousand Cons) INDUSTRY CAPACITY MM MATEIUALS END PRODUCTS
SulfuTJC ACld
N/A
N/A • Copper
Sulfuric AciJ
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A » Not Available.
• These three producers together account for more than 90 percent of industry production (Department of Commerce).
4-9
-------
Phelps Dodge and Cities Service, the two largest producers, account for
80 percent of domestic copper sulfate manufacture, according to one
industry source. CP Chemicals is the third major producer with approx-
imately 10 to 15 percent of industry production. The remaining eight
producers market only small quantities of copper sulfate.
Due to the nature of the industry and the copper sulfate market, the
list of firms claiming copper sulfate production changes often. The
production process is relatively simple and capital equipment require-
ments are low compared to those of an ore refining operation. Therefore,
firms find it feasible to enter the market in periods of increased
demand and withdraw when demand declines. For example, Anaconda Company
produces copper sulfate as a byproduct in their copper refining process.
However, they serve only available local markets and have not marketed
any copper sulfate for some time. They have stated that they intend to
re-enter the copper sulfate market in the future.
Two of the three largest producers, Phelps Dodge and Cities Service, are
copper refiners. They are, therefore, integrated backward to copper
sulfate's main constituent.
4.1.2.3 Process
The principal inputs for the production of copper sulfate are copper,
sulfuric acid, and oxygen. Approximately 20-30 percent of the total
volume of copper sulfate production is a by-product of copper refining.
During refining, copper is leached from its ores with sulfuric acid.
Most of the resulting copper sulfate solution is treated to remove pure
copper, but some of the solution is removed to eliminate impurities.
Commercial-grade copper sulfate can be recovered from this by-product.
Copper sulfate also is produced by action of sulfuric acid on scrap or
copper shot. The resulting copper sulfate solution is allowed to settle
4-10
-------
and evaporate to form crystalline cupric sulfate. The reaction in this
process is:
2Cu + 2HS0 + 0 •*
There are no significant coproducts or by-products of the process. Most
production wastes are recycled to recover copper.
Estimated manufacturing costs and capital costs for copper sulfate
production are presented in Table 4-3- Raw material copper costs account
for 35 to 42 percent of total manufacturing costs. Capital investment
is approximately $770 per ton of capacity which is moderately high.
(Capital costs in inorganic chemicals manufacture range from 300 dollars
per ton to 1500 dollars per ton, depending on the chemical produced and
the process used.) However, total capital investment is small compared
to copper refinery equipment, according to industry sources.
4.1.3 Competition
There are three sources of competition facing a copper sulfate producer:
• Competition from other producers of copper sulfate;
• Import competition;
• Competition from products which may serve as substitutes for
copper sulfate in each of its end uses.
Each of these will be discussed separately.
4.1.3.1 Intra-industry Competition
One way in which a producer of a fairly homogeneous product, such as
chemicals, will compete is by differentiating the product slightly. In
the chemical industry, this often takes the form of performing addi-
tional finishing steps to improve the chemical's properties according to
the requirements of a specialized market. Copper sulfate is manufac-
tured in a number of forms (grades) in an attempt to appeal to spe-
cialized markets.
4-11
-------
Pentahydrate is sold in technical, United States Pharmaceutical (U.S.P.)
and chemically pure (CP) grades. The technical grade is used in Bordeaux
mixture, metal plating, water treatment, wood preservation, and algicides.
Chemically pure copper sulfate has specialized applications. The purifi-
cation procedure is expensive and is reflected in CP's higher price,
almost twice that of the technical grade. At least one company (Mallin-
krodt) manufactures only chemically pure copper sulfate. (Chemical
Purchasing, February 1978).
Basic copper sulfate (also known as Tri-Basic, the registered trademark
of Cities Service's basic product) is used as a fungicide on citrus
fruits. Both pentahydrate and basic are sold in four pound and 100
pound bags. Pentahydrate is slightly more expensive, selling for $1.62
per pound of copper compared to $1.50 per pound of copper for basic.
4.1.3.2 Import Competition
Imports of copper sulfate (primarily from Spain) have risen during the
last three years from 460 short tons in 1975 to 2,700 in 1977, a.six-fold
increase. Imports captured nearly 10 percent of the market in 1977.
Import prices are about 20 percent lower than domestic prices. This has
forced domestic producers to sell copper sulfate at less than published
list prices in order to remain competitive.. U.S. producers have claimed
that imported copper sulfate is highly impure, overly acidic, and gen-
erally inferior to the domestic chemical. There also have been murmurings
of possible dumping (sale of imports at below cost, which is a violation
of trade regulations) but there have been no suits filed.
All of these charges have been refuted by the leading importer of copper
sulfate, Calabrian International Corporation. A spokesman for Calabrian
claims that importers of copper sulfate are, in fact, at a disadvantage.
Copper sulfate used as algicides must be registered with EPA, and
4-12
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TABLE 4-3
ESTIMATED COST OF MANUFACTURING COPPER SULFATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
2,850 tons/year
2,250 tons/year
(79% capacity utilization)
$2.2 million
VARIABLE COSTS
• Materials
Unit/Ton
- Copper Shot (scrap) 480.71 Ib
- Sulfuric Acid (66 Be')801.79 Ib
Utilities
Power
Steam
Cooling Water
Process Water
Total Variable Costs
$/Unit
.55
.016
$/Ton
264.40
12.80
90.70 kWh
9.07 klb
5.44 kgal
3.27 kgal
.03
3.25
.10
.75
2.70
29.50
.50
2.50
$312.40
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
141.00
34.50
$175.50
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
35.30
86.10
12.90
$134.30
$622.20
'rSee Appendix C
4-13
-------
registration is sometimes difficult. This has resulted in domestic
producers reducing prices only in markets where there is import
competition, and selling at list price where there is no import
competition. Imports will remain a significant competitive force in
the domestic copper sulfate market. (Chemical Marketing Reporter,
September 11, 1978)
4.1.3.3 Substitute Competition
Copper sulfate's major market, agricultural fungicides, has declined
with the introduction of new and more effective products. The organic
fungicides usurped many of copper sulfate's markets because they are as
good a fungal deterrent and have the added advantage of being able to
arrest fungal infection after it has started. While unit costs of the
organics are higher, labor and application costs are lower. The dithio-
carbonate group of organic fungicide almost eliminated the use of copper
sulfate on bananas by 1960. (Chemical Purchasing, February 1978)
Copper sulfate's share of the agricultural fungicide market has dropped
to 10 to 25 percent. Recently, however, there has been a renewed inter-
est in copper sulfate fungicides due to a suspicion that the organics
may be carcinogens. Whether this will boost sales of copper sulfate in
the fungicide market is uncertain.
Copper sulfate is an ingredient in chromated copper arsenate (CCA), a
wood preservative. As such, it competes with two other wood preserva-
tives: pentachorophenal (PCP) and creosote. PGP may lose some of its
market to CCA because it is under investigation for possible toxic
effects. PCP use has been limited by the State of Michigan, where it is
suspected of having caused the illness and death of dairy herds.
(Chemical Purchasing, March 1978)
4-14
-------
Overall, demand for copper sulfate seems to be dependent on price:
buyers will switch to substitutes as the relative price of copper sul-
fate rises. It is possible that the suspected health hazard posed by
some of copper sulfate's major end use substitutes may result in in-
creased copper sulfate demand.
4.1.4 Economic Outlook
4.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
4.1.4.1.1 Quantity
Both domestic copper sulfate production and import volumes are rising.
Considering the chemical's recent history of short term surges and
declines in production, it is too early to tell if the current produc-
tion increase is a long term trend or merely another fluctuation.
Producers of copper sulfate view the production gains of the last year
as the beginning of a five year increase in demand for copper sulfate,
although they seem uncertain about the source of the demand. Neverthe-
less, their enthusiasm attracted one new manufacturer, brought on stream
in late 1978. (Chemical Marketing Reporter, September 11, 1978)
Copper sulfate is in the latter (mature) stage of its product life
cycle, and its use has been declining. The only end uses that seem to
have growth potential are wood preservation and froth flotation. Copper
sulfate's use as an agricultural fungicide probably will continue to
decline, although it will retain its share in some applications. Growth
in other end uses will parallel that of the Gross National Product.
Recent producer optimism may be due to short term factors affecting
4-15
-------
demand, such as low prices and the questions being raised by health
officials about products which compete with copper sulfate.
4.1.4.1.2 Price
The single most important factor in the price of copper sulfate penta-
hydrate is the price of copper.
Price is also influenced by market factors. Low priced imports will
continue to force domestic producers to sell below list prices in those
end markets where imports are a threat.
4.1.4.2 Manufacturing Costs
Copper is the primary raw material in the manufacture of copper sulfate.
The domestic copper industry currently is depressed due to:
• Overcapacity
• Federal air pollution regulations which required heavy invest-
ments in pollution abatement equipment
• Low world copper prices resulting from high production by
Third World copper mines
Producer prices for refined copper were 63 cents per pound at the begin-
ning of 1978, 72 cents in late October, and 69 cents by mid-November.
The average price was 66 cents, compared with 67 cents in 1977. (Bureau
of Mines, January 1979) Continuing reduction in previously large inven-
tories has caused copper prices to rise, however, and the New York
Commodity Exchange price of copper rose to $1.00 per pound in March of
1979. (Chemical Marketing Reporter, March 5, 1978)
Production costs for refined copper will continue to rise with the price
of energy, as the refinery process is energy intensive. Further cost
increases due to pollution control and other government regulations are
4-16
-------
expected. However, a recently developed refinery process may reduce
operating costs by half. Capital costs are approximately one-third
those of a conventional process plant, according to the developers of
the new technology. (Chemical and Engineering News, March 13, 1978)
4.1.4.3 Profit Margins
The competitive nature of the copper sulfate industry and rising copper
prices will combine to keep profit margins narrow during the next few
years. Pricing will remain competitive for.the following reasons:
• There are a number of manufacturers capable of entering and
leaving the copper sulfate market according to prevailing
demand conditions.
• Copper sulfate importers vie for market share by pricing below
domestic list prices.
• Domestic manufacturers must price low to meet import prices.
The same competitive factors which keep prices low will similarly influ-
ence capacity utilization. Waning demand and competition from imports
could cause capacity utilization to decline. This will result in higher
costs and lower profit margins.
Profit margins will be squeezed further by rising copper prices. According
to a study by Chase Econometrics, a worldwide shortage of copper users
will push U.S. copper prices to over two dollars per pound by 1985.
(Chemical Week, February 21, 1979)
4.1.5 Characterization Summary
Copper sulfate is used primarily as an agricultural fungicide, froth
flotation agent, and wood preservative. Other uses include electro-
plating, tanning, dye manufacture, and petroleum refining. Copper
sulfate production has declined during the last ten years due to a
worldwide shift to organic fungicides.
4-17
-------
Soaring copper prices in the mid-1980's will cause copper sulfate's
price to increase dramatically. Users of copper sulfate will be induced
to switch to substitutes. Copper sulfate sales volume will decline due
to high price and generally declining end use markets. Further, the
higher copper price will encourage more intensive copper recovery efforts,
reducing the supply of by-product copper sulfate.
Factors causing production to decline may be mitigated by growth in some
end markets if organic substitutes for copper sulfate fungicide are
regulated because they are carcinogenic. But even if this happens,
other fungicides may be developed to take their place. Overall, the
copper sulfate market probably will not grow faster than the GNP, and
may continue to decline.
4.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
copper sulfate industry to comply with various effluent control stan-
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
BPT effluent limitations (based on Level 1 treatment technology) affecting
all direct dischargers are in effect for this subcategory. Therefore,
this analysis assumes Level 1 equipment in place and operating and
assesses the impacts of the additional costs required to meet higher
effluent removal levels.
4-18
-------
The technical survey also showed that one indirect discharger does not
have pretreatment equipment in place. Therefore, this analysis addresses
the impacts of pretreatment costs, which are assumed equivalent to BPT
removal costs, on this indirect discharger.
4.2.1 Pollution Control Technology and Costs
Capital and operating costs were developed by the technical contractor
for pollution control technologies designed to meet BPT and higher
levels of waste removal. Level 1 corresponds to BPT removal and is
assumed equivalent to pretreatment.
Pollutants from copper sulfate manufacture include copper, zinc, nickel,
and arsenic. The wastewater is treated in a batch process to achieve
the first level of removal, or BPT. After reaching a holding tank,
caustic soda is added to the effluent to precipitate metals. Overflow
is filtered and the solids are hauled to a landfill. Level 2 removal
requires the addition of ferrous sulfide to the settling tank to pre-
cipitate metals before filtration. These steps are summarized below:
Level 1 - Alkaline Precipitation and Filtration
o Caustic soda is added to precipitate metals
o Overflow from the settling tank is filtered
o Solids are landfilled
Level 2 - Level 1 Plus Sulfide Precipitation
o Fresh ferrous sulfide is added before filtration to remove
additional metals
Pollution control cost estimates were developed for one model plant,
with an annual production rate of 2,250 tons. Table 4-4 summarizes
pollution control costs for the model plant.
4-19
-------
The costs of manufacturing copper sulfate were estimated by a subcon-
tractor to be $622.20 per ton for the model plant. This estimate is
based on the information presented in Table 4-3, and does not include
the cost of base level pollution control. Table 4-5 summarizes the
model plant manufacturing costs used in this analysis.
Table 4-6 summarizes the total subcategory compliance costs necessary to
meet each of the two removal options. (The costs of Level 1 treatment
are now being incurred by all but one copper sulfate plant, an indirect
discharger.) These total costs are based on the model plant pollution
control costs and current industry production levels. Subcategory
compliance with Level 2 removal would require additional annual costs of
approximately $29,000, assuming that both direct and indirect dischargers
would incur these additional control costs.
4.2.2. Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
4-20
-------
MODEL PLANT PARAMETERS
TABLE 4-4: POLLUTION CONTROL COSTS
Chemical: Copper Sulfate
MODEL
PLANT
PRODUCTION
2,250
FIRST LEVEL
OF REMOVAL*
CAPITAL
INVESTMENT
$100,880
ANNUAL
OPERATING
COST
$24,609
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$1,680
ANNUAL
OPERATING
COST
$1,498
* Applies to indirect dischargers
SOURCE: Development Document
TABLE 4-5: MANUFACTURING COSTS
Chemical: Copper Sulfate
MODEL PLANT
PRODUCTION*
(tons/year)
INVESTMENT IN
PLANT AND EQUIPMENT
MANUFACTURING
COSTS PER TON **
2,250
$2,200,000
$622.20
* Cost based on a capacity estimate of 2,850 tons per year (see Table 4-3)
** To assess the impacts of removal Level 2, the per ton cost of meeting
Level 1 effluent limitations was added to the model plant manufacturing
cost.
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4.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 4-7 summarizes the price rise required of the
copper sulfate plant for two removal levels. Level 1 will require a
2.88 percent price increase; Level 2 incremental costs require a much
smaller price increase, .12 percent.
4.2.2.2 Profitability Analysis
The profitability analysis examines the decline in the return on invest-
ment (ROI) and the internal rate of return (IRR) when no price pass-through
is possible. The change in the ROI and IRR for the copper sulfate model
plant is less than one percentage point for both the first and second
effluent removal levels. These results are summarized in Tables 4-8a
and 4-8b.*
4.2.2.3 Price Elasticity of Demand
Copper sulfate has a high price elasticity of demand due to its many
substitutes. In the agricultural fungicide market, organic fungicides
represent a major substitute. Similarly, other wood preservatives are
widely used in place of copper sulfate in the wood preservative market.
Imports also compete with domestic copper sulfate. A substantial increase
in domestic copper sulfate prices is likely to cause a large decline in
sales as users switch to the above substitutes and imports. A significant
cost increase resulting from pollution control would have to be at least
partially absorbed by the industry to remain competitive. (See Sec-
tions 4.1.1, Demand, and 4.1.3, Competition, for a complete analysis.)
* Base case profitability is different for Level 1 and Level 2 because
manufacturing costs used in the Level 2 profitability analysis include
the per ton cost of Level 1 pollution control.
4-23
-------
4.2.2.4 Capital Analysis
According to the technical contractor's estimates, the capital cost
required to meet Level 1 removal is 4.59 percent of fixed investment in
plant and equipment. To achieve Level 2 removal, the capital cost is
.08 percent of fixed investment. The capital ratios are summarized in
Table 4-9. Direct dischargers should have no difficulty raising the
capital required for Level 2 removal. The Level 1 capital requirement
is potentially more burdensome, but not signficantly so.
4.2.2.5 Closure Analysis
Table 4-10 summarizes the price elasticity of demand, price rise, and
profitability decline for the copper sulfate model plant and compares
these to EPA's closure criteria (see methodology description). Both the
required price rise and profitability decline are less than one percent.
Therefore, on the basis of the EPA's closure criteria, no plant closures
are forecast.
4.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on copper sulfate manufacturers.
4.2.3.1 Price and Profitability Impacts
For direct dischargers, the price rise necessary to completely recover
the incremental cost of Level 2 control is so small that it would very
likely go unnoticed by copper sulfate buyers. The price rise of about
one-eighth of one percent would raise the price from its July 1978 list
price of 35.70 cents per pound to 35.74 cents per pound. Price increases
due to other manufacturing cost increases would dwarf a .12 percent
price rise. For example, if the price of copper scrap rises by only one
cent to 56 cents a pound, the price rise required to recover the cost
4-24
-------
TABLE 4-7
PERCENTAGE PRICE RISE
Chemical: Copper Sulfate
Price: $714/ton
MODEL PLANT
PRODUCTION
FIRST LEVEL
OF REMOVAL *
SECOND LEVEL
OF REMOVAL
2,250
2.88%
0.12%
* Applies to indirect dischargers.
SOURCE: EEA Estimates
4-25
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TABLE 4-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Copper Sulfate
LEVEL OF
REMOVAL
MODEL PLANT SIZE
(Annual Production)
in Tons)**
2,250
4.59%
0.08
* Fixed investment is assumed to be $772/ton of capacity for the model
plant.
r* 51% capacity utilization.
SOURCE: EEA Estimates and Development Document
4-28
-------
TABLE 4-10
IMPACT SUMMARY
Chemical: Copper Sulfate
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1
2
PLANT
PRODUCTION
(ton/yr)
2,250
2,250
PRICE ELASTICITY
High
High
MAXIMUM
PRICE RISE
2.88%
0.12%
MAXIMUM
PROFITABILITY
DECLINE
0.99%
0.05%
CLOSURES
no
no
SOURCE: EEA Estimates
4-29
-------
increase would be .73 percent, or six times the increase necessary to
recover pollution control costs. Because copper prices have been rising
rapidly and will continue to do so (see Section 4.1.4.3), pollution
control costs will be a comparatively minor cost consideration to copper
sulfate producers and buyers.
If copper sulfate producers that are direct dischargers are forced to
absorb the price increase (to remain competitive with imports, for
example), their profitability, as measured by the internal rate of
return on investment, will decline only a fraction. The decline in IRR,
from 11.42 percent to 11.38 percent, is negligible.
All but one plant in the copper sulfate subcategory have installed
pollution control equipment capable of meeting BPT removal levels.
Since these plants would not raise prices by more than a fraction to
recover higher level removal costs, the industry wide price levels
should not change.
The indirect discharger that would be required to install Level 1 removal
equipment manufactures only chemically pure (CP) copper sulfate. This
product is distributed through laboratory supply houses for use in
various end products such as Pharmaceuticals which require copper sulfate
of high purity. Unlike commercial grade copper sulfate users, CP customers
do not have close substitutes available. Therefore, the market for the
chemically pure product is separate and distinct with demand being
highly inelastic. Thus, it is likely that the indirect discharger would
achieve the full price rise necessary to recover pretreatment costs.
Even if price pass-through were impossible, the resulting profitability
decline is small and would probably not significantly affect the producer.
The analysis of potential price rise and profitability decline indicates
that copper sulfate plants, as modeled, will not be impacted by the
4-30
-------
increased costs of pollution control. Therefore, none of the three
firms which dominate the industry will be affected. In addition, the
smaller firms are likely to continue their copper sulfate operations and
not suffer a decline in profitability.
4.2.3.2 Other Impacts and Conclusion
The price and profitability impacts are small. Secondary impacts, such
as inflation, plant closures and unemployment, and community impacts,
are, therefore, similarly inconsequential.
Because imports constitute 10 percent of copper sulfate sales, any
increase in imports will affect the balance of payments. However,
little additional import penetration is likely to result. Further,
because the copper sulfate market is small, additional imports would
have little impact on the balance of payments.
4-31
-------
5. HYDROGEN CYANIDE
5.1 CHARACTERIZATION
Hydrogen cyanide (HCN) is a highly toxic chemical used as an interme-
diate in the production of plastics, herbicides, and fibers (see Figure
5-1). The hydrogen cyanide industry is characterized by a high degree
of captive use: of the 198,000 short tons produced in 1977, industry
sources estimate that more than 90 percent was used by the manufacturer
in the production of "downstream" chemicals. These chemicals are:
• Methyl methacrylate (60 percent of HCN use in 1977) used to
make plastics such as Rohm and Haas' PLEXIGLASS and DuPont's
LUCITE®; this use is threatened by new manufacturing technol-
ogies which do not require HCN
• Cyanuric chloride (16 percent) used in manufacture of triazene
herbicides, a high growth product
• Chelating agents (12 percent) used in metal cleaners, soaps,
and industrial water treatment
• Sodium cyanide (9 percent) used in metal treatment and plastic
manufacture
• Synthetic methionine and other uses (3 percent)
This breakdown excludes HCN's captive use in the manufacture of adiponi-
trile, an organic intermediate in nylon 6/6 production. Hydrogen cyanide
produced for this purpose is not separated or purified and is, therefore,
not included in Bureau of Commerce production statistics. Because HCN
used in the production of adiponitrile is not considered a separate
product and will be regulated as part of the production process of
adiponotrile, it will not be considered here.
The high degree of captive use implies that producers of HCN are guided
by the costs and profitability of the downstream chemicals. The costs
5-1
-------
of reducing effluents from HCN manufacture will be perceived as increased
costs in the production of MMA, cyanuric chloride, etc. Thus, the
markets and financial conditions for these end-use products give the
best indication of the state of the HCN manufacturing industry.
5.1.1 Demand
The demand for HCN is a function of the demand and demand growth of its
end markets. To facilitate an understanding of the demand side of the
industry each of the end markets for HCN will be discussed separately.
5.1.1.1 End Markets
Methyl Methacrylate (MMA) — MMA is polymerized to yield a durable
acrylic plastic which is used in a number of ways:
• Cast sheet (40 percent) used in glazing applications, outdoor
signs, and fluorescent lighting diffusers
• Surface coatings (25 percent)
• Molding and extrusion powders (15 percent) used in automotive
headlight lenses
• Oil additives (5 percent)
•• Miscellaneous and exports (15 percent)
Approximately 70 percent of the MMA produced is used captively in acrylic
production. In 1977, approximately 745,000,000 pounds of MMA were
produced (see Table 5-1), using 124,000 tons of HCN. HCN production is
closely tied to MMA demand, as indicated by the similarities in the pro-
duction figures for each. Both HCN and MMA production dropped sharply
in 1977 reflecting the slump in MMA's major markets (the automotive and
construction industries).
Because MMAfs end markets are in major sectors of the economy, demand
growth projections usually are based on Gross National Product (GNP)
5-2
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TABLE 5-1
PRODUCTION OF METHYL METHACRYLATE
YEAR
1977
1976
1975
1974
1973
1972
PRODUCTION
(thousands
of pounds)
744,900
NA
545,624
718,810
706,295
598,992
SALES
(thousands
of pounds)
195,000
NA
NA
NA
NA
NA
SALES
(dollars)
72.1
NA
NA
NA
NA
NA
SOURCE: International Trade Commission.
NA = Not Available
5-4
-------
growth projections. Of the three MMA producers (see Table 5-2), two are
forecasting growth at a rate just ahead of GNP growth, while the third
foresees growth concurrent with GNP growth -- about three percent per
year. Other observers have predicted growth as high as seven percent
per year (Chemical Engineering, July 3, 1978). This is a marked reduc-
tion from the 15 percent annual growth experienced in the 1960's when
MMA first was penetrating its major markets.
While the demand outlook for MMA is reasonably strong, HCN demand
probably will not keep pace. A new MMA manufacturing process has been
developed which uses no HCN. Conversions to this new process are
expected to take place in the early to mid-1980's.
In the conventional ("acetone cyanohydrin") process, acetone and hydro-
gen cyanide are reacted to form acetone cyanohydrin, which is then
reacted with sulfuric acid to form methacrylamide sulfate. This product
is then reacted with methanol to yield MMA.
The new technology ("C,-oxidation") starts with a four carbon molecule
(isobutylene or tert-butyl alcohol). The alcohol is oxidized to metha-
crolein and this is esterified to MMA.
One manufacturer has stated that any new grassroots MMA plant would have
to employ the new technology, although older, depreciated, conventional
technology plants still could compete (Chemical Engineering, July 3,
1978). Capital costs for a new 300 million Ib/year plant are estimated
at $113 million; a conventional plant, at $96 million. However, assuming
integration back to feedstock tert-butyl alcohol, MMA produced by the
new process could be sold for 20 percent less than conventionally pro-
duced MMA. (Chemical and Engineering News, July 20, 1976.) Plans for
adopting this new technology are being made by MMA producers. (See
Section 5.1.4.1 for a discussion of the full implications of the new
technology.)
5-5
-------
Cyanuric Chloride -- Cyanuric chloride is used primarily in the produc-
tion of triazene herbicides. Worldwide herbicide production uses 84
percent of all cyanuric chloride produced.
Two to three million pounds of herbicides are produced domestically, of
which approximately 70 percent is exported. Most of the exports go to
Canada, Brazil, and Argentina. Other uses are optical brighteners and
dyes (Chemical and Engineering News, July 20, 1976). Worldwide demand
for cyanuric chloride was approximately 95,000 metric tons in 1975;
capacity, 130,000 metric tons. 'Capacity is expected to grow to 170,000
metric tons worldwide in the next few years, with demand growing at 7.5
percent annually.
About 35,000 tons of HCN (16.5 percent of the total) went to domestic
cyanuric chloride production in 1977. This use of HCN can be expected
to increase with herbicide demand in the future.
Chelating Agents — Six producers produced 170 million pounds of chelating
agents in 1977, consuming 26.5 thousand tons of HCN (12.5 percent of the
total). Markets for chelates include metal cleaning, textile processing,
soaps and cleaning formulations, and industrial water treatment. Demand
growth for chelates is expected to be moderate (about seven percent per
year).
Sodium Cyanide — Twenty thousand tons of HCN were used in the production
of sodium cyanide in 1977. Sodium cyanide is used in the heat treatment
of steel, extraction of gold and silver, electroplating of metals, and
as a raw material in the manufacture of plastics. There is only one
domestic manufacturer of sodium cyanide, and the required HCN is cap-
tively produced. Demand growth is expected to be low — 3.5 percent
per year -- but because sodium cyanide production represents only a
fraction of total HCN use, it is of little significance.
5-6
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Synthetic Methionine and Other Uses — Two and one-half thousand tons of
HCN went into synthetic methionine production in 1977. Ninety-five
percent of the methionine is used in poultry feed. Domestic production
supplied only 40 to 50 percent of the methionine consumed in the U.S. in
1977; imports made up the remainder. Other uses of HCN accounted for
less than two percent of HCN use in 1977.
5.1.1.1.1 The Merchant Market
Less than 10 percent of all HCN produced is sold on the merchant market.
Many industry sources believe the merchant market for HCN will disappear
completely in five years, citing a general reluctance on the part of
by-product HCN producers to market the HCN due to its toxicity. (Many
by-product producers simply burn the HCN for fuel at the plant site to
circumvent disposal problems.) In light of the chemical's toxicity and
low market potential (only small users currently are purchasing HCN) it
is unlikely that there will ever be a substantial merchant market for
HCN.
5.1.1.2 Demand Summary
Table 5-3 summarizes the end uses for HCN and provides estimates of
expected demand in 1984 based on the most likely rate of projected
demand growth. The projected demand for HCN in MMA manufacture assumes
that there will be no market penetration by the new technology ("C,-
oxidation") by 1984; however, if the C,-oxidation production method does
come on stream prior to 1984, a substantial amount of HCN could be
displaced. This uncertainty is discussed further in Section 5.1.3.1.
5.1.2 Supply
5.1.2.1 Production
Hydrogen cyanide production was just under 198,000 short tons in 1977,
12 percent less than the peak of 226,000 tons in 1965. Production over
5-8
-------
Table 5-3
CURRENT AND PROJECTED DEMAND FOR HCN BY USE
1977 Consumption Projected Annual Projected 1984
End Use of HCN (000 tons) Growth Rate Demand
MMA
Cyanuric
Chloride
delating
Agents
Sodium
Cyanide
Other
TOTAL
124.0 4.0%
35.0 7.5
26.5 7.0
20.0 3.5
6.5 4.0
212.0
163*
(66)
58
43
25
9
298*
(201)
The first number is projected 1984 demand at a four percent
growth rate and assumes that no "C. technology" MMA plants
(which do not use HCN as a raw material) are built. The
parenthesized number is a worst case estimate of 1984 demand.
It assumes a slow market growth rate and some replacement
of traditional-technology capacity with new technology
plants. For a complete discussion of the uncertainties of
the future MMA industry, see Section 5.1.3.1.
SOURCE: Department of Commerce and EEA Estimates
5-9
-------
the past decade has been variable (see Table 5-4 and Graph 5-1), reflect-
ing major changes in end use. Hydrogen cyanide is useful in its ability
to upgrade other raw materials (by specific addition to carbon atoms).
However, technical advances may render the use of HCN obsolete in the
manufacture of certain products, particularly methyl methacrylate.
Production of HCN can be expected to decline somewhat over the next few
years depending upon the rate at which new technologies are adopted.
5.1.2.2 Producers
Hydrogen cyanide currently is produced at 12 plant sites by nine producers
(see Table 5-5). Two plants account for 43 percent of industry capacity:
a 92.5 thousand ton/year plant in Memphis, TN, operated by DuPont, and a
100 thousand ton/year plant in Houston, TX, operated by Rohm and Haas.
Of the remaining 10 plants, eight are medium sized (10-55 thousand
tons/year) and two are small.
There is considerable forward integration in HCN production; captive use
has been estimated at greater than 90 percent. Most HCN (about 75
percent) is manufactured for captive use in MMA or cyanuric chloride.
Many of the larger plants are part of integrated complexes.
The two major producers of MMA, DuPont and Rohm and Haas, are integrated
®
backward to HCN. In addition, they are integrated forward to LUCITE ,
®
PLEXIGLAS , molding and extrusion powders, and surface coatings. The
third producer, CY/RO Industries, is a joint venture of Cyanamid and
Roehm GmbH (a German-based firm) and is supplied with HCN by American
Cyanamid"s Fortier, LA, plant.
Ciba-Geigy and Degussa are the only two producers of cyanuric chloride.
Both are integrated backward to HCN, and Ciba-Geigy forward to herbicides.
The Ciba-Geigy Andrussow process HCN plant, located in St. Gabriel,
Louisiana, has a 45,000 ton/year capacity. Degussa recently began
5-10
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GRAPH 5-1
HYDROGEN CYANIDE PRODUCTION
200.00
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operation of its 26.5 thousand ton/year capacity HCN plant in Mobile,
Alabama. Construction of these plants was undertaken to ensure supply
in the face of what the cyanuric chloride producers perceived as an
uncertain HCN supply situation.
HCN production by MMA manufacturers will decline in the next 5-10 years
as they adopt the new MMA technology (see Section 5-1.3.1). No HCN
capacity expansions currently are planned by the cyanuric chloride
producers; however, rapid industry growth may prompt expansion.
5.1.2.3 Process
Most hydrogen cyanide (about 70 percent) is produced by a method known
as the Andrussow process. The remaining HCN is produced as a by-product
in acrylonitrile manufacture.
In the Andrussow process, air, ammonia, and natural gas are passed over
a platinum or platinum rhodium catalyst and heated to 900 to 1000°C.
The resulting hot gas stream contains hydrogen cyanide and several
byproducts, including hydrogen and carbon dioxide. The gas mix is
cooled, stripped of unreacted ammonia, then routed to a cold water
boiler where HCN is recovered. It is then distilled to a 99+ percent
purity product. The reaction is:
2CH. + 2NH_ + 30. -» 2HCN + 6H00
432 2
The major pollutants in the waste stream are cyanides (both free and
complex), ammonia, and ammonia salts. There are approximately 2.8
pounds of cyanides and 3.6 pounds of ammonia and ammonia salts for each
ton of hydrogen cyanide produced. Some producers treat the wastewater
by addition of chlorine which oxidizes the cyanides, but this method is
not always successful. More reliable wastewater treatment systems are
under development.
5-14
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Table 5-6 shows the estimated costs of manufacturing one ton of hydrogen
cyanide. Fixed investment, between $500 and $600 per ton of capacity,
is fairly high. (Capital costs in inorganic chemicals manufacture range
from 300 dollars per ton to 1500 dollars per ton, depending on the
chemical produced and the process used.) Manufacturing costs are depen-
dent on the cost of ammonia and natural gas which together account for
about 50 percent of manufacturing costs.
Production of acrylonitrile, the source of by-product HCN, has grown
rapidly (9.2 percent per year from 1971 to 1976). However, HCN produc-
tion by this method will be moderated by two factors. First, the pro-
duction process is continually being improved so that there is a greater
acrylonitrile yield and a smaller by-product HCN yield. Whereas the
process previously produced .15 to .20 kg of HCN for each kg of acrylo-
nitrile, recent technological advancements can reduce this yield to as
little as .07 kg per ton of acrylonitrile. Second, demand growth for
acrylic, acrylonitrile1s major end use, may be as low as two to three
percent annually according to industry forecasts. Thus, this source of
by-product HCN will probably decline significantly in the next five
years.
By-product HCN is produced by oxidation of a propylene-ammonia mixture:
2CH2 = CHCH3 + NH3 + 302 -> 2 CH2 = CHCN + 6H20
Both hydrogen cyanide and acetonitrile are formed as by-products. There
is no wastewater produced in this process.
5.1.3 Competition
A producer in any industry faces a number of sources of competition:
• Competition from other manufacturers of the product
• Import competition
• Competition from similar products which may serve as substi-
tutes
5-15
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In the case of hydrogen cyanide, with more than 90 percent of production
used captively, manufacturers view the end products as the profit center.
If a less expensive input or process is found for the main product, then
discontinuing the manufacture of the input product may be economical.
Because hydrogen cyanide is an "upstream" product, competition at the
end product level (i.e., MMA, cyanuric chloride, etc.) is the most
critical factor. This section addresses competition in HCN's major end
use markets, MMA and cyanuric chloride, which together account for
three-fourths of HCN's use.
5.1.3.1 Methyl Methacrylate End Markets
There are currently three producers of MMA in the U.S. Domestic demand
was about 350,000 tons in 1977. Of this, 80 percent was used captively
by the manufacturer in the production of acrylic sheet and surface
coatings. Most of the competition takes place in the acrylic sheet end
market; but because of high profitability, MMA producers also compete
vigorously for the relatively small merchant market share.
Industry capacity has risen in the last few years. Two of the three
producers made significant capacity expansions in 1977: Rohm and Haas
added 55,500 tons/year in Houston, Texas, and DuPont doubled its Memphis,
Tennessee plant capacity to 120,000 tons/year. Capacity currently
stands at 550,000 tons/year. Capacity utilization was about 80 percent
in 1976, but somewhat lower in 1977 (about 68 percent) as the new capac-
ity came on line.
There are no substitutes for MMA in the production of acrylic sheet or
molding and extrusion powders. Several differentiated acrylic products
are manufactured with special features to meet the specialized needs of
consumers. For example, one grade of acrylic sheet is formulated so
that it has a non-reflective surface. Another grade has three to four
5-16
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TABLE 5-6a
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSQW PROCESS-
(mid-1978 dollars)
Plant Capacity 56,500 tons/year
Annual Production 35,000 tons/year
(62% capacity utilization)
Fixed Investment $34.8 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Ammonia 2099 Ib 0.065 136.40
- Natural Gas 63.9 mscf 1.50 95.90
- Sulfuric Acid (66 Be') 960 Ib 0.016 15.40
- Phosphoric Acid 17 Ib 0.20 3.40
- Sulfuric Dioxide 0.8 Ib 0.074 0.06
- Ammonium Sulfate
Credit 1288 Ib 0.02 (25.80)
- Catalyst 9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 mlb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 12.40
• Maintenance 45.00
Total Semi-Variable Costs $ 57.40
FIXED COSTS
• Plant Overhead 3.10
• Depreciation 90.00
• Taxes & Insurance 13.50
Total Fixed Costs $106.60
TOTAL COST OF MANUFACTURE $439.00
SOURCE: Contractor and EEA estimates
*See Appendix C
5-17
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TABLE 5-6b
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSOW PROCESS*
(mid-1978 dollars)
Plant Capacity 90,500 tons/year
Annual Production 56,000 tons/year
(62% capacity utilization)
Fixed Investment $48.4 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Ammonia 2099 lb 0.065 136.40
- Natural Gas 63.9 mscf 1.50 95.90
- Sulfuric Acid (66 Be') 960 lb 0.016 15.40
- Phosphoric Acid 17 lb 0.20 3.40
- Sulfuric Dioxide 0.8 lb 0.074 0.06
- Ammonium Sulfate
Credit 1288 lb 0.02 (25.80)
- Catalyst 9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 mlb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 10.10
• Maintenance 39.00
Total Semi-Variable Costs $ 49.10
FIXED COSTS
• Plant Overhead 2.50
• Depreciation 78.20
• Taxes & Insurance 11.70
Total Fixed Costs $92.40
TOTAL COST OF MANUFACTURE $416.50
SOURCE: Contractor and EEA estimates
*See Appendix C
5-18
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TABLE 5-6c
ESTIMATED COST OF MANUFACTURING HYDROGEN CYANIDE - ANDRUSSQW PROCESS*
(mid-1978 dollars)
Plant Capacity 113,000 tons/year
Annual Production 70,000 tons/year
(62% capacity utilization)
Fixed Investment $56.5 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
- Ammonia 2099 Ib 0.065 136.40
- Natural Gas 63.9 mscf 1.50 95.90
- Sulfuric Acid (66 Be') 960 Ib 0.016 15.40
- Phosphoric Acid 17 Ib 0.20 3.40
- Sulfuric Dioxide 0.8 Ib 0.074 0.06
Ammonium Sulfate
Credit 1288 Ib 0.02 (25.80)
- Catalyst 9.80
• Utilities
- Electric Power 998 kWh 0.03 29.90
- Cooling Water 141 mgal 0.10 14.10
- Exhaust Steam Credit 1.29 mlb 3.25 ( 4.20)
Total Variable Costs $275.00
SEMI-VARIABLE COSTS
• Labor 8.30
• Maintenance 36.60
Total Semi-Variable Costs $ 44.90
FIXED COSTS
• Plant Overhead 2.10
• Depreciation 73.10
• Taxes & Insurance 11.00
Total Fixed Costs $86.20
TOTAL COST OF MANUFACTURE $406.10
SOURCE: Contractor and EEA estimates
*See Appendix C
5-19
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times the impact strength of general purpose acrylic sheet and is aimed
at the personnel and property protection market. Prices for the dif-
ferent grades of acrylic sheet vary according to the degree of product
specialization.
Substitutes for acrylic sheet include glass and polycarbonates. Glass
is heavier than acrylic sheet and breakable, but it is of better optical
quality and scratch resistant. Acrylic sheet is used instead of glass
in cases where strength is desirable. Its use in high rise buildings as
an alternative to glass has not been as widespread as the industry
anticipated. (Instead of acrylic sheet being used throughout the build-
ing, it is often used only on the ground floors, where there is a high
risk of glass breakage.) Polycarbonates are making inroads into the
acrylic sheet market, but are more expensive and less weatherproof.
Historically, competition in the MMA merchant market has been on the
basis of price. A small import share (approximately 10 percent) has
been responsible for downward pressure on domestic prices. The threat
of import penetration is of major concern to domestic MMA producers, but
they have maintained their market share by meeting low import prices.
Competition in the MMA industry will increase in the next five to 10
years as new "C,-technology" plants come on line. If Oxirane's 300
million Ibs/year plant comes on line in 1981 as planned, overall capac-
ity utilization will remain at a low 70 percent. If demand should grow
only two percent annually, as some analysts predict, capacity utiliza-
tion will plunge to 61 percent. If another company builds a new MMA
plant (both Rohm and Haas and Vistron have tentative plans), the mid-
1980 's are likely to see firms competing fiercely for market share
(Chemical Engineering, July 3, 1978).
5-20
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A number of Japanese and European manufacturers also are considering
building new technology MMA plants. Japanese producers have begun to
import HCN to cover demand shortfalls caused by a decrease in by-product
HCN production. This gives them additional incentive to adopt the new
MMA technology which may lower costs. The added cost advantage could
mean a larger share of the U.S. MMA market for Japanese products. To
retain market share, U.S. producers would be forced either to lower MMA
prices to meet import competition, thereby reducing profit margins, or
to make a more rapid shift to the new MMA technology.
Table 5-7 illustrates how an industry shift to the new C, technology
will affect MMA industry competition, and, ultimately, HCN production
levels. Because industry estimates of demand growth vary widely, two
possible scenarios, which assume extreme rates of market growth, are
examined. In scenario A, demand grows at seven percent, and capacity
jumps to 1,700 million Ibs/yr by 1984 as both Oxirane and Rohm and Haas
bring on the new technology plants. Oxirane plans to sell 100 percent
of their MMA, and if they successfully penetrate the MMA merchant market,
could edge out the other producers. Some firms would be forced to
reduce capacity.
In scenario B, MMA demand grows at a modest 2 percent annually. This
means that even if Oxirane were to capture 100 percent of the merchant
market, they could only operate at 76 percent capacity. If a second new
technology plant were to come on line by 1984, some plants surely would
be forced to shut down. These shutdowns most likely would occur in
older, acetone cyanohydrin plants which utilize HCN. If the new plants
were to operate at 76 percent of capacity, demand for HCN from MMA
products would drop to 66 thousand tons in 1984, a reduction of 46
percent from 1977 levels. This implies that total demand for HCN in
1984 would drop by five percent from 1977 levels. In any event,
scheduled construction of the new technology MMA plants is likely to
reduce the demand for HCN. Within 10 to 15 years, HCN demand from MMA
production should be near zero.
5-21
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5.1.3.2 Cyanuric Chloride End Markets
The two domestic producers share a patent on the process for manufac-
turing cyanuric chloride. This eliminates inter-producer competition.
Industry sources expect rapid growth in the number of producers when the
patent expires in the near future.
There are no substitutes for cyanuric chloride in triazine herbicide
manufacture. The triazine herbicides experience little competition from
substitutes due to the product's high effectiveness and low toxicity.
5.1.4 Economic Outlook
5.1.4.1 Revenue
Total revenue is the product of total sales volume and the average unit
price. Although these two variables are discussed separately below,
they are interrelated.
5.1.4.1.1 Quantity
The production volume of hydrogen cyanide depends on the production
levels of its end use products, and on the production of acrylonitrile,
which produces HCN as a by-product. While growth can be expected for
each of these end product chemicals, there are factors which may cause
overall primary HCN production to decline. On the positive side:
• MMA is an important chemical with many end uses. MMA produc-
tion should grow at least as rapidly as the rest of the economy.
• Cyanuric chloride is a high growth chemical. Industry capacity
is likely to grow as new producers enter the triazine herbicide
industry; increasingly favorable trade conditions will continue
to expand markets.
On the negative side, use of HCN in MMA manufacture eventually will be
eliminated by use of the new C,-oxidation technology. The rate of new
process adoption will determine the rate of HCN decline. The rate of
5-22
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adoption depends on the success of the first domestic new technology
plant (scheduled for 1981 startup), competition from imports, and the
need for capacity additions based on MMA demand growth.
Demand growth in acrylonitrile, the source of by-product HCN, has slowed,
causing overcapacity, over-supply, and a halt in capacity expansions.
In addition, technology improvements already have reduced HCN yield per
pound of acrylonitrile and further advances are likely.
The net result of these influences will be a decline in total HCN pro-
duction. The cyanuric chloride industry will become the largest user of
HCN. New entrants into the cyanuric chloride industry may find it
economical (as the existing producers have) to build small to medium
size primary HCN facilities. In the long run, this may give rise to a
new generation of Andrussow process plants.
5.1.4.1.2 Price
Because the merchant market for HCN is of such small consequence and, in
fact, likely to disappear altogether in the next few years, a discussion
of HCN price would be superfluous. Cyanuric chloride is sold by one
producer to one buyer (Degussa to Shell Chemicals) so the details of
that market are not available. MMA also is highly captive but, unlike
HCN and cyanuric chloride there is a well developed market for the 15
to 20 percent of total production not used captively. The July 1978
list price stands at $.43/lb. MMA is highly profitable at this price,
according to one industry source.
MMA prices are not likely to rise significantly in the next five years
for a number of reasons:
• Growth in demand will be sluggish due to expected slow growth
in the economy.
• Planned capacity additions will force competitive pricing by
manufacturers in order for them to retain market share and
keep capacity utilization at profitable levels.
5-24
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• Imports will continue to constrain prices. More rapid adop-
tion of the cheaper C, manufacturing technology by foreign MMA
producers (due to acetone and HCN shortages they are exper-
iencing) may allow import prices to stay uncomfortably low.
The import price advantage may be augmented by recovery of the
U.S. dollar on foreign exchange markets.
The existing profit margin may narrow in the future as input prices
(tied to natural gas prices) rise faster than MMA prices.
5.1.4.2 Manufacturing Costs
5.1.4.2.1 Hydrogen Cyanide (Andrussow Process)
Ammonia, a natural gas product, and natural gas are the major inputs in
HCN manufacture, and their prices have increased rapidly in the past few
years. Manufacturing costs are linked closely to natural gas prices.
The deregulation of natural gas prices is likely to stimulate gas sup-
plies, but also guarantee future price increases. The cost of manufac-
turing HCN will continue to rise with natural gas prices.
5.1.4.2.2 Methyl Methacrylate
Raw materials in the acetone cyanohydrin route to MMA are acetone,
hydrogen cyanide, and sulfuric acid. Acetone is a petroleum derivative,
and its price will continue to increase with that of crude oil. However,
acetone is manufactured as a by-product in phenol production and there
have been recent large phenol capacity additions. This will serve to
ensure acetone availability (Chemical Engineering, July 3, 1978).
The feedstock for MMA production by the new process (C, oxidation),
isobutylene or tert-butyl alcohol, is cheaper than the feedstock used in
the traditional process. The price of the feedstock will rise with
petroleum prices. Manufacturers who are integrated backward to feed-
stock isobutylene or tert-butyl alcohol may have a significant cost
advantage over feedstock purchasers.
5-25
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5.1.4.2.3 Cyanurlc Chloride
Cyanuric chloride uses HCN and chlorine as raw materials. Both of its
producers are integrated backward to HCN, ensuring ample supply at a
cost closely tied to natural gas prices. Chlorine prices will rise
somewhat to reflect increased energy cost (chlorine is an energy inten-
sive product with electricity as its major input).
5.1.4.3 Profit Margins
MMA will remain profitable even with a slowly growing economy. However,
the adoption of the new technology will reduce the need for HCN.
Profits in the triazine herbicide industry (cyanuric chloride's major
end use) currently are high, and industry spokesmen are optimistic that
they will remain so. The high profits may attract new entrants to the
industry — entrants who will require feedstock HCN. Cyanuric chloride
will emerge as the most important of the remaining end uses for HCN, and
the one with the greatest potential for growth.
5.1.5 Characterization Summary
Hydrogen cyanide is produced captively, primarily for use in:
• Methyl methacrylate (MMA), an intermediate in plastics;
• Cyanuric chloride, used in the manufacture of herbicides, and
• A number of other chemicals, which include chelating agents,
sodium cyanide, and synthetic methenine.
Despite a reasonably strong overall demand outlook for the end product,
hydrogen cyanide production will decline. This is because a new, less
costly MMA production process has been developed which does not require
HCN. As MMA manufacturers complete construction of new technology
plants, their captive production of HCN will fall.
5-26
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Of HCN's other end markets, cyanuric chloride has the greatest potential
for growth. The projected 8 to 10 percent annual demand growth will
partially offset reductions in HCN demand in the MMA market.
5.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
hydrogen cyanide industry to comply with various effluent control stan-
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
All but one of the hydrogen cyanide manufacturers are direct dischargers.
A survey by the technical contractor revealed that all direct dischargers
and the one indirect discharger have Level 1 treatment technology in
place. This analysis assesses the additional costs required to meet
higher effluent removal levels. In addition, wastewater treatment costs
are assumed to be the same for direct and indirect dischargers.
5.2.1 Pollution Control Technology and Costs
Capital and operating costs were developed by the technical contractor
for pollution control technologies designed to meet the two levels of
waste removal.
The two major pollutants in this subcategory are cyanide compounds and
ammonia. In the model HCN plants, wastewater is assumed to contain an
average of 2.8 pounds of cyanides and 3.6 pounds of ammonia per ton of
manufactured HCN.
-------
Level 1 treatment involves collection of wastewater in an eight hour
detention pond where caustic soda and chlorine are added to neutralize
the acid and oxidize the cyanide. The overflow goes to a one hour pond
where additional chlorine and caustic are added before final discharge.
In Level 2 treatment, additional chlorine is used to remove cyanide.
The wastewater is then dechlorinated. These steps are summarized below:
Level 1 - Alkaline Chlorination and Clarification
• Achieved by adding caustic soda and chlorine to wastewater
Level 2 - Additional Chlorination and Dechlorinaton
• Additional chlorine is used to remove cyanide
• Chlorine is removed from wastewater
Pollution control cost estimates were developed for three sizes of model
hydrogen cyanide plants. Model plant production rates are 35,000,
56,000 and 70,000 tons per year. All model plants use the Andrussow
process, since by-product production during aerylonitrile manufacture
produces no wastewater. Table 5-8 summarizes pollution control costs
for the model plants.
The costs of manufacturing HCN, estimated by a subcontractor, are $446.60,
$422.97, and $412.08 per ton, for, the small, medium, and large plants,
respectively. These estimates are based on those presented in Table 5-6
and include the cost of meeting Level 1 effluent limitations. Table 5-9
summarizes the cost parameters used in the model plant analysis.
The total compliance costs for the hydrogen cyanide subcategory are
summarized in Table 5-10. These costs are based on the model plant
pollution control costs and current industry production levels. All
hydrogen cyanide manufacturers have base level removal equipment in
place. The total additional cost to the subcategory for compliance with
5-28
-------
MODEL PLAOT PARAMETERS
TABLE 5-8: POLLUTION CONTROL COSTS
Chemical: Hydrogen Cyanide
MODEL
PLANT
PRODUCTION
(tons/year)
35,000
56,000
70,000
SECOND LEVEL
OF REMOVAL
INVESTMENT
$65,240
72,300
31,480
ANNUAL
OPERATING
COST
S 133,381
205,564
254,292
SOURCE: Development Document
TABLE 5-9: MANUFACTURING COSTS
Chemical: Hydrogen Cyanide
MODEL PLANT
PRODUCTION *
(tons/year!
35,000
56,000
70,000
INVESTMEiNT IN
PLANT AND EQUIPMENT
$34,300,000
48,400,000
56,500,000
MANUFACTURING
COSTS PER TON **
$446.60
422.97
412.08
Cost estimates based on plant capacities of 56,500, 90,500 and
113,000 tons per year (see Table 5-6).
Includes cost of meeting Level 1 effluent limitations.
(SOURCE: Development Document)
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direct and indirect dischargers incur the additional costs of Level 2
removal.
5.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information in the characterization section; it suggests the
degree to which the price can be raised and the probable prof-
itability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high Impact" plants can
be screened for additional analysis.
5.2.2.1 Price Rise Analysis
Hydrogen cyanide is almost entirely captively produced; as a result its
market price has little meaning. Therefore, the percentage increase in
the estimated cost of manufacturing hydrogen cyanide has been calcu-
lated. Presumably this cost increase will be reflected in the increased
prices of "downstream" products for which hydrogen cyanide is a critical
input. Table 5-11 summarizes the cost increase which would result at
each model plant for each level of removal. Note that Level 1 is not
5-31
-------
included in the table. Level 1 is assumed to be in place. One addi-
tional removal level is considered. No more than a 1.06 percent price
increase is required to pass through all the pollution control costs
associated with this more stringent control level.
5.2.2.2 Profitability Analysis
The profitability analysis examines the decline in the return on invest-
ment (ROI) and internal rate of return (IRR) when no price pass-through
is possible. For the purposes of the analysis, a market price of HCN
was assumed to be $660/ton (Chemical Marketing Reporter, July 28, 1978).
However, since HCN is predominantly captively produced, market price is
somewhat artificial. Under these assumptions the hydrogen cyanide model
plant had a decline in both the ROI and IRR of approximately two-tenths
of a percentage point. These results are summarized in Table 5-12.
5.2.2.3 Price Elasticity of Demand
Since most hydrogen cyanide is captively produced for use in various
downstream products, the price elasticity of demand for this chemical is
determined by the price elasticity of demand for its end products.
About 60 percent of an HCN goes to methyl methacrylate (MMA) production,
which is used in acrylic sheet production. Another 15 percent is used
to make cyanuric chloride which ultimately becomes triazene herbicide.
Demand for acrylic sheet is fairly strong, although somewhat dependent
upon the construction industry. Acrylic sheet is the preferred material
in many applications, despite the existence of a number of secondary
substitutes. This implies that demand is somewhat price inelastic and
the manufacturer should be able to raise price to cover increased HCN
cost. However, domestic acrylic sheet manufacturers face competition
from imports and this could restrain prices.
5-32
-------
TABLE 5-11
PERCENTAGE PRICE RISE
Chemical: Hydrogen Cyanide
Price: $400/ton
MODEL PLANT
PRODUCTION
SECOND LEVEL
OF REMOVAL
55,000
56,000
70,000
1.06s
0.99
0.9;
SOURCE: EEA Estimates.
5-33
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Producers of cyanuric chloride are in an even stronger position to pass
on a cost increase in higher prices. There are no real substitutes for
end-product triazene herbicide. This implies a low price elasticity of
demand for cyanuric chloride in the relevant price range. If HCN costs
were to increase significantly due to effluent control regulations,
cyanuric chloride producers would have little difficulty raising prices
to cover these costs. Based on these factors, demand for HCN is assumed
to be price inelastic. (See Sections 5.1.1, Demand and 5.1.3, Competition,
for a complete analysis).
5.2.2.4 Capital Analysis
End product demand and industry profits are high enough to warrant the
investment of less than two-tenths of one percent of total fixed invest-
ment (see Table 5-13). The alternative to making the investment (i.e.,
shutting down) is more costly in the long run. All three producers are
large, profitable chemical companies and should have little difficulty
raising capital.
5.2.2.5 Closure Analysis
Table 5-14 summarizes the price elasticity of demand, price rise, and
profitability decline for hydrogen cyanide model plants and compares
these to EPA's closure criteria (see methodology description). Since
most hydrogen cyanide is produced for captive use, demand is price
inelastic for all model plants. The required price increase is less
than one percent for the medium and large model plants, and only slightly
greater for the large model (1.06 percent). The potential profitability
decline does not exceed one percentage point for any of the models.
Based on the EPA's closure criteria, no plant closures are forecast.
5.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on hydrogen cyanide manufacturers.
5-35
-------
5.2.3.1 Price and Profitability Impacts
The increase in the production cost of HCN due to the most stringent
pollution control level is no more than 1.06 percent for all model plant
sizes (see Table 5-11). Manufacturers should have little trouble passing
this cost increase through to consumers of downstream products.
One way of placing this increase in perspective is to compare it with an
increase in the price of one of HCN's raw materials. A five percent
increase in the price of natural gas (from $2.00 per 1000 cubic feet to
$2.10 per 1000 cubic feet) would increase HCN's manufacturing cost by
$4.22/ton. This is approximately equivalent to the one percent cost
increase that would result from pollution control cost.
Another method of assessing the impacts of an HCN price increase is to
evaluate the effects on end product prices. The magnitude of price
increases in downstream products will depend on the quantity of HCN used
in their manufacture. One ton of MMA requires .27 tons of HCN at a cost
of $108 (.27 tons of HCN at $400/ ton). The additional cost of HCN
wastewater treatment would raise this cost to $109 (.27 tons of HCN at
the new cost of $406/ton). Therefore, MMA manufacturers would need to
raise the price of merchant MMA .13 percent in order to keep profits
constant. Assuming a production cost of $620/ton for MMA, the cost
increase would be $1.11.
Dealing with a one time cost increase of less than one percent should
present no problem to an industry that successfully has dealt with
quickly rising costs in the past. The profit outlook for both MMA and
cyanuric chloride is sound. MMA producers have raised prices by 120
percent since 1973 to offset increased energy costs. Producers will be
able to raise prices by the small amount necessary to cover pollution
control costs.
5-36
-------
TABLE 5-13
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Hydrogen Cyanide
LEVEL OF
REMOVAL
*)
,£.
MODEL PLANT SIZE
(Annual Production in Tons)**
35,000
0.19 °',
56,000
0.15 %
70,000
0.14 %
* Fixed investments are assumed to be $616/ton, 5535/ton, and
$500/ton of capacity for the three model plants from smallest
to largest.
"* 62% capacity utilization.
SOURCE: EEA Estimates and Development Document
5-37
-------
TABLE 5-14
IMPACT SUMMARY
Chemical: Hydrogen Cyanide
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
PLANT
PRODUCTION
(ton/yr)
35,000
56,000
70,000
PRICE ELASTICITY
Low
MAXIMUM
PRICE RISE
1.06%
0.99
0.97
MAXIMUM
PROFITABILITY
DECLINE
0.21%
0.22
0.22
CLOSURES
no
no
no
SOURCE: EEA Estimates
5-38
-------
Should producers be unable to pass on the higher costs of effluent
control to consumers, the resulting profitability decline, as measured
by the change in IRR and ROI, would be negligible.*
The change in profitability is less than one-half of one percentage
point of the ROI and IRR for each model plant size. The small prof-
itability decline indicates that MMA producers will not have increased
incentive to replace existing MMA plants with new technology plants to
reduce HCN production.
5.2.3.2 Other Impacts and Conclusion
Because the price impacts are small, profitability will remain unchanged,
and shutdown will not be required. Therefore, all other impact areas
(employment, communities, etc.) will be unaffected.
* This cash flow analysis assumed than HCN was manufactured in a self-
standing plant, and acted as a profit center. Since HCN is a captive,
intermediate product, this is not the case. However, this assumption
was made in order to gauge the "profitability" decline.
5-39
-------
6. HYDROGEN FLUORIDE
6.1 CHARACTERIZATION
Hydrogen fluoride (HF) or hydrofluoric acid, is a very reactive in-
organic acid used to fluorinate both organic and inorganic molecules.
Its principal uses are (1) in the production of aluminum fluoride where,
together with cryolite, it forms a molten electrolyte for aluminum
t
reduction, and (2) as a reagent in the formation of chlorofluorocarbons
("fluorocarbons") which serve primarily as solvents, blowing agents, and
refrigerants. In addition, hydrogen fluoride is used in stainless steel
pickling, uranium processing, petroleum alkylation, and several other
smaller applications.
Hydrogen fluoride is not an end use commodity. It functions as an input
in the production of other goods. As such, demand for HF is determined
largely by the profitability, growth, and current production technology
of its end use markets. Changes in these variables have had a severe
impact on the hydrofluoric acid market over the last four years, and
considerable uncertainty remains concerning the product's future. This
characterization will examine the manufacturing cost outlook for hydro-
fluoric acid, the strengths and weaknesses of its end use markets, and
potential changes in demand.
6.1.1 Demand
Hydrogen fluoride has two main end uses, primary aluminum production,
and fluorocarbons production. The most recent statistics indicate that
these uses accounted for 27 percent and 39 percent of total HF produc-
tion, respectively. In addition to these functions, HF is used in
approximately 10 other end markets, each accounting for one percent or
more of total production. Among the most significant of these are
6-1
-------
stainless steel and exotic metals processing, uranium fuels processing,
and petroleum alkylation. A breakdown of end uses for HF can be found
in Figure 6-1.
In order to depict the total demand for hydrogen fluoride, the conditions
in the individual end markets are summarized below.
6.1.1.1 End Markets
Aluminum - There have been severe forces acting on the two primary end
use markets for HF. The aluminum market has been hardest hit, with HF
consumption dropping from a high of 166,900 tons in 1974 to just 91,260
tons in 1977. This drop is a result of extensive fluoride recovery
efforts by the aluminum manufacturers, and a seven percent reduction in
total aluminum output in 1977 as compared to 1974. Recovery efforts
were precipitated in part by the economic advantages of recovering
cryolite and sodium fluoride from solid waste and in part by fluoride
emission guidelines imposed by EPA.
Hydrofluoric acid demand in aluminum production is expected to continue
declining, but at a much more moderate pace. Fluoride recovery tech-
nology, with its consequent reduction in HF demand, is not yet fully
operational in some aluminum smelting plants. Thus, further reductions
can be expected when the equipment comes on line. In addition, HF
producers cannot expect an increase in aluminum ingot capacity to bol-
ster the market. Aluminum producers were hurt in the early 1970's and
in 1975 by expanding capacity too rapidly. In the face of a strong
aluminum market in 1978 they reduced expansion in order to support
higher prices and increase return on equity. Additionally, long-term
power contracts, considered essential to investment in new capacity, are
becoming increasingly difficult to negotiate. Thus, short-term growth
prospects for HF in the aluminum end market are poor.
6-2
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A more substantial threat exists in the longer term. Alcoa has devel-
oped a smelting process, based on a chloride electrolyte, which would
eliminate the need for HF in aluminum production altogether. As a
result, electricity savings of 30 percent over the most efficient alu-
minum smelting technology have been reported at a pilot plant in Texas.
Electricity is a major cost input in aluminum production with 16,000
kilowatt hours required to produce one ton.
Fluorocarbons - The fluorocarbon end market also has experienced severe
cutbacks. Prior to 1975, 20 to 25 percent of total HF production was
used in manufacturing fluorocarbon aerosols. In 1975, however, evidence
showed that fluorocarbon gases could cause degradation of the protective
ozone layer of the atmosphere, increasing the incidence of skin cancer.
This prompted EPA and FDA to ban the use of fluorocarbons as aerosols in
1978. Fluorocarbon production for these regulated uses ceased in December
of that year. Consumption of HF in fluorocarbon manufacturing fell from
approximately 160,000 tons in 1974 to 109,000 tons in 1977.
Other fluorocarbon applications, such as refrigerants, blowing agents,
and solvents, have remained strong and are expected to grow at five or
six percent per year. This would certainly strengthen the market for
HF. However, the Environmental Protection Agency is considering regu-
lation of all fluorocarbon uses, and is expected to make a decision in
the near future. The hydrofluoric acid industry could suffer another
setback if EPA imposes strict regulations.
Other Markets - Other markets for hydrogen fluoride are more promising
than aluminum and fluorocarbons. Development of nuclear energy sources,
although slower than previously anticipated, will expand the use of
hydrofluoric acid in uranium processing. Petroleum alkylation, stain-
less steel pickling, and several other minor uses also offer the poten-
tial for moderate growth.
6-4
-------
6.1.1.2 Demand Summary
Demand for hydrogen fluoride has decreased substantially since 1974. The
main reasons for this decline are summarized below:
• The EPA and FDA ban on fluorocarbon aerosols has eliminated a
major'market for hydrofluoric acid.
• Fluoride recovery efforts by aluminum manufacturers have
substantially reduced the comsumption of cryolite and aluminum
fluoride in aluminum production. Both of these products use
HF as a starting material.
• Demand could be further weakened by the introduction of Alcoa's
chloride reduction technology (see Section 6.1.1.1), which
would eliminate the need for fluoride electrolytes.
Barring any further environmental regulation of fluorocarbon use such as
for refrigerants and blowing agents, this market should grow five to six
percent annually according to industry sources. The use of HF in petro-
leum alkylation and uranium processing is also growing. Overall pre-
dictions for HF consumption range from a continued decline to a growth
rate of one to four percent.
6.1.2 Supply
6.1.2.1 Production
Hydrofluoric acid production grew at an annual compound rate of 4.9
percent between 1967 and 1974, reflecting growing demand for fluoro-
carbons and large expansions in aluminum production. Peak production of
381,005 tons was reached in 1974. During the years 1974 to 1977, sharply
declining demand from the aluminum and fluorocarbon industries caused
production to fall 27 percent, an annual compound rate of decline of 9.9
percent (see Table 6-1 and Graph 6-1). Domestic production should
continue to decline slightly in the short-term, as fluoride recovery
efforts continue in the aluminum industry.
6-5
-------
In the longer term, production of Iff will depend upon the status of
further fluorocarbon regulation and development of Alcoa's new chloride
reduction technology. Strict regulation and the elimination of fluorides
as an electrolyte in aluminum production could cripple the industry.
6.1.2.2 Producers
Presently there are six producers of hydrogen fluoride operating nine
plants. Three producers, Allied, DuPont, and Alcoa account for 80
percent of capacity. HF capacity has diminished considerably since 1974
in response to decreasing demand. Current producers and facilities are
illustrated in Table 6-2. Four plants have closed, and capacity has
been reduced 31 percent from 398,000 tons/year to 274,000 tons/year.
Two of these shutdowns occurred during December 1978 when Stauffer and
Kaiser reduced their capacity by a combined total of 68,000 tons/year.
Further closures can be expected if demand continues downward, and may
occur even if demand stabilizes, as imports are offering increasing
competition.
The majority of hydrofluoric acid is used captively. Alcoa uses it in
the production of aluminum fluoride; DuPont, Allied, Essex, and Pennwalt
in the production of fluorocarbons; and Harshaw in the production of
fluoride salts. Some of the acid is sold to smaller consumers 'on a
merchant basis, but this accounts for only a fraction of total output.
Backward integration is not as prevalent as forward integration.
Fluorspar (generally imported) and sulfuric acid are the two major
material inputs in HF production. Domestic production is low and the
arsenic content of some domestic ores creates technical problems in
fluorocarbon manufacturing. Major import sources are Mexico, Canada,
Europe, and Africa.
6-6
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VOLUME
(tons)
AVERAGE
UNIT
VALUE
(dollars)
GRAPH 6-1
HYDROGEN FLUORIDE PRODUCTION AND PRICE
390000-
292500-
195000-
97500-
0.00-r
1968
680 -
510 -
340-
170-
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1972
1976
YEAR
1972
1976
YEAR
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TABLE 6-;
PRODUCERS OF HYDROGEN FLUORIDE
COMPANY
Allied Chenical
Corporation
Aluainua Corpora-
tion of America
(ALCOA)
LOCATION
Baton Rouge, LA
Geismar, LA
Nitro, W. VA
Port Chicago, CA
Ft . Comfort , TX
ANNUAL CAPACITY
(thousand tons)
90
55
ESTIMATED PERCENTAGE OF
INDUSTRY CAPACITY
32.8
20.1
INTEGRATION
RAW MATERIALS END PRODUCTS
Sulfunc Acid Aluoinun
Fluoride
Fluorocarbons
AlUBinun
Fluoride
DuPont
Serang, TX
75
27.4
Sulfunc Acid Fluorocarbons
Fluorspar
Csscx
Marshal.
Pennwalt
TOTAL
Paulsboro, NJ 11
Cleveland, OH 18
Calvert Citx, KY 25
274
4.0
6.6
9.1
100.0
Sulfunc Acid Fluorocarbons
Fluoride Salts
Fluorocarbons
SOURCE: Chemical Marketing Reporter and Contractor Estinates.
6-9
-------
Some producers, such as DuPont, are integrated to fluorspar through
interests in foreign subsidiaries. Many producers, however, buy fluor-
spar on the market. Allied, DuPont, and Essex are producers of sulfuric
acid. The remaining three HF manufacturers purchase sulfuric acid
commercially.
6.1.2.3 Process
Hydrofluoric acid is manufactured by the reaction of sulfuric acid and
the mineral fluorspar (97 percent calcium fluoride) in a reaction vessel
heated to between 200 and 250 C. Hydrogen fluoride is evolved as a gas,
which is cleaned of dust and traces of sulfuric acid, then condensed.
The condensed liquid is distilled to obtain 99.90 to 99.95 percent
hydrofluoric acid. The process is governed by the following reaction:
CaF0 + H,SO, -> 2HF + CaSO,
224 4
For each ton of HF, approximately 3.8 Ib of calcium sulfate is formed as
a by-product along with small amounts of fluosilicic acid. The fluosilicic
acid can be used in water treatment, but is generally discarded with the
calcium sulfate as landfill.
The reaction process is endothermic (requiring energy to drive the
reaction) and the energy requirements represent a significant cost input
in the production, process.
DuPont has developed a variation of this process in which they use the
heat generated by the reaction of water and sulfur trioxide to drive the
reaction between fluorspar and sulfuric acid. With the proper mix of
inputs, no external heat source is required for the production of HF.
The procedure is based on the following reaction:
2CaF0 + H0SO, + S00 + H00 -> 2CaSO, +4HF
22432 4
Net heat of reaction is 0.
6-10
-------
Estimated material requirements and costs for the standard HF production
process are found in Table 6-3.
6.1.3 Competition
The domestic hydrogen fluoride industry serves primarily captive end
markets. The producers are large aluminum, chemical, and diversified
firms. There is no domestic competition for this segment of the market
because these firms supply their own needs. There is some price com-
petition in the merchant market. Its degree, however, is moderated by
the fact that hydrofluoric acid is a chemical reagent, or building
block, fundamental to many processes. This accounts for the long-term
contracts and stable supply sources which characterize the market.
Few substitutes for HF threaten its market position in any of its pri-
mary applications. However, hydrofluoric acid does face stiffening
competition from imports, which have several advantages. The majority
of imported HF comes from Mexico, where DuPont opened a 75,000 tons/year
plant in 1975. Mexico offers the advantages of large deposits of fluor-
spar and sulfur (the primary inputs in HF production), relatively cheap
labor, and a tariff structure which places no duty on finished acid, yet
taxes unfinished fluorspar, thus raising the costs of U.S. production.
6.1.4 Economic Outlook
An industry's profitability is the difference between total revenues and
total costs. There are factors that influence these independently so it
is therefore useful to present a revenue outlook and cost outlook separately.
6.1.A.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related .
6-11
-------
6.1.4.1.1 Quantity
The outlook for domestic production and sale of hydrogen fluoride is, at
best, one of stable or very slightly increasing volume. More likely,
however, is a continuing decline in the quantity of HF produced and sold
by the domestic industry. Several forces are acting to bring about this
change. Among the most important are the following:
• Continuing fluoride recovery by domestic aluminum producers
• New aluminum smelting technology which eliminates the need for
fluorides in aluminum production
• Potential regulation of all fluorocarbon uses including refriger-
ants and blowing agents for rigid foam insulation
Provided that the EPA does not invoke new fluorocarbon regulations,
there are some promising aspects to the hydrofluoric acid market. The
most important are:
t Uranium fuels processing for nuclear reactors
• Petroleum alkylation
Increases in these and other smaller markets may offset the continuing
decline in HF and stabilize the market.
6.1.4.1.2 Price
The hydrogen fluoride market is highly captive. Integrated producers
use it as an input in aluminum production, fluorocarbon manufacturing,
and several smaller applications. In captive roles, the price of HF has
little meaning, as the profitability of the entire production stream
determines its value.
End uses which constitute the merchant market for HF (primarily uranium
processing, petroleum alkylation, electronics, and stainless steel
pickling) are strong and offer good growth potential. Thus, from a
demand perspective, the merchant market appears able to sustain moderate
6-12
-------
TABLE 6-3a
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
25,400 tons/year
21,000 tons/year
(83% capacity utilization)
$11.3 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
Cooling water
Steam
Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
32.20
15.50
$ 47.70
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
58.80
53.80
10.80
$123.40
$596.80
*See Appendix C
6-13
-------
TABLE 6-3b
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE-
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
50,700 tons/year
42,000 tons/year
(83% capacity utilization)
$18.4 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
Cooling water
Steam
Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
19.00
12.60
$ 31.60
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
45.80
43.70
8.70
$98.20
$555.50
*See Appendix C
6-14
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TABLE 6-3c
ESTIMATED COST OF MANUFACTURING HYDROGEN FLUORIDE-
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
76,100 tons/year
63,000 tons/year
(83% capacity utilization)
$24.4 million
VARIABLE COSTS
• Materials
- Flurospar (97%)
Sulfuric Acid
- 20% Oleum
- Hydrated lime
• Utilities
Cooling water
Steam
Process water
- Electricity
- Natural Gas
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
2.17 tons
1.5 tons
1.09 tons
.02 tons
107.23
46.46
48.55
32.50
232.70
69.70
52.90
0.70
18.86 mgal
.985 tons
60 gal
212 kWh
4 MMBtu
.1
6.50
.75
.03
2.50
1.90
6.40
45.00
6.40
10.00
$425.70*
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
14.40
11.10
$ 25.50
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
40.90
38.60
7.70
$87.20
$538.40
-See Appendix C
6-15
-------
price increases. However, falling demand for HF in captive uses may
create an oversupply which could temporarily mitigate those increases.
Sustained periods of excess capacity probably would bring further plant
closures.
Competition from Mexican imports also could limit price increases. The
threat of expanded production of Mexican HF could require price restraint
by domestic producers.
6.1.4.2 Manufacturing Costs
Hydrofluoric acid production uses energy intensive inputs and requires
process temperatures above 200 C for reaction. Thus, manufacturing
costs will continue to rise with the cost of energy. In addition, the
cost of sulfuric acid, one of the. two material inputs, has risen at an
annual compound rate of 18 percent since 1972. Sulfuric acid prices are
not expected to stabilize, as it too is produced by an energy intensive
process.
Price increases for fluorspar have been moderate by comparison. The
price has increased at a compound annual rate of 5.4 percent per year
from 1974 to 1979, which is low compared to price increases in the
chemical industry as a whole.
The overall outlook is for costs to increase at a relatively brisk pace,
primarily due to high process energy requirements. Estimated material
requirements and costs can be found in Table 6-3.
6.1.4.3 Profit Margins
There are serious questions concerning the profitability of hydrofluoric
acid production. If large decreases in demand occur due to EPA regulation
or fluoride recycling by aluminum producers, excess capacity will force
6-16
-------
price competition and ultimately plant closures. In addition, imports
from Mexico, which have some cost advantages (see Section 6.1.3), may
force price restraint on the merchant market.
In the merchant segment of the market, demand increases are expected to
provide support for future price hikes. This is based on the assumption
that capacity will shrink if demand falls in the captive sectors, alle-
viating any oversupply situations. Price increases will be required to
keep the merchant market profitable, as costs will continue increasing,
particularly for energy inputs.
6.1.5 Characterization Summary
The hydrofluoric acid industry has changed substantially over the past
five years. Production dropped 27 percent between 1974 and 1977, pri-
marily due to fluoride recovery and recycling efforts in the aluminum
industry, and the EPA and FDA ban on fluorocarbon aerosols. Further
reductions may be forthcoming if the EPA decides to regulate all fluoro-
carbon uses, or if the aluminum industry accomplishes substantial further
reductions in HF requirements.
Depending upon the resolution of the two issues mentioned above, growth
in HF demand could range between a continued decline and growth of five
or six percent.
Industry profitability will also depend, in large part, on the outcome
of these two issues.
6.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
hydrogen fluoride industry to comply with various effluent control
standards. The technical contractor has designed effluent control tech-
6-17
-------
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
A survey by the technical contractor revealed that all hydrogen fluoride
manufacturers are direct dischargers having Level 1 treatment technology
in place. Therefore, this analysis assesses the impact of only the
additional costs required to meet higher effluent removal levels.
6.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical con-
tractor for pollution control equipment technologies designed to enable
dischargers to meet four levels of waste removal.
The primary source of wastewater in hydrofluoric acid manufacture is
kiln waste. Calcium sulfate is formed following the reaction of fluor-
spar and sulfuric acid. This waste is removed by means of a wastewater
slurry. Approximately 3.8 pounds of solid calcium sulfate is generated
in the rotary kiln per pound of product.
In addition to kiln waste, other sources of process waste are air pollu-
tion control equipment (scrubbers), leaks, spills and washdown. Scrubber
waste flows depend upon plant operations and state and local air pollu-
tion regulations.
A two stage process is proposed to achieve Level 1. Kiln and scrubber
waste water is collected in an equalization tank. Lime is added to
precipitate fluoride and toxic metals. The wastewater is then trans-
ferred to a mixing tank where the pH is raised to 10. Fluorides are
6-18
-------
precipitated as calcium fluoride and metals as metal hydroxides. Solids
are settled in a lagoon. Sixty-five percent of the effluent is recycled
to the kiln, and the rest adjusted for final pH and discharged. Solids
are dredged from the lagoon and stored on site.
The costs of three technologies with increasing removal efficiency are
estimated. The first (Level 2) involves the addition of a media filter
to increase fluoride and toxic metals removal. In the second (Level 3)
ferrous sulfide is added as a polishing step before the filter to remove
additional trace metals from the effluent. The final (Level 4) is the
same as Level 1, except lime is replaced by soda ash. This reduces the
scaling problem when the effluent is recycled to the kiln and scrubber.
Level 4 also calls for recycling all wastewater. These steps are sum-
marized below:
Level 1 -Equalization, Lime Precipitation, Settling, and Recycle
• Lime is added to precipitate fluoride and toxic metals
• Effluent is clarified and settled
• Sixty-five percent of effluent is recycled to transport kiln
waste
Level 2 - Level 1 Plus Filtration
• Addition of a filter to increase fluoride and toxic metals
removal
Level 3 - Sulfide Precipitation
• Ferrous sulfide is added to remove additional toxic metals
before filtration
Level 4 - Soda Ash Precipitation and Recycle
• Identical to Level 1, except soda ash replaces lime to facilitate
additional recycle.
6-19
-------
Pollution control cost estimates have been calculated for three model
plant sizes, producing 21,000, 42,000 and 63,000 tons of Iff per year.
The wastewater flow associated with these plant sizes are 5,200, 10,450
and 15,700 cubic meters per day respectively. Pollution control costs
for the model plants are summarized in Table 6-4.
Hydrogen fluoride manufacturing cost estimates are $683.70, $632.60 and
$613.55 per ton for the small, medium and large plants respectively.
These cost estimates are based on the estimates presented in Table 6-3
and include the cost of meeting Level 1 effluent limitations. Table 6-5
summarizes the cost parameters used in the model plant analysis.
The total annualized control costs for the hydrogen fluoride subcategory
are summarized in Table 6-6. These costs are based on the model plant
pollution control costs and current industry production levels. All
hydrogen fluoride manufacturers have Level 1 removal equipment place and
no additional costs will be incurred for Level 1. The total additional
cost to the subcategory for compliance with the second, third, and
fourth removal levels are $651,921, $708,888, and $4,622,911, respectively.
6.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
6-20
-------
MODEL PLANT PARAMETERS
TABLE 6-4: POLLUTION CONTROL COSTS
Chemical: Hydrogen Fluoride
.MODEL
PLANT
PRODUCTION
(tons/year)
21,000
42,000
63,000
SECOND LEVEL
OF REMOVAL
CAP ITAL
INVEST-
MENT
$159,600
232,400
353,500
ANNUAL
OPERATING
COST
$43,743
54,812
72,055
THIRD LEVEL
OF REMOVAL
CAPITAL
INVEST-
I1ENT
$ 163,300
242,200
371,700
ANNUAL
OPERATING
COST
$47,994
63,086
84,791
FOURTH LEVEL
OF REMOVAL
CAPITAL
INVEST-
MENT
$159,600
232,400
553,500
.ANNUAL
OPERATING
COST
£411,448
790,162
1,173,080
SOURCE: Devalo-oment Document
TABLE 6-5: MANUFACTURING COSTS
Chemical: Hydrogen Fluoride
MODEL PLANT
PRODUCTION *
(tons/year)
21,000
42,000
63,000
INVESTMENT IN
PLANT AND EQUIPMENT
$ 11,300,000
18,400,000
24,400,000
MANUFACTURING
COSTS PER TON**
$683.70
632.60
613.55
* Cost estimates based on plant capacities of 25,400, 50,700 and
76,100 tons per year (see Table 6-3).
** Includes cost of meeting Level 1 effluent limitations.
(SOURCE: Development Document)
6-21
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• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
6.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 6-7 summarizes the price rise required of each
model plant for each level of removal. Note that Level 1 is not in-
cluded in the table. Level 1 treatment technology is assumed to be in
place. Three additional removal levels are presented -
The price increase necessary to pass through the incremental pollution
control costs incurred by going from Level 1 to Levels 2 or 3 is less
than one percent for all model plants. However, the incremental costs
of Level 4 removal would require a three percent price increase or an
additional $19.50 per ton.
6.2.2.2 Profitability Analysis
The profitability analysis examines the decline in the return on invest-
ment (ROI) and internal rate of return (IRR) when no price pass-through
is possible. For removal levels 2 and 3, the smallest model plant
incurs a moderate decline in the IRR of one percentage point and the ROI
decreases by one-half of one percentage point. The two larger model
plants have smaller declines in the ROI and IRR. These results are
summarized in Table 6-8a and 6-8b. The profitability impacts for Level 4
removal are greater. The IRR for all three model sizes declines by over
three percentage points (see Table 6-8c).
6-23
-------
6.2.2.3 Price Elasticity of Demand
While there are few substitutes for HF which currently threaten any of
its major uses, imports represent a constraint on domestic prices.
Therefore, the demand for HF is assumed to be moderately price elastic.
(See Sections 6.1.1, Demand, and 6.1.3, Competition, for a complete
analysis.)
6.2.2.4 Capital Analysis
Raising the capital necessary to install the pollution control equipment
is a potential problem for a firm. The capital requirements of the
suggested HF pollution control technologies for each control level are
minimal. The required investment in control equipment is approximately
1.5 percent of the plant's total fixed investment. Even the most strin-
gent control level has modest capital requirements (See Table 6-9) and
these modest capital requirements should not pose a problem for the
industry.
6.2.2.5 Closure Analysis
Table 6-10 summarizes the price elasticity of demand, price rise, and
profitability decline for hydrogen fluoride model plants and compares
these to EPA's closure criteria (see methodology description). For
removal Levels 2 and 3, no plant closures are predicted since the calcu-
lated price increase and profitability decline are small. However, the
model plant analysis indicates that Level 4 removal costs may cause some
HF plants to shut down. The implication of this model plant closure
analysis for actual plants in the industry is discussed in detail in the
following section.
6.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on hydrogen flouride manufacturers.
6-24
-------
TABLE 6-7
PERCENTAGE PRICE RISE
Chemical: Hydrogen Fluoride
Price: $650/ton
MODEL PLANT
PRODUCTION
ftons/vearl
SECOND LEVEL
OF REMOVAL
THIRD LEVEL
OF REMOVAL
' FOURTH LEVEL
OF REMOVAL
21,000
42,000
63,000
0.57'*
0.53
0.36
0.61%
0.42
0.40
3.26%
3.07
3.05
SOURCE: EEA Estimates.
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6-28
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TABLE 6-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Hydrogen Fluoride
LEVEL OF
REMOVAL
2
3
4
MODEL PLANT SIZE
(Annual Production in Tons)**
21,000
1.4 %
1.4
1.4
42,000
1.3 %
1.3
1.3
63,000
1.4 %
1.3
1.4
* Fixed investments are assumed to be $445/ton, $363/ton, and
$321/ton of capacity for the three model plants from smallest
to largest.
"* 83% capacity utilization.
SOURCE: EEA Estimates and Development Document
6-29
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TABLE 6-10
IMPACT SUMMARY
Chemical: Hydrogen Fluoride
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
3
4
PLANT
PRODUCTION
(ton/yr)
21,000
42,000
63,000
21,000
42,000
63,000
21,000
42,000
63,000
PRICE ELASTICITY
Medium
Medium
Medium
MAXIMUM
PRICE RISE
0.57%
0.38
0.36
0.61%
0.42
0.40
3.26%
3.07
3.05
MAXIMUM
PROFITABILITY
DECLINE
0.89%
0.28
0.27
0.97%
0.31
0.31
3.50%*
3.26
3.07
CLOSURES
no
no
no
no
no
no
May occur in
in any of the
plant sizes
modeled
* Based on ROI.
SOURCE: EEA Estimates
6-30
-------
The demand for hydrogen fluoride has decreased substantially since 1974.
The EPA ban on fluorocarbon aerosols eliminated one of hydrogen fluoride's
major markets. The resulting decline in demand prompted a number of
plant closings. Four plants have closed since 1974 reducing industry
capacity by 31 percent. If the EPA expands fluorocarbon regulation to
include other uses, demand will continue to diminish and further clo-
sures can be expected. Even if demand stabilizes, some producers could
be threatened by increasingly competitive imports.
6.2.3.1 Price and Profitability Impacts
The price rise required to fully pass through the pollution control
costs incurred by going from the Level 1 to the more stringent control
Levels 2 and 3 is no more than 0.60 percent. This is considered incon-
sequential. However, the costs of the most stringent control level
(Level 4) would require a price increase of 3.3 percent. This price
increase could be considered significant, particularly since the indus-
try has been experiencing declining demand.
If producers were forced to absorb these costs, the slim profit margins
presently existing in the industry could be threatened. Table 6-8c
presents the change in profitability which results from Level 4 control
and the assumption of no price pass-through. For the smallest model
plant the ROI declines from 3.51 percent to .01 percent, virtually zero;
the IRR declines from approximately two percent to a negative value.
The two larger model plants experience smaller, but still substantial
reductions in profitability from the Level 4 control technology.
Tables 6-8a and 6-8b present the profitability changes resulting from
the firms fully absorbing the costs of the Level 2 and Level 3 pollution
control technologies. The changes in the ROI and IRR from these control
levels are small. In all cases the reduction is less than one percentage
point, and is generally less than one-half of one percentage point.
6-31
-------
The model plant analysis indicates that the costs of achieving control
Levels 2 and 3 should not pose a problem for the industry. However,
Level 4 control could result in significant impacts. A full price
pass-through of the Level 4 costs may not be possible due to declining
demand and increasing competition from imports. The resulting decrease
in profitability could jeopardize the operation of several of the smaller
hydrogen fluoride plants.
6.2.3.2 Other Impacts and Conclusion
The price and profitability impacts of the second and third control
levels are small. Secondary impacts resulting from these control levels
in areas such as inflation, employment and community disruption are
similarly small. However, the fourth control level does have signifi-
cant price and profitability impacts which could induce small, marginal
plants to close. The following discusses the impacts of Level 4 costs.
Three hydrogen flouride producers fall into the size range depicted by
the small model plant. These plants are integrated forward to end
products with two plants dedicated to fluorocarbon production and the
third to fluoride salt manufacturing. Since the hydrogen fluoride is
used captively in the manufacture of another downstream chemical by each
plant, the closure decision will depend upon the profitability of the
end product.
Hydrogen fluoride represents approximately one-third of the costs of
fluorocarbon manufacture. Thus a three percent increase in the price of
hydrogen fluoride would translate into a one percent increase in the
price of fluorocarbons. This required fluorocarbon price increase is
small, but it will make already marginal producers even more marginal.
The three plants with a likelihood of closure employ a work force of
approximately 800 people (with about 200 of them directly involved in HF
6-32
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manufacture). Two of the plants are located near large cities, each with
a substantial chemical industry. Closure of either of these plants
would have minimal employment impacts. The affected workers could be
easily absorbed into the work force. The third plant is located in a
small rural community where regional unemployment has been above the
national average, ranging from 7 to 12 percent. Since this plant is
owned by a large chemical company, however, relocations to other plants
within the company would be probable. As a result, the employment
impacts are expected to be minimal. None of the plants are large enough
to cause substantial community impacts by their closure.
6.2.3.3 New Source Standards
New source performance standards (NSPS) and pretreatment standards for
new sources (PSNS) for the hydrogen fluoride subcategory will require a
different control technology from those discussed above for existing
plants. Pollution control for new plants will involve lime and soda ash
precipitation, recycle of 60 percent of the effluent, and dry handling
of kiln waste in order to reduce the waste load and effluent flow. This
treatment system is available to new plants since they have the oppor-
tunity to design and install the most efficient control systems. The
costs for this system are similar to or slightly less than Level 1
removal costs. Since all current hydrogen fluoride plants are now
incurring the costs of Level 1 removal, new sources will not be operating
at a cost disadvantage. Therefore, new source performance standards
will not result in more severe impacts on new producers and are not
expected to significantly discourage new hydrogen fluoride plants from
entering this subcategory.
6-33
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7. NICKEL SULPATE
7.1 CHARACTERIZATION
Nickel sulfate (NiSO,) is a low volume chemical used primarily in metal
plating (see Figure 7-1 for sources and uses of nickel sulfate). Total
production of nickel sulfate has declined from a high of about 21,000
short tons in 1969 to 7,032 tons in 1977. This represents a 15 percent
average annual decrease in demand for nickel sulfate.
Two factors are contributing to the decline in nickel sulfate demand:
• Metal platers, the primary purchasers of nickel sulfate, are
recycling nickel sulfate solution in an effort to meet 1973
water pollution control regulations
• Some end markets for plated metal, particularly the automobile
industry, are replacing plated parts with plastics and aluminum,
because they are lighter.
Recycling efforts and substitution of other materials will cause nickel
sulfate production to continue declining for the next few years.
7.1.1 Demand
7.1.1.1 End Markets
Most nickel sulfate (between 80 and 90 percent, according to industry
sources) is used in metal plating. The remainder is used in the manu-
facture of hydrogenation catalysts.
Electroplating
Electroplating is a process whereby objects are coated with a thin layer
of one or more metals in order to improve the appearance, durability, or
electrical properties of the surface. The process involves placing the
object to be plated in a bath containing a metal salt. An electric
7-1
-------
current is passed through the solution and the object such that the
metal from the salt (nickel in the nickel sulfate solution) attaches
itself to the surface of the object.
Between 10 and 20 thousand electroplating installations in the United
States use nickel sulfate. Of these, almost 3,000 are independently
owned and operated electroplating shops. The remainder are captive
operations engaged in the manufacture of products or parts that require
plating, such as automobile bumpers.
Nickel is used in all decorative plating applications. A relatively
thick (.4 - 1.5 mil) coating of nickel is applied as a base (or over a
layer of copper) and is then covered by a thin layer of chromium. The
nickel base acts to inhibit corrosion; the chromium resists tarnish.
Electroplating industry sources estimate that 40 to 50 percent of nickel
plating is used by the automobile industry in the chroming of steel
bumpers and decorative trim. Nickel plating is also used in marine
hardware, tools and appliances, and electronics.
Plating has many applications and is used by a number of industries.
Therefore, demand for plating is dependent on the demand for the plated
end products, such as automobiles and appliances. However, the plating
industry's demand for nickel sulfate has declined due to increased
recycling of the chemical.
Because of these recovery efforts, demand for nickel sulfate is expected
to decline for the next five to 10 years, although the rate of this
decline is uncertain. As platers install closed loop systems to avoid
wastewater disposal, the total demand for nickel sulfate may be reduced
by as much as 50 percent. It is possible, however, that some platers
may find it economically feasible to sell the spent solution and purchase
"fresh" nickel sulfate.
7-2
-------
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7-3
-------
Hydrogenation Catalysts
Nickel sulfate is one of a number of nickel salts used to prepare a
variety of nickel hydrogenation catalysts. Hydrogenation catalysts are
used in the preparation of vegetable oils and other foods, alcohols, and
plastics. Food processing accounts for almost half of nickel catalyst
end use. This market is relatively mature and will grow with Gross
National Product.
7.1.1.2 Demand Summary
Demand for nickel has decreased substantially in the last few years.
The decline is primarily due to the increased recycling efforts by metal
platers. The industry has not completed its transition to recycle
systems. When it does, demand for nickel sulfate may be reduced to as
little as 50 percent of 1973 levels.
Demand for nickel hydrogenation catalysts, accounting for 10 to 15
percent of the nickel sulfate market, will grow slightly faster than the
GNP. The catalysts are used in food processing and plastics industries,
both of which have strong, steady markets. This end use represents such
a small share of the total nickel sulfate market that it will do little
to offset the overall decline in demand.
7.1.2 Supply
7.1.2.1 Production
Nickel sulfate production was only seven thousand tons in 1977, a very
low volume compared to some other inorganic chemicals. (For example,
production of chlorine, a major inorganic chemical, was 10 million tons
in 1977.) As discussed above, nickel sulfate production has declined
steadily since 1967 (see Table 7-1 and Graph 7-1). The average rate of
7-4
-------
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GRAPH 7-1
NICKEL SULFATE PRODUCTION AND PRICE
22.00 -
16.50 -
VOLUME
(000's of tons)
5.50 -
0.00
1968
1972
I I
1976
YEAR
1300.00 -
975.00 -
AVERAGE
UNIT
VALUE 650.00
(dollars)
325.00 -
0.00 ->-•
I !
1972
YEAR
1976
SOURCE: Department of Commerce
7-6
-------
production decline since 1967 has been 7.2 percent annually. The slight
production rise in 1976 represents a recovery from abnormally low levels
brought about by the 1974-75 recession. Nickel sulfate manufacturers
expect the decline in production to continue due to falling nickel
sulfate demand.
The sharp demand decline should cease within five to 10 years as the
metal plating industry completes its transition to nickel recovery
systems. By that time, the previously steep production decline will
moderate to less than two percent annually.
7.1.2.2 Producers
There are 10 producers of nickel sulfate operating 11 plants (see Table 7-2)
The newest producer, Federated Metals Corporation, began nickel sulfate
production in October 1978. Four large, multi-industry companies account
for most of the production: Harshaw Chemical Company, McGean Chemical
Co., Inc., C.P. Chemicals, Inc., and M&T Chemicals. The remaining
plants produce only small amounts of nickel sulfate, often as a by-product
in copper refining operations. Captive use is believed to be very low.
Specific capacity figures are not available, but recent estimates indicate
that Harshaw Chemical, a subsidiary of Kewanee Industries, Inc., and
C.P. Chemicals each account for about 30 percent of industry production.
7.1.2.3 Process
Nickel sulfate is produced from two types of raw materials: pure nickel
or nickel oxide, and impure nickel-containing materials (e.g., spent
nickel catalysts, nickel carbonate). In the first case, the metal or
oxide is digested in sulfuric acid and filtered. The liquid then is
either sold or further processed into a solid. In the second case, the
raw materials also are digested in sulfuric acid. The solution is then
treated in series with oxidizers, lime, and sulfides to precipitate
7-7
-------
impurities. The solution is filtered and marketed or further processed
into a solid.
The reaction is as follows:
Ni + H2S04 -» NiS04 + HZ
In addition, some nickel sulfate is produced as a by-product during
copper refining operations.
Nickel sulfate manufacturing costs are presented in Table 7-3. Based on
an average of three plant sizes, the total cost of manufacturing nickel
sulfate was estimated to be approximately $1,660 dollars per short ton
(see Table 7-3). The cost of raw materials (primarily nickel) accounts
for 50 to 75 percent of the manufacturing costs. Total fixed investment
for a nickel sulfate plant having an annual capacity of 6,000 tons is
estimated to be five million dollars (mid-1978 dollars).
7.1.3 Competition
Nickel sulfate is sold by the manufacturer directly to consumers (pri-
marily metal platers) in either solid or liquid form. Producers of
nickel sulfate compete mainly on the basis of price. One producer, C.P.
Chemicals, has been particularly aggressive in pricing. By consistently
selling below other producers' list prices, C.P. Chemicals has gained a
significant market share in only a few years. Another source of low
priced nickel sulfate is the group of copper refiners who produce small
quantities of the chemical during copper refining. They often "dump"
their nickel sulfate on the market at very low prices in an attempt to
sell the by-product quickly. The intense price competition keeps profits
on nickel sulfate sales very low. Producers who sell a number of chemi-
cals to the plating industry continue to manufacture and sell nickel
sulfate in order to complete a chemical product line.
7-8
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7-9
-------
TABLE 7-3a
ESTIMATED COST OF MANUFACTURING NICKEL SULFATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
1,400 tons/year
990 tons/year
(71% capacity utilization)
$2.0 million
Unit/Ton
$/Unit
• Materials
- Nickel Metal (scrap)
- Sulfuric Acid (66 Be '}
0 Utilities
Power
Cooling Water
Steam
- Process Water
785 Ib
11510 Ib
91 kWh
36 kgal
9 klb
6 kgal
1.35
.016
.03
.10
3.25
.75
1059.10
24.20
2.70
3.60
29.50
4.80
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$1123.90
461.90
80.60
$ 542.50
115.50
201.50
30.20
$ 347.20
$2013.60
""See Appendix C
7-10
-------
TABLE 7-3b
ESTIMATED COST OF MANUFACTURING NICKEL SUUATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
6,200 tons/year
4,400 tons/year
(71% capacity utilization)
$5.0 million
VARIABLE COSTS
• Materials
Unit/Ton
- Nickel Metal (scrap) 785 Ib
- Sulfuric Acid (66 Be')1510 Ib
Utilities
Power
Cooling Water
Steam
Process Water
91 kWh
36 kgal
9 klb
6 kgal
$/Unit
1.35
.016
.03
.10
3.25
.75
$/Ton
1059.10
24.20
2.70
3.60
29.50
4.80
Total Variable Costs
$1123.90
SEMI-VARIABLE COSTS
• Labor
• Maintenance
183.10
45.40
Total Semi-Variable Costs
$ 228.50
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
45.80
113.40
17.10
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
*See Appendix C
$ 176.30
$1528.70
7-11
-------
TABLE 7-3c
ESTIMATED COST OF MANUFACTURING NICKEL SITUATE*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
10,800 tons/year
7,700 tons/year
(71% capacity utilization)
$7.3 million
Unit/Ton
$/Unit
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$/Ton
• Materials
- Nickel Metal (scrap)
- Sulfuric Acid (66 Be
• Utilities
- Power
Cooling Water
Steam
Process Water
785 Ib
'H510 Ib
91 kWh
36 kgal
9 klb
6 kgal
1.35
.016
.03
.10
3.25
.75
1059.10
24.20
2.70
3.60
29.50
4.80
$1123.90
127.30
37.80
$ 165.10
31.80
94.60
14.20
$ 140.60
$1429.60
Appendix C
7-12
-------
There are no substitutes for nickel sulfate in its primary end use,
metal plating. However, automobile manufacturers have begun switching
to materials such as plastic and aluminum (which do not require protec-
tive metal plating) in an effort to reduce automobile weight. These
alternatives to plated metals have not been well received — consumers
seem to prefer chromed bumpers to those made of plastic or brushed alu-
minum. Manufacturers of plastic and aluminum parts are, therefore,
engaged in finding ways of improving the appearance of their product,
such as applying a metal finish to the plastic. Nevertheless, light-
weight plastic and aluminum are certain to become more widely used by
the automobile industry in the interest of lighter cars and gasoline
mileage improvements.
7.1.4 Economic Outloook
7.1.4.1 Revenue
Total revenue is the product of quantity sold and average unit price.
Although these two variables are discussed separately, they are inter-
related.
7.1.4.1.1 Quantity
Nickel sulfate is at the end of its product life cycle. Volume of
sales, which has been declining at about six percent per year for the
last 10 years, will continue to decline due to the following:
• Manufacturers will continue to substitute lightweight plastics
and aluminum for heavier plated metals in many applications
• The metal plating industry will require less nickel sulfate
due to recycling systems which allow spent nickel sulfate
solution to be reused
• The development of more efficient electroplating methods will
have deleterious effects on the market for nickel sulfate and
other electroplating chemicals. (A system recently tested by
7-13
-------
Bell Telephone Laboratories reduces chemical wastes by 90
percent and is less polluting) (Chemical Marketing Reporter,
April 22, 1978)
These factors will continue to reduce nickel sulfate's sales volume by
about six percent per year for the next three to five years. Producers
expect the decline to become more gradual (about zero to two percent per
year) in the mid-1980's.
7.1.4.1.2 Price
The single most important factor in nickel sulfate's price is the price
of nickel, discussed in the following section. Price also is influenced
by competitive market factors, such as aggressive pricing policies on
the part of nickel sulfate manufacturers seeking an increased market
share for their line of electroplate chemicals.
7.1.4.2 Manufacturing Costs
The cost of manufacturing nickel sulfate is dependent on the price of
nickel. Most of the nickel used by nickel sulfate manufacturers is
imported from Canada since very little nickel ore is mined domestically.
However, some nickel is supplied by a domestic company (Amax Nickel,
Port Nickel, LA) that refines imported nickel ore. At current prices
(about $2.00 per pound), the cost of nickel represents at least half of
the total manufacturing costs. Almost all of the remaining cost is
shared equally by labor, maintenance, and plant overhead costs.
Nickel prices have been low during the past two years due to oversupply.
Supplies have tightened recently, however, and leading nickel industry
sources predict a sharp rise in the price of nickel. After reaching
$3.00 per pound, nickel prices will rise by seven to 10 percent annually
for the next five to 10 years. This implies that the price of nickel
will double by 1987 - 1990.
7-14
-------
7.1.4.3 Profit Margins
Profitability in the nickel sulfate industry has always been marginal.
(Estimates of profit margins based on contractor estimates of manufac-
turing costs are developed and discussed in detail in the Economic
Impact Analysis (Section 7.2).) Profitability will erode even further
due to:
• Declining sales: the primary consumers of nickel sulfate,
metal platers, are reducing their consumption through nickel
sulfate recycle systems.
• Competitive pricing: manufacturers will continue to price
competitively in an effort to win a larger market share for
their complete line of electroplating chemicals.
• Rising costs: nickel prices are expected to rise at a seven
to 10 percent annual rate in the long run.
Despite the bleak profitability outlook, manufacturers will continue to
produce and sell nickel sulfate in order to offer customers a complete
line of electroplating chemicals.
7.1.5 Characterization Summary
Production of nickel sulfate, used primarily in electroplating, has
declined to about one-third of 1970 levels. Demand has fallen due to
efforts by the electroplating industry to recycle nickel sulfate in
order to meet water pollution standards. Consumers of plated metals,
especially the automobile industry, are turning to plastic and aluminum
substitutes because they are lightweight. The development of a more
efficient plating process is likely to further erode nickel sulfate
demand.
In addition to its use in electroplating, nickel sulfate is used in the
manufacture of hydrogenation catalysts. These are used by the food
7-15
-------
processing and plastics industries, which are growing steadily. However,
only 5 to 10 percent of nickel sulfate production is used in hydrogenation
catalyst manufacture. Therefore, growth in this market will not affect
the overall decline in nickel sulfate production.
7.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
nickel sulfate industry to comply with various effluent control stan-
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
A survey by the technical contractor revealed that all direct dischargers
and four of the six indirect dischargers in the industry have installed
BPT treatment technology for nickel sulfate producers. Therefore, for
these dischargers, this analysis examines the economic impacts that
result from meeting higher effluent removal levels.
As two of the six indirect dischargers are not pretreating effluent to BPT
(Level 1) standards, this analysis addresses the impacts of pretreatment
costs, which are assumed equivalent to first Level (BPT) removal costs,
on these indirect dischargers.
7.2.1 Pollution Control Technology and Costs
Capital and operating costs were developed by the technical contractor
for pollution control technologies designed to meet two increasingly
7-16
-------
efficient removal levels. Level 1 corresponds to BPT removal and is
assumed equivalent to pretreatment.
The major pollutants in nickel sulfate production are solid waste metals.
To achieve Level 1, caustic soda is added to precipitate the metals. The
overflow from the settling tank is filtered and discharged after pH
adjustment. The effluent remaining in the settling tank is filtered,
and the solids are landfilled . To achieve Level 2, ferrous sulfide is
added as a polishing step before the filtration to remove additional
metals. These steps are summarized below:
Level 1 - Alkaline Precipitation and Filtration
• Caustic soda is added to precipate metals
• Overflow from the settling tank is filtered
• Solids are landfilled
Level 2 - Level 1 Plus Sulfide Precipitation
• Ferrous sulfide is added before filtration to remove
additional metals.
Pollution control cost estimates were developed for three model plant
sizes, with production rates of 990 tons per year (TPY), 4,400 TPY, and
7,700 TPY. Table 7-4 summarizes pollution control costs for the model
plants.
The costs of manufacturing nickel sulfate were estimated by a subcon-
tractor to be $2013.60, $1528.70, and $1429.60 per ton for the small,
medium, and large model plants, respectively. These estimates are based
on those presented in Table 7-3 and do not include the costs of pollution
control. Table 7-5 summarizes the model plant manufacturing costs used
in this analysis.
7-17
-------
The total compliance costs for the nickel sulfate subcategory are sum-
marized in Table 7-6. These costs are based on the model plant pollu-
tion control costs and current industry production levels. All direct
dischargers in the subcategory have Level 1 removal technology in place.
Therefore, the only additional costs required for total subcategory
compliance with Level 1 removal are for pretreatment. These additional
costs are estimated as $43,188 for the two indirect dischargers currently
not pretreating wastewater. Subcategory compliance with the second
effluent removal level would require additional costs of approximately
nine thousand dollars per year, assuming that both direct and indirect
dischargers would incur the additional Level 2 costs.
7.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Dearand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
7-18
-------
MODEL PLANT PARAMETERS
TABLE 7-4: POLLUTION CONTROL COSTS
Chemical: Nickel Sulfate
MODEL
PLANT
PRODUCTION
(tons/year)
990
4,400
7,700
FIRST LEVEL *
OF REMOVAL
CAPITAL
INVESTMENT
$ 64,100
97,490
164,700
ANNUAL
OPERATING
COST
$18,983
24,033
33,461
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$1,400
1,400
1,680
ANNUAL
OPERATING
COST
$1,462
1,507
1,603
* Applies to indirect dischargers.
SOURCE: Development Document
TABLE 7-5: MANUFACTURING COSTS
Chemical: Nickel Sulfate
MODEL PLANT
PRODUCTION
ftons/year)
990
4,400
7,700
INVESTMENT IN
PLANT AND EQUIPMENT
$2,000,000
5,000,000
7,300,000
MANUFACTURING
' COSTS PER TON
$2,013.60
1,528.70
1,429.60
* Costs based on plant capacities of 1,400, 6,200, and 10,800 tons
per year (see Table 7-3).
** To assess the impact of removal Level 2, the per ton costs of meeting
Level 1 effluent limitations were added to these model plant manufac-
turing costs.
7-19
-------
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7.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 7-7 summarizes the price rise required of indirect
\
dischargers (Level 1 removal) and direct dischargers (Level 2 removal).
For indirect dischargers, the required price increase is fairly small
for the two larger model plants (.67 and .54 percent). The small model
plant would require a 2.17 percent increase.
Direct dischargers would require only a very small inrease in price to
meet the higher removal level. For all model sizes, the increase is
substantially less than one percent.
7.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through is possible.
Indirect dischargers required to install Level 1 treatment would suffer
a decline of less than one percentage point (based on the ROI and IRE -
see Table 7-8a). Similarly, the profitability decline for direct dis-
chargers would also be under one percentage point for all model sizes
(see Table 7-8b).*
7.2.2.3 Price Elasticity of Demand
There are no effective substitutes for nickel sulfate in its primary end
use, metal plating. Because nickel sulfate is essential in the metal
plating process, demand for the chemical is highly inelastic. However,
end use demand is somewhat more elastic: users of plated material are
turning to plastics and metals which do not require plating. Therefore,
the demand for nickel sulfate is assumed moderately price elastic. (See
Sections 7.1.1, Demand, and 7.1.3, Competition, for a complete analysis.)
Base case profitability is different for the two levels because
manufacturing costs used in the Level 2 profitability analysis
include the per ton cost of Level 1 pollution control.
7-21
-------
TABLE 7-7
PERCENTAGE PRICE RISE
Chemical: Nickel Sulfate
Price: $l,S20/ton
MODEL PLANT
PRODUCTION
ftons/vearl
990
4,400
7,700
FIRST LEVEL
OF REMOVAL*
2.17%
0.67
0.59
SECOND LEVEL
OF REMOVAL
0.12%
0.03
0.02
* Applies to indirect dischargers.
SOURCE: EEA Estimates
7-22
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7-24
-------
7.2.2.4 Capital Analysis
According to the technical contractor's estimate, the capital investment
required to install Level 1 control equipment (required of indirect
dischargers) will range from about two to three percent of fixed invest-
ment in plant and equipment. For direct dischargers to achieve the
higher removal level, the investment will be only a fraction of fixed
investment (between .01 and .07 percent for Level 2 removal). Table 7-9
summarizes the results of the capital analysis.
7.2.2.5 Closure Analysis
Table 7-10 summarizes the price elasticity of demand, price rise, and
profitability decline for nickel sulfate model plants and compares these
to EPA's closure criteria (see methodology description). According to
these criteria, none of the model plants is a likely closure candidate.
7.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on nickel sulfate manufacturers.
The nickel sulfate industry is in decline. Annual production of the
chemical is extremely low (about 7000 tons in 1977). Recycling by users
of nickel sulfate is the primary factor responsible for the demand
decline. The remaining market will erode slowly as secondary substi-
tutes for nickel plated materials, such as plastics, penetrate some
markets. A substantial rise in the price of nickel sulfate would hasten
the switch to secondary substitutes. However, to the extent that
nickel sulfate is required in plating operations, it is an essential
input with inelastic demand. Therefore, a price rise could probably be
passed on to nickel sulfate buyers. Nickel sulfate manufacturers have
been successful in passing on higher raw material costs in higher prices.
7-25
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TABLE 7-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Nickel Sulfate
LEVEL OF
REMOVAL
1
2
MODEL PLANT SIZE
(Annual Production in Tons)**
990
3.21%
0.07
4,400
1.95%
0.03
7,700
2.26%
0.02
* Fixed investments are assumed to be $l,596/ton, $810/ton and
and $676/ton of capacity for the three model plants from
smallest to largest.
** 71% capacity utilization.
*** Applies to indirect dischargers.
SOURCE: EEA Estimates and Development Document
7-26
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TABLE 7-10
IMPACT SUMMARY
Chemical: Nickel Sulfate
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1*
2
PLANT
PRODUCTION
(ton/yr)
990
4,400
7,700
990
4,400
7,700
PRICE ELASTICITY
Medium
Medium
MAXIMUM
PRICE RISE
2.17%
0;67
0.59
0.12%
0.03
0.02
MAXIMUM
PROFITABILITY
DECLINE
0.40%**
0.56
0.43
0.05%**
0.0-4
0.02
CLOSURES
no
no
no
no
no
no
* Applies to indirect dischargers.
** Based on ROI
SOURCE: EEA estimates.
7-27
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7.2.3.1 Price and Profitability Impacts
For direct dischargers, the price rise necessary to completely recover
the incremental cost of Level 2 control is very small and would likely
go unnoticed by nickel sulfate buyers. Table 7-7 shows that incremental
pollution control costs are greatest for the small model plant, and a
price rise of one eighth of one percent would be necessary. This would
raise the July 1978 list price for nickel sulfate by $1.87 per ton. The
larger plants would require price increases of less than one-half of one
percent. Price increases due to other rising manufacturing costs will
dwarf these price increases. (For example, if the price of raw material
nickel were to increase by 5C to $1.40 per pound, the price rise required
to recover the cost increase would be 2.5 percent, or 20 times greater
than the increase necessary to recover pollution control costs. Nickel
prices are expected to rise substantially (see Section 7.1.4.5); therefore,
pollution control costs will be comparatively minor cost considerations
to nickel sulfate producers and buyers.)
If nickel sulfate producers that are direct dischargers are forced to
fully absorb the costs of the second level of pollution control, pro-
fitability, as measured by the return on investment and internal rate of
return, will decline by only a fraction.
The indirect dischargers will require a larger price increase to meet
the removal levels currently being achieved by the rest of the industry.
This price increase may not be possible since most of the industry will
be raising prices only a fraction (see above). However, it must be
assumed that the indirect dischargers have been operating at a slight
cost advantage since the promulgation of BPT regulations. Since plants
that would be subject to pretreatment regulation are not financially or
economically different from direct dischargers, pretreatment costs would
presumably only eliminate the pretreaters1 cost advantage over direct
dischargers. Thus, the price increase by pretreaters would be unnecessary.
7-28
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Regardless of how the profitability levels of the indirect dischargers
compare to those of direct dischargers, the profitability decline that
would result for indirect dischargers is small.
7.2.3.2 Other Impacts and Conclusion
For direct and indirect dischargers, the price and profitability impacts
are nearly nonexistent. Resulting impacts, such as inflation, plant
closures and unemployment, and community impacts, are therefore similarly
inconsequential.
Nickel sulfate is neither imported nor exported, but raw material nickel
is imported. However, because the volume of imports is small, the
balance of payments will not be affected.
7-29
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8. SODIUM BISULFITE
8.1 CHARACTERIZATION
Sodium bisulfite (NaHSO,.), also called sodium hydrogen sulfite and
sodium acid sulfite, is a chemical widely used as a reducing agent. A
reducing agent has the ability to change the chemical properties of
another chemical by adding one or more electrons. For example, hexa-
valent chromium, the highly toxic form of chromium, can be reduced by
sodium bisulfite to less toxic trivalent chromium. Treatment of chro-
mium-containing wastewater is one of sodium bisulfite's major end uses.
The other uses for sodium bisulfite, all of which utilize its reducing
ability, include photographic processing, food processing, tanning, and
textile manufacture (see Figure 8-1).
8.1.1 Demand
While Bureau of Census data are unavailable, the total market for sodium
bisulfite is estimated at just under 100,000 tons. This market should
grow with Gross National Product, since sodium bisulfite is a mature
product and its end markets are fairly diverse.
In order to depict the total demand for sodium bisulfite, the conditions
in its individual end markets are summarized below.
8.1.1.1 End Markets
Photographic Processing -- Approximately half of sodium bisulfite pro-
duction is used in photographic processing. Manufacturers sell to large
photo-processing concerns (e.g., GAF, Kodak) as well as photography
supply houses that repackage the chemical for sale to small users. This
is a very secure market for sodium bisulfite since there are no other
5-1
-------
processing agents which are as effective and inexpensive. Demand in
this market is expected to grow with Gross National Product.
Food Processing and Preservatives -- Approximately 30 percent of sodium
bisulfite production is used in food processing and as a food preservative.
This market is very secure because sodium bisulfite inhibits the growth
of specific yeasts and is less expensive than alternative preservatives.
Processes using sodium bisulfite include: canning, wineraaking, sugar
syrup processing, and vanillin (artificial vanilla) manufacture. Because
this end-use is closely tied to the food industry, growth in the end
market is expected to grow with population.
Water Treatment — Sodium bisulfite is used in effluent treatment of
toxic and chrome wastes. Because it is easy to handle in powder form,
sodium bisulfite is widely used to treat smaller quantities of waste-
water. When large quantities are involved, sulfur dioxide is preferred
due to its lower cost. However, handling difficulties associated with
sulfur dioxide give sodium bisulfite a competitive edge in some uses.
Growth in this end-use market may grow slightly ahead of GNP, according
to industry sources.
Other Markets
Sodium bisulfite is used in a number of other applications:
• Textile manufacture — Bisulfite is used as antichlor after
bleaching and dying. Demand fluctuates with textile imports
and fashion changes, which makes it difficult to forecast
demand in this market.
• Leather tanning — This market is expected to grow at a moder-
ate pace (about 2 to 5 percent annually) due to a strong
export demand for leather. This rebound has been caused in
large part by the dollar's depreciation.
• Manufacture of L-Dopa (a drug used to treat Parkinson's Dis-
ease) — This market is not likely to experience any growth
and should eventually decline.
8-2
-------
FIGURE 8-1
SODIUM BISULFITE:
INPUTS AND END MARKETS
MAJOR
INPUTS
I UTILITIES PH
PROCESS
% CAPACITY
PRODUCT
DIRECT
MARKETS
1977
8-3
-------
• Preparation of chemicals such as aldehydes and surfactants
(wetting agents) — This market should grow with Gross National
Product.
8.1.1.2 Demand Summary
Principal markets for sodium bisulfite include:
• Photographic chemicals (approximately 50 percent of end market
sales)
• Food processing and preservatives (30 percent)
• Effluent treatment (10 percent)
These are well developed, stable markets and should provide relatively
steady demand for sodium bisulfite. The smaller markets will not sig-
nificantly affect total demand.
Overall, sodium bisulfite demand is expected to grow with GNP (about two
to three percent annually).
8.1.2 Supply
8.1.2.1 Production
Data are not available for the production of sodium bisulfite."'' Pre-
vious reports show a 5.5 percent average annual growth rate in produc-
tion from 1968 to 1974. Industry sources report that sales have been
strong and steady since that time. Imports appear to be negligible.
Very little information has been available on the sodium bisulfite
industry due to two factors: (1) the Department of Commerce does
not collect data on this chemical; and (2) individual firms are
reluctant to disclose information.
8-4
-------
8.1.2.2 Producers
There are four producers of sodium bisulfite at seven plant sites in the
United States. Exact capacity figures for some plants are not available
(see Table 8-1).
Allied Chemical and Virginia Chemicals are the major producers of sodium
bisulfite, probably accounting for most of the production capacity of
the industry. The two manufacturers produce the chemical in both liquid
and powdered form. DuPont markets sodium bisulfite in a 38 percent
solution. Olympia Chemicals also manufactures the liquid form, the
bulk of which is sold to a nearby Monsanto plant.
Allied is integrated backwards to two major raw materials: soda ash and
sulfur dioxide. Virginia Chemicals and DuPont produce only sulfur
dioxide. Captive use is very low. Virginia Chemicals expanded its
capacity sometime between 1973 and 1977. Since that time, no new expan-
sions have been planned by either company.
8.1.2.3 Process
Sodium bisulfite is produced by a variety of methods. The bulk of the
commercial product is sodium metabisulfite (Na-SpO , a dehydrated deriv-
ative of two NaHSCL molecules).
Dry Process
Moist soda ash is treated with a gas containing 49 percent sulfur diox-
ide and less than four percent oxygen. The product, sodium metasulfite,
is discharged from the reactor and crushed.
Liquid Process
A saturated solution of sodium bisulfite is prepared by combining sodium
hydroxide and sulfur dioxide. Savings are realized in fuel, bagging,
8-5
-------
TABLE 8-1
PRODUCERS OF SODIUM BISULFITE
COMPANY
Allied Chemical
DuPont
Virginia Chemicals
Olympic Chemicals
TOTAL
LOCATION
Al Sequndo, CA
North Claynont, DE
Linden, NJ
Mobile, AL
Chester, SC
Portsmouth, VA
Tacoma, NA
ANNUAL CAPACITY
(thousand tons)
40,000
20,000
40,000
8,000
1 OS, 000
INTEGRATION
ESTIMATED PERCENTAGE OF
INDUSTRY CAPACITY RAW MATERIALS END PRODUCTS
37 Soda Ash
Sulfur Dioxide
19 Sulfur Dioxide
37 Sulfur Dioxide
7
100
EEA estimates from industry sources.
8-6
-------
etc. Extra costs, however, are incurred in transportation so liquid
plants must be located close to their markets (usually within 300 miles).
"Mother Liquors" Process
Sodium bisulfite is produced by passing seven to eight percent sulfur
dioxide through a suspension of soda ash in mother liquors saturated
with sodium bisulfite. The product is obtained from the solution by
centrifuging.
Material requirements and estimated costs of manufacturing by the mother
liquor process are presented in Table 8-2. Raw material costs account
for between one-third and one-half of total costs. Capital costs vary
from 127 dollars per ton of capacity to 247 dollars per ton of capacity.
This is a relatively low per-ton capital investment (capital investment
in chlorine manufacture is about $280 per ton; in titanium dioxide, $900
per ton).
8.1.3 Competition
The two largest sodium bisulfite manufacturers, Allied Chemicals and
Virginia Chemicals, account for 90 percent of sales in the industry. As
an effective duopoly (by definition, an industry with only two suppliers)
they are likely to set a price and market share which maximizes profits
for both of them. Repeated price cutting in an effort to invade the
other's market is likely to lead to reduced profits for both. (The
small producers follow the price lead of the major producers.) This
appears to explain the pricing behavior of sodium bisulfite producers.
Prices have always been strong and producers have typically not offered
discounts on list prices. High industry capacity utilization is also
typical of such an industry.
8-7
-------
TABLE 8-2a
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
8,500 tons/year
5,000 tons/year
(62% capacity utilization)
$2.1 million
VARIABLE COSTS
• Materials
Soda Ash.
- Sulfur Dioxide
» Utilities
Electric Power
Steam
Cooling Water
Total Variable Costs
Unit/Ton
$/Unit
$/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 mlb
3.72 mgal
0.034
0.074
0.03
3.25
0.10
38.40
100.30
3.10
4.10
.40
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
55.30
16.00
$ 71.30
FIXED COSTS
• Plant Overhead
• Depreciation
« Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
13.80
39.90
6.40
$ 60.10
$277.70
*See Appendix C
8-8
-------
TABLE 8-2b
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS''
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
30,000 tons/year
18,500 tons/year
(62% capacity utilization)
$4.7 million
VARIABLE COSTS
• Materials
- Soda Ash
- Sulfur Dioxide
• Utilities
Electric Power
Steam
Cooling Water
Unit/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 ralb
3.72 ragal
$/Unit
0.034
0.074
0.03
3.25
0.10
$/Ton
38.40
100.30
3.10
4.10
.40
Total Variable Costs
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
20.50
10.10
Total Semi-Variable Costs
$ 30.60
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
5.10
25.20
3.80
$ 34.10
$211.00
'"See Appendix C
8-9
-------
TABLE 8-2c
ESTIMATED COST OF MANUFACTURING SODIUM BISULFITE - MOTHER LIQUOR PROCESS*
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
56,500 tons/year
35,000 tons/year
(62% capacity utilization)
$7.2 million
VARIABLE COSTS
Materials
Soda Ash
Sulfur Dioxide
Utilities
- Electric Power
Steam
Cooling Water
Unit/Ton
1129.22 Ib
1355.97 Ib
101.58 kWh
1.27 mlb
3.72 mgal
0.034
0.074
0.03
3.25
0.10
38.40
100.30
3.10
4.10
.40
Total Variable Costs
$146.30
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
16.10
8.20
$ 24.30
FIXED COSTS
• Plant Overhead
• Depreciation
t Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
4.00
20.50
3.10
$ 27.60
$198.20
*See Appendix C
8-10
-------
Sodium bisulfite is sold as a liquid (36, 38, or 42 percent solution) or
powder (100 Ib bags). The liquid is slightly less expensive since
drying and bagging costs are not incurred. However, added transporta-
tion costs are such that buyers of liquid are usually located close to
the plant. Conversely, powdered sodium bisulfite (accounting for the
bulk of sodium bisulfite sales) can be easily and economically shipped
over long distances (although care must be taken to guard against moisture)
As discussed in Section 8.1.1, there are no substitutes for sodium
bisulfite threatening its markets. Industry sources report that this
situation is due to the convenience of the powdered material. It can
be handled easily and diluted to the desired concentration by the buyer.
Foreign trade in sodium bisulfite is reportedly negligible, although
data are unavailable. A small volume of the chemical is imported from
Great Britain, and there have been exports to Canada. At least one
company has indicated that it plans to pursue European markets in the
future.
8.1.4 Economic Outlook
8.1.4.1 Revenue
Total revenue is the product of total sales volume and average unit
price. Although these two variables are discussed separately below,
they are interrelated.
8.1.4.1.1 Quantity
Sodium bisulfite is a mature product with no competitive substitutes to
threaten its markets. Overall growth in these markets will follow
growth in the Gross National Product (about two to three percent annually).
8-11
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8.1.4.1.2 Price
Prices vary according to the quantity and form of the product. Recent
prices are around $16.50 per 100 pound bag. Historically, prices have
risen at an average rate of about 11 percent per year (1969-1979). (See
Table 8-3 and Graph 8-1). Future price increases are anticipated as
manufacturers continue to successfully pass through manufacturing cost
increases (see below).
8.1.4.2 Manufacturing Costs
The two main raw materials in the manufacture of sodium bisulfite are
soda ash and sulfur dioxide, which together make up 35 to 50 percent of
total manufacturing costs. The per ton price of soda ash has jumped
from $55 to $66 in the space of one year. This is due to a tight supply
situation caused by several plants shutting down and a delay in the
planned construction of new capacity. While the new capacity should
ease the tight supply, industry sources expect future price increases.
Sulfur (used to make sulfur dioxide) is also in short supply and the
worldwide supply situation is expected to worsen (Chemical Marketing
Reporter, April 9, 1979). Prices rose by approximately seven percent in
early 1979 and further increases are likely.
8.1.4.3 Profit Margins
Despite rising manufacturing costs, producers of sodium bisulfite have
managed to maintain high profit margins by increasing prices. Contractor
estimates of manufacturing "costs (see Table 8-2) imply a high pre-tax
margin on sales. Based on the past performance of the industry, all
future manufacturing cost increases will be passed through and the high
profit margins will remain intact.
8-12
-------
TABLE 8-3
SODIUM BISULFITE LIST PRICES
Year List Price ($/ton)
1967 $114
1968 110
1969 117
1970 117
1971 127
1972 132
1973 132
1974 162
1975 162
1976 232
1977 267
1978 267
SOURCE: Chemical Marketing Reporter.
8-13
-------
PRICE
(dollars)
GRAPH 8-1
SODIUM BISULFITE PRICE
280.00-
210.00-
140.00-
70.00-
1972
YEAR
1977
SOURCE: Department of Commerce
8-14
-------
8.1.5 Characterization Summary
The sodium bisulfite industry can be characterized as follows:
• Sodium bisulfite is a very efficient, convenient, and economi-
cal reducing agent which is used in photographic chemicals,
food processing and food preservatives, and wastewater treat-
ment.
• It is manufactured by four firms, two of which (Allied Chemi-
cals and Virginia Chemicals) dominate industry production.
• Total demand for the chemical is estimated by industry sources
at just under 100,000 tons per year.
• Because sodium bisulfite is a mature product, demand is expected
to grow with Gross National Product (two to three percent
annually).
• Profit margins are high and should remain so as manufacturers
have been able to pass through increased costs in the form of
higher prices.
8.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
sodium bisulfite industry to comply with various effluent control stan-
*
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
A survey by the technical contractor revealed that six sodium bisulfite
manufacturers are direct dischargers and have Level 1 treatment technology
in place. Therefore, this analysis assesses the impact of the additional
costs required to meet higher effluent removal levels. The technical
contractor's survey also showed that there is one indirect discharger in
8-15
-------
the sodium bisulfite industry currently not pretreating wastewater.
Therefore, the pollution control costs estimated by the technical
contractor corresponding to Level 1 removal are applied to the model
plants to assess the impacts on this indirect discharger.
8.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical contractor
for pollution control equipment designed to meet the first level of
removal, and for two increasingly efficient removal levels.
The major pollutant in the process waste stream is sodium bisulfite
product which results in high chemical oxygen demand (COD). To achieve
the first level of removal, wastewater is collected in an equalization
tank where caustic soda is added to adjust the pH. The wastewater is
then transferred to an aeration tank. Level 2 is obtained by adding
chlorine to oxidize the remaining sulfite ions. In Level 3, a ferrous
sulfide slurry (prepared from ferrous sulfate and sodium bisulfite) is
added to the reactor to remove residual trace metals. These steps are
summarized below:
Level 1 - Alkaline Precipitation and Aeration
• Caustic soda precipitation removes toxic metals
• The effluent is aerated to reduce COD
Level 2 - Oxidation
• Chlorine is added to complete oxidation
Level 3 - Level 1 Plus Sulfide Precipitation
• Ferrous sulfide is added to remove additional toxic metals
8-16
-------
Pollution control cost estimates were developed for three model plant
sizes with average production rates of 5,000, 18,500 and 35,000 tons per
year. Pollution control costs for the model plants are summarized in
Table 8-4.
The costs of manufacturing sodium bisulfite used in the impact analysis
were estimated by an economic subcontractor to be $277.70, $211.00, and
$198.20 per ton for the small, medium and large plants, respectively.
These estimates do not include the cost of pollution control. Table 8-5
summarizes the model plant manufacturing costs used in the analysis.
The total annualized control costs for the sodium bisulfite subcategory
are summarized in Table 8-6. These costs are based on the model plant
pollution control costs and current industry production levels. All
direct dischargers have base level removal technology in place. There-
fore, the only additional Level 1 removal costs will be incurred by the
one indirect discharger. Level 1 costs for this plant are estimated at
$36,717 annually. Subcategory compliance with higher removal levels
will require total expenditures of $108,289 and $105,153 for Levels 2
and 3, respectively.
8.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
8-17
-------
MODEL PLANT PARAMETERS
TABLE 8-4: POLLUTION CONTROL COSTS
Chemical: Sodium Bisulfite
MODEL
PLANT
PRODUCTION
(tons/year)
5,000
18,500
35,000
FIRST LEVEL
OF REMOVAL *
CAPITAL
INVESTMENT
$ 89,090
141,660
206,420
ANNUAL
OPERATING
COSTS
$ 30,901
40,175
52,934
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 31,010
57,750
97,930
ANNUAL
OPERATING
COST
$ 7,541
12,407
19,910
THIRD LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 32,410
59,150
99,890
ANNUAL
OPERATING
COST
$ 8,749
13,650
21,278
* Applies to indirect dischargers
SOURCE: Development Document
TABLE 8-5: MANUFACTURING COSTS
Chemical: Sodium Bisulfite
MODEL PLANT
PRODUCTION*
(tons/year)
5,000
18,500
35,000
INVESTMENT IN
PLANT AND EQUIPMENT
$ 2,100,000
4,700,000
7,200,000
MANUFACTURING
COSTS PER TON**
$ 277.70
211.00
198.20
* Cost estimates based on plant capacities of 8,500, 30,000 and
56,500 tons per year.
** To assess the impacts of removal Levels 2 and 3, the per ton costs
of meeting first level effluent limitations were added to these
model plant manufacturing costs.
8-18
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• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
8.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 8-7 summarizes the price rise required of each
model plant for each level of removal.
For direct dischargers, the smallest model plant would need to increase
prices by slightly more than one percent ($2.67/ton) to pass through the
additional pollution control costs incurred by levels two or three. The
two larger model plants would need price increases of less than one
percent.
Pretreaters would need to increase prices by 1.04 to 3.56 percent to
fully recover the costs of base level removal technology.
8.2.2.2 Profitability Analysis
The profitability analysis assumes no price pass-through and calculates
the resulting decline in the return on investment (ROI) and the internal
rate of return (IRR). The profitability change calculations for direct
dischargers are summarized in Table 8-8b and 8-8c. The application of
8-20
-------
TABLE 8-7
PERCENTAGE PRICE RISE
Chemical: Sodium Bisulfite
Price: $267/ton
.MODEL PLANT
PRODUCTION
5,000
18,500
35,000
FIRST LEVEL
OF REMOVAL*
3.56%
1142
1.04
SECOND LEVEL
OF REMOVAL
1.01*
0.50
0.44
THIRD LEVEL
OF REMOVAL
1.12% .
0.53
0.46
* Applies to indirect dischargers.
SOURCE: EEA Estimates.
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the most stringent level of control (Level 3) reduced the IRR of the
smallest model plant by 0.83 percentage points. For the larger model
plants the reduction was about one-third this size. Profitability
declines resulting from Level 2 removal costs were even smaller.
Profitability declines for indirect dischargers are higher. Application
of Level 1 removal costs reduced the IRR by 2.24 percentage points in the
small model size and by approximately 0.7 percentage points in the two
larger plants (see Table 8-8a).*
8.2.2.3 Price Elasticity of Demand
While sodium bisulfite is not a critical input to any process, its major
market, photographic processing chemicals, is very secure because no
substitutes exist which are as convenient and inexpensive. The same
applies to the demand situation in its other major end-use, food pro-
cessing. This implies relatively inelastic demand for sodium bisulfite
in the relevant price range. (See Sections 8.1.1, Demand, and 8.1.3,
Competition, for a complete analysis.)
8.2.2.4 Capital Analysis
In every sodium bisulfite model plant size, the required investment in
control equipment to meet removal levels 2 and 3 is approximately one
and one-half percent of total fixed investment in plant and equipment
(See Table 8-9). This amount of capital should be readily available.
The investment in Level 1 removal equipment required for pretreatment
represents roughly three to four percent of total fixed investment in
place (see Table 8-9). These capital requirements can also be met
without difficulty.
* Base case profitability is different for Level 1 and higher removal
levels because the manufacturing costs used in the Level 2 and Level 3
profitability analyses include the per ton cost of Level 1 pollution
control.
8-25
-------
8.2.2.5 Closure Analysis
Table 8-10 summarizes the price elasticity of demand, price rise, and
profitability decline for sodium bisulfite model plants and compares
these to EPA's closure criteria (see methodology description). For
direct dischargers, the price rise exceeds one percent for only the
small model plant, and in no case is the profitability decline greater
than one percentage point. Further, demand for sodium bisulfite is
relatively price inelastic. Therefore, based on the EPA's closure
criteria, no plant closures are predicted among direct dischargers.
Both price and profitablity impacts are greater than one percent for
model plants faced with installing Level 1 removal equipment to meet
pretreatment standards. Although price elasticity of demand is low,
further analysis is required to determine the probability of plant
closures for indirect dischargers and is discussed in the following
section.
8.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on sodium bisulfite manufacturers.
Sodium bisulfite is a mature product and its markets are expected to
grow with real GNP. While it is not a critical input to any process,
its two major markets (photographic processing chemicals and food pro-
cessing) are very secure because no substitutes exist which are as
convenient and inexpensive. Therefore reasonable price increases could
be sustained without an appreciable decline in the quantity demanded.
8.2.3.1 Price and Profitability Impacts
The price increase required to fully recover the costs of achieving
second and third removal levels is so small that it would go nearly
8-26
-------
TABLE 8-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Sodium Bisulfite
LEVEL OF
REMOVAL
MODEL PLANT SIZE
(Annual Production in TonS)**
5,000
18,500
35,000
4.24%
1.48
1.54
3.01%
1.23
1.26
2.87%
1.36
1.39
* Fixed investments are assumed to be $247/ton, $158/ton, and
$127/ton of capacity for the three model plants from smallest
to largest.
** 62% capacity utilization.
*** Applies to indirect dischargers.
SOURCE: EEA Estimates and Development Document
8-27
-------
TABLE 8-10
IMPACT SUMMARY
Chemical: Sodium Bisulfite
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1*
2
3
PLANT
PRODUCTION
(ton/yr)
5,000
18,000
35,000
5,000
18,500
35,000
5,000
18,500
35,000
PRICE ELASTICITY
Low
Low
Low
MAXIMUM
PRICE RISE
3.56%
1.42
1.04
1.01%
0.50
0.44
1.12%
0.53
0.46
MAXIMUM
PROFITABILITY
DECLINE
2 . 24%
0.70
0.67
0.72%
0.25
0.28
0 . 83%
0.26
0.29
CLOSURES
no
no
no
no
no
no
no
no
no
Applies to indirect dischargers.
SOURCE: EEA estimates
8-28
-------
unnoticed by purchasers of sodium bisulfite. As shown in Table 8-7, the
greatest price rise would be needed for the smallest plant to recover
the cost of Level 3 removal. The price rise of just over 1 percent
would raise the July 1978 price from $267 to $270 per ton. The same
price rise would be required if the price of sulfur dioxide were to
increase by 3 percent. (Sulfur dioxide's price has actually been in-
creasing at a faster rate, and is likely to continue to do so (see
section 8.1.4).) The required price rise for the two larger model plant
sizes is about one-half of one percent.
If the price increase did not hold and the plants had to absorb the
additional pollution control cost, profits would decline only slightly.
The smaller model plant might not be able to pass through the full one
percent price increase in order to remain competitive. The small model
plant's profitability, as measured by the internal rate of return and
return on investment (see Table 8-8b), is low.* However,, the small
model plant's IRK and ROI decline by less than one percentage point as
the result of the most stringent pollution control level. The larger
plants suffer an even smaller profitability decline.
According to the model plant analysis, the price rise and profitability
impacts on the sodium bisulfite direct discharge plants will be small.
Firms should not have difficulty passing through a one percent price
increase to consumers. If, for some reason, they cannot increase prices,
profitability will not decline for the larger producers. A small plant,
operated by Olympia Chemicals in Tacoma, Washington, is the sole supplier
of a nearby Monsanto plant. Because of the proximity of the plant,
Monsanto would be likely to accept the one percent price increase.
* This is due to the substantial economies of scale indicated by the
manufacturing cost estimates.
8-29
-------
The model plant analysis indicates greater price and profitability
impacts for the one indirect discharger in the industry. Since the
major pollutants resulting from sodium bisulfite manufacture do not
interfere with POTW operations, first level removal is sufficient for
pretreatment (Development Document).
The price rise required to fully recover pretreatment costs is about
three times the increase that will be required of the rest of the industry.
However, two factors should mitigate the impacts on this plant:
o The indirect discharger should currently be operating with a
slight cost advantage since the other plants in the industry
have been required to operate pollution control equipment
under the promulgated BPT regulations. Since the indirect
discharger will need to incur the same costs (plus capital
cost inflation), the plant's cost and profit levels will again
be in line with the industry-wide levels.
o If the plant does require a price increase to remain competi-
tive, price pass-through is likely. Demand for sodium bisul-
fite is relatively price inelastic; further, the plant enjoys
a regional market advantage since it is one of two bisulfite
producers on the West coast.
These factors suggest that pretreatment standards will not cause severe
problems for the indirect discharger.
8.2.3.2 Other Impacts and Conclusion
The price and profitability impacts are small. Resulting impacts in
areas such as inflation, plant closures, employment, and community
disruption, are similarly inconsequential. Sodium bisulfite is neither
imported nor exported, so there will be no impact on the balance of
payments.
8-30
-------
9. SODIUM BICHROMATE
9.1 CHARACTERIZATION
Sodium dichromate (or sodium bichromate) (Na_Cr~07) is a principal
source of chromium for a variety of applications. It is an important
starting material for chromium containing chemicals, such as chrome
pigments, tanning agents, and wood preservatives.
The element chromium has chemical properties which make it attractive in
several respects. It is an effective preservative for wood and leather;
together with lead and other metals it forms brilliant pigments; and it
offers excellent corrosion resistance. Despite its excellent properties,
chromium poses serious problems. In its hexavalent oxidation state, it
is one of the most objectionable water borne pollutants. It is highly
carcinogenic and the discharge of chromium into air and water is scru-
tinized closely by OSHA and EPA. Trivalent chromium is not a proven
carcinogen.
9.1.1 Demand
The sodium dichromate industry and its end markets are well established
and mature. There are few prospects for rapid expansion and demand
growth is expected to parallel GNP growth. Figure 9-1 illustrates
sodium dichromate's inputs and end markets.
In order to depict the total demand for sodium dichromate, the con-
ditions in its individual end markets are summarized below.
9.1.1.1 End Markets
Chromic Acid - Chromic acid manufacturing consumes approximately 29
percent of current sodium dichromate production. Chromic acid is used
9-1
-------
primarily in metal treating and plating, which account for 80 percent of
total output. In terms of cost effectiveness, consumer appeal, corro-
sion resistance, and ability to withstand wear and high tolerance machining,
chrome plated components have few substitutes. Demand is, therefore,
expected to remain stable in this segment of the market. There has been
some fear that OSHA regulations concerning worker exposure to hexavalent
chromium in plating shops would force a cutback in chromium plating.
However, many of these fears have been dismissed by development of
efficient systems for venting chromium vapors. Chromic acid is used
also in wood treatment (ten percent of production) and in chemical
manufacturing (five percent). The remaining five percent is consumed in
miscellaneous uses.
Chrome Pigments - Approximately 26 percent of current dichromate produc-
tion is used in manufacturing chrome pigments. These pigments are used
primarily in paints, surface coatings, floor products, paper, and print-
ing inks. The chrome pigments market is mature, and industry sources
indicate that there will be zero growth or possibly declining demand in
the future. This outlook is based in part upon fears that OSHA regula-
tions concerning worker exposure to lead (most chrome pigments are lead
chromates) will force smaller consumers of chrome pigments to switch to
organic colors rather than install the equipment necessary to lower lead
levels in the workplace.
Leather Tanning - Approximately 18 percent of sodium dichromate produc-
tion is used in leather tanning. Sodium dichromate is converted to
chromic sulfate and applied to the leather to inhibit chemical decom-
position. This market has experienced significant fluctuations in
demand in recent years. While shipments of sodium dichromate to domestic
leather tanners are increasing at approximatley five percent per year,
growth in this market may not continue at this rate. The depreciation
of the dollar has allowed the domestic leather industy to recapture a
9-2
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large fraction of the market previously held by imports and domestic
leather tanners anticipate growth in their industry as a result. However,
recent contacts with industry sources indicate that the U.S. is currently
exporting large volumes of hides abroad, the majority of which are not
tanned before shipment. Therefore a growth rate of five percent for the
leather tanning industry is an optimistic figure with actual growth
rates likely to be somewhat lower.
Corrosion Resistance and Metals Treatment - Chromium has excellent
corrosion inhibiting properties which make it useful for protecting
industrial systems and treating metal. These two end uses comprise 11
percent of the sodium dichromate market. The active ingredient in
protecting industrial systems from corrosion is sodium chromate. Sodium
chromate can be purchased as a finished product. However, generally it
is less expensive to buy the raw materials (sodium dichromate and caustic
soda) and make the chromate in situ. Zinc chromate is used in metals
treatment as a corrosion inhibiting primer. Both of these markets are
mature, and are expected to grow with the GNP.
Wood Preservatives - Wood preservation is the fastest growing end market
for sodium dichromate. The market is expanding at an annual rate of
approximately 10 percent per year and currently accounts for five percent
of total dichromate consumption. Sodium dichromate is used to form
chromated copper arsenate (CCA), which acts upon wood in a manner similar
to the action of tanning agents on leather. The copper and arsenic bind
to cellulose fibers in the wood, inhibiting decomposition. The market
is growing as wood preservers switch to CCA from creosote and pentachloro-
phenol (PCP).
Drilling Muds - The use of sodium dichromate in petroleum drilling muds
also is growing fairly rapidly and currently accounts for four percent
of the dichromate market. Drilling muds are formed of chromium ligno
9-4
-------
sulfinates. These compounds are used to lubricate the tips of drill
bits to facilitate their movement through stone, and to carry away stone
chips from the bit head. Demand for these compounds has grown substan-
tially with increased drilling activity in the U.S., and is expected to
continue growing.
Other Markets - Other end uses of sodium dichromate include chrome
chemicals, catalysts, and other miscellaneous uses. It appears that
demand for dichromate in these end markets will remain stable.
9.1.1.2 Demand Summary
End markets for sodium dichromate generally are mature. Total demand
growth is expected to be roughly two or three percent per year. Spe-
cific predictions and conditions in each end market are summarized
below.
• Chromic Acid - Principal use is in chrome plating; should
track GNP growth - The major potential obstacle is OSHA regu-
lation of worker exposure to hexavalent chromium, which could
force closure of small plating shops.
• Chrome Pigments - End uses - paints, surface coatings, floor
products, paper, and printing inks are all mature, and should
experience no major changes in demand. OSHA regulation of
worker exposure to lead in the production and use of chrome
pigments may force some smaller users to switch to organic
colors.
• Leather Tanning - Use of chromic acid in leather tanning is
expected to grow at a moderately fast pace due to strong
demand for leather exports. This has been caused by the
dollar's depreciation. However, many hides are being exported
before tanning and growth of leather tanning may be less than
expected.
• Corrosion Resistance and Metals Treatment - This market is
mature, and demand should remain stable.
• Wood Preservatives - Demand for dichromate for use in wood
preservatives is growing at 10 percent per year, and should
continue to penetrate the markets of creosote and PCP.
9-5
-------
o Drilling Muds - Increased domestic drilling activity is driv-
ing up demand for sodium dichromate in the production of
drilling muds.
The greatest industry growth is in dichromate's smaller markets and,
therefore, should not have a significant impact upon overall demand for
the product. Most industry sources predict demand growth at two to
three percent, barring any serious cutbacks in demand due to OSHA regulations,
9.1.2 Supply
9.1.2.1 Production
Sodium dichromate production has varied widely during the period 1968-1977,
with changes as great as 30 percent during the recession years of 1974-1975.
Total growth in production has been only 7.3 percent, which is equivalent
to an annual growth rate of 0.79 percent. Part of the depressed growth
rate from 1968 to 1977 was due to the severe drop in production in 1975,
from which the industry has not yet recovered fully. The parallel
between production and general economic conditions, indicates that the
sodium dichromate industry is mature, and that its growth will tend to
follow or trail GNP growth in the long run. Table 9-1 and Graph 9-1
summarize production and prices during the period 1968-1977.
9.1.2.2 Producers
There are three producers of sodium dichromate, each operating one
plant. Two producers, Allied Chemical and Diamond Shamrock are inte-
grated to soda ash as a raw material and to chromic acid as an end
product. The third producer, PPG Industries, has no vertical inte-
gration. Table 9-2 summarizes current producers and facilities.
9-6
-------
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GRAPH 9-1
SODIUM DICHROMATE PRODUCTION AND PRICE
182.00 -
136.50 -
VOLUME 91.00 -
(000's of tons)
45.50 -
0.00
1968
I I
1972 1976
YEAR
AVERAGE
UNIT
VALUE
(dollars)
600.00 -
450.00 -
300.00 -
150.00 -
0.00 -f—
istes
i i i i
1972
YEAR
SOURCE: Department of Commerce
1976
9-8
-------
TABLE 9-2
PRODUCERS OF SODIUM DIOOOUTE
COMPANY
LOCATION
INTEGRATION
AMMAI. CAPACITY ESTIMATED PERCENTAGE OF
(ihomand tons) INDUSTRY CAPACITY RA* MATERIALS END PRODUCTS
AlJiid Qwaucal
taltiwrc. MD
6S.O
Soda A»h
Qirawc Acid
Diaaond Sluarack
CastIt Hiyn*. NC
M.2
Soda Ash
Qiraaie Acid
PPG Industrie*, Inc. Corpul Christie. TX
30.0
17
TOTAL
179.2
100
SOURCE: Chtmical Marktilni R«pert»r, July U, 1976.
9-9
-------
9.1.2.3 Process
Production of sodium dichromate is a two stage process. The first stage
is the production of sodium chromate by calcining a mixture of chromite
ore, soda ash, and limestone. In the second stage, sodium dichromate is
produced by the reaction of sodium chromate and sulfuric acid. Sodium
sulfate is produced as a by-product of the second stage reaction. (See
Table 9-3 for estimates of raw material requirements and manufacturing
costs. )
The production process is governed by the following reactions:
1) 4(FeO-Cr203)
(Formation of sodium chromate)
2) 2Na2Cr04 + H2S04 -> Na^^O., + H20 + Na2
(Formation of the dichromate)
The chromium ore used in chemical applications is imported almost entirely
from South Africa. This supply has not been severely affected by the
ban on Rhodesian chromium imports. Price, however, has risen substan-
tially.
9.1.3 Competition
Sodium dichromate is a principal starting material for a variety of
processes which result in products containing chromium. In this role,
dichromate has few substitutes except for sodium chromate, which is
produced in the first stage of the dichromate production process.
Sodium chromate generally is more expensive than sodium dichromate.
The main form of competition in sodium dichromate use is end market
competition. The primary substitutes and the nature of competition in
dichromate 's major end markets are summarized below.
9-10
-------
TABLE 9-3a
ESTIMATED COST OF MANUFACTURING SODIUM BICHROMATE*
(mid-1978 dollars)
Plant Capacity 28,700 tons/year
Annual Production 22,000 tons/year
(77% capacity utilization)
Fixed Investment $8.7 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Chromite Ore
(50% Cr 0 ) 2199 Ib .031 68.20
- Soda Ash 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• Labor 88.10
• Maintenance 15.80
Total Semi-Variable Costs $103.90
FIXED COSTS
• Plant Overhead 22.00
• Depreciation 39.50
• Taxes & Insurance 5.90
Total Fixed Costs $ 67.40
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 .027 (32.40)
TOTAL COST OF MANUFACTURE $438.80
SOURCE: Contractor and EEA estimates
''See Appendix C
9-11
-------
TABLE 9-3b
ESTIMATED COST OF MANUFACTURING SODIUM BICHROMATE*
(mid-1978 dollars)
Plant Capacity 71,700 tons/year
Annual Production 55,000 tons/year
(77% capacity utilization)
Fixed Investment $15.8 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Chromite Ore
(50% Cr 0 ) 2199 Ib .031 68.20
- Soda Ash J 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• Labor 51.20
• Maintenance 11.40
Total Semi-Variable Costs $ 62.60
FIXED COSTS
• Plant Overhead 12.80
• Depreciation 28.70
• Taxes & Insurance 4.30
Total Fixed Costs $ 45.80
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 Ib .027 (32.40)
TOTAL COST OF MANUFACTURE $375.90
SOURCE: Contractor and EEA estimates
*See Appendix C
9-12
-------
TABLE 9-3c
ESTIMATED COST OF MANUFACTURING SODIUM BICHROMATE*
(mid-1978 dollars)
Plant Capacity 100,300 tons/year
Annual Production 77,000 tons/year
(77% capacity utilization)
Fixed Investment $19.6 million
VARIABLE COSTS Unit/Ton $/Unit $/Ton
• Materials
Chromite Ore
(50% Cr.O,) 2199 Ib .031 68.20
- Soda Ash l 5 1601 Ib .034 54.40
- Limestone 2999 Ib .023 69.00
- Sulfuric Acid (66 Be') 900 Ib .016 14.40
• Utilities
- Power 500 kWh .03 15.00
- Fuel 19.5 Btu 2.50 48.80
- Steam 6.0 klb 3.25 19.50
- Process Water 14.1 kgal .75 10.60
Total Variable Costs $299.90
SEMI-VARIABLE COSTS
• Labor 41.10
• Maintenance 10.20
Total Semi-Variable Costs $ 51.30
FIXED COSTS
• Plant Overhead 10.20
• Depreciation 25.40
• Taxes & Insurance 3.80
Total Fixed Costs $ 39.40
BYPRODUCT CREDIT
• Sodium Sulfate
(anhydrous) 1200 Ib .027 (32.40)
TOTAL COST OF MANUFACTURE $358.20
SOURCE: Contractor and EEA estimates
*See Appendix C
9-13
-------
9.1.3.1 End Market Competition
Chrome Plating - There are two submarkets in the chrome plating industry:
hard chrome plating and decorative chrome plating. Hard chrome plating
provides hardness, low friction, and long wear in industrial applications.
In this area, there are no direct substitutes. Both iron and electroless
nickel (a plating process using a chemical catalyst rather than electrical
current) can be plated for industrial applications, but neither offers
comparable performance characteristics, and electroless nickel is much
more expensive. In. decorative applications, chrome plating has the
advantages of cost effectiveness, consumer appeal, and strong corrosion
resistance, all of which contribute to its strength in this market.
Plastics and painted materials offer some competition in automobile
interiors and other uses.
Chrome Pigments - The chrome pigments industry may face serious compe-
tition from organic colors. Some small pigment consumers may be covered
by OSHA regulations further limiting worker exposure to lead. The cost
of implementing these regulations may force these consumers to switch to
organic substitutes. Increased switching to organic colors may also
result as chrome pigments manufacturers attempt to pass through their
increased OSHA regulatory costs by raising pigment prices. Thus, OSHA
regulations may directly or indirectly stimulate a shift from inorganic
pigments to organic coloring agents.
Tanning - There is no widely accepted substitute to chromic sulfate in
leather tanning. Synthetic and vegetable tanning agents are limited to
certain product uses and chromic sulfate has wider applicability.
Wood Preservatives - There are three commonly used wood preservatives:
chromated copper arsenate (CCA), creosote, and pentachlorophenol (PCP).
These three products are often interchangeable in industrial applications.
CCA is preferred for interior uses and home applications. Creosote is a
9-14
-------
black, sticky product derived from coal tar. It cannot be painted, and
is of little use in interior applications. PCP-treated wood cannot be
used in closed spaces as it emits toxic vapors.
Drilling Muds - Many mineral compounds can be substituted for chromium
drilling muds. The chrome muds, however, are more cost effective than
prevalent substitutes.
Metals Treatment and Corrosion Inhibition - Chromium corrosion inhibitors
have few cost effective substitutes in industrial applications. Zinc
compounds are used for metal treatment, but are less cost effective than
chromium and have a strong white color.
Imports are no longer a factor in the sodium dichromate market. As
recently as 1971, imports were an important aspect of the market.
However, increases in ocean shipping rates and the depreciation of the
dollar have made imported dichromate noncompetitive. The United States
currently is a net exporter of sodium dichromate.
9.1.4 Economic Outlook
9.1.4.1 Revenue
Sodium dichromate sales are expected to grow zero to five percent annually.
The most pessimistic prediction is based on the assumption that OSHA
regulations will cause a drop in consumption in the chrome pigments and
chromic acid end markets. The most favorable prediction assumes that
this will not occur, and that the smaller markets of tanning, wood
preservatives, and drilling muds will continue to grow at a fairly rapid
pace. Most predictions are for a growth rate of two percent.
Diamond Shamrock plans to expand capacity from 240 tons/day to 300
tons/day during the 1980's. This represents an 11 percent increase in
9-15
-------
industry capacity, and has the potential for lowering capacity utili-
zation in the industry if demand growth remains sluggish.
9.1.4.2 Manufacturing Costs
Considerable uncertainty exists with respect to future manufacturing
costs for sodium dichromate. The chromite ore used in chemicals manu-
facturing is imported almost entirely from South Africa. There is some
potential for political instability in this region, which could disrupt
supplies and drive up the price. The price has risen considerably since
the embargo was reimposed on Rhodesian ore in 1977, but the spiral
appears to have leveled off.
The price of soda ash has declined due to an increase in the production
of natural soda ash in the western United States.
Sulfuric acid, another major input, has increased in price rapidly over
the last five years. Prices for this commodity are expected to continue
their strong rise.
Energy is a comparatively small input, and while it is expected to
contribute to cost increases, it should not have an overwhelming impact.
Total production costs for sodium dichromate can be expected to climb in
the future. The rate of increase, however, should not be as great as
that for the chemical industry in general.
9.1.4.3 Profit Margins
Demand growth for sodium dichromate is expected to be moderate (2-3
percent) during the next several years. This prediction, however, is
based primarily on the maturity of dichromate's end markets, rather than
on competition from substitute products. Sodium dichromate has rela-
tively secure end markets, and relatively few substitutes in them.
9-16
-------
Moderate cost increases are likely to be reflected in the product price,
and profit margins in this industry should remain secure.
9.1.5 Characterization Summary
Sodium dichromate is an effective preservative for wood and leather, an
ingredient in pigments used in paints, and a corrosion inhibitor.
Approximately 157,000 tons were produced in 1977 by three companies:
Allied Chemical, Diamond Shamrock, and PPG. Substantial demand growth
is anticipated in some of sodium dichromate's end markets, particularly
wood preservatives. However, because the highest growth rates will
occur in dichromate's smaller markets, the overall demand growth for the
product will be slow to moderate. Industry observers cite possible OSHA
regulations of worker exposure to hexavalent chromium as a potential
threat to growth in dichromate1s main market, chromic acid. If demand
cutbacks due to OSHA regulations are not severe, growth of the sodium
dichromate industry should be 2 to 3 percent annually.
9.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
sodium dichromate industry to comply with various effluent control
standards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts that
each specified control level will have on the industry. The EPA will
consider these impacts in its development of effluent guidelines for the
industry. Promulgation of the regulations is expected in 1980 with full
industry compliance scheduled for July 1984.
BPT effluent limitations (based on Level 1 treatment technology) affecting
all sodium dichroraate manufacturers are in effect for this subcategory.
Therefore, this analysis assumes Level 1 equipment in place and assesses
9-17
-------
the impact of the additional costs required to meet higher effluent
removal levels.
9.2.1 Pollution Control Technology and Costs
Capital and operating costs have been developed by the technical con-
tractor for pollution control equipment designed to meet first and
higher levels of waste removal.
The major waste in sodium dichromate manufacture is the undigested por-
tion of the chromite ore. To achieve the first level of removal, or
BPT, sodium bisulfide is added to the wastewater to reduce hexavalent
chromium and other toxic metals. Solids are settled in lagoons, where
additional sodium bisulfide is added. Caustic soda is added to maintain
the pH at 8.5 to 9 in order to precipitate chromium hydroxide. The
overflow from the clarifier is discharged, and the sludge is returned to
the lagoon. Level 2 is achieved by the addition of a dual media filter
to reduce suspended solids in the final effluent. These steps are sum-
marized below:
Level 1 - Sulfide Reduction and Precipitation
• Sodium bisulfide and caustic soda are added to reduce hexavalent
chromium and precipitate toxic metals
• Overflow is pH adjusted and discharged underflow is returned to
the lagoon
Level 2 - Level 1 Plus Filtration
• A dual-media filter is added to reduce suspended solids in the
final effluent
Pollution control cost estimates were developed for three model plant
sizes, with average production rates of 22,000, 55,000 and 77,000 tons
per year. For the model plants, an average unit wastewater flow of
9-18
-------
1,625 gallons per ton (7mg/kkg) was assumed. Pollution control costs
for the model plants are summarized in Table 9-4.
The estimated costs of manufacturing sodium dichromate used in this
analysis are $465.87, $400.78, and $396.83 per ton for the small, medium,
and large plants, respectively. These cost estimates are based on the
estimates developed by an economic subcontractor (see Table 9-3) and
include the costs of meeting BPT effluent limitations.
Table 9-5 summarizes the model plant manufacturing costs used in the
analysis.
The total compliance costs for the sodium dichromate subcategory are
summarized in Table 9-6. These costs are based on the model plant
pollution control costs and current industry production levels. All
sodium dichromate manufacturers have Level 1 removal equipment in place
and no additional costs will be incurred. The total additional cost to
the subcategory for compliance with Level 2 removal is approximately
$190,000. The cost burden is divided equally among the three model plant
sizes.
9.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
9-19
-------
MODEL PLANT PARAMETERS
TABLE 9-4: POLLUTION CONTROL COSTS
Chemical: Sodium Dichromate
MODEL
PLANT
PRODUCTION
(tons/year)
22,000
55,000
77,000
SECOND LEVEL
OF REMOVAL
INVESTMENT
$ 53,060
124,740
145,130
ANNUAL
OPERATING
COST
$ 28,997
43,716
41,373
SOURCE: Development Document
TABLE 9-5: MANUFACTURING COSTS
Chemical: Sodium Dichromate
MODEL PLANT
PRODUCTION *
(tons/year)
INVESTMENT IN
PLANT .AND EQUIPMENT
MANUFACTURING
COSTS PER TON**
22,000
55,000
77,000
$ 8,700,000
15,800,000
19,600,000
$465.8';
400.78
396.85
* Cost estimates based on plant capacities of 28,700, 71,700 and
100,300 tons per year (see Table 9-3).
**. Includes cost of meeting Level 1 effluent limitations.
(SOURCE: Development Document)
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costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
9.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution con-
trol costs. Table 9-7 summarizes the price rise required of each model
plant for each level of removal. Note that Level 1 is not included in
the table. Level 1 is assumed to be in place. One additional removal
level is presented. The price increase necessary for full pass-through
is well under one percent for all model plants.
9.2.2.2 Profitability Analysis
The profitability analysis illustrates the decline in the return on
investment (ROI) and the internal rate of return (IRR) when no price
pass-through is assumed. Application of the most stringent control level
has little effect on the ROI and IRR. In all cases the decrease is less
than one half of one percentage point. These results are summarized in
Table 9-8.
9.2.2.3 Price Elasticity of Demand
Sodium dichromate production is a mature industry with relatively secure
end markets. There are few close substitutes for sodium dichromate that
are likely to become as cost effective in the event of a moderate price
increase. Moderate cost increases are likely to be passed through with
profit margins remaining secure. Therefore, demand for sodium dichromate
is assumed to be inelastic. (See Sections 9.1.1, Demand, and 9.1.3,
Competition, for a complete analysis.)
9-22
-------
TABLE 9-7
PERCENTAGE PRICE RISE
Chemical: Sodium Dichromate
Price: $561/ton
MODEL PLANT
PRODUCTION
. (tons/year)
SECOND LEVEL
OF REMOVAL
22,000
55,000
77,000
0.33%
0.24
0.17
SOURCE: EEA Estimates.
9-23
-------
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9-24
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9.2.2.4 Capital Analysis
Raising the capital required to install pollution control equipment can
be a problem for some industries trying to comply with new regulations.
The capital requirements of the technologies proposed for sodium dichro-
mate should not pose a problem. For all the model plant sizes the
capital costs are less than one-tenth of one percent of the fixed invest-
ment of the plant (See Table 9-9).
9.2.2.5- Closure Analysis
Table 9-10 summarizes the price elasticity of demand, price rise, and
profitability decline for sodium dichromate model plants and compares
these to EPA's closure criteria (see methodology description). Neither
the required price increase nor the profitability decline exceeds one
percent for any of the model plants. Therefore, on the basis of the
EPA's closure criteria, no plant closures are forecast.
9.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on sodium dichromate manufacturers.
9.2.3.1 Price and Profitability Impacts
The price increase necessary to fully pass through pollution control
costs is less than one half of one percent for all model plant sizes.
The industry should have no difficulty with price increases of this
magnitude. Even if these costs were not passed through there would not
be any substantial reductions in profitability (.40 percentage points in
the worst case). There should be no significant economic impacts on the
sodium dichromate industry from the implementation of the removal technol-
ogy suggested for this subcategory.
9-25
-------
TABLE 9-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Sodium Dichromate
LEVEL OF
REMOVAL
2
MODEL PLANT SIZE
(Annual Production in Tons)**
22,000
0.06 %
55,000
0.08 %
77,000
0.07 ?5
Fixed investments are assumed to be $303/ton, $220/ton, and
$195/ton of capacity for the three model plants from smallest to
largest.
77% capacity utilization.
SOURCE: EEA Estimates and Development Document.
9-26
-------
TABLE 9-10
IMPACT SUMMARY
Chemical: Sodium Dichromate
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
2
PLANT
PRODUCTION
(ton/yr)
22,000
55,000
77,000
PRICE ELASTICITY
Low
MAXIMUM
PRICE RISE
0 . 33%
0.24
0.17
MAXIMUM
PROFITABILITY
DECLINE
0.22%
0.25
0.22
CLOSURES
no
no
no
SOURCE: EEA Estimates
9-27
-------
9.2.3.2 Other Impacts and Conclusion
The application of the proposed technologies should have no significant
economic impacts on the sodium dichroraate industry. No changes in
industry structure and no secondary impacts, such as in employment or
the balance of payments, are anticipated. The United States currently
exports small amounts of sodium dichromate and this should not change.
9-28
-------
10. SODIUM HYDROSULFITE
10.1 CHARACTERIZATION
Sodium hydrosulfite (Na_S-0,) is a low volume chemical with major end
uses in the textile and the pulp and paper industries. Because most (80
to 90 percent) sodium hydrosulfite is consumed in these industries and
they are concentrated in the southern United States, two of the three
manufacturers have located their plants there.
The two major markets for sodium hydrosulfite (often called "hydro") are
considered mature in that their products are old, well established, and
experiencing relatively low growth rates. Although long run growth is
low, there can be significant short-term fluctuation in sales, due to
the volatility of the textile industry.
10.1.1 Demand
The major commercial value of sodium hydrosulfite lies in its power to
chemically reduce a wide variety of materials. It is used primarily in
vat dyeing of cotton and other fibers to reduce the dye to a water-soluble
state necessary for application. Sodium hydrosulfite also is used in
wood pulp bleaching and in a variety of other bleaching, reducing, and
stripping operations in the food, vegetable oil, and soap industries
(see Figure 10-1) .
10.1.1.1 End Markets
In order to depict the total demand for sodium hydrosulfite, the con-
ditions in its individual end markets are summarized below.
Textiles -- The dyeing of cotton and cotton synthetics almost always
requires a strong reducing agent to help fix the dye to the fabric. In
10-1
-------
textile mills, hydro is often used for this purpose. The mills use a
liquid product for this process but may receive the hydro in dry form
and mix it on site. The liquid product must be continuously refrigerated
as it deteriorates rapidly. Thus, the liquid product is more convenient
to use since it is premixed but transportation costs are higher (liquid
hydro is shipped in refrigerated tank cars).
Pulp Bleaching — In thermoraechanical pulping of wood, hydro is used to
bleach out colors. This is in contrast to other pulping processes which
chemically digest the wood pulp. Zinc hydrosulfite had been used for
many years in this process. Regulations of zinc in water effluents,
however, have caused a shift to sodium hydrosulfite. Industry sources
attribute hydro's high growth rate of recent years (6.4 percent per year
between 1972 and 1977) to this replacement of zinc hydrosulfite by
sodium hydrosulfite. This replacement is generally considered complete,
so further growth will only occur with increased production from the
pulp and paper industry. Since this is a rather slow growth industry,
hydro use is likely to increase slowly.
Other End Markets — Hydro is used in bleaching clay and in many reducing
and stripping operations. As is the case in pulping, clay manufacturers
switched from zinc hydrosulfite to sodium hydrosulfite because of effluent
limitations. Little growth can be expected from this mature market.
Trade sources report that the other miscellaneous uses for hydro also
will grow at stable rates.
10.1.1.2. Demand Summary
Demand for sodium hydrosulfite depends largely on the status of the
textile and paper industries. Both have recovered from the 1975 re-
cession. The markets for sodium hydrosulfite in clay and wood pulp
bleaching have increased with its replacement of zinc hydrosulfite.
10-2
-------
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10-;
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A few years ago, synthetic fibers threatened to replace cotton and other
cellulosic fibers as synthetics gained an increasing share of the fiber
market. The new dye technology for these fibers led to decreased con-
sumption of sodium hydrosulfite in the dyeing process. Cotton, however,
has held well and appears to have regained public favor. Cotton also is
in more demand at the mills since the rapid rise in synthetic fiber
prices.
Overall demand for hydro should grow at 3 to 4 percent, or slightly
ahead of GNP.
10.1.2 Supply
10.1.2.1 Production
Production of sodium hydrosulfite neared 64 thousand tons in 1977, a six
percent increase over the 1976 level (See Table 10-1 and Graph 10-1).
Between 1972 and 1977, production grew at an average annual rate of 6.4
percent per year, although individual annual changes varied substantially.
Much of the 1974 growth represents replacement of zinc hydrosulfite.
There was a large fall in the 1975 recession and a complete recovery in
1976. The future growth rate is expected to be around three to four
percent per year.
10.1.2.2 Producers
There are three producers of sodium hydrosulfite at five plant sites
(see Table 10-2). Virginia Chemicals company accounts for 57 percent of
total capacity, Royce accounts for 24 percent and Olin 19 percent.
Virginia Chemicals is the only producer that will be affected by new
effluent regulations since it is the only producer using the formate
process.
10-4
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10-5
-------
GRAPH 10-1
SODIUM HYDROSULFITE PRODUCTION AND PRICE
65.00 ~
48.75 -
VOLUME 32.50
(000's of tons)
16.25 -
0.00
1968
1972
1976
YEAR
1100.00 -
825.00 -
PRICE 550.00
(dollars)
275.00 -
0.00 -{•--
istes
1972
I I
1976
YEAR
SOURCE: Department of Commerce
Chemical Marketing*Reporter
-------
TABU 10-2
PRODUCTS OF SODIUM Hn»OSUl?TT5
OMPANY LDCATICW
Olia Corporation August*, SA
QurlMCon, TN
Roy«» Ol«aical I. fcitlwrfort, MJ
COOT any
Ylrjmii Chtaieai Bucha, W.
Csapanx Iftdi, X
TOTAt
ilfVcCSATION
AW1UAL CtfACTTY SSHMATSD ?HSCr«TA(S OF ""
(thousand tonal IMDOSTSY CAPACITY SAX MAT5HIAU -NO PRODUCTS
? 19 Soda AJ&
S Sulfur aisiid.
12 24
IS' 57 Forsata
U- SulAtr Oiowd«
U 100
• Th* EPA fill propose
only far ch*se planes which manufacrure 3odium h/drosul/ite by :he formate
SOURCE; Cheaicai, Maricacing Reporter, January i5, 1979.
10-7
-------
Of the three producers, Olin is by far the largest in terms of net sales
of chemicals ($682 million). Virginia Chemicals had net chemical sales
of $42 million in 1977 and sodium hydrosulfite accounts for a substantial
portion of their sales. Royce Chemical is a small, privately owned
company and sodium hydrosulfite represents approximately 90 percent of
their sales.
All three firms are, to some extent, integrated backward to raw mate-
rials. Qlin manufactures hydro using sodium amalgam that is produced as
a by-product in their chlorine-caustic operation. Virginia Chemicals is
integrated back to sulfur dioxide and sodium formate. Royce Chemicals
has begun grinding their own zinc ingots for use in their zinc-based
process.
10.1.2.3 Process
Each of the three producers manufactures hydro by a different process.
Virginia Chemicals uses their patented formate process, the least costly
of the three. This is a recently developed process which produces
sodium hydrosulfite from sodium formate, sodium hydroxide, and sulfur
dioxide in a methanol solution. The equations describing this process
are as follows:
NaCOOH + HO + SO -» HCOOH + NaHSO
^ ^ o
NaOH + SO -» NaHSO
4- J
HCOOH + 2NaHS03 •* Na2S204 + C02 + 2H20
Estimates of material requirements and costs for the formate process are
presented in Table 10-3.
10-8
-------
TABLE 10-3
ESTIMATED COST OF MANUFACTURING SODIUM HYDROSULFITE - FORMATE PROCESS-
(mid-1978 dollars)
Unit/Ton
299 kWh
24.5 MMBtu
.09 mgal
99.8 mgal
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
Sodium Formate
Sulfur Dioxide
Sodium Hydroxide
(100% basis)
- Methanol
• Utilities
Electricity
- Fuel
Process Water
- Cooling Water
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
e Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
28,900 tons/year
22,500 tons/year
(78% capacity utilization)
$16.3 million
$/Unit
0.03
2.50
0.75
0.10
$/Ton
1161 Ib
1832 Ib
617 Ib
8 gal
0.12
0.074
0.075
0.44
139.30
135.60
46.30
3.50
9.00
61.30
.10
10.00
$405.10
40.90
36.20
$ 77.10
10.20
72.40
10.90
$ 93.50
$575.70
*See Appendix C
10-9
-------
Raw materials costs account for approximately 50 percent of total manu-
facturing costs. Capital investment per ton of capacity is 565 dollars
which is moderate in comparison to capital requirements in other inorganic
chemicals. (Capital costs in inorganic chemicals manufacture range from
300 dollars per ton to 1500 dollars per ton, depending on the chemical
produced, the process used, and the plant size.)
Royce Chemicals utilizes the reaction of sulfur dioxide with metallic
zinc to produce zinc hydrosulfite. This is then converted to sodium
hydrosulfite by the use of caustic or soda ash. Zinc carbonate or zinc
hydroxide is produced as a by-product. The chemical reactions are as
follows:
Zn + 2S02 -> Zn S^
ZnS204 + Na2 CCL -* Na2'S204 + ZnCCL
The zinc process, once widely used in sodium hydrosulfite production, is
no longer preferred due to its high cost. A detailed breakdown of
material requirements and costs is not available; however, industry
sources indicate that the per ton production cost is very close to the
selling price of the product.
Olin reacts by-product sodium amalgam (produced in their mercury cell
caustic-chlorine plant) with sulfur dioxide to form sodium hydrosulfite
directly. Estimates of material costs and requirements are not avail-
able; however, this process probably falls between the formate and zinc
processes in total manufacturing costs.
10.1.3 Competition
Sodium hydrosulfite is a standard commodity chemical; therefore, compe-
tition is mainly on the basis of price, as manufacturers have located
10-10
-------
near major markets to minimize shipping costs. However, with only three
firms in the industry, they are all better off if they keep prices
consistent and profit margins high. Market shares are, therefore,
relatively stable and there is little aggressive pricing.
Manufacturers also compete, to a minor extent, by differentiating the
product for customers with specialized needs. For example, producers
will include chemical additives in their hydro products which make them
more effective in specific uses. The chemical is also sold in liquid or
dry form, and in small or bulk shipment, depending upon the requirements
of the customer.
10.1.4 Economic Outlook
10.1.4.1 Revenue
Total revenue is the product of total sales volume and the average unit
price. Although these two variables are discussed separately below,
they are interrelated.
10.1.4.1.1 Quantity
Production of sodium hydrosulfite has enjoyed fairly substantial growth
over the past five years. The previous growth rate of about six percent
per year (on the average) will probably moderate to three to four percent.
Much of the previous growth was attributable to its replacement of zinc
hydrosulfite; this replacement is now virtually complete and growth
should slow to that of the end markets.
A major determinant of future sodium hydrosulfite production is the
health of the textile and paper industries. Because sales in the
textile industry are heavily influenced by import levels and fashion
changes, the growth forecasts for hydro are somewhat uncertain.
10-11
-------
10.1.4.1.2 Price
The current list price for hydro is 53.5 cents per pound. Prices have
risen at an average annual rate of 11.8 percent since 1972. Future
price increases are considered likely since raw material costs are
expected to increase (see following section).
10.1.4.2 Manufacturing Costs
The cost of raw materials comprises a significant portion of total
production costs (greater than 50 percent according to industry sources
and contractor estimates). Sulfur dioxide is the one raw material
common to all three processes used in manufacturing hydro, and its cost
is expected to rise sharply in the future. This is due to the current
shortage of sulfur on world markets. Sulfur dioxide's price has risen
at an annual rate of nine percent since 1970 and this rise is expected
to continue unabated.
Virginia Chemicals acquires sodium formate (used in their formate process)
from three sources: they produce it from another company's waste stream;
they purchase it; and they produce it in their own primary production
process. A Virginia Chemicals spokesman expects sodium formate's price
to rise. This may cause them to rely more heavily on their own sodium
formate facilities in the future.
The cost of zinc, used by Royce to produce sodium hydrosulfite, is very
low now due to an oversupply in the market. Zinc should remain rela-
tively plentiful and inexpensive for the next several years although
world metal markets are volatile.
Sodium amalgam is produced as a by-product in mercury cell production of
caustic-chlorine. This process will become more expensive because it is
energy intensive, and energy prices will increase substantially. By-
product economics is such that as the cost of the primary process in-
creases, so will the cost of by-product sodium amalgam.
10-12
-------
10.1.4.3 Profit Margins
The three producers employ different processes having significantly
different economics. While manufacturing costs vary among the three
processes (which are from lowest to highest cost, formate, sodium amalgam,
and zinc), all receive prices equal or near to list price for the product.
This means that profit margins also vary widely. Virginia Chemicals
employs the formate process and, therefore, is in a good position to
absorb cost increases if necessary. For the more costly processes,
profit margins range from adequate to nonexistent, according to industry
sources.
Cost increases, particularly in the form of higher sulfur dioxide prices,
could conceivably put the least profitable company, Royce, out of business
if the other producers choose to absorb the cost increases by reducing
their margins.
10.1.5 Characterization Summary
Sodium hydrosulfite is a standard commodity chemical with relatively few
markets. It is used by the textile industry in dyeing and by the pulp
and paper industry in bleaching wood pulp. Because of its low value,
the markets for hydro are regionally defined. There are three producers
of hydro, two of which (Virginia Chemicals and Olin) appear profitable.
The third producer, Royce Chemicals, is hampered by a dated technology
which is no longer competitive and is causing their profit margin to
decline.
Demand growth is dependent upon the state of the textile and paper
industries. Industry estimates of demand growth are generally three to
four percent. However, this estimate is uncertain due to the demand
fluctuation inherent in the textile industry. The sodium hydrosulfite
industry is mature and not likely to change radically in structure or
performance for the next 10 to 20 years.
10-13
-------
10.2 IMPACT ANALYSIS
This economic impact assessment addresses only the production of sodium
hydrosulfite by the formate process. A survey by the technical contractor
has revealed that there are two plants producing hydrosulfite by the
formate process. One plant discharges effluent directly into the nation's
waterways and has Level 1 treatment technology installed. The second
plant is an indirect discharger without complete Level 1 equipment.
Therefore, this analysis will address the impacts of meeting Level 1 as
well as higher removal level control costs.
10.2.1 Pollution Control Technology and Costs
Pollution control costs were developed by the technical contractor for
technologies which would enable dischargers to meet two levels of waste
removal. To achieve the first level of removal the dilute waste is pH
adjusted and aerated. Overflow from the clarifier passes through a
chlorine tank and polishing pond before discharge. Depending on market
conditions, co-product waste is either concentrated and sold to the pulp
and paper industry or disposed of in the dilute waste system.
For Level 2 treatment, toxic heavy metals are precipitated from the
wastes. These are then combined with product wastes for biological
oxidation treatment and chlorination, as in Level 1. The steps for the
two control levels are summarized below:
Level 1 - Adjustment of pH and Aeration
o Dilute waste is pH adjusted and aerated to reduce COD
o Co-product wastes are either disposed of as described above
or concentrated and sold.
Level 2 - Level 1 Plus Alkaline Precipitation
o Wastes are subjected to alkaline precipitation to remove
toxic metals, then treated as in Level 1.
10-14
-------
Since there are only two plants which manufacture sodium hydrosulfite by
the formate process and both plants are similar, costs were developed
for one model plant with a production rate of 22,500 tons per year.
Table 10-4 summarizes pollution control costs for the model plant.
The cost of manufacturing sodium hydrosulfite used in the analysis is
$575.70 per ton. This cost estimate is based on the estimates developed
by an economic subcontractor (see Table 10-3) and does not include the
cost of meeting BPT effluent limitations. Table 10-5 summarizes the
model plant financial parameters used in the impact analysis.
The total annualized control costs for the sodium hydrosulfite subcate-
gory are summarized in Table 10-6. These costs are based on the model
plant pollution control costs and current industry production levels.
One of the two plants producing sodium hydrosulfite is a direct discharger
and has Level 1 removal equipment in place. Therefore, the additional
costs required for subcategory compliance with base level removal are
estimated as $227,534. Subcategory compliance with the more stringent
Level 2 technology would require additional annual costs of $276,344.
10.2.2 Model Plant Analysis
This section outlines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
10-15
-------
MODEL PLANT PARAMETERS
TABLE 10-4: POLLUTION CONTROL COSTS
Chemical: Sodium Hydrosulfite
MODEL
PLANT
PRODUCTION
22,500
FIRST LEVEL *
OF REMOVAL
CAPITAL
INVESTMENT
$ 254,200
ANNUAL
OPERATING
COST
$ 230,346
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 172,780
ANNUAL
OPERATING
COST
$ 135,921
* Applies to indirect dischargers .
SOURCE: Development Document
TABLE 10-5: MANUFACTURING COSTS
Chemical: Sodium Hydrosulfite
MODEL PLANT
PRODUCTION
(tons/year)
INVESTMENT IN
PLANT AND EQUIPMENT
•MANUFACTURING
' COSTS PER TON
22,500
$ 11,600,000
$ 575.70
Cost estimate based on plant capacity of 28,900 tons per year
(see Table 10-3) .
To assess the impacts of removal Level 2, the per ton cost of
meeting first level effluent limitations was added to this model
plant manufacturing cost.
10-16
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The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potential "high impact" plants can be
screened for additional analysis.
10.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Table 10-7 summarizes the price rise required to recover
Level 1 removal and Level 2 removal costs.
For the indirect discharger, the price increase necessary for full
pass-through of first level removal costs is approximately 1.6 percent.
The price increase for incremental second level removal costs is less
than one percent.
10.2.2.2 Profitability Analysis
The profitability analysis illustrates the decline in the return on
investment (ROI) and the internal rate of return (IRR) when no price
pass-through is assumed. The profitability change calculations for
direct dischargers and indirect dischargers are summarized in Tables 10-8a
and 10-8b.* The indirect discharger required to install Level 1 treatment
would suffer a profitability decline of less than one percentage point.
The profitability decline resulting from additional Level 2 costs is only
one half of one percentage point.
Base case profitability is different for the two levels because the
manufacturing costs used in the Level 2 profitability analysis
include the per ton cost of Level 1 pollution control.
10-18
-------
TABLE 10-7
PERCENTAGE PRICE RISE
Chemical: Sodium Hydrosulfite
Price: $803/ton
MODEL PLANT
PRODUCTION
ftnns
FIRST LEVEL
OF REMOVAL *
SECOND LEVEL
OF REMOVAL
22,500
1.58%
0.96%
* Applies to indirect dischargers
SOURCE: EEA Estimates
10-19
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10.2.2.3 Price Elasticity of Demand
Sodium hydrosulfite is a standard commodity chemical and has no close
substitutes. Therefore, demand is relatively price inelastic for the
industry as a whole. Since hydro is a standardized product, price
competition among individual producers is strong. Theoretically, each
firm faces a perfectly elastic demand curve. However, shipping costs
and minor product differentiation for customers with specialized needs
operate to make actual demand less than perfectly price elastic. Because
only one sodium hydrosulfite manufacturer will be affected by the regula-
tions, medium price elasticity of demand is assumed. (See Sections 10.1.1,
Demand, and 10.1.3, Competition, for a complete analysis.)
10.2.2.4 Capital Analysis
The capital investment required for installation of Level 1 pollution
control equipment (required of the indirect discharger) represents 1.56
percent of fixed investment in place (See Table 10-9). Since Virginia
Chemicals' plants are relatively new and depreciation related cash flows
are high, this investment should not represent a serious hurdle. This
potential investment ($254,200) represents 1.95 percent of Virginia
Chemicals' total 1978 expenditures for plant and equipment. (Sodium
hydrosulfite is one of their main products.) For the two plants to
achieve Level 2 removal, the required capital is approximately 1.50
percent of fixed investment.
10.2.2.5 Closure Analysis
Table 10-10 summarizes the price elasticity of demand, price rise, and
profitability decline for the sodium hydrosulfite model plant and com-
pares these to EPA's closure criteria (see methodology description).
For the indirect discharger (Level 1 removal), even though the price
increase is slightly higher than one percent and price elasticity of
demand is medium, the maximum profitability decline is less than one
percent. Similarly, the incremental costs required for Level 2 removal
10-22
-------
TABLE 10-9
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Sodium Hydrosulfite
LEVEL OF
REMOVAL
MODEL PLANT SIZE
(Annual Production)
in Tons)**
.22,500
1.56%
1.49
* Fixed investment is assumed to be $772/ton of capacity for the model
plant.
** 73% capacity utilization.
*** Applies to indirect dischargers.
SOURCE: EEA Estimates and Development Document
10-23
-------
TABLE 10-10
IMPACT SUMMARY
Chemical: Sodium Hydrosulfite
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1*
2
PLANT
PRODUCTION
(ton/yr)
22,500
22,500
PRICE ELASTICITY
Medium
Medium
MAXIMUM
PRICE RISE
1.58%
0.96%
MAXIMUM
PROFITABILITY
DECLINE
0.81%
0.50%
CLOSURES
no
no
Applies to indirect dischargers.
SOURCE: EEA Estimates
10-2A
-------
would result in a small price increase or profitability decline of less
than one percentage point for each plant. Therefore, on the basis of
the EPA's closure criteria, no plant closures are predicted.
10.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on sodium hydrosulfite manufacturers.
Virginia Chemicals is the only producer for which regulations are proposed
since it is the only sodium hydrosulfite manufacturer using the formate
process. Any pollution control costs will weaken Virginia Chemicals'
position and strengthen that of its two competitors. Virginia Chemicals,
however, is the strongest company in the hydrosulfite market with 57
percent of industry capacity and the most economical process. Small
pollution control costs will not seriously threaten its position.
10.2.3.1 Price and Profitability Impacts
Since Virginia Chemicals will be the only firm experiencing pollution
control costs and because all producers charge similar prices, the most
likely impact will be a slightly reduced margin for Virginia Chemicals
(see Table 10-8). However, the formate process is the least expensive
method of manufacturing hydro (see Section 10.1.2.3) which implies that
Virginia Chemicals operates with higher profit margins than other producers,
The small profitability decline (1-1.6 percent) is not likely to signif-
icantly alter this profit margin advantage. The firm is likely to
retain its position as the leading producer of hydro. No changes in
industry-wide product price or profit levels are projected.
10.2.3.2 Other Impacts and Conclusion
The application of the proposed technologies should have no significant
economic impacts on the sodium hydrosulfite industry. No changes in
industry structure and no secondary impacts, such as in employment or
the balance of payments, are anticipated.
10-25
-------
11. TITANIUM DIOXIDE
11.1 CHARACTERIZATION
Titanium dioxide (TiO,.,) is a white pigment used to whiten or opacify
paints, paper, plastics, and several other products. It is used more
than other white pigments because of its exceptional hiding power,
negligible color, and inertness. Titanium dioxide is a high volume
chemical ranking 49th in terms of production volume for all U.S. chem-
icals. It is also a high value commodity with recent prices around
$1,000 per ton (many chemicals are worth one-tenth this much). Because
of its high value, TiO- can be shipped internationally, making foreign
competition a significant characteristic of the U.S. market.
Titanium dioxide is a well established, mature product having been
produced for over 40 years. Most of its many end markets are also
mature, causing demand growth to parallel GNP growth. Although the
chemical has been produced for many years, relatively recent techno-
logical advances have reduced manufacturing costs. Technology changes
have also been aimed at reducing pollution control costs which can
represent a significant portion of manufacturing costs.
11.1.1 Demand
Over one-half of the titanium dioxide produced is used in paints, var-
nishes, and lacquers. Almost a third is used in paper and plastics.
Other uses are found in ceramics, ink, and rubber (see Figure 11-1).
Production of titanium dioxide is particularly dependent on the use of
paint and coatings in housing starts and restoration and in automobile
manufacture. In 1975, demand for paint and coating products slipped
well below the 1974 level. As a result, paint and coating manufacturers
reduced their output as well as their purchases of titanium dioxide. In
11-1
-------
addition, they used inventories accumulated in anticipation of a shortage
and cut the proportion of titanium dioxide used in trade paints (to
avoid raising paint prices). Reduction of hiding power was exchanged
for lower prices. The paper industry followed the same pattern. Both
industries have recovered somewhat and the titanium dioxide content has
been increasing again. In paper especially, TiCL can improve the qual-
ity of coated materials and save weight.
U.S. demand for TiCL is increasing and slowly shifting. Forecasts show
a long run growth rate of about three percent. Surface coatings will
continue to dominate TiCL's market, but growth in other areas will be
faster than that in coatings. The use of TiCL in plastic, for example,
is expected to grow about eight percent per year and use in paper, about
five percent. Overall, TiCL has mature markets and its long run increase
in volume is expected to follow real GNP growth.
11.1.2 Supply
11.1.2.1 Production
Production of TiCL grew steadily between 1964 arid 1974 at an average
rate of 3.25 percent per year. The last several years, however, have
seen highly variable demand (and thus production). In 1975, a recession
year, production fell 23 percent. This is indicative of TiO ' s depen-
dence on general economic conditions. Production rose in 1976, but was
still below the peak production in 1973-74 (see Table 11-1 and Graph
11-1). In 1977, production fell again to a level 14 percent below the
peak year of 1974. In 1978, production rose 5 percent above 1977 levels
to 720,000 tons.
11.1.2.2 Producers
There are six producers of TiCL at 11 plant sites in the United States
(see Table 11-2). DuPont controls 56 percent of the total industry
11-2
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GRAPH 11-1
TITANIUM DIOXIDE PRODUCTION AND PRICE
800.00-
600.00 -
VOLUME 400.00 _
(000's of tons)
200.00 -
0.00 _
1967
1971 1975
YEAR
AVERAGE
UNIT
VALUE
(dollars)
900.00-
675.00-
450.00-
225.00-
1975
YEAR
SOURCE: Department of Commerce
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capacity with the next three producers accounting for another 40 percent.
Most of the producers are large chemical corporations or conglomerates.
There is a considerable amount of forward integration by the producers
to the main end product, paint. Backward integration has actually
decreased in some cases as TiCL producers have sold their ore interests.
Kerr McGee has a synthetic rutile ore plant in Mobile, Alabama which was
closed in March 1978 to "accommodate process and design modifications
that will permit the plant to achieve compliance with environmental
regulations and to reach the design capacity of 110,000 tons per year"
(Kerr McGee Annual Report, 1977).
The total industry capacity is over one million tons per year with
individual plant capacities ranging in size from 29,000 to 228,000
tons/year. Titanium dioxide is produced by the sulfate, chloride or
chloride-ilmenite process. Of the three processes, sulfate plants
account for 269,000 tons (26 percent) of the total industry capacity,
chloride plants account for 191,000 tons (18.5 percent), and chloride-
ilmenite plants account for 575,000 tons (55.5 percent). The newer
plants all utilize the chloride process in part because of the higher
pollution control costs associated with sulfate production.
The remaining four sulfate plants range in age from 23 to 44 years. All
four plants are completely dedicated to titanium dioxide production.
Thus, except for some sulfuric acid plants at the facilities (used in
TiCL production), there are no other chemicals produced. The startup
dates for the plants are:
• NL - Sayreville: 1935
• NJ Zinc - Gloucester: late 1940's
• American Cyanamid - Savannah: 1955
• SCM - Baltimore: 1956
Capacity has been expanding steadily in the industry. Before 1971 there
was an oversupply of TiCL in the market, in 1973 and 1975 a shortage,
11-7 .
-------
and more recently, oversupply. In the past decade, DuPont has more than
doubled the capacity at its New Johnsonville, Tennessee plant. Recent-
ly, the chloride-ilmenite capacity at its Edge Moor, Delaware plant was
tripled as the last of DuPont1 s sulfate plants was shut down (a 155,000
ton/year unit in Edge Moor). DuPont has a new 150,000 ton/year chloride
plant partially on stream in DeLisle, Mississippi. (The plant is not
expected to be operating at capacity until 1982.) They also are interested
in building a unit the size of the DeLisle plant in Europe.
11.1.2.3 Process
There are three ways of making Ti02: by the chloride process, by the
chloride-ilmenite process or by the sulfate process. There are also two
basic types of TiCL crystals produced: rutile and anatase. The rutile
form of the pigment normally results from the chloride process and the
anatase pigment from the sulfate process. All three processes can now
produce both types of pigment although there are subtle differences
between the pigments .
11.1.2.3.1 Sulfate Process
The sulfate is the older, traditional process which uses sulfuric acid
to digest titanium ores. The ore used in this process is either ilme-
nite (40 percent to 55 percent TiO?) or an upgraded ilmenite (70 to 85
percent). Naturally, when dealing with an ore which contains only 50
percent product, there are significant waste products. The reactions
are:
FeTi03 + 2H2S04 -> FeS04 + TiO-S04
TiO-S04
Ti02
11-8
-------
The iron content of the ilmenite dissolves as ferric sulfate and is
converted to ferrous sulfate through the addition of scrap iron. Many
other metals which may have been in the ore also dissolve as sulfates.
The result is a waste stream which may contain three to four tons of
hydrated iron sulfate and 40 tons of dilute sulfuric acid and wash water
for each ton of product. The acid stream may be neutralized using
limestone. This, in turn, results in approximately five tons of gypsum
(calcium sulfate) for each ton of product. There are markets for the
gypsum (e.g., wallboard manufacture) but its price is low.
The estimated manufacturing costs for sulfate TiCL production are given
in Table 11-3. Included are material requirements for producing one
short ton of TiO .
11.1.2.3.2 Chloride Process
In the chloride process, first used in the late 1950's, an ore high in
titanium and low in iron is chlorinated in a fluidized bed. Rutile,
synthetic rutile, or upgraded ilmenite are generally used. The reactions
for the chloride process are:
3TiO, + 4C + 6C10 •» 3T1C1, + 2CO + 2CCL
224 2
TiCl4 + 02 -»• Ti02 + 2C12
(94 percent yield based on titanium)
The estimated manufacturing costs for chloride TiO,, production are pre-
sented in Table 11-4. Included are material requirements for producing
one short ton of TiO,,.
11.1.2.3.3 Chloride-Ilmenite Process
The chloride-ilmenite process is a propriety process developed by DuPont.
This process utilizes lower grade ilmenite ores which are cheaper and
more available than the ilmenite and rutile ores used in the chloride
11-9
-------
TABLE ll-3a
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS-
(mid-1978 dollars)
Unit/Ton
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
Ilmenite Ore
Sulfuric Acid
Scrap Iron
- Other
• Utilities
Cooling Water
Steam
- Process Water
Electricity
Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
46,000 tons/year
35,000 tons/year
(76% capacity utilization)
$84.2 million
$/Unit
$/Ton
1.95 tons
4.13 tons
. 16 tons
37.80
20.06
108.00
73.70
82.80
17.30
162.30
102.3 mgal
23.26 mlb
26.74 mgal
514.8 kWh
9.6 MMBtu
.031
2.83
.41
.019
2.18
3.20
65.80
11.00
9.80
20.90
$446.80
115.90
53.00
$168.90
81.90
240.00
448.00
$369.90
$985.60
''See Appendix C
11-10
-------
TABLE ll-3b
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS*
(mid-1978 dollars)
Unit/Ton
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
Ilmenite Ore
- Sulfuric Acid
Scrap Iron
- Other
• Utilities
Cooling Water
Steam
Process Water
- Electricity
Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs'
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
69,000 tons/year
52,500 tons/year
(76% capacity utilization)
$111.8 million
$/Unit
$/Ton
1.95 tons
4.13 tons
.16 tons
37.80
20.06
108.00
73.70
82.80
17.30
162.30
102.3 mgal
23.26 mlb
26.74 mgal
514.8 kWh
9.6 MMBtu
.031
2.83
.41
.019
2.18
3.20
65.80
11.00
9.80
20.90
$446.80
86.60
45.60
$132.20
95.10
212.80
42.50
$350.40
$929.40
*See Appendix C
11-11
-------
TABLE 11-3c
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - SULFATE PROCESS-
(mid-1978 dollars)
Unit/Ton
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
Ilmenite Ore
Sulfuric Acid
Scrap Iron
- Other
• Utilities
Cooling Water
Steam
- Process Water
Electricity
- Natural Gas
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractr and EEA estimates
108,000 tons/year
82,000 tons/year
(76% capacity utilization)
$153 million
$/Unit
1.95 tons
4.13 tons
.16 tons
37.80
20.06
108.00
73.70
82.80
17.30
162.30
102.3 mgal
23.26 mlb
26.74 mgal
514.8 kWh
9.6 MMBtu
.031
2.83
.41
.019
2.18
3.20
65.80
11.00
9.80
20.90
$446.80
61.90
39.50
$101.40
131.50
186.40
37.30
$355.20
$903.40
'''See Appendix C
11-12
-------
TABLE 11-4a
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - CHLORIDE PROCESS"
(mid-1978 dollars)
Plant Capacity
Annual Production
Fixed Investment
24,200 tons/year
18,500 ton.s/year
(77% capacity utilization)
$36.5 million
Unit/Ton
VARIABLE COSTS
• Materials
- Rutile Ore
- Metallurgical Coke
- Chlorine
- Oxygen
- Other
• Utilities
Cooling Water
- Steam
- Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
$/Unit
1.06 tons
.26 tons
.14 tons
.5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
120 mgal
10.25 tons
7.5 mgal
920 kWh
.031
5.67
.41
.019
3.70
58.10
3.10
17.50
2.40
$482.20
143.80
40,30
$184.10
104.20
196.20
39.20
$339.60
$1,005.90
*See Appendix C
11-13
-------
TABLE ll-4b
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE— CHLORIDE PROCESS'1
(mid-1978 dollars)
Unit/Ton
120 mgal
10.25 tons
7.5 mgal
920 kWh
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Rutile Ore
Metallurgical Coke
Chlorine
Oxygen
- Other
• Utilities
Cooling Water
Steam
Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
36,400 tons/year
28,000 tons/year
(77% capacity utilization)
$48.6 million
$/Unit
1.06 tons
.26 tons
. 14 tons
.5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
.031
5.67
.41
.019
3.70
58.10
3.10
17.50
2.40
$482.20
109.40
35.50
$144.90
96.80
173.50
33.60
$303.90
$931.00
~vSee Appendix C
11-14
-------
TABLE ll-4c
ESTIMATED COST OF MANUFACTURING TITANIUM DIOXIDE - CHLORIDE PROCESS-
(mid-1978 dollars)
Unit/Ton
120 mgal
10.25 tons
7.5 mgal
920 kWh
Plant Capacity
Annual Production
Fixed Investment
VARIABLE COSTS
• Materials
- Rutile Ore
- Metallurgical Coke
Chlorine
- Oxygen
- Other
• Utilities
Cooling Water
Steam
- Process Water
- Electricity
- Other
Total Variable Costs
SEMI-VARIABLE COSTS
• Labor
• Maintenance
Total Semi-Variable Costs
FIXED COSTS
• Plant Overhead
• Depreciation
• Taxes & Insurance
Total Fixed Costs
TOTAL COST OF MANUFACTURE
SOURCE: Contractor and EEA estimates
65,000 tons/year
50,000 tons/year
(77% capacity utilization)
$72.9 million
$/Unit
1.06 tons
.26 tons
.14 tons
.5 tons
270.00
100.30
130.40
20.06
286.20
26.10
18.30
10.00
56.80
.031
5.67
.41
.019
3.70
58.10
3.10
17.50
2.40
$482.20
78.90
29.90
$108.80
102.00
145.60
29.20
$276.80
$867.80
''"See Appendix C
11-15
-------
process described above. Therefore, DuPont has a significant cost
advantage as a result of using the chloride-ilmenite process.
11.1.3 Competition
11.1.3.1 The Titanium Dioxide Pigments
Titanium dioxide pigments are produced in many forms. Starting with
either the rutile crystal (the denser form) or the anatase crystal, a
great variety of coatings and other additives can be used to make the
pigment perform best in any particular end use. In addition to the
chemical differences in pigments, the form of the product also varies.
About 20 percent of TiCL in 1978 was shipped in a slurry rather than in
its usual powdered form. Because of these differences in pigment charac-
teristics, the TiC> market is really segmented into several submarkets
depending on the end use. However, manufacturers can switch production
among several grades of pigments so there is competition in each submarket
(based predominantly on price). In 1973, when there was a TiC> shortage,
availability, as well as price, became an important competitive factor.
More recently there has been excess capacity and availability has not
been a major factor.
11.1.3.2 The World Market
Titanium dioxide is a high value commodity used throughout the world.
Because of its very high unit value (around $l,000/ton), it can be
economical to ship it internationally. In the United States, foreign
trade has played an important role (see Table 11-5). Net imports have
been growing since 1975 and presently represent nearly 15 percent of
consumption. This is unusually high for a U.S. process chemical. SCM
Corporation filed a complaint with the Treasury Department in September
of 1978, alleging that imports from Belgium, West Germany, the United
Kingdom, and France have been sold at less than fair market value. The
11-16
-------
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International Trade Commission was then asked by the Treasury Department
to determine if there was a reasonable indication of injury or the
likelihood of injury to an industry in the U.S. The commission decided,
in November of 1978, that there was such an indication and that the
Treasury Department's investigation should not be terminated. This
finding indicated, at a minimum, that imported pigment is competitive
with domestic pigment. A subsequent investigation resulted in a decision
by the ITC in November of 1979 that the U.S. industry is not being
injured by titanium dioxide imported from Europe.
World capacity for TiO,., was about 2.4 million metric tons in 1978.
Western Europe accounts for the greatest share (46 percent) followed by
the U.S. and Canada (37 percent), Japan (9 percent), and other non-Communist
countries (8 percent). Because TiO? consumption closely follows general
economic conditions in each country, the demand varies by country as
some economies outpace others. In the U.S., for example, weak European
markets generally cause an increase in imports. Historically, as European
capacity utilization has fallen, their exports have increased. Conversely,
as European demand increases, their exports to the U.S. decrease.
11.1.3.3 The U.S. Market
There are six producers of T1CL in the U.S. with DuPont accounting for
56 percent of capacity (including their new Mississippi plant). There
have been several plant closings since 1969 with NL's St. Louis sulfate
process plant the most recent (June 1978). NL has also decreased pro-
duction at its Sayreville, New Jersey sulfate plant. In an attempt to
maintain market share, NL has increased imports from foreign subsid-
iaries to make up for lost U.S. capacity. This accounts for a portion
of the large recent increases of imports. DuPont has closed down its
sulfate plants and greatly expanded its chloride-ilmenite process capacity.
Other plants have been expanded or sold since 1969. The net result of
these changes was insufficient capacity in 1973, and overcapacity in
11-18
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1977 and 1978. With overcapacity and especially rapid cost increases
occurring simultaneously, profit margins were reduced.
Since TiCL competes predominantly on the basis of price, the pricing
practices of the industry are the best indicators of the competitive
stature of the industry. Given a certain level of demand, the two main
factors influencing U.S. market price are the price of imports and the
price set by the lowest cost domestic producer. The International Trade
Commission (ITC) initially found some evidence of sales lost to European
competitors, although the commission eventually ruled that the U.S.
industry is not being injured by imports. In the long run, foreign
producers could increase their market share if they could consistently
underprice U.S. producers. According to the ITC study, some import
prices in 1977 and 1978 were below and some above those of domestic
producers. However, some sources consider the pricing of foreign pig-
ment of secondary importance to the prices set by DuPont. One ITC
commissioner, dissenting with the ITC's initial finding of injury, said,
"DuPont is clearly the dominant firm in the domestic industry,
with about half of domestic production and a unique chloride
production process which is much more efficient than any other
in the world. DuPont's profits are at reasonable levels and
it plans major capacity expansions. I have not found much
evidence of injury in the factors analyzed, but I am convinced
that any injury which may exist is not by reason of imports
from these four countries, but is more likely related to
conditions of competition among domestic producers."
Thus, the U.S. market prices are delineated by DuPont as the lowest cost
producer setting a floor, and import prices limiting the ceiling for
other U.S. producers.
DuPont's market dominance was scrutinized in a Federal Trade Commission
investigation. In 1978, the FTC accused DuPont of attempting to monopolize
T1CL production. The FTC wanted DuPont to divest itself of two manufac-
turing facilities and to provide royalty-free licensing of its low-cost
11-19
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proprietary technology. In September 1979, an FTC judge dismissed the
antitrust case against DuPont, saying the producer demonstrated superior
business planning and technological expertise and was not guilty of
unfair conduct under the Federal Trade Commission Act. This finding
makes it likely that DuPont will continue to dominate U.S. production
and exert a strong influence on TiO- pricing for the next several years.
11.1.4 Economic Outlook
The future profitability of TiCL manufacture will depend on maintaining
strong physical volume, adequate profit margins, and moderated increases
in manufacturing costs.
11.1.4.1 Revenue
Total revenue is the product of the quantity sold and unit price.
Though these two variables are discussed separately below, it should be
recognized that they are interrelated.
11.1.4.1.1 Quantity
Sales volume of titanium dioxide, in general, reflects the overall
condition of the U.S. economy. End products of TiO~ are marketed in
major sectors of the economy (e.g., construction and housing starts).
The trend in volume has shown little growth over recent years (1972 to
1977) while price has increased considerably (see Graph 11-1). Long-term
demand growth is expected to parallel that of the economy as a whole.
That is, physical volume will increase with real GNP. The use of TiO
in some sectors, such as plastics, is expected to increase substan-
tially. Most estimates anticipate an annual growth rate of approximately
three percent.
11.1.4.1.2 Price
The price of TiCL pigments depends on the type of crystal (rutile or
anatase), the grade, and the volume and form of the shipment. Minimum
11-20
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orders of about 20 tons are required to receive list base prices. Most
shipments are made in dry form (e.g., 50 Ib bags) but there are in-
creasing amounts of shipments in the wet slurry form. Purchasers receive
discounts for this form of shipment which now represents about 20 percent
of volume. (This form of shipment can also reduce the quantity of water
effluents at the plant.)
During the 1960's TiO~ prices were relatively constant. From 1970 to
1972, weak demand and what industry sources describe as a "price war"
caused prices to fall 11 percent below the 1968 average unit value of
$511. In 1973 and 1974 demand increased markedly and, with supply
unable to meet demand, prices rose six percent in 1973 and 33 percent in
1974. In 1975, the recession caused demand to fall significantly as
volume dropped 23 percent. Prices, however, continued to rise as manu-
facturers experienced large increases in manufacturing costs (especially
energy and pollution control). Overall, from 1972 to 1977, prices
increased 81 percent while volume decreased one percent (see Table 11-1
and Graph 11-1).
Prices remained near 1977 levels until June of 1978 when producers
raised prices 2.5 cents per pound ($50 per ton) and started to remove
discounts from list prices (which were near two cents per pound). Price
competition through discounting is not uncommon. Because of varying
discounts it is often difficult to find the "real" price of the product.
By the end of 1978, the new prices were "holding up well" i.e., there
was little discounting. The list prices were: 51 cents per pound
($l,020/ton) for rutile and 46 cents per pound ($920/ton) for paper
grade anatase.
11.1.4.2 Manufacturing Costs
Until recently, the chloride process for the manufacture of titanium
dioxide was suitable only for use with rutile, a rare (and consequently
11-21
-------
expensive) compound. New technological advances may have ameliorated
this raw material problem. According to industry sources, Quebec Iron
and Titanium Company plans to build a complex in South Africa which will
convert ilmenite ore into titanium slag (85 percent TiO_). This slag
will be suitable for use in sulfate plants. The company presently
operates a similar plant in Sorel, Quebec which produces a 71 percent
TiCL slag. As producers switch to these higher purity ores, it is
possible that pollution control costs (quoted as high as $140 per ton of
pigment) will be reduced.
DuPont, the leading manufacturer of titanium dioxide, produces TiCL by
the chloride-ilmenite process, using ilemnite or ilmenite/rutile mixtures.
Both of these improvements should begin to solve the raw materials
problems as well as help to restrain prices and strengthen the industry.
Energy costs and availability will also play an important role in future
TiCL manufacturing costs. Utilities now represent approximately 10
percent of manufacturing costs. With energy rising faster than most
other input costs, manufacturing cost increases will continue to be tied
to energy costs. Coke and chlorine prices will also be affected by
rapidly escalating energy costs.
Manufacturing costs for TiC" are subject to technological advances and
other producers may follow DuPont in shutting down sulfate plants and
building more efficient new chloride plants. For example, SCM has said
that its expansions are likely to be in additional chloride capacity
(SCM Annual Report, 1977). There are now hundreds of patents worldwide
covering various stages of TiCL manufacture and processing of ores. As
these processes continue to improve and manufacturers apply more of them
in their plants, manufacturing cost increases are likely to be moderated.
There are difficulties with chloride technology however, and some producers
may not consider the available technologies competitive. Further research
11-22
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and development (or access to DuPont chloride-ilmenite process technology)
may aid in reducing manufacturing costs.
11.1.5 Characterization Summary
With manufacturing costs increasing and competitive pressure causing
resistance to price increases, it will be difficult for all producers to
remain profitable. One industry source has said that, except for DuPont,
all U.S. manufacturers probably operated marginally or at a loss between
1975 and mid-1978. There are several factors which will influence
profits in the long run. On the positive side:
• Titanium dioxide is unique in that its opacity far exceeds
that of substitutes
• New ores, new technologies, and perhaps widespread use of
DuPont's technology may dampen cost increases and make U.S.
TiO. more competitive
• Capacity utilization should be adequate if demand does not
falter and if some of the older plants are shut-down
However, there are several potential problems:
• Pigment demand may fall significantly if the U.S. economy
experiences another recession
• DuPontTs new plant (DeLisle) will add significantly to indus-
try capacity, other producers plan to add capacity, and there
is no guarantee that older plants will shut down
• Foreign competition will continue to threaten U.S. producers
Under these circumstances there is some uncertainty as to the future
economic condition of the industry.
On a worldwide scale, (non-Communist) demand has increased and capacity
additions have slowed. This resulted in several successful price in-
creases in 1978. Rising demand in Japan and western Europe will reduce
11-23
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their propensity to export to the U.S. Also, the U.S. dollar's decline
against other major currencies favors the U.S. pigment. Thus the U.S.
market should see a growth in volume of 3.0 to 3.5 percent per year and
prices should be adequate for most producers.
11.2 IMPACT ANALYSIS
This section analyzes the potential economic impacts of requiring the
titanium dioxide industry to comply with various effluent control stan-
dards. The technical contractor has designed effluent control tech-
nologies which can be used to achieve these standards. The cost of each
technology is used to make an assessment of the economic impacts each
specified control level will have on the industry. The EPA will consider
these impacts in its development of effluent guidelines for the industry.
Promulgation of the regulations is expected in 1980 with full industry
compliance scheduled for July 1984.
As discussed in the characterization section, titanium dioxide is pro-
duced by the sulfate, chloride, or chloride-ilmenite process. There are
currently four plants utilizing the chloride-ilmenite process. The
characteristics of wastewater from this process are similar to those of
sulfate process effluent. Therefore, the control technologies for the
two processes are similar. However, all four chloride-ilmenite plants
are achieving removal levels equivalent to proposed standards and will
incur no additional control costs. Since these chloride-ilmenite plants
will not be affected by new effluent guidelines, the remainder of this
section addresses only the impacts of various effluent control technol-
ogies on sulfate and chloride process producers in the titanium dioxide
subcategory.
The impact analyses for many of the subcategories studied in this report
assume that the first levels of effluent treatment are being achieved.
While this is true for titanium dioxide producers using the chloride
process, only one of the four sulfate plants currently has the necessary
11-24
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pollution control equipment in place and operating. Therefore, the
analysis of the sulfate-process titanium dioxide producers will address
the impacts of Level 1 removal costs as well as the costs of higher
level of removal developed by the technical contractor.
All titanium dioxide plants discharge directly to the nation's waterways.
While there is one sulfate process plant discharging part of its waste
stream to a POTW, the costs of installing pretreatment equipment are
assumed equivalent to Level 1 removal costs.
11.2.1 Pollution Control Technology and Costs
Because the chloride and sulfate processes used to manufacture titanium
dioxide are inherently different and produce dissimilar waste streams,
the technical contractor has developed pollution control costs for each
process. For both chloride and sulfate processes, costs were estimated
for technologies designed to enable dischargers to achieve two levels of
waste removal.
11.2.1.1 Sulfate Process
Two steps in the sulfate manufacturing process, filtration and washing
of the precipitated product, result in two distinct wastewater streams
of high and low acidity, respectively. The strong acid stream contains
up to 30 percent sulfuric acid, dissolved iron, and heavy metal salts.
The weak acid stream contains approximately two percent H^SO, and some
heavy metal sulfate salts. Other significant wastewater sources are
contact cooling water, scrubber waste, and waste from final product
preparation.
The first level of control involves limestone precipitation, clarifica-
tion, aeration, and settling of the wastewater stream. Level 2 removal
for the sulfate process requires a 55 percent waste recycle through the
use of soda ash treatment and settling.
11-25
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The costs of sulfate-process pollution control are presented in Table
ll-6a. The steps for both levels are summarized below:
Level 1 - Precipitation, Aeration, and Clarification
• Precipitation of heavy metals
• Aeration of effluent from precipitation step
• Settling of remaining metals
Level 2 - Soda Ash Precipitation and Recycle
• 55 percent of the wastewater receives soda ash treatment
and settling, followed by recycling
There are three sulfate process model plants, with production rates of
35,000, 52,500 and 82,000 tons per year. The plants are designed for
continuous operation, 350 days per year.
Titanium dioxide manufacturing cost estimates for sulfate process plants
are $985.60, $929.40 and $903.40 per ton for the small medium and large
model plants excluding the costs of pollution control (see Table 11-3).
Table ll-7a summarizes titanium dioxide sulfate process model plant
financial parameters.
The total annualized control costs to titanium dioxide producers by the
sulfate process are summarized in Table ll-8a. Currently only one of
the four plants has base level removal technology in place and operating.
This plant corresponds to the second model size. The additional costs
required for total subcategory compliance with Level 1 removal are
estimated as $17.7 million per year. For subcategory compliance with
Level 2 removal, additional annual costs of $2.3 million would be required,
11-26
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MODEL PLANT PARAMETERS
TABLE ll-6a: POLLUTION CONTROL COSTS
Chemical: Titanium Dioxide (Sulfate)
MODEL
PLANT
PRODUCTION
(tons/year)
35,000
52,500
82,000
FIRST LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 5,526,040
7,447,060
10,243,800
ANNUAL
OPERATING
COST
$ 3,005,185
4,300,117
6,062,694
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 502,700
632,600
766,000
ANNUAL
OPERATING
COST
$ 312,651
420,938
590,680
SOURCE: Development Document
TABLE ll-7a: MANUFACTURING COSTS
Chemical: Titanium Dioxide (Sulfate)
MODEL PLANT
PRODUCTION
ftons/year)
35,000
52,500
82,000
INVESTMENT IN
PLANT AND EQUIPMENT
$ 84,200,000
111,800,000
153,000,000
•MANUFACTURING
COSTS PER TON**
$ 985.60
929.40
903.40
Cost estimates based on plant capacities of 46,000, 69,000, and
108,000 tons per year (see Table 11-3).
To assess the impacts of removal Level 2, the per ton costs of
meeting first removal level effluent limitations were added to
these model plant manufacturing costs.
11-27
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11-28
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11.2.1.2 Chloride Process
For the chloride process, pollution control costs were estimated by the
technical contractor for two levels of removal (See Table ll-6b).
Wastewater sources from chloride process TiCL manufacturing include
condensates from the cooling process, distillation still bottoms, and
air pollution control scrubber wastes. The principal pollutants in the
raw waste are suspended solids, ferric and heavy metal chlorides, and
some TiO- from the finishing step.
Level 1 involves settling the acid waste slurry in a holding lagoon,
followed by second stage settling. Lime is added to raise the pH above
6. Calcium precipitates are removed and stored on site.
Level 2 involves the addition of lime to raise the effluent pH to 10.5,
precipitating metal hydroxides. The sludge is separated in gravity
clarifiers followed by dual media filters. The final effluent discharge
is pH adjusted to between 6 and 9. Toxic metal sludge is hauled to a
chemical landfill.
Level 3 pollution control involves further heavy metals removal as a
polishing step. Ferrous sulfide is added following the clarification
step of Level 2 to precipitate metal sulfides. These steps are sum-
marized below:
Level 1 - Alkaline Precipitation and Settling
• Effluent is precipitated with lime and settled and dis-
charged
Level 2 - Level 1 Plus Additional Precipitation and Filtration
• Lime is added to raise the pH to 10.5 for additional
precipitation
11-29
-------
• The effluent is filtered, pH adjusted, and discharged
• Toxic metal sludge is removed to a chemical landfill
Level 3 - Sulfide Precipitation
• Ferrous sulfide is used to remove additional toxic metals,
otherwise similar to Level 2
Three model chloride-process plants with annual production rates of
18,500, 28,000, and 50,000 tons have been designed.
TiO? manufacturing cost estimates for chloride process plants are $1041.20,
$962.63 and $895.84 per ton for the small, medium and large model plants,
respectively. These cost estimates used are based on the estimates
presented in Table 11-4 and include the costs of meeting the first level
of pollutant removal. Table ll-7b summarizes the model plant financial
parameters used in the analysis.
The total annualized control costs to titanium dioxide producers by the
chloride process are summarized in Table ll-8b. These costs are based
on the model plant pollution control costs and current industry produc-
tion levels. First level removal technology is in place for all plants
and no additional costs will be incurred. Subcategory compliance with
the most stringent level of control would require additional annual
costs of $2.4 million for chloride process titanium dioxide producers.
The burden of these additional costs would fall on the small plants with
their estimated control costs representing 40 percent of the total
higher level compliance costs.
11.2.2 Model Plant Analysis
This section outines the results of the model plant analysis used to
determine industry impacts. Four indicators which help define the
magnitude of the control cost impacts are presented:
11-30
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MODEL PLANT PARAMETERS
TABLE ll-6b: POLLUTION CONTROL COSTS
Chemical: Titanium Dioxide (Chloride)
MODEL
PLANT
PRODUCTION
(tons/year)
18,500
28,000
50,000
SECOND LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 619,200
707,120
939,520
ANNUAL
OPERATING
COST
$ 218,796
250,325
335,687
THIRD LEVEL
OF REMOVAL
CAPITAL
INVESTMENT
$ 636,000
726,720
969,620
ANNUAL
OPERATING
COST
$ 224,180
257,173
346,000
SOURCE: Development Document
TABLE 11-7b: MANUFACTURING COSTS
Chemical: Titanium Dioxide (Chloride)
MODEL PLANT
PRODUCTION
(tons/year)
18,500
28,000
50,000
INVESTMENT IN
PLANT AND EQUIPMENT
$ 36,500,000
48,600,000
72,900,000
MANUFACTURING
COSTS PER TON**
$ 1,041.20
962.63
895.84
* Cost estimates based on plant capacities of 24,200, 36,400, and
65,000 tons per year (see Table 11-4).
** Includes cost of meeting Level 1 effluent limitations. (SOURCE;
Development Document)
11-31
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• Price Rise - the calculation of the price increase required to
fully recover the increased pollution control costs.
• Profitability Decline - the maximum decline in profitability
that would result if no price increase were possible.
• Price Elasticity of Demand - a subjective estimate based on
information developed in the characterization section; it
suggests the degree to which the price can be raised and the
probable profitability decline.
• The Capital Ratio - the ratio of pollution control capital
costs to fixed investment in plant and equipment.
The EPA considers the price rise, profitability decline, and price
elasticity of demand useful in providing an initial indication of plant
closure probability. In this way potentially "high impact" plants can
be screened for additional analysis.
11.2.2.1 Price Rise Analysis
The price rise analysis assumes full pass-through of all pollution
control costs. Since sulfate and chloride processes require different
pollution control costs, the price rise analysis is presented separately
for each process.
11.2.2.1.1 Sulfate Process
Based upon engineering estimates of pollution control costs, the price
increases necessary to achieve the first level of control for the sulfate
process plants are 12.6 percent for the 35,000 ton per year (TPY) plant,
11.9 percent for the 52,500 TPY plant, and 10.7 percent for the 82,000
TPY plant. Using mid-1978 prices of $0.41/lb, this corresponds to a
price rise of $0.05/lb. Table ll-9a summarizes price rises for sulfate
TiCL manufacturers. Additional price increases of 1.0 to 1.3 percent
are needed to pass through Level 2 costs.
11-33
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TABLE ll-9a
PERCENTAGE PRICE RISE
Chemical: Titanium Dioxide (Sulfate)
Price: $920/ton
MODEL PLANT
PRODUCTION
FIRST LEVEL
OF REMOVAL
SECOND LEVEL
OF REMOVAL
35,000
52,500
82,000
12.6%
11.9
10.7
1.30
1.15
1.00
SOURCE: EEA Estimates
11-34
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11.2.2.1.2 Chloride Process
The price increases necessary to offset the most stringent pollution
control costs for the chloride process are 2.1 percent for the 18,500
ton per year (TPY) plant, 1.6 percent for the 28,000 TPY plant, and 1.2
percent for the 50,000 TPY plant. Using mid-1978 prices of $0,45/lb,
this corresponds to a price rise of approximately $0.007 to 0.009/lb.
Table ll-9b summarizes price rises for each model.
11.2.2.2 Profitability Analysis
The profitability analysis illustrates the decline in the return on
investment (ROI) and the internal rate of return (IRR) when no price
pass-through is assumed. Sulfate and chloride titanium dioxide production
processes are analyzed separately.
11.2.2.2.1 Sulfate Process
Application of Level 1 technology to the sulfate process model plants
reduced IRR by 4.3 to 6.0 percentage points. The ROI dropped by 4 to 5
percentage points. The additional costs to achieve Level 2 treatment
cause much smaller declines with profitability dropping no more than 1.0
percentage point (see Tables ll-10a and 10b).*
11.2.2.2.2 Chloride Process
Application of the most stringent control level to the chloride produc-
tion process reduced the IRR of the smallest plant by 1.4 percentage
points and the larger model plants by approximately one half of a per-
centage point (see Tables ll-10c and lOd).
Base case profitability is different for the two levels because
manufacturing costs used in the Level 2 profitability analysis include
the per ton cost of Level 1 pollution control.
11-35
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TABLE ll-9b
PERCENTAGE PRICE RISE
Chemical: Titanium Dioxide (Chloride)
Price: $920/ton
MODEL PLANT
PRODUCTION
ftons/veaT)
SECOND LEVEL
OF REMOVAL
THIRD LEVEL
OF REMOVAL
18,500
28,000
50,000
2.05%
1.56
1.17
2.11*
1.60
1.21
SOURCE: EEA Estimates.
11-36
-------
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-------
11.2.2.3 Price Elasticity of Demand
Titanium dioxide is an exceptional white pigment, and therefore has no
real substitute. This lack of substitutes implies that the demand for
titanium dioxide is relatively price inelastic. However, due to rigorous
competition between domestic and foreign producers for U.S. market share
U.S. prices are constrained by import prices, and demand facing the U.S.
industry is somewhat more elastic. (See Sections 11.1.1, Demand and
11.1.3, Competition, for a complete analysis.)
11.2.2.4 Capital Analysis
11.2.2.4.1 Sulfate Process
Raising capital for Level 1 pollution control investment in an amount
equivalent to approximately 7 percent of fixed capital investment poses
some problems for a corporate division which has been only marginally
profitable in recent years. All of the firms involved probably have
sufficient capital at the corporate level. The critical issue, however,
is whether sufficient price increases could be passed through to justify
the investment from a long run capital budgeting point of view. Thus,
while the capital investment hurdle probably will not prevent the instal-
lation of pollution control equipment, it may hasten plant closure due
to a deteriorated cash flow position. (See Table 11-lla.)
11.2.2.4.2 Chloride Process
The capital cost problem Levels 2 and 3 technology presents to chloride-
process producers is not as great as that for sulfate-process producers
installing BPT control technology. At most, a one time expenditure
equivalent to only 1.9 percent of initial fixed investment is needed
(see Table 11-llb).
11-41
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TABLE 11-lla
POLLUTION CONTROL CAPITAL -COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Titanium Dioxide (Sulfate)
LEVEL OF
REMOVAL
MODEL PLANT SIZE
(Annual Production in Tons)**
35,000
52,500
82,000
7.2%
0.7
7.3%
0.6
7.3%
0.5
Fixed investment is assumed to be $l,830/ton of
capacity for the small model plant, $l,620/ton
for the medium-sized plant, and $l,416/ton for the
large model plant.
76% capacity utilization.
SOURCE: EEA Estimates and Development Document
11-42
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TABLE 11-lib
POLLUTION CONTROL CAPITAL COSTS AS A
PERCENTAGE OF FIXED INVESTMENT*
Chemical: Titanium Dioxide (Chloride)
LEVEL OF
REMOVAL
2
3
MODEL PLANT SIZE
(Annual Production in Tons)**
18,500
1.8 %
1.9
28,000
1.6 %
1.6
50,000
1.4 %
1.5
* Fixed investments are assumed to be $l,508/ton, $l,335/ton, and
$l,122/ton of capacity for the three model plants from smallest
to largest.
** 77% capacity utilization.
SOURCE: EEA Estimates and Development Document
11-43
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11.2.2.5 Closure Analysis
11.2.2.5.1 Sulfate Process
Table ll-12a illustrates that for Level 1, all sulfate model plants are
likely closure candidates according to the EPA's suggested closure
criteria. Because the price of titanium dioxide is severely constrained
by import prices and by the domestic price set by the lowest cost pro-
ducers, demand facing producers in the sulfate subcategory is highly
elastic. Therefore, producers may suffer the full profitability decline.
The magnitude of this decline is likely to cause producers to consider
shutdown. Section 11.2.3.2 discusses the probability and impact of
actual plant closures in more detail.
11.2.2.5.2 Chloride Process
Table ll-12b summarizes the price elasticity of demand, price rise, and
profitability decline for chloride process TiCL model plants. According
to the EPA's closure criteria, the small model plant is a likely candidate
for closure. The potential profitability decline exceeds one percent,
as does the price increase. The price elasticity of demand is high and
will cause most or all of the increased costs to be absorbed by the
plant in decreased profits. The low baseline profitability adds to the
significance of the profitability decline for the model plant. Sec-
tion 11.2.3 discusses the implications of the model plant closure anal-
ysis for actual chloride process TiCL plants.
11.2.3 Industry Impacts
In this section, the model plant results described above are used to
determine the probable industry price rise, profitability decline, and
resultant impacts on titanium dioxide manufacturers.
11-44
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TABLE ll-12a
IMPACT SUMMARY
Chemical: Titanium Dioxide (Sulfate)
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than l\
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
1
2
PLANT
PRODUCTION
(ton/yr)
35,000
52,500
82,000
35,000
52,500
82,000
PRICE ELASTICITY
High
High
MAXIMUM
PRICE RISE
12.6%
11.9
10.7
1 . 30%
1.15
1.00
MAXIMUM
PROFITABILITY
DECLINE
6.01%
4.81
4.27
0.45%*
0.75
0.66
CLOSURES
May result in
any of the
size
categories
no
no
no
* Based on ROI
SOURCE: EEA estimates
11-4!
-------
TABLE ll-12b
IMPACT SUMMARY
Chemical: Titanium Dioxide (Chloride)
CLOSURE CRITERIA
DESCRIBED IN
METHODOLOGY SECTION
PRICE ELASTICITY
Medium or High
MAXIMUM
PRICE RISE
Greater
Than 1%
MAXIMUM
PROFITABILITY
DECLINE
Greater
Than 1%
CLOSURES
Predicted
If All
Criteria Met
MODEL PLANT RESULTS
REMOVAL
LEVEL
\
2
3
PLANT
PRODUCTION
(ton/yr)
18,500
28,000
50,000
18,500
28,000
50,000
PRICE ELASTICITY
High
High
MAXIMUM
PRICE RISE
2.05%
1.56
1.17
2.11%
1.60
1.21
MAXIMUM
PROFITABILITY
DECLINE
1.35%
0.71
0.44
1.38%
0.74
0.44
CLOSURES
Possible
among small
plants
Possible
among small
plants
SOURCE: EEA estimates.
11-46
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11.2.3.1 Price and Profitability Impacts
11.2.3.1.1 Sulfate Process
Given current conditions, it appears that the costs of the first level
of pollution control would cause sulfate-process producers significant
problems. The additional costs of Level 2 pollution control are insig-
nificant in comparison. The potential price rise needed to cover BPT
costs is very high, between 10.7 and 12.6 percent, while at the same
time two factors may constrain price increases. First is competition
from DuPont, a firm which is in a good position to avoid large price
increases, and whose market share (56 percent of TiO» production) may be
large enough to influence the pricing decisions of other producers.
Like other chloride-process producers, DuPont faces relatively low
pollution control costs. DuPont also benefits from the unique, compara-
tively low-cost chloride-ilraenite process which it holds sole rights to,
and from its capability to dispose of wastes at two of its plants through
relatively inexpensive deep-well injection.
Second, foreign TiO_ is very price-competitive and occasionally under-
sells domestic products. German TiCL manufacturers have requested
exception to the new EEC pollution control regulations, as have two of
the three British plants. French, Belgian, Italian, and Dutch plants
have not sought exception. If foreign producers did not face similar
cost increases, domestic producers would have to moderate their price
pass-through to retain their market share.
The high pollution control costs will put sulfate producers at a significant
cost disadvantage relative to imports and chloride-process manufacturing
(both of which face lower pollution control costs). Domestic sulfate
process producers may be able to completely pass through cost increases
over a period of years. They will, however, face depressed or negative
profitability during the interim time period. During 1978 some sulfate
producers went from a loss situation to one of positive profits. Although
11-47
-------
this was partially due to volume increases, a 5C price increase from 41
to 46 cents per pound was a major factor. Pollution control costs of
5C/lb (which this analysis indicates are possible) would put them back
into a loss situation.
An example of the effects of pollution control costs on competition is
illustrated by the American Cyanamid Corporation. They installed a $17
million treatment facility at their Savannah, Georgia plant in response
to the 1977 Effluent Limitations Guidelines. When these regulations
were remanded by the courts, American Cyanamid was left in the position
of having installed an expensive process and equipment, while some of
its competitors had not. In order to remain competitive, American
Cyanamid entered into a consent agreement with the State of Georgia,
under which the plant bypasses a large segment of the treatment process
and discharges directly into the surface waters following neutralization.
SCM also had a multi-million dollar pollution control system installed
in its Baltimore plant. Although successful continuous operation of the
pollution control system has not been achieved, operating costs will
represent a major expense.
The incremental costs of installing Level 2 treatment are quite small
compared to Level 1. Alone, Level 2 treatment installation and operation
would have negligible effects. However, since Level 1 costs are so
great (all four plants would experience heavy operating costs and two
would need to install new equipment), the addition of another set of
regulations would make shutdown decisions all the more likely.
11.2.3.1.2 Chloride Process
Because of market conditions, some chloride process Ti00 producers may
find it difficult to completely pass through the incremental costs of
Level 2 or 3 pollution control, requiring price increases of 1.0 to 2.0
percent. This is due to the same factors facing sulfate-process producers.
11-48
-------
First, DuPont operates the proprietary chloride-ilmenite process which
enables it to utilize cheaper ores, thus giving it a comparative advantage.
Also, at two of its major facilities, DuPont deep well injects its
wastes, giving it a further cost advantage. Thus, if DuPont resists
full price rise, then other manufacturers may be forced to,internalize
some of the costs of pollution control. Second, the fact that foreign
TiCL is very price-competitive will restrain price increases.
Internalizing part of these cost increases would result in only minor
profitability decreases. Thus, the overall impact would be very small.
11.2.3.2 Other Impacts and Conclusion
11.2.3.2.1 Sulfate Process
The model plant analysis indicates that all of the plants in the industry
will suffer profitability declines resulting in shutdowns. However,
there are factors which make it unlikely that all plants will actually
decide to cease production due to pollution control costs. For example,
the producer corresponding to the medium model plant has Level 1 equipment
in place and operating. Further, the plant has arranged to sell the
waste generated by the treatment systems to a cement manufacturer; the
sale of the waste material is expected to defray the plant's waste
treatment operating costs by approximately 20 percent. Given this
plant's relatively good position regarding its waste treatment system
and costs, shutdown is not anticipated.
Of the three remaining plants, two correspond to the small model plant
(model plant annual production: 35,000 short tons) and one to the large
model plant (82,000 tons). While plant closures as a result of pollution
control costs are difficult to predict with certainty, two impact scenarios
are presented:
11-49
-------
Scenario 1: Three Plant Closures. There is a remote possibility that
none of the three plants currently not operating control equipment will
opt to incur the large expenditure required to continue production. If
this were to occur, TiO sulfate capacity in the U.S. would be reduced
by 73 percent; total TiCL capacity would drop by about 20 percent.
Given the industry's current overcapacity, replacement of the lost
production should not pose a problem. However, the reduced supply might
bolster prices, especially for the anatase grade pigment produced by the
sulfate process. If all of the lost production were replaced entirely
by imports, the value of TiO- imports would increase from approximately
$90.9 million 1978 to $219.9 million (assuming 75 percent capacity
utilization and an import price of $0.50/lb).
The closure of three sulfate process plants would affect approximately
1200 employees. Since the plants are located in densely populated,
highly industrialized areas where the chemical processing industry is a
large employer, relocation of displaced employees should be accelerated.
However, in two of the affected areas, the unemployment rates are higher
than the statewide average. Unemployed workers in these areas may have
more difficulty finding work in the local chemical processing industry.
(See Table 11-13 which describes salient labor statistics for the areas
where plants are located.)
Scenario 2; One or two plant shutdowns. It is unlikely that all three
plants will choose to shut down. The following information must be
considered in assessing the possibility of plant shutdown:
• One plant has already made a partial investment in waste
treatment facilities. Despite the additional expenditures
needed to achieve Level 1 removal, company spokesmen have
publicly announced that they plan to continue production and
foresee a long term market for the anatase grade produced by
the sulfate process (Chemical Marketing Reporter, December 24,
1979).
11-50
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TABLE 11-13
LABOR STATISTICS FOR AFFECTED AREAS
Total
Employed
I/
AREA 1
County-
Statewide
AREA 2
County
Statewide
AREA 3
County
Statewide
21
3/
Average
Weekly
Earnings
Hourly
Rate
Unemployment
Rate
316,700
2,906,100
261,300
2,906,100
166,400
247,800
$263.33
269.57
$280.67
269.57
$309.87
291.27
$6.33
6.48
$6.93
6.48
$7.67
7.30
8.8%
7.5
5.9%
7.5
6.1%
5.S
I/ January 1979 preliminary.
2/ January 1979 preliminary.
3/ October 1979 final for manufacturing.
SOURCE: Department of Commerce
11-51
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Another plant is currently ocean dumping at a cost signifi-
cantly below the cost of physical/chemical wastewater treatment.
Since they have not yet made any of the required investment,
they may decide to cease production in the face of the pollu-
tion control costs. However, if the plant is allowed to
continue ocean barging and required to install a system to
pretreat the part of its waste stream currently being dis-
charged to a POTW, the plant's wastewater treatment and dis-
posal costs would be 20-25 percent of the costs of a treatment
facility capable of Level 1 removal. In this case, it seems
unlikely that the plant would choose to close, especially
given a 5-7 percent cost advantage over plants with Level 1
removal facilities.
Thus, it is likely that at least one or two of the three plants will
continue production. Sulfate process capacity would decline by between
16 and 53 percent and total TiCL would decline by between 4 and 14
percent, depending upon which plants closed. Similarly, between 300 and
725 employees would be affected.
As in scenario one, the lost production would be replaced by some combi-
nation of increased domestic TiO~ manufacture and increased import
penetration.
11.2.3.2.2 Chloride Process
All chloride process plants have Level 1 treatment equipment in place.
The model plant analysis indicates a relatively low baseline profitabil-
ity for the smallest plant. Therefore, the profitability decline of
1.4 percent resulting from higher effluent removal levels may actually
be quite burdensome, especially in the short run. However, actual
behavior by the smaller chloride process plants indicates that the
models are probably understating plant profitability. For example, one
small chloride process plant has just made a major capital outlay to
improve its facilities, demonstrating that the long term profitability
outlook is probably strong enough to justify the incremental pollution
control investment of the magnitude required to meet removal levels two
and three.
11-52
-------
Because profitability of chloride process TiCL manufacturing seems
sufficient to justify pollution control investment, no immediate or
accelerated plant shutdown is expected to result from the new effluent
guidelines.
11-53
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APPENDIX A
EXPLANATION OF THE PRICE RISE CALCULATIONS
This appendix explains how the price increase necessary to fully pass
through pollution control costs was calculated.
To express the costs of pollution control in terms of a cost per product
unit requires the allocation of the fixed capital investment over the
production of the plant. This is accomplished through the use of a
capital recovery factor which annualizes the capital costs. The annual
capital costs are added to the yearly operating costs yielding the total
annual costs of pollution control. This figure is divided by plant pro-
duction to calculate the pollution control costs per unit. The price of
the product must be increased by the pollution control costs per unit to
enable the producer to avoid any loss in revenue.
The capital recovery factor was developed from the following framework:
• Assumptions
Capital is composed of 65 percent equity - 35 percent
long-term debt;
Required return on equity is 15 percent after tax;
Interest rate on debt is 9 percent before tax;
- Marginal income tax rate is 50 percent (48 percent Federal,
2 percent state);
Depreciation and physical life is 15 years/straight line
depreciation; and
Construction period 0 years - no interest during construc-
tion.
Apx-1
-------
• After Tax Cost of Capital
65 percent equity x 15 percent cost of
equity = 9.75 percent
35 percent debt x 5 percent after tax
cost of debt = 1.58 percent
Weighted Cost of Capital = 11.33 percent
• Value of Depreciation Expenses = .067 x Capital Cost
Depreciation = 15 years straight line;
• Capital Recovery Factor: Cashflow Basis
- At an 11.3 percent cost of capital a firm must recover $14.10
per year for 15 years on an initial capital investment of $100,
$100 = $X for 15 years @ 11.3%
$14.10 = X
In the case of a 15 year investment, the cashflow stream with an 11.3
percent cost of capital is .141. In other words, every dollar of
investment in year zero requires a cashflow of 14.1C per year to yield
an after-tax return on capital of 11.3 percent. Another way of stating
this is that the present value of 14.1C/year cashflow stream for 15
years is $1.00.
Assume: no operating costs (handled separately)
(R - OC ° - D) (1 - t) = NIAT
(R - OC ° - D) (1 - t) + D = CF
(R - OC ° - D) (.5) + D = CF
which yields: -5R - .5D + D = CF after tax
.5R = CF - .5D
R = 2CF - D
or the revenue stream is equal to two times the cashflow stream minus
the depreciation stream.
Key: R = Revenues D = Depreciation
OC = Operating Costs CF = Cashflow
T = Tax NIAT = Net Income After Tax
Apx-2
-------
• Capital Recovery Factor: Revenue Basis
Using the equation above (R = 2CF -D), we now have the annualized cashflow
and depreciation for the 15 year investment and can solve for the revenue
requirement for this $1.00 investment:
R = 2(,141) - .067 = .215
Every dollar of capital investment requires an annual revenue of 21.5C
or 21.5 percent of the invested amount in order to leave the firm equally
well off. The increased revenues are great enough to pay for the pollu-
tion control equipment (capital costs) and the increased taxes due to
the increased revenues.
Apx-3
-------
APPENDIX B
DERIVATION OF THE IRE, ROI, AND NPV EQUATIONS
The cash flows in the IRR and NPV calculations are discounted to reflect
the fact that a dollar received in the future is less valuable than one
received today. The present value of a cash flow over n time periods
is:
CF1 CF2 CFn
NPV = (ITdXITd)2 + . . .(Ft)n Equation 1
The cash flow (CF) for each period is the total revenue minus total costs
for that period and can be negative or positive. The cash flows are
also affected by the inflation rate. The inflation rates are assumed
constant throughout the life of the plant, capital costs, operating
costs, and chemical product prices are all assumed to inflate at 6%
annually. The discount factor (d) is usually taken to be the cost of
capital and reflects the opportunity cost between receiving a dollar in
the present and receiving a dollar one time period in the future. In
calculating the net present value the cash flows and discount rates are
known and the present value is calculated from equation 1. To calculate
the internal rate of return the net present value (NPV) is set equal to
zero and equation 1 is solved yielding a value for d. The IRR is the
return that results in a net present value of zero.
Return on Investment (ROI) is the ratio of total investment to cash flow
in a given year. The equations and assumptions used to derive IRR, NPV,
and ROI are presented in Table B-l.
I/ If the cash flows are not well behaved, it is possible to have two
values of "d" that satisfy the equation. See J.F. Weston and E.F.
Brigham; Managerial Finance, fifth ed.; Drydin Press; Hinedale,
Illinois, 1975, (p. 296).
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TABLE B-l
IRR, NPV, AND ROI EQUATIONS
(1) Tax Rate and Credits
TR = .49
ITC,. = .08 x FI (where the investment tax credit for fixed
investment in plant and equipment is 8%,
taken in the third year)
ITCpc = .1 x PCI (where the investment tax credit for pollu-
tion control equipment is 10%, taken the
year after the investment is made)
(2) Taxable Income
TIt = REVt - OP - DEPt
(3) Depreciation
10 year straight line for fixed investment
5 year straight line for pollution control investment
(4) Tax Liability
TL = TR x TI
(5) Cash Flow
CF = (TI - TL)t + DEPt
(6) Internal Rate of Return
26 t
0 = I CF 1
t=o 1 + d
(7) Net Present Value
26 t
NPV = I CFt 1
t=o 1+.113
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TABLE B-l (Continued)
IRR, NPV, AND ROI EQUATIONS
(8) Return on Investment
ROI = CF T Total Investment (for this analysis cash flow was
always calculated for the fourth
year; i.e. t=4)
(9) Inflation Rate
Prices, operating costs, and capital costs increase at the rate of
6 percent annually.
Variable Names
TR = Marginal Federal income tax rate
ITCpc= Investment tax credit for pollution control equipment
ITC,. = Investment tax credit for fixed plant and equipment
TTP
llutotal = ITCpc + ITCf
FI = Fixed investment
PCI = Pollution control investment
TI = Taxable income
REV = Revenues
OP = Operating Costs
DEP = Depreciation
TL = Tax liability
CF = Cash flow
d = Discount factor
t = Time period
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APPENDIX C
THE MANUFACTURING COST ESTIMATES: SOURCES, USES, AND LIMITATIONS
The manufacturing cost tables presented in the characterization section
for each subcategory are process engineering estimates. These costs are
not necessarily based on the cost experience of an actual plant in the
industry. In fact, costs may be under- or overstated for several reasons.
For example, the raw materials variable costs assume that materials and
power are purchased at published list price. For a given plant, material
prices may actually be lower due to the existence of long term contracts
or captive supply sources. Materials and utility costs vary geographically:
chemicals are generally more expensive in the West; natural gas is often
less expensive on the Gulf Coast; electricity rates vary widely depending
on the local utilities' fuel mix.
The semi-variable and fixed cost estimates were calculated using accepted
process-economic algorithms to allocate overhead expenses. Labor costs
include operating labor and labor overhead. Operating labor cost esti-
mates were based on labor requirements and an average wage. Labor over-
head was taken as a percentage of labor costs ranging from 40 to 60
percent, depending on the process. Maintenance and plant overhead were
estimated as a portion of either fixed investment or labor costs depend-
ing upon the process. Depreciation was calculated as 10 percent of
fixed investment. Since the fixed investment estimate is in 1978 dollars,
and therefore represents the replacement cost for the plant, these
overhead costs probably overstate the manufacturing costs for plants
built before the rapid capital inflation of the early 1970's. Taxes and
insurance were calculated as 1.5 or two percent of fixed investment.
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While the uncertainty inherent in the engineering cost estimates is
substantial, they are highly useful in this analysis for a number of
reasons. First, variable costs estimates can indicate which chemical
processes are presently vulnerable to rising energy costs or shortages
of key materials which will tend to rapidly inflate the manufacturing
costs. Second, while the semi-variable and fixed costs estimates are
subject to a wide margin of error, they still provide an indication of
scale economies. This facilitates the analysis of differential impacts
within subcategories.
The cost estimates were used to calculate model plant profitability.
However, impacts were evaluated not on the basis of the absolute levels
of profitability, but rather according to the decline in profitability
which resulted from the pollution control costs. Since the magnitude of
profitability decline does not vary with the absolute profitability
level (see Appendix D), the manufacturing costs as estimated serve the
purpose of the analysis.
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APPENDIX D
SENSITIVITY OF THE PROFITABILITY ANALYSIS TO THE FINANCIAL DATA
1. INTRODUCTION
One of the tools employed to measure the economic impact of pollution
control costs on the model plants is the discounted cash flow (DCF)
analysis. The internal rate of return (IRR) is computed for each model
plant before and after pollution control costs are incurred. The resulting
model plant profitability decline is analyzed (along with other measures
developed for the model and industry specific information) to determine:
• Differential impacts among plants in a subcategory
• Probability of plant closures
• Effects on industry structure and growth
Since the model plant financial parameters used to compute the profita-
bility decline are subject to a high degree of uncertainty, it is neces-
sary to examine the sensitivity of the profitability analysis to the
data.
2. HOW THE PROFITABILITY ANALYSIS IS USED
The profitability analysis is designed as a simulation model. The
financial parameters are estimated as accurately as possible in order to
generate an internal rate of return that reflects the actual industry
profitability. As in any simulation model, the results are subject to
the judgement of the modelers. Therefore, if the model financial para-
meters initially yield profitability figures which do not accurately
reflect the baseline profitability levels in the subcategory, profit
margins are adjusted. The adjustment is justified because the baseline
profitability is considered the starting point of the analysis; an
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estimate of the baseline profitability is developed independently of the
DCF analysis by intensive analysis of the subcategory and interaction
with the industry. One of three broad conclusions is initially drawn
from the modeled profitability decline:
• If the profitability decline is very small (less than one
percentage point), the pollution control costs are assumed to
be insubstantial;
• If the profitability decline is moderate (one to three percent-
age points), the costs are assumed substantial enough to
impact the industry. Shutdown, however, cannot be predicted
without further analysis;
• If the profitability decline is large (greater than three
percent), the costs are assumed capable of causing shutdowns
as well as the secondary impacts associated with these.
Implicit is the assumption that the magnitude of the profitability
change is not determined by the absolute magnitude of the baseline pro-
fitability: small profitability declines remain small and large profit-
ability declines remain large over the relevant profitability range. If
this assumption is weak, two types of errors are possible:
• High impacts may be understated by small profitability
declines;
• Low impacts may be overstated by large profitability declines.
Therefore, it is imperative to determine whether the profitability
decline is dependent upon the absolute level of profitability, and if
so, to what extent. If the decline is largely determined by the base-
line profitability, then the profitability analysis is of only limited
value. However, if the results of the sensitivity analysis indicate
that profitability decline is unaffected by the baseline profitability,
then the profitability analysis can be considered a useful analytical
tool.
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3. RESULTS OF THE SENSITIVITY ANALYSIS
The internal rate of return is solved recursively. Therefore, the
sensitivity of the profitability decline to the absolute profitability
cannot be analytically determined without difficulty. Instead, the com-
puter model was used to generate IRR's over a distribution of profit
margins.
IRR's were computed both without pollution control costs (the baseline
profitability) and with costs. The profitability decline was calculated
and plotted as a function of baseline IRR. The results for two represen-
tative cases are presented in Graphs D-l and D-2.
Graph D-l shows how the profitability decline changes with baseline IRR
for one chrome pigments model plant. In this case, the control costs
are substantial (pollution control capital costs of $2.4 million are
approximately one-third the capital cost of the manufacturing facility;
total annualized costs are 5.3 percent of the selling price of the
product). This is reflected in the large profitability decline of about
10 percent. The decline ranges from a low of 10.0 percentage points to
a high of 11.5 points as the baseline profitability varies from 20 to 55
percent.
The second set of profitability declines is for the sodium hydrosulfite
model plant. The pollution control costs are relatively small (capital
costs are 1.49 percent of investment in fixed plant and equipment; total
annualized costs are 1.4 percent of product price) and this is reflected
in the small profitability decline. The decline ranges from .5 to 1.3
as baseline profitability varies from two to 35 percent. (See Graph
D-2.)
In both cases, the range of the profitability decline is small (1-2
percentage points), implying that large profitability declines remain
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large and small declines remain small. Thus, we may assume that the
analysis will lead to correct conclusions in most cases.
4. FURTHER DISCUSSION
There are two facts made clear by the graphs that are of interest:
• At the lower end of the baseline profitability scale, the
change in profitability begins to increase, apparently asymp-
totically;
• At the upper end of the baseline profitability scale, the
profitability decline increases in one case and decreases in
the other.
The asymptotic increase in the profitability decline at the low end of
the scale is due to a simplifying assumption of the model. In periods
when the before-tax profits are less than or equal to zero, the tax lia-
bility is also zero. In actuality, firms are allowed carry-forward of
losses to offset their tax liability in subsequent profitable years.
Thus, as the profit margins become negative after the imposition of
pollution control costs, the cash flows decline more quickly. This is
illustrated by the simplified example presented in Table D-l. Due to
the tax assumption, the change in the cash flow when the tax liability
becomes zero goes from .5 to 1.0. This extra decline in net present
value causes the profitability after pollution control costs to begin
its increased decline before the baseline profitability does. The
result is the rapid change in the profitability decline at the lower
baseline profitabilities.
The implication of this upturn is that in cases where the baseline
profitability is estimated as low, the profitability decline is being
overstated. However, for high impact plants (Graph D-l), the overstate-
ment does not appear to become significant until baseline profitability
is in the five to 10 percent range. At that point, however, the after-
pollution control cost IRR drops below zero and it is sufficient to
assume heavy impacts and pursue further analysis.
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GRAPH D-l
PROF1TABILJTY DECLINE V. BASELINE PROFITABILITY
LARGE CHROME PIGMENTS MODEL PLANT
13.0
12.0-
n.o-
10.0
9.0-
8.0-
DECLINE
IN 7-°
PROFITABILITY
(IRR) 60
(IN % POINTS)
5.0-
4.0-
3.0
2.0
1.0
0 5 10 15 20 25 30 35 40 45 50 55 60
BASELINE PROFITABILITY (*»)
(IRR)
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DECLINE IN
PROFITABILITY
(IRR)
GRAPH D-2
PROFITABILITY DECLINE V. BASELINE PROFITABILITY
SODIUM HYDROSULF1TE MODEL PLANT
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
O.S
0.5
0.4
0.3
0.2
0.1
0.0
10
15
20
25
30
35
BASELINE PROFITABILITY (%)
(IRR)
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TABLE D-l
EFFECT OF SIMPLIFYING TAX ASSUMPTION ON CASH FLOW STREAM
Period
Revenues
Operating Costs
Depreciation
Tax*
Cash Flow** 3 2.5
CASH FLOW .5 .5
1
12
8
2
1
2
11
8
2
.5
3
10
8
2
0
4
9
8
2
0
5
8
8
2
0
* Tax rate of 50 percent is assumed for simplification.
** Cash flow (in periods with no interest) is equal to
Revenues - (costs + depreciation) (1-tax rate)
except when costs plus depreciation exceeds revenues, in
which case the tax rate is zero.
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For the light impact case, the profitability decline also begins to
decline rapidly at five to 10 percent. In such cases, the plants are
marginally profitable to begin with and while the profitability decline
may be small, it may be the extra cost burden needed to encourage plant
closures. In these cases, if the after control cost IRR is still positive
and the decline is small, concluding that the impact is slight may not
be incorrect especially in light of the fact that the profitability
decline is probably being overstated.
The second point is that in the "normal" profitability range (that is,
when profit margins are significantly greater than zero), the profita-
bility decline gradually rises or falls. To put it another way, the
before control cost and after control cost IRR's either gradually con-
verge or diverge. However, this divergence or convergence cannot be
analytically predicted: it is case specific and is determined by the
configuration of cash flows over the modeled life of the plant. The
change in the profitability decline is so slight in this range that it
does not affect the analysis.
5. SENSITIVITY OF THE PROFITABILITY DECLINE TO THE CAPITAL COST ESTIMATE
A secondary issue is how the profitability decline responds to changes
in the estimate of fixed investment in plant and equipment. As capital
costs increase, the effect of the reduction in cash flows in later per-
iods is less pronounced. This is analytically and intuitively plasible,
and is demonstrated in Graph D-3. The scale along the abscissa is the
multiplier applied to the best estimate of investment in plant and
equipment. Thus, when the best estimate is used, the profitability
decline is about five-tenths of a percentage point. When the capital
cost is doubled, the decline drops to about three-tenths of a point;
when the cost is halved, the decline increases to about one percentage
point. This variation is relatively small. Further, the capital is
probably within 25 percent of the true value. This is a small dif-
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ference, especially considering that the actual figure is probably
within 50 percent of the estimate.
6. SUMMARY AND CONCLUSION
The sensitivity analysis reasonably demonstrates that the profitability
declines do not vary with profit margins or capital investment costs to
a significant degree. In cases of small profitability decline, we can
be confident that impacts on plants will be small, with the understanding
that plants that are known to be marginal to begin with may have great
difficulty with addition of costs of any magnitude. Analysis beyond the
scope of the model is required for subcategories with marginal profitability.
In those cases where the profitability decline is large, additional
research is always warranted. Particular attention should be paid to
determine current profitability levels through market research and
interaction with the industry (e.g., surveys).
•D.S. GOVERNMENT PRINTING OFFICE : I960 0-321-1(90/6296
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